-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OSm+TtPUq57Erev1enqoLohU2RdbAChIZhlWuf1rObEckC8Tx9mOB0YdsrIda08s p/zwQ9Mx+GqG3Xa42MxJVg== 0000950123-03-009385.txt : 20030813 0000950123-03-009385.hdr.sgml : 20030813 20030813163728 ACCESSION NUMBER: 0000950123-03-009385 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 53 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLEGHANY CORP /DE CENTRAL INDEX KEY: 0000775368 STANDARD INDUSTRIAL CLASSIFICATION: TITLE INSURANCE [6361] IRS NUMBER: 510283071 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09371 FILM NUMBER: 03841906 BUSINESS ADDRESS: STREET 1: 375 PARK AVENUE STREET 2: SUITE 3201 CITY: NEW YORK STATE: NY ZIP: 10152 BUSINESS PHONE: 2127521356 MAIL ADDRESS: STREET 1: 375 PARK AVENUE STREET 2: SUITE 3201 CITY: NEW YORK STATE: NY ZIP: 10152 FORMER COMPANY: FORMER CONFORMED NAME: ALLEGHANY FINANCIAL CORP DATE OF NAME CHANGE: 19870115 10-Q 1 y88779e10vq.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED JUNE 30, 2003 COMMISSION FILE NUMBER 1-9371 ALLEGHANY CORPORATION EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER DELAWARE STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION 51-0283071 INTERNAL REVENUE SERVICE EMPLOYER IDENTIFICATION NUMBER 375 PARK AVENUE, NEW YORK NY 10152 ADDRESS OF PRINCIPAL EXECUTIVE OFFICE, INCLUDING ZIP CODE 212-752-1356 REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE NOT APPLICABLE FORMER NAME, FORMER ADDRESS, AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE, AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT). YES X NO INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON STOCK, AS OF THE LAST PRACTICABLE DATE. 7,459,059 SHARES AS OF JULY 31, 2003 ITEM 1. FINANCIAL STATEMENTS ALLEGHANY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS FOR THE THREE MONTHS ENDED JUNE 30, 2003 AND 2002 (dollars in thousands, except share and per share amounts) (unaudited)
2003 2002 REVENUES Net fastener sales $ 27,292 $ 28,953 Interest, dividend and other income 13,111 10,990 Net insurance premiums earned 33,525 30,647 Net mineral and filtration sales 68,860 66,829 Net gain on investment transactions 1,578 4,354 ---------- ---------- Total revenues 144,366 141,773 ---------- ---------- COSTS AND EXPENSES Commissions and brokerage expenses 9,370 6,063 Salaries, administrative and other operating expenses 25,529 22,929 Loss and loss adjustment expenses 19,815 24,340 Cost of goods sold - fasteners 20,809 22,002 Cost of mineral and filtration sales 52,201 48,122 Interest expense 1,468 1,623 Corporate administration 6,483 3,251 ---------- ---------- Total costs and expenses 135,675 128,330 ---------- ---------- Earnings before income taxes 8,691 13,443 Income taxes 2,695 4,547 ---------- ---------- Net earnings $5,996 $8,896 ========== ========== Basic earnings per share of common stock ** $0.81 $1.19 ========== ========== Diluted earnings per share of common stock ** $0.80 $1.09 ========== ========== Dividends per share of common stock * * ========== ========== Average number of outstanding shares of common stock ** 7,433,436 7,479,050 ========== ==========
* In March 2003, Alleghany declared a dividend consisting of one share of Alleghany common stock for every fifty shares outstanding. ** Adjusted to reflect the common stock dividend declared in March 2003. ALLEGHANY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (dollars in thousands, except share and per share amounts) (unaudited)
2003 2002 REVENUES Net fastener sales $ 55,245 $ 56,885 Interest, dividend and other income 25,091 19,977 Net insurance premiums earned 66,940 59,670 Net mineral and filtration sales 130,908 124,292 Net gain on investment transactions 4,842 38,947 ---------- ---------- Total revenues 283,026 299,771 ---------- ---------- COSTS AND EXPENSES Commissions and brokerage expenses 16,425 11,556 Salaries, administrative and other operating expenses 49,442 44,515 Loss and loss adjustment expenses 39,668 43,227 Cost of goods sold - fasteners 41,568 43,087 Cost of mineral and filtration sales 100,121 92,382 Interest expense 2,746 3,296 Corporate administration 12,783 9,014 ---------- ---------- Total costs and expenses 262,753 247,077 ---------- ---------- Earnings before income taxes 20,273 52,694 Income taxes 6,553 17,990 ---------- ---------- Net earnings $ 13,720 $ 34,704 ========== ========== Basic earnings per share of common stock ** $ 1.85 $ 4.64 ========== ========== Diluted earnings per share of common stock ** $ 1.84 $ 4.53 ========== ========== Dividends per share of common stock * * ========== ========== Average number of outstanding shares of common stock ** 7,423,296 7,484,571 ========== ==========
* In March 2003, Alleghany declared a dividend consisting of one share of Alleghany common stock for every fifty shares outstanding. ** Adjusted to reflect the common stock dividend declared in March 2003. ALLEGHANY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 2003 AND DECEMBER 31, 2002 (dollars in thousands, except share and per share amounts)
(UNAUDITED) JUNE 30, DECEMBER 31, 2003 2002 ----------- ------------ ASSETS Available for sale securities: 6/30/2003 12/31/2002 --------- ---------- Equity securities (cost $410,359 $239,669 ) $ 707,066 $ 486,353 Debt securities (cost $383,794 $570,973 ) 392,935 580,606 Short-term investments 201,487 237,698 ---------- ---------- 1,301,488 1,304,657 Cash 114,641 27,423 Notes receivable 92,575 92,358 Accounts receivable 101,350 85,710 Reinsurance receivable 155,157 147,479 Deferred acquisition costs 24,840 22,547 Property and equipment - at cost, less accumulated depreciation and amortization 171,471 173,539 Inventory 90,468 81,978 Goodwill and other intangibles, net of amortization 106,391 112,858 Other assets 105,693 85,833 ---------- ---------- $2,264,074 $2,134,382 ========== ========== LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Current taxes payable $25,987 $28,372 Losses and loss adjustment expenses 270,857 258,471 Other liabilities 144,946 147,411 Unearned premiums 84,431 64,115 Subsidiaries' debt 171,046 152,507 Net deferred tax liability 126,887 104,164 ---------- ---------- Total liabilities 824,154 755,040 Common stockholders' equity 1,439,920 1,379,342 ---------- ---------- $2,264,074 $2,134,382 ========== ========== Shares of common stock outstanding 7,458,192 7,409,282* ========== ==========
* Adjusted to reflect the common stock dividend declared in March 2003. ALLEGHANY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (dollars in thousands) (unaudited)
2003 2002 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 13,720 $ 34,704 Adjustments to reconcile net earnings to cash provided by (used in) operations: Depreciation and amortization 10,013 10,065 Net gain on investment transactions (4,842) (38,947) Tax benefit on stock options exercised 3,085 1,176 Other charges, net 26,161 9,997 Increase in account receivable (15,640) (37,049) Increase in deferred acquisition costs (2,293) (4,833) (Increase) decrease in other assets including goodwill (21,883) 29,430 Decrease in other liabilities and income taxes payable (4,849) (44,493) Increase in unearned premium reserve 20,316 7,838 Increase (decrease) in losses and loss adjustment expenses 12,386 (20,542) (Increase) decrease in reinsurance receivable (7,678) 26,357 --------- --------- Net adjustments 14,776 (61,001) --------- --------- Cash provided by (used in) operations 28,496 (26,297) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investments (243,659) (561,331) Sales of investments 268,296 325,661 Purchases of property and equipment (5,505) (5,579) Net change in short-term investments 36,211 544,167 Other, net 4,173 (16,489) Acquisition of insurance companies, net of cash acquired (19,675) (221,056) --------- --------- Net cash provided by investing activities 39,841 65,373 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on debt (48,926) (90,641) Proceeds of debt 67,465 82,316 Treasury stock acquisitions 0 (18,360) Other, net 342 4,168 --------- --------- Net cash provided by (used in) financing activities 18,881 (22,517) --------- --------- Net increase in cash 87,218 16,559 Cash at beginning of period 27,423 15,717 --------- --------- Cash at end of period $ 114,641 $ 32,276 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 2,163 $ 2,876 Income taxes $ 6,330 $ 48,873
Notes to the Consolidated Financial Statements This report should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2002 (the "2002 Form 10-K") and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 (the "2003 First Quarter Form 10-Q") of Alleghany Corporation (the "Company"). The information included in this report is unaudited but reflects all adjustments which, in the opinion of management, are necessary to a fair statement of the results of the interim periods covered thereby. All adjustments are of a normal and recurring nature except as described herein. Stock-Based Compensation Accounting The Company sponsors fixed option plans and a performance-based stock plan, where awards are granted to eligible employees of the Company in the form of non-qualified stock options or other stock-based awards. Prior to 2003, the Company accounted for those plans under the recognition and measurement provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees." No compensation cost for the Company's fixed option plans is reflected in three and six months ended June 30, 2002 net income, as all options granted under the plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2003, the Company adopted the fair value recognition provisions of FAS Statement No. 123, "Accounting for Stock-Based Compensation," prospectively to all employee awards granted after January 1, 2003. Therefore, the costs related to the Company's fixed option plans and performance-based stock plan included in the determination of net income for the three and six months ended June 30, 2003 is less than that which would have been recognized if the fair value based method had been applied to all awards prior to January 1, 2003. The following table illustrates the effect on net earnings and earnings per share if the fair value based method had been applied to all outstanding and unvested awards under all of the Company plans in each period. 6
For the three months ended For the six months ended (in thousands, except June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002 per share amounts) ---------- ---------- ---------- ---------- Net earnings, as reported $ 5,996 $ 8,896 $ 13,720 $ 34,704 Add: stock-based employee compensation expense included in reported net earnings, net of related tax 755 (1,256) 1,337 (744) Less: stock-based compensation expense determined under fair value method for all stock options, net of related tax 1,330 462 2,255 923 ---------- ---------- ---------- ---------- Pro forma net earnings $ 5,421 $ 7,178 $ 12,802 $ 33,037 ========== ========== ========== ========== Earnings per share Basic - as reported $ 0.81 $ 1.19 $ 1.85 $ 4.64 Basic - pro forma $ 0.73 $ 0.96 $ 1.73 $ 4.41 Diluted - as reported $ 0.80 $ 1.09 $ 1.84 $ 4.53 Diluted - pro forma $ 0.72 $ 0.95 $ 1.72 $ 4.36
Change in Accounting In April 2003, the FASB issued FAS Statement No. 149 "Amendment to Statement No. 133 on Derivative Instruments and Hedging Activities." This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FAS Statement No. 133 Accounting for Derivative Instruments and Hedging Activities. The changes in FAS Statement No. 149 improve financial reporting by requiring that contracts with comparable characteristics be accounted for similarly. Those changes will result in more 7 consistent reporting of contracts as either derivatives or hybrid instruments. FAS Statement No.149 is effective for contracts entered into or modified after June 30, 2003, except in certain instances detailed in the Statement, and hedging relationships designated after June 30, 2003. Except as otherwise stated in FAS Statement No. 149, all provisions should be applied prospectively. FAS Statement No. 149 will not have an impact on the Company. In May 2003, the FASB issued FAS Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." FAS Statement No. 150 establishes standards for the classification and measurement of certain financial instruments that have both liability and equity characteristics. It requires that an issuer classify a financial instrument that is within the scope of the Statement as a liability (or as an asset in some circumstances). Many of those instruments were previously classified as equity. FAS Statement No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period commencing after June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic entities. FAS Statement No. 150 will not have an impact on the Company. FASB interpretation No. 46 "Consolidation of Variable Interest Entities" ("FIN 46") provides accounting and disclosure rules for variable interest entities. A variable interest entity is an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Variable interest entities are often created for a single specific purpose, for example, to facilitate asset securitization. FIN 46 became effective in the first quarter of 2003 for variable interest entities created, or in which an enterprise obtains an interest, after January 31, 2003. It became effective July 1, 2003 for variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. FIN 46 requires variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risk among the parties involved. FIN 46 requires disclosures for entities that have either a primary or significant variable interest in a variable interest entity. FIN 46 will not have an impact on the Company. Comprehensive Income The Company's total comprehensive income for the three months ended June 30, 2003 and 2002 was $59.0 million and $11.7 million, and $57.1 million and $31.7 million for the six months ended June 30, 2003 and 2002. Comprehensive income includes the Company's net earnings adjusted for changes in unrealized appreciation (depreciation) of investments, which were $47.1 million and $0.1 million for the three months ended June 30, 2003 and 2002, and $37.3 million and $(5.5) million for the six months ended June 30, 2003 and 2002, and cumulative translation adjustments, which were $5.9 million and 8 $2.6 million for the three months ended June 30, 2003 and 2002, and $6.1 million and $2.4 million, for the six months ended June 30, 2003 and 2002. Segment Information Information concerning the Company's operations by industry segment is summarized below:
For the three months ended For the six months ended June 30, June 30, June 30, June 30, (dollars in millions) 2003 2002 2003 2002 -------- -------- -------- -------- REVENUES Property and casualty insurance $ 38.3 $ 33.2 $ 77.0 $ 63.9 Mining and filtration 69.0 66.9 131.1 123.8 Industrial fasteners 27.3 29.0 55.3 56.9 Corporate activities 9.8 12.7 19.6 55.2 -------- -------- -------- -------- Total $ 144.4 $ 141.8 $ 283.0 $ 299.8 ======== ======== ======== ======== EARNINGS (LOSSES) BEFORE INCOME TAXES Property and casualty insurance $ 2.7 $ (2.2) $ 7.6 $ (0.9) Mining and filtration 6.5 7.7 11.4 10.7 Industrial fasteners (1.8) 0.6 (1.7) 1.1 Corporate activities 1.3 7.3 3.0 41.8 -------- -------- -------- -------- Total 8.7 13.4 20.3 52.7 Income taxes 2.7 4.5 6.6 18.0 -------- -------- -------- -------- Net earnings $ 6.0 $ 8.9 $ 13.7 $ 34.7 ======== ======== ======== ========
June 30, December 31, (dollars in millions) 2003 2002 -------- ------------ IDENTIFIABLE ASSETS Property and casualty insurance $1,306.8 $ 666.8 Mining and filtration 316.3 320.9 Industrial fasteners 89.9 78.7 Corporate activities 551.1 1,068.0 -------- -------- Total $2,264.1 $2,134.4 ======== ========
9 Contingencies The Company's subsidiaries are parties to pending claims and litigation in the ordinary course of their businesses. Each such operating unit makes provisions on its books in accordance with generally accepted accounting principles for estimated losses to be incurred as a result of such claims and litigation, including related legal costs. In the opinion of management, such provisions are adequate as of June 30, 2003. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. The following discussion and analysis presents a review of the Company and its subsidiaries for the three and six months ended June 30, 2003 and 2002, respectively. This review should be read in conjunction with the consolidated financial statements and other data presented herein as well as Management's Discussion and Analysis of Financial Condition and Results of Operation contained in the Company's 2002 Form 10-K and 2003 First Quarter Form 10-Q. The Company reported net earnings in the second quarter of 2003 of $6.0 million, compared with net earnings of $8.9 million in the second quarter of 2002. Net earnings include net gains on investment transactions after taxes (taxed at the federal income tax rate) in the second quarter of 2003 of $1.0 million, compared with $2.8 million in the corresponding 2002 period. In the first six months of 2003, Alleghany's net earnings were $13.7 million, or approximately $1.85 per share, compared with net earnings of $34.7 million in the first six months of 2002. The 2003 six-month net earnings include net gains on investment transactions after taxes (taxed at the federal income tax rate) of $3.1 million, compared with $25.3 million in the corresponding 2002 period. The Company's common stockholders' equity per share at June 30, 2003 was $193.07, an increase from common stockholders' equity per share of $185.85 as of March 31, 2003 (both as adjusted for the stock dividend declared in March 2003). Alleghany Insurance Holdings, a holding company for the Company's insurance operations, which are conducted primarily through the subsidiaries of Capitol Transamerica Corporation, recorded pre-tax earnings of $2.7 million on revenues of $38.3 million in the second quarter of 2003, compared with a pre-tax loss of $2.1 million on revenues of $33.2 million in the 2002 second quarter, and pre-tax earnings of $7.6 million on revenues of $77.0 million in the first six months of 2003, compared with a pre-tax loss of $0.9 million on revenues of $63.9 million in the first six months of 2002. Alleghany Insurance Holdings' 2003 results include $1.9 million of start-up expenses for an underwriting management company which underwrites directors and officers liability insurance written by Capitol Transamerica's subsidiaries. The 2002 results include $1.6 million of adverse loss development on Capitol Transamerica's fidelity and surety lines of business and an 10 increase in loss reserves of $3.5 million. Capitol Transamerica had a combined ratio (the percentage of each premium dollar an insurance company has to spend on claims and expenses) on a GAAP basis of 100.0% during the 2003 second quarter and 99.5% in the first six months of 2003, compared with 111.4% during the 2002 second quarter and 106.5% in the first six months of 2002. Alleghany Insurance Holdings recorded pre-tax investment income of $9.2 million and realized pre-tax investment gains of $0.9 million in the first six months of 2003, compared with pre-tax investment income of $6.9 million and pre-tax investment losses of $2.7 million in the corresponding 2002 period. Alleghany Insurance Holdings' 2003 pre-tax investment income reflects a larger invested asset base, principally due to capital contributions by the Company. As further discussed in Part II, Item 5, on July 1, 2003, Alleghany Insurance Holdings completed its acquisition of Royal Specialty Underwriting, Inc. World Minerals recorded pre-tax earnings of $6.5 million on revenues of $69.0 million in the 2003 second quarter, compared with pre-tax earnings of $7.7 million on revenues of $66.9 million in the 2002 second quarter, and pre-tax earnings of $11.4 million on revenues of $131.1 million in the first six months of 2003, compared with pre-tax earnings of $10.7 million on revenues of $123.8 million in the first six months of 2002. The 2003 first half results reflect the favorable impact of the strengthening of the Euro and pound sterling against the dollar (had foreign exchange rates remained constant with those of the first six months in 2002, World Minerals' revenues would have been flat), lower margins due to competitive pricing pressures and increased labor and benefit costs. World Minerals is currently in the early stages of a periodic strategic review of its business processes, overhead costs, sales strategies and plant operations. As part of such review, which will be in process during the second half of 2003, World Minerals will consider, among other things, the possibility of consolidating or closing certain plants. Heads & Threads International recorded a pre-tax loss of $1.8 million on revenues of $27.3 million in the 2003 second quarter, compared with pre-tax earnings of $0.6 million on revenues of $29.0 million in the 2002 second quarter, and a pre-tax loss of $1.7 million on revenues of $55.3 million in the first six months of 2003, compared with pre-tax earnings of $1.1 million on revenues of $56.9 million in the first six months of 2002. The 2003 first half results reflect reduced demand in the U.S. economy, competitive pricing pressures, a $1.1 million restructuring charge in connection with changes in senior management and the relocation of Heads and Threads' corporate offices from New Jersey to Chicago, and higher material costs due to an increase in the cost of steel from China. As of June 30, 2003, the Company beneficially owned approximately 16.0 million shares, or 4.3 percent, of the outstanding common stock of Burlington Northern Santa Fe Corporation, which had an aggregate market value on that date of approximately $455.0 11 million, or $28.44 per share, compared with a market value on March 31, 2003 of $398.4 million, or $24.90 per share. The aggregate cost of such shares is approximately $181.8 million, or $11.36 per share. The Company has previously announced that it may purchase shares of its common stock in open market transactions from time to time. In the second quarter of 2003, the Company did not purchase any shares of its common stock. As of June 30, 2003, the Company had 7,458,192 shares of common stock outstanding (which includes the stock dividend declared in March 2003). The Company's results in the first six months of 2003 are not indicative of operating results in future periods. The Company and its subsidiaries have adequate internally generated funds and unused credit facilities to provide for the currently foreseeable needs of its and their businesses. Information regarding the Company's accounting policies is included in the Company's 2002 Form 10-K, 2003 First Quarter Form 10-Q and the Notes to the Consolidated Financial Statements included in this report on Form 10-Q. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Market risk is the risk of loss from adverse changes in market prices and rates, such as interest rates, foreign currency exchange rates and commodity prices. The primary market risk related to the Company's non-trading financial instruments is the risk of loss associated with adverse changes in interest rates. The investment portfolios of the Company and its insurance subsidiaries may contain, from time-to-time, debt securities with fixed maturities that expose them to risk related to adverse changes in interest rates. The table below presents a sensitivity analysis of the debt securities of the Company and its insurance subsidiaries that are sensitive to changes in interest rates. Sensitivity analysis is defined as the measurement of potential changes in future earnings, fair values or cash flows of market sensitive instruments resulting from one or more selected hypothetical changes in interest rates over a selected period of time. In this sensitivity analysis model, the Company uses fair values to measure its potential change, and a +/- 300 basis point range of change in interest rates to measure the hypothetical change in fair value of the financial instruments included in the analysis. The change in fair value is determined by calculating a hypothetical June 30, 2003 ending price based on yields adjusted to reflect a +/-300 basis point range of change in interest rates, comparing such hypothetical ending price to actual ending price and multiplying the difference by the par outstanding. 12 SENSITIVITY ANALYSIS At June 30, 2003 (dollars in millions)
Interest Rate Shifts -300 -200 -100 0 100 200 300 - ------------------------- ------ ------ ------ ------ ------ ------ ------ ASSETS Debt securities 426.0 421.0 410.8 392.9 389.8 378.1 367.1 Estimated change in value 33.1 28.1 17.9 -- (3.1) (14.8) (25.8) LIABILITIES Subsidiaries' debt 170.6 170.2 170.0 171.0 172.1 173.2 174.3 Estimated change in value (0.5) (0.8) (1.0) -- 1.1 2.1 3.2
The Company's 2002 Form 10-K provides a more detailed discussion of the market risks affecting its operations. Based on the Company's estimates as of June 30, 2003, no material change has occurred in its assets and liabilities, as compared to amounts disclosed in its 2002 Form 10-K. 13 ITEM 4. CONTROLS AND PROCEDURES The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Chief Executive Officer (the "CEO") and the Chief Financial Officer (the "CFO"), of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this report on Form 10-Q pursuant to Rule 13a-15 promulgated under the Securities Exchange Act of 1934. Based on that evaluation, the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information required to be included in the Company's periodic reports required to be filed with the Securities and Exchange Commission. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. There have been no significant changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting subsequent to the date of such evaluation, including any corrective actions with regard to significant deficiencies or material weaknesses. Forward-Looking Statements "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Quantitative and Qualitative Disclosures About Market Risk" contain disclosures which are forward-looking statements. Forward-looking statements include all statements that do not relate solely to historical or current facts, and can be identified by the use of words such as "may," "will," "expect," "project," "estimate," "anticipate," "plan" or "continue." These forward-looking statements are based upon the Company's current plans or expectations and are subject to a number of uncertainties and risks that could significantly affect current plans, anticipated actions and the Company's future financial condition and results. These statements are not guarantees of future performance, and the Company has no specific intention to update these statements. The uncertainties and risks include, but are not limited to, those relating to conducting operations in a competitive environment and conducting operations in foreign countries, effects of acquisition and disposition activities, adverse loss development for events insured by the Company's insurance operations in either the current year or prior years, general economic and political conditions, including the effects of a prolonged U.S. or global economic downturn or recession, changes in costs, including changes in labor costs, energy costs and raw material prices, variations in political, economic or other factors such as currency exchange rates, inflation rates or recessionary or expansive trends, changes in market prices of the Company's significant equity investments, tax, legal and regulatory changes, extended labor disruptions, significant weather-related or other natural or human-made disasters, especially with respect to their impact on losses at the Company's insurance subsidiaries, civil unrest or other external factors over which the Company has no control, and changes in the Company's plans, strategies, objectives, expectations or intentions, 14 which may happen at any time at the Company's discretion. As a consequence, current plans, anticipated actions and future financial condition and results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. 15 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES. (c) Recent Sales of Unregistered Securities. On April 21, 2003, the Company issued 1,960 shares of common stock to Allan P. Kirby, Jr. upon the exercise of an option to purchase 1,000 shares of the Company's common stock, subject to adjustment for stock dividends and the spin-off by the Company of Chicago Title Corporation in 1998, at an exercise price of $74.97 per share, or $146,941.12 in the aggregate, granted to Mr. Kirby on April 26, 1993 pursuant to the Alleghany Corporation Amended and Restated Directors' Stock Option Plan. The sale of the common stock was exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to Section 4(2) thereof, as a transaction not involving a public offering. On May 21, 2003, the Company issued an aggregate of 616 shares of the Company's common stock to seven non-employee directors of the Company pursuant to the Alleghany Corporation Directors' Equity Compensation Plan. Such shares represent one-half of the value of each director's retainer for the following twelve months' service as a director, exclusive of any per meeting fees, committee fees or expense reimbursements. The sale of common stock was exempt from registration under the Securities Act pursuant to Section 4(2) thereof, as a transaction not involving a public offering. The above does not include unregistered issuances of the Company's common stock that did not involve a sale, consisting of issuances of common stock and other securities pursuant to employee incentive plans. 16 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Company's 2003 Annual Meeting of Stockholders was held on April 25, 2003. At the Annual Meeting, three directors were elected to serve for three-year terms on the Company's Board of Directors, by the following votes:
FOR WITHHELD John J. Burns, Jr. 5,731,831 427,259 Dan R. Carmichael 6,111,712 47,378 William K. Lavin 6,111,712 47,378
The selection of KPMG LLP as auditors for the Company for the year 2003 was ratified by a vote of 6,117,461 shares in favor and 31,374 shares opposed. A total of 10,255 shares abstained from voting. ITEM 5. OTHER INFORMATION Acquisition of Royal Specialty Underwriting, Inc. On July 1, 2003, Alleghany Insurance Holdings completed the acquisition of Royal Specialty Underwriting, Inc. ("RSUI"), an Atlanta, Georgia-based wholesale underwriting agency, from Royal Group, Inc., a subsidiary of Royal & Sun Alliance Insurance Group plc ("R&SA"), for consideration of approximately $115 million. Alleghany Insurance Holdings also acquired renewal rights to the ongoing business underwritten by RSUI for the insurance affiliates of R&SA and the related net unearned premium reserve portfolio of approximately $320 million. The transaction did not include loss reserves associated with business underwritten by RSUI for insurance affiliates of R&SA prior to the date of the transaction. To support future business to be underwritten by RSUI, on June 30, 2003 Alleghany Insurance Holdings acquired Underwriters Reinsurance Company ("URC"), an insurance company admitted in 50 states, from Swiss Re America Holding Corporation ("SRAH"). The Company had previously owned URC as part of its subsidiary Underwriters Re Group, Inc., which was sold by Alleghany to SRAH in May 2000. Prior to the acquisition of URC by Alleghany Insurance Holdings, all of the existing business of URC was transferred to other affiliates of SRAH, so that URC was acquired with no assets other than its licenses and minimum statutory surplus required by the various states in an aggregate amount of approximately $13.2 million, and no liabilities as SRAH contractually retained all of the liabilities of URC that existed at the time of the sale. Alleghany Insurance Holdings paid SRAH a purchase price of approximately $19.7 million for URC. As part of the acquisition agreement, Alleghany Insurance Holdings agreed to change the name of URC, and expects that the new name 17 will be RSUI Indemnity Company. For purposes of the remainder of this discussion, URC will be referred to as "RIC." Subsequent to the date of acquisition, Alleghany Insurance Holdings has capitalized RIC with approximately $500 million, and A.M. Best Co. has assigned it a financial strength rating of A (Excellent). RIC expects to acquire Landmark American Insurance Company ("Landmark"), a surplus lines insurance company, from an affiliate of R&SA during the third quarter of 2003. Landmark is expected to write non-admitted (also referred to as excess and surplus, or E&S) business underwritten by RSUI. Pending satisfaction of regulatory rate and form filings by RIC and completion of the acquisition of Landmark, insurance affiliates of R&SA are continuing to issue policies in respect of business underwritten by RSUI and such policies will be fully reinsured by RIC. RSUI and RIC are subsidiaries of a newly formed holding company, RSUI Group, Inc., which is itself a subsidiary of AIHL. Business of RSUI The specialty insurance market focuses on risks that standard carriers will not accept because they do not meet their underwriting criteria. RSUI underwrites specialty insurance coverages in the property, umbrella/excess, general liability, directors and officers liability and professional liability areas. As of June 30, 2003, premiums related to RSUI underwritten business are divided 55.0% for admitted business and 45.0% for E&S business and approximately 62.0% are written for specialty property coverages. Insurance policies underwritten by RSUI for insurance affiliates of R&SA accounted for gross written premiums of $1,205.0 million and net written premiums of $515.0 million for the year ended December 31, 2002 and gross written premiums of $359.8 million and net written premiums of $162.0 million for the first quarter of 2003. RSUI distributes its products exclusively through wholesale insurance brokers located throughout the United States. Wholesalers typically structure insurance programs on a layer-by-layer basis and find different underwriters to fill out these programs. RSUI's underwriters generally focus on higher severity, lower frequency risks. Particular emphasis is given to choosing the most attractive layer of each specific risk. As is customary in the insurance industry, RSUI Group's insurance operations reinsure a portion of the risks they underwrite. Reinsurance provides primary insurers such as RIC and Landmark with a reduction of net liability on individual risks and with protection against catastrophic loss. RSUI Group's insurance operations have reinsurance agreements with a number of domestic and international reinsurance companies. The RSUI Group insurance companies use reinsurance treaties in each of their product lines and also purchase facultative reinsurance coverage for certain individual risks, where a 18 reinsurer separately rates and underwrites each individual risk and is free to accept or reject each risk offered by the primary insurer. RIC is domiciled in and must comply with the insurance laws of New Hampshire. Landmark is domiciled in and must comply with the insurance laws of Oklahoma. In each case, these laws regulate matters such as approving policy forms and various premium rates, licensing agents, granting and revoking licenses to transact business and regulating trade practices. These laws also regulate the kind, quality and concentration of investments that may be held by insurance companies. Insurance regulatory authorities in the insurer's state of domicile regularly perform examinations of the insurer's market conduct and other affairs. As an insurance carrier writing admitted business, RIC is also subject to regulation in the other states where it does business, including regulation with regard to rate and form filings, restrictions on the ability to exit lines of business, and required membership in state sponsored guaranty funds and similar organizations. As an insurance holding company, RSUI Group is subject to the insurance holding company laws of several states. Certain dividends and distributions by an insurance subsidiary are subject to approval by the insurance regulators of the domiciliary state of such subsidiary. Other significant transactions between an insurance subsidiary and its holding company or other subsidiaries of the holding company may require approval by insurance regulatory authorities in the state of domicile of each of the insurance subsidiaries participating in such transactions. As of July 31, 2003, RSUI Group had approximately 290 employees, approximately 220 of whom were based in the Atlanta, Georgia headquarters of RSUI. The remaining employees were based in the Sherman Oaks, California underwriting office of RSUI. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits.
Exhibit Number Description 10.1 Acquisition Agreement, dated as of June 6, 2003, by and between Royal Group, Inc. and Alleghany Insurance Holdings LLC (the "Acquisition Agreement"). 10.2 List of Contents of Exhibits and Schedules to the Acquisition Agreement. Alleghany agrees to furnish supplementally a copy of any omitted exhibit or schedule to the Securities and Exchange Commission upon request.
19 10.3 Assignment and Assumption Agreement, dated as of June 30, 2003, by and between Alleghany Insurance Holdings LLC and RSUI Group, Inc. (regarding the transfer of rights under the Acquisition Agreement). 10.4 Quota Share Reinsurance Agreement, dated as of July 1, 2003, by and between Royal Indemnity Company and Underwriters Reinsurance Company (the "Royal Indemnity Company Quota Share Reinsurance Agreement"). 10.5 List of Contents of Exhibits and Schedules to the Royal Indemnity Company Quota Share Reinsurance Agreement. Alleghany agrees to furnish supplementally a copy of any omitted exhibit or schedule to the Securities and Exchange Commission upon request. 10.6 Quota Share Reinsurance Agreement, dated as of July 1, 2003, by and between Royal Surplus Lines Insurance Company and Underwriters Reinsurance Company (the "Royal Surplus Lines Insurance Company Quota Share Reinsurance Agreement"). 10.7 List of Contents of Exhibits and Schedules to the Royal Surplus Lines Insurance Company Quota Share Reinsurance Agreement. Alleghany agrees to furnish supplementally a copy of any omitted exhibit or schedule to the Securities and Exchange Commission upon request. 10.8 Quota Share Reinsurance Agreement, dated as of July 1, 2003, by and between Landmark American Insurance Company and Underwriters Reinsurance Company (the "Landmark American Insurance Company Quota Share Reinsurance Agreement"). 10.9 List of Contents of Exhibits and Schedules to the Landmark American Insurance Company Quota Share Reinsurance Agreement. Alleghany agrees to furnish supplementally a copy of any omitted exhibit or schedule to the Securities and Exchange Commission upon request. 10.10 Administrative Services Agreement, dated as of July 1, 2003, by and among Royal Indemnity Company, Royal Specialty Underwriting, Inc. and Underwriters
20 Reinsurance Company (the "Royal Indemnity Company Administrative Services Agreement"). 10.11 List of Contents of Exhibits and Schedules to the Royal Indemnity Company Administrative Services Agreement. Alleghany agrees to furnish supplementally a copy of any omitted exhibit or schedule to the Securities and Exchange Commission upon request. 10.12 Administrative Services Agreement, dated as of July 1, 2003, by and among Royal Surplus Lines Insurance Company, Royal Specialty Underwriting, Inc. and Underwriters Reinsurance Company (the "Royal Surplus Lines Insurance Company Administrative Services Agreement"). 10.13 List of Contents of Exhibits and Schedules to the Royal Surplus Lines Insurance Company Administrative Services Agreement. Alleghany agrees to furnish supplementally a copy of any omitted exhibit or schedule to the Securities and Exchange Commission upon request. 10.14 Administrative Services Agreement, dated as of July 1, 2003, by and among Royal Insurance Company of America, Royal Specialty Underwriting, Inc. and Underwriters Reinsurance Company (the "Royal Insurance Company of America Administrative Services Agreement"). 10.15 List of Contents of Exhibits and Schedules to the Royal Insurance Company of America Administrative Services Agreement. Alleghany agrees to furnish supplementally a copy of any omitted exhibit or schedule to the Securities and Exchange Commission upon request. 10.16 Administrative Services Agreement, dated as of July 1, 2003, by and among Landmark American Insurance Company, Royal Specialty Underwriting, Inc. and Underwriters Reinsurance Company (the "Landmark American Insurance Company Administrative Services Agreement"). 10.17 List of Contents of Exhibits and Schedules to the Landmark American Insurance Company
21 Administrative Services Agreement. Alleghany agrees to furnish supplementally a copy of any omitted exhibit or schedule to the Securities and Exchange Commission upon request. 10.18 Trust Agreement, dated as of July 1, 2003, by and among Royal Indemnity Company, Royal Surplus Lines Insurance Company, Landmark American Insurance Company, Underwriters Reinsurance Company and LaSalle Bank National Association, as Trustee. 10.19 Assignment of Net Premium Receivables, dated as of July 1, 2003, by and between LaSalle Bank National Association and Royal Indemnity Company, Royal Surplus Lines Insurance Company and Landmark American Insurance Company. 10.20 Assignment of Reinsurance Recoverables, dated as of July 1, 2003, by and among Underwriters Reinsurance Company, LaSalle Bank National Association and Royal Indemnity Company, Royal Surplus Lines Insurance Company and Landmark American Insurance Company. 10.21 Administrative Services Intellectual Property License Agreement, dated as of July 1, 2003, by and between Royal Indemnity Company and Royal Specialty Underwriting, Inc. (entered into pursuant to the Royal Indemnity Company Administrative Services Agreement). 10.22 Administrative Services Intellectual Property License Agreement, dated as of July 1, 2003, by and between Royal Indemnity Company and Royal Specialty Underwriting, Inc. (entered into pursuant to the Royal Surplus Lines Insurance Company Administrative Services Agreement). 10.23 Administrative Services Intellectual Property License Agreement, dated as of July 1, 2003, by and between Royal Indemnity Company and Royal Specialty Underwriting, Inc. (entered into pursuant to the Royal Insurance Company of America Administrative Services Agreement). 10.24 Administrative Services Intellectual Property License
22 Agreement, dated as of July 1, 2003, by and between Royal Indemnity Company and Royal Specialty Underwriting, Inc. (entered into pursuant to the Landmark American Insurance Company Administrative Services Agreement). 10.25 Claims Servicing Agreement, dated as of July 1, 2003, by and among Underwriters Reinsurance Company, Royal Indemnity Company, Royal Surplus Lines Insurance Company, Landmark American Insurance Company, Royal Insurance Company of America, American and Foreign Insurance Company, Globe Indemnity Company, Safeguard Insurance Company and Phoenix Assurance Company of New York (the "Claims Servicing Agreement"). 10.26 List of Contents of Exhibits and Schedules to the Claims Servicing Agreement. Alleghany agrees to furnish supplementally a copy of any omitted exhibit or schedule to the Securities and Exchange Commission upon request. 10.27 Claims Servicing Information Technology License Agreement, dated as of July 1, 2003, by and between Royal Indemnity Company and Underwriters Reinsurance Company. 10.28 Renewal Rights Agreement, dated as of July 1, 2003, by and among Landmark American Insurance Company, Royal Indemnity Company, Royal Surplus Lines Insurance Company, Royal Insurance Company of America and Alleghany Insurance Holdings LLC (the "Renewal Rights Agreement"). 10.29 List of Contents of Exhibits to the Renewal Rights Agreement. Alleghany agrees to furnish supplementally a copy of any omitted exhibit to the Securities and Exchange Commission upon request. 10.30 Transition Services Agreement, dated as of July 1, 2003, by and among Royal Group, Inc., RSUI Group, Inc. and Royal Specialty Underwriting, Inc. (the "Transition Services Agreement"). 10.31 List of Contents of Schedules to the Transition Services Agreement. Alleghany agrees to furnish supplementally a copy of any omitted schedule to the
23 Securities and Exchange Commission upon request. 10.32 Transitional Trademark License Agreement, dated as of July 1, 2003, by and among Royal & SunAlliance USA, Inc., Royal Specialty Underwriting, Inc. and RSA Surplus Lines Insurance Services, Inc. 10.33 Employee Leasing Agreement, dated as of July 1, 2003, by and between Royal Indemnity Company and Underwriters Reinsurance Company. 10.34 Managing General Agency Agreement, dated as of July 1, 2003, by and among Royal Specialty Underwriting, Inc., as Managing General Agent, Royal Indemnity Company, Royal Surplus Lines Insurance Company, Royal Insurance Company of America and Landmark American Insurance Company (the "Managing General Agency Agreement"). 10.35 List of Contents of Exhibits to the Managing General Agency Agreement. Alleghany agrees to furnish supplementally a copy of any omitted exhibit to the Securities and Exchange Commission upon request. 10.36 Stock Purchase Agreement, dated as of July 1, 2003, by and between Alleghany Insurance Holdings LLC and Royal Group, Inc. (the "Stock Purchase Agreement"). 10.37 List of Contents of Exhibits and Schedules to the Stock Purchase Agreement. Alleghany agrees to furnish supplementally a copy of any omitted exhibit or schedule to the Securities and Exchange Commission upon request. 10.38 Assignment and Assumption of Liabilities Agreement, dated as of July 1, 2003, by and between RSA Surplus Lines Insurance Services, Inc. and Royal Indemnity Company. 10.39 Assignment and Assumption Agreement, dated as of July 1, 2003, by and between Alleghany Insurance Holdings LLC and RSUI Group, Inc. 10.40 Assignment and Assumption Agreement, dated as of July 1, 2003, by and between Alleghany Insurance Holdings LLC and RSUI Group, Inc.
24 10.41 Assignment and Assumption Agreement, dated as of July 1, 2003, by and between Alleghany Insurance Holdings LLC and RSUI Group, Inc. 10.42 Stock Purchase Agreement, dated as of June 6, 2003, by and between Alleghany Insurance Holdings LLC and Guaranty National Insurance Company (the "Guaranty National Insurance Company Stock Purchase Agreement"). 10.43 List of Contents of Exhibits and Schedules to the Guaranty National Insurance Company Stock Purchase Agreement. Alleghany agrees to furnish supplementally a copy of any omitted exhibit or schedule to the Securities and Exchange Commission upon request. 10.44 Stock Purchase Agreement, dated as of June 12, 2003, by and between Swiss Re America Holding Corporation and RSUI Group, Inc. (the "RSUI Group, Inc. Stock Purchase Agreement"). 10.45 List of Contents of Exhibits and Schedules to the RSUI Group, Inc. Stock Purchase Agreement. Alleghany agrees to furnish supplementally a copy of any omitted exhibit or schedule to the Securities and Exchange Commission upon request. 10.46 First Amendment to 364-Day Revolving Credit Agreement, dated as of June 13, 2003, amending the 364-Day Revolving Credit Agreement, dated as of June 14, 2002, by and among Alleghany Corporation, the Banks named therein and U.S. Bank National Association, as agent for the Banks. 10.47 Second Amendment to 364-Day Revolving Credit Agreement, dated as of June 20, 2003, amending the 364-Day Revolving Credit Agreement, dated as of June 14, 2002, by and among Alleghany Corporation, the Banks named therein and U.S. Bank National Association, as agent for the Banks. 10.48 First Amendment to Three-Year Revolving Credit Agreement, dated as of June 20, 2003, amending the Three-Year Revolving Credit Agreement, dated as of June 14, 2002, among Alleghany Corporation, the Banks named therein and U.S. Bank National
25 Association, as agent for the Banks. 31.1 Certification of the Chief Executive Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of the Chief Financial Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This exhibit shall not be deemed "filed" as a part of this Report on Form 10-Q. 32.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This exhibit shall not be deemed "filed" as a part of this Report on Form 10-Q.
26 (b) Reports on Form 8-K. The Company filed a report on Form 8-K dated June 9, 2003 to report in Item 5 that it had entered into a definitive agreement to acquire RSUI. The Company filed a report on Form 8-K dated July 1, 2003 to report in Item 5 that it had completed the acquisition of RSUI. The Company filed a report on Form 8-K dated August 6, 2003 to report in Item 9 information required to be furnished under Item 12 pursuant to interim guidance issued by the Securities and Exchange Commission regarding a press release reporting on the Company's financial results as of and for the quarter ended June 30, 2003. 27 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALLEGHANY CORPORATION Registrant Date: August 13, 2003 /s/ David B. Cuming --------------------------------- David B. Cuming Senior Vice President (and chief financial officer) 28 EX-10.1 3 y88779exv10w1.txt ACQUISITION AGREEMENT EXHIBIT 10.1 - -------------------------------------------------------------------------------- ACQUISITION AGREEMENT By and Between ROYAL GROUP, INC. and ALLEGHANY INSURANCE HOLDINGS LLC Dated as of June 6, 2003 - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- ARTICLE I THE CLOSING................................................................................... 2 Section 1.1 Sale and Purchase............................................................... 2 Section 1.2 Transfer of Acquired Assets..................................................... 2 Section 1.3 Excluded Assets, Excluded Contracts and Retained Liabilities.................... 2 Section 1.4 Quota Share Reinsurance Agreements.............................................. 3 Section 1.5 Administrative Services Agreements.............................................. 3 Section 1.6 Claims Servicing Agreement...................................................... 4 Section 1.7 Renewal Rights Agreement........................................................ 4 Section 1.8 Transition Services Agreement................................................... 4 Section 1.9 Intellectual Property Agreements................................................ 4 Section 1.10 Employee Leasing Agreement...................................................... 4 Section 1.11 Managing General Agency Agreement............................................... 5 Section 1.12 Substitution and Indemnification Agreement...................................... 5 Section 1.13 Assignment of Reinsurance Recoverables.......................................... 5 Section 1.14 Terrorism Treaty Cost Allocation................................................ 5 Section 1.15 RSA SLISI Purchase Agreement.................................................... 5 Section 1.16 Closing......................................................................... 5 Section 1.17 Consideration................................................................... 6 Section 1.18 Purchase Price Adjustment....................................................... 6 Section 1.19 Transfer of Unearned Premium Reserves........................................... 9 Section 1.20 Sharing of Profit Contingency Commissions for the Property Surplus Share Contracts....................................................................... 10 Section 1.21 Closing Items................................................................... 11 ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER..................................................... 14 Section 2.1 Organization and Standing....................................................... 14 Section 2.2 Authority....................................................................... 14 Section 2.3 Noncontravention................................................................ 15 Section 2.4 Litigation...................................................................... 15 Section 2.5 Title to the RSUI Shares........................................................ 16 Section 2.6 Brokers and Finders............................................................. 16 ARTICLE III REPRESENTATIONS AND WARRANTIES RELATING TO ROYAL INSURER AFFILIATES......................... 16 Section 3.1 Organization and Standing....................................................... 16 Section 3.2 Authority....................................................................... 16 Section 3.3 Noncontravention................................................................ 17 Section 3.4 Permits......................................................................... 18 Section 3.5 Litigation...................................................................... 18 Section 3.6 Compliance with Applicable Law.................................................. 18
i ARTICLE IV REPRESENTATIONS AND WARRANTIES RELATING TO RSUI.............................................. 19 Section 4.1 Organization and Standing....................................................... 19 Section 4.2 Noncontravention................................................................ 19 Section 4.3 Capitalization.................................................................. 20 Section 4.4 Financial Statements............................................................ 20 Section 4.5 Accounts........................................................................ 21 Section 4.6 Working Capital................................................................. 21 Section 4.7 Administration of Fiduciary Accounts............................................ 21 Section 4.8 Compliance with Applicable Law.................................................. 21 Section 4.9 Permits......................................................................... 22 Section 4.10 Litigation...................................................................... 22 Section 4.11 All Necessary Assets............................................................ 22 Section 4.12 Absence of Certain Changes...................................................... 22 Section 4.13 Taxes........................................................................... 22 Section 4.14 Employee Benefit Plans; ERISA................................................... 23 Section 4.15 Intellectual Property........................................................... 26 Section 4.16 Material Business Contracts..................................................... 28 Section 4.17 Intercompany Agreements; Transactions with Affiliates; Intercompany Accounts.... 29 Section 4.18 Insurance Coverage.............................................................. 30 Section 4.19 Books and Records............................................................... 30 ARTICLE V REPRESENTATIONS AND WARRANTIES RELATING TO THE BUSINESS....................................... 30 Section 5.1 RSUI-Produced Insurance Contracts............................................... 30 Section 5.2 Producer Relationships.......................................................... 31 Section 5.3 Third Party Reinsurance Contracts............................................... 32 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER.................................................. 33 Section 6.1 Organization and Standing....................................................... 33 Section 6.2 Authority....................................................................... 33 Section 6.3 Noncontravention................................................................ 34 Section 6.4 Litigation...................................................................... 34 Section 6.5 Purchase of the RSUI Shares for Investment...................................... 35 Section 6.6 Sufficient Funds and Balance Sheet Support...................................... 35 Section 6.7 Brokers and Finders............................................................. 35 ARTICLE VII REPRESENTATIONS AND WARRANTIES RELATING TO AIHL INSURANCE CO................................ 36 Section 7.1 Organization and Standing....................................................... 36 Section 7.2 Authority....................................................................... 36 Section 7.3 Noncontravention................................................................ 36 Section 7.4 Permits......................................................................... 37 Section 7.5 Compliance with Applicable Law.................................................. 37
ii ARTICLE VIII GENERAL COVENANTS.......................................................................... 37 Section 8.1 Conduct of Business Pending the Closing......................................... 37 Section 8.2 Exclusivity..................................................................... 41 Section 8.3 Pre-Closing Access and Transition Matters....................................... 41 Section 8.4 Post-Closing Access............................................................. 42 Section 8.5 Governmental Entity Consents and Filings; Rating Agencies....................... 43 Section 8.6 Non-Governmental Consents....................................................... 44 Section 8.7 Further Assurances.............................................................. 46 Section 8.8 Expenses........................................................................ 46 Section 8.9 Public Announcements............................................................ 46 Section 8.10 Notice of Adverse Developments.................................................. 47 Section 8.11 Policy Form, Rate and Rule Filings.............................................. 47 Section 8.12 Intercompany Balances........................................................... 47 Section 8.13 Affiliate Agreements............................................................ 48 Section 8.14 Insurance Matters............................................................... 48 Section 8.15 Resignation of RSUI Directors................................................... 48 Section 8.16 Disposition of Business......................................................... 48 Section 8.17 Transfer of Excluded Assets, Excluded Contracts and Retained Liabilities........ 48 Section 8.18 Indemnification of Brokerage.................................................... 49 Section 8.19 Interim Financial Statements.................................................... 49 Section 8.20 Corporate Records............................................................... 49 Section 8.21 Instruments..................................................................... 49 Section 8.22 Cooperation..................................................................... 50 ARTICLE IX ADDITIONAL COVENANTS......................................................................... 50 Section 9.1 Trademarks; Change of Corporate Names........................................... 50 Section 9.2 Other Intellectual Property Matters............................................. 51 Section 9.3 Noncompetition and Nonsolicitation by Seller.................................... 52 Section 9.4 Ancillary Agreements; Other Closing Deliveries.................................. 55 Section 9.5 Updates to Seller Disclosure Schedules.......................................... 55 Section 9.6 The American Agency............................................................. 55 Section 9.7 Capitalization of AIHL Insurance Co............................................. 55 Section 9.8 Certain Matters................................................................. 55 ARTICLE X TAX MATTERS................................................................................... 56 Section 10.1 Transfer Taxes.................................................................. 56 Section 10.2 Tax Matters..................................................................... 57 Section 10.3 Computation of Tax Liabilities.................................................. 58 Section 10.4 Seller's Indemnity for Taxes.................................................... 59 Section 10.5 Assistance and Cooperation...................................................... 59 Section 10.6 Refunds......................................................................... 60 Section 10.7 Contests........................................................................ 60 Section 10.8 Post-Closing Actions which Affect Seller's Liability for Taxes.................. 61
iii Section 10.9 Section 338(h)(10) Election..................................................... 62 Section 10.10 Post-Effective Date Taxes....................................................... 64 ARTICLE XI EMPLOYMENT MATTERS........................................................................... 64 Section 11.1 RSUI Employees.................................................................. 64 Section 11.2 RSUI Employee Benefits.......................................................... 66 Section 11.3 Service Credit.................................................................. 67 Section 11.4 Termination of Employment....................................................... 67 ARTICLE XII REAL ESTATE MATTERS......................................................................... 68 Section 12.1 Real Property Used in the Business.............................................. 68 ARTICLE XIII CONDITIONS TO CLOSING...................................................................... 69 Section 13.1 Conditions of Purchaser and Seller to Closing................................... 69 ARTICLE XIV TERMINATION................................................................................. 72 Section 14.1 Termination Prior to Closing.................................................... 72 Section 14.2 Effect of Termination........................................................... 73 Section 14.3 Notice Regarding Termination.................................................... 74 ARTICLE XV EXCLUSIONS FROM REPRESENTATIONS AND WARRANTIES; SURVIVAL; INDEMNIFICATION.................... 74 Section 15.1 Exclusions from the Representations and Warranties of Seller.................... 74 Section 15.2 Survival of Representations, Warranties and Covenants........................... 74 Section 15.3 Seller's Indemnification Obligation............................................. 75 Section 15.4 Purchaser's Indemnification Obligation.......................................... 76 Section 15.5 Other Limitations on Indemnification............................................ 76 Section 15.6 Notice.......................................................................... 77 Section 15.7 Right to Contest Claims of Third Parties........................................ 78 Section 15.8 Indemnification Payments........................................................ 79 Section 15.9 Exclusive Remedy................................................................ 79 Section 15.10 No Duplication of Recovery...................................................... 79 Section 15.11 Purchase Price Adjustment....................................................... 79 ARTICLE XVI CERTAIN DEFINITIONS AND OTHER MATTERS....................................................... 80 Section 16.1 Definitions..................................................................... 80 Section 16.2 Disclosure Schedules............................................................ 86 ARTICLE XVII MISCELLANEOUS.............................................................................. 86 Section 17.1 Amendment, Modification and Waiver.............................................. 86 Section 17.2 Entire Agreement................................................................ 86 Section 17.3 Interpretation.................................................................. 86 Section 17.4 Due Investigation............................................................... 87 Section 17.5 Notices......................................................................... 87
iv Section 17.6 Governing Law................................................................... 89 Section 17.7 Descriptive Headings............................................................ 89 Section 17.8 Assignment; Binding Agreement................................................... 89 Section 17.9 Third Party Beneficiaries....................................................... 89 Section 17.10 Specific Performance............................................................ 89 Section 17.11 Severability.................................................................... 89 Section 17.12 Counterparts.................................................................... 89 Section 17.13 Consent to Jurisdiction......................................................... 90 Section 17.14 Waiver of Jury Trial............................................................ 90 Section 17.15 Extension; Waiver............................................................... 90 Section 17.16 Confidentiality................................................................. 90
v LIST OF EXHIBITS Exhibit A List of Royal Insurer Affiliates Exhibit B RIC Quota Share Reinsurance Agreement Exhibit C RSLIC Quota Share Reinsurance Agreement Exhibit D Landmark Quota Share Reinsurance Agreement Exhibit E RIC Administrative Services Agreement Exhibit F RSLIC Administrative Services Agreement Exhibit G RICA Administrative Services Agreement Exhibit H Landmark Administrative Services Agreement Exhibit I Claims Servicing Agreement Exhibit J Renewal Rights Agreement Exhibit K Transition Services Agreement Term Sheet Exhibit L Transitional Trademark License Agreement Exhibit M Service Mark Assignment Exhibit N Employee Leasing Agreement Exhibit O Managing General Agency Agreement Exhibit P Substitution and Indemnification Agreement Exhibit Q Assignment of Reinsurance Recoverables Exhibit R Terrorism Treaty Cost Allocation Exhibit S RSA SLISI Purchase Agreement vi LIST OF SCHEDULES SELLER DISCLOSURE SCHEDULES Schedule 1.3(a) Excluded Assets Schedule 1.3(b) Excluded Contracts Schedule 1.3(c) Certain Retained Liabilities Schedule 1.19(c) Reinsurance Treaties Schedule 1.20(a) Property Surplus Share Contracts Schedule 2.3(a) Seller Noncontravention Schedule 2.4 Seller Litigation Schedule 3.3(a) Royal Insurer Affiliates Noncontravention Schedule 3.4(a) Royal Insurer Affiliates Exceptions to Permits Schedule 3.5 Royal Insurer Affiliates Litigation Schedule 3.6 Royal Insurer Affiliates Exceptions to Compliance with Applicable Law Schedule 4.1 RSUI Jurisdictions Schedule 4.2(a) RSUI Noncontravention Schedule 4.3(b) Equity Interests Owned by RSUI Schedule 4.5 Accounts of RSUI Schedule 4.6 Working Capital Schedule 4.7 Exceptions to Administration of Fiduciary Accounts by RSUI Schedule 4.8 RSUI Exceptions to Compliance with Applicable Law Schedule 4.9(a) RSUI Permits Schedule 4.10 RSUI Litigation Schedule 4.11 Exceptions to All Necessary Assets Schedule 4.12 Changes in Conduct of Business Schedule 4.13 Tax Schedule 4.14(a) Plans Schedule 4.14(b) RSUI Employee Contracts Schedule 4.15(a) Business Intellectual Property Schedule 4.15(d) Exceptions to Business Intellectual Property Schedule 4.16(a) Material Business Contracts Schedule 4.16(b) Third Party Consents for Acquired Contracts Schedule 4.16(c) Breaches of Acquired Contracts Schedule 4.17(a) Intercompany Agreements Schedule 4.17(b) Affiliate Agreements Schedule 4.17(c) Affiliate Agreements Post-Closing Schedule 4.18 Insurance Policies Schedule 5.2(a)(i) Standard Forms of Producer Agreements Schedule 5.2(a)(ii) Exceptions to Standard Producer Agreements Schedule 5.2(b) Major Producers Schedule 5.2(c) Underwriting Authority Schedule 5.3(a) Third Party Reinsurance Contracts Schedule 5.3(b) Terminated Third Party Reinsurance Contracts Schedule 5.3(c) Corporate Treaties Schedule 5.3(d) Material Breaches of Third Party Reinsurance Agreements
vii Schedule 8.1(a) Exceptions to Conduct of Business Pending the Closing Schedule 8.6(a)(i) Seller's Third Party, Nongovernmental Consents Schedule 8.12(a) Exceptions to Accounts Receivable or Payable to be Settled Prior to Closing Schedule 8.15 Resigning RSUI Directors Schedule 9.1(c) Royal Group Intellectual Property Schedule 11.1(a) RSUI Employees Schedule 11.1(d) Assumed RSUI Employee Contract Schedule 13.1(c)(ii) Consents Schedule 16.1(a) Seller Persons with Knowledge
PURCHASER DISCLOSURE SCHEDULES Schedule 6.3(a) Purchaser Noncontravention Schedule 7.3 AIHL Insurance Co. Noncontravention Schedule 7.4 AIHL Insurance Co. Exceptions to Permits Schedule 8.6(a)(ii) Purchaser's Third Party, Nongovernmental Consents Schedule 16.1(b) Purchaser Persons with Knowledge
JOINT DISCLOSURE SCHEDULES Schedule 8.5(a) Governmental Entity Consents Schedule 8.5(b) Governmental Entity Filings
viii LIST OF DEFINED TERMS
Page 2003 Bonus Payment...................................................................................... 64 Acceptable Reinsurers................................................................................... 32 Acquired Assets......................................................................................... .2 Acquired Entity......................................................................................... 53 Acquisition............................................................................................. 1 Actions................................................................................................. 15 Actual DAC.............................................................................................. 10 Actual NUPR............................................................................................. 10 Adjusted Net Worth Deficit.............................................................................. 8 Administrative Services Agreements...................................................................... 4 Affiliate............................................................................................... 80 Affiliate Agreements.................................................................................... 29 Aggregate Ceding Commission............................................................................. 9 Agreement............................................................................................... 1 AIHL Insurance Co....................................................................................... 3 AIHL Insurance Co. Permits.............................................................................. 36 Ancillary Agreements.................................................................................... 80 Applicable Law.......................................................................................... 80 Applicable Rate......................................................................................... 80 Asserted Liability...................................................................................... 78 Assignment of Reinsurance Recoverables.................................................................. 5 Assumed Contracts....................................................................................... 80 Audited RSUI Financial Statements....................................................................... 20 Bankruptcy and Equity Exception......................................................................... 80 Books and Records....................................................................................... 81 Business................................................................................................ 81 Business Day............................................................................................ 81 Business Intellectual Property.......................................................................... 26 Business IP Contracts................................................................................... 26 Business Material Adverse Effect........................................................................ 81 Cat Cover............................................................................................... 81 Cat Cover Endorsement................................................................................... 10 Ceding Insurers......................................................................................... 9 Claims Histories........................................................................................ 42 Claims Notice........................................................................................... 77 Claims Servicing Agreement.............................................................................. 4 Closing................................................................................................. 5 Closing Balance Sheet................................................................................... 6 Closing Date............................................................................................ 5 Closing Financial Data.................................................................................. 6 Closing RSUI Contract List.............................................................................. 13 Code.................................................................................................... 81 Collected Net Premium................................................................................... 9
ix Competing Business...................................................................................... 53 Computer Software....................................................................................... 82 Confidential Information................................................................................ 90 Confidentiality Agreement............................................................................... 42 Corporate Treaties...................................................................................... 32 Damages................................................................................................. 82 Deferred Acquisition Cost............................................................................... 82 Disclosing Party........................................................................................ 90 Effective Date.......................................................................................... 82 Employee Leasing Agreement.............................................................................. 4 Employment Agreements................................................................................... 1 ERISA................................................................................................... 23 ERISA Affiliate......................................................................................... 23 Estimated DAC........................................................................................... 9 Estimated NUPR.......................................................................................... 9 Excluded Assets......................................................................................... 2 Excluded Contracts...................................................................................... 3 Extended Closing Date................................................................................... 5 Final Allocation........................................................................................ 62 Final Seller's Tax Cost................................................................................. 62 Form.................................................................................................... 51 GAAP.................................................................................................... 82 Governmental Entity..................................................................................... 82 Guaranty National....................................................................................... 1 HSR Act................................................................................................. 82 In Force................................................................................................ 82 Income Tax.............................................................................................. 82 Income Tax Return....................................................................................... 82 Indemnified Party....................................................................................... 77 Indemnifying Party...................................................................................... 77 Independent Firm........................................................................................ 57 Insurance Permit........................................................................................ 82 Insurance Policies...................................................................................... 30 Intellectual Property................................................................................... 83 Intellectual Property Contracts......................................................................... 83 Intercompany Agreements................................................................................. 29 Investment Broker....................................................................................... 16 Knowledge............................................................................................... 83 Landmark................................................................................................ 1 Landmark Administrative Services Agreement.............................................................. 4 Landmark Purchase Agreement............................................................................. 1 Landmark Quota Share Reinsurance Agreement.............................................................. 3 Latest Balance Sheet.................................................................................... 6 Leased Employee......................................................................................... 65 Lien.................................................................................................... 83 Losses.................................................................................................. 75
x Major Producers......................................................................................... 31 Managing General Agency Agreement....................................................................... 5 Mark Registration....................................................................................... 26 Material Business Contracts............................................................................. 28 Minimum Continued Participation Level................................................................... 71 Net Unearned Premium Reserves........................................................................... 83 Network Partner......................................................................................... 54 Neutral Auditors........................................................................................ 7 New Hire................................................................................................ 64 Non-Compete Period...................................................................................... 51 Non-Owned Intellectual Property......................................................................... 26 NUPR Settlement Date.................................................................................... 10 Parallel Treaty......................................................................................... 71 Parent.................................................................................................. 22 Parent Group............................................................................................ 22 Patents................................................................................................. 83 PBGC.................................................................................................... 24 Permits................................................................................................. 83 Permitted Liens......................................................................................... 83 Person.................................................................................................. 84 Plan.................................................................................................... 23 Plans................................................................................................... 23 Post-Closing Tax Period................................................................................. 84 Pre-Closing Tax Period.................................................................................. 84 Producer................................................................................................ 31 Producer Agreement...................................................................................... 30 Proposed Allocation..................................................................................... 62 Proprietary Software.................................................................................... 26 Purchase Price.......................................................................................... 6 Purchaser............................................................................................... 1 Purchaser Disclosure Schedules.......................................................................... 84 Purchaser Indemnitees................................................................................... 75 Purchaser Performance Amount............................................................................ 64 Purchaser's Fee......................................................................................... 35 PwC..................................................................................................... 6 Qualifying Assets....................................................................................... 84 Quota Share Reinsurance Agreements...................................................................... 3 Receiving Party......................................................................................... 90 Reinsurance Schedule.................................................................................... 31 Reinsured Contracts..................................................................................... 84 Renewal Rights Agreement................................................................................ 4 Reserves................................................................................................ 84 Resolution Period....................................................................................... 7 Retained Liabilities.................................................................................... 3 RIC..................................................................................................... 1 RIC Administrative Services Agreement................................................................... 3
xi RIC Quota Share Reinsurance Agreement................................................................... 3 RICA.................................................................................................... 1 RICA Administrative Services Agreement.................................................................. 4 Royal & SunAlliance..................................................................................... 5 Royal Group Intellectual Property....................................................................... 52 Royal Insurer Affiliate Permits......................................................................... 18 Royal Insurer Affiliates................................................................................ 1 RSA SLISI Purchase Agreement............................................................................ 5 RSLIC................................................................................................... 1 RSLIC Administrative Services Agreement................................................................. 3 RSLIC Quota Share Reinsurance Agreement................................................................. 3 RSUI.................................................................................................... 1 RSUI Affiliate Owned Intellectual Property.............................................................. 26 RSUI Confidential Information........................................................................... 53 RSUI Employee Contracts................................................................................. 23 RSUI Mark............................................................................................... 26 RSUI Owned Intellectual Property........................................................................ 26 RSUI Permits............................................................................................ 21 RSUI Shares............................................................................................. 2 RSUI-Produced Insurance Contracts....................................................................... 84 SAP..................................................................................................... 84 Schedule 1.3(c) Liabilities............................................................................. 3 Schedule 1.20(a) Contracts.............................................................................. 10 Schedule 5.3(a) Contracts............................................................................... 31 Schedule of Adjusted Underwriting Results............................................................... 84 Section 338 Elections................................................................................... 62 Section 338 Forms....................................................................................... 63 Securities Act.......................................................................................... 34 Seller.................................................................................................. 1 Seller Bonus Payment.................................................................................... 64 Seller Disclosure Schedules............................................................................. 84 Seller Indemnitees...................................................................................... 76 Seller Performance Amount............................................................................... 64 Seller's Fee............................................................................................ 16 Seller's Tax Cost....................................................................................... 62 Service Mark Assignment................................................................................. 50 Sherman Oaks Consent.................................................................................... 29 Straddle Period......................................................................................... 84 Subsidiary.............................................................................................. 85 Substitution and Indemnification Agreement.............................................................. 5 Survival Period......................................................................................... 74 Target Closing Date..................................................................................... 5 Tax..................................................................................................... 85 Tax Claim............................................................................................... 60 Tax Return.............................................................................................. 85 Taxes................................................................................................... 85
xii Taxing Authority........................................................................................ 85 Terrorism Treaty........................................................................................ 85 Third Party Claimant.................................................................................... 78 Third Party Reinsurance Contracts....................................................................... 31 Title IV Plan........................................................................................... 24 Trade Secrets........................................................................................... 85 Trademarks.............................................................................................. 85 Transfer Taxes.......................................................................................... 85 Transferred Employees................................................................................... 65 Transition Period....................................................................................... 64 Transition Services Agreement........................................................................... 4 Transitional Trademark License Agreement................................................................ 4 Trust Account........................................................................................... 9 Unaffiliated Reinsurers................................................................................. 85 Unresolved Changes...................................................................................... 7 WARN.................................................................................................... 67 WARN Act................................................................................................ 67 Working Capital Deficit................................................................................. 8 Working Capital Surplus................................................................................. 8
xiii ACQUISITION AGREEMENT This ACQUISITION AGREEMENT (this "Agreement"), dated as of June 6, 2003, is made by and between ROYAL GROUP, INC., a Delaware corporation ("Seller") and ALLEGHANY INSURANCE HOLDINGS LLC, a Delaware limited liability company ("Purchaser"). Certain capitalized terms used in this Agreement are defined in Section 16.1 hereof. WITNESSETH: WHEREAS, Seller owns all of the issued and outstanding shares of common stock of Royal Specialty Underwriting, Inc., a Georgia company ("RSUI"); WHEREAS, RSUI is in the business of underwriting and administering insurance and reinsurance coverages for Royal Indemnity Company ("RIC"), Royal Surplus Lines Insurance Company ("RSLIC"), Royal Insurance Company of America ("RICA") and certain other insurer affiliates of Seller listed on Exhibit A hereto (collectively, the "Royal Insurer Affiliates"); WHEREAS, pursuant to the terms and subject to the conditions set forth in this Agreement, Seller desires to sell, assign, convey, transfer and deliver to Purchaser, and Purchaser desires to purchase, acquire, accept and assume from Seller: (i) all of the issued and outstanding shares of common stock of RSUI; (ii) certain assets used in, and certain of the rights to, the Business (as defined in Section 16.1 hereof) as provided herein; and (iii) certain agreements relating to the Business as provided herein (collectively, the "Acquisition"); WHEREAS, as a condition and inducement to Purchaser's willingness to enter into this Agreement, Purchaser or an Affiliate of Purchaser and certain key employees have entered into Employment Agreements dated as of June 4, 2003 and effective upon the Closing Date (the "Employment Agreements"); WHEREAS, concurrently with the execution and delivery of this Agreement, Purchaser and Guaranty National Insurance Company, an Affiliate of Seller ("Guaranty National") are entering into a stock purchase agreement (such agreement, together with any and all agreements and instruments to be executed and delivered pursuant thereto and all schedules and exhibits thereto, the "Landmark Purchase Agreement"), pursuant to which Purchaser agrees to acquire, and Guaranty National agrees to sell, all of the issued and outstanding capital stock of Landmark American Insurance Company ("Landmark"); WHEREAS, in connection with the Acquisition, on the Closing Date, each of Purchaser and Seller desires to cause their respective Affiliates to enter into certain related agreements as provided herein, each effective as of July 1, 2003, including, without limitation, the Quota Share Reinsurance Agreements (as defined herein), the Administrative Services Agreements (as defined herein) and the Renewal Rights Agreement (as defined herein); and WHEREAS, in connection with the Acquisition, on the Closing Date, each of Purchaser and Seller desires to enter into the RSA SLISI Purchase Agreement (as defined herein). NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants, agreements and conditions set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: ARTICLE I THE CLOSING Section 1.1 Sale and Purchase. (a) Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Seller shall sell, assign, convey, transfer and deliver to Purchaser, and Purchaser shall purchase, acquire, accept and assume from Seller, all of its right, title and interest in, to and under the following (the "Acquired Assets"): 127,500 shares of common stock of RSUI, representing all of the issued and outstanding shares of common stock of RSUI (the "RSUI Shares"). (b) At the Closing, each of Seller and Purchaser shall, and shall cause each of their respective Affiliates to, enter into those Ancillary Agreements (as defined herein) to which each of such Persons is a party, including, without limitation, the Renewal Rights Agreement. (c) The RSUI Shares shall be transferred to Purchaser free and clear of all Liens. (d) The consideration to be paid by Purchaser for the Acquired Assets shall be as set forth in Section 1.17 hereof, subject to adjustment as provided in Section 1.18 hereof. Section 1.2 Transfer of Acquired Assets. At the Closing, the RSUI Shares shall be transferred by such instruments of transfer as are reasonably acceptable to Seller and Purchaser. Section 1.3 Excluded Assets, Excluded Contracts and Retained Liabilities. (a) Except as provided in Sections 9.1 or 9.2 below, at the Closing, Seller shall not transfer, and, except as provided in the Ancillary Agreements, from and after the Closing, RSUI shall not own or be subject to any obligation under, any Royal Group Intellectual Property or any of the assets of RSUI or the Business set forth in Schedule 1.3(a) (collectively, the "Excluded Assets"). 2 (b) At the Closing, Seller shall not transfer, and, from and after the Closing, RSUI shall not own or be subject to, any contracts entered into by RSUI or relating to the Business set forth in Schedule 1.3(b) (collectively, the "Excluded Contracts"). (c) Except as provided in the Quota Share Reinsurance Agreements, the Administrative Services Agreements and the Claims Servicing Agreement, from and after the Closing, Seller shall indemnify Purchaser for and shall hold Purchaser and its Affiliates harmless from (i) all liabilities related to the Excluded Assets, (ii) all liabilities related to the Excluded Contracts, (iii) all liabilities arising out of claims litigation relating to RSUI-Produced Insurance Contracts which are not Reinsured Contracts, whether or not RSUI is named as a party thereto, and (iv) the liabilities and obligations set forth in Schedule 1.3(c) (the "Schedule 1.3(c) Liabilities," and together with the liabilities described in clauses (i), (ii) and (iii) above, the "Retained Liabilities"). Section 1.4 Quota Share Reinsurance Agreements. (a) At the Closing, Seller shall cause RIC to execute and deliver to an insurance company to be designated by Purchaser, which insurance company shall be a direct or indirect wholly owned subsidiary of Purchaser ("AIHL Insurance Co."), and Purchaser shall cause AIHL Insurance Co. to execute and deliver to RIC, a quota share reinsurance agreement substantially in the form attached hereto as Exhibit B (the "RIC Quota Share Reinsurance Agreement"). (b) At the Closing, Seller shall cause RSLIC to execute and deliver to AIHL Insurance Co., and Purchaser shall cause AIHL Insurance Co. to execute and deliver to RSLIC, a quota share reinsurance agreement substantially in the form attached hereto as Exhibit C (the "RSLIC Quota Share Reinsurance Agreement"). (c) At the Closing, Seller shall cause Landmark to execute and deliver to AIHL Insurance Co., and Purchaser shall cause AIHL Insurance Co. to execute and deliver to Landmark, a quota share reinsurance agreement substantially in the form attached hereto as Exhibit D (the "Landmark Quota Share Reinsurance Agreement" and together with the RIC Quota Share Reinsurance Agreement and the RSLIC Quota Share Reinsurance Agreement, the "Quota Share Reinsurance Agreements"). Section 1.5 Administrative Services Agreements. (a) At the Closing, Seller shall cause RSUI and RIC to execute and deliver to AIHL Insurance Co., and Purchaser shall cause AIHL Insurance Co. to execute and deliver to RSUI and RIC, an administrative services agreement substantially in the form attached hereto as Exhibit E (the "RIC Administrative Services Agreement"). (b) At the Closing, Seller shall cause RSUI and RSLIC to execute and deliver to AIHL Insurance Co., and Purchaser shall cause AIHL Insurance Co. to execute and deliver to RSUI and RSLIC, an administrative services agreement substantially in the form attached hereto as Exhibit F (the "RSLIC Administrative Services Agreement"). 3 (c) At the Closing, Seller shall cause RSUI and RICA to execute and deliver to AIHL Insurance Co., and Purchaser shall cause AIHL Insurance Co. to execute and deliver to RSUI and RICA, an administrative services agreement substantially in the form attached hereto as Exhibit G (the "RICA Administrative Services Agreement"). (d) At the Closing, Seller shall cause RSUI and Landmark to execute and deliver to AIHL Insurance Co., and Purchaser shall cause AIHL Insurance Co. to execute and deliver to RSUI and Landmark, an administrative services agreement substantially in the form attached hereto as Exhibit H (the "Landmark Administrative Services Agreement", and together with the RIC Administrative Services Agreement, the RSLIC Administrative Services Agreement and the RICA Administrative Services Agreement, the "Administrative Services Agreements"). Section 1.6 Claims Servicing Agreement. At the Closing, Seller shall cause RSUI, RIC, RSLIC, RICA and the Royal Insurer Affiliates listed on Exhibit A thereto to execute a claims servicing agreement substantially in the form attached hereto as Exhibit I (the "Claims Servicing Agreement"). Section 1.7 Renewal Rights Agreement. At the Closing, Seller shall, and shall cause each of the Royal Insurer Affiliates to, execute and deliver to Purchaser, and Purchaser shall execute and deliver to Seller and each of the Royal Insurer Affiliates, a renewal rights agreement substantially in the form attached hereto as Exhibit J (the "Renewal Rights Agreement"). Section 1.8 Transition Services Agreement. At the Closing, Seller shall execute and deliver to Purchaser, and Purchaser shall execute and deliver to Seller, a transition services agreement which shall incorporate the terms set forth on Exhibit K (the "Transition Services Agreement"). Section 1.9 Intellectual Property Agreements. (a) At the Closing, Royal & SunAlliance USA, Inc. ("Royal & SunAlliance" ) shall execute and deliver to RSUI, and Seller shall cause RSUI to execute and deliver to Royal & SunAlliance a transitional trademark license agreement substantially in the form attached hereto as Exhibit L (the "Transitional Trademark License Agreement"). (b) At the Closing, Royal & SunAlliance shall execute and deliver to RSUI, and Seller shall cause RSUI to execute and deliver to Royal & SunAlliance the Service Mark Assignment (as defined herein) substantially in the form attached hereto as Exhibit M. Section 1.10 Employee Leasing Agreement. At the Closing, Seller shall cause RIC to execute and deliver to RSUI, and Seller shall cause RSUI to execute and deliver to RIC, an employee leasing agreement substantially in the form attached hereto as Exhibit N (the "Employee Leasing Agreement"). 4 Section 1.11 Managing General Agency Agreement. At the Closing, Seller shall cause RSUI, RIC, RSLIC, RICA and Landmark to execute a managing general agency agreement substantially in the form attached hereto as Exhibit O (the "Managing General Agency Agreement"). Section 1.12 Substitution and Indemnification Agreement. At the Closing, Seller shall cause RIC to execute and deliver to AIHL Insurance Co., and Purchaser shall cause AIHL Insurance Co. to execute and deliver to RIC, a substitution and indemnification agreement substantially in the form attached hereto as Exhibit P (the "Substitution and Indemnification Agreement"). Section 1.13 Assignment of Reinsurance Recoverables. At the Closing, Purchaser shall cause AIHL Insurance Co. to conditionally assign to the Trust Account established under the Quota Share Reinsurance Agreements all AIHL reinsurance recoverables relating to the catastrophe excess of loss reinsurance purchased by AIHL Insurance Co. and its Affiliates with respect to the Reinsured Contracts. Such conditional assignment of reinsurance recoverables shall be substantially in the form of Exhibit Q hereto (the "Assignment of Reinsurance Recoverables"). Section 1.14 Terrorism Treaty Cost Allocation. Each of Seller and Purchaser agrees, on behalf of itself and its Affiliates, to the allocation of the cost of the Terrorism Treaty (and any extension thereof) and to the other terms and conditions relating to the Terrorism Treaty (and any extension thereof) set forth in Exhibit R hereto. Section 1.15 RSA SLISI Purchase Agreement. At the Closing, Seller shall execute and deliver to Purchaser, and Purchaser shall execute and deliver to Seller, a purchase agreement substantially in the form of Exhibit S (the "RSA SLISI Purchase Agreement"), pursuant to which Purchaser will acquire, and Seller will sell, all of the issued and outstanding capital stock of RSA Surplus Lines Insurance Services, Inc. Section 1.16 Closing. (a) Subject to Section 1.16(b), the closing of the transactions contemplated hereunder (the "Closing") will take place at 10:00 a.m., New York City time, on a date (the "Closing Date") to be agreed to by the parties hereto, which shall be the later of (x) July 1, 2003 (the "Target Closing Date") or (y) the fifth (5th) Business Day on which the last unfulfilled or unwaived condition set forth in Section 13.1 hereof (other than any such condition to be fulfilled at the Closing) shall be fulfilled or waived in accordance with the terms of this Agreement; provided, that, notwithstanding the satisfaction or waiver of all conditions to Closing (other than any condition to be fulfilled at the Closing), the Purchaser shall be entitled to delay the Closing to a Closing Date not later than July 31, 2003 (the "Extended Closing Date"). The Closing shall be held at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, New York 10036, or such other place as the parties may mutually agree in writing. (b) If the Closing does not occur on the Target Closing Date, then (i) when the Closing occurs, the Closing shall be given effect as of the Effective 5 Date, (ii) all of the Ancillary Agreements shall be dated as of the Effective Date and given effect as of the Effective Date and (iii) at the Closing, Purchaser shall pay to Seller an amount equal to the net operating expenses of RSUI paid by RSUI or Seller or an Affiliate of Seller during the period, or accrued as payable for such period, from July 1, 2003 to the Closing Date to the extent not payable by RSUI to Seller or an Affiliate of Seller after the Closing Date in respect of such period under the Ancillary Agreements. If the Closing does not occur on the Target Closing Date solely by reason of Purchaser's election to delay the Closing until an Extended Closing Date as provided in Section 1.16(a) above, then Seller shall deliver to Purchaser on July 1, 2003 the certificate described in Section 13.1(c)(ix) hereof and, upon delivery of such certificate by Seller to Purchaser, the condition to Closing set forth in Section 13.1(c)(ix) hereof shall be deemed to be satisfied. (c) If the Closing Date does not occur on the Target Closing Date, then, during the period from the Effective Date until the Closing Date, Seller shall cause RSUI and each Royal Insurer Affiliate (to the extent that the conduct of each such Royal Insurer Affiliate relates to the Business) to conduct their operations in accordance with the provisions of Section 8.1 hereof. (d) At the Closing, each of the parties shall deliver or cause to be delivered to the intended recipient the monies, documents and instruments required to be delivered by or on behalf of such party at or prior to the Closing pursuant to the terms of this Agreement. Section 1.17 Consideration. The aggregate purchase price to be paid by Purchaser to Seller at the Closing in consideration of the transfer by Seller of the Acquired Assets shall be one hundred million dollars ($100,000,000), subject to adjustments as provided in Section 1.18 (the "Purchase Price"). On the Closing Date, the Purchase Price shall be paid in U.S. dollars by wire transfer of immediately available funds to the bank account specified by Seller to Purchaser. Section 1.18 Purchase Price Adjustment. (a) As soon as practicable, but in no event later than sixty (60) days following the Closing Date, Seller shall prepare and deliver to Purchaser (i) a balance sheet of RSUI as of 12:01 a.m. on the Closing Date (the "Closing Balance Sheet") which shall be audited by Pricewaterhouse Coopers LLC ("PwC"), (ii) a calculation of GAAP Net Worth of RSUI, as defined in Section 1.18(g) below, and (iii) a calculation of Working Capital of RSUI, as defined in Section 1.18(g) below (the Closing Balance Sheet, GAAP Net Worth and Working Capital being collectively referred to herein as the "Closing Financial Data"). The Closing Balance Sheet shall be prepared in accordance with GAAP consistently applied with the accounting principles used to prepare the December 31, 2002 balance sheet included in the Audited RSUI Financial Statements (the "Latest Balance Sheet"); provided, however, that whether or not required by GAAP, the Closing Balance Sheet will not give effect to the Employment Agreements or the Ancillary Agreements. The fees and expenses of PwC incurred in connection with the audit of the Closing Balance Sheet, as well as the preparation of the Audited RSUI 6 Financial Statements and related underwriting review conducted by PwC, shall be borne fifty percent (50%) by Seller and fifty percent (50%) by Purchaser. (b) During the preparation of the Closing Balance Sheet, and the period of any review or dispute contemplated by this Section 1.18, Purchaser shall (i) provide Seller and Seller's authorized representatives with reasonable access to all relevant books, records, workpapers and RSUI Employees, (ii) cooperate with Seller and Seller's authorized representatives, including the provision of all information necessary or useful in the preparation of the Closing Balance Sheet, and (iii) be entitled to freely observe and review the audit, including PwC's workpapers, with full access to PwC during the entirety of said audit, including during the planning stage. (c) After receipt of the Closing Financial Data, Purchaser shall have forty-five (45) days to review the Closing Financial Data, together with the workpapers used in the preparation thereof. Purchaser's review of the Closing Financial Data and therefore any objections thereto shall be limited to whether such Closing Financial Data was prepared in accordance with GAAP consistently applied with the Audited RSUI Financial Statements. Unless Purchaser delivers written notice to Seller on or prior to the 45th day after Purchaser's receipt of the Closing Financial Data stating that Purchaser objects to the Closing Balance Sheet, the calculation of GAAP Net Worth or the calculation of Working Capital, and specifying the nature of such objections and the reasons therefor, Purchaser shall be deemed to have accepted and agreed to the Closing Financial Data and the Closing Balance Sheet shall become the Final Closing Balance Sheet, and the Final Closing Balance Sheet and the calculations of GAAP Net Worth and Working Capital shall be final, binding and conclusive for purposes of determining the Final Purchase Price. If Purchaser so notifies Seller of its objections to the Closing Financial Data, the parties shall, within twenty (20) days (or such longer period as the parties may agree) following Seller's receipt of such notice (the "Resolution Period"), attempt to resolve their differences arising from such objections, and any resolution by them as to any disputed amounts or methods, principles, practices or policies employed in the preparation thereof shall be final, binding and conclusive. (d) Any objections regarding the Closing Financial Data remaining in dispute at the conclusion of the Resolution Period ("Unresolved Changes") shall be submitted to Deloitte & Touche LLP or Ernst & Young LLP (the "Neutral Auditors"). All Unresolved Changes shall be submitted to the Neutral Auditors no later than ten (10) days after conclusion of the Resolution Period. Each party agrees to execute, if requested by the Neutral Auditors, a reasonable engagement letter. All fees and expenses relating to the work, if any, to be performed by the Neutral Auditors shall be borne pro rata by Seller and Purchaser in proportion to the allocation of the dollar amount of the Unresolved Changes between Seller and Purchaser made by the Neutral Auditors such that the prevailing party pays a lesser proportion of the fees and expenses. The Neutral Auditors shall act as an expert to determine, based on the provisions of this Section 1.18, only the Unresolved Changes. The Neutral Auditors' determination of the Unresolved Changes shall be made within thirty (30) days after the submission of the Unresolved Changes thereto, and shall be set forth in a written statement delivered to Seller and Purchaser. The Closing Financial Data shall then be revised to reflect the 7 Neutral Auditor's determination of the Unresolved Changes, whereupon the Closing Balance Sheet shall become the Final Closing Balance Sheet, and the Final Closing Balance Sheet and the calculations of GAAP Net Worth and Working Capital as determined by the Neutral Auditors shall be final, binding and conclusive for purposes of determining the Final Purchase Price. (e) Once the Final Closing Balance Sheet and the calculations of GAAP Net Worth and Working Capital are available, the Final Purchase Price shall be determined as follows: (i) first, to the extent that Working Capital is less than zero, the Purchase Price shall be decreased by an amount equal to the difference between Working Capital and zero (the "Working Capital Deficit"); to the extent that Working Capital is more than zero, the Purchase Price shall be increased by an amount equal to the difference between Working Capital and zero (the "Working Capital Surplus"); and (ii) second, to the extent that Adjusted Net Worth (as defined in Section 1.18(g) below), is less than zero, the Purchase Price shall be decreased by an amount equal to the difference between Adjusted Net Worth and zero (the "Adjusted Net Worth Deficit"). If the Final Purchase Price exceeds the Purchase Price, Purchaser shall pay to Seller in cash, by wire transfer to an account specified by Seller, the amount equal to the Final Purchase Price less the Purchase Price, together with simple interest on such amount at the Applicable Rate from the Closing Date through the date of payment. If the Final Purchase Price is less than the Purchase Price, Seller shall pay to Purchaser in cash, by wire transfer to an account specified by Purchaser, the amount equal to the Purchase Price less the Final Purchase Price, together with simple interest on such amount at the Applicable Rate from the Closing Date through the date of payment. Such payment by Purchaser to Seller, or by Seller to Purchaser, as the case may be, shall be made within five (5) Business Days after the date that the Final Closing Balance Sheet becomes available. (f) Purchaser and Seller shall make good faith efforts to comply with the timing and response requirements set forth in this Section 1.18, but, in the absence of bad faith, neither party shall be deemed to have waived its rights under the Purchase Price adjustment provisions as contemplated herein on the basis of technical violations of timing or response requirements. (g) For purposes hereof, (i) GAAP Net Worth is an amount equal to "Total Stockholder's Equity (Deficit)" as set forth on the Closing Balance Sheet (excluding any Tax assets and any liability for Taxes), (ii) Working Capital is an amount computed as (x) "Total Current Assets" as set forth on the Closing Balance Sheet (excluding any Tax assets, and provided that the amount of the deposit in respect of the July 2004 meeting at Pebble Beach resorts described in Schedule 4.16(a) hereto shall be treated as a current asset for purposes of computing Working Capital) less (y) "Total Current Liabilities" as set forth on the Closing Balance Sheet (excluding any liability for Taxes), (iii) if there is a Working Capital Deficit, Adjusted Net Worth shall be an amount equal to GAAP Net Worth increased by the Working Capital Deficit, and (iv) if there is a Working Capital Surplus, Adjusted Net Worth shall be an amount equal to GAAP Net Worth decreased by the Working Capital Surplus. 8 Section 1.19 Transfer of Unearned Premium Reserves. (a) On the Closing Date, Seller shall estimate the Net Unearned Premium Reserves ("Estimated NUPR") and cause each of RIC, RSLIC and Landmark (collectively, the "Ceding Insurers"), to place Qualifying Assets in an amount equal to their respective portions of the Estimated NUPR, net of their respective portions of the Aggregate Ceding Commission, into the trust account established by AIHL Insurance Co. pursuant to Section 9.1 of the Quota Share Reinsurance Agreements (the "Trust Account"); provided, however, neither Seller nor any of the Ceding Insurers shall be required to place Qualifying Assets into the Trust Account in excess of the amounts actually collected by such Ceding Insurer in respect of the Net Unearned Premium Reserves at or prior to the Closing Date; and provided, further, with respect to any premium actually collected by RSUI at or prior to the Closing Date in respect of the Net Unearned Premium Reserves and not paid to a Ceding Insurer, Seller shall cause RSUI to place, on the Closing Date, Qualifying Assets in such amount into the Trust Account. (b) On the Closing Date, Seller shall cause the Ceding Insurers to assign to the Trust Account all premium receivables related to the Reinsured Contracts, net of premium receivables to be ceded to third party reinsurers relating to such Reinsured Contracts. Premiums which are actually collected, net of premiums ceded to third party reinsurers, shall be referred to herein as the "Collected Net Premium". At any time on and after the Closing Date, the Ceding Insurers and RSUI shall place in the Trust Account all Collected Net Premium as soon as practicable upon receipt of the Collected Net Premium, but no later than five (5) Business Days after receipt of such Collected Net Premium. (c) For purposes of this Section 1.19, "Aggregate Ceding Commission" shall be an amount equal to the sum of the following: (i) an amount equal to (x) 6.0% multiplied by (y) the Estimated NUPR, representing reimbursement of the estimated Deferred Acquisition Cost (the "Estimated DAC") paid by the Royal Insurer Affiliates in connection with the Net Unearned Premium Reserves; (ii) $15.0 million, representing the embedded value in the Net Unearned Premium Reserves; and (iii) $9.753 million, representing the cost of the Cat Cover previously paid by the Royal Insurer Affiliates for the RSUI-Produced Insurance Contracts for the six-month period ending on October 31, 2003; and (iv) an amount, representing payment for a portion of the value of the credit carryforwards existing as of December 31, 2002 in the reinsurance treaties identified on Schedule 1.19 (c) hereto, equal to (A) $3.75 million less (B) any amount paid to a Royal Insurer Affiliate by a participant in a treaty identified on Schedule 1.19(c) hereto by reason of such participant's failure to continue as a participant in such treaty. 9 (d) As of a date to be agreed by Seller and Purchaser, but not later than December 31, 2003 (the "NUPR Settlement Date"), Seller shall cause PwC to compute (i) the actual Net Unearned Premium Reserves (the "Actual NUPR") and the actual Deferred Acquisition Cost paid by the Royal Insurer Affiliates in connection with the Actual NUPR (the "Actual DAC"). Promptly upon receipt of PwC's computation of the Actual NUPR and the Actual DAC, Seller shall forward such computations to Purchaser. In the event that Actual NUPR exceeds Estimated NUPR, Seller shall cause the Ceding Reinsurers promptly to remit the difference to Purchaser, and in the event that Estimated NUPR exceeds Actual NUPR, Purchaser (or an Affiliate of Purchaser) shall promptly remit the difference to Seller or to such Ceding Reinsurer as may be designated by Seller. In the event that Actual DAC exceeds Estimated DAC, Purchaser shall promptly remit the difference to Seller, and in the event that Estimated DAC exceeds Actual DAC, Seller shall promptly remit the difference to Purchaser. Payments made in respect of differences between Actual NUPR and Estimated NUPR and between Actual DAC and Estimated DAC shall include payment of simple interest on the amount of such difference at the Applicable Rate from the Closing Date through the date of payment. Payments made pursuant to this Section 1.19(d) shall be subject to offset but only to the extent agreed by Seller and Purchaser. (e) In the event that, subsequent to the Closing Date, Purchaser notifies Seller that the reinsurers party to the treaties set forth on Schedule 1.19(c) have not agreed to make available to AIHL Insurance Co. the benefit of the credit carryforwards that existed in such treaties as of December 31, 2002, Seller shall refund to Purchaser a portion of the $3.75 million payment paid as part of the Aggregate Ceding Commission pursuant to Section 1.19(c)(iv) above. The amount of the refund shall be proportionate to the portion of the credit carryforwards existing in the treaties identified on Schedule 1.19(c) as of December 31, 2002 not made available to AIHL Insurance Co., and shall include payment of simple interest on such amount at the Applicable Rate from the Closing Date through the date of payment. (f) On the Closing Date, the Cat Cover shall be endorsed over to AIHL Insurance Co. (the "Cat Cover Endorsement"), and AIHL Insurance Co. shall be solely responsible for all payments to be made in respect of the Cat Cover from and after November 1, 2003. (g) Seller and the Ceding Insurers shall allocate the Net Unearned Premium Reserves and Aggregate Ceding Commission among the Royal Insurer Affiliates in a fair and equitable manner. Section 1.20 Sharing of Profit Contingency Commissions for the Property Surplus Share Contracts. (a) The calculation of the profit contingency commissions will continue on the same basis as defined in the treaties set forth on Schedule 1.20(a) (the "Schedule 1.20(a) Contracts") with the results ceded by the Royal Insurer Affiliates and the results ceded by AIHL Insurance Co. to the Parallel Treaty (as defined in Section 13.1(c)(x)) being merged for purposes of the calculation. 10 (b) According to the terms of the Schedule 1.20(a) Contracts, the premiums ceded to the treaties and the corresponding paid, outstanding and incurred losses and resulting ceded loss ratio are grouped together into adjustment periods or compartments for the calculation. These adjustment periods are defined on a policy/risk attaching basis. All ceded policies with effective dates within the defined adjustment period are grouped together. Thus, the calculations are done on a "Policy Year" basis rather than a calendar year basis. Typically, these adjustment periods correspond to a single calendar year (January through December). However, for the RSUI Pool the most recent adjustment period, Part 5, is currently for three years beginning January 1, 2001 and ending December 31, 2003. (c) While the calculations of the profit contingency commissions will continue to be made on a consistent basis as respects the reinsurer participants and will include ceded premium and loss experience from both the period when Seller owned RSUI and the period when Purchaser owns RSUI, it will be necessary to further break down the calculations for each adjustment period into two components: one for the Seller ownership period and one for the Purchaser ownership period. Since the transfer of the Net Unearned Premium Reserves will be made on the Effective Date and, from and after the Effective Date, RSUI-Produced Insurance Contracts will be either 100% ceded to or issued by AIHL Insurance Co., all ceded earned premium and newly arising loss experience from and after the Effective Date will be credited to the period of Purchaser's ownership of RSUI. Similarly, all ceded earned premium for periods up to and including the Effective Date will be credited to the period of Seller's ownership of RSUI, as will the ceded loss experience relating to ceded claims arising from occurrences prior to the Effective Date. (d) The reinsurers will be billed based upon the results of the calculation using the combined 2003 RSUI experience (including results during the period of Seller ownership of RSUI and results during the period of Purchaser ownership of RSUI). After such billed contingent commissions have been collected by RSUI, such collected cash amounts will be shared by the two companies in proportion to their respective percentage of contribution to the 2003 contingent profit calculation. This apportionment will be made for the calculation as of December 31, 2003. Thereafter, the total results of the profit contingency commissions will be retained by AIHL Insurance Co. Section 1.21 Closing Items. (a) At the Closing, Seller, RSUI or the Royal Insurer Affiliates, as applicable, shall execute (except as to clauses (xv), (xvi), (xvii), (xviii), (xix), (xx) and (xxiii) of this Section 1.21(a)) and deliver to Purchaser the following: (i) the Quota Share Reinsurance Agreements; (ii) the Administrative Services Agreements; (iii) the Claims Servicing Agreement; 11 (iv) the Renewal Rights Agreement; (v) the Transition Services Agreement; (vi) the Transitional Trademark License Agreement; (vii) the Service Mark Assignment; (viii) the Employee Leasing Agreement; (ix) the Managing General Agency Agreement; (x) the Substitution and Indemnification Agreement; (xi) the Assignment of Reinsurance Recoverables; (xii) the RSA SLISI Purchase Agreement; (xiii) the certificates representing all of the RSUI Shares as provided in Section 13.1(c)(viii); (xiv) the Cat Cover Endorsement; (xv) evidence of compliance with any applicable regulatory filings or approvals from which no exemption is available as provided in Section 8.5(a); (xvi) evidence of compliance with the requirements of Section 8.12 regarding the settlement of intercompany balances and the termination of Intercompany Agreements; (xvii) evidence of compliance with the requirements of Section 8.13 regarding the termination of Affiliate Agreements; (xviii) evidence of the resignations of the directors of RSUI set forth on Schedule 8.15; (xix) evidence of the transfer or other disposition of the Excluded Assets and the Excluded Contracts in compliance with the requirements of Section 8.17; (xx) evidence of the receipt of all consents set forth in Section 13.1(c)(ii); (xxi) certificates of a senior officer of Seller required by Section 13.1(c)(v) and Section 13.1(c)(ix); (xxii) a certificate of Seller satisfying the requirements of Treasury Regulation Section 1.1445-2(b)(2); 12 (xxiii) a computer generated listing of the In Force RSUI-Produced Insurance Contracts as of the Closing Date or the closest practicable date prior thereto (the "Closing RSUI Contract List"); and (xxiv) a certificate signed by the secretary of Seller certifying the adoption of resolutions by the Board of Directors of Seller authorizing the transactions contemplated hereby. (b) At the Closing, Purchaser, or AIHL Insurance Co., as applicable, shall execute (except as to clause (x) of this Section 1.21(b)) and deliver to Seller the following: (i) the Quota Share Reinsurance Agreements; (ii) the Administrative Services Agreements; (iii) the Claims Servicing Agreement; (iv) the Renewal Rights Agreement; (v) the Transition Services Agreement; (vi) the Transitional Trademark License Agreement; (vii) the Service Mark Assignment; (viii) the Substitution and Indemnification Agreement; (ix) the Assignment of Reinsurance Recoverables Agreement; (x) evidence of compliance with any applicable regulatory filings or approvals from which no exemption is available, as provided in Section 8.5(a); (xi) a certificate of a senior officer of Purchaser required by Section 13.1(b)(iv); and (xii) a certificate signed by the secretary of Purchaser certifying the adoption of resolutions by the Board of Directors of Seller authorizing the transactions contemplated hereby. 13 ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER Subject to Section 15.1 hereof, Seller hereby represents and warrants to Purchaser as of the date of this Agreement (except if another date is specified in the representation or warranty), that: Section 2.1 Organization and Standing. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority to own, lease and operate its assets and properties and to carry on its business as now being conducted. Seller is duly qualified or licensed to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, except for those jurisdictions where the failure to be so qualified or licensed or to be in good standing would not adversely affect the Business or adversely affect the ability of Seller to execute and deliver this Agreement or any Ancillary Agreement to which it is a party, to perform its obligations hereunder and thereunder or to consummate the transactions contemplated hereby and thereby. Seller has made available to Purchaser prior to the execution of this Agreement true, correct and complete copies of its certificates of incorporation and bylaws, as currently in effect. Section 2.2 Authority. Seller has all requisite power and authority to enter into and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby, including, without limitation, the sale of the Acquired Assets. Seller has all requisite power and authority to execute and deliver the Ancillary Agreements to which it is a party, to perform its obligations thereunder and to consummate the transactions contemplated thereby. The execution, delivery and performance of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby, and the execution, delivery and performance of the Ancillary Agreements to which Seller is a party and the consummation of the transactions contemplated thereby, have been duly and validly authorized by all necessary action on the part of Seller and no other proceedings on the part of Seller (including any proceedings on the part of the stockholders of Seller) are necessary to authorize the execution, delivery and performance of this Agreement, the Ancillary Agreements to which Seller is a party or the consummation of any of the transactions contemplated hereby or thereby. This Agreement has been duly executed and delivered by Seller and, assuming the due authorization, execution and delivery of this Agreement by Purchaser, constitutes a legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms and conditions, subject only to the Bankruptcy and Equity Exception. On the Closing Date, the Ancillary Agreements to which Seller is a party will have been duly executed and delivered by Seller and, assuming the due authorization, execution and delivery of such Ancillary Agreements by each of the other Persons party thereto, will constitute legal, valid and binding obligations of Seller, enforceable against Seller and in accordance with their terms subject only to the Bankruptcy and Equity Exception. 14 Section 2.3 Noncontravention. (a) Except as set forth in Schedule 2.3(a), the execution, delivery and performance of this Agreement by Seller does not, and, as of the Closing Date, the execution, delivery and performance of the Ancillary Agreements to which it is a party, and the consummation of the transactions contemplated by this Agreement and such Ancillary Agreements, will not, conflict with, or result in any breach, violation, impairment or revocation of, or default (with or without notice or lapse of time, or both) under, or give rise to the creation of a Lien, a right of termination, cancellation, revocation or acceleration of any obligation or loss of a benefit under (i) the certificate of incorporation or bylaws of Seller, (ii) any loan or credit agreement, note, mortgage, indenture, lease, material agreement, concession, franchise, contractual license or similar authorization applicable to Seller or by or to which its properties or assets (including, without limitation, the Acquired Assets) may be bound or subject, (iii) subject to the governmental filings and other matters referred to in Section 2.3(b) below, any Applicable Law applicable to Seller or to which its properties or assets may be bound or subject, (iv) any order, writ, judgment, injunction, award, decree, law, statute, ordinance, rule or regulation of any Governmental Entity or any agreement with, or condition imposed by, any Governmental Entity, in each case, which is binding upon Seller or its properties or assets in connection with the Business or (v) any Permit related to the Business, other than, in the case of clauses (ii), (iii), (iv) and (v), any such conflicts, violations, impairments, revocations, defaults, Liens, rights or losses which would not adversely affect the Business or adversely affect the ability of Seller to execute and deliver this Agreement or the Ancillary Agreements to which it is a party, to perform its obligations hereunder and thereunder or to consummate the transactions contemplated hereby and thereby. (b) Except as set forth in Schedule 8.5(a), no consent, approval, license, order or authorization of, action by or in respect of, or registration, declaration or filing with, or notice to, any Governmental Entity or any other Person is required or necessary to be obtained, made or given by Seller in connection with (i) its execution and delivery of this Agreement and the Ancillary Agreements to which it is a party, (ii) the performance by Seller of its obligations hereunder and thereunder and (iii) the consummation by Seller of the transactions contemplated hereby and thereby. Section 2.4 Litigation. Except as set forth in Schedule 2.4, there is no action, order, writ, injunction, judgment or decree outstanding or any claim, suit, litigation, proceeding, arbitration, inquiry, governmental audit or investigation (collectively, "Actions") pending, or, to the Knowledge of Seller, threatened, against Seller, by or before any court, other Governmental Entity or arbitrator, other than those which would not (x) prevent or materially delay Seller from consummating the transactions contemplated by this Agreement and the Ancillary Agreements to which it is a party or (y) adversely affect the Business. 15 Section 2.5 Title to the RSUI Shares. (a) The sale and delivery of the RSUI Shares as contemplated by this Agreement are not subject to any preemptive right or right of first refusal or other right or restriction. (b) Seller has good and valid title to the RSUI Shares, free and clear of all Liens. At the Closing, Purchaser will acquire the RSUI Shares, free and clear of all Liens. Section 2.6 Brokers and Finders. Except for Goldman, Sachs & Co., the fees and expenses of which will be paid by Seller (the "Seller's Fee"), no broker, investment banker, financial advisor or other Person (an "Investment Broker") is entitled to any broker's, finder's, financial advisor's or similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Seller or any of its Affiliates. ARTICLE III REPRESENTATIONS AND WARRANTIES RELATING TO ROYAL INSURER AFFILIATES Subject to Section 15.1 hereof, Seller hereby represents and warrants to Purchaser as of the date of this Agreement (except if another date is specified in the representation or warranty), that: Section 3.1 Organization and Standing. Each of the Royal Insurer Affiliates is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has all the requisite power and authority to own, lease and operate its assets and properties and to carry on its business as now being conducted. Each of the Royal Insurer Affiliates is duly qualified or licensed to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, except for those jurisdictions where the failure to be so qualified or licensed or to be in good standing would not adversely affect the Business or adversely affect the ability of any Royal Insurer Affiliate to execute and deliver any Ancillary Agreement to which it is a party, to perform its obligations thereunder or to consummate the transactions contemplated thereby. Seller has made available to Purchaser prior to the execution of this Agreement true, correct and complete copies of the certificate of incorporation and bylaws, as currently in effect, for each of the Royal Insurer Affiliates who are parties to any Ancillary Agreement. Section 3.2 Authority. Each of the Royal Insurer Affiliates which is a party to any Ancillary Agreement has all requisite power and authority to execute and deliver the Ancillary Agreements to which it is a party, to perform its obligations thereunder and to consummate the transactions contemplated thereby. The execution, delivery and performance of the Ancillary Agreements by each of the Royal Insurer 16 Affiliates which is a party thereto, and the consummation of the transactions contemplated thereby, have been duly and validly authorized by all necessary action on the part of each such Royal Insurer Affiliate and no other corporate proceedings on the part of any of such Royal Insurer Affiliates are necessary to authorize the execution, delivery and performance of such Ancillary Agreements or the consummation of any of the transactions contemplated thereby. On the Closing Date, the Ancillary Agreements will have been duly executed and delivered by each of the Royal Insurer Affiliates which is a party thereto and, assuming the due authorization, execution and delivery of such Ancillary Agreements by each of the other parties thereto, will constitute legal, valid and binding obligations of each Royal Insurer Affiliate which is a party thereto, enforceable against each such Royal Insurer Affiliate in accordance with its terms subject only to the Bankruptcy and Equity Exception. Section 3.3 Noncontravention. (a) Except as set forth in Schedule 3.3(a), as of the Closing Date, the execution, delivery and performance by each of the Royal Insurer Affiliates of the Ancillary Agreements to which it is a party and the consummation of the transactions contemplated thereby, will not conflict with, or result in any breach, violation, impairment or revocation of, or default (with or without notice or lapse of time, or both) under, or give rise to the creation of a Lien, a right of termination, cancellation, revocation or acceleration of any obligation or loss of a benefit under (i) the certificate of incorporation or bylaws (or comparable organizational document) of any of the Royal Insurer Affiliates, (ii) any loan or credit agreement, note, mortgage, indenture, lease, material agreement, concession, franchise, contractual license or similar authorization applicable to any of the Royal Insurer Affiliates, or by or to which any of them or their respective assets or properties (including, without limitation, the Acquired Assets) may be bound or subject, (iii) subject to the governmental filings and other matters referred to in Section 3.3(b) below, any Applicable Law applicable to any of the Royal Insurer Affiliates which is a party to any Ancillary Agreement or to which its assets or properties may be bound or subject, (iv) any order, writ, judgment, injunction, award, decree, law, statute, ordinance, rule or regulation of any Governmental Entity or any agreement with, or condition imposed by, any Governmental Entity, in each case, which is binding upon any of the Royal Insurer Affiliates which is a party to any of the Ancillary Agreements or its respective properties or assets in connection with the Business or (v) any Permit related to the Business, other than, in the case of clauses (ii), (iii) (iv) and (v) any such conflicts, violations, impairments, revocations, defaults, Liens, rights or losses which would not adversely affect the Business or adversely affect the ability of any of the Royal Insurer Affiliates to execute and deliver any of the Ancillary Agreements to which such Royal Insurer Affiliate is a party, to perform its obligations thereunder or to consummate the transactions contemplated thereby. (b) Except as set forth in Schedule 8.5(a), no consent, approval, license, order or authorization of, action by or in respect of, or registration, declaration or filing with, or notice to, any Governmental Entity or any other Person is required or necessary to be obtained, made or given by any of the Royal Insurer Affiliates in connection with (i) the execution and delivery of the Ancillary Agreements to which it 17 is a party, (ii) the performance by such Royal Insurer Affiliate of its obligations thereunder and (iii) the consummation by such Royal Insurer Affiliates of the transactions contemplated thereby. Section 3.4 Permits. (a) Except as set forth in Schedule 3.4(a), each of the Royal Insurer Affiliates has (i) all Permits necessary to perform its obligations under each Ancillary Agreement to which it is a party and (ii) all Permits which are necessary for the lawful operation of the Business as conducted on the date hereof, (collectively, the "Royal Insurer Affiliate Permits"), and all such Royal Insurer Affiliate Permits are valid and in full force and effect. Except as set forth in Schedule 3.4(a), there is no action, proceeding, inquiry or investigation pending or, to the Knowledge of Seller, threatened for the suspension, cancellation, revocation or nonrenewal of any such Royal Insurer Affiliate Permit. (b) None of the Royal Insurer Affiliates is operating under any agreement or understanding with any Governmental Entity which requires any of the Royal Insurer Affiliates to take, or refrain from taking, any action relating to the conduct of the Business which would adversely affect the Business or the performance of its obligations under each Ancillary Agreement to which it is a party otherwise permitted by Applicable Law. Section 3.5 Litigation. Except as set forth in Schedule 3.5, there is no Action pending, or, to the Knowledge of Seller, threatened, against any of the Royal Insurer Affiliates or any of their respective assets and properties, by or before any court, other Governmental Entity or arbitrator, other than those which would not prevent or materially delay any of the Royal Insurer Affiliates from consummating the transactions contemplated by this Agreement and the Ancillary Agreements to which it is a party. Section 3.6 Compliance with Applicable Law. Except as set forth in Schedule 3.6, each Royal Insurer Affiliate is in compliance with (a) the terms of its certificate or articles of incorporation, bylaws or other charter or organization documents and (b) all Applicable Laws in the conduct of the Business, except, in the case of clause (b), where the failure to comply would not materially adversely affect the Business. Except as set forth in Schedule 3.6 and except for individual consumer complaints made to Governmental Entities and forwarded to Royal Insurer Affiliates, to the Knowledge of Seller, no Royal Insurer Affiliate has received any written notice since January 1, 2000, from any Governmental Entity or arbitrator alleging any violation of, or default under, any Applicable Law by such Royal Insurer Affiliate with regard to the In Force RSUI-Produced Insurance Contracts or directing any Royal Insurer Affiliate to take any remedial action with respect to such Applicable Law. 18 ARTICLE IV REPRESENTATIONS AND WARRANTIES RELATING TO RSUI Subject to Section 15.1 hereof, Seller hereby represents and warrants to Purchaser as of the date of this Agreement (except if another date is specified in the representation or warranty), that: Section 4.1 Organization and Standing. RSUI is a corporation duly organized, validly existing and in good standing under the laws of the State of Georgia and has all requisite power and authority to own, lease and operate its assets and properties and to carry on its business as now being conducted. RSUI is duly qualified or licensed to do business as a foreign corporation and is in good standing as a foreign corporation in each jurisdiction in which the nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, except for those jurisdictions where the failure to be so qualified or licensed or to be in good standing would not adversely affect the Business. Schedule 4.1 is a list of all jurisdictions in which RSUI is duly qualified or licensed to do business as a foreign corporation. Seller has made available to Purchaser prior to the execution of this Agreement true, correct and complete copies of the certificate of incorporation and bylaws, as currently in effect, for RSUI. Section 4.2 Noncontravention. (a) Except as set forth in Schedule 4.2(a), the execution, delivery and performance of this Agreement does not, and, as of the Closing Date, the execution, delivery and performance of the Ancillary Agreements to which it is a party, and the consummation of the transactions contemplated by this Agreement and such Ancillary Agreements, will not, conflict with, or result in any breach, violation, impairment or revocation of, or default (with or without notice or lapse of time, or both) under, or give rise to the creation of a Lien, a right of termination, cancellation, revocation or acceleration of any obligation or loss of a benefit under (i) the certificate of incorporation or bylaws of RSUI, (ii) any loan or credit agreement, note, mortgage, indenture, lease, material agreement, concession, franchise, contractual license or similar authorization applicable to RSUI or by or to which its assets or properties (including, without limitation, the Acquired Assets) may be bound or subject, (iii) subject to the governmental filings and other matters referred to in Section 4.2(b) below, any Applicable Law applicable to RSUI or to which its assets or properties may be bound or subject, (iv) any order, writ, judgment, injunction, award, decree, law, statute, ordinance, rule or regulation of any Governmental Entity or any agreement with, or condition imposed by, any Governmental Entity, in each case, which is binding upon RSUI or its properties or assets in connection with the Business or (v) any Permit related to the Business, other than, in the case of clauses (ii), (iii), (iv) and (v), any such conflicts, violations, impairments, revocations, defaults, Liens, rights or losses which would not adversely affect the Business. 19 (b) Except as set forth in Schedule 8.5(a), no consent, approval, license, order or authorization of, action by or in respect of, or registration, declaration or filing with, or notice to, any Governmental Entity or any other Person is required or necessary to be obtained, made or given by RSUI in connection with (i) its execution and delivery of the Ancillary Agreements to which it is party, (ii) the performance by RSUI of its obligations thereunder and (iii) the consummation by RSUI of the transactions contemplated thereby. Section 4.3 Capitalization. (a) The authorized capital stock of RSUI consists of (i) 86,800 shares of preferred stock, no par value, none of which are issued and outstanding, and (ii) 250,000 shares of common stock, no par value, of which 127,500 shares are issued and outstanding. No other class of equity securities, preferred stocks, bonds, debentures, notes, other evidences of indebtedness for borrowed money or other securities of any kind of RSUI is authorized, issued or outstanding. All of the outstanding shares of RSUI are duly authorized, validly issued and are fully paid and non-assessable and are owned of record and beneficially by Seller free and clear of all Liens. (b) Except as set forth in Schedule 4.3(b), except for interests which constitute a part of the Excluded Assets and except for investment securities owned by RSUI in the ordinary course of business, RSUI does not own any proprietary interest or equity interest in, or any interest convertible or exchangeable into a proprietary interest or equity interest in, any Person. (c) RSUI has not issued any securities in violation of any preemptive or similar rights. There are no outstanding options, warrants, calls, preemptive or other rights, commitments, subscriptions or agreements of any kind (absolute, contingent or otherwise) to which RSUI is a party, or by which RSUI is bound to purchase or otherwise receive, nor are there any securities or instruments of any kind convertible into or exchangeable for, any capital stock (including, without limitation, outstanding, authorized but unissued, unauthorized, treasury or other shares thereof) or other equity interest or evidence of indebtedness for borrowed money of RSUI. Neither RSUI nor Seller is a party to any agreement with a third party which places any restriction upon, or which creates any voting trust, proxy, or other agreement or understanding with respect to, the voting, purchase, redemption, acquisition or transfer of, or the declaration or payment of any dividend or distribution on, any shares of capital stock of RSUI. To the Knowledge of Seller, there are no restrictions upon, or voting trusts, proxies or other agreements or understandings with respect to, the voting, purchase, redemption, acquisition or transfer of, or the declaration or payment of any dividend or distribution on, any shares of capital stock of RSUI. Section 4.4 Financial Statements. (a) Seller heretofore has delivered to Purchaser true, correct and complete copies of the audited GAAP balance sheet of RSUI as of December 31, 2001 and 2002 and the related audited statements of operations of RSUI, statements of 20 stockholder's equity and statements of cash flow for the years then ended, including in each case the related notes and the auditor's report thereon (the "Audited RSUI Financial Statements"). The Audited RSUI Financial Statements have been prepared in accordance with GAAP consistently applied throughout the periods involved (except as may be indicated in the notes thereto regarding the adoption of new accounting policies) and fairly present in all material respects the financial position and results of operations of RSUI as a wholly-owned subsidiary of Seller as of the dates and for the periods indicated therein. (b) The underwriting results of the Business as reported in the Schedule of Adjusted Underwriting Results for 2002 and 2001 have been included in the consolidated accounts of the Royal & SunAlliance without difference and form part of the audited financial statements of Royal & SunAlliance. Section 4.5 Accounts. Schedule 4.5 sets forth the names of all financial and other similar institutions at which RSUI maintains accounts, deposits or safe deposit boxes of any nature, and the account numbers and the names of all Persons authorized to draw thereon or make withdrawals therefrom. Section 4.6 Working Capital. Except as set forth on Schedule 4.6, since December 31, 2002, (x) RSUI has not incurred any liabilities that would not be treated as current liabilities under GAAP consistently applied with the accounting principles used to prepare the Audited RSUI Financial Statements and (y) there has not been any capital contribution to RSUI other than a capital contribution made in cash. Section 4.7 Administration of Fiduciary Accounts. Except as set forth in Schedule 4.7, RSUI has properly administered, in all material respects with Applicable Law, all accounts for which it acts as a fiduciary, if any, including, but not limited to, accounts for which it serves as a trustee, agent, custodian, personal representative, guardian, conservator or investment advisor, in accordance with the terms of the governing document and Applicable Laws. Neither RSUI nor any of its directors, officers or employees has committed any breach of trust with respect to any such fiduciary account, and the accounting for each such fiduciary account is true and correct in all material respects and accurately reflects the assets of such fiduciary account. Section 4.8 Compliance with Applicable Law. Except as set forth in Schedule 4.8, RSUI is in compliance with (a) the terms of its certificate or articles of incorporation, bylaws or other charter or organization documents and (b) all Applicable Laws, except in the case of clause (b), where the failure to comply would not materially adversely affect the Business. Except as set forth in Schedule 4.8, RSUI has not received any written notice since January 1, 2000 from any Governmental Entity or arbitrator alleging any violation of, or any default under, any Applicable Law by RSUI in the conduct of the Business or directing RSUI to take any remedial action with respect to such Applicable Law. 21 Section 4.9 Permits. (a) Except as set forth on Schedule 4.9(a), RSUI has (i) all Permits necessary to perform its obligations under each Ancillary Agreement to which it is a party and (ii) all Permits which are necessary for the lawful operation of its Business as conducted on the date hereof (collectively, the "RSUI Permits"), and all such RSUI Permits are valid and in full force and effect. Except as set forth in Schedule 4.9(a), there is no action, proceeding, inquiry or investigation pending or, to the Knowledge of Seller, threatened for the suspension, cancellation, revocation or nonrenewal of any such Material RSUI Permit. All such RSUI Permits (other than licenses or qualifications to do business as a foreign corporation which are set forth on Schedule 4.1) are set forth in Schedule 4.9(a). (b) RSUI is not operating under any agreement or understanding with any Governmental Entity which requires RSUI to take, or refrain from taking, any action relating to the conduct of the Business or the performance of its obligations under each Ancillary Agreement to which it is a party otherwise permitted by Applicable Law. Section 4.10 Litigation. Except as set forth in Schedule 4.10, there is no Action outstanding or pending, or, to the Knowledge of Seller, threatened, against RSUI or any of its assets and properties, by or before any court, other Governmental Entity or arbitrator, other than those which (i) would not (x) prevent or materially delay RSUI from consummating the transactions contemplated by this Agreement and the Ancillary Agreements to which it is a party or (y) adversely affect the Business and (ii) do not assert a cause of action based upon an action allegedly taken in bad faith by RSUI or by any agent, broker or other Person acting on behalf of RSUI. Section 4.11 All Necessary Assets. Except as set forth in Schedule 4.11, and except for services to be provided under the Ancillary Agreements, at the Closing hereunder, RSUI will own, lease or license all property, assets and rights of any nature necessary to carry on the Business as presently conducted in all material respects. The exclusion of the Excluded Assets from the Acquired Assets will not, individually or in the aggregate, adversely affect the ability of RSUI to carry on the Business immediately following the Closing as presently conducted in all material respects. This Section 4.11 does not relate to Intellectual Property assets and rights, which are the subject of Section 4.15. Section 4.12 Absence of Certain Changes. Except as set forth in Schedule 4.12, since December 31, 2002, RSUI has conducted the Business only in the usual and ordinary course consistent with past practice and there has not been any event, action, occurrence, development, transaction, commitment, dispute, change, violation, inaccuracy or other condition (financial or otherwise) of any character (whether or not in the ordinary course of business) that would materially adversely affect the Business. Section 4.13 Taxes. 22 (a) Arrowpoint General Partnership ("Parent") is the common parent of an affiliated group of corporations (within the meaning of section 1504(a) of the Code) (such group, the "Parent Group") which files consolidated federal income Tax Returns. From July 1, 1994 through the Closing Date, Parent has included (or, with respect to the taxable year ending on the Closing Date, will include) RSUI in its consolidated federal income Tax Return as a member of the Parent Group. (b) Other than as set forth on Schedule 4.13: (i) For all periods ending after June 30, 1994, and for which the relevant statutes of limitation have not expired, RSUI has filed (or joined in the filing of) when due (after taking into account all properly requested extensions) all material Tax Returns required by Applicable Law to be filed with respect to RSUI and all Taxes shown to be due on such Tax Returns have been paid; (ii) all such Tax Returns were true, correct and complete in all material respects as of the time of such filing or after taking into account any changes thereto reflected on any amended Tax Returns; (iii) there is no action, suit, proceeding, investigation, audit or claim now pending against, or with respect to, RSUI in respect of any material Tax or assessment, nor is any claim for additional Tax or assessment being asserted by any Taxing Authority; (iv) except for the Parent Group, RSUI has never been a member of an affiliated, consolidated, combined or unitary group; (v) since July 1, 1994, no claim has been asserted in writing by any Taxing Authority in a jurisdiction in which RSUI does not currently file a Tax Return that it is or may be subject to Tax by such jurisdiction; (vi) RSUI is not a party to any agreement (other than an agreement entered into in the ordinary course of business for the purchase or lease of assets, the borrowing of money, the hiring of employees or consultants or other commercial transactions in the ordinary course of business), whether written or unwritten, providing for the payment of Taxes, payment for Tax losses, entitlement to refunds or similar Tax matters; (vii) RSUI has withheld and remitted to its applicable taxing authorities all Taxes required to be withheld in connection with any material amounts paid or owing to any employee, creditor, attorney, independent contractor or other Person; (viii) since July 1, 1994, neither Parent, Seller, nor RSUI has made, changed or revoked, or permitted to be made, changed or revoked, any material election or method of accounting with respect to material Taxes affecting or relating to RSUI, or entered into, or permitted to be entered into, any closing or other agreement or settlement with respect to Taxes affecting or relating to RSUI; (ix) no ruling with respect to Taxes (other than a request for a determination of the status of a qualified plan) has been requested by or on behalf of RSUI or by Parent with respect to any transaction involving RSUI that could affect the liability of RSUI for Taxes for any period after the Closing; (x) RSUI has no liability for the Taxes of any Person (other than pursuant to Treasury Regulation Section 1.1502-6, or any analogous state, local or foreign law or regulation) as a transferee or successor; and (xi) the statutes of limitations for Tax years of RSUI have closed for all such years ending prior to January 1, 2000. Section 4.14 Employee Benefit Plans; ERISA. (a) Schedule 4.14(a) contains a true, correct and complete list, as of the date of this Agreement, of each "welfare plan" (within the meaning of Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), 23 each "pension plan" (within the meaning of Section 3(2) of ERISA), and each other material employee benefit plan, fund, program, agreement or arrangement, in each case, that is sponsored, maintained or contributed to or required to be contributed to by Seller or its Affiliates that would be deemed a "single employer" with Seller under Section 4001(b) of ERISA (an "ERISA Affiliate") for the benefit of any RSUI Employee, or to which Seller or any ERISA Affiliate is party, for the benefit of any RSUI Employee (each a "Plan," collectively the "Plans"). (b) Schedule 4.14(b) contains a true, correct and complete list as of the date of this Agreement of each employment agreement, severance agreement and other similar agreement or arrangement relating to compensation or benefits entered into by and among Seller or any of its Affiliates and any RSUI Employee (collectively, the "RSUI Employee Contracts"). True, correct and complete copies of each RSUI Employee Contract, including any amendments thereto, have been delivered or made available by Seller to Purchaser. (c) Seller has delivered or made available to Purchaser true, correct and complete copies of each of the following documents: (i) each of the Plans, including all amendments thereto, or a written description of all of the material terms thereof if there is no formal Plan document, and any related trust agreements, group annuity contracts, insurance policies or other funding agreements or arrangements; (ii) the most recent determination letter, if any, from the Internal Revenue Service with respect to each Plan that is, or is intended to be, qualified under section 401 (a) of the Code; (iii) the actuarial valuation, if any, for the most recent plan year with respect to each Plan that is intended to be a tax-qualified defined benefit retirement plan; (iv) the current summary plan description, if any, and any modifications or supplements thereto, for each Plan; and (v) the annual return/report on Form 5500, 5500-C or 5500-R, if any, for each Plan for the most recent plan year. (d) No liability under Section 302 or Title IV of ERISA has been incurred by Seller or any ERISA Affiliate that to the Knowledge of Seller has not been satisfied in accordance with Applicable Law, and, to the Knowledge of Seller, no condition exists that presents a material risk to Seller or any ERISA Affiliate of incurring any such liability. Insofar as the representation made in this paragraph (d) applies to Sections 4064, 4069 or 4204 of Title IV of ERISA, it is made only with respect to any benefit plan, agreement or arrangement subject to Title IV of ERISA to which Seller, any of its Affiliates or any ERISA Affiliate made, or was required to make, contributions during the five-year period ending on the last day of the most recent plan year which ended prior to the Closing Date (each a "Title IV Plan"). (e) The Pension Benefit Guarantee Corporation ("PBGC") has not instituted proceedings to terminate any Title IV Plan and no Title IV Plan has been terminated and to the Knowledge of Seller, no proceeding is reasonably likely to be initiated by the PBGC to terminate any Title IV Plan. All premiums (and interest charges and penalties for late payment), if any, due the PBGC on or prior to the Closing Date with respect to the Title IV Plans have been or will be paid and neither Seller, any of its Affiliates nor any ERISA Affiliate has incurred or is reasonably likely to incur any liability to 24 the PBGC, or to a "section 4042 trustee" (within the meaning of Section 4042 of ERISA), or any liability under Section 4069 of ERISA with respect to any Title IV Plan, except for required premium payments to the PBGC. (f) No Title IV Plan or any other Plan subject to section 412 of the Code has incurred any "accumulated funding deficiency" (as defined in Section 302 of ERISA and section 412 of the Code), whether or not waived, as of the last day of the most recent fiscal year of each Title IV Plan or Plan which ended prior to the Closing Date. All contributions required to be made with respect to any Plan on or prior to the Closing Date have been made in full. For purposes of determining the existence of any such "accumulated funding deficiency," the actuarial assumptions and methods used under each Plan for the most recent Plan valuation shall be used. (g) No Title IV Plan is a "multiemployer pension plan," as defined in Section 3(37) of ERISA. (h) To the Knowledge of Seller, each Plan has been operated and administered in all material respects in accordance with its terms and in accordance with Applicable Law, including, but not limited to, ERISA and the Code, and no written notice has been received by Seller or an Affiliate from any governmental authority questioning or challenging such compliance. Neither the Seller nor any of its Affiliates has announced, or is currently obligated to make, any change in benefits which would materially increase the costs of maintaining any of the Plans or to establish any new employee benefit plan which will cover any RSUI Employee, except that all RSUI Employees shall become fully vested in the Pension Plan of RIC as of the Closing Date, to the extent permitted under Applicable Law. Each Plan intended to be "qualified" within the meaning of Section 401(a) of the Code has received a determination letter from the Internal Revenue Service or has applied for a determination letter from the Internal Revenue Service stating that it is so qualified. To the Knowledge of Seller, each Plan intended to be "qualified" within the meaning of Section 401(a) of the Code, in form and operation, is so qualified. (i) No RSUI Employee is covered by any collective bargaining agreement. (j) To the Knowledge of the Seller, no RSUI Employee is, on the date of this Agreement, subject to any contract, arrangement, policy or understanding that in any way could limit such employee's ability to continue to perform services for such employee's current employer or RSUI. (k) RSUI is under no obligation (express or implied) to modify or change any of the benefits of a Plan, other than provided in RSUI Employee Contracts and other than vesting all RSUI Employees in the Pension Plan of RIC, to the extent permitted under Applicable Law. (l) The transactions contemplated by this Agreement, including by way of illustration and not by way of limitation, those referred to in the RSA 25 SLISI Purchase Agreement, the Quota Share Reinsurance Agreements and the Landmark Purchase Agreement, will not result in a transfer of assets to the Purchaser or its Affiliates that have a total fair market value equal to or greater than one-third (1/3) of the total fair market value of the Parent Group's assets immediately before the Closing Date. (m) Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated thereby will result in or require RSUI or any RSUI Affiliate on or after the Closing Date to make any payment to, increase the amount payable to, or accelerate the time of payment or the vesting of any amount payable to, any Leased Employee (other than any amounts payable pursuant to the Employment Agreements or any payment that results from a claim or entitlement to post-retirement medical benefits). (n) Neither Seller, any of its Affiliates nor any ERISA Affiliate has incurred any liability, fine, penalty or tax with respect to any Plan or any other employee benefit plan, fund, program, practice, agreement or arrangement which is material in amount, and which could reasonably be expected to be imposed on Purchaser, RSUI, or any of their Affiliates. Section 4.15 Intellectual Property. (a) Schedule 4.15(a) sets forth: (i) a complete and accurate list of all Intellectual Property in which RSUI has an ownership interest and which is used in or relates to the Business ("RSUI Owned Intellectual Property") and of all Intellectual Property in which one of RSUI's Affiliates has an ownership interest and which directly impacts or materially relates to the Business (collectively, the "RSUI Affiliate Owned Intellectual Property"), indicating the owner thereof, and all applications, registrations and grants with respect thereto, provided that such list need not identify non-material Trade Secrets or unregistered copyrights unless such Trade Secrets or copyrights relate to proprietary Computer Software, (ii) all Intellectual Property (other than the RSUI Owned Intellectual Property or RSUI Affiliate Owned Intellectual Property) which is used or necessary for the operation of the Business (collectively, "Non-Owned Intellectual Property"), indicating the owner and, if applicable, the licensor and/or licensee thereof, provided that such list need not identify non material Non-Owned Intellectual Property, and (iii) all Intellectual Property Contracts (a) to which RSUI is a party and which directly impact or materially relate to the Business, or (b) which relate to Intellectual Property included in clauses (i) and (ii) above (collectively, "Business IP Contracts"). The RSUI Owned Intellectual Property, RSUI Affiliate Owned Intellectual Property, the Non-Owned Intellectual Property and Business IP Contracts are collectively referred to herein as the "Business Intellectual Property". (b) All Computer Software included in the RSUI Owned Intellectual Property (collectively, the "Proprietary Software") was developed either by: (i) RIC or employees of RIC within the scope of their employment, (ii) third parties as "works-made-for-hire", as that term is defined under Section 101 of the United States copyright laws, for RIC to written agreements, or (iii) independent contractors who have assigned their right, title and interest in and to such Proprietary Software to RIC pursuant 26 to written agreements. Royal & SunAlliance is the sole and exclusive owner of the trade name and Trademark "RSUI" (the "RSUI Mark") and United States Trademark Registration No. 2,525,163 (the "Mark Registration"). RSUI is the sole and exclusive owner of all RSUI Owned Intellectual Property. Except for (x) the rights granted by RIC to RSUI with respect to the Proprietary Software and (y) the rights granted by Royal & SunAlliance to RSUI with respect to the RSUI Mark, neither RIC, Royal & SunAlliance nor RSUI has granted to any Person any rights in or to any of the RSUI Owned Intellectual Property or RSUI Affiliate Owned Intellectual Property. (c) The RSUI Owned Intellectual Property, RSUI Affiliate Owned Intellectual Property and, to the Knowledge of Seller, the Non-Owned Intellectual Property, is valid and enforceable and has not been cancelled, forfeited, expired or abandoned. There are no Actions or, to the Knowledge of Seller, threatened Actions in which the validity or enforceability of the RSUI Owned Intellectual Property, RSUI Affiliate Owned Intellectual Property or, to the Knowledge of Seller, the Non-Owned Intellectual Property, has been or is being challenged, and neither RSUI nor any of its Affiliates has received notice from any Person asserting a basis for such a challenge. (d) Except as set forth on Schedule 4.15(d), and except for services to be provided under the Ancillary Agreements, RSUI owns, or otherwise has the valid right to use through an Intellectual Property Contract listed on Schedule 4.15(a), and at the Closing hereunder will own or have such valid right to use, any and all Intellectual Property that is reasonably necessary to carry on the Business as presently conducted in all respects, free and clear of any Lien, royalty or other payment obligations (except for royalties or payments payable in respect of off-the-shelf Computer Software at standard commercial rates or any other regularly scheduled payment payable under any such Intellectual Property Contract) and otherwise on commercially reasonable terms. Except as set forth on Schedule 4.15(d), RSUI's ownership of or valid rights to use such Intellectual Property that is reasonably necessary to the conduct of the Business shall not, in each case of ownership or possession of valid rights, be adversely affected as a result of the Closing and the consummation of the transactions contemplated hereby. (e) Seller has made available to Purchaser complete copies of all Business IP Contracts except for those Business IP Contracts listed on Schedule 9.1(c). Each of the Business IP Contracts is a valid and binding obligation of the parties thereto and is in full force and effect and enforceable against the parties thereto in accordance with its terms. To Seller's Knowledge, neither RSUI nor any third party is in material breach or default under any of the Business IP Contracts. (f) Neither RSUI nor the Business has violated or infringed, or currently violates or infringes, upon the Intellectual Property rights of any third party, and neither RSUI nor any of its Affiliates has received any notice of any such violation or infringement. There are no Actions or claims pending, instituted, threatened or asserted in writing against RSUI or any of its Affiliates alleging any violation or infringement by RSUI or the Business of any Intellectual Property rights of any third party. 27 (g) No Actions or claims in which RSUI or any of its Affiliates alleges that any third party is infringing upon, or otherwise violating, any Business Intellectual Property are pending, and none have been served, instituted or asserted by RSUI or any of its Affiliates, nor are any Actions threatened alleging any such violation or infringement. (h) The Proprietary Software operated by and on behalf of RSUI and the Business is free of material defects and is in all material respects in reasonable and usable operating condition. RSUI has taken commercially reasonable steps to provide for the back-up and recovery of critical business data that is in electronic form in the event of a disaster or systems failure. Section 4.16 Material Business Contracts. (a) Schedule 4.16(a) sets forth a true, correct and complete list of all of the following contracts in effect as of the date hereof (excluding the RSUI-Produced Insurance Contracts, the Third Party Reinsurance Contracts, agreements or arrangements with respect to Producers (as defined in Section 5.2(b) below), and contracts or agreements relating to Business Intellectual Property) which relate principally to the Business, or to which RSUI is a party or by which any of the assets or properties of RSUI are bound or subject, as each such contract may have been amended, modified or supplemented (collectively, the "Material Business Contracts"): (i) material partnership or joint venture contracts; (ii) contracts containing any covenant or provision limiting the freedom or ability of any Person to compete with the Business following the Closing; (iii) contracts involving amounts in excess of $50,000, relating to the borrowing of money, or the direct or indirect guaranty of any obligation for borrowed money, or contracts to service the repayment of borrowed money or any other liability in respect of indebtedness for borrowed money of any other Person, including, without limitation, any contract relating to (A) the maintenance of compensating balances, (B) any lines of credit, (C) the advance of any funds to any other Person outside the ordinary course of business, (D) the payment for property, products or services that are not conveyed, delivered or rendered to any such party or (E) any obligation to keep-well, make-whole or maintain working capital or earnings or perform similar requirements; (iv) lease, sublease, rental, licensing, use or similar contracts with respect to personal property providing for annual rental, license, or use payments in excess of $50,000 or the guaranty of any such lease, sublease, rental or other contracts; (v) contracts (A) outside the ordinary course of business for the purchase, acquisition, sale or disposition of any assets or 28 properties or (B) for the grant to any Person (excluding RSUI) of any option or preferential rights to purchase any assets or properties; (vi) contracts (other than employment contracts) with any current or former officer, director, shareholder, employee, consultant, agent or other representative or, to the Knowledge of Seller, with an entity in which any of the foregoing is a controlling person; (vii) contracts pursuant to which there is either a current or future obligation of RSUI to make payments in excess of $50,000 in any twelve-month period (other than contracts relating to investments in the ordinary course of business and other than leases of real property); (viii) contracts under which RSUI agrees to indemnify any Person other than contracts entered into in the ordinary course of business which are not otherwise Material Business Contracts; (ix) contracts pursuant to which any Person has been granted any Lien, other than a Permitted Lien, on any assets or properties of RSUI; and (x) all written contracts of Seller or any of its Affiliates for the deferred payment of the purchase price in respect of any Acquired Assets, to the extent such contract is material to the Business. (b) Except for the consent identified on Schedule 4.16(b) (the "Sherman Oaks Consent"), no Material Business Contract requires any consent, approval, waiver or authorization by any third party for the consummation of the transactions contemplated by this Agreement or any Ancillary Agreement. (c) Seller has made available to Purchaser true, correct and complete copies of all of the Material Business Contracts. Each of the Material Business Contracts is a valid and binding obligation of Seller, RSUI, or such other Affiliate of Seller as may be party thereto. Except as set forth in Schedule 4.16(c), neither Seller, RSUI nor any other Affiliate of Seller party thereto is in material breach or violation of, or default under, any of the Material Business Contracts. Section 4.17 Intercompany Agreements; Transactions with Affiliates; Intercompany Accounts. (a) Schedule 4.17(a) contains a list of all contracts or other agreements (other than contracts or agreements which relate to the Excluded Assets and/or Retained Liabilities) in effect as of the date hereof between Seller or any of its Affiliates (other than RSUI), on the one hand, and RSUI, on the other hand (collectively, "Intercompany Agreements"). (b) Except as set forth in Schedule 4.17(b), neither (i) any officer or director of Seller or any officer or director of an Affiliate of Seller (including 29 RSUI) nor, to the Knowledge of Seller, any member of any such Person's immediate family or any entity controlled by one or more of the foregoing, nor (ii) Seller or any Affiliate of Seller (other than RSUI): (A) is a party to any transaction with RSUI or relating to the Business or the Acquired Assets which involves payments of more than $20,000 per year including, without limitation, any contract (x) providing for the furnishing of services (except in such Person's capacity as an officer or director) by, (y) providing for the rental of real or personal property from, or (z) otherwise requiring payments to (other than for services as officers or directors), any such Person; (B) to the Knowledge of Seller, owns, directly or indirectly, any material interest in, or is an officer or director of, any Person that is a competitor of the Business; or (C) has any claim whatsoever against, or owes any amounts to, RSUI, except for claims in the ordinary course of business such as for accrued vacation pay, accrued benefits, reimbursement of ordinary travel and business expenses and similar matters. The contracts and agreements set forth on Schedule 4.17(b) are herein referred to as the "Affiliate Agreements". (c) Except as set forth on Schedule 4.17(c) and except for obligations and agreements to be performed pursuant to this Agreement, the Ancillary Agreements and the Landmark Purchase Agreement, there are no contracts or other agreements or arrangements between Seller or any of its Affiliates (other than RSUI) and to which RSUI is a party or by which any of the properties or assets of RSUI would be bound after the Closing. Section 4.18 Insurance Coverage. Schedule 4.18 contains a true and complete list of all policies of insurance currently maintained relating to the assets, properties, business, operations, employees, officers or directors of RSUI which (i) have been issued to RSUI or (ii) are held by Seller or any of its Subsidiaries (other than RSUI) for the benefit of RSUI showing the policy type, policy number, the expiration date and coverage for each policy (collectively the "Insurance Policies"). Section 4.19 Books and Records. The Books and Records (i) are complete and accurate in all material respects and (ii) have been maintained in accordance with RSUI's customary business practices and with Applicable Law. Seller has heretofore made available to Purchaser complete and correct copies of the minute books of RSUI for its inspection. ARTICLE V REPRESENTATIONS AND WARRANTIES RELATING TO THE BUSINESS Subject to Section 15.1 hereof, Seller hereby represents and warrants to Purchaser as of the date of this Agreement (except if another date is specified in the representation or warranty), that: Section 5.1 RSUI-Produced Insurance Contracts. All application forms and policy forms used in underwriting the In Force RSUI-Produced Insurance Contracts for admitted business are (i) in material compliance (and at their respective dates of issuance were in material compliance) with Applicable Law, (ii) on forms approved by 30 the insurance regulatory authority of the jurisdiction in which they were issued or (iii) on forms which have been filed with and not objected to by such authorities within the period provided for objection and any rates or rules with respect to such In Force RSUI-Produced Insurance Contracts required to be filed or approved by such applicable insurance regulatory authorities have been so filed or approved. All such application forms, forms of insurance policies and rates or rules are utilized in compliance in all material respects with Applicable Law. Section 5.2 Producer Relationships. (a) Schedule 5.2(a)(i) lists the standard form of agreement currently being utilized by RSUI with respect to the insurance producers of the RSUI-Produced Insurance Contracts (the "Producer Agreement"). Except as set forth in Schedule 5.2(a)(ii), all of the contracts currently in effect between RSUI and a producer of RSUI-Produced Insurance Contracts are in all material respects in the form of the Producer Agreement. (b) Schedule 5.2(b) sets forth a list of the top ten producers of RSUI-Produced Insurance Contracts during the year ended December 31, 2002 (the "Major Producers"). As of the date of this Agreement, no Major Producer has given written notice (including by electronic transmission) to RSUI that it intends to terminate its Producer Agreement with RSUI. To the Knowledge of Seller, each producer of In Force RSUI-Produced Insurance Contracts with which RSUI has a written agreement (a "Producer") is duly licensed (to the extent that such licenses are required) in each jurisdiction in which the Producer places or sells insurance on behalf of RSUI, and each such Producer is duly authorized and appointed by RSUI pursuant to Applicable Law, except for failures of such Producers to be so authorized and appointed as would not adversely affect the Business. Except as set forth in Schedule 5.2(b), RSUI is not in material breach or violation of, or default under, any of its agreements with Producers. To the Knowledge of Seller, no Producer is the subject of, or party to, any disciplinary action or proceeding under any Applicable Law. Except as otherwise set forth in Schedule 5.2(b), since January 1, 2003, no Producer who individually accounted for more than 5%, and no Producers who in the aggregate accounted for more than 10%, of the aggregate gross written premiums of the RSUI-Produced Insurance Contracts for the year ended December 31, 2002 has given written notice of termination or, to the Knowledge of Seller, threatened termination; provided, however, that no terminations or threatened terminations by Producers subsequent to the public announcement of the purchase of RSUI by Purchaser which terminations or threatened terminations result primarily from the identity of Purchaser or from actions taken by Purchaser shall be counted toward the foregoing 5% and 10% limitations. Except as set forth on Schedule 5.2(b), there is no dispute pending or, to the Knowledge of Seller, threatened against RSUI by any Producer. (c) Except as set forth in Schedule 5.2(c), RSUI has no agency contracts, third party administration contacts or other similar arrangements or commitments, or amendments, supplements or modifications thereto, under which an 31 independent party has authority to perform underwriting analysis and issue insurance policies on behalf of RSUI or otherwise bind RSUI without prior approval by RSUI. Section 5.3 Third Party Reinsurance Contracts. (a) Schedule 5.3(a) sets forth a true and complete list of all reinsurance agreements entered into with Unaffiliated Reinsurers on a treaty basis by any of the Royal Insurer Affiliates as cedent in relation to the In Force RSUI-Produced Insurance Contracts (the "Schedule 5.3(a) Contracts"). The Schedule 5.3(a) Contracts, together with all facultative reinsurance agreements entered into by any of the Royal Insurer Affiliates as cedents in relation to the In Force RSUI-Produced Insurance Contracts, are referred to herein collectively as the "Third Party Reinsurance Contracts". Seller has separately provided to Purchaser (i) a schedule identifying the participants in each of the Schedule 5.3(a) Contracts and the level of participation by each such participant (the "Reinsurance Schedule"), (ii) a copy of the Cat Cover and (iii) a copy of the Terrorism Treaty. Seller and Purchaser have separately delivered to one another a list of acceptable reinsurers (the "Acceptable Reinsurers"). The parties hereto acknowledge and agree that none of the Corporate Treaties (as defined below) shall be included in the definition of Third Party Reinsurance Contracts. The parties hereto further acknowledge and agree that none of the benefits or the burdens of any of the Corporate Treaties as they relate to the In Force RSUI-Produced Insurance Contracts shall, directly or indirectly, inure to Purchaser or any of its Affiliates pursuant to this Agreement or any of the Ancillary Agreements. (b) Except as set forth in Schedule 5.3(b), or as expressly contemplated hereunder, none of the Royal Insurer Affiliates or any reinsurer under any Third Party Reinsurance Contract has given any notice of termination with respect to any such arrangement or treaty, and there is no dispute under any such arrangement or treaty regarding the liability for any claim under the In Force RSUI-Produced Insurance Contracts against any of the Royal Insurer Affiliates. (c) For purposes of this Agreement, "Corporate Treaties" shall mean those treaties purchased for the benefit of the Royal Insurer Affiliates and their Affiliates, other than the Cat Cover, the Terrorism Treaty and the Schedule 5.3(a) Contracts. The term "Corporate Treaties" shall include, without limitation, the reinsurance treaties set forth in Schedule 5.3(c). (d) Each of the Third Party Reinsurance Contracts is a valid and binding obligation of the Royal Insurer Affiliate party thereto. Each of the Third Party Reinsurance Contracts is in full force and effect enforceable against the parties thereto in accordance with its terms. Except as set forth in Schedule 5.3(d), none of the Royal Insurer Affiliates party thereto is in material breach or violation of, or default under, any of the Third Party Reinsurance Contracts, and, to the Knowledge of Seller, no condition or state of facts exists that, with notice or the passage of time, or both, would constitute a default by the Royal Insurer Affiliate party thereto. 32 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser represents and warrants to Seller as of the date of this Agreement (except if another date is specified in the representation or warranty) that: Section 6.1 Organization and Standing. Purchaser is a limited liability company duly organized, validly existing and in good standing under the laws of Delaware and has all requisite power and authority to carry on its business as now being conducted. Purchaser is a "United States Person" within the meaning of Code Section 7701(a)(30). Section 6.2 Authority. Purchaser has all requisite power and authority to enter into and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. Purchaser has all requisite power and authority to execute and deliver the Ancillary Agreements to which it is a party, to perform its obligations thereunder and to consummate the transactions contemplated thereby. The execution, delivery and performance of this Agreement by Purchaser and the consummation by Purchaser of the transactions contemplated hereby, and the execution, delivery and performance of the Ancillary Agreements to which Purchaser is a party and the consummation of the transactions contemplated thereby, have been duly and validly authorized by all necessary action on the part of Purchaser and no other proceedings on the part of Purchaser are necessary to authorize the execution, delivery and performance of this Agreement, the Ancillary Agreements to which Purchaser is a party or the consummation of any of the transactions contemplated hereby or thereby. This Agreement has been duly executed and delivered by Purchaser and, assuming the due authorization, execution and delivery of this Agreement by Seller, constitutes a legal, valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms subject only to the Bankruptcy and Equity Exception. Each Affiliate of Purchaser which is a party to any Ancillary Agreement has or on the Closing Date will have all requisite power and authority to execute and deliver the Ancillary Agreements to which it is a party, to perform its obligations thereunder and to consummate the transactions contemplated thereby. The execution, delivery and performance of the Ancillary Agreements and the consummation of the transactions contemplated thereby, have or on the Closing Date will have been duly and validly authorized by all necessary action on the part of any Affiliate of Purchaser which is a party thereto and no other proceedings on the part of any of the Affiliates of Purchaser will be necessary to authorize the execution, delivery and performance of such Ancillary Agreements or the consummation of any of the transactions contemplated thereby. On the Closing Date, the Ancillary Agreements to which Purchaser and each of its Affiliates is a party will have been duly executed and delivered by Purchaser and each such Affiliate and, assuming the due authorization, execution and delivery of the Ancillary Agreements by each of the other Persons party thereto, will constitute legal, valid and binding obligations of Purchaser and any of its Affiliates party thereto, enforceable against each such Person in accordance with their terms subject only to the Bankruptcy and Equity Exception. 33 Section 6.3 Noncontravention. (a) Except as set forth in Schedule 6.3(a), the execution, delivery and performance of this Agreement by Purchaser does not, and, as of the Closing Date, the execution, delivery and performance of the Ancillary Agreements to which it is a party, and the consummation of the transactions contemplated by this Agreement and such Ancillary Agreements, will not, conflict with, or result in any breach, violation, impairment or revocation of, or default (with or without notice or lapse of time, or both) under, or give rise to the creation of a Lien, a right of termination, cancellation, revocation or acceleration of any obligation or loss of a benefit under (i) the certificate of incorporation or bylaws (or comparable organizational documents) of Purchaser and the certificate of incorporation and bylaws (or comparable organizational documents) of any Affiliate of Purchaser which is a party to any of the Ancillary Agreements, (ii) any loan or credit agreement, note, mortgage, indenture, lease, material agreement, concession, franchise, contractual license or similar authorization applicable to Purchaser or any Affiliate of Purchaser which is a party to the Ancillary Agreements or by or to which any of them or their respective properties or assets may be bound or subject, (iii) subject to the governmental filings and other matters referred to in Section 6.3(b) below, any Applicable Law applicable to Purchaser or any Affiliate of Purchaser which is a party to the Ancillary Agreements or to which their respective properties or assets may be bound or subject, (iv) any order, writ, judgment, injunction, award, decree, law, statute, ordinance, rule or regulation of any Governmental Entity or any agreement with, or condition imposed by, any Governmental Entity, in each case, which is binding upon Purchaser or any Affiliate of Purchaser which is a party to the Ancillary Agreements or their respective properties or assets or (v) any Permit, other than, in the case of clauses (ii), (iii), (iv), and (v), any such conflicts, violations, impairments, revocations, defaults, Liens, rights or losses which would not adversely affect the ability of Purchaser or any of its Affiliates which is a party to the Ancillary Agreements to execute and deliver this Agreement or the Ancillary Agreements, to perform its obligations hereunder and thereunder or to consummate the transactions contemplated hereby and thereby. (b) Except as set forth in Schedule 8.5(a), no consent, approval, license, order or authorization of, action by or in respect of, or registration, declaration or filing with, or notice to, any Governmental Entity or any other Person is required or necessary to be obtained, made or given by Purchaser or any Affiliate of Purchaser which is a party to the Ancillary Agreements in connection with (i) the execution and delivery of this Agreement and the Ancillary Agreements, (ii) the performance by Purchaser of its obligations hereunder and thereunder and (iii) the consummation by Purchaser or any of its Affiliates of the transactions contemplated hereby and thereby. Section 6.4 Litigation. There is no Action pending, or, to the Knowledge of Purchaser or any of its Affiliates which is a party to any Ancillary Agreement, threatened, against Purchaser or any of its Affiliates which is a party to any Ancillary Agreement or their respective assets or properties, by or before any court, other Governmental Entity or arbitrator, other than those which would not prevent or materially delay Purchaser or any of its Affiliates which is a party to any Ancillary Agreement from 34 consummating the transactions contemplated by this Agreement and the Ancillary Agreement. Section 6.5 Purchase of the RSUI Shares for Investment. (a) Purchaser is acquiring the RSUI Shares solely for its own account for investment and not with the view to, or for resale in connection with, any distribution thereof in violation of the Securities Act of 1933, as amended (the "Securities Act"), or any other domestic or foreign securities law. Purchaser acknowledges that the RSUI Shares are not registered under the Securities Act and may not be transferred or sold except pursuant to an applicable exemption therefrom. (b) Purchaser is an accredited investor within the meaning of Rule 501 of the Securities Act, has the financial ability to bear the economic risk of the investment in the RSUI Shares, can afford to sustain a complete loss of such investment and has no need for liquidity in the investment in the RSUI Shares. (c) Purchaser acknowledges that its representations and warranties contained herein are being relied on by Seller as a basis for an exemption of the purchase of the RSUI Shares, if any, from registration requirements of the Securities Act and any applicable state securities laws. Section 6.6 Sufficient Funds and Balance Sheet Support. Purchaser has, or will at the Closing have, sufficient funds available (through existing credit arrangements or otherwise) to pay the Purchase Price and all fees and expenses related to the transactions contemplated by this Agreement and the Ancillary Agreements, and to capitalize AIHL Insurance Co. in accordance with the provisions of Section 9.7 hereof. Notwithstanding anything to the contrary in this Agreement or in any of the Ancillary Agreements, Purchaser acknowledges and agrees that its obligation to effect the transactions contemplated by this Agreement and the other Ancillary Agreements is not subject to the availability to Purchaser or any of its Affiliates of any reinsurance, debt or equity or other financing in any amount whatsoever. Section 6.7 Brokers and Finders. Except for Merrill Lynch & Co., Inc., the fees and expenses of which will be paid by Purchaser (the "Purchaser's Fee"), no Investment Broker is entitled to any broker's, finder's, financial advisor's or similar fee or commission in connection with the transactions contemplated by this Agreement and the Ancillary Agreements based upon arrangements made by or on behalf of Purchaser or any of its Affiliates. 35 ARTICLE VII REPRESENTATIONS AND WARRANTIES RELATING TO AIHL INSURANCE CO. Purchaser hereby represents and warrants to Seller that, as of the Closing Date (except if another date is specified in the representation or warranty): Section 7.1 Organization and Standing. AIHL Insurance Co. will be a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and will have all the requisite power and authority to carry on its business as then being conducted. AIHL Insurance Co. is duly qualified or licensed to do business and will be in good standing as a foreign corporation in each jurisdiction in which the nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, except for those jurisdictions where the failure to be so qualified or licensed or to be in good standing would not adversely affect AIHL Insurance Co. Purchaser will make available to Seller prior to the Closing Date true, correct and complete copies of the certificate of incorporation and bylaws of AIHL Insurance Co. Section 7.2 Authority. As of the Closing Date, AIHL Insurance Co. will have all requisite power and authority to execute and deliver the Ancillary Agreements to which it is a party, to perform its obligations thereunder and to consummate the transactions contemplated thereby. The execution, delivery and performance by AIHL Insurance Co. of the Ancillary Agreements to which it is a party, and the consummation of the transactions contemplated thereby, will have been duly and validly authorized by all necessary action on the part of AIHL Insurance Co. and no other corporate proceedings on the part of AIHL Insurance Co. will be necessary to authorize the execution, delivery and performance of such Ancillary Agreements or the consummation of any of the transactions contemplated thereby. The Ancillary Agreements to which AIHL Insurance Co. will be a party will have been duly executed and delivered by AIHL Insurance Co. and, assuming the due authorization, execution and delivery of such Ancillary Agreements by each of the other parties thereto, will constitute legal, valid and binding obligations of AIHL Insurance Co., enforceable against AIHL Insurance Co. in accordance with their terms subject only to the Bankruptcy and Equity Exception. Section 7.3 Noncontravention. (a) Except as set forth in Schedule 7.3, as of the Closing Date, the execution, delivery and performance of the Ancillary Agreements to which AIHL Insurance Co. is a party will not, and the consummation of the transactions contemplated by such Ancillary Agreements will not, conflict with, or result in any breach, violation, impairment or revocation of, or default (with or without notice or lapse of time, or both) under, or give rise to the creation of a Lien, a right of termination, cancellation, revocation or acceleration of any obligation or loss of a benefit under (i) the certificate of incorporation and bylaws (or comparable organizational documents) of AIHL Insurance 36 Co., (ii) any loan or credit agreement, note, mortgage, indenture, lease, material agreement, concession, franchise, contractual license or similar authorization applicable to AIHL Insurance Co. or by or to which any of its properties or assets may be bound or subject, (iii) any Applicable Law applicable to AIHL Insurance Co. or to which its properties or assets may be bound or subject, or (iv) any order, writ, judgment, injunction, award, decree, law, statute, ordinance, rule or regulation of any Governmental Entity or any agreement with, or condition imposed by, any Governmental Entity, in each case, which is binding upon AIHL Insurance Co. or its properties or assets other than, in the case of clauses (ii), (iii) and (iv), any such conflicts, violations, impairments, revocations, defaults, Liens, rights or losses which would not adversely affect the ability of AIHL Insurance Co. to reinsure new business to be underwritten by RSUI or to execute and deliver the Ancillary Agreements to which it is a party, to perform its obligations thereunder or to consummate the transactions contemplated thereby. Section 7.4 Permits. Except as set forth in Schedule 7.4, at the Closing Date, AIHL Insurance Co. will hold (i) all Insurance Permits necessary to reinsure new business to be underwritten by RSUI and otherwise to perform its obligations under each Ancillary Agreement to which it is a party and (ii) all Insurance Permits necessary for the conduct of its business in each of the jurisdictions in which it conducts or operates such business as then conducted (collectively, the "AIHL Insurance Co. Permits"), and all such AIHL Insurance Co. Permits will be valid and in full force and effect. At the Closing Date, AIHL Insurance Co. will not be subject to any agreement or understanding with any Governmental Entity which (x) restricts its ability to reinsure new business to be underwritten by RSUI or otherwise to perform its obligations under each Ancillary Agreement to which it is a party or (y) requires AIHL Insurance Co. to take, or refrain from taking, any action relating to the foregoing otherwise permitted by Applicable Law. Section 7.5 Compliance with Applicable Law. AIHL Insurance Co. will be in compliance with (a) the terms of its certificate or articles of incorporation, bylaws or other charter or organization documents and (b) all Applicable Laws, except, in the case of clause (b), where the failure to comply would not materially adversely affect the ability of AIHL Insurance Co. to execute and deliver the Ancillary Agreements, to perform its obligations thereunder, or to consummate the transactions contemplated thereby. ARTICLE VIII GENERAL COVENANTS Section 8.1 Conduct of Business Pending the Closing. (a) Except as set forth in Schedule 8.1(a), except as contemplated by this Agreement or by any of the Ancillary Agreements or by the Landmark Purchase Agreement, and except with the written consent of Purchaser (which consent shall not be unreasonably withheld or delayed), during the period from the date hereof to the Closing Date, Seller shall cause RSUI and each other Affiliate of Seller (provided, however, with respect to sub clauses (i) through (iii) of this Section 8.1(a), 37 only to the extent that the conduct of Affiliates of Seller other than RSUI relate to the Business) to (i) use commercially reasonable efforts to preserve intact its business organizations and Permits, to keep available the services of its officers and employees, and to maintain its relationships with and the goodwill of its agents, brokers, customers, suppliers, regulators, reinsurance intermediaries and other Persons having business dealings with RSUI or its Affiliates in connection with the Business, (ii) conduct the Business in the ordinary course consistent with past practice, (iii) maintain its books, records and accounts in the usual manner consistent with past practice and (iv) maintain and keep its properties and equipment relating to the Business in the ordinary course of business consistent with past practice. (b) Without limiting the generality of the foregoing, except as set forth in Schedule 8.1(a), except as contemplated by this Agreement or by any of the Ancillary Agreements or by the Landmark Purchase Agreement, and except with the written consent of Purchaser (which consent shall not be unreasonably withheld or delayed), during the period from the date hereof to the Closing Date: (i) neither Seller nor any of its Affiliates (including RSUI) shall (A) enter into, renew, terminate, fail to renew, fail to perform any obligations under, waive or release any rights under or amend in any material respect any Material Business Contract or Business IP Contract, (B) enter into any new contract that would be a Material Business Contract, (C) enter into any new contract that would be an Intellectual Property Contract which would directly impact or materially relate to RSUI or the operation of the Business, (D) enter into any other new contract that would be material to RSUI or the operation of the Business, including, without limitation, contracts relating to the implementation of any new systems applications affecting RSUI or the Business, (E) fail to maintain in effect any contract or agreement for the maintenance or support of any software or equipment used by RSUI or the Business, or (F) exercise any option under any lease relating to leased property used by RSUI or the Business; (ii) neither Seller nor any of its Affiliates (including RSUI) shall acquire or dispose of any asset relating to RSUI or the Business or that presently does or would at the Closing constitute part of the Acquired Assets, in each case, other than acquisitions or dispositions in the ordinary course of business; (iii) Seller shall not permit RSUI to use its own funds to pay, discharge or satisfy any claims, liabilities or obligations associated with the Business (absolute, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business, and Seller shall not make any capital contribution to RSUI except in the form of cash; (iv) Seller shall not permit RSUI to incur any indebtedness for borrowed money or guarantee such indebtedness of another or make any loans or advances or make any capital contributions to, or equity investments in, any other Person or issue or sell any debt securities, other than 38 short-term indebtedness under existing lines of credit in the ordinary course of business; (v) Seller shall not permit RSUI to authorize for issuance, issue, sell, deliver or agree or commit to issue, sell or deliver (whether through the issuance or granting of options, warrants, call, commitments, subscriptions, rights to purchase or otherwise) any stock of any class or series or any other equity interest, or any bonds, debentures, notes, surplus notes, other evidences of indebtedness for borrowed money or other securities of any kind, including, without limitation, any stock options or stock appreciation rights or any securities convertible into or exchangeable or exercisable for any of the foregoing; (vi) Seller shall not permit RSUI to acquire (by merger, consolidation, acquisition of stock or assets or otherwise) any corporation, partnership or other business organization or assets comprising a business or make any material investment, either by purchase of stock or other securities, or contribution to capital, in any case, in any material amount of property or assets, in or of any other Person; (vii) neither Seller nor any of its Affiliates (including RSUI) shall make any material change in the underwriting policies or claims handling practices used by RSUI or any of the Royal Insurer Affiliates in connection with the operation of the Business as conducted on the date hereof, except as required by Applicable Law; (viii) neither Seller nor any of its Affiliates (including RSUI) shall permit or allow any of the assets or properties of RSUI or the Acquired Assets to become subject to any Liens, except Permitted Liens; (ix) Seller shall not permit RSUI to amend or modify its certificate or articles of incorporation, bylaws or other charter or organization documents; (x) Seller shall not permit RSUI to split, combine or reclassify any shares of its capital stock, or declare, pay or set aside any sum for any dividend or other distribution (whether in cash, stock or property, any combination thereof or otherwise) in respect of its capital stock, or redeem, purchase or otherwise acquire (or agree to redeem, purchase or otherwise acquire) any of its capital stock or any of its other securities; (xi) Seller shall not permit RSUI to adopt a plan of complete or partial liquidation, dissolution, rehabilitation, merger, consolidation, restructuring, recapitalization, redomestication or other reorganization; (xii) Seller shall not permit RSUI to purchase or sell securities or other investments, or invest or reinvest income and proceeds in 39 respect thereof, other than in the ordinary course of business and in accordance with Applicable Law; (xiii) Seller shall not permit RSUI to make or authorize or commit any capital expenditures other than those in the ordinary course of business consistent with past practice which do not exceed $50,000 individually or $250,000 in the aggregate; (xiv) Seller shall not permit RSUI to enter into any managing general agency contracts, third party administration contracts or other similar arrangements or commitments, or amendments, supplements or modifications thereto relating to the Business with any independent third party under which such independent third party has authority to perform underwriting analysis and issue insurance or reinsurance policies on behalf of RSUI or otherwise bind RSUI without prior approval by RSUI; (xv) neither Seller nor any of its Affiliates (including RSUI) shall take any action that would result in any of the conditions to Closing set forth in this Agreement not being satisfied; (xvi) Seller shall not permit RSUI to make any material change in its accounting methods or practices or make any material change in depreciation or amortization policies or rates adopted by it, except such changes as are required by GAAP or SAP; (xvii) Seller shall not permit RSUI to, directly or indirectly, make any payment, discharge or satisfaction of any liability of RSUI before the same became due in accordance with its terms, other than in the ordinary course of business consistent with past practice, or as fully reflected or reserved against in the Audited RSUI Financial Statements or the Closing Balance Sheet; (xviii) neither Seller nor any of its Affiliates (including RSUI) shall assign, license, sublicense, abandon or fail to maintain any Business Intellectual Property except as provided and expressly set forth in Section 9.1(a) herein; provided, however, that this provision shall not apply to any Royal Group Intellectual Property other than the RSUI Mark and the Mark Registration; and, provided, further, that for clarification purposes, this provision shall not apply to any Business IP Contracts that do not directly impact or materially relate to the Business; and (xix) neither Seller nor any of its Affiliates (including RSUI) shall, nor shall Seller permit RSUI to, as applicable, agree in writing or otherwise to take any of the actions described above in clauses (i) through (xviii) of this Section 8.1(b). 40 Section 8.2 Exclusivity. (a) From the date of this Agreement through the Closing, none of Seller or its Affiliates, or their respective officers, employees, representatives or agents will, directly or indirectly, solicit, encourage or initiate any negotiations or discussions with, or provide any information to, or otherwise cooperate in any manner with, any Person or group of Persons (other than Purchaser and its Affiliates) concerning any direct or indirect sale or other disposition of all or any portion of the Business. (b) Promptly after execution of this Agreement, Seller shall, and shall cause each of its Affiliates to, use its commercially reasonable efforts to pursue, pursuant to the terms of any confidentiality agreements with third parties, the return from (or destruction by) all third parties and their representatives of all confidential information provided to them in connection with or concerning the sale of the Business. Seller agrees, upon Purchaser's written request and at Purchaser's expense, to use commercially reasonable efforts to enforce any agreements made by third parties pursuant to confidentiality agreements entered with Seller to treat as confidential information any non-public information concerning RSUI and the Business provided to such third parties under such confidentiality agreements; provided, that Purchaser shall indemnify Seller and hold Seller harmless from any Damages incurred or suffered by Seller as a result of actions taken by Seller pursuant to such request. (c) From the date of this Agreement through the Closing, neither Purchaser and its Affiliates, on the one hand, nor Seller and its Affiliates, on the other hand, shall take, nor agree to commit to take, any action that would impede the ability of Seller or Purchaser, as applicable, to consummate the transactions contemplated by this Agreement, the Ancillary Agreements and the Landmark Purchase Agreement. Section 8.3 Pre-Closing Access and Transition Matters. (a) Prior to the Closing Date, Purchaser shall be entitled, through its officers, employees, counsel, accountants, actuaries, consultants and other representatives, to make such further investigation of the assets, liabilities, business and operations of RSUI and the Business, and to reasonable access to the Books and Records, Claims Histories (as defined in Section 8.4 below), contracts, properties, facilities, accounts, actuaries, consultants, advisors, management and personnel of RSUI and the Business as Purchaser may reasonably request in connection with the transactions contemplated by this Agreement, any of the Ancillary Agreements or the Landmark Purchase Agreement. Any investigation, examination or interview by Purchaser of RSUI Employees or access pursuant to any of the provisions of this Section 8.3(a) shall be conducted or occur at reasonable times during regular business hours upon reasonable prior notice. Each of the parties hereto and its employees and representatives shall cooperate with the other's employees and representatives, as the case may be, in connection with such review and examination. Any such investigation, examination or interview shall be subject to all applicable legal limitations (including attorney-client and work product privileges, confidentiality and antitrust and fair trade limitations). No investigation or review by Purchaser or any of its representatives described above shall 41 affect or be deemed to modify any of the representations, warranties, covenants or agreements of Seller set forth in this Agreement, the Ancillary Agreements, the Landmark Purchase Agreement, the Seller Disclosure Schedules and the other schedules and exhibits hereto and thereto; it being understood that, notwithstanding any right of Purchaser and its representatives to fully investigate the affairs of RSUI and the Business, and notwithstanding any knowledge of facts determined or determinable by Purchaser and its representatives pursuant to any such investigation or right of investigation, Purchaser has the right to rely fully upon the representations, warranties, covenants and agreements of Seller contained in this Agreement, the Ancillary Agreements, the Seller Disclosure Schedules and the other schedules and exhibits hereto and thereto. (b) Prior to the Closing Date, Seller shall be entitled, through its officers, employees, counsel, accountants, actuaries, consultants and other representatives, to make such further investigation of the assets, liabilities, business and operations of AIHL Insurance Co., and to reasonable access to the Books and Records, Claims Histories, contracts, properties, facilities, accounts, actuaries, consultants, advisors, management and personnel of AIHL Insurance Co. as Seller may reasonably request in connection with the Quota Share Reinsurance Agreements and Administrative Services Agreements. Any investigation, examination or interview by Seller of employees of AIHL Insurance Co. or access pursuant to any of the provisions of this Section 8.3(b) shall be conducted or occur at reasonable times during regular business hours upon reasonable prior notice. Each of the parties hereto and its employees and representatives shall cooperate with the other's employees and representatives, as the case may be, in connection with such review and examination. Any such investigation, examination or interview shall be subject to all applicable legal limitations (including attorney-client and work product privileges, confidentiality and antitrust and fair trade limitations). (c) Any such investigation, examination or interview pursuant to Section 8.3(a) and Section 8.3(b) shall be subject to the terms and conditions of the letter agreement, dated December 5, 2002, between Purchaser and Seller (as the same may be amended, the "Confidentiality Agreement") and shall be subject to all other legal limitations (including attorney-client and work product privileges, confidentiality and antitrust and fair trade limitations). Each of the parties hereto shall cooperate in implementing the provisions of this Section 8.3 so as to not unreasonably interfere with the business operations of RSUI, the Royal Insurer Affiliates, Seller, or AIHL Insurance Co. Section 8.4 Post-Closing Access. (a) Following the Closing Date, Seller and the Royal Insurer Affiliates shall (i) allow the employees and representatives of Purchaser, upon reasonable prior notice and during regular business hours, the right, at Purchaser's expense, to examine and make copies of any Books and Records relating to the Business which were retained by Seller or any of its Subsidiaries for any reasonable purpose relating to the Business, including, without limitation, the preparation or examination of, or dispute relating to, Purchaser's Tax Returns, regulatory filings and financial statements and the 42 conduct of any litigation or regulatory dispute, whether pending or threatened, concerning the conduct of the Business prior to the Closing Date and (ii) maintain such Books and Records for Purchaser's examination and copying for a period of not less than ten (10) years following the Closing Date, provided that after such period Seller shall provide Purchaser with at least twenty (20) Business Days' written notice prior to destroying or otherwise disposing of any such Books and Records, at which time and at the option and expense of Purchaser, Seller shall deliver such Books and Records to Purchaser rather than destroying the same. In addition, following the Closing Date, Seller and the Royal Insurer Affiliates shall provide the employees and representatives of Purchaser, upon reasonable prior notice and during regular business hours, the right, at Purchaser's expense, to examine and make copies of the claims histories maintained by Seller and/or the Royal Insurer Affiliates in respect of business underwritten by RSUI for the Royal Insurer Affiliates (the "Claims Histories"). For purposes of clause (ii) of the preceding sentence and for purposes of the last sentence of this Section 8.4(a), the term "Books and Records" shall be deemed to include the Claims Histories. Access to such Books and Records shall be at Purchaser's expense and may not unreasonably interfere with Seller's or any of its Subsidiaries' (or any of their successors') business operations. (b) Following the Closing Date, Purchaser shall (i) allow Seller and the Royal Insurer Affiliates, upon reasonable prior notice and during regular business hours, through its employees and representatives, the right, at the expense of Seller, to examine and make copies of the Books and Records transferred to Purchaser at the Closing for any reasonable business purpose relating to any of their respective businesses, including, without limitation, the preparation or examination of the Closing Financial Data, Tax Returns, regulatory filings and financial statements or the conduct of any litigation or regulatory dispute, whether pending or threatened, and (ii) subject to any record retention requirements set forth in the Administrative Services Agreements, maintain such Books and Records for examination and copying by Seller and its Subsidiaries for a period of not less than ten (10) years following the Closing Date; provided that after such period Purchaser shall provide Seller with at least twenty (20) Business Days' written notice prior to destroying or disposing of any such Books and Records at which time and at the option and expense of Seller, Purchaser shall deliver such Books and Records to Seller, rather than destroying the same. Access to such Books and Records shall be at Seller's expense and may not unreasonably interfere with Purchaser's or any of its Affiliates' (or any of their successors') business operations. Section 8.5 Governmental Entity Consents and Filings; Rating Agencies. (a) Schedule 8.5(a) sets forth all consents, approvals and agreements of all Governmental Entities necessary to authorize, approve or permit the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements. The parties hereto shall (i) cooperate and use their respective reasonable best efforts to obtain all such consents, approvals and agreements at the earliest possible time hereafter, (ii) as promptly as practicable hereafter, file or submit, or cause to be filed or submitted, to all Governmental Entities all notices, applications, documents and other materials necessary in connection with the consummation of such transactions and (iii) 43 use their respective reasonable best efforts to respond as promptly as practicable to all inquiries received from all Governmental Entities for additional information or documentation in connection with such transactions. Seller and Purchaser shall promptly advise each other upon receiving any communication from any Governmental Entity whose consent or approval is required for consummation of the transactions contemplated by this Agreement or any Ancillary Agreement which constitutes a reasonable likelihood that any requisite regulatory approval will not be obtained or that receipt of any such approval will be materially delayed. Seller and Purchaser shall furnish to the other such necessary information and reasonable assistance as the other may reasonably request in connection with its preparation of necessary filings or submissions to any Governmental Entity. Seller and Purchaser shall provide the other with copies of all filings and submissions with Governmental Entities and shall provide the other with a reasonable opportunity to comment upon all such draft copies. For purposes of this Agreement, the covenant of the parties to use their "reasonable best efforts" shall not require any party to agree to limit in any material respect the conduct of its business or to divest itself of any material assets or properties. (b) Schedule 8.5(b) sets forth all filings or submissions to all Governmental Entities to be filed or submitted in connection with the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements. The parties hereto agree to use reasonable best efforts to file or submit, or cause to be filed or submitted, as promptly as practicable hereafter, all notices, applications, documents and other materials listed on Schedule 8.5(b). The failure to obtain regulatory approval with respect to the filings and submissions set forth on Schedule 8.5(b) shall not be considered a material failure which would otherwise delay or prevent the consummation of the Closing. (c) Seller agrees to provide, and to cause its Affiliates (including RSUI) to provide, to Purchaser such reasonable assistance as may be requested by Purchaser to allow Purchaser to obtain a rating from A.M. Best Company, Inc. for the insurance entities into which business underwritten by RSUI will be placed after the Closing. (d) Seller agrees to cause its Affiliates (including RSUI and Landmark) to use their best efforts to obtain as soon as practicable after the date of execution of this Agreement all required Insurance Permits as may be necessary to allow Landmark to write insurance business on a non-admitted basis in all states other than the State of Oklahoma. The failure to obtain any such Insurance Permits shall not be considered a material failure which would otherwise delay or prevent the consummation of the Closing. Section 8.6 Non-Governmental Consents. (a) Seller and Purchaser shall cooperate and use commercially reasonable efforts to obtain as promptly as practicable following the date hereof all approvals, consents, waivers or authorizations of non-governmental Persons necessary to permit consummation of the transactions contemplated by this Agreement and the 44 Ancillary Agreements, all of which consents are listed on either Schedule 8.6(a)(i) or 8.6(a)(ii), including any required approvals, consents, waivers or authorizations with respect to (A) the assignment or transfer of rights under any Material Business Contracts and (B) an assignment or sublicense of any Business Intellectual Property, except as otherwise provided in Section 9.2(b). Seller is responsible to obtain consents set forth on Schedule 8.6(a)(i). Purchaser is responsible to obtain consents set forth on Schedule 8.6(a)(ii). The out-of-pocket costs and expenses incurred in obtaining such consents shall be borne by Seller, in the case of the Schedule 8.6(a)(i) consents, and by Purchaser, in the case of the Schedule 8.6(a)(ii) consents. Purchaser shall be entitled to participate in any negotiation with any Person whose consent is required in connection with the assignment or sublicensing or other transfer of any Material Business Contract or Acquired Intellectual Property and the rights and obligations thereunder. (b) Pending obtaining any required consent, approval, waiver or authorization with respect to a Material Business Contract, the parties shall cooperate with each other to effect mutually agreeable, reasonable and lawful arrangements designed to provide Purchaser or its designated Affiliates with (A) the economic and operational equivalents that would have been realized by Purchaser or its designated Affiliates had the applicable Material Business Contract been assigned, subleased or transferred to Purchaser or its designated Affiliates at Closing or (B) to the extent that such economic and operational equivalent cannot be provided through Seller or one of its Affiliates, alternative third party contractual arrangements, which arrangements shall be determined by Purchaser in its reasonable discretion to be acceptable. Once consent, approval, waiver or authorization for the assignment, sublease or transfer of any such Material Business Contract not assigned, subleased or transferred at the Closing is obtained, Seller shall, and shall cause the appropriate Affiliate of Seller to, assign, sublease or transfer promptly such Material Business Contract to Purchaser or its designated Affiliate. In the event that any such Material Business Contract cannot be assigned, subleased or transferred or the benefits of use of any such Material Business Contract cannot be provided to Purchaser or its designated Affiliates within a reasonable period of time following the Closing, then Purchaser, or its designated Affiliates on the one hand, and Seller and its Affiliates, on the other hand, shall enter into such arrangements (including servicing, subleasing, subcontracting or occupancy) that will provide Purchaser or its designated Affiliates with (A) the economic and operational equivalents that would have been realized by Purchaser or its designated Affiliates had the applicable Material Business Contract been assigned, subleased or transferred to Purchaser or its designated Affiliates at Closing or (B) to the extent that such economic and operational equivalent cannot be provided through Seller or one of its Affiliates, alternative third party contractual arrangements which arrangements shall be determined by Purchaser in its reasonable discretion to be acceptable. Without limitation of the foregoing, Seller agrees to indemnify Purchaser and its Affiliates and to hold Purchaser and its Affiliates harmless from any Damages incurred or suffered by Purchaser or any of its Affiliates (including RSUI) as a result of the failure to obtain the Sherman Oaks Consent. 45 Section 8.7 Further Assurances. (a) Upon the terms and subject to the conditions herein provided, until the Closing Date each of the parties hereto shall use commercially reasonable efforts to take, or cause to be taken, all actions or do, or cause to be done, all things or execute any documents necessary, proper or advisable under Applicable Law to consummate and make effective the transactions contemplated by this Agreement and the Ancillary Agreements. (b) On and after the Closing Date, Seller, as reasonably requested from time to time by Purchaser, and Purchaser, as reasonably requested from time to time by Seller, shall take all reasonably appropriate action and execute any additional documents, instruments or conveyances of any kind (but which shall not, however, contain any additional representations or warranties) which may be necessary to carry out any of the provisions hereof or of any Ancillary Agreement, including, without limitation, putting Purchaser in full possession and operating control of the Acquired Assets and causing Purchaser to have full unencumbered ownership of all of the RSUI Shares. Section 8.8 Expenses. Except as otherwise expressly provided in this Agreement, in any of the Ancillary Agreements or with the Landmark Purchase Agreement, the parties to this Agreement shall bear their respective costs and expenses incurred in connection with the preparation, execution and performance hereof and thereof and the transactions contemplated hereby and thereby, including, without limitation, all fees and expenses of agents, representatives, counsel, investment bankers, actuaries and accountants; provided, however, that Seller and Purchaser shall share equally the cost of all filing fees in connection with all filings by any of the parties hereto or their respective Affiliates with Governmental Entities (including the Federal Trade Commission and the Antitrust Division under the HSR Act). The out of pocket costs and expenses incurred in connection with obtaining required approvals, consents, waivers or authorizations of non-governmental Persons will be allocated as provided in Section 8.6(a) above. Section 8.9 Public Announcements. After the execution of this Agreement and through the Closing Date, the parties hereto shall consult with each other prior to making any public announcements which relate to the transactions contemplated by this Agreement or any of the Ancillary Agreements and give the other reasonable opportunity to review and comment on such public disclosure in advance of its release. Notwithstanding anything to the contrary contained in this Agreement or the Confidentiality Agreement, the parties (and each employee, representative, or other agent of the parties) may disclose to any and all persons, without limitation of any kind, the tax treatment and any facts that may be relevant to the tax structure of the transaction, beginning on the earliest of (i) the date of the public announcement of discussions relating to the transaction, (ii) the date of public announcement of the transaction, or (iii) the date of the execution of this agreement (with or without conditions) to enter into the transaction, provided, however, that neither party (nor any employee, representative or other agent thereof) may disclose any information that is not necessary to understanding 46 the tax treatment and any facts that may be relevant to the tax structure of the transaction (including the identity of the parties and any information that could lead another to determine the identity of the parties), or any other information to the extent that such disclosure could result in a violation of any federal or state securities law. Section 8.10 Notice of Adverse Developments. From the date hereof through the Closing Date (i) Seller shall notify Purchaser promptly of the occurrence of any event, condition or circumstance of which Seller has Knowledge that would jeopardize the fulfillment of any condition to the Closing and (ii) Purchaser shall notify Seller promptly of the occurrence of any event, condition or circumstance of which Purchaser has Knowledge that would jeopardize the fulfillment of any condition to the Closing. No disclosure by any party pursuant to this Section 8.10, however, shall be deemed to amend or supplement the Seller Disclosure Schedules or the Purchaser Disclosure Schedules or to prevent or cure any misrepresentation or breach of warranty, nor shall any such disclosure affect or otherwise limit the remedies available hereunder to the party receiving such notice. Without limiting the generality of the foregoing, from the date hereof through the Closing Date, Seller shall promptly notify Purchaser of any Action of the type required to be described in Schedules 2.4, 3.5 or 4.10 hereof that is commenced or, to its Knowledge, threatened after the date hereof. Section 8.11 Policy Form, Rate and Rule Filings. (a) As soon as practicable after the date of this Agreement, Purchaser shall cause AIHL Insurance Co. to file or submit, or cause to be filed or submitted, to the insurance regulatory entities in all applicable states, applications, documents and other materials necessary in connection with obtaining all policy form, rate and rule filings necessary to enable AIHL Insurance Co. to issue in its own name contracts or policies similar to the RSUI-Produced Insurance Contracts. Purchaser agrees it shall cause AIHL Insurance Co. to use its best efforts to obtain all necessary policy form, rate and rule filings as soon as practicable after the Effective Date (as such term is defined in the Quota Share Reinsurance Agreements) and in any event by the first anniversary of the Effective Date. (b) Seller agrees to use its best efforts to cooperate with, or cause its Affiliates to use their best efforts to cooperate with, AIHL Insurance Co. in obtaining all policy form, rate and rule filings necessary to enable AIHL Insurance Co. to issue in its own name contracts or policies similar to the RSUI-Produced Insurance Contracts. Section 8.12 Intercompany Balances. (a) Except as set forth in Schedule 8.12(a), Seller shall cause all intercompany accounts receivable or payable (whether or not currently due or payable) between (x) RSUI, on the one hand, and (y) Seller or any of its Affiliates, or any of the officers or directors of any of Seller or any of its Affiliates (other than RSUI or any of the officers or directors of RSUI), on the other hand, to be settled in full (without any premium or penalty) at or prior to the Closing, and such settlements shall be reflected in 47 the Closing Balance Sheet. At or prior to the Closing, Seller shall advise Purchaser as to the amounts of all such intercompany accounts and the method of settlement thereof. Except as set forth on Schedule 8.12(a), effective at or prior to Closing, all Intercompany Agreements shall be terminated and discharged in accordance with their terms, without any further liability or obligation thereunder. (b) From and after the Closing, except as set forth on Schedule 4.17(c) or as fully reflected or reserved against in the Closing Balance Sheet, and except for obligations and agreements to be performed pursuant to this Agreement, the Ancillary Agreements and the Landmark Purchase Agreement, (i) none of RSUI, on the one hand, and Seller and its Affiliates, on the other hand, shall be subject to any further obligation or liability to the other of any nature whatsoever, under any Intercompany Agreement or otherwise, and (ii) none of Purchaser and its Affiliates (including RSUI), on the one hand, and Seller and its Affiliates, on the other hand, shall be subject to any further obligation or liability to the other of any nature with regard to the Business. Section 8.13 Affiliate Agreements. All Affiliate Agreements shall be terminated and discharged without any further liability or obligation thereunder effective at or prior to the Closing, upon terms and pursuant to instruments reasonably satisfactory to Purchaser. Section 8.14 Insurance Matters. Purchaser acknowledges that RSUI's insurance coverage will be terminated effective as of the Closing Date. Seller agrees to cooperate with Purchaser in obtaining, at the expense of Purchaser, replacement insurance coverage to provide insurance coverage to RSUI effective as of the Closing Date. Without limiting the generality of the foregoing, Seller shall provide such information, and cause RSUI and any other Affiliate of Seller, as may be appropriate, to complete and execute such applications, as may be reasonably necessary to arrange for such replacement insurance coverage. Section 8.15 Resignation of RSUI Directors. Seller shall cause each of the directors of RSUI set forth in Schedule 8.15 to submit their letters of resignation effective as of the Closing Date. Section 8.16 Disposition of Business. Prior to the Closing, neither Purchaser nor any Affiliate of Purchaser shall publicly announce any proposal or intention to sell, transfer or otherwise restructure (including, by way of merger, consolidation, exchange, business combination or any other transaction) directly or indirectly, any or all of the Acquired Assets or the Business. Section 8.17 Transfer of Excluded Assets, Excluded Contracts and Retained Liabilities. Subject to Sections 9.1 and 9.2, to the extent practicable, Seller shall cause all of the Excluded Assets, the Excluded Contracts and the Schedule 1.3(c) Liabilities to be transferred by RSUI to Seller and/or its Affiliates, or otherwise disposed of, liquidated or discharged prior to Closing, upon terms and pursuant to instruments reasonably satisfactory to Purchaser. Such transfers, dispositions, liquidations or other discharges of the Excluded Assets, the Excluded Contracts and the Schedule 1.3(c) 48 Liabilities shall be reflected in the Closing Balance Sheet. To the extent necessary, Purchaser shall cooperate with Seller to transfer such Excluded Assets, Excluded Contracts and Schedule 1.3(c) Liabilities to Seller, including promptly notifying and delivering to Seller any such Excluded Assets if discovered or received by Purchaser subsequent to the Closing Date. Section 8.18 Indemnification of Brokerage. Seller agrees to pay the Seller's Fee and to indemnify and hold harmless Purchaser from any claim or demand for commission or other compensation by any Investment Broker claiming to have been employed by or on behalf of RSUI, the Seller or any of its Subsidiaries in connection with the transactions contemplated hereby, and to bear the cost of legal expenses incurred in defending against any such claim. Purchaser agrees to pay the Purchaser's Fee and to indemnify and hold harmless Seller from any claim or demand for commission or other compensation by any Investment Broker claiming to have been employed by or on behalf of Purchaser or any of its Affiliates in connection with the transactions contemplated hereby, and to bear the cost of legal expenses incurred in defending against any such claim. Section 8.19 Interim Financial Statements. From the date hereof until the Closing Date, as soon as practicable after they become available, Seller shall deliver to Purchaser true and complete copies the quarterly or annual GAAP financial statements relating to RSUI for each quarterly or annual period ending on or after the date hereof. All such GAAP financial statements shall be prepared in accordance with GAAP consistently applied throughout the periods involved (except as may be indicated in the notes thereto), and shall be delivered to Purchaser within forty-five (45) days after the end of each calendar quarter or within seventy-five (75) days after the end of the fiscal year. Section 8.20 Corporate Records. At or prior to the Closing, Seller shall deliver to RSUI all minute books, stock ledgers, stock books, canceled or unused stock certificates, corporate seals, books, records (including but not limited to, for all open Tax periods, any Income Tax Returns, records and worksheets relating to Taxes, as well as any Tax closing or settlement agreements and any Tax examinations or similar reports, but excluding any such records that are part of any consolidated, combined, unitary or similar Tax Return except to the extent solely related to RSUI), files, personnel records, policy forms, stationery, software, data, documents and properties of RSUI that are in the possession of any of Seller or its other Affiliates. Section 8.21 Instruments. Except as specifically provided elsewhere herein, any monies, checks, drafts, money orders, postal notes and other instruments received after the Closing by Seller or any of its Affiliates in payment of any amounts due RSUI (other than amounts due with respect to Taxes) shall be held in trust therefor and, forthwith after receipt by Seller or such Affiliates thereof, be transferred and delivered by Seller and such Affiliates to RSUI and any such instruments made payable to Seller or such Affiliates when so delivered shall bear all endorsements required to effectuate the transfer of the same to RSUI. 49 Section 8.22 Cooperation. (a) From and after the Closing Date, Purchaser agrees to cause RSUI (including its directors, officers and employees and former directors, officers and employees who are employees of Purchaser or any of its Affiliates) to assist, cooperate and voluntarily participate in the defense of any legal or regulatory action brought against Seller (or any Affiliate of Seller) by any third party with regard to the businesses of Seller or any of its Affiliates as to which any such director, officer or employee has independent knowledge. Seller agrees to reimburse Purchaser for any out-of-pocket costs and expenses incurred by Purchaser or any of its Affiliates in connection with providing such assistance. (b) From and after the Closing Date, Seller agrees on behalf of itself and its Affiliates (including directors, officers and employees and former directors, officers and employees who are employees of Seller or any of its Affiliates) to assist, cooperate and voluntarily participate in the defense of any legal or regulatory action brought against Purchaser, RSUI, AIHL Insurance Co. or any other Affiliate of Purchaser by any third party with regard to the businesses of Purchaser or any of its Affiliates as to which any such director, officer or employee has independent knowledge. Seller agrees to reimburse Purchaser for any out-of-pocket costs and expenses incurred by Purchaser or any of its Affiliates in connection with providing such assistance. ARTICLE IX ADDITIONAL COVENANTS Section 9.1 Trademarks; Change of Corporate Names. (a) On or prior to the Closing Date, Seller shall cause Royal & SunAlliance to execute such instruments, in form and substance reasonably satisfactory to Purchaser, assigning to RSUI all right, title and interest in and to the RSUI Mark, excluding the Mark Registration (such instruments, the "Service Mark Assignment"). Within (3) days following the Closing, Seller shall cause Royal & SunAlliance to cancel the Mark Registration by filing an instrument of express abandonment with the United States Patent and Trademark Office. On and after the Closing Date, Seller shall, and shall cause its Affiliates, as reasonably requested by Purchaser, to execute any additional documents, instruments or conveyances which may be necessary in order for RSUI or its successor to register the RSUI Mark with the United States Patent and Trademark Office (and similar authorities in other jurisdictions) so long as the subject matter of such registrations does not incorporate the name "Royal" or the navigator or half-navigator design elements currently used by Royal Insurer Affiliates. (b) Change of Corporate Name. As promptly as practicable following the Closing, but in no event later than six (6) months following the Closing Date, Purchaser shall, and shall cause its Affiliates to, cause RSUI to make appropriate filings with all Governmental Entities and any other applicable registries to change the legal name and any tradename of RSUI to a name that does not include "Royal", "RSA" or anything confusingly similar thereto. Seller agrees that the foregoing shall not be 50 deemed to prohibit RSUI or any of its Affiliates from adopting a new name that allows for continued use of the acronym "RSUI" or from using "RSUI" in its corporate name. (c) Intellectual Property. For the avoidance of doubt, except as provided in Sections 9.1 or 9.2 or as otherwise provided in any of the Ancillary Agreements, the parties hereto agree that Purchaser is not purchasing, acquiring or otherwise obtaining any right, title or interest in, to or under (i) any Intellectual Property, proprietary Computer Software and IP Licenses owned by Seller set forth in Schedule 9.1(c) hereto (collectively, the "Royal Group Intellectual Property"), whether directly or indirectly as a result of Purchaser's acquisition of the RSUI Shares, or (ii) except as expressly provided for hereunder or in the Ancillary Agreements (including indirectly as a result of Purchaser's acquisition of the RSUI Shares), any other Intellectual Property, including, but not limited to, the names "Royal", "Royal Specialty Underwriting Inc.", Navigator Logo or any Trademark related thereto or employing the words "Royal" and "Royal Specialty Underwriting Inc." or any part or variation thereof or any confusingly similar Trademark. Seller agrees that the foregoing shall not be deemed to prohibit RSUI or any of its Affiliates from adopting a new name that allows for continued use of the acronym "RSUI" or from using "RSUI" or "Specialty Underwriting" in its corporate name. Section 9.2 Other Intellectual Property Matters. (a) As promptly as practicable following the date hereof, Seller shall use its commercially reasonable efforts (i) to assist Purchaser in obtaining new licenses for RSUI's benefit and use following the Closing of all of the Intellectual Property licensed from a third party that is listed in Schedule 4.15(a), and (ii) in the event that Purchaser is unable, despite its commercially reasonable efforts and Seller's assistance, to obtain any rights to such Intellectual Property prior to the Closing, to enter or assist Purchaser in entering into any reasonable lawful arrangement designed to provide RSUI or its designated Affiliates (1) with the benefits of Seller's license of such Intellectual Property or (2) with economic and operational equivalents to said Intellectual Property or (3) with alternative third party contractual arrangements, which arrangements shall be determined by Purchaser in its reasonable discretion to be acceptable, and shall cause Purchaser to bear the costs and obligations applicable to RSUI or its designated Affiliates for their use under Seller's license, the portion of the economic and operational equivalent attributable to RSUI or its designated Affiliates or the alternative third party contractual arrangements, whichever is applicable. (b) In the event that, following the Closing, Purchaser or Seller identifies additional Intellectual Property (including, without limitation, Computer Software or Trade Secrets) that is owned or controlled by Seller and is necessary for the conduct of the Business, Seller shall, or shall cause its applicable Affiliates, to enter into a license, in form and substance reasonably satisfactory to both parties, granting RSUI a non-exclusive, royalty-free license to use such Intellectual Property in connection with the Business under terms that are, where appropriate, consistent with those contained in the Administrative Services Information Technology License. 51 (c) Seller on its own behalf and/or on behalf of its Affiliates hereby grants RSUI and its Affiliates the limited, perpetual right to use the form and content of the "Big Shield form" (the "Form") on a non-exclusive basis in connection with the offering and sale of insurance products and services in accordance with practices current as of the Closing Date, as necessary regulatory forms, and in other ways customary to the trade; provided, however, that neither RSUI nor any of its Affiliates shall have any right to use the "Big Shield" trademark; and provided, further, that the Form and the content of the Form are provided on an "as is" basis and without representations or warranties of any kind. The rights granted under this Section 9.2(c) shall not be transferable without Seller's prior written consent except for assignments made in connection with a merger, reorganization, sale or other transfer of all or substantially all of the assets or business of RSUI. Section 9.3 Noncompetition and Nonsolicitation by Seller. (a) Except as provided in Sections 9.3(c) and 9.3(d) below, for a period of two (2) years following the Closing Date (the "Non-Compete Period"), neither Seller nor any of its Affiliates shall (for their own account or for the benefit of any other Person without the prior written consent of Purchaser), directly or indirectly, as a principal or solely or jointly with others, or as stockholders, partners, members or other owners in or of any Person, (i) underwrite any RSUI-Produced Insurance Contract (provided, however, that Seller and its Affiliates shall not be prohibited by this Section 9.3(a)(i) from underwriting any RSUI-Produced Insurance Contract if RSUI has tendered written notice of non-renewal of such RSUI-Produced Insurance Contract and RSUI has not offered to place the subject contract either in an insurance company affiliated with Purchaser or with a Royal Insurer Affiliate), or (ii) accept any risk in the United States placed through a wholesale broker for a policy of insurance of a type underwritten by RSUI as of the Closing Date. (b) Except as provided in Sections 9.3(c) and 9.3(d) below, Seller further agrees that, during the Non-Compete Period, neither it nor any of its Affiliates shall underwrite in the United States any policies, binders and contracts of insurance that provide monoline coverage for the following types of insurance: (i) directors and officers liability; (ii) professional liability; and (iii) excess umbrella liability. (c) Notwithstanding anything to the contrary contained in this Agreement or in any Ancillary Agreement, Purchaser acknowledges and agrees that Seller and its Affiliates have been issuing, and during the Non-Compete Period shall be permitted to continue to issue, (i) through its retail distribution channel, policies, binders and contracts for the following types of insurance: (A) property; (B) inland marine; and (C) general liability, (ii) policies, binders and contracts for errors and omissions insurance for architects and engineers underwritten by Design Professional Insurance Company (DPIC), a business unit of Seller, and (iii) umbrella policies, binders and contracts of insurance written by Seller or any of its Affiliates that are in excess of Seller's or such Affiliate's own primary policies, provided and to the extent that such actions described in clauses (i), (ii) and (iii) above do not involve any use of the Books and Records. 52 (d) The restrictions in paragraphs (a) and (b) of this Section 9.3 shall not prevent Seller or any of its Affiliates during the Non-Compete Period from: (i) arranging or underwriting cover for any client of Seller or any Affiliate or Network Partner as part of a multinational insurance program which is administered from a territory or territories outside the United States; (ii) carrying on inwards reinsurance business (provided that neither Seller nor any Affiliate will enter into reinsurance arrangements solely for the purpose of defeating the effect of the restrictions set forth in paragraphs (a) and (b) of this Section 9.3); (iii) holding or acquiring for investment purposes only any interest in securities of a Person which are listed or quoted or traded on any generally recognized market, provided that such securities amount to less than ten percent (10%) of the outstanding securities of such Person and carry less than ten percent (10%) of the voting rights attaching to the outstanding securities of that Person; and (iv) underwriting any type of insurance contracts which are not being underwritten by RSUI as of the Closing Date; and (v) purchasing an entity or group of entities (an "Acquired Entity") that competes in the wholesale market with the Business (a "Competing Business") as conducted on the date hereof, so long as: (A) the gross revenues of the Competing Business do not exceed 15% of the gross revenues of the Acquired Entity during the most recent fiscal year of the Acquired Entity ended before the date of acquisition of the Acquired Entity; and (B) Seller takes appropriate safeguards to further the intent of this Section 9.3, including implementing procedures to ensure that no disclosure of any information relating primarily to the Business is made or otherwise becomes available to the Competing Business or to the Acquired Entity. (e) During the Non-Compete Period, none of Seller or its Affiliates shall solicit or hire any Transferred Employee without the prior written consent of Purchaser; provided, however, that nothing in this Section 9.3(e) shall prohibit Seller or any of its Affiliates from hiring any Transferred Employee whose employment has been terminated by Purchaser or an Affiliate of Purchaser, as applicable, where none of Seller or its Affiliates has solicited such Transferred Employee for employment prior to the date of the termination of such Transferred Employee by Purchaser or its Affiliate, as applicable. (For purposes of this Section 9.3(e), prior to January 1, 2004, references to "Transferred Employees" shall be deemed to be references to RSUI Employees and New 53 Hires as defined in Section 11.1 below). In the event that Purchaser has Knowledge of any solicitation in violation of this Section 9.3(e), Purchaser shall promptly notify Seller. (f) The parties to this Agreement acknowledge that the type and periods of restriction imposed in the provisions of this Section 9.3 are fair and reasonable and are reasonably required for the protection of the parties. If any of the restrictions or covenants in paragraphs (a), (b), (c) (d), or (e) of this Section 9.3 are hereafter construed to be invalid or unenforceable, the same shall not affect the remainder of the covenant or covenants, which shall be given full effect, without regard to the invalid portions. (g) Seller agrees that the covenants in this Section 9.3 are for the benefit of Purchaser and its Affiliates (including RSUI). (h) Seller agrees that, at no time after the Closing Date, will it or any of its Affiliates (i) itself use for the purpose of competing with the Business of RSUI any confidential information of RSUI or the Business obtained by it while Seller was a stockholder of RSUI and an owner of the Business (the "RSUI Confidential Information"), or (ii) disclose to any Person any RSUI Confidential Information; provided, however, that this clause (ii) shall not preclude the disclosure of such RSUI Confidential Information if (A) disclosure of such RSUI Confidential Information is in the reasonable opinion of a Royal Insurer Affiliate necessary in the conduct of its business; (B) disclosure of such RSUI Confidential Information is reasonably required by Seller or any of its Affiliates in connection with the performance by Seller and its Affiliates of their obligations under the Employee Leasing Agreement or under any other Ancillary Agreement; (C) disclosure of such RSUI Confidential Information shall be required by Applicable Law or order of any Governmental Entity, (D) disclosure of such RSUI Confidential Information is, in the reasonable judgment of Seller or an Affiliate of Seller, required in connection with any claim against or involving Seller or any of its Affiliates or (E) such RSUI Confidential Information is publicly available (other than RSUI Confidential Information known generally to the public as a result of a violation of this Section 9.3(h) by Seller or any of its Affiliates) or is known or subsequently developed by the Seller or any of its Affiliates outside of its affiliation with RSUI or the Business from a source that is not prohibited from disclosing such RSUI Confidential Information to Seller or any of its Affiliates by a legal, contractual, fiduciary or other obligation to Purchaser or any of its Affiliates (including RSUI). (i) Seller agrees that a monetary remedy for a breach of the agreements set forth in this Section 9.3 will be inadequate and impracticable and further agrees that such a breach would cause Purchaser irreparable harm, and that, in the event of such a breach, Purchaser shall be entitled to such injunctive relief, including temporary restraining orders and preliminary and permanent injunctions, as may be determined by a court of competent jurisdiction. (j) For purposes of this Section 9.3, "Network Partner" means any insurance company that is not an Affiliate of Seller that utilizes the Royal & 54 SunAlliance Insurance Group plc global network in order to write business for its multinational clients. Section 9.4 Ancillary Agreements; Other Closing Deliveries. (a) Seller shall, and shall cause RSUI and each of the Royal Insurer Affiliates to, execute and deliver at the Closing each of the Ancillary Agreements to which it is a party and each other agreement, document or instrument which is necessary to effect the transactions contemplated by this Agreement or the Ancillary Agreements. (b) Purchaser shall, and shall cause its Affiliates to, execute and deliver at the Closing each of the Ancillary Agreements to which it is a party and each other agreement, document or instrument which is necessary to effect the transactions contemplated by this Agreement or the Ancillary Agreements. (c) Promptly following the date of this Agreement, the parties hereto agree to negotiate in good faith the definitive terms of the Transition Services Agreement. (d) At the Closing, Seller shall deliver to Purchaser: (i) evidence of compliance with the requirements of Section 8.12 regarding the settlement of intercompany balances and the termination of Intercompany Agreements; (ii) evidence of compliance with the requirements of Section 8.13 regarding the termination of Affiliate Agreements; (iii) a certificate satisfying the requirements of Treasury Regulation Section 1.1445-2(b)2; (iv) the Closing RSUI Contract List; and (v) the Cat Cover Endorsement. Section 9.5 Updates to Seller Disclosure Schedules. Seller shall use reasonable best efforts to provide in writing to Purchaser updates to Schedule 11.1(a) (RSUI Employees) of the Seller Disclosure Schedules between the date hereof and the Closing Date. Section 9.6 The American Agency. From and after the Closing Date, Purchaser agrees to provide, and to cause its Affiliates (including RSUI) to provide, such reasonable assistance as may be requested from time to time by Seller in connection with the proposed sale of The American Agency. Seller agrees to reimburse Purchaser for any out-of-pocket costs and expenses incurred by Purchaser or any of its Affiliates (including RSUI) in connection with providing such assistance. Section 9.7 Capitalization of AIHL Insurance Co. Prior to the Closing, Purchaser will take such action as may be necessary to cause the policyholders' surplus of AIHL Insurance Co. to be not less than $500,000,000 on the Closing Date. Section 9.8 Certain Matters. (a) Purchaser agrees to take such action as may be necessary to cause AIHL Insurance Co. to perform its obligations under the Quota Share Reinsurance Agreements with regard to the collateralization of the Trust provided for thereunder. 55 Purchaser further agrees that, if the policyholders' surplus of AIHL Insurance Co. reflected in any annual or quarterly statutory filing is less than $300,000,000 as of the end of the period, Purchaser will, within ten Business Days after the date of such statutory filing, take such action as may be necessary to cause the policyholders' surplus of AIHL Insurance Co. to be not less than $300,000,000. (b) Purchaser and Seller agree that the commitments of Purchaser made in Section 9.8(a) above shall be terminated on the date of filing of AIHL Insurance Co.'s statutory statements for the year ended December 31, 2004, or on the date of filing of AIHL Insurance Co.'s statutory statements for a quarterly or annual period ended after December 31, 2004, if, on such date, (i) AIHL Insurance Co. holds an A.M. Best Insurer's Financial Strength rating of at least A-, without negative outlook or similar modifier, (ii) the policyholders' surplus of AIHL Insurance Co. reflected in such statutory filing is not less than $500,000,000, and (iii) (A) the sum of (x) unearned premium reserves plus (y) loss and loss adjustment expense reserves (including reserves for incurred but not reported claims) held by AIHL Insurance Co. in respect of its obligations under the Quota Share Reinsurance Agreements, taken as a whole (but, from and after the date of closing of the Landmark Purchase Agreement, excluding unearned premium reserves and loss and loss adjustment expense reserves held by AIHL Insurance Co. in respect of its obligations under the Landmark Quota Share Reinsurance Agreement), does not exceed 50% of the policyholders' surplus of AIHL Insurance Co. reflected in such statutory filing and (B) Purchaser shall have delivered to Seller an opinion (in the case of a statutory filing for an annual period) or a review (in the case of a statutory filing for a quarterly period) prepared by a nationally recognized independent actuarial firm supporting the reserves reflected in such statutory filing. Purchaser further agrees that, until the commitments of Purchaser made in Section 9.8(a) above are terminated upon fulfillment of the conditions for such termination set forth in the immediately preceding sentence, Purchaser shall not dividend or distribute (A) any shares of Purchaser's wholly owned subsidiaries Capital Transamerica Corporation and Platte River Insurance Company or any shares of Purchaser's indirect wholly owned subsidiaries Capital Indemnity Corporation and Capital Specialty Insurance Corporation or (B) any proceeds of the sale of any of Capitol Transamerica Corporation, Platte River Insurance Company, Capitol Indemnity Corporation and/or Capitol Specialty Insurance Corporation. ARTICLE X TAX MATTERS Section 10.1 Transfer Taxes. All Transfer Taxes, if any, arising out of or in connection with the transactions contemplated by this Agreement shall be borne equally by Seller and Purchaser. The parties shall cause all appropriate stock Transfer Tax stamps to be affixed to the certificate or certificates representing the RSUI Shares so sold and delivered. Seller and Purchaser shall reasonably cooperate in the preparation, execution and filing of, all Tax Returns, applications or other documents regarding any Transfer Taxes that become payable in connection with the sale of the Acquired Assets and the Acquired Intellectual Property pursuant to this Agreement. 56 Section 10.2 Tax Matters. Except as provided in Section 10.1 hereof: (a) Parent or Seller shall file or cause to be filed when due all Tax Returns that are required to be filed for any Pre-Closing Tax Period by or with respect to RSUI, and, subject to Section 10.3 hereof, shall remit (or cause to be remitted) any Taxes due in respect of such Tax Returns. All such Tax Returns will be prepared in a manner consistent with the past practice of Seller and RSUI. (b) Purchaser shall file or cause to be filed when due all Tax Returns that are required to be filed for any Post-Closing Tax Period or any Straddle Period by or with respect to RSUI and, subject to Sections 10.2(d) and 10.3 hereof, Purchaser shall remit (or cause to be remitted) any Taxes due in respect of such Tax Returns. (c) Purchaser shall cause RSUI to prepare in a manner consistent with past practice of RSUI and to deliver to Parent or Seller, all relevant Tax information relating to RSUI reasonably required to permit Parent or Seller to file or cause to be filed when due all Tax Returns required to be filed or caused to be filed by Parent or Seller pursuant to Section 10.2(a) of this Agreement. (d) In the case of any Tax Return for any Straddle Period, Purchaser shall provide Seller with copies of the completed Tax Return for such taxable period and a schedule apportioning the Tax shown on such Tax Return as between Seller and Purchaser and specifying the amount due to or from Seller (all computed in accordance with Section 10.3 hereof), together with such related work papers and other documents as Seller shall reasonably request, no later than forty-five (45) days before the due date for the filing of such Tax Return. Seller and its authorized representatives shall have the right to review the Tax Return and schedule received from Purchaser pursuant to the terms of this Section 10.2(d). Seller and Purchaser agree to consult each other and resolve in good faith any issues arising under the terms of this Section 10.2(d) as a result of the review of any such Tax Returns and schedule received from Purchaser. If the parties agree upon the contents of the Tax Return and the schedule, then the Tax Return shall be filed as so agreed and the amount of Tax, if any, due from Seller shall be paid by Seller to Purchaser no later than two (2) days prior to the date of filing of such Tax Return or the amount of Tax due, if any, from Purchaser to Seller shall be paid by Purchaser to Seller no later than three (3) days after the date of filing of such Tax Return. If the parties are unable to resolve any dispute as to any Tax Return or accompanying schedule within thirty (30) days after the provision of such Tax Return or schedule to the Seller, the parties shall refer the dispute to an independent mutually agreed upon nationally recognized accounting firm (the "Independent Firm") to act as an arbitrator to resolve the disagreement prior to the due date of the filing of such Tax Return. The Independent Firm's determination shall be final and binding upon the parties, and all fees and expenses relating to the engagement of the Independent Firm shall be shared equally by Seller and Purchaser. (e) Seller or Parent shall cause any Tax sharing agreement or similar arrangement with respect to Taxes involving RSUI, on the one hand, and Seller, 57 Parent or any Affiliates of either, on the other hand, to be terminated effective as of June 30, 2003, so that to the extent any such agreement or arrangement relates to RSUI after June 30, 2003, none of RSUI, Seller, Parent nor the Affiliates of any of them shall have any obligation thereunder to the other, whether to make payment or otherwise, under any such agreement or arrangement for any past, present or future period, which obligations shall be governed solely by this Agreement. (f) Except as otherwise expressly contemplated by this Agreement, from the date hereof to and including the Closing Date, neither Parent nor Seller without the prior written consent of Purchaser (which consent shall not be unreasonably withheld, conditioned or delayed) will permit RSUI to directly or indirectly (i) make, change or revoke, or permit to be made, changed or revoked, any material election or method of accounting, with respect to Taxes affecting RSUI for Post-Closing Tax Periods, or (ii) enter into, or permit to be entered into, any closing or other agreement or settlement with respect to Taxes of RSUI affecting or relating to Post-Closing Tax Periods. Section 10.3 Computation of Tax Liabilities. (a) For purposes of applying this Section 10.3, when applying the definitions of "Pre-Closing Tax Period," "Post-Closing Tax Period," "Straddle Period," or "Closing Date," (i) with reference to federal Income Taxes, the term "Closing Date" as used in such definitions shall mean the Closing Date, and (ii) with respect to all other Taxes, the term "Closing Date" as used in such definitions shall mean June 30, 2003. (b) The Seller will be responsible for all Taxes attributable to Pre-Closing Tax Periods and the portion of any Straddle Period ending on the Closing Date, and the Purchaser will be responsible for all Taxes attributable to any Post-Closing Tax Period and the portion of any Straddle Period beginning after the Closing Date. To the extent permitted or required by Applicable Law or administrative practice, and for the purpose of allocating the parties' responsibility for Taxes hereunder: (i) the taxable period of RSUI that began on January 1 of the calendar year which includes the Closing Date shall be treated as closing as of the close of business on the Closing Date; notwithstanding the foregoing, (ii) all transactions not in the ordinary course of business and properly allocable thereunder to the portion of the day after the Closing Date shall be reported on Purchaser's consolidated United States federal income Tax Return to the extent permitted by Treasury Regulation section 1.1502-76(b)(1)(ii)(B) and shall be similarly reported on other Tax Returns of Purchaser or its Affiliates to the extent permitted by Applicable Law, (iii) no election shall be made under Treasury Regulation Section 1.1502-76(b)(2)(ii) (relating to ratable allocation of a year's items), and (iv) Treasury Regulation Section 1.1502-76(b)(2)(iii) will be applied to ratably allocate the items (other than extraordinary items, including, without limiting the generality of the foregoing, compensation items) for the month that includes the Closing Date. (c) For purposes of this Agreement, where it is necessary to apportion between Seller and Purchaser the Tax liability of an entity for a Straddle Period 58 (which is not treated under the immediately preceding sentence as closing on the Closing Date), such liability shall be apportioned between the period deemed to end at the close of the Closing Date, and the period deemed to begin at the beginning of the day following the Closing Date on the basis of an interim closing of the books, except that Taxes (such as real property Taxes) imposed on a periodic basis, or that are imposed with respect to the portion of a Straddle Period occurring after June 30, 2003, shall be allocated on a daily basis. In determining Seller's liability for Taxes pursuant to this Agreement, Seller shall be credited with the amount of estimated or actual Taxes paid by or on behalf of RSUI on or prior to June 30, 2003 or paid on behalf of RSUI on or prior to the Closing Date. To the extent that Seller's liability for Taxes of RSUI for a Straddle Period is less than the amount of estimated or actual Taxes previously paid by or on behalf of RSUI with respect to such Straddle Period, Purchaser shall pay Seller the difference within three (3) days of the filing of the Tax Return relating to such Tax. Parent, Seller and the Purchaser further agree to file all Tax Returns (including, without limitation, all State income Tax Returns), handle the contest of any audit and otherwise act for all Tax purposes consistent with the provisions of this Section 10.3. Section 10.4 Seller's Indemnity for Taxes. Notwithstanding anything contained in this Agreement to the contrary: (a) Seller shall pay and shall indemnify and hold harmless the Purchaser, RSUI and their respective Affiliates, successors and permitted assigns from: (i) all liability for Taxes of RSUI for all Pre-Closing Tax Periods and the Seller's portion of any Straddle Period (as determined pursuant to Section 10.2(d) and 10.3 hereof), including any Income Taxes incurred as a result of the distribution of the Excluded Assets to Seller or an Affiliate thereof, and any liability of the Parent Group for additional Taxes arising solely as a result of the Section 338 Elections if elected, as set forth below; (ii) any additional Taxes of RSUI in any Post-Closing Period as the result of the disallowance of any deduction pursuant to the application of Section 280G of the Code for any compensation payment that is the result of the breach of the representation in Section 4.14(l); (iii) all liability resulting by reason of the several liability of RSUI pursuant to Treasury Regulations Section 1.1502-6 or any similar provision of Applicable Law or by reason of RSUI ever having been a member of any consolidated, combined or unitary group on or prior to the Closing Date; and (iv) all Losses (as such term is defined in Section 15.3) attributable to any misrepresentation or breach or non-performance of warranty or agreement made by the Seller or the Parent in Section 4.13 or this Article X. (b) The representations and warranties of Seller and the agreements of the parties contained in this Article X shall survive the Closing and shall continue in full force and effect until thirty (30) days after the expiration of the statute of limitations of the Tax to which the representation, warranty or agreement relates. There shall be no limit on the aggregate amount for which Seller shall be liable under Section 10.4(a) hereof and no deductible shall apply. Section 10.5 Assistance and Cooperation. After the Closing Date, both Seller and Purchaser shall (and shall cause their respective Affiliates to) in good faith cooperate with and assist the other in connection with the preparation of any Tax Returns 59 (including any amended Tax Returns), the determination of the requesting party's own liability for Taxes, any audit or other examination by any Taxing Authority, or any judicial or administrative proceedings relating to liability for Taxes. The party requesting assistance hereunder shall (i) make such request in writing and (ii) reimburse the other party for the reasonable out-of-pocket expenses incurred in providing such assistance. In addition, neither party shall dispose of any Tax workpapers, books or records relating to RSUI during the six-year period following the Closing Date, and thereafter shall give the other party written notice before disposing of such items and a reasonable opportunity to copy or take possession of the same prior to their disposition. Each party shall be free to dispose of such items after the expiration of the six-year period, unless such other party provides notice within thirty (30) days of the expiration of the six-year period that such other party intends to copy or take possession of such items. Any information obtained pursuant to this Section 10.5 shall be held in strict confidence and shall be used solely in connection with the reason for which it was requested. Section 10.6 Refunds. Any Tax refund (including any interest in respect thereof but net of any Tax imposed thereon) received by Purchaser or its Affiliates, and any amounts credited against Tax to which Purchaser or any of its Affiliates becomes entitled (including by way of any amended Tax Returns), that relate to any taxable period, or portion thereof, ending on or before the Closing Date shall be for the account of Seller, and Purchaser shall pay over to Seller any such refund or the amount of any such credit within five (5) days after receipt or entitlement thereto. Purchaser shall pay Seller interest at the rate prescribed under section 6621(a)(1) of the Code, compounded daily, on any amount not paid when due pursuant to the preceding sentence. For purposes of applying this Section 10.6, the term "Closing Date" shall mean (i) with reference to a refund of federal Income Taxes, (x) if no Section 338 Election is made, the Closing Date, and (y) if the Section 338 Election is made, June 30, 2003, and (ii) with respect to a refund of all other Taxes, June 30, 2003. Section 10.7 Contests. Notwithstanding anything to the contrary contained in this Agreement: (a) After the Closing Date, Purchaser shall notify Seller in writing within ten (10) days of the date a claim is made or threatened in writing by any Taxing Authority that, if successful, may reasonably result in an indemnity payment by Seller under Section 10.4 (a "Tax Claim"). Such notice shall contain factual information describing in reasonable detail the nature and basis of such claim and the amount thereof, to the extent known, and shall include copies of any notice or other document received from any Taxing Authority in respect of any such asserted Tax liability. Failure by Purchaser to give such notice to the Seller shall not relieve the Seller of any liability that it may have on account of its indemnification obligation under this Article X, except to the extent that the Seller is materially and adversely prejudiced thereby in the defense of such Tax Claim; provided, however, that irrespective of whether the Seller is materially or adversely prejudiced, Seller shall be permitted to reduce any liability it may have on account of its indemnification obligation under this Article X by the amount of Seller's actual, out-of-pocket monetary damages that are caused by the Purchaser's failure to timely give the notice required pursuant to this Section 10.7(a). 60 (b) Seller will have the right, at its option, upon timely notice to Purchaser, to assume at its own expense control of any audit or other defense of any Tax Claim (other than a Tax Claim relating solely to Taxes of RSUI for a Straddle Period, which as described below, the parties shall jointly control) with its own counsel, provided that Seller's notice acknowledges Seller's indemnification liability for such claim. Seller's right to control a Tax Claim will be limited to issues in respect of which amounts in dispute would be paid by Seller or for which Seller would be liable pursuant to Section 10.4. Costs of defending or contesting such Tax Claims are to be borne by Seller unless the Tax Claim relates to a Straddle Period, in which event such costs shall be fairly apportioned as described below. Purchaser and RSUI at their own expense each shall cooperate with Seller in contesting any Tax Claim, which cooperation shall include the retention and, upon Seller's request, the provision of records and information that are reasonably relevant to such Tax Claim and making employees available on a mutually convenient basis to provide additional information or explanation of any material provided hereunder. Notwithstanding the foregoing, Seller shall neither consent nor agree to the settlement of any Tax Claim with respect to any liability for Taxes that may affect the liability for any state, federal or foreign income tax of RSUI or any affiliated group (as defined in section 1504(a) of the Code) of which RSUI is a member for any Post-Closing Tax Period without the prior written consent of Purchaser, which consent shall not be unreasonably withheld, conditioned or delayed, and neither Seller, nor any Affiliate of Seller, shall file an amended Tax Return that may increase the liability for Taxes of RSUI for any Post-Closing Tax Period without the prior written consent of Purchaser, which consent shall not be unreasonably withheld, conditioned or delayed. Purchaser and Seller shall jointly control all proceedings taken in connection with any Tax Claims relating solely to a Straddle Period of RSUI and each party shall bear its own out-of-pocket costs and expenses of the contest and all joint costs and expenses of the contest shall be borne in the same ratio as the applicable proposed Tax would be allocated. For purposes of this Section 10.7(b), when applying the definitions of "Pre-Closing Tax Period," "Post-Closing Tax Period," "Straddle Period," or "Closing Date," (i) with reference to Tax Claims involving federal Income Taxes, the term "Closing Date" as used in such definitions shall be deemed to be the Closing Date, and (ii) with respect to Tax Claims involving all other Taxes, the term "Closing Date" as used in such definitions shall be deemed to be June 30, 2003. Section 10.8 Post-Closing Actions which Affect Seller's Liability for Taxes. (a) Purchaser shall not allow or cause RSUI to take, or fail to take, any action or omit to take any action after the Closing Date as to which Seller has notified Purchaser in writing on or before the Closing Date if the taking of such action or the failure to take such action will increase the Taxes of RSUI for any Pre-Closing Tax Period provided that the taking of such action or the failure to take such action does not materially affect the conduct of the Business after the Closing Date. (b) None of Purchaser or any Affiliate of Purchaser shall (or shall cause or permit RSUI to) amend, refile or otherwise modify any Tax Return relating 61 in whole or in part to RSUI with respect to any Pre-Closing Tax Period without the prior written consent of Seller, which consent may be withheld in the sole discretion of Seller. (c) None of Purchaser or any Affiliate of Purchaser shall (or shall cause or permit RSUI to) carryback for federal, state, local or foreign Tax purposes to any Pre-Closing Tax Period or to the portion of any Straddle Period ending before the Closing Date of RSUI, Seller, or any Affiliate of Seller, any operating losses, net operating losses, capital losses, tax credits or similar items arising in, resulting from, or generated in connection with a taxable year of Purchaser or any Affiliate of Purchaser, or portion thereof, ending on or after the Closing Date. (d) For purposes of applying this Section 10.8, when applying the definitions of "Pre-Closing Tax Period," "Post-Closing Tax Period," "Straddle Period," or "Closing Date," (i) with reference to matters involving federal Income Taxes, the term "Closing Date" as used in such definitions shall be deemed to be the Closing Date, and (ii) with respect to matters involving all other Taxes, the term "Closing Date" as used in such definitions shall be deemed to be the Effective Date. Section 10.9 Section 338(h)(10) Election. (a) Within ninety (90) days of the Closing Date, Purchaser shall furnish Seller with Purchaser's proposed allocation of the Purchase Price among the RSUI Shares and the other transactions, rights and obligations contemplated pursuant to this Agreement and the Ancillary Agreements, the determination of the ADSP (as defined in applicable Treasury Regulations under Section 338 of the Code) and the allocation of ADSP among the assets of RSUI and other relevant items (the "Proposed Allocation"). Purchaser and Seller each agree to consult in good faith with regard to the proposed determination and the Proposed Allocation, provided that Seller shall accept Purchaser's final determination of the ADSP and the Proposed Allocation to the extent that they are reasonable and consistent with Applicable Law (which, when accepted, shall become the "Final Allocation"). Within thirty (30) days after the determination of the Final Allocation, Seller shall deliver to Purchaser a schedule setting forth in reasonable detail the additional amount of cash ("Seller's Tax Cost") that Seller reasonably estimates is necessary to ensure that the net proceeds derived by Seller from the sale of the RSUI Shares if the Purchaser elects to make the elections provided for under Section 338(h)(10) of the Code and any similar elections required to be, or treated as, made under any applicable state or local Tax laws as a result of the federal election (collectively, the "Section 338 Elections") is not less than the amount of net proceeds Seller would have derived from the sale of the RSUI Shares in the absence of the Section 338 Elections. The Seller's Tax Cost shall be computed (1) on an after-Tax basis including, without limitation (A) any additional Taxes imposed on the receipt of additional amounts or attributable to the allocation of ADSP to anything other than the RSUI Shares and (B) if the Closing does not take place on the Target Closing Date, any additional federal Income Taxes (calculated for this purpose taking into account the deductibility of state Income Taxes imposed on RSUI or the Parent Group in respect of the income recognized by RSUI after June 30, 2003), and (2) on the basis such that the after-Tax proceeds to Seller of the receipt of the Final Purchase Price plus the Seller's Tax Cost equals the 62 amount of after-Tax proceeds the Seller would have received from the sale of the RSUI Shares in exchange for the Final Purchase Price if the Section 338 Elections were not made and the entire Purchase Price was allocable solely to the RSUI Shares. Purchaser and Seller each agree to consult in good faith with regard to the determination and calculation of Seller's Tax Cost, provided that Purchaser shall accept Seller's final determination of Seller's Tax Cost to the extent that it is reasonable and consistent with Applicable Law (which, when accepted, shall become the "Final Seller's Tax Cost"). (b) Within fifteen (15) days after the receipt by Purchaser of the schedule of Final Seller's Tax Cost, Purchaser shall notify Seller of Purchaser's decision as to whether to make the Section 338 Elections. If Purchaser decides to make the Section 338 Elections, Seller agrees to (or to cause Parent to, if applicable) join with Purchaser in making timely and irrevocable Section 338 Elections, provided Seller receives the payment of Final Seller's Tax Cost as provided in Section 10.9(c) hereof. If Purchaser decides to make the Section 338 Elections, Purchaser shall be solely responsible for preparing drafts of all forms, attachments and schedules necessary to effectuate the Section 338 Elections, including, without limitation, IRS Form 8023 or applicable successor form, and any similar forms or applicable successor forms under applicable state or local income tax laws (the "Section 338 Forms"), and Purchaser shall furnish a copy of the draft Section 338 Forms to Seller for Seller's review and comment, which Seller agrees to do promptly. Seller shall, and if required, Seller shall cause Parent to, cooperate in good faith with Purchaser's preparation of the Section 338 Forms, and Seller agrees to promptly provide (or cause Parent to promptly provide) to Purchaser true, correct and complete information regarding Seller (or Parent or Parent Group, if applicable) reasonably requested by Purchaser and necessary to complete the Section 338 Forms. (c) Thereafter, Purchaser shall deliver to Seller for execution by Seller (or Parent, if applicable) the final Section 338 Forms. Within five (5) days of delivering the final Section 338 Forms to Seller, Purchaser shall pay to Seller (by wire transfer in U.S. Dollars of immediately available funds to the bank account specified by Seller to Purchaser) an amount equal to Final Seller's Tax Cost, and Seller (or Parent, if applicable) agrees to and shall simultaneously execute and deliver to Purchaser the final Section 338 Forms. (d) If Purchaser has paid to Seller Seller's Final Tax Cost, then Seller agrees that Seller (i) shall, or shall cause Parent to, report the acquisition of RSUI by Purchaser in a manner consistent with the making of the Section 338 Elections (ii) shall not, and shall cause Parent and each member of Parent Group not to, take a position in any Tax Return or audit or any proceeding before any Taxing Authority or otherwise inconsistent with the Section 338 Elections, including the determination of the ADSP and the Final Allocation shown thereon, unless and to the extent required to do so pursuant to a determination (as defined in Section 1313(a) of the Code or any similar state or local law). (e) Purchaser shall bear the costs and expenses of preparing the Section 338 Forms and the Proposed and Final Allocations. 63 Section 10.10 Post-Effective Date Taxes. In the event that the Closing Date occurs after the Effective Date, the parties agree that, for the avoidance of doubt and in the event of any ambiguity in the interpretation or application of this Agreement, this Article X shall be interpreted and applied so that: (i) Seller shall be liable and responsible for (A) all Taxes of RSUI attributable to all Tax periods ending on or before June 30, 2003, with respect to any Tax period that begins before the Closing Date, (B) all Taxes of RSUI for the portion of such Tax periods, if any, prior to and including June 30, 2003, and (C) the United States federal Income Taxes imposed on Seller and attributable to the taxable income of RSUI for all taxable periods ending on or before the Closing Date; provided, however, that in the event the Section 338 Elections are elected, the foregoing shall not be construed to preclude the Final Seller's Tax Cost from including the United States federal Income Taxes imposed on Seller and attributable to the taxable income of RSUI for the Tax period ending on the Closing Date; and (ii) Purchaser shall be liable and responsible for (X) all Taxes of RSUI attributable to all Tax periods beginning after June 30, 2003, with respect to any Tax period that begins before the Closing Date, (Y) all Taxes (other than United States federal Income Taxes) of RSUI for the portion of such Tax periods beginning after June 30, 2003, and (Z) the United States federal Income Taxes attributable to the taxable income of RSUI for all taxable periods beginning after the Closing Date. ARTICLE XI EMPLOYMENT MATTERS Section 11.1 RSUI Employees. (a) For the period from the Effective Date through December 31, 2003 (the "Transition Period"), RSUI shall lease from RIC, an Affiliate of Seller, pursuant to the Employee Leasing Agreement, the services of the RSUI Employees identified on Schedule 11.1(a) and those persons who were not employed by RIC on the Effective Date but who are hired at the request of RSUI during the Transition Period (a "New Hire"). (b) Seller and Purchaser agree that Seller shall pay to Purchaser, not less than five (5) Business Days prior to the date on which the annual payments from the underwriting incentive pool and the incentive compensation pool for calendar year 2003 are to be made to RSUI Employees in accordance with the terms of the Annual Incentive Plan for RSUI Employees in effect as of the Closing Date (the "2003 Bonus Payment"), a portion of the 2003 Bonus Payment (the "Seller Bonus Payment"). The Seller Bonus Payment shall be determined as follows: (i) a computation of the 2003 Bonus Payment that would be due to RSUI Employees shall be made on a pro forma basis which assumes that the performance levels achieved during the first half of calendar year 2003 were replicated in the second half of calendar year 2003 (the "Seller Performance Amount"); 64 (ii) a computation of the 2003 Bonus Payment that would be due to RSUI Employees shall be made on a pro forma basis which assumes that the performance levels achieved during the second half of calendar year 2003 were replicated in the first half of calendar year 2003 (the "Purchaser Performance Amount"); (iii) the 2003 Bonus Payment shall be determined based upon actual results for the full calendar year 2003 and in accordance with the terms of the Annual Incentive Plan for RSUI Employees in effect as of the Closing Date; and (iv) the Seller Bonus Payment shall be an amount equal to (A) (x) the Seller Performance Amount divided by (y) the sum of the Seller Performance Amount plus the Purchaser Performance Amount multiplied by (z) the 2003 Bonus Payment, less (B) $584,000. (c) Purchaser shall cause RSUI or an Affiliate of RSUI to offer employment on or before January 1, 2004, to each of the RSUI Employees and New Hires who is actively employed by the Royal Indemnity as of such date. The terms of such employment, for each such RSUI Employee and New Hire, shall be substantially equivalent in base salary, bonus compensation, and benefits in the aggregate to those provided on the Closing Date to such RSUI Employee or those initially approved by RSUI in the case of any New Hire. Those RSUI Employees and New Hires who accept such offer of employment shall be referred to herein as "Transferred Employees". (d) As of January 1, 2004, Seller will assign, and RSUI or an Affiliate of RSUI will assume, the RSUI Employee Contract identified on Schedule 11.1(d), provided the RSUI Employee becomes a Leased Employee, except that neither RSUI nor an Affiliate of RSUI will assume, and Seller will retain, all obligations relating to, and shall provide, the special retirement benefits referred to in Section 4(d)(ii) of such RSUI Employee Contract. Except as otherwise provided in this Agreement and in the RSUI Employee Contract which RSUI assumes, nothing in this Agreement shall be construed as limiting in any way the right of RSUI (or an Affiliate thereof) on and after January 1, 2004, to terminate the employment of any Transferred Employee, or to change his or her salary or wages or to modify benefits or other terms and conditions of employment of any Transferred Employee to the extent that any such change or modification is made in accordance with the normal compensation and benefit plan practices of, and apply generally to similarly situated employees or former employees of, RSUI and its Affiliates. Seller shall not be responsible for and Purchaser agrees to cause RSUI to indemnify and hold Seller harmless for any claim which is made for compensation or benefits under any RSUI Employee Contract that RSUI so assumes, and which relates to any event or condition which occurs or arises on or after January 1, 2004 (other than an obligation specifically retained by Seller or an Affiliate of Seller). (e) Except as otherwise expressly provided in this Agreement, Purchaser shall cause RSUI to be responsible for, and shall indemnify and hold harmless Seller and its Affiliates against, any actions, claims or proceedings (including, but not 65 limited to claims alleged under Title VII of the Civil Rights Act of 1964) brought by or on behalf of any Transferred Employee at any time with respect to any event occurring or condition arising on or after the Effective Date; provided, that RSUI shall not be obligated to indemnify and hold harmless Seller and its Affiliates against any actions, claims or proceedings brought by or on behalf of any Transferred Employee as a result of an act by RIC or a failure by RIC to perform its obligations under the Employee Leasing Agreement, in each case during the Transition Period. (f) Purchaser shall take such action as may be necessary to cause RSUI to bear responsibility for and to indemnify and hold harmless Seller and its Affiliates against, any actions, claims or proceedings brought by or on behalf of any RSUI Employee or New Hire who becomes a leased employee in accordance with the Employee Leasing Agreement ("Leased Employee"), and which relates to any event occurring or condition existing on or following the Effective Date, other than as a result of an act of RIC or a failure by RIC to perform its obligations under the Employee Leasing Agreement, in each case during the Transition Period. Notwithstanding the foregoing, RSUI shall not be responsible for, or obligated to indemnify and hold harmless Seller and its Affiliates with respect to any actions, claims or proceeding for which RSUI (or an Affiliate) is obligated to indemnify RIC under the Employee Leasing Agreement. (g) Seller shall be responsible for, and shall indemnify and hold harmless Purchaser, RSUI and their Affiliates against, any actions, claims or proceedings brought by or on behalf of any Leased Employee which relates to any event occurring or condition existing prior to the Closing Date. (h) Seller agrees that from the date hereof through January 1, 2004, neither Seller nor any of its Affiliates (including RSUI) shall, except as contemplated by this Agreement or by any Ancillary Agreement or with the consent of Purchaser (1) enter into any employment or severance agreement with RSUI Employees or New Hires, (2) increase the benefits payable to RSUI Employees or New Hires under severance or termination pay policies or agreements in effect on the date hereof, other than as required by Applicable Law, (3) adopt any new or amend any existing bonus, profit sharing, compensation, stock option, pension, retirement, deferred compensation, employment or other employee benefit plan, agreement, trust, fund or other arrangement for the benefit or welfare of any RSUI Employee, other than to fully vest all RSUI Employees in the Plans, or in the ordinary course of business or as required by Applicable Law or this Agreement, (4) increase the compensation or benefits of any director or officer of RSUI or any RSUI Employee other than in the ordinary course of business and other than as required by Applicable Law, (5) enter into any collective bargaining agreement or any other contract with any labor union or association representing any RSUI Employee unless otherwise required by applicable law, or (6) permit any RSUI Employee to be transferred, or permit the services of any RSUI Employee to be shared with Seller or any Affiliate of Seller other than in a manner consistent with present practice. Section 11.2 RSUI Employee Benefits 66 (a) With respect to any RSUI Employee, no assets of any Plan shall be transferred to Purchaser or to any plan of Purchaser. From and after the Closing Date, neither RSUI nor any Affiliate of RSUI shall have responsibility for, or any liability to make contributions to, the Plans. (b) On and after January 1, 2004, Seller or its Affiliates shall retain responsibility for, and shall provide all benefits theretofore accrued under, the Plans, as required by the Plans and Applicable Law to, any Transferred Employee. Seller shall cause each of the Pension Plan of RIC, the Non Qualified Partnership Portfolio and the RIC Supplemental Executive Retirement Plan to be amended effective as of Closing to treat each Transferred Employee who is an employee as of Closing to be 100% vested in such Transferred Employee's accrued benefit under such plan. Seller shall cause The Royal & SunAlliance 401(k) Account and Savings Plan to be amended to the extent necessary to permit a Transferred Employee to receive a distribution of his or her account balance at any time after the date he or she becomes a Transferred Employee. Notwithstanding the foregoing, Seller or its Affiliates shall retain responsibility for, and shall continue to provide, retiree welfare benefits accrued under the Plans for any Transferred Employee who, as of the Effective Date, was eligible to retire and commence receiving retiree welfare benefits. Retiree welfare benefits shall be provided to such Transferred Employees commencing as of the date each such Transferred Employee terminates his or her employment with RSUI or its Affiliates as if such Transferred Employee terminated employment with RIC on such date, but with years of service credited as of the Effective Date. This provision shall not in any manner limit the ability of Seller to modify, amend or terminate its retiree medical plans for any former employees of RIC, including Transferred Employees. Retiree benefits, if any, to which a Transferred Employees is eligible under this Section, shall be in the same form and amount provided to similarly situated employees of Seller with the same service and age as the applicable Transferred Employee. Section 11.3 Service Credit. Purchaser shall cause RSUI to give the Transferred Employees full credit, for purposes of eligibility and vesting, under any employee benefit plan, program or arrangement established by RSUI or its Affiliates on or after January 1, 2004, for the Transferred Employees' service with Seller and its Affiliates to the same extent recognized by Seller and its Affiliates immediately prior to such date. To the extent required under Applicable Law and to the extent Purchaser deems commercially reasonable, Purchaser shall cause RSUI to waive all limitations as to preexisting condition exclusions and waiting periods with respect to participation and coverage requirements applicable to the Transferred Employees under any welfare benefit plans that such employees may be eligible to participate in on and after January 1, 2004. Section 11.4 Termination of Employment. Seller and its Affiliates shall be responsible for, and assume all liabilities for, the payment of all applicable severance benefits (and any other applicable similar benefit) and for any and all notices or payments due pursuant to applicable requirements of the Worker Adjustment and Retraining Notification Act (the "WARN Act") or any similar state or local law ("WARN") arising out of, or relating to, any actions taken on or prior to December 31, 2003 by the Seller 67 and its Affiliates with respect to Leased Employees. Purchaser shall cause RSUI to reimburse Seller for the cost of such severance and/or WARN benefits in accordance with the payment procedures for severance costs in the Employee Leasing Agreement. The foregoing shall not require RSUI or any Affiliate to reimburse Seller for any amount reimbursed or reimbursable to RIC under the Employee Leasing Agreement. RSUI or its Affiliates shall be responsible for, and assume all liabilities for, the payment of all applicable severance benefits (and any other applicable similar benefit) and for any and all notices or payments due pursuant to the WARN Act or any similar state or local law arising out of, or relating to, any actions taken on or after January 1, 2004 by RSUI or its Affiliates with respect to the Transferred Employees. RSUI or its Affiliates shall be liable for any continuation coverage (including any penalties, excise taxes or interest resulting from the failure to provide continuation coverage) required by Section 4980B of the Code due to qualifying events which occur with respect to Transferred Employees (or their dependents) after January 1, 2004. Notwithstanding anything to the contrary contained herein, if RSUI or any of their Affiliates terminates or causes the termination of the employment of any Transferred Employee at any time within one year of the Effective Date, then, unless such Transferred Employee's employment is terminated for cause (as defined below), Purchaser shall cause RSUI or its Affiliates to pay to such terminated Transferred Employee severance payments in an amount no less than the severance benefit such Transferred Employee would have been entitled to if the employee's job had been eliminated through layoff or reduction in force immediately prior to the Closing Date. For these purposes, the term "cause" shall mean (i) the failure or refusal of a Transferred Employee to substantially perform the material duties of his or her employment with RSUI or any Affiliate, (ii) the commission by the Transferred Employee of a crime involving moral turpitude or that results in the loss, suspension or forfeiture of any license or registration required by the Transferred Employee for the performance of his or her duties, or (iii) the Transferred Employee's willful engagement in conduct which is materially injurious to the business of RSUI or its Affiliates. A Transferred Employee shall be deemed to have been terminated by RSUI or its Affiliates without cause if he or she terminates employment because of a refusal to accept an offer of employment by RSUI or an Affiliate at a business location which is more than fifty miles from his or her present location of employment or if his or her job duties or employment status are materially and adversely altered by RSUI or an Affiliate, without his or her consent. ARTICLE XII REAL ESTATE MATTERS Section 12.1 Real Property Used in the Business. RSUI does not own any real property. All leased real property used in the Business is leased to RSUI. With respect to the lease relating to the property in Sherman Oaks, California, the parties hereto acknowledge such lease is guaranteed by RIC on behalf of RSUI. Purchaser hereby agrees that it will cause AIHL Insurance Co. to indemnify RIC for any payments it may make under the guaranty after the Closing; provided, however, that Seller agrees neither Purchaser nor AIHL Insurance Co. shall be obligated by this Section 12.1 or by the Substitution and Indemnification Agreement to indemnify RIC for any payments 68 made by RIC after the Closing to the extent that such payments relate to Damages arising from the failure to obtain the Sherman Oaks Consent or which otherwise relate to matters for which Purchaser is entitled to indemnification pursuant to the last sentence of Section 8.6(b). ARTICLE XIII CONDITIONS TO CLOSING Section 13.1 Conditions of Purchaser and Seller to Closing. (a) The respective obligations of Purchaser and Seller to effect the Closing are subject to the satisfaction (or waiver by each such Person) at or prior to the Closing of the conditions that (i) any waiting period (and any extensions thereof) applicable to the consummation of the Closing under the HSR Act shall have terminated or expired and (ii) all other consents and approvals required from Governmental Entities for the consummation of the Closing and the transactions contemplated hereby listed on Schedule 8.5(a) shall have been obtained and shall be in effect on the Closing Date. (b) The respective obligations of Seller to effect the Closing are further subject to the satisfaction (or waiver by Seller) at or prior to the Closing of the following conditions: (i) Purchaser shall have duly performed and complied in all material respects with each covenant, agreement and condition required by this Agreement to be performed or complied with by Purchaser at or prior to the Closing (for the avoidance of doubt, representations and warranties shall not be deemed to be covenants, agreements or conditions for purposes of this clause (i)); (ii) No injunction, order, decree or judgment shall have been issued by any Governmental Entity of competent jurisdiction and be in effect, and no statute, rule or regulation shall have been enacted or promulgated by any Governmental Entity and be in effect, which, in each case restrains or prohibits the consummation of the purchase and sale of the Acquired Assets; and no action or proceeding before any court or regulatory authority, domestic or foreign, (x) shall have been instituted or threatened by any Governmental Entity or (y) shall have been instituted by any other Person, which in either case seeks to prevent or delay the consummation of the purchase and sale of the Acquired Assets or which challenges the validity or enforceability of this Agreement, unless, in either case, Purchaser agrees to fully indemnify in accordance with Article XV hereof Seller and any Seller Indemnitee from any and all Losses resulting from or arising out of such action or proceeding, including any settlement thereof, to the extent such damages are not already subject to indemnification by Purchaser pursuant to Article XV hereof or a separate agreement of the Purchaser; 69 (iii) Seller shall have received a certificate signed by the secretary of Purchaser certifying the adoption of resolutions by the Board of Directors of Purchaser authorizing the transactions contemplated hereby; (iv) Seller shall have received a certificate of a senior executive officer of Purchaser certifying as to the fulfillment of the conditions set forth in Sections 13.1(b)(i) hereof, including, without limitation, the fulfillment of the covenant set forth in Section 9.7; and (v) Seller shall have received copies of the Ancillary Agreements duly executed by each party thereto that is not Seller or an Affiliate of Seller. (c) The obligation of Purchaser to effect the Closing is further subject to the satisfaction (or waiver by Purchaser) at or prior to the Closing of the following conditions: (i) Seller shall have duly performed and complied in all material respects with each covenant, agreement and condition required by this Agreement to be performed or complied with by Seller at or prior to the Closing (for the avoidance of doubt, representations and warranties shall not be deemed to be covenants, agreements or conditions for purposes of this clause (i)); (ii) All consents set forth on Schedule 13(c)(ii) shall have been duly obtained, made or given and shall be in full force and effect, without the imposition upon Purchaser, RSUI or any of the Affiliates of Purchaser of any material condition, restriction or required undertaking or any conditions or restrictions which, individually or in the aggregate, (A) materially impair or interfere with the ability of Purchaser or RSUI to conduct their respective businesses substantially in the manner as such businesses are now being conducted, (B) impair or interfere with the ability of any Affiliate of Purchaser to conduct its business substantially in the manner as such business is now being conducted if such impairment or interference, individually or in the aggregate, is material to Purchaser's businesses or (C) have or are reasonably likely to have a Business Material Adverse Effect; (iii) No injunction, order, decree or judgment shall have been issued by any Governmental Entity of competent jurisdiction and be in effect, and no statute, rule or regulation shall have been enacted or promulgated by any Governmental Entity and be in effect, which in either case restrains or prohibits the consummation of the purchase and sale of the Acquired Assets or imposes material limitations on the ability of Purchaser to exercise full rights of ownership of the Acquired Assets or on the ability of RSUI to conduct the Business, or which requires the divestiture by Purchaser of the Acquired Assets, or which requires the divestiture by Purchaser, RSUI or any of the Affiliates of Purchaser of any material assets or businesses. No action or proceeding before any court or regulatory authority, domestic or foreign, (x) shall have been 70 instituted or threatened by any Governmental Entity or (y) shall have been instituted by any other Person, which in either case seeks to prevent or delay the consummation of the purchase and sale of the Acquired Assets, impose material limitations on the ability of Purchaser to exercise full rights of ownership of the Acquired Assets or on the ability of RSUI to conduct the Business, or which would require the divestiture by Purchaser of the Acquired Assets, or which would require the divestiture by Purchaser, RSUI or any of the Affiliates of Purchaser of any material assets or businesses, or which challenges the validity or enforceability of this Agreement, unless, in either, case Seller agrees to fully indemnify in accordance with Article XV hereof Purchaser and any Purchaser Indemnitee from any and all Losses resulting from or arising out of such action or proceeding, including any settlement thereof, to the extent such damages are not already subject to indemnification by Seller pursuant to Article XV hereof or a separate agreement of Seller; (iv) Purchaser shall have received a certificate signed by the secretary of Purchaser certifying the adoption of resolutions by the Board of Directors of Purchaser authorizing the transactions contemplated hereby; (v) Purchaser shall have received a certificate of a senior executive officer of Seller certifying as to the fulfillment of the conditions set forth in Section 13.1(c)(i) hereof; (vi) Purchaser shall have received copies of the Ancillary Agreements duly executed by each party thereto (including RSUI) that is not Purchaser or an Affiliate of Purchaser; (vii) Purchaser shall have received the resignation of each of the directors of RSUI set forth in Schedule 8.15; (viii) Seller shall have caused to be delivered to Purchaser one or more certificates representing all of the RSUI Shares free and clear of all Liens, duly executed in blank, or accompanied by stock powers duly executed in blank, in proper form for transfer; (ix) Since December 31, 2002, no change or event shall have occurred and no condition shall exist that, individually or in the aggregate, has had or would be reasonably likely to have a Business Material Adverse Effect, and Purchaser shall have received a certificate dated the date of the Closing Date, signed by the chief executive officer or by the chief financial officer of Seller on behalf of Seller, to the foregoing effect; and (x) At least 90% of the participants (by participation level and not by number of participants) (the "Minimum Continued Participation Level") in each of the Schedule 5.3(a) Contracts (i) shall have waived any change of control provision or net retention requirement which, absent such waiver, would permit termination, cancellation or commutation of such treaty by reason 71 of the transactions contemplated by this Agreement and/or by any of the Ancillary Agreements and (ii) shall have delivered written notice to RSUI stating its intention (which need not be a binding commitment) to participate at the same or a greater participation level in a parallel treaty to be entered into for the benefit of AIHL Insurance Co. on substantially the same terms and conditions as the treaty currently in effect for the Royal Insurer Affiliates (the "Parallel Treaty"); provided, however, that if for any one or more of such Schedule 5.3(a) Contracts the Minimum Continued Participation Level is not attained and a substitute reinsurer (which may be either (A) a new participant which is an Acceptable Reinsurer or which is otherwise satisfactory to each of Purchaser and Seller, or (B) another participant in the same treaty taking on a greater participation, which reinsurer will be deemed to be satisfactory to each of Purchaser and Seller) provides written notice of its intention to participate in such Schedule 5.3(a) Contract (including the related Parallel Treaty), the participation by such substitute reinsurer shall be counted toward the Minimum Continued Participation Level. With regard to the condition set forth in Section 13.1(c)(ix), if the Closing does not occur on the Target Closing Date solely by reason of Purchaser's election to delay the Closing until an Extended Closing Date as provided in Section 1.16(a) hereof, then Seller shall deliver to Purchaser on July 1, 2003 the certificate described in Section 13.1(c)(ix) above and, upon delivery of such certificate by Seller to Purchaser, the condition to Closing set forth in Section 13.1(c)(ix) above shall be deemed to be satisfied. ARTICLE XIV TERMINATION Section 14.1 Termination Prior to Closing. This Agreement may be terminated at any time prior to the Closing: (a) by the mutual written consent of Purchaser and Seller; (b) by Purchaser, on the one hand, or Seller, on the other hand, upon written notice given to the other if the Closing has not taken place on or before October 1, 2003; provided, however, that the right to terminate this Agreement under this Section 14.1(b) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date; (c) by Purchaser, on the one hand, or Seller, on the other hand, (i) upon written notice given to the other if any Governmental Entity of competent jurisdiction shall have issued a final, unappealable order, decree or ruling permanently restraining, enjoining or otherwise prohibiting any of the transactions contemplated by this Agreement or (ii) upon any final action taken, or any final statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the transactions contemplated hereby by any Governmental Entity that would make consummation of the 72 transactions contemplated hereby illegal; provided, however, that the right to terminate this Agreement under this Section 14.1(c) shall not be available to any party whose breach of any provision or whose failure to perform any obligation under this Agreement has been the cause of such order, action, statute, rule or regulation; (d) by Purchaser, upon a material breach of any covenant or agreement on the part of Seller set forth in this Agreement such that the conditions set forth in Section 13.1(c)(i) hereof would not be satisfied as of the time of such breach, after affording Seller a 10-day period after written notice in which to cure such breach; or (e) by Seller, upon a material breach of any covenant or agreement on the part of Purchaser set forth in this Agreement such that the conditions set forth in Section 13.1(b)(i) hereof would not be satisfied as of the time of such breach, after affording Purchaser a 10-day period after written notice in which to cure such breach. Section 14.2 Effect of Termination. (a) Notwithstanding the terms and provisions of the Confidentiality Agreement, in the event of the termination of this Agreement as provided in Section 14.1 hereof, this Agreement shall become null and void and of no further force or effect, and there shall be no liability or obligation hereunder on the part of Seller or Purchaser or their respective Affiliates, or any of their respective directors, officers, employees, Affiliates, agents, representatives, successors or assigns, except (i) for the provisions of this Agreement relating to the obligations of the parties hereto to keep confidential and not to use information and data obtained from the other parties hereto and (ii) the obligations of the parties to this Agreement under Sections 8.8 (Expenses), 8.9 (Public Announcements), and 8.18 (Indemnification of Brokerage) hereof, Article XVII (Miscellaneous) hereof, and this Section 14.2 shall survive any such termination. Nothing herein shall relieve any party from liability for any breach of any of its covenants or agreements or willful breach of its representations or warranties contained in this Agreement prior to termination of this Agreement or any obligations hereunder. (b) If this Agreement is terminated pursuant to Section 14.1 hereof, neither party shall, until May 31, 2004, directly or indirectly, through any Subsidiary, Affiliate, officer, director, agent or otherwise, (i) use any information that is subject to the Confidentiality Agreement to the detriment (business or otherwise) of the other party, or (ii) solicit the employment of or employ or retain as a consultant any employee of the other party or any of its Subsidiaries who is a management or key employee as of the date hereof or at any time during such period. Furthermore, if this Agreement is terminated pursuant to Section 14.1 hereof, Purchaser shall not oppose or seek to prevent or frustrate any transaction or agreement that Seller or any of its Subsidiaries may propose or enter into relating to the sale of all or any portion of the Business to any third party. Nothing in this Section 14.2 is intended to, nor shall it be construed as, a waiver or discharge of any of the rights and obligations under the Confidentiality Agreement of the parties thereto. Nothing herein shall relieve any party from liability for any breach of any of its covenants or agreements or willful breach of its 73 representations and warranties contained in this Agreement prior to termination of this Agreement or any obligations thereunder. Section 14.3 Notice Regarding Termination. Any notice delivered by any party pursuant to Section 14.1 hereof shall be delivered in accordance with Section 17.5 hereof and shall include a statement of the grounds for termination. ARTICLE XV EXCLUSIONS FROM REPRESENTATIONS AND WARRANTIES; SURVIVAL; INDEMNIFICATION Section 15.1 Exclusions from the Representations and Warranties of Seller. Notwithstanding anything to the contrary in this Agreement or the Ancillary Agreements or the exhibits or schedules hereto or thereto, Purchaser acknowledges and agrees that Seller makes no representation or warranty with respect to, and nothing contained in this Agreement (including Articles II, III, IV and V hereof), in the Ancillary Agreements or in any other agreement, document or instrument to be delivered in connection herewith or therewith is intended or shall be construed to be a representation or warranty (express or implied) of Seller or any of its Subsidiaries or Affiliates or of the Business, for any purpose of this Agreement (including Article VIII hereof and this Article XV), the Ancillary Agreements or any other agreement, document or instrument to be delivered in connection herewith or therewith, in respect of: (i) the adequacy or sufficiency of Reserves, (ii) the effect of the adequacy or sufficiency of Reserves on any line item, asset, liability or equity amount on any financial document, or (iii) whether or not Reserves were determined in accordance with any actuarial, statutory or other standard. Further, subject to the following sentence, Purchaser acknowledges and agrees that no fact, condition, development or issue relating to the adequacy or sufficiency of Reserves may be used, directly or indirectly, to demonstrate or support the breach of any representation or warranty contained in this Agreement, the Ancillary Agreements or any other agreement, document or instrument to be delivered in connection with the transactions contemplated hereby or thereby. Section 15.2 Survival of Representations, Warranties and Covenants. (a) The representations and warranties of the parties contained in this Agreement shall survive the Closing and shall continue in full force and effect until one (1) year following the Closing Date, after which time such representations and warranties shall terminate and have no further force or effect, except that (i) the survival of representations and warranties made by Seller in Article X hereof shall be governed solely by the provisions of Article X hereof; (ii) the representations and warranties contained in Section 4.14 (Employee Benefit Plans; ERISA) shall survive until thirty (30) days after the expiration of the applicable statute of limitations; and (iii) the representations and warranties contained in Section 2.5 (Title to the RSUI Shares), Section 2.6 (Brokers and Finders), Section 4.3 (Capitalization) and Section 6.7 (Brokers and Finders) shall survive indefinitely. The period during which any such representation and warranty survives is the "Survival Period" for such representation and warranty. 74 Notwithstanding the foregoing, any representation or warranty that would otherwise terminate shall survive with respect to Losses in respect of any Action of which notice is given pursuant to this Agreement prior to the end of the Survival Period, until such Action is finally resolved and any related Losses are paid. (b) Unless otherwise limited by the terms of this Agreement, covenants of the parties contained in this Agreement shall survive the Closing indefinitely. (c) In the event of a breach of any of such representations, warranties, covenants or agreements, the party to whom such representations, warranties, covenants or agreements have been made shall have all rights and remedies for such breach available to it under the provisions of this Agreement, whether at law or equity, regardless of any Knowledge of, disclosure to, or investigation made by or on behalf of, such party on or before the Closing Date; provided, however, that the Seller shall have no obligation to indemnify the Purchaser in respect of a breach of representation or warranty which is specifically disclosed to Purchaser by Seller in writing or as to which Purchaser otherwise has Knowledge if such breach involves a change or event which would cause the condition to Purchaser's obligation to effect the Closing set forth in Section 13.1(c)(ix) not to be satisfied and Purchaser nonetheless elects to proceed with the Closing. Section 15.3 Seller's Indemnification Obligation. (a) Subject to the limitations set forth in this Article XV and other than in respect of Taxes (which shall be governed solely by Article X hereof), Seller agrees to indemnify, defend and hold harmless Purchaser and its directors, officers, employees, Affiliates, successors, permitted assigns, agents and representatives (collectively, the "Purchaser Indemnitees") from and against any and all liabilities, losses, expenses and fees, including court costs and reasonable attorneys' fees and expenses ("Losses") arising out of, or resulting from or relating to: (i) any breach as of the date of this Agreement or as of the Closing Date (A) of the representations and warranties of Seller set forth in Section 2.5 (Title to the RSUI Shares), Section 2.6 (Brokers and Finders), Section 4.3 (Capitalization), Section 4.6 (Working Capital) and Section 4.14 (Employee Benefit Plans; ERISA) (other than Section 4.14(l), which is governed by Section 10.4(a)(ii)), and (B) of any of the other representations and warranties of Seller contained in this Agreement or in any certificate delivered to Purchaser in connection with the Closing; (ii) any breach or non-performance of any of the covenants or agreements of Seller contained in this Agreement; (iii) the Retained Liabilities; and (iv) any and all Actions, judgments, costs and expenses incidental to the foregoing. (b) The aggregate amount for which Seller shall be liable under Section 15.3(a)(i) hereof shall in no event exceed one hundred percent (100%) of the Final Purchase Price; provided, however, that indemnification for Losses arising from breaches of any of the representations and warranties set forth in Section 2.5 (Title to the RSUI Shares), Section 2.6 (Brokers and Finders), Section 4.3 (Capitalization), Section 4.6 (Working Capital) and Section 4.14 (Employee Benefits; ERISA) shall not be subject 75 to any limitation. Seller shall be required to indemnify the Purchaser Indemnitees pursuant to Section 15.3(a)(i)(B) hereof only when and to the extent that the aggregate Losses incurred by the Purchaser Indemnitees in connection with the matters identified therein exceeds two percent (2%) of the Final Purchase Price; provided that Seller's indemnification for Taxes shall be governed exclusively by Article X hereof. Section 15.4 Purchaser's Indemnification Obligation. (a) Subject to the limitations set forth in this Article XV, Purchaser agrees to indemnify, defend and hold harmless Seller and its respective directors, officers, employees, Affiliates, successors, permitted assigns, agents and representatives (collectively, the "Seller Indemnitees") from and against any and all Losses arising out of, or resulting from or relating to: (i) any breach as of the date of this Agreement or as of the Closing Date of (A) the representations and warranties of Purchaser set forth in Section 6.7 (Brokers and Finders), and (B) any of the other representations and warranties of Purchaser contained in this Agreement or in any certificate delivered to Purchaser in connection with the Closing; (ii) any breach or non-performance of any of the covenants and agreements of Purchaser contained in this Agreement; (iii) the Acquired Assets; and (iv) any and all Actions, judgments, costs and expenses incidental to the foregoing. (b) The aggregate amount for which Purchaser shall be liable under Section 15.4(a)(i) hereof shall in no event exceed one hundred percent (100%) of the Final Purchase Price; provided however, that indemnification for Losses arising out of any breach of the representations and warranties of Purchaser set forth in Section 6.7 (Brokers and Finders) shall not be subject to any limitation. Purchaser shall be required to indemnify the Seller Indemnitees pursuant to Section 15.4(a)(i)(B) hereof only when and to the extent that the aggregate Losses incurred by the Seller Indemnitees in connection with the matters identified therein exceeds two percent (2%) of the Final Purchase Price. Section 15.5 Other Limitations on Indemnification. (a) The amount of any Losses sustained by a Purchaser Indemnitee or a Seller Indemnitee shall be reduced (i) by any amount received by such Purchaser Indemnitee or Seller Indemnitee with respect thereto under any insurance coverage relating thereto (other than insurance coverage provided by an Affiliate of such indemnitee) or from any other party alleged to be responsible therefor, and (ii) by the amount of any Tax benefit actually realized with respect to the Loss. The Purchaser Indemnitees and the Seller Indemnitees shall use commercially reasonable efforts to collect any amounts available under such insurance coverage and from such other party alleged to have responsibility and to realize any Tax benefit with respect to the Loss. If a Purchaser Indemnitee or a Seller Indemnitee realizes a Tax benefit or receives an amount under insurance coverage or from such other party with respect to Losses sustained at any time subsequent to any indemnification provided pursuant to this Article XV, then such Purchaser Indemnitee or Seller Indemnitee shall promptly reimburse the applicable Indemnifying Party for any payment made by such Indemnifying Party in connection 76 with providing such indemnification up to such amount realized or received by Purchaser Indemnitee or Seller Indemnitee, as applicable. Nothing in this Section 15.5(a) shall limit in any way the ability of Seller, RSUI or Purchaser to (i) take (or refrain from taking, as the case may be) any reasonable position for Tax purposes that Seller, RSUI or Purchaser determines to take (or refrain from taking) in its sole discretion, or (ii) refrain from pursuing any third party insurance recovery that Seller, RSUI or Purchaser, as the case may be, determines would be commercially inadvisable to pursue. (b) With respect to Losses arising out of the breach of any representation or warranty contained herein, the Indemnifying Party shall be obligated to indemnify the Indemnified Party only for those claims for which the Indemnified Party has given the Indemnifying Party written notice within the Survival Period relating to such breached representation or warranty. (c) Each Indemnified Party shall be obligated to use its reasonable best efforts to mitigate to the fullest extent practicable the amount of any Loss for which its it entitled to seek indemnification hereunder, and the Indemnifying Party shall not be required to make any payment to an Indemnified Party in respect of such Loss to the extent such Indemnified Party has failed to comply with the foregoing obligation. (d) Upon making any indemnification payment, the Indemnifying Party will, to the extent of such payment, be subrogated to all rights of the Indemnified Party against any third party in respect of the Loss to which the payment relates; provided, however, that until the Indemnified Party recovers full payment of its Loss, any and all claims of the Indemnifying Party against any such third party on account of said payment are hereby made expressly subordinated and subjected in right of payment to the Indemnified Party's rights against such third party. Without limiting the generality of any other provision hereof, each such Indemnified Party and Indemnifying Party will duly execute upon request all instruments reasonably necessary to evidence and perfect the above described subrogation and subordination rights. (e) Neither Seller nor Purchaser shall have any right to set off any Losses against any payments to be made by such party or parties pursuant to this Agreement or the Ancillary Agreements. Section 15.6 Notice. In the event that either a Purchaser Indemnitee or a Seller Indemnitee wishes to assert a claim for indemnification under this Article XV, such party seeking indemnification (the "Indemnified Party") shall deliver written notice (a "Claims Notice") to the other party (the "Indemnifying Party") no later than ten (10) Business Days after such claim becomes known to the Indemnified Party, specifying the facts constituting the basis for, and the amount (if known) of the claim asserted. Failure to deliver a Claims Notice with respect to a claim in a timely manner as specified in the preceding sentence shall not release the Indemnifying Party from any of its obligations under this Article XV, except to the extent the Indemnifying Party is materially prejudiced by such failure. 77 Section 15.7 Right to Contest Claims of Third Parties. (a) If an Indemnified Party asserts, or may in the future seek to assert, a claim for indemnification hereunder because of an Action instituted by any Person not a party to this Agreement (a "Third Party Claimant") that may result in a Loss with respect to which the Indemnified Party would be entitled to indemnification pursuant to this Article XV (an "Asserted Liability"), the Indemnified Party shall deliver to the Indemnifying Party a Claims Notice with respect thereto, which Claims Notice shall, in accordance with the provisions of Section 15.6 hereof, be delivered as promptly as practicable and in any event no later than ten (10) Business Days after such Asserted Liability is actually known to the Indemnified Party. The failure to deliver a Claims Notice with respect to an Asserted Liability within ten (10) Business Days of the Indemnified Party's receipt of written notice of such Asserted Liability shall not release the Indemnifying Party from any of its obligations under this Article XV except to the extent the Indemnifying Party is materially prejudiced by such failure. (b) (i) The Indemnifying Party shall, upon receipt of such notice and upon its notifying the Indemnified Party in writing that it shall, either unconditionally or subject to a reservation of rights, indemnify all Indemnified Parties in respect of such matter, be entitled to participate in or, at the Indemnifying Party's option, assume at its own expense the defense, appeal or settlement of such Asserted Liability with respect to which such indemnity has been invoked with counsel of its own choosing (who shall be reasonably satisfactory to the Indemnified Party), and the Indemnified Party shall fully cooperate with the Indemnifying Party in connection therewith including contesting such Asserted Liability or making any counterclaim against the Third Party Claimant; provided, however, that if the Indemnifying Party assumes the defense, appeal or settlement of such Asserted Liability, (i) the Indemnifying Party shall reimburse the Indemnified Party for out of pocket expenses incurred by the Indemnified Party (such as travel costs, but not internal time charges) and (ii) the Indemnified Party shall be entitled to employ one counsel to represent itself if an actual conflict of interest exists in the opinion of counsel to the Indemnified Party between the Indemnifying Party and the Indemnified Party in respect of such Asserted Liability and in that event the reasonable fees and expenses of such counsel shall be paid by the Indemnifying Party (it being understood that all Indemnified Parties may employ not more than one counsel to represent them at the expense of the Indemnifying Party). Any Indemnified Party is hereby authorized prior to the date on which its receives written notice from the Indemnifying Party that it intends to assume the defense, appeal or settlement of such Asserted Liability, to file any motion, answer or other pleading and take such other action which it shall reasonably deem necessary to protect its interest or that of the Indemnifying Party until the date on which the Indemnified Party receives such notice from the Indemnifying Party, provided that, prior to filing such motion, answer or other pleading or taking such other action, the Indemnified Party shall have made reasonable efforts to consult with the Indemnifying Party. In the event that the Indemnifying Party fails to assume the defense, appeal or settlement of such Asserted Liability within twenty (20) days after receipt of notice thereof from the Indemnified Party, such Indemnified Party shall have the right to undertake the defense or appeal of or settle or compromise such Asserted Liability on behalf of and for the account and risk of the Indemnifying 78 Party, unless and until the Indemnifying Party notifies the Indemnified Party that it has elected to assume such defense, appeal or settlement. If the Indemnifying Party fails to assume the defense, appeal or settlement of such Asserted Liability and the Indemnified Party undertakes such defense, appeal or settlement, the Indemnified Party shall, upon the request of the Indemnifying Party, keep the Indemnifying Party advised of relevant developments on a timely basis. (ii) Except as set forth in Section 15.7 (b)(i), no claim or demand may be settled by the Indemnified Party without the consent of the Indemnifying Party, which consent shall not be unreasonably delayed or withheld. Unless the claim or demand seeks only dollar damages (all of which are to be paid by the Indemnifying Party), no such claim or demand may be settled by the Indemnifying Party without the consent of the Indemnified Party, which consent shall not be unreasonably delayed or withheld. (iii) Seller and Purchaser shall make mutually available to each other all relevant information in their possession relating to any Asserted Liability and shall cooperate with each other in the defense thereof. Section 15.8 Indemnification Payments. Any payment hereunder shall be made by wire transfer of immediately available funds to such account or accounts as the Indemnified Party shall designate to the Indemnifying Party in writing. Section 15.9 Exclusive Remedy. Except as specifically provided in Section 8.18 (Indemnification of Brokerage) hereof and except for the Seller's indemnification for Taxes (which shall be governed exclusively by Article X hereof), absent fraud, the indemnification provided for in this Article XV hereof shall be the exclusive remedy in any action brought by any party to this Agreement. Section 15.10 No Duplication of Recovery. Any liability for indemnification under this Agreement or under any Ancillary Agreement or under the Landmark Purchaser Agreement shall be determined without duplication of recovery by reason of (i) the state of facts giving rise to such liability constituting a breach of more than one representation, warranty, covenant or agreement or (ii) the liability of the Indemnifying Party or any Affiliate thereof under more than one of this Agreement, an Ancillary Agreement or the Landmark Purchase Agreement. In the event that the state of facts giving rise to any liability for indemnification under this Agreement, any Ancillary Agreement or under the Landmark Purchase Agreement provides an entitlement to indemnification under more than one of such agreements, the Indemnified Party may seek indemnification under whichever of such agreements it chooses, but not under more than one of such agreements. Section 15.11 Purchase Price Adjustment. Purchaser and Seller agree to treat, to the maximum extent permitted by Applicable Law, any payments under this Article XV or Article X as an adjustment to the Final Purchase Price for all Tax purposes. 79 ARTICLE XVI CERTAIN DEFINITIONS AND OTHER MATTERS Section 16.1 Definitions. For purposes of this Agreement, the Seller Disclosure Schedules and the Purchaser Disclosure Schedules, the following terms shall have the following meanings: "Affiliate" of any Person means another Person that from time to time, directly or indirectly controls, is controlled by, or is under common control with, such first Person, where "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a Person, whether through the ownership of voting securities, by contract, as trustee or executor, or otherwise. For the purposes of this Agreement, the term "Affiliated" has a meaning correlative to the foregoing. "Affiliate Agreements" means the agreements set forth on Schedule 4.17(b). "Ancillary Agreements" means the Quota Share Reinsurance Agreements, the Administrative Services Agreements, the Claims Servicing Agreement, the Renewal Rights Agreement, the Transition Services Agreement, the Transitional Trademark License Agreement, the Service Mark Assignment, the Employee Leasing Agreement, the Managing General Agency Agreement, the Substitution and Indemnification Agreement, the Assignment of Insurance Recoverables Agreement and the RSA SLISI Purchase Agreement, together with any and all agreements and instruments to be executed and delivered pursuant to each of the foregoing and all schedules and exhibits to each of the foregoing. "Applicable Law" means any applicable order, law, statute, regulation, rule, ordinance, writ, injunction, directive, judgment, decree, principal of common law, constitution or treaty enacted, promulgated, issued, enforced or entered by any Governmental Entity, including any amendments thereto that may be adopted from time to time. "Applicable Rate" means the annual yield rate, as of any given date, of actively traded U.S. Treasury securities having remaining duration to maturity of three months, as such rate is published under "Treasury Constant Maturities" in Federal Reserve Statistical Release H.15(519). "Assumed Contracts" shall mean the In Force Contracts as of the Effective Date, the actual or contingent liabilities and obligations of which are assumed by AIHL Insurance Co. pursuant to the Quota Share Reinsurance Agreements, to the extent such liabilities and obligations arise out of, or relate to, periods on and after the Effective Date. "Bankruptcy and Equity Exception" shall mean, in respect of any agreement, contract or commitment, any limitation thereon imposed by any bankruptcy, insolvency, fraudulent conveyance, reorganization, rehabilitation, moratorium or similar 80 law affecting creditors' rights and remedies generally and, with respect to the enforceability thereof, by general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). "Books and Records" means the originals or copies of all customer lists, policy information, insurance contract forms, administrative and pricing manuals, medical procedure code lists, claim records, sales records, underwriting records, financial records, compliance records, data files prepared for or filed with regulators of the Business and premium tax records, each in the possession or control of RSUI, Seller or any of its Affiliates, or, after the Closing, Purchaser or any of its Affiliates and used in the operation of the Business, whether or not stored in hardcopy form or on magnetic or optical media (to the extent not subject to licensing restrictions), but excluding (i) prior to the Closing, any such lists, information and records that are prohibited from being disclosed or transferred by Applicable Law or regulatory requirements and (ii) any such information that is part of any consolidated, unitary, combined or similar Tax Return except to the extent directly related to RSUI. "Business" means the business conducted by RSUI and the Royal Insurer Affiliates relating to the underwriting and administration of the RSUI-Produced Insurance Contracts for the Royal Insurer Affiliates; provided, however, the term "Business" shall not include the American Agency (a/k/a Emergency Medical Services a/k/a the Kansas City Branch) operations, the Royal Surplus Lines Insurance Services operation in Cherry Hill, New Jersey, nor the Healthcare D&O losses; for the avoidance of doubt, the term "Business" does not include any losses or expenses incurred by, or any reserves held by, the Royal Insurer Affiliates relating to the RSUI-Produced Insurance Contracts. "Business Day" means a Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions in the State of New York are not authorized or obligated by Applicable Law to close. "Business Material Adverse Effect" means a material adverse effect on the business, financial condition or results of operations of the Business; provided, however, that the following shall be excluded from the definition of "Business Material Adverse Effect" and from any determination as to whether such Business Material Adverse Effect has occurred or may occur: (i) the effects of changes that are generally applicable to the insurance, reinsurance and/or brokerage industries; (ii) the effects of changes in general economic or security market conditions; (iii) the effects of any facts or circumstances clearly related to, or directly caused by, Purchaser; and (iv) the effects of any breach of any provision of this Agreement by Purchaser. "Cat Cover" means the catastrophe excess of loss reinsurance contract by and among RICA, RIC, RSLIC and all Affiliates and Subsidiaries, and the new corporate entity to succeed Royal & SunAlliance as the owner of RSUI, effective May 1, 2003. "Code" means the Internal Revenue Code of 1986, as amended. 81 "Computer Software" means all computer software, databases, data files, source and object codes, user interfaces, manuals and other specifications and documentation and all know how relating thereto. "Damages" means all costs, expenses, fines, penalties, losses, judgments, damages, liabilities and other amounts (including attorneys' actuaries', accountants' and experts' fees and settlement amounts) arising out of any suit, claim or proceeding. "Deferred Acquisition Cost" means premium taxes, agents' commissions net of ceding commissions under third party reinsurance contracts, assessments for boards and bureaus, guaranty funds and other residual market assessments, and any other expenses paid by the Royal Insurer Affiliates in connection with the issuance of the Assumed Contracts. "Effective Date" shall mean the date as to which the Closing will be given effect for all purposes, which shall be 12:01 a.m. on July 1, 2003. "GAAP" means generally accepted accounting principles in effect in the United States of America at the time of determination. "Governmental Entity" means any foreign, domestic, federal, territorial, state or local U.S. or non-U.S. governmental authority, quasi-governmental authority, instrumentality, court or government self-regulatory organization, commission, tribunal or organization or any political or other subdivision, department, branch or representative of any of the foregoing. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements act of 1976, as amended. "In Force" means, with respect to an insurance contract, an insurance contract which, as of a specified date, has been bound by an insurance company and has not been canceled or otherwise terminated. For purposes hereof, references to In Force RSUI-Produced Insurance Contracts without reference to a specified date shall mean (x) until the Closing Date, In Force RSUI-Produced Insurance Contracts as of the date hereof, and (y) from and after the Closing Date, In Force RSUI-Produced Insurance Contracts as of the Closing Date. "Income Tax" means any federal, state, local or foreign income, alternative, minimum, franchise, profits, or other similar Tax (but only if determined with respect to net income) or deficiencies with respect thereto (including interest and penalties thereon and additions thereto). "Income Tax Return" means any Tax Return with respect to Income Taxes. "Insurance Permit" means any Permit in any jurisdictions to issue, underwrite, assume, place or otherwise transact the business of insurance. 82 "Intellectual Property" means, collectively, (x) all United States and foreign registered, unregistered and pending (i) Trademarks, (ii) Computer Software, (iii) copyrights (including, without limitation, those in Computer Software, and all registrations and applications therefor), (iv) Patents, (v) Trade Secrets, and (vi) other intellectual property; and (y) all license, assignment, distribution or other agreements relating to any of the items set forth in clause (x) above (collectively, "Intellectual Property Contracts"). "Intellectual Property Contracts" shall have the meaning given to that term in the definition of "Intellectual Property". "Knowledge" with respect to: (i) Seller or any of its Affiliates which is a party to any Ancillary Agreement means the actual knowledge of the natural Persons listed in Schedule 16.1(a), and (ii) Purchaser or any of its Affiliates which is a party to any Ancillary Agreement means the actual knowledge of the natural Persons listed in Schedule 16.1(b). "Lien" means any mortgage, pledge, lien, encumbrance, charge, adverse claim (whether pending or, to the Knowledge of the Person against whom the adverse claim is being asserted, threatened) or restriction of any kind affecting title or resulting in an encumbrance against property, real or personal, tangible or intangible, or a security interest of any kind, including, without limitation, any conditional sale or other title retention agreement, any lease in the nature thereof, and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statute) of any jurisdiction (other than a financing statement which is filed or given solely to protect the interest of a lessor). "Material Business Contract" means any contract required to be set forth in Schedule 4.16(a). "Net Unearned Premium Reserves" shall mean the aggregate amount of all unearned premium reserves, calculated as of the Effective Date, related to all Assumed Contracts, less the unearned premiums to be ceded to third party reinsurers with respect to such Assumed Contracts. "Patents" means all utility and design patents, registered designs and invention disclosures (including, without limitation, those relating to Computer Software), and all grants, registrations and applications therefor. "Permits" shall mean all permits, licenses, authorizations, variances, exemptions, orders, registrations and approvals of all Governmental Entities, including, without limitation, Insurance Permits. "Permitted Liens" means (i) Liens for water and sewer charges and Taxes not yet due and payable or being contested in good faith (and, in each case, for which adequate accruals or reserves have been established) and (ii) mechanics', carriers', workers', repairers', materialmen's, warehousemen's and other similar liens arising or 83 incurred in the ordinary course of business with respect to a liability or obligation that is not yet due or delinquent and that is not material in amount. "Person" means an individual, corporation, partnership, joint venture, association, limited liability company, trust, unincorporated organization, or other entity. "Pre-Closing Tax Period" means a taxable year or period ending on or before the Closing Date. "Post-Closing Tax Period" means a taxable year or period beginning after the Closing Date. "Purchaser Disclosure Schedules" means the disclosure schedules delivered by Purchaser to Seller prior to the execution of this Agreement. "Qualifying Assets" shall mean cash and investments which are "Acceptable Investments" as such term is defined in the Trust Agreements. "Reinsured Contracts" means (i) all policies, binders and contracts of insurance written on an admitted basis or a non-admitted basis and issued in the name of RIC, RSLIC or Landmark by or on behalf of RSUI, as agent, with an effective date, new or renewal, after the Effective Date, and (ii) Assumed Contracts. "Reserves" shall mean the reserves, funds or provisions of Royal Insurer Affiliates for losses, claims, premiums, policy benefits and expenses in respect of (i) insurance or reinsurance obligations of any of the Royal Insurer Affiliates (whether for unearned premiums, incurred losses, technical reserves, incurred loss adjustment expenses, incurred but not reported losses, loss adjustment expense or otherwise), (ii) reinsurance collectibles or (iii) other accounts receivable that are of a type included within the line item "Other Receivables" on the Audited RSUI Financial Statements. "RSUI-Produced Insurance Contracts" means all policies, binders and contracts of insurance (both direct and assumed) underwritten by RSUI and issued by any of the Royal Insurer Affiliates. "SAP" shall mean, with respect to any Person, the statutory accounting principles and practices prescribed or permitted by the domicillary state of the relevant Person, consistently applied. "Schedule of Adjusted Underwriting Results" means the Schedule of Adjusted Underwriting Results attached to the Report of Independent Auditors prepared by PwC and addressed to the managements of Royal & SunAlliance and Purchaser. "Seller Disclosure Schedules" means the disclosure schedules delivered by Seller to Purchaser prior to the execution of this Agreement. "Straddle Period" means a taxable year or period beginning on or before, and ending after, the Closing Date. 84 "Subsidiary" of any Person means another Person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its Board of Directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first Person. "Tax" or "Taxes" means all federal, state, county, local, municipal, foreign and other taxes, assessments, duties or similar charges of any kind whatsoever, including all corporate franchise, income, gross receipts, occupation, windfall profits, sales, use, ad valorem, value-added, profits, license, withholding, payroll, employment, excise, insurance premium, real property, personal property, customs, net worth, capital gains, transfer, stamp, documentary, social security, disability, environmental, alternative minimum, estimated, recapture and other taxes, and including all interest, penalties and additions imposed with respect thereto. "Tax Return" means any and all returns, declarations, reports, claims for refund, information returns, or other documents or statements relating to Taxes required to be supplied to any Taxing Authority, including any schedule or attachment thereto and any amendment or supplement thereof. "Taxing Authority" means any domestic, foreign, federal, national, state, county or municipal or other local government, any subdivision, agency, commission or authority thereof, or any quasi-governmental body exercising regulatory authority with respect to Taxes. "Terrorism Treaty" means the specific aggregate excess of loss reinsurance contract by and among Royal & SunAlliance, including all of its Affiliates and Subsidiaries, effective February 28, 2003. "Trade Secrets" means all trade secrets, proprietary and confidential business information and data, inventions, processes, formulae, know how, concepts, ideas, research and development, designs, business plans, strategies, marketing and other information and customer lists. "Trademarks" means all trade names, trade dress, trademarks, service marks, assumed names, business names and logos, internet domain names and all registrations and applications therefor, together with all goodwill symbolized thereby. "Transfer Taxes" means any and all transfer, documentary, sales, use, gross receipts, stamp, registration, value added, recording, escrow and other similar Taxes and fees (including any out-of-pocket filing expenses, penalties and interest) incurred in connection with the transactions contemplated by this Agreement (including recording and escrow fees and any real property or leasehold interest transfer or gains tax and any similar Tax). "Unaffiliated Reinsurers" means reinsurers who are not Affiliates of Seller. 85 Section 16.2 Disclosure Schedules. The parties hereto acknowledge and agree that any information set forth in any of the Seller Disclosure Schedules or any of the Purchaser Disclosure Schedules is considered disclosed in each and every other of the Seller Disclosure Schedules and the Purchaser Disclosure Schedules, respectively, as to which such information is applicable; provided that the disclosure is sufficient to enable a party to this Agreement to identify the Seller Disclosure Schedules or Purchaser Disclosure Schedules to which it applies. Any disclosure in any of the Seller Disclosure Schedules or the Purchaser Disclosure Schedules of any contract, document, liability, default, breach, violation, limitation, impediment or other matter, although the provision for such disclosure may require such disclosure only if such contract, document, liability, default, breach, violation, limitation, impediment or other matter be "material," shall not be construed against any party to this Agreement, as an assertion by such party, that any such contract, document, liability, default, breach, violation, limitation, impediment or other matter is, in fact, material. ARTICLE XVII MISCELLANEOUS Section 17.1 Amendment, Modification and Waiver. This Agreement may not be amended, modified or waived except by an instrument or instruments in writing signed and delivered on behalf of each of the parties hereto. Section 17.2 Entire Agreement. This Agreement and the Ancillary Agreements (together with the Seller Disclosure Schedules, the Purchaser Disclosure Schedules, the other schedules hereto and thereto, the exhibits hereto and thereto, the annexes hereto and thereto and the other agreements, documents and instruments delivered in connection herewith and therewith) constitute the entire agreement among the parties with respect to the subject matter hereof and thereof and supersede all other prior agreements and understandings (other than the Confidentiality Agreement), both written and verbal, among the parties or any of them with respect to the subject matter hereof. Section 17.3 Interpretation. (a) When a reference is made in this Agreement to a Section or Article, such reference shall be to a section or article of this Agreement unless otherwise clearly indicated to the contrary. Whenever the words "include," "includes" or "including" are used in this Agreement they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement. The meaning assigned to each term used in this Agreement shall be equally applicable to both the singular and the plural forms of such term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. 86 (b) The parties have participated jointly in the negotiation and drafting of this Agreement and the Ancillary Agreements; consequently, in the event an ambiguity or question of intent or interpretation arises, this Agreement and each of the Ancillary Agreements shall be construed as if drafted jointly by the parties thereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement or of any of the Ancillary Agreements. Section 17.4 Due Investigation. Purchaser has conducted its own independent review and analysis of the Business, operations, technology, assets, liabilities, results of operations, financial condition and prospects of RSUI and the Business and acknowledges that Seller has provided Purchaser with access to the personnel, properties, premises and books and records of RSUI and the Business for this purpose. In entering into this Agreement and the Ancillary Agreements, Purchaser has relied solely upon its own investigation and analysis, and Purchaser acknowledges and agrees (i) that, except for the specific representations and warranties made by Seller and Affiliates of Seller contained in this Agreement, the Ancillary Agreements, the Seller Disclosure Schedules and other schedules and the exhibits hereto and thereto, none of Seller or its Affiliates nor any of their respective directors, officers, employees, Affiliates, controlling Persons, agents or representatives, makes or has made any representation or warranty, either express or implied, as to the accuracy or completeness of any of the information (including any projections, estimates or other forward-looking information) provided (including in any management presentations, information memorandum, supplemental information or other materials or information with respect to any of the above) or otherwise made available to Purchaser or any of its directors, officers, employees, Affiliates, controlling Persons, agents or representatives and (ii) that, to the fullest extent permitted by Applicable Law, and absent fraud, that Seller and its Affiliates and their respective directors, officers, employees, Subsidiaries, controlling Persons, agents or representatives shall not have any liability or responsibility whatsoever to Purchaser or its Affiliates or any of their respective directors, officers, employees, Subsidiaries, controlling Persons, agents or representatives on any basis (including in contract or tort, under federal or state securities laws or otherwise) based upon any information provided or made available, or statements made (or any omissions therefrom), to Purchaser or its Affiliates or any of their respective directors, officers, employees, Subsidiaries, controlling Persons, agents or representatives, including in respect of the specific representations and warranties of Seller set forth in this Agreement, the Ancillary Agreements, the Seller Disclosure Schedules and other schedules and the exhibits hereto and thereto, except as and only to the extent expressly set forth herein or therein with respect to such representations and warranties. Section 17.5 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in Person, by telecopy (delivery of which is confirmed), by courier (delivery of which is confirmed) or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties to this Agreement as follows: 87 If to Seller: Laura S. Lawrence, Esq. General Counsel Royal Group, Inc. 9300 Arrowpoint Blvd. Charlotte, North Carolina 28273 Telephone No.: (704) 522-2851 Facsimile No.: (704) 522-2313 with a copy to (which shall not constitute notice to Seller for purposes of this Section 17.5): Robert J. Sullivan, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Telephone No.: (212) 735-3000 Facsimile No.: (212) 735-2000 If to Purchaser: Robert M. Hart, Esq. Alleghany Corporation 375 Park Avenue Suite 3201 New York, New York 10152 Telephone No.: (212) 752-1356 Facsimile No.: (212) 759-8149 with a copy to (which shall not constitute notice to Purchaser for purposes of this Section 17.5): Aileen C. Meehan, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Telephone No.: (212) 259-8000 Telecopy No.: (212) 259-6333 or to such other address as the Person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. In no event shall the provision of notice pursuant to this Section 17.5 constitute notice for service of any writ, process or summons in any suit, action or other proceeding. 88 Section 17.6 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Section 17.7 Descriptive Headings. The descriptive article and section headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. Section 17.8 Assignment; Binding Agreement. Neither this Agreement, nor any rights, interests or obligations hereunder, may be directly or indirectly assigned, delegated, sublicensed or transferred by any party to this Agreement, in whole or in part, to any other Person (including any bankruptcy trustee) by operation of law or otherwise, whether voluntarily or involuntarily, without the prior written consent of the other party hereto, except that the Purchaser shall have the right at any time, without such consent, to assign, in whole or in part, its rights hereunder and under any Ancillary Agreement to any wholly owned Subsidiary of Purchaser, provided that such assignment shall not relieve the Purchaser of any of its obligations hereunder and thereunder. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Section 17.9 Third Party Beneficiaries. Nothing in this Agreement, express or implied, is intended to or shall confer upon any Person other than the parties hereto any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. Section 17.10 Specific Performance. The parties recognize and agree that if for any reason any of the provisions of this Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate and irreparable harm or injury would be caused for which money damages would not be an adequate remedy. Accordingly, each party agrees that, in addition to any other available remedies, each other party shall be entitled to an injunction restraining any violation or threatened violation of any of the provisions of this Agreement without the necessity of posting a bond or other form of security. In the event that any action should be brought in equity to enforce any of the provisions of this Agreement, no party will allege, and each party hereby waives the defense, that there is an adequate remedy at Law. Section 17.11 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as would be enforceable. Section 17.12 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. 89 Section 17.13 Consent to Jurisdiction. Each of the parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the state and federal courts located in the State of Delaware for the purposes of enforcing this Agreement or any of the Ancillary Agreements. The parties shall take such actions as are within their control to cause any matter contemplated hereby to be assigned to the Chancery Court of the State of Delaware. In any action, suit or other proceeding, each of the parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claims that it is not subject to the jurisdiction of the above courts, that such action or suit is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper. Each of the parties hereto also agrees that any final and unappealable judgment against a party hereto in connection with any action, suit or other proceeding shall be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States. A certified or exemplified copy of such award or judgment shall be conclusive evidence of the fact and amount of such award or judgment. Section 17.14 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. Section 17.15 Extension; Waiver. At any time prior to the Closing Date, either party may (a) extend the time for the performance of any of the obligations or other acts of the other party, (b) waive any inaccuracies in the representations and warranties contained in this Agreement or in any document delivered pursuant to this Agreement of the other party or (c) waive compliance with any of the agreements or conditions contained in this Agreement of the other party. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. No delay on the part of any party in exercising any right hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right nor any single or partial exercise of any such right preclude any further exercise thereof or the exercise of any other such right. Section 17.16 Confidentiality. Each party hereto will hold, and will use its reasonable best efforts to cause its Affiliates and representatives to hold, in strict confidence from any Person (other than any such Affiliates or representatives), this Agreement, the Ancillary Agreements, the terms and conditions hereof and thereof, and all documents and information concerning the other party or any of its Affiliates (the "Confidential Information") furnished to it by the other party (the "Disclosing Party") or such Disclosing Party's representatives in connection with this Agreement or any Ancillary Agreement or the transactions contemplated hereby or thereby, except to the extent that such Confidential Information can be shown to have been (a) previously known by the party receiving such Confidential Information (the "Receiving Party"), (b) in the public domain (either prior to or after the furnishing of such Confidential Information hereunder) through no fault of such Receiving Party or (c) later acquired by the Receiving Party from another source if the Receiving Party is not aware that such 90 source is under an obligation to another party hereto to keep such Confidential Information confidential; provided that, a Receiving Party may make any disclosure of Confidential Information (i) the use of such Confidential Information is reasonably required in connection with disclosure of the tax treatment and any facts that may be relevant to the tax structure of the transactions contemplated by this Agreement, (ii) with the prior written consent of the other party, (iii) if compelled to disclose by judicial or administrative process (including, without limitation, in connection with obtaining the necessary approvals for this Agreement and the transactions contemplated hereby of governmental or regulatory authorities) or by other requirements of Applicable Law or the rules of a national securities exchange or (iv) in connection with an action or proceeding brought by a party hereto in pursuit of its rights or in the exercise of its remedies hereunder. In the event a Receiving Party becomes compelled to disclose Confidential Information as described in clauses (iii) and (iv) above, such party will provide the Disclosing Party with prompt notice of such legal proceedings so that the Disclosing Party may seek an appropriate protective order or other appropriate relief or waive compliance with the provisions of this Section 17.16. In the absence of a protective order or a waiver from the Disclosing Party, the Receiving Party compelled to disclose Confidential Information is permitted to disclose that portion (and only that portion) of the Confidential Information that such Receiving Party is legally compelled to disclose; provided, however, that the Receiving Party must use reasonable efforts to obtain reliable assurance that confidential treatment will be accorded by any Person to whom any Confidential Information is disclosed. In the event the transactions contemplated by this Agreement are not consummated, upon the request of the other party, each party hereto will, and will cause its Affiliates and their respective representatives to promptly redeliver or cause to be redelivered all copies of confidential documents and information furnished by the other party in connection with this Agreement or any Ancillary Agreement or the transactions contemplated hereby or thereby and destroy or cause to be destroyed all notes, memoranda, summaries, analyses, compilations and other writings related thereto or based thereon prepared by the party furnished such documents and information or its representatives. 91 IN WITNESS WHEREOF, each of the parties has caused this Acquisition Agreement to be executed on its behalf by its officer thereunto duly authorized, all as of the day and year first above written. ROYAL GROUP, INC By: /s/ Laura S. Lawrence -------------------------------------------- Name: Laura S. Lawrence Title: Senior Vice President, General Counsel & Chief Administrative Officer ALLEGHANY INSURANCE HOLDINGS LLC By: /s/ Weston M. Hicks -------------------------------------------- Name: Weston M. Hicks Title: Chief Executive Officer 92 EX-10.2 4 y88779exv10w2.txt CONTENTS TO ACQUISITION AGREEMENT Exhibit 10.2 List of Contents of Exhibits and Schedules to the Acquisition Agreement Exhibits Description -------- ----------- Exhibit A List of Royal Insurer Affiliates Exhibit B RIC Quota Share Reinsurance Agreement Exhibit C RSLIC Quota Share Reinsurance Agreement Exhibit D Landmark Quota Share Reinsurance Agreement Exhibit E RIC Administrative Services Agreement Exhibit F RSLIC Administrative Services Agreement Exhibit G RICA Administrative Services Agreement Exhibit H Landmark Administrative Services Agreement Exhibit I Claims Servicing Agreement Exhibit J Renewal Rights Agreement Exhibit K Transition Services Agreement Term Sheet Exhibit L Transitional Trademark License Agreement Exhibit M Service Mark Assignment Exhibit N Employee Leasing Agreement Exhibit O Managing General Agency Agreement Exhibit P Substitution and Indemnification Agreement Exhibit Q Assignment of Reinsurance Recoverables Exhibit R Terrorism Treaty Cost Allocation Exhibit S RSA SLISI Purchase Agreement Schedules Description --------- ----------- Seller Disclosure Schedules Schedule 1.3(a) Excluded Assets Schedule 1.3(b) Excluded Contracts Schedule 1.3(c) Certain Retained Liabilities Schedule 1.19(c) Reinsurance Treaties Schedule 1.20(a) Property Surplus Share Contracts Schedule 2.3(a) Seller Noncontravention Schedule 2.4 Seller Litigation Schedule 3.3(a) Royal Insurer Affiliates Noncontravention Schedule 3.4(a) Royal Insurer Affiliates Exceptions to Permits Schedule 3.5 Royal Insurer Affiliates Litigation Schedule 3.6 Royal Insurer Affiliates Exceptions to Compliance with Applicable Law Schedule 4.1 RSUI Jurisdictions Schedule 4.2(a) RSUI Noncontravention Schedule 4.3(b) Equity Interests Owned by RSUI Schedule 4.5 Accounts of RSUI Schedule 4.6 Working Capital Schedule 4.7 Exceptions to Administration of Fiduciary Accounts by RSUI Schedule 4.8 RSUI Exceptions to Compliance with Applicable Law Schedule 4.9(a) RSUI Permits Schedule 4.10 RSUI Litigation Schedule 4.11 Exceptions to All Necessary Assets Schedule 4.12 Changes in Conduct of Business Schedule 4.13 Tax Schedule 4.14(a) Plans Schedule 4.14(b) RSUI Employee Contracts Schedule 4.15(a) Business Intellectual Property Schedule 4.15(d) Exceptions to Business Intellectual Property Schedule 4.16(a) Material Business Contracts Schedule 4.16(b) Third Party Consents for Acquired Contracts Schedule 4.16(c) Breaches of Acquired Contracts Schedule 4.17(a) Intercompany Agreements Schedule 4.17(b) Affiliate Agreements Schedule 4.17(c) Affiliate Agreements Post-Closing Schedule 4.18 Insurance Policies Schedule 5.2(a)(i) Standard Forms of Producer Agreements Schedule 5.2(a)(ii) Exceptions to Standard Producer Agreements Schedule 5.2(b) Major Producers Schedule 5.2(c) Underwriting Authority Schedule 5.3(a) Third Party Reinsurance Contracts Schedule 5.3(b) Terminated Third Party Reinsurance Contracts Schedule 5.3(c) Corporate Treaties Schedule 5.3(d) Material Breaches of Third Party Reinsurance Agreements Schedule 8.1(a) Exceptions to Conduct of Business Pending the Closing Schedule 8.6(a)(i) Seller's Third Party, Nongovernmental Consents Schedule 8.12(a) Exceptions to Accounts Receivable or Payable to be Settled Prior to Closing Schedule 8.15 Resigning RSUI Directors Schedule 9.1(c) Royal Group Intellectual Property Schedule 11.1(a) RSUI Employees Schedule 11.1(d) Assumed RSUI Employee Contract Schedule 13.1(c)(ii) Consents Schedule 16.1(a) Seller Persons with Knowledge Purchaser Disclosure Schedules Schedule 6.3(a) Purchaser Noncontravention Schedule 7.3 AIHL Insurance Co. Noncontravention Schedule 7.4 AIHL Insurance Co. Exceptions to Permits Schedule 8.6(a)(ii) Purchaser's Third Party, Nongovernmental Consents Schedule 16.1(b) Purchaser Persons with Knowledge Joint Disclosure Schedules Schedule 8.5(a) Governmental Entity Consents Schedule 8.5(b) Governmental Entity Filings EX-10.3 5 y88779exv10w3.txt ASSIGNMENT AND ASSUMPTION AGREEMENT Exhibit 10.3 ASSIGNMENT AND ASSUMPTION AGREEMENT THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Assignment"), dated as of June 30, 2003, is entered into by and between Alleghany Insurance Holdings LLC, a Delaware limited liability company ("Assignor"), and RSUI Group, Inc., a Delaware corporation ("Assignee"). WITNESSETH: WHEREAS, Assignor is a party to that certain Acquisition Agreement, dated as of June 6, 2003 (the "Acquisition Agreement"), by and between Assignor and Royal Group, Inc. ("Royal"); and WHEREAS, Assignor desires to assign to Assignee all of Assignor's rights under the Acquisition Agreement and Assignee desires to assume all of Assignor's obligations of Assignor under the Acquisition Agreement, subject to the terms of this Assignment. NOW, THEREFORE, in consideration of the foregoing premises and the following mutual terms and conditions, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Assignment of Rights. Subject to the terms and conditions of this Assignment, Assignor hereby agrees to assign, transfer, convey and deliver any and all of its rights under the Acquisition Agreement and Assignee hereby agrees to the assignment, transfer, conveyance and delivery of such rights. 2. Assumption of Liabilities. Subject to the terms and conditions of this Assignment, assignee hereby agrees to assume, pay, perform and discharge all debts, obligations and liabilities of every kind, character or description of Assignor under the Acquisition Agreement. 3. Discharge. Assignor acknowledges that, in accordance with Section 17.8 of the Acquisition Agreement, as between Assignor and Royal, this Assignment shall not relieve Assignor of any of its obligations under the Acquisition Agreement. IN WITNESS WHEREOF, the parties have executed this Assignment effective as of the day and year first written above. ALLEGHANY INSURANCE HOLDINGS LLC By: /s/ Weston M. Hicks ------------------------ Name: Weston M. Hicks Title: Chief Executive Officer RSUI GROUP,INC. By: /s/ James P. Slattery ------------------------- Name: James P. Slattery Title: President EX-10.4 6 y88779exv10w4.txt QUOTA SHARE REINSURANCE AGREEMENT EXHIBIT 10.4 QUOTA SHARE REINSURANCE AGREEMENT By and Between ROYAL INDEMNITY COMPANY (as Cedent) and UNDERWRITERS REINSURANCE COMPANY (as Reinsurer) DATED: July 1, 2003 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS Section 1.1 Definitions.................................................................. 2 ARTICLE II BASIS OF REINSURANCE Section 2.1 Cession...................................................................... 7 Section 2.2 Basis of Reinsurance......................................................... 7 Section 2.3 Effect of Reinsured Contracts................................................ 7 Section 2.4 Other Reinsurance............................................................ 7 ARTICLE III PREMIUMS AND ALLOWANCES Section 3.1 Cedent's Payment Obligations................................................. 8 Section 3.2 Reinsurer's Payment Obligations.............................................. 8 Section 3.3 Reinsurance Administration................................................... 9 ARTICLE IV CONSIDERATION Section 4.1 Consideration................................................................ 9 ARTICLE V ACCOUNTING AND REINSURANCE SETTLEMENT Section 5.1 Delivery of Accounting and Settlement Reports................................ 9 Section 5.2 Report of Allowances......................................................... 10 Section 5.3 Payment of Amounts Indicated in Accounting and Settlement Reports............ 10 ARTICLE VI REINSURED CONTRACT ADMINISTRATION Section 6.1 Administrative Services...................................................... 10 ARTICLE VII INSOLVENCY Section 7.1 Insolvency................................................................... 11 Section 7.2 Notice of Pendency of Claim.................................................. 11 Section 7.3 Notice of Insolvency......................................................... 11 ARTICLE VIII DURATION AND TERMINATION Section 8.1 Effective Date............................................................... 11 Section 8.2 Termination.................................................................. 11 ARTICLE IX COLLATERALIZATION Section 9.1 Collateralization............................................................ 12 Section 9.2 The Trust Account............................................................ 12 Section 9.3 Reporting and Payment........................................................ 14 Section 9.4 Withdrawals from Trust Account............................................... 15
ARTICLE X DUTY OF COOPERATION Section 10.1 Full Cooperation............................................................. 15 Section 10.2 Furnishing of Relevant Information........................................... 15 ARTICLE XI INDEMNIFICATION Section 11.1 Indemnification by Reinsurer................................................. 16 Section 11.2 Indemnification by Cedent.................................................... 16 ARTICLE XII REINSURANCE CREDIT Section 12.1 Reinsurance Credit........................................................... 16 Section 12.2 Notification................................................................. 17 ARTICLE XIII ARBITRATION Section 13.1 Arbitration.................................................................. 17 Section 13.2 Notice of Arbitration........................................................ 17 Section 13.3 Arbitration Panel............................................................ 17 Section 13.4 Submission of Briefs......................................................... 18 Section 13.5 Arbitration Board's Decision................................................. 18 Section 13.6 Jurisdiction................................................................. 18 Section 13.7 Expenses..................................................................... 18 Section 13.8 Production of Documents and Witnesses........................................ 18 Section 13.9 Relief Available............................................................. 19 Section 13.10 Consolidation................................................................ 19 ARTICLE XIV MISCELLANEOUS PROVISIONS Section 14.1 Amendment, Modification and Waiver........................................... 19 Section 14.2 Entire Agreement............................................................. 19 Section 14.3 Governing Law................................................................ 20 Section 14.4 Severability................................................................. 20 Section 14.5 Counterparts................................................................. 20 Section 14.6 Consent to Jurisdiction...................................................... 20 Section 14.7 Third Party Beneficiaries.................................................... 20 Section 14.8 Binding; Assignment.......................................................... 20 Section 14.9 Specific Performance......................................................... 21 Section 14.10 Descriptive Headings......................................................... 21 Section 14.11 Waiver of Doctrine of Utmost Good Faith...................................... 21 Section 14.12 Expenses..................................................................... 21 Section 14.13 Survival..................................................................... 21 Section 14.14 Notices...................................................................... 21 Section 14.15 Interpretation............................................................... 23 Section 14.16 Construction................................................................. 23 Section 14.17 Territory.................................................................... 24 Section 14.18 Confidentiality.............................................................. 24
ii EXHIBITS EXHIBIT A Form of Accounting and Settlement Reports EXHIBIT B Form of Trust Agreement EXHIBIT C Assignment of Net Premium Receivables EXHIBIT D Assignment of Reinsurance Recoverables EXHIBIT E URC Investment Guidelines SCHEDULES Schedule 2.1 Terrorism Allocation Methodology Schedule 2.4 Reinsurance Contracts iii QUOTA SHARE REINSURANCE AGREEMENT THIS QUOTA SHARE REINSURANCE AGREEMENT (together with all Exhibits hereto, this "RIC Quota Share Reinsurance Agreement") is made as of the Effective Date (as defined herein), by and between Royal Indemnity Company, a property and casualty insurance company organized under the laws of the State of Delaware ("Cedent"), and Underwriters Reinsurance Company, a property and casualty insurance company organized under the laws of the State of New Hampshire ("Reinsurer"). WHEREAS, Cedent is a wholly-owned subsidiary of Royal Group, Inc., a Delaware corporation ("Royal"), and Reinsurer is a wholly-owned subsidiary of Alleghany Insurance Holdings LLC, a Delaware limited liability company ("AIHL"); WHEREAS, Royal and AIHL have entered into an Acquisition Agreement, dated as of June 6, 2003 (the "Acquisition Agreement"), pursuant to which AIHL will purchase all of the issued and outstanding shares of common stock of Royal Specialty Underwriting, Inc., a Georgia corporation and wholly-owned subsidiary of Royal ("RSUI"), and certain other assets of Royal and its Affiliates, including the renewal rights to insurance contracts underwritten by RSUI; WHEREAS, pursuant to the Assignment and Assumption Agreement dated as of June 30, 2003 (the "Assignment Agreement"), AIHL assigned to RSUI Group, Inc., a Delaware corporation and a wholly-owned subsidiary of AIHL ("RSUI Group"), and RSUI Group assumed from AIHL, all of AIHL's rights and obligations under the Acquisition Agreement; WHEREAS, pursuant to the terms of the Acquisition Agreement and the Assignment Agreement; Royal and RSUI Group have agreed that Royal shall cause Cedent, and RSUI Group shall cause Reinsurer, to enter into this RIC Quota Share Reinsurance Agreement, pursuant to which Cedent will cede, and Reinsurer will assume, on a 100% quota share basis, the liabilities and obligations arising out of (i) the insurance contracts issued by RSUI, as agent, in Cedent's name with an effective date (new or renewal) on or after the Effective Date; and (ii) the RSUI-Produced Insurance Contracts (as defined below) which are in force on the Effective Date, but only to the extent they arise out of, or relate to, periods on or after the Effective Date; WHEREAS, Cedent wishes to cede to Reinsurer certain liabilities relating to such insurance contracts and Reinsurer desires to assume such liabilities, subject to the terms and conditions of this RIC Quota Share Reinsurance Agreement; and WHEREAS, RSUI will administer all aspects of the Reinsured Contracts and the Reinsured Liabilities (all as defined below) subject to the terms and conditions of the RIC Administrative Services Agreement (as defined below). NOW, THEREFORE, for and in consideration of the premises and the promises and the mutual agreements hereinafter set forth and set forth in the Acquisition Agreement and RIC Administrative Services Agreement, the parties hereto, intending to be legally bound, covenant and agree as follows: ARTICLE I DEFINITIONS Section 1.1 Definitions. Capitalized terms used but not defined herein and which are defined in the Acquisition Agreement shall have the meanings ascribed to them in the Acquisition Agreement. As used in this RIC Quota Share Reinsurance Agreement, the following terms shall have the meanings set forth herein: "AAA" shall have the meaning set forth in Section 13.3. "Acquisition Agreement" shall have the meaning set forth in the recitals. "Affiliate" of any Person means another Person that from time to time, directly or indirectly controls, is controlled by, or is under common control with, such first Person, where "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a Person, whether through the ownership of voting securities, by contract, as trustee or executor, or otherwise. For the purposes of this RIC Quota Share Reinsurance Agreement, the term "Affiliated" has a meaning correlative to the foregoing. "AIHL" shall have the meaning set forth in the recitals. "Administrative Services Agreements" shall mean the RIC Administrative Services Agreement, the RSLIC Administrative Services Agreement, the RICA Administrative Services Agreement and the Landmark Administrative Services Agreement, collectively. "Aggregate Ceding Commission" shall have the meaning set forth in the Acquisition Agreement. "Ancillary Agreements" means this RIC Quota Share Reinsurance Agreement and the other agreements identified as Ancillary Agreements in the Acquisition Agreement. "Applicable Law" means any applicable order, law, statute, regulation, rule, ordinance, writ, injunction, directive, judgment, decree, principal of common law, constitution or treaty enacted, promulgated, issued, enforced or entered by any Governmental Entity, including any amendments thereto that may be adopted from time to time. "Assignment Agreement" shall have the meaning set forth in the recitals. 2 "Assignment of Reinsurance Recoverables Agreement" shall have the meaning set forth in the Acquisition Agreement. "Assumed Contracts" shall mean the RSUI-Produced Insurance Contracts which are in-force on the Effective Date, the actual or contingent liabilities and obligations of which are assumed by Reinsurer pursuant to this RIC Quota Share Reinsurance Agreement, to the extent such liabilities and obligations arise out of, or relate to, periods on and after the Effective Date. "Board" shall have the meaning set forth in Section 13.1. "Business Day" means a Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions in the State of New York are not authorized or obligated by Applicable Law to close. "Cat Cover Reinsurance Recoverables" shall have the meaning set forth in Section 9.2(a)(iv). "Claims Servicing Agreement" shall mean the claims servicing agreement entered into as of the date hereof by and between RSUI, RIC, RSLIC and other insurer Affiliates of Royal. "Closing" means the closing of the transactions contemplated by the Acquisition Agreement. "Closing Date" shall mean the date on which the Closing takes place. "Collected Net Premium" shall have the meaning set forth in Section 9.2(a)(ii). "Damages" means all costs, expenses, fines, penalties, losses, judgments, damages, Reinsured Liabilities and other amounts (including attorneys', actuaries', accountants' and experts' fees and settlement amounts) arising out of any suit, claim or proceeding. "Effective Date" means July 1, 2003. "Excluded Liabilities" means any liability or obligation of Cedent for: (1) Extra Contractual Liabilities and any related attorneys' fees and other expenses incurred by Cedent (i) to the extent caused by acts, errors or omissions by Cedent or any of its officers, employees, agents or representatives that occurred prior to the Effective Date, (ii) to the extent arising in respect of the RSUI-Produced Insurance Contracts other than the Reinsured Contracts, or (iii) as a result of assuming the administration of Excluded Liabilities as provided in Section 5.2 of the RIC Administrative Services Agreement. 3 (2) any losses and expenses incurred under the RSUI-Produced Insurance Contracts other than the Reinsured Contracts, including any and all loss development relating thereto; and (3) any liability or obligation arising out of or relating to Cedent's failure to follow in all material respects any written recommendation made by the Administrator (as defined in the RIC Administrative Services Agreement) pursuant to the RIC Administrative Services Agreement unless by following such recommendation Cedent, in its reasonable judgment, would not comply in all material respects with Applicable Law or the terms of the Reinsured Contracts, in which case all liabilities and obligations arising from changes necessary to conform the conduct contemplated by such recommendation in all material respects to Applicable Law and the terms of the Reinsured Contracts shall be considered Reinsured Liabilities. "Extra Contractual Liabilities" means all liabilities or obligations, other than those arising under the express terms of and within the express limits of the RSUI-Produced Insurance Contracts, whether to policyholders, Governmental Entities or any other Person, which liabilities and obligations shall include, without limitation, any liability for punitive, exemplary, special or any other form of extra-contractual damages relating to the RSUI-Produced Insurance Contracts which arises from any act, error or omission, whether or not intentional, in bad faith or otherwise, including, without limitation, any act, error or omission relating to (i) the investigation, coverage analysis, defense, trial, settlement or handling of claims, benefits, or payments arising out of or relating to the RSUI-Produced Insurance Contracts or (ii) the failure to pay or the delay in payment of benefits, claims or any other amounts due or alleged to be due under or in connection with the RSUI-Produced Insurance Contracts. "Governmental Entity" means any foreign, domestic, federal, territorial, state or local U.S. or non-U.S. governmental authority, quasi-governmental authority, instrumentality, court or government self-regulatory organization, commission, tribunal or organization or any political or other subdivision, department, branch or representative of any of the foregoing. "Landmark" means Landmark American Insurance Company. "Landmark Quota Share Reinsurance Agreement" means the Quota Share Reinsurance Agreement being entered into by Landmark, as cedent, and Underwriters Reinsurance Company, as reinsurer, effective July 1, 2003. "Market Value" shall have the meaning set forth in Section 9.2(b). "Net Premium Receivables" shall have the meaning set forth in Section 9.2(a)(ii). "Net Unearned Premium Reserves" shall mean the aggregate amount of all unearned premium reserves, calculated as of the Effective Date, related to all Assumed 4 Contracts, less the unearned premiums to be ceded to Unaffiliated Reinsurers with respect to such Assumed Contracts. "Neutral Auditors" shall have the meaning set forth in the Acquisition Agreement. "90-Day Treasury Rate" means the annual yield rate, as of any given date, of actively traded U.S. Treasury securities having remaining duration to maturity of three months, as such rate is published under "Treasury Constant Maturities" in Federal Reserve Statistical Release H.15(519). "Person" means an individual, corporation, partnership, joint venture, association, limited liability company, trust, unincorporated organization, or other entity. "Policyholder(s)" means, as applicable, the named insureds under, or policyholders with respect to, the Reinsured Contracts or any other person entitled to payment under the Reinsured Contracts. "Premium Receivables" means premium receivables relating to the Reinsured Contracts. "Qualifying Assets" shall have the meaning set forth in Section 9.2(a)(i). "Quota Share Reinsurance Agreements" shall mean this RIC Quota Share Reinsurance Agreement, the RSLIC Quota Share Reinsurance Agreement and the Landmark Quota Share Reinsurance Agreement, collectively. "Reinsurance Recoverables" means all amounts due under reinsurance agreements entered into with Unaffiliated Reinsurers relating to the Reinsured Contracts, including all receivables, recoverables, returns, amounts in respect of profit sharing and all other sums to which Cedent may be entitled under the third party reinsurance agreements except to the extent related to reinsurance recoverables for Excluded Liabilities. "Reinsured Contracts" means (i) all policies, binders and contracts of insurance written and issued in Cedent's name (or RICA's name and 100% reinsured by Cedent) by or on behalf of RSUI, as agent, with an effective date, new or renewal, on or after the Effective Date; and (ii) Assumed Contracts. "Reinsured Liabilities" means all liabilities and obligations of any nature arising out of or relating to the Reinsured Contracts, including without limitation (i) any loss or allocated loss expense or unearned premium obligation, (ii) Extra Contractual Liabilities and any related attorney fees and other expenses, and (iii) any liabilities and obligations arising out of or relating to a right to purchase additional coverage and obligations arising under legal or regulatory requirements, but excluding Excluded Liabilities. "Required Balance" shall have the meaning set forth in Section 9.1. 5 "RIC" means Royal Indemnity Company. "RIC Administrative Services Agreement" means the RIC Administrative Services Agreement being entered into between Reinsurer and Cedent relative to this RIC Quota Share Reinsurance Agreement. "RIC (Landmark) Quota Share Reinsurance Agreement" means the RIC (Landmark) Quota Share Reinsurance Agreement being entered into between Landmark, as cedent, and RIC, as reinsurer, subsequent to the date hereof. "RICA" means Royal Insurance Company of America, an Illinois company. "Royal" shall have the meaning set forth in the recitals. "Royal Intercompany Reinsurance Pooling Agreement" means the Royal Insurance 1989 Reinsurance Pooling Agreement, as amended, made by and among American and Foreign Insurance Company, Globe Indemnity Company, Royal Indemnity Company, Royal Insurance Company of America, Safeguard Insurance Company, Security Insurance Company of Hartford, Employee Benefits Insurance Company, Design Professionals Insurance Company, The Connecticut Indemnity Company, The Fire and Casualty Insurance Company of Connecticut, EBI Indemnity Company, Guaranty National Insurance Company, Phoenix Assurance Company of New York, The Sea Insurance Company of America and Viking Insurance Company of Wisconsin. "RSLIC Quota Share Reinsurance Agreement" means the Quota Share Reinsurance Agreement being entered into between Royal Surplus Lines Insurance Company, as cedent, and Underwriters Reinsurance Company, as reinsurer, effective July 1, 2003. "RSUI Group" shall have the meaning set forth in the recitals. "RSUI-Produced Insurance Contracts" shall mean all policies, binders and contracts of insurance (both direct and assumed) underwritten by RSUI and issued by a Royal Insurer Affiliate (as such term is defined in the Acquisition Agreement). "Tax" or "Taxes" means all federal, state, county, local, municipal, foreign and other taxes, assessments, duties or similar charges of any kind whatsoever, including all corporate franchise, income, gross receipts, occupation, windfall profits, sales, use, ad valorem, value-added, profits, license, withholding, payroll, employment, excise, insurance premium, real property, personal property, customs, net worth, capital gains, transfer, stamp, documentary, social security, disability, environmental, alternative minimum, estimated, recapture and other taxes, and including all interest, penalties and additions imposed with respect thereto. "Terrorism Loss Allocation Methodology" shall have the meaning set forth in Section 2.1. 6 "Terrorism Treaty" shall have the meaning set forth in the Acquisition Agreement "Trust Account" shall have the meaning set forth in Section 9.1. "Trust Agreement" shall have the meaning set forth in Section 9.1. "Trustee" shall have the meaning set forth in Section 9.3(a). "Unaffiliated Reinsurers" shall mean reinsurers unaffiliated with Cedent other than Reinsurer under this RIC Quota Share Reinsurance Agreement. "URC Investment Guidelines" shall have the meaning set forth in Section 9.3(a). ARTICLE II BASIS OF REINSURANCE Section 2.1 Cession. As of the Effective Date, Cedent hereby cedes to Reinsurer, and Reinsurer hereby accepts and agrees to reinsure and indemnify Cedent for, one hundred percent (100%) of all Reinsured Liabilities, net of (i) collectible reinsurance from Unaffiliated Reinsurers and (ii) collectible allocated reinsurance recoveries under the Terrorism Treaties as allocated pursuant to the loss allocation methodology set forth on SCHEDULE 2.1 (the "Terrorism Loss Allocation Methodology"). The Reinsurer shall follow in all respects the fortunes of the Cedent with respect to the Reinsured Contracts and the Reinsured Liabilities being assumed by the Reinsurer under this RIC Quota Share Reinsurance Agreement. Section 2.2 Basis of Reinsurance. The reinsurance provided by this RIC Quota Share Reinsurance Agreement applies prior to any cession and retrocession by Cedent of pool liabilities to the other parties to the Royal Intercompany Reinsurance Pooling Agreement. Section 2.3 Effect of Reinsured Contracts. Except as otherwise set forth in this RIC Quota Share Reinsurance Agreement, the reinsurance provided under this RIC Quota Share Reinsurance Agreement shall be subject to the same clauses, terms, limits, conditions, endorsements, modifications, and waivers of or affecting the Reinsured Contracts, it being the intent of the parties that Reinsurer shall follow the fortunes and settlements made by or on behalf of the Cedent in all respects. Section 2.4 Other Reinsurance. In the event that there is reinsurance provided by Unaffiliated Reinsurers that relates to the Reinsured Contracts or the Reinsured Liabilities, the amount of Reinsurer's liability under this RIC Quota Share Reinsurance Agreement will be increased by reason of the inability of Cedent to collect any reinsurance from any such Unaffiliated Reinsurer, whether specific or general, that may have become due from them, whether that inability arises from insolvency or 7 otherwise, except that Reinsurer's liability under this RIC Quota Share Reinsurance Agreement will not be increased due to Cedent's inability to collect under the reinsurance contracts listed on SCHEDULE 2.4 hereto. ARTICLE III PREMIUMS AND ALLOWANCES Section 3.1 Cedent's Payment Obligations. Cedent agrees to pay or, if received by RSUI as agent, to cause RSUI in its capacity as Administrator under the RIC Administrative Services Agreement to pay, to Reinsurer one hundred percent (100%) of the following amounts which are actually received by Cedent or RSUI in respect of the Reinsured Contracts: (a) premiums and other receivables to the extent they relate to the Reinsured Contracts; (b) litigation and claim recoveries from third parties to the extent they relate to the Reinsured Contracts and/or the Reinsured Liabilities; (c) any and all amounts paid by Reinsurer relating to the Reinsured Contracts which are not Reinsured Liabilities; and (d) any refunds or tax credits actually received by Cedent based upon such taxes and assessments for which Reinsurer has paid to, or on behalf of, Cedent pursuant to Sections 3.2(a)(ii) and 3.2(a)(iii). Section 3.2 Reinsurer's Payment Obligations. Reinsurer agrees to reimburse, or pay on behalf of, Cedent the following: (a) (i) any and all state and local premium, surplus lines, unauthorized insurance or other similar taxes imposed on premiums written, collected or received, as applicable under the law of the applicable jurisdiction, on or after the Effective Date relating to the Reinsured Contracts; (ii) any and all guaranty fund or other residual market assessments incurred by Cedent with respect to premiums relating to the Reinsured Contracts and the Reinsured Liabilities; and (iii) any and all state or local Taxes imposed on Cedent in connection with the performance of the parties' obligations pursuant to any of the Ancillary Agreements, to the extent that such obligations relate to the Reinsured Contracts; (b) producer compensation paid by the Cedent to the extent based on premiums arising from the Reinsured Contracts; (c) any and all amounts actually paid by Cedent, other than by Administrator on Cedent's behalf under the RIC Administrative Services Agreement, relating to the Reinsured Contracts which are Reinsured Liabilities; and 8 (d) dividends actually paid to Policyholders by Cedent at the request of Reinsurer. Section 3.3 Reinsurance Administration. (a) Except for catastrophe excess of loss and property per risk excess of loss reinsurance which shall be purchased in the name of Reinsurer and except for the Terrorism Treaty which is purchased by Cedent, Reinsurer shall purchase all other reinsurance relating to the Reinsured Contracts in the name, and for the account, of Cedent. Except as provided in the Terrorism Treaty Allocation Agreement, the cost of all such reinsurance shall be born by Reinsurer. (b) Reinsurer and RSUI, as Administrator under the RIC Administrative Services Agreement, shall have the responsibility and authority to take all steps reasonably necessary to administer the third party reinsurance contracts insofar as they relate to the Reinsured Liabilities other than the Terrorism Treaties and the reinsurance contracts listed as Schedule 2.2 hereto. (c) Reinsurer shall have a continuing obligation during the term of this Quota Share Reinsurance Agreement to fund the Bank Accounts (as such term is defined in the RIC Administrative Services Agreement) in an amount sufficient to satisfy all Reinsured Liabilities as such liabilities become due. Notwithstanding any other provisions of the RIC Quota Share Reinsurance Agreement to the contrary, Cedent shall have no responsibility whatsoever to provide funds to satisfy the Reinsured Liabilities or fund the Bank Accounts. ARTICLE IV CONSIDERATION Section 4.1 Consideration. The consideration to be paid to the Reinsurer for assuming the Reinsured Liabilities under the terms of this RIC Quota Share Reinsurance Agreement is set forth in Section 3.1 hereof and Section 1.19 of the Acquisition Agreement. ARTICLE V ACCOUNTING AND REINSURANCE SETTLEMENT Section 5.1 Delivery of Accounting and Settlement Reports. Within thirty (30) days following the end of each calendar month, Reinsurer shall cause RSUI, in its capacity as Administrator for Cedent under the RIC Administrative Services Agreement, to provide Cedent and Reinsurer with accounting and settlement reports (including underlying journal entries contemplated by the RIC Administrative Services Agreement) substantially in the format set forth in EXHIBIT A. Reinsurer and Cedent shall have the right to change the format of the reports upon thirty (30) days' prior written 9 notice to RSUI; provided, however, that the change shall involve no material additional cost to Cedent. Section 5.2 Report of Allowances. Within thirty (30) days following receipt of the report required to be provided to Cedent and Reinsurer by RSUI under Section 5.1 hereof, RSUI shall provide Cedent and Reinsurer with a report of the allowances set forth in Section 3.2 in a format to be mutually agreed upon by the parties. Section 5.3 Payment of Amounts Indicated in Accounting and Settlement Reports. Simultaneously with RSUI 's delivery of the accounting and settlement reports required to be provided under Section 5.1 hereof, Reinsurer shall pay any amounts due to Cedent indicated by such accounting and settlement reports. Cedent shall pay any amount due to Reinsurer on or before the thirtieth (30th) Business Day following its receipt of the accounting and settlement reports required to be provided to Cedent by RSUI under Section 5.1 hereof. Any late payment of an amount required by this RIC Quota Share Reinsurance Agreement to be paid or remitted by Cedent to Reinsurer or by Reinsurer to Cedent shall bear simple interest from and including the date such payment is due under this provision until, but excluding, the date of payment, at a rate per annum equal to the 90-Day Treasury Rate. ARTICLE VI REINSURED CONTRACT ADMINISTRATION Section 6.1 Administrative Services. (a) The Reinsured Contracts shall be administered by RSUI pursuant to the terms and conditions of the RIC Administrative Services Agreement. Reinsurer acknowledges that RSUI, in acting as Administrator for Cedent under the RIC Administrative Services Agreement, is acting on Reinsurer's behalf. Reinsurer further acknowledges that it shall not assert that any action or inaction of RSUI under the RIC Administrative Services Agreement as grounds for denying Cedent coverage under this RIC Quota Share Reinsurance Agreement or seeking indemnification from Cedent pursuant to Article XI hereof. (b) Notwithstanding any other provision of this RIC Quota Share Reinsurance Agreement to the contrary, in no event shall the Cedent have any obligation or liability to the Reinsurer hereunder for any default of its obligations under this RIC Quota Share Reinsurance Agreement caused by the failure of the Administrator to perform its obligations under the RIC Administrative Services Agreement. ARTICLE VII INSOLVENCY 10 Section 7.1 Insolvency. In the event of the insolvency of Cedent, all reinsurance under this RIC Quota Share Reinsurance Agreement shall be payable by Reinsurer on the basis of the liability of Cedent under the Reinsured Contracts without diminution because of the insolvency of Cedent. In the event of insolvency and the appointment of a conservator, liquidator or statutory successor of Cedent, all amounts payable by Reinsurer hereunder to Cedent shall be payable directly to Cedent or to such conservator, liquidator or statutory successor. Section 7.2 Notice of Pendency of Claim. It is understood, however, that in the event of the insolvency of Cedent, the liquidator or receiver or statutory successor of Cedent shall give written notice to Reinsurer of the pendency of a claim against Cedent on the Reinsured Contracts reinsured hereunder within a reasonable time after such claim is filed in the insolvency proceeding and during the pendency of such claim. Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses which it may deem available to Cedent or its liquidator or receiver or statutory successor. It is further understood that the expense thus incurred by Reinsurer shall be chargeable, subject to court approval, against Cedent as part of the expense of liquidation to the extent of a proportionate share of the benefit which may accrue to Cedent as a result of the defense undertaken by Reinsurer. Section 7.3 Notice of Insolvency. If either Cedent or Reinsurer becomes insolvent, such party shall notify the other party of the insolvency within five (5) Business Days thereof. ARTICLE VIII DURATION AND TERMINATION Section 8.1 Effective Date. This RIC Quota Share Reinsurance Agreement shall commence on the Effective Date. This RIC Quota Share Reinsurance Agreement shall remain in effect until all Reinsured Liabilities have been finally settled or expire unless earlier terminated according to the provisions of Section 8.2. Section 8.2 Termination. (a) This RIC Quota Share Reinsurance Agreement may be terminated by a writing stating the effective date of termination: (i) by mutual written agreement of the parties at the time specified in such written agreement; or (ii) at the option of Cedent, upon the issuance of an order of liquidation or rehabilitation against Reinsurer; provided, however, that in the event an order of liquidation or rehabilitation is issued against Reinsurer, before Cedent may terminate this RIC Quota Share Reinsurance Agreement, Reinsurer 11 shall have an opportunity to contest or appeal such order for a period of sixty (60) days from the date of issuance. (b) In the event that this RIC Quota Share Reinsurance Agreement is terminated under Section 8.2(a)(ii), Reinsurer shall return or cause to be returned, within twenty (20) days by wire transfer of immediately available funds to an account designated by Cedent in writing, all Reinsured Liabilities, evaluated as of the effective date of termination, and assets equal to those Reinsured Liabilities, less any amounts actually allowed to Cedent by Reinsurer as a ceding commission on that portion of the Reinsured Liabilities being returned as unearned premium reserve, and upon payment of such, Reinsurer shall be released of all liability for its Reinsured Liabilities under this RIC Quota Share Reinsurance Agreement. ARTICLE IX COLLATERALIZATION Section 9.1 Collateralization. On or prior to the date hereof, Reinsurer shall establish, pursuant to the trust agreement attached hereto as EXHIBIT B (the "Trust Agreement"), a grantor trust of Reinsurer naming Cedent as beneficiary with a bank that is a member of the Federal Reserve System which is reasonably satisfactory to Cedent (the "Trust Account"). The aggregate amount of assets (consisting of cash and other investment assets permitted by the Trust Agreement) required to be maintained by Reinsurer in the Trust Account in accordance with Section 9.3 hereof shall be, at all times on and after the Closing Date, an amount equal to the sum of (i) Reinsurer's aggregate obligations to Cedent under this RIC Quota Share Reinsurance Agreement, net of collectible Reinsurance Recoverables and collectible Net Premium Receivables, plus (ii) at all times Landmark is an Affiliate of RIC, Reinsurer's aggregate obligations under the Landmark Quota Share Reinsurance Agreement, net of collectible Reinsurance Recoverables and collectible Net Premium Receivables (as such terms are defined in such agreement), plus (iii) Reinsurer's aggregate obligations under the RSLIC Quota Share Reinsurance Agreement, net of collectible Reinsurance Recoverables and collectible Net Premium Receivables (as such terms are defined in such agreement), less (iv) RIC's aggregate obligations to Landmark under the RIC (Landmark) Quota Share Reinsurance Agreement (such amount, the "Required Balance"). Section 9.2 The Trust Account. (a) On the Closing Date, the Trust Account shall be funded as follows: (i) Cedent shall place in the Trust Account cash and/or "Acceptable Investments" (as such term is defined under the Trust Agreement, and together with cash, "Qualifying Assets") in an amount equal to Royal's estimate of the Net Unearned Premium Reserve less the amount of the Aggregate Ceding Commission; provided, however, Cedent shall not be required to place Qualifying Assets into the Trust Account in excess of the amount actually 12 collected in respect of the Net Unearned Premium Reserve by Cedent at or prior to the Closing Date less the amount of the Aggregate Ceding Commission; and provided, further, with respect to premium actually collected by RSUI at or prior to the Closing Date in respect of the Net Unearned Premium Reserve and not paid to Cedent, Cedent shall cause RSUI to place, on the Closing Date, Qualifying Assets in such amount into the Trust Account. (ii) Cedent shall assign to the Trust Account all Premium Receivables net of premium receivables to be ceded to the Unaffiliated Reinsurers with respect to such Reinsured Contracts (the "Net Premium Receivables") in accordance with the Assignment of Net Premium Receivables Agreement attached hereto as EXHIBIT C. Net Premium Receivables which are actually collected shall be referred to herein as the "Collected Net Premium." (iii) Reinsurer shall place in the Trust Account Qualifying Assets in an amount equal to the Aggregate Ceding Commission. (iv) Reinsurer shall assign to the Trust Account all reinsurance recoverables of the Reinsurer relating to the catastrophe excess of loss reinsurance purchased with respect to the Reinsured Contracts (the "Cat Cover Reinsurance Recoverables") in accordance with the Assignment of Reinsurance Recoverables Agreement attached hereto as EXHIBIT D. (b) At any time on and after the Closing Date, until the Trust Agreement is terminated pursuant to the provisions found therein, Cedent and Reinsurer agree to the following: (i) Cedent shall, and Reinsurer shall cause RSUI to, place in the Trust Account all Collected Net Premium as soon as practicable upon receipt of the Collected Net Premium, but no later than five (5) Business Days after receipt of such Collected Net Premium. (ii) In the event Cedent reasonably determines that any portion of the Net Premium Receivables is uncollectible, Reinsurer shall place in the Trust Account Qualifying Assets equal to the amount of the Net Premium Receivables which is deemed uncollectible. Net Premium Receivables shall be deemed uncollectible if they become due and owing for 90 days or more. (iii) In the event Cedent reasonably determines that any Reinsurance Recoverables from Unaffiliated Reinsurers relating to the Reinsured Contracts are uncollectible, Reinsurer shall place in the Trust Account Qualifying Assets equal to the amount of Reinsurance Recoverables which are deemed uncollectible, but only to the extent the obligations relate to the Reinsured Liabilities. If such uncollectiblity is due to the creditworthiness of Unaffiliated Reinsurers, Cedent shall make such determination consistent with the treatment of other recoverables from such reinsurers in its own financial statements. 13 (iv) In the event the aggregate fair market value of the assets held in the Trust Account, determined pursuant to the Trust Agreement (the "Market Value"), is below the Required Balance, Reinsurer shall deposit in the Trust Account such additional Qualifying Assets as may be necessary to increase the Market Value of the Trust Account assets to the Required Balance. Section 9.3 Reporting and Payment. (a) The assets held in the Trust Account shall be invested in permissible investments under the investment provisions of the insurance laws of Delaware and New Hampshire and in accordance with the investment guidelines of Reinsurer attached hereto as EXHIBIT E (the "URC Investment Guidelines"). As long as the Trust Agreement remains in force, no amendments to the URC Investment Guidelines shall be made without the express written consent of Cedent, which consent shall not be unreasonably denied or delayed. Reinsurer shall calculate the Required Balance and the Market Value as of the last day of each month and report the amount of the Required Balance and the Market Value, together with supporting detail, to Cedent and the Trustee of the Trust Account (the "Trustee") within fifteen (15) days after the end of such month. The parties hereto shall agree upon mutually satisfactory procedures for the calculation of the Required Balance and the Market Value. (b) No later than five (5) Business Days after Reinsurer's delivery of such report (or within 2 Business Days of agreement or determination of any dispute pursuant to Section 9.3(c)), Reinsurer shall deposit in the Trust Account such additional Qualifying Assets as may be necessary to increase the Market Value of the Trust Account assets to the Required Balance. No later than five (5) Business Days after Cedent's receipt of such report (or within 2 Business Days of agreement or determination of any dispute pursuant to Section 9.3(c)), Cedent shall direct Trustee to pay to Reinsurer any amount by which the aggregate Market Value of the Trust Account assets exceeds the Required Balance. Prior to delivering any assets for deposit in the Trust Account, Reinsurer shall execute assignments or endorsements in blank of all of Reinsurer's right, title and interest in such assets, so that, upon the direction of Cedent, Trustee may negotiate any such assets without consent or signature of Reinsurer or any person or entity. (c) In the event that Cedent disagrees with Reinsurer's calculation of the Required Balance and/or the Market Value other than in respect of incurred but not reported reserves, it shall notify the Reinsurer of such disagreement in writing. If the dispute cannot be agreed between Cedent and Reinsurer within five (5) Business Days of notification, the dispute shall be resolved by the Neutral Auditors in accordance with the provisions of Section 1.10 of the Acquisition Agreement. (d) For the duration of this RIC Quota Share Reinsurance Agreement, Reinsurer agrees to deliver to Cedent, in addition to the monthly report described in Section 9.3(a), (i) within thirty (30) days after the end of every calendar quarter, a review prepared by a nationally recognized independent actuarial firm of Reinsurer's loss and expenses reserves supporting Reinsurer's calculation of the Required Balance and the 14 Market Value; and (ii) within sixty (60) days after the end of each calendar year, an opinion issued by a nationally recognized independent actuarial firm, supporting Reinsurer's calculation of the Required Balance and the Market Value. Section 9.4 Withdrawals from Trust Account. (a) Cedent, as beneficiary of the Trust Account, may withdraw assets from the Trust Account at any time and from time to time, notwithstanding any other provisions of this RIC Quota Share Reinsurance Agreement or the Trust Agreement, and such assets may be utilized and applied by Cedent, or any successor by operation of law of Cedent, including any liquidator, rehabilitator, receiver of conservator of Cedent, without diminution because of insolvency on the part of Cedent or Reinsurer; provided, however, that Cedent may only withdraw such assets for one or more of the following purposes: (i) to reimburse Cedent for any Reinsured Liabilities paid by Cedent to the extent not paid by Reinsurer when due; (ii) to make payment to Reinsurer of any amounts that exceed the Required Balance; (iii) to pay any other amounts that are due to Cedent to the extent not paid directly to Cedent by Reinsurer when due; or (iv) to secure the Trust Account assets upon any attempt by Reinsurer to terminate the Trust Account without establishing other collateral acceptable to Cedent, other than in accordance of the terms of the Trust. (b) Cedent shall withdraw assets from the Trust to (i) make payment to Reinsurer of any amounts that exceed the Required Balance and (ii) at the request of Reinsurer, to reimburse Cedent for any Reinsured Liabilities paid by Cedent. ARTICLE X DUTY OF COOPERATION Section 10.1 Full Cooperation. The parties hereto shall cooperate in a commercially reasonable manner in order to accomplish the objectives of this RIC Quota Share Reinsurance Agreement including, without limitation, making available to each other their respective officers and employees for interviews and meetings with governmental authorities and furnishing any additional assistance, information and documentation as may be reasonably requested by the other party from time to time. Section 10.2 Furnishing of Relevant Information. Upon request, each party hereto shall furnish to the other relevant information concerning the Reinsured Contracts and Reinsured Liabilities, including but not limited to studies used in the determination of reserves and other Reinsured Liabilities, and each shall have the right to 15 review and copy the books and records of the other concerning such Reinsured Contracts and Reinsured Liabilities upon reasonable notice, during normal business hours and at the requesting party's own cost and expense. ARTICLE XI INDEMNIFICATION Section 11.1 Indemnification by Reinsurer. Reinsurer hereby indemnifies Cedent and its Affiliates and its and their respective officers, directors, employees, agents and representatives against and agrees to hold each of them harmless from any and all Damages incurred or suffered by any of them arising out of or relating to (i) the Reinsured Contracts, (ii) the Reinsured Liabilities, (iii) any breach or nonfulfillment by Reinsurer of, or any failure by Reinsurer to perform, any of the terms or conditions of, or any duties or obligations under, this RIC Quota Share Reinsurance Agreement, and (iv) any enforcement of this indemnity. Section 11.2 Indemnification by Cedent. Cedent hereby indemnifies Reinsurer and its Affiliates and its and their respective officers, directors, employees, agents and representatives against and agrees to hold each of them harmless from any and all Damages incurred or suffered by any of them arising out of or relating to (i) Excluded Liabilities, (ii) any breach or nonfulfillment by Cedent of, or any failure by Cedent to perform, any of the terms or conditions of, or any duties or obligations under, this RIC Quota Share Reinsurance Agreement or the RIC Administrative Services Agreement other than breaches or nonfulfillments which result, directly or indirectly, from the failure of the Administrator to perform its obligations under RIC Administrative Services Agreement, and (iii) any enforcement of this indemnity; provided, however, notwithstanding anything to the contrary in this Article XI, Cedent shall not be required to indemnify RSUI to the extent RSUI has any indemnification obligation towards Cedent under the other Quota Share Reinsurance Agreements, the Administrative Services Agreement and the Claims Servicing Agreement. ARTICLE XII REINSURANCE CREDIT Section 12.1 Reinsurance Credit. Notwithstanding any other provision of this RIC Quota Share Reinsurance Agreement to the contrary, if Reinsurer becomes unauthorized or otherwise unaccredited in any State, the District of Columbia, Canada or any other jurisdiction where authorization or accreditation is required by insurance regulatory authorities in order for Cedent to obtain full credit on its statutory quarterly and annual statements filed with such jurisdiction for the reinsurance being provided under this RIC Quota Share Reinsurance Agreement, Reinsurer, upon the request of Cedent, will immediately establish, at its sole cost and option, a Trust Agreement and/or 16 a Qualifying Letter of Credit in an amount necessary to permit Cedent to obtain full credit for such reinsurance in such jurisdiction. Section 12.2 Notification. Reinsurer shall notify Cedent within five (5) Business Days of any loss of license or authorization or other change or condition that may affect the ability of Cedent to obtain full credit for the reinsurance being provided under this RIC Quota Share Reinsurance Agreement. ARTICLE XIII ARBITRATION Section 13.1 Arbitration. As a condition precedent to any cause of action, any and all disputes between Cedent and Reinsurer arising out of, relating to, or concerning this RIC Quota Share Reinsurance Agreement, whether sounding in contract or tort and whether arising during or after termination of this RIC Quota Share Reinsurance Agreement, including whether the dispute is subject to arbitration, shall be submitted to the decision of a board of arbitration composed of two arbitrators and an umpire ("Board") meeting at a site in Wilmington, Delaware. The arbitration shall be conducted under the Federal Arbitration Act and shall proceed as set forth below. Section 13.2 Notice of Arbitration. A notice requesting arbitration, or any other notice made in connection therewith, shall be in writing and shall be sent certified or registered mail, return receipt requested to the affected parties. The notice requesting arbitration shall state in particulars all issues to be resolved in the view of the claimant, shall appoint the arbitrator selected by the claimant and shall set a tentative date for the hearing, which date shall be no sooner than ninety (90) days and no later than one hundred fifty (150) days from the date that the notice requesting arbitration is mailed. Within thirty (30) days of receipt of claimant's notice, the respondent shall notify claimant of any additional issues to be resolved in the arbitration and of the name of its appointed arbitrator. Section 13.3 Arbitration Panel. Unless otherwise mutually agreed, the members of the Board shall be impartial and disinterested and shall be active or former executive officers of property-casualty insurance companies, reinsurance companies, or Lloyd's Underwriters or active or inactive lawyers with at least twenty (20) years of experience in insurance and reinsurance. Cedent and Reinsurer shall each appoint an arbitrator and the two (2) arbitrators shall choose an umpire before instituting the hearing. If the respondent fails to appoint its arbitrator within thirty (30) days after having received claimant's written request for arbitration, the claimant is authorized to and shall appoint the second arbitrator. If the two arbitrators fail to agree upon the appointment of an umpire within thirty (30) days after notification of the appointment of the second arbitrator, within ten (10) days thereof, the two (2) arbitrators shall request the American Arbitration Association ("AAA") to appoint an umpire for the arbitration with the qualifications set forth in this Article. If the AAA fails to name an umpire, either party may apply to the court named below to appoint an umpire with the above required 17 qualifications. The umpire shall promptly notify in writing all parties to the arbitration of his selection and of the scheduled date for the hearing. Upon resignation or death of any member of the Board, a replacement shall be appointed in the same fashion as the resigning or deceased member was appointed. Section 13.4 Submission of Briefs. The claimant and respondent shall each submit initial briefs to the Board outlining the issues in dispute and the basis, authority and reasons for their respective positions within thirty (30) days of the date of notice of appointment of the umpire. The claimant and the respondent may submit reply briefs to the Board within ten (10) days after filing of the initial brief(s). Initial and reply briefs may be amended by the submitting party at any time, but not later than ten (10) days prior to the date of commencement of the arbitration hearing. Reasonable responses shall be allowed at the arbitration hearing to new material contained in any amendments filed to the briefs but not previously responded to. Section 13.5 Arbitration Board's Decision. The Board shall make a decision and award with regard to the terms of this RIC Quota Share Reinsurance Agreement and the original intentions of the parties to the extent reasonably ascertainable. The Board's decision and award shall be in writing and shall state the factual and legal basis for the decision and award. The decision and award shall be based upon a hearing in which evidence shall be allowed and which the formal rules of evidence shall not strictly apply but in which cross examination and rebuttal shall be allowed. At its own election or at the request of the Board, either party may submit a post-hearing brief for consideration of the Board within twenty (20) days of the close of the hearing. The Board shall make its decision and award within thirty (30) days following the close of the hearing or the submission of post-hearing briefs, whichever is later, unless the parties consent to an extension. Every decision by the Board shall be by a majority of the members of the Board and each decision and award by the majority of the members of the Board shall be final and binding upon all parties to the proceeding. Section 13.6 Jurisdiction. Either party may apply to the Chancery Court of the State of Delaware for an order compelling arbitration or confirming any decision and the award; a judgment of that Court shall thereupon be entered on any decision or award. If such an order is issued, the attorneys' fees of the party so applying and court costs will be paid by the party against whom confirmation is sought. The Board may award interest calculated from the date the Board determines that any amounts due the prevailing party should have been paid to the prevailing party. Section 13.7 Expenses. Each party shall bear the expense of the one arbitrator appointed by it and shall jointly and equally bear with the other party the expense of any stenographer requested, and of the umpire. Section 13.8 Production of Documents and Witnesses. Subject to customary and recognized legal rules of privilege, each party participating in the arbitration shall have the obligation to produce those documents and as witnesses to the arbitration those of its employees as any other participating party reasonably requests providing always that the same witnesses and documents be obtainable and relevant to 18 the issues before the arbitration and not be unduly burdensome or excessive. The parties may mutually agree as to pre-hearing discovery prior to the arbitration hearing and in the absence of agreement, upon the request of any party, pre-hearing discovery may be conducted as the Board shall determine in its sole discretion to be in the interest of fairness, full disclosure, and a prompt hearing, decision and award by the Board. The Board shall be the final judge of the procedures of the Board, the conduct of the arbitration, of the rules of evidence, the rules of privilege and production and of excessiveness and relevancy of any witnesses and documents upon the petition of any participating party. To the extent permitted by law, the Board shall have the authority to issue subpoenas and other orders to enforce their decisions. Section 13.9 Relief Available. Nothing herein shall be construed to prevent any participating party from applying to the Chancery Court of the State of Delaware to issue a restraining order or other equitable relief to maintain the "status quo" of the parties participating in the arbitration pending the decision and award by the Board or to prevent any party from incurring irreparable harm or damage at any time prior to the decision and award of the Board. The Board shall also have the authority to issue interim decisions or awards in the interest of fairness, full disclosure, and a prompt and orderly hearing and decision and award by the Board. Section 13.10 Consolidation. In the event that there is a dispute between the Cedent and Reinsurer which implicates the provisions of this RIC Quota Share Reinsurance Agreement and the RIC Administrative Services Agreement, Cedent and Reinsurer hereby agree to consolidate any such dispute under such agreements in a single arbitration proceeding. ARTICLE XIV MISCELLANEOUS PROVISIONS Section 14.1 Amendment, Modification and Waiver. This RIC Quota Share Reinsurance Agreement may not be amended, modified or waived except by an instrument or instruments in writing signed and delivered on behalf of each of the parties hereto. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privileged. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. Section 14.2 Entire Agreement. This RIC Quota Share Reinsurance Agreement (together with the exhibits hereto and the other agreements, documents and instruments delivered in connection herewith) the Acquisition Agreement, the RIC Administrative Services Agreement and the other Ancillary Agreements constitute the entire agreement among the parties with respect to the subject matter hereof and thereof and supersede all other prior agreements and understandings, both written and verbal, among the parties or any of them with respect to the subject matter hereof. 19 Section 14.3 Governing Law. This RIC Quota Share Reinsurance Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Section 14.4 Severability. Any term or provision of this RIC Quota Share Reinsurance Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this RIC Quota Share Reinsurance Agreement or affecting the validity or enforceability of any of the terms or provisions of this RIC Quota Share Reinsurance Agreement in any other jurisdiction. If any provision of this RIC Quota Share Reinsurance Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as would be enforceable. Section 14.5 Counterparts. This RIC Quota Share Reinsurance Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. Section 14.6 Consent to Jurisdiction. Each of the parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the state and federal courts located in the State of Delaware for the purposes of enforcing this RIC Quota Share Agreement or the RIC Administrative Services Agreement. If any action is brought in a state court, the parties shall take such actions as are within their control to cause any matter contemplated hereby to be assigned to the Chancery Court of the State of Delaware. In any action, suit or other proceeding, each of the parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claims that it is not subject to the jurisdiction of the above courts, that such action or suit is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper. Each of the parties hereto also agrees that any final and unappealable judgment against a party hereto in connection with any action, suit or other proceeding shall be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States. A certified or exemplified copy of such award or judgment shall be conclusive evidence of the fact and amount of such award or judgment. Section 14.7 Third Party Beneficiaries. Except for the provisions of Article XI, nothing in this RIC Quota Share Reinsurance Agreement, express or implied, is intended to or shall confer upon any person, other than the parties hereto any rights, benefits or remedies of any nature whatsoever under or by reason of this RIC Quota Share Reinsurance Agreement. Section 14.8 Binding; Assignment. This RIC Quota Share Reinsurance Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Neither this RIC Quota Share Reinsurance Agreement, nor any rights, interests or obligations hereunder, may be directly or indirectly assigned, delegated, sublicensed or transferred by any party to this RIC Quota Share Reinsurance 20 Agreement, in whole or in part, to any other person (including any bankruptcy trustee) by operation of law or otherwise, whether voluntarily or involuntarily, without the prior written consent of the parties hereto. Section 14.9 Specific Performance. The parties recognize and agree that if for any reason any of the provisions of this RIC Quota Share Reinsurance Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate and irreparable harm or injury would be caused for which money damages would not be an adequate remedy. Accordingly, each party agrees that, in addition to any other available remedies, each other party shall be entitled to an injunction restraining any violation or threatened violation of any of the provisions of this RIC Quota Share Reinsurance Agreement without the necessity of posting a bond or other form of security pending the outcome of any arbitration. In the event that any action should be brought in equity to enforce any of the provisions of this RIC Quota Share Reinsurance Agreement, no party will allege, and each party hereby waives the defense, that there is an adequate remedy at law. Section 14.10 Descriptive Headings. The descriptive article and section headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this RIC Quota Share Reinsurance Agreement. Section 14.11 Waiver of Doctrine of Utmost Good Faith. Reinsurer absolutely and irrevocably waives resort to the doctrine of "utmost good faith" or any similar doctrine in connection with the formation or performance of this Agreement. Section 14.12 Expenses. Unless otherwise specifically provided herein, all costs and expenses incurred in connection with this RIC Quota Share Reinsurance Agreement shall be paid by the party incurring such cost or expense. Section 14.13 Survival. The provisions of Articles XI, XIII and XIV hereof shall survive the termination of this RIC Quota Share Reinsurance Agreement. Section 14.14 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by facsimile (which is confirmed), by courier (delivery of which is confirmed), or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties to this RIC Quota Share Reinsurance Agreement as follows: 21 If to Cedent: Laura S. Lawrence, Esq. General Counsel Royal Indemnity Company 9300 Arrowpoint Blvd. Charlotte, NC 28273 Telephone No.: (704) 522-2851 Facsimile No.: (704) 522-2313 With a copy to (which shall not constitute notice to Cedent for purposes of this Section 14.14): Robert J. Sullivan, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Telephone No.: (212) 735-2930 Facsimile No.: (212) 735-2000 If to Reinsurer: Underwriters Reinsurance Company Mr. David E. Leonard Executive Vice President c/o Royal Specialty Underwriting, Inc. 945 East Paces Ferry Road Atlanta, GA 30326 Telephone No.: (404) 231-2366 Facsimile No.: (404) 231-3755 With copies to (which shall not constitute notice to Reinsurer for purposes of this Section 14.14): Robert M. Hart, Esq. General Counsel Alleghany Corporation 375 Park Avenue Suite 3201 New York, New York 10152 Telephone No.: (212) 752-1356 Facsimile No.: (212) 759-8149 22 and Aileen C. Meehan, Esq. William W. Rosenblatt, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Telephone No.: (212) 259-8000 Facsimile No.: (212) 259-6333 or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. In no event shall the provision of notice pursuant to this Section 14.14 constitute notice for service of any writ, process or summons in any suit, action or other proceeding. Section 14.15 Interpretation. (a) When a reference is made in this RIC Quota Share Reinsurance Agreement to a Section or Article, such reference shall be to a section or article of this RIC Quota Share Reinsurance Agreement unless otherwise clearly indicated to the contrary. Whenever the words "include", "includes" or "including" are used in this RIC Quota Share Reinsurance Agreement, they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this RIC Quota Share Reinsurance Agreement as a whole and not to any particular provision of this RIC Quota Share Reinsurance Agreement. The meaning assigned to each term used in this RIC Quota Share Reinsurance Agreement shall be equally applicable to both the singular and the plural forms of such term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. (b) The parties have participated jointly in the negotiation and drafting of this RIC Quota Share Reinsurance Agreement; consequently, in the event an ambiguity or question of intent or interpretation arises, this RIC Quota Share Reinsurance Agreement shall be construed as if drafted jointly by the parties thereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this RIC Quota Share Reinsurance Agreement. Section 14.16 Construction. This RIC Quota Share Reinsurance Agreement is the result of arms-length negotiations between the parties hereto and has been prepared jointly by the parties. In applying and interpreting the provisions of this RIC Quota Share Reinsurance Agreement, there shall be no presumptions that this RIC Quota Share Reinsurance Agreement was prepared by any one party or that this RIC Quota Share Reinsurance Agreement shall be construed in favor of or against any one party. 23 Section 14.17 Territory. This RIC Quota Share Reinsurance Agreement applies only to losses arising out of Reinsured Contracts written in the United States of America, its territories and possessions. Section 14.18 Confidentiality. Each party hereto will hold, and will use its reasonable best efforts to cause its Affiliates, and their respective representatives to hold, in strict confidence from any Person (other than any such Affiliates or representatives), except with the prior written consent of the other party or unless (i) compelled to disclose by judicial or administrative process (including without limitation in connection with obtaining the necessary approvals of this Agreement and the transactions contemplated hereby of governmental or regulatory authorities) or by other requirements of Applicable Law or (ii) disclosed in an action or proceeding brought by a party hereto in pursuit of its rights or in the exercise of its remedies hereunder, this RIC Quota Share Reinsurance Agreement, the terms and conditions hereof, and all documents and information concerning the other party or any of its Affiliates furnished to it by the other party or such other party's representatives in connection with the transactions contemplated hereby, except to the extent that such documents or information can be shown to have been (a) previously known by the party receiving such documents or information, (b) in the public domain (either prior to or after the furnishing of such documents or information hereunder) through no fault of such receiving party or (c) later acquired by the receiving party from another source if the receiving party is not aware that such source is under an obligation to another party hereto to keep such documents and information confidential. 24 IN WITNESS WHEREOF, Cedent and Reinsurer have caused their names to be subscribed by their respective authorized officers. ROYAL INDEMNITY COMPANY By: /s/ Stephen M. Mulready ---------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer UNDERWRITERS REINSURANCE COMPANY By: /s/ James P. Slattery ---------------------------- Name: James P. Slattery Title: President EX-10.5 7 y88779exv10w5.txt CONTENTS TO QUOTA SHARE REINSURANCE AGREEMENT Exhibit 10.5 List of Contents of Exhibits and Schedules to the Royal Indemnity Company Quota Share Reinsurance Agreement Exhibits Description -------- ----------- Exhibit A Form of Accounting and Settlement Reports Exhibit B Form of Trust Agreement Exhibit C Assignment of Net Premium Receivables Exhibit D Assignment of Reinsurance Recoverables Exhibit E URC Investment Guidelines Schedules Description --------- ----------- Schedule 2.1 Terrorism Allocation Methodology Schedule 2.4 Reinsurance Contracts EX-10.6 8 y88779exv10w6.txt QUOTA SHARE REINSURANCE AGREEMENT EXHIBIT 10.6 QUOTA SHARE REINSURANCE AGREEMENT By and Between ROYAL SURPLUS LINES INSURANCE COMPANY (as Cedent) and UNDERWRITERS REINSURANCE COMPANY (as Reinsurer) DATED: July 1, 2003 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS Section 1.1 Definitions....................................................... 2 ARTICLE II BASIS OF REINSURANCE Section 2.1 Cession........................................................... 7 Section 2.2 Basis of Reinsurance.............................................. 7 Section 2.3 Effect of Reinsured Contracts..................................... 7 Section 2.4 Other Reinsurance................................................. 7 ARTICLE III PREMIUMS AND ALLOWANCES Section 3.1 Cedent's Payment Obligations....................................... 8 Section 3.2 Reinsurer's Payment Obligations.................................... 8 Section 3.3 Reinsurance Administration......................................... 8 ARTICLE IV CONSIDERATION Section 4.1 Consideration...................................................... 9 ARTICLE V ACCOUNTING AND REINSURANCE SETTLEMENT Section 5.1 Delivery of Accounting and Settlement Reports...................... 9 Section 5.2 Report of Allowances............................................... 9 Section 5.3 Payment of Amounts Indicated in Accounting and Settlement Reports.. 10 ARTICLE VI REINSURED CONTRACT ADMINISTRATION Section 6.1 Administrative Services............................................ 10 ARTICLE VII INSOLVENCY Section 7.1 Insolvency......................................................... 10 Section 7.2 Notice of Pendency of Claim........................................ 11 Section 7.3 Notice of Insolvency............................................... 11 ARTICLE VIII DURATION AND TERMINATION Section 8.1 Effective Date..................................................... 11 Section 8.2 Termination........................................................ 11 ARTICLE IX COLLATERALIZATION Section 9.1 Collateralization.................................................. 12 Section 9.2 The Trust Account.................................................. 12 Section 9.3 Reporting and Payment.............................................. 13 Section 9.4 Withdrawals from Trust Account..................................... 14
ARTICLE X DUTY OF COOPERATION Section 10.1 Full Cooperation................................................... 15 Section 10.2 Furnishing of Relevant Information................................. 15 ARTICLE XI INDEMNIFICATION Section 11.1 Indemnification by Reinsurer....................................... 16 Section 11.2 Indemnification by Cedent.......................................... 16 ARTICLE XII REINSURANCE CREDIT Section 12.1 Reinsurance Credit................................................. 16 Section 12.2 Notification....................................................... 16 ARTICLE XIII ARBITRATION Section 13.1 Arbitration........................................................ 17 Section 13.2 Notice of Arbitration.............................................. 17 Section 13.3 Arbitration Panel.................................................. 17 Section 13.4 Submission of Briefs............................................... 17 Section 13.5 Arbitration Board's Decision....................................... 18 Section 13.6 Jurisdiction....................................................... 18 Section 13.7 Expenses........................................................... 18 Section 13.8 Production of Documents and Witnesses.............................. 18 Section 13.9 Relief Available................................................... 19 Section 13.10 Consolidation...................................................... 19 ARTICLE XIV MISCELLANEOUS PROVISIONS Section 14.1 Amendment, Modification and Waiver................................. 19 Section 14.2 Entire Agreement................................................... 19 Section 14.3 Governing Law...................................................... 19 Section 14.4 Severability....................................................... 19 Section 14.5 Counterparts....................................................... 20 Section 14.6 Consent to Jurisdiction............................................ 20 Section 14.7 Third Party Beneficiaries.......................................... 20 Section 14.8 Binding; Assignment................................................ 20 Section 14.9 Specific Performance............................................... 20 Section 14.10 Descriptive Headings............................................... 21 Section 14.11 Waiver of Doctrine of Utmost Good Faith............................ 21 Section 14.12 Expenses........................................................... 21 Section 14.13 Survival........................................................... 21 Section 14.14 Notices............................................................ 21 Section 14.15 Interpretation..................................................... 22 Section 14.16 Construction....................................................... 23 Section 14.17 Territory.......................................................... 23 Section 14.18 Confidentiality.................................................... 23
ii EXHIBITS EXHIBIT A Form of Accounting and Settlement Reports EXHIBIT B Form of Trust Agreement EXHIBIT C Assignment of Net Premium Receivables EXHIBIT D Assignment of Reinsurance Recoverables EXHIBIT E URC Investment Guidelines SCHEDULES Schedule 2.1 Terrorism Allocation Methodology Schedule 2.4 Reinsurance Contracts iii QUOTA SHARE REINSURANCE AGREEMENT THIS QUOTA SHARE REINSURANCE AGREEMENT (together with all Exhibits hereto, this "RSLIC Quota Share Reinsurance Agreement") is made as of the Effective Date (as defined herein), by and between Royal Surplus Lines Insurance Company, a Connecticut company ("Cedent"), and Underwriters Reinsurance Company, a property and casualty insurance company organized under the laws of the State of New Hampshire ("Reinsurer"). WHEREAS, Cedent is a wholly-owned subsidiary of Royal Group, Inc., a Delaware corporation ("Royal"), and Reinsurer is a wholly-owned subsidiary of Alleghany Insurance Holdings LLC, a Delaware limited liability company ("AIHL"); WHEREAS, Royal and AIHL have entered into an Acquisition Agreement, dated as of June 6, 2003 (the "Acquisition Agreement"), pursuant to which AIHL will purchase all of the issued and outstanding shares of common stock of Royal Specialty Underwriting, Inc., a Georgia corporation and wholly-owned subsidiary of Royal ("RSUI"), and certain other assets of Royal and its Affiliates, including the renewal rights to insurance contracts underwritten by RSUI; WHEREAS, pursuant to the Assignment and Assumption Agreement dated as of June 30, 2003 (the "Assignment Agreement"), AIHL assigned to RSUI Group, Inc., a Delaware corporation and a wholly-owned subsidiary of AIHL ("RSUI Group"), and RSUI Group assumed from AIHL, all of AIHL's rights and obligations under the Acquisition Agreement; WHEREAS, pursuant to the terms of the Acquisition Agreement and the Assignment Agreement, Royal and RSUI Group have agreed that Royal shall cause Cedent, and RSUI Group shall cause Reinsurer, to enter into this RSLIC Quota Share Reinsurance Agreement, pursuant to which Cedent will cede, and Reinsurer will assume, on a 100% quota share basis, the liabilities and obligations arising out of (i) the insurance contracts issued by RSUI, as agent, in Cedent's name with an effective date (new or renewal) on or after the Effective Date; and (ii) the RSUI-Produced Insurance Contracts (as defined below) which are in force on the Effective Date, but only to the extent they arise out of, or relate to, periods on or after the Effective Date; WHEREAS, Cedent wishes to cede to Reinsurer certain liabilities relating to such insurance contracts and Reinsurer desires to assume such liabilities, subject to the terms and conditions of this RSLIC Quota Share Reinsurance Agreement; and WHEREAS, RSUI will administer all aspects of the Reinsured Contracts and the Reinsured Liabilities (all as defined below) subject to the terms and conditions of the RSLIC Administrative Services Agreement (as defined below). NOW, THEREFORE, for and in consideration of the premises and the promises and the mutual agreements hereinafter set forth and set forth in the Acquisition Agreement and RSLIC Administrative Services Agreement, the parties hereto, intending to be legally bound, covenant and agree as follows: ARTICLE I DEFINITIONS Section 1.1 Definitions. Capitalized terms used but not defined herein and which are defined in the Acquisition Agreement shall have the meanings ascribed to them in the Acquisition Agreement. As used in this RSLIC Quota Share Reinsurance Agreement, the following terms shall have the meanings set forth herein: "AAA" shall have the meaning set forth in Section 13.3. "Acquisition Agreement" shall have the meaning set forth in the recitals. "Affiliate" of any Person means another Person that from time to time, directly or indirectly controls, is controlled by, or is under common control with, such first Person, where "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a Person, whether through the ownership of voting securities, by contract, as trustee or executor, or otherwise. For the purposes of this RSLIC Quota Share Reinsurance Agreement, the term "Affiliated" has a meaning correlative to the foregoing. "AIHL" shall have the meaning set forth in the recitals. "Administrative Services Agreements" shall mean the RSLIC Administrative Services Agreement, the RIC Administrative Services Agreement, the RICA Administrative Services Agreement and the Landmark Administrative Services Agreement, collectively. "Aggregate Ceding Commission" shall have the meaning set forth in the Acquisition Agreement. "Ancillary Agreements" means this RSLIC Quota Share Reinsurance Agreement and the other agreements identified as Ancillary Agreements in the Acquisition Agreement. "Applicable Law" means any applicable order, law, statute, regulation, rule, ordinance, writ, injunction, directive, judgment, decree, principal of common law, constitution or treaty enacted, promulgated, issued, enforced or entered by any Governmental Entity, including any amendments thereto that may be adopted from time to time. "Assignment Agreement" shall have the meaning set forth in the recitals. "Assignment of Reinsurance Recoverables Agreement" shall have the meaning set forth in the Acquisition Agreement. "Assumed Contracts" shall mean the RSUI-Produced Insurance Contracts which are in-force on the Effective Date, the actual or contingent liabilities and 2 obligations of which are assumed by Reinsurer pursuant to this RSLIC Quota Share Reinsurance Agreement, to the extent such liabilities and obligations arise out of, or relate to, periods on and after the Effective Date. "Board" shall have the meaning set forth in Section 13.1. "Business Day" means a Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions in the State of New York are not authorized or obligated by Applicable Law to close. "Cat Cover Reinsurance Recoverables" shall have the meaning set forth in Section 9.2(a)(iv). "Claims Servicing Agreement" shall mean the claims servicing agreement entered into as of the date hereof by and between RSUI, RIC, RSLIC and other insurer Affiliates of Royal. "Closing" means the closing of the transactions contemplated by the Acquisition Agreement. "Closing Date" shall mean the date on which the Closing takes place. "Collected Net Premium" shall have the meaning set forth in Section 9.2(a)(ii). "Damages" means all costs, expenses, fines, penalties, losses, judgments, damages, Reinsured Liabilities and other amounts (including attorneys', actuaries', accountants' and experts' fees and settlement amounts) arising out of any suit, claim or proceeding. "Effective Date" means July 1, 2003. "Excluded Liabilities" means any liability or obligation of Cedent for: (1) Extra Contractual Liabilities and any related attorneys' fees and other expenses incurred by Cedent (i) to the extent caused by acts, errors or omissions by Cedent or any of its officers, employees, agents or representatives that occurred prior to the Effective Date, (ii) to the extent arising in respect of the RSUI-Produced Insurance Contracts other than the Reinsured Contracts, or (iii) as a result of assuming the administration of Excluded Liabilities as provided in Section 5.2 of the RSLIC Administrative Services Agreement. (2) any losses and expenses incurred under the RSUI-Produced Insurance Contracts other than the Reinsured Contracts, including any and all loss development relating thereto; and (3) any liability or obligation arising out of or relating to Cedent's failure to follow in all material respects any written recommendation made by the 3 Administrator (as defined in the RSLIC Administrative Services Agreement) pursuant to the RSLIC Administrative Services Agreement unless by following such recommendation Cedent, in its reasonable judgment, would not comply in all material respects with Applicable Law or the terms of the Reinsured Contracts, in which case all liabilities and obligations arising from changes necessary to conform the conduct contemplated by such recommendation in all material respects to Applicable Law and the terms of the Reinsured Contracts shall be considered Reinsured Liabilities. "Extra Contractual Liabilities" means all liabilities or obligations, other than those arising under the express terms of and within the express limits of the RSUI-Produced Insurance Contracts, whether to policyholders, Governmental Entities or any other Person, which liabilities and obligations shall include, without limitation, any liability for punitive, exemplary, special or any other form of extra-contractual damages relating to the RSUI-Produced Insurance Contracts which arises from any act, error or omission, whether or not intentional, in bad faith or otherwise, including, without limitation, any act, error or omission relating to (i) the investigation, coverage analysis, defense, trial, settlement or handling of claims, benefits, or payments arising out of or relating to the RSUI-Produced Insurance Contracts or (ii) the failure to pay or the delay in payment of benefits, claims or any other amounts due or alleged to be due under or in connection with the RSUI-Produced Insurance Contracts. "Landmark" means Landmark American Insurance Company. "Landmark Quota Share Reinsurance Agreement" means the Quota Share Reinsurance Agreement being entered into by Landmark, as cedent, and Underwriters Reinsurance Company, as reinsurer, effective July 1, 2003. "Governmental Entity" means any foreign, domestic, federal, territorial, state or local U.S. or non-U.S. governmental authority, quasi-governmental authority, instrumentality, court or government self-regulatory organization, commission, tribunal or organization or any political or other subdivision, department, branch or representative of any of the foregoing. "Market Value" shall have the meaning set forth in Section 9.2(b). "Net Premium Receivables" shall have the meaning set forth in Section 9.2(a)(ii). "Net Unearned Premium Reserves" shall mean the aggregate amount of all unearned premium reserves, calculated as of the Effective Date, related to all Assumed Contracts, less the unearned premiums to be ceded to Unaffiliated Reinsurers with respect to such Assumed Contracts. "Neutral Auditors" shall have the meaning set forth in the Acquisition Agreement. 4 "90-Day Treasury Rate" means the annual yield rate, as of any given date, of actively traded U.S. Treasury securities having remaining duration to maturity of three months, as such rate is published under "Treasury Constant Maturities" in Federal Reserve Statistical Release H.15(519). "Person" means an individual, corporation, partnership, joint venture, association, limited liability company, trust, unincorporated organization, or other entity. "Policyholder(s)" means, as applicable, the named insureds under, or policyholders with respect to, the Reinsured Contracts or any other person entitled to payment under the Reinsured Contracts. "Premium Receivables" means premium receivables relating to the Reinsured Contracts. "Qualifying Assets" shall have the meaning set forth in Section 9.2(a)(i). "Quota Share Reinsurance Agreements" shall mean this RSLIC Quota Share Reinsurance Agreement, the RIC Quota Share Reinsurance Agreement and the Landmark Quota Share Reinsurance Agreement, collectively. "Reinsurance Recoverables" means all amounts due under reinsurance agreements entered into with Unaffiliated Reinsurers relating to the Reinsured Contracts, including all receivables, recoverables, returns, amounts in respect of profit sharing and all other sums to which Cedent may be entitled under the third party reinsurance agreements except to the extent related to reinsurance recoverables for Excluded Liabilities. "Reinsured Contracts" means (i) all policies, binders and contracts of insurance written and issued in Cedent's name by or on behalf of RSUI, as agent, with an effective date, new or renewal, on or after the Effective Date; and (ii) Assumed Contracts. "Reinsured Liabilities" means all liabilities and obligations of any nature arising out of or relating to the Reinsured Contracts, including without limitation (i) any loss or allocated loss expense or unearned premium obligation, (ii) Extra Contractual Liabilities and any related attorney fees and other expenses, and (iii) any liabilities and obligations arising out of or relating to a right to purchase additional coverage and obligations arising under legal or regulatory requirements, but excluding Excluded Liabilities. "Required Balance" shall have the meaning set forth in Section 9.1. "RIC" means Royal Indemnity Company. "RIC (Landmark) Quota Share Reinsurance Agreement" means the RIC (Landmark) Quota Share Reinsurance Agreement being entered into between Landmark, as cedent, and RIC, as reinsurer, subsequent to the date hereof. 5 "RIC Quota Share Reinsurance Agreement" means the Quota Share Reinsurance Agreement being entered into between Royal Indemnity Company, as cedent, and Underwriters Reinsurance Company, as reinsurer, effective July 1, 2003. "RICA" means Royal Insurance Company of America, an Illinois company. "Royal" shall have the meaning set forth in the recitals. "Royal Intercompany Reinsurance Pooling Agreement" means the Royal Insurance 1989 Reinsurance Pooling Agreement, as amended, made by and among American and Foreign Insurance Company, Globe Indemnity Company, Royal Indemnity Company, Royal Insurance Company of America, Safeguard Insurance Company, Security Insurance Company of Hartford, Employee Benefits Insurance Company, Design Professionals Insurance Company, The Connecticut Indemnity Company, The Fire and Casualty Insurance Company of Connecticut, EBI Indemnity Company, Guaranty National Insurance Company, Phoenix Assurance Company of New York, The Sea Insurance Company of America and Viking Insurance Company of Wisconsin. "RSLIC Administrative Services Agreement" means the RSLIC Administrative Services Agreement being entered into between Reinsurer and Cedent relative to this RSLIC Quota Share Reinsurance Agreement. "RSUI Group" shall have the meaning set forth in the recitals. "RSUI-Produced Insurance Contracts" shall mean all policies, binders and contracts of insurance (both direct and assumed) underwritten by RSUI and issued by a Royal Insurer Affiliate (as such term is defined in the Acquisition Agreement). "Tax" or "Taxes" means all federal, state, county, local, municipal, foreign and other taxes, assessments, duties or similar charges of any kind whatsoever, including all corporate franchise, income, gross receipts, occupation, windfall profits, sales, use, ad valorem, value-added, profits, license, withholding, payroll, employment, excise, insurance premium, real property, personal property, customs, net worth, capital gains, transfer, stamp, documentary, social security, disability, environmental, alternative minimum, estimated, recapture and other taxes, and including all interest, penalties and additions imposed with respect thereto. "Terrorism Loss Allocation Methodology" shall have the meaning set forth in Section 2.1. "Terrorism Treaty" shall have the meaning set forth in the Acquisition Agreement "Trust Account" shall have the meaning set forth in Section 9.1. "Trust Agreement" shall have the meaning set forth in Section 9.1. 6 "Trustee" shall have the meaning set forth in Section 9.3(a). "Unaffiliated Reinsurers" shall mean reinsurers unaffiliated with Cedent other than Reinsurer under this RSLIC Quota Share Reinsurance Agreement. "URC Investment Guidelines" shall have the meaning set forth in Section 9.3(a). ARTICLE II BASIS OF REINSURANCE Section 2.1 Cession. As of the Effective Date, Cedent hereby cedes to Reinsurer, and Reinsurer hereby accepts and agrees to reinsure and indemnify Cedent for, one hundred percent (100%) of all Reinsured Liabilities, net of (i) collectible reinsurance from Unaffiliated Reinsurers and (ii) collectible allocated reinsurance recoveries under the Terrorism Treaties as allocated pursuant to the loss allocation methodology set forth on SCHEDULE 2.1 (the "Terrorism Loss Allocation Methodology"). The Reinsurer shall follow in all respects the fortunes of the Cedent with respect to the Reinsured Contracts and the Reinsured Liabilities being assumed by the Reinsurer under this RSLIC Quota Share Reinsurance Agreement. Section 2.2 Basis of Reinsurance. The reinsurance provided by this RSLIC Quota Share Reinsurance Agreement applies prior to any cession and retrocession by Cedent of pool liabilities to the other parties to the Royal Intercompany Reinsurance Pooling Agreement. Section 2.3 Effect of Reinsured Contracts. Except as otherwise set forth in this RSLIC Quota Share Reinsurance Agreement, the reinsurance provided under this RSLIC Quota Share Reinsurance Agreement shall be subject to the same clauses, terms, limits, conditions, endorsements, modifications, and waivers of or affecting the Reinsured Contracts, it being the intent of the parties that Reinsurer shall follow the fortunes and settlements made by or on behalf of the Cedent in all respects. Section 2.4 Other Reinsurance. In the event that there is reinsurance provided by Unaffiliated Reinsurers that relates to the Reinsured Contracts or the Reinsured Liabilities, the amount of Reinsurer's liability under this RSLIC Quota Share Reinsurance Agreement will be increased by reason of the inability of Cedent to collect any reinsurance from any such Unaffiliated Reinsurer, whether specific or general, that may have become due from them, whether that inability arises from insolvency or otherwise, except that Reinsurer's liability under this RSLIC Quota Share Reinsurance Agreement will not be increased due to Cedent's inability to collect under the reinsurance contracts listed on SCHEDULE 2.4 hereto. 7 ARTICLE III PREMIUMS AND ALLOWANCES Section 3.1 Cedent's Payment Obligations. Cedent agrees to pay or, if received by RSUI as agent, to cause RSUI in its capacity as Administrator under the RSLIC Administrative Services Agreement to pay, to Reinsurer one hundred percent (100%) of the following amounts which are actually received by Cedent or RSUI in respect of the Reinsured Contracts: (a) premiums and other receivables to the extent they relate to the Reinsured Contracts; (b) litigation and claim recoveries from third parties to the extent they relate to the Reinsured Contracts and/or the Reinsured Liabilities; (c) any and all amounts paid by Reinsurer relating to the Reinsured Contracts which are not Reinsured Liabilities; and (d) any refunds or tax credits actually received by Cedent based upon such taxes and assessments for which Reinsurer has paid to, or on behalf of, Cedent pursuant to Sections 3.2(a)(ii) and 3.2(a)(iii). Section 3.2 Reinsurer's Payment Obligations. Reinsurer agrees to reimburse, or pay on behalf of, Cedent the following: (a) (i) any and all state and local premium, surplus lines, unauthorized insurance or other similar taxes imposed on premiums written, collected or received, as applicable under the law of the applicable jurisdiction, on or after the Effective Date relating to the Reinsured Contracts; (ii) any and all guaranty fund or other residual market assessments incurred by Cedent with respect to premiums relating to the Reinsured Contracts and the Reinsured Liabilities; and (iii) any and all state or local Taxes imposed on Cedent in connection with the performance of the parties' obligations pursuant to any of the Ancillary Agreements, to the extent that such obligations relate to the Reinsured Contracts; (b) producer compensation paid by the Cedent to the extent based on premiums arising from the Reinsured Contracts; (c) any and all amounts actually paid by Cedent, other than by Administrator on Cedent's behalf under the RSLIC Administrative Services Agreement, relating to the Reinsured Contracts which are Reinsured Liabilities; and (d) dividends actually paid to Policyholders by Cedent at the request of Reinsurer. Section 3.3 Reinsurance Administration. 8 (a) Except for catastrophe excess of loss and property per risk excess of loss reinsurance which shall be purchased in the name of Reinsurer and except for the Terrorism Treaty which is purchased by Cedent, Reinsurer shall purchase all other reinsurance relating to the Reinsured Contracts in the name, and for the account, of Cedent. Except as provided in the Terrorism Treaty Allocation Agreement, the cost of all such reinsurance shall be born by Reinsurer. (b) Reinsurer and RSUI, as Administrator under the RSLIC Administrative Services Agreement, shall have the responsibility and authority to take all steps reasonably necessary to administer the third party reinsurance contracts insofar as they relate to the Reinsured Liabilities other than the Terrorism Treaties and the reinsurance contracts listed as Schedule 2.2 hereto. (c) Reinsurer shall have a continuing obligation during the term of this Quota Share Reinsurance Agreement to fund the Bank Accounts (as such term is defined in the RSLIC Administrative Services Agreement) in an amount sufficient to satisfy all Reinsured Liabilities as such liabilities become due. Notwithstanding any other provisions of the RSLIC Quota Share Reinsurance Agreement to the contrary, Cedent shall have no responsibility whatsoever to provide funds to satisfy the Reinsured Liabilities or fund the Bank Accounts. ARTICLE IV CONSIDERATION Section 4.1 Consideration. The consideration to be paid to the Reinsurer for assuming the Reinsured Liabilities under the terms of this RSLIC Quota Share Reinsurance Agreement is set forth in Section 3.1 hereof and Section 1.19 of the Acquisition Agreement. ARTICLE V ACCOUNTING AND REINSURANCE SETTLEMENT Section 5.1 Delivery of Accounting and Settlement Reports. Within thirty (30) days following the end of each calendar month, Reinsurer shall cause RSUI, in its capacity as Administrator for Cedent under the RSLIC Administrative Services Agreement, to provide Cedent and Reinsurer with accounting and settlement reports (including underlying journal entries contemplated by the RSLIC Administrative Services Agreement) substantially in the format set forth in EXHIBIT A. Reinsurer and Cedent shall have the right to change the format of the reports upon thirty (30) days' prior written notice to RSUI; provided, however, that the change shall involve no material additional cost to Cedent. Section 5.2 Report of Allowances. Within thirty (30) days following receipt of the report required to be provided to Cedent and Reinsurer by RSUI under 9 Section 5.1 hereof, RSUI shall provide Cedent and Reinsurer with a report of the allowances set forth in Section 3.2 in a format to be mutually agreed upon by the parties. Section 5.3 Payment of Amounts Indicated in Accounting and Settlement Reports. Simultaneously with RSUI's delivery of the accounting and settlement reports required to be provided under Section 5.1 hereof, Reinsurer shall pay any amounts due to Cedent indicated by such accounting and settlement reports. Cedent shall pay any amount due to Reinsurer on or before the thirtieth (30th) Business Day following its receipt of the accounting and settlement reports required to be provided to Cedent by RSUI under Section 5.1 hereof. Any late payment of an amount required by this RSLIC Quota Share Reinsurance Agreement to be paid or remitted by Cedent to Reinsurer or by Reinsurer to Cedent shall bear simple interest from and including the date such payment is due under this provision until, but excluding, the date of payment, at a rate per annum equal to the 90-Day Treasury Rate. ARTICLE VI REINSURED CONTRACT ADMINISTRATION Section 6.1 Administrative Services. (a) The Reinsured Contracts shall be administered by RSUI pursuant to the terms and conditions of the RSLIC Administrative Services Agreement. Reinsurer acknowledges that RSUI, in acting as Administrator for Cedent under the RSLIC Administrative Services Agreement, is acting on Reinsurer's behalf. Reinsurer further acknowledges that it shall not assert that any action or inaction of RSUI under the RSLIC Administrative Services Agreement as grounds for denying Cedent coverage under this RSLIC Quota Share Reinsurance Agreement or seeking indemnification from Cedent pursuant to Article XI hereof. (b) Notwithstanding any other provision of this RSLIC Quota Share Reinsurance Agreement to the contrary, in no event shall the Cedent have any obligation or liability to the Reinsurer hereunder for any default of its obligations under this RSLIC Quota Share Reinsurance Agreement caused by the failure of the Administrator to perform its obligations under the RSLIC Administrative Services Agreement. ARTICLE VII INSOLVENCY Section 7.1 Insolvency. In the event of the insolvency of Cedent, all reinsurance under this RSLIC Quota Share Reinsurance Agreement shall be payable by Reinsurer on the basis of the liability of Cedent under the Reinsured Contracts without diminution because of the insolvency of Cedent. In the event of insolvency and the appointment of a conservator, liquidator or statutory successor of Cedent, all amounts 10 payable by Reinsurer hereunder to Cedent shall be payable directly to Cedent or to such conservator, liquidator or statutory successor. Section 7.2 Notice of Pendency of Claim. It is understood, however, that in the event of the insolvency of Cedent, the liquidator or receiver or statutory successor of Cedent shall give written notice to Reinsurer of the pendency of a claim against Cedent on the Reinsured Contracts reinsured hereunder within a reasonable time after such claim is filed in the insolvency proceeding and during the pendency of such claim. Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses which it may deem available to Cedent or its liquidator or receiver or statutory successor. It is further understood that the expense thus incurred by Reinsurer shall be chargeable, subject to court approval, against Cedent as part of the expense of liquidation to the extent of a proportionate share of the benefit which may accrue to Cedent as a result of the defense undertaken by Reinsurer. Section 7.3 Notice of Insolvency. If either Cedent or Reinsurer becomes insolvent, such party shall notify the other party of the insolvency within five (5) Business Days thereof. ARTICLE VIII DURATION AND TERMINATION Section 8.1 Effective Date. This RSLIC Quota Share Reinsurance Agreement shall commence on the Effective Date. This RSLIC Quota Share Reinsurance Agreement shall remain in effect until all Reinsured Liabilities have been finally settled or expire unless earlier terminated according to the provisions of Section 8.2. Section 8.2 Termination. (a) This RSLIC Quota Share Reinsurance Agreement may be terminated by a writing stating the effective date of termination: (i) by mutual written agreement of the parties at the time specified in such written agreement; or (ii) at the option of Cedent, upon the issuance of an order of liquidation or rehabilitation against Reinsurer; provided, however, that in the event an order of liquidation or rehabilitation is issued against Reinsurer, before Cedent may terminate this RSLIC Quota Share Reinsurance Agreement, Reinsurer shall have an opportunity to contest or appeal such order for a period of sixty (60) days from the date of issuance. (b) In the event that this RSLIC Quota Share Reinsurance Agreement is terminated under Section 8.2(a)(ii), Reinsurer shall return or cause to be returned, within twenty (20) days by wire transfer of immediately available funds to an account 11 designated by Cedent in writing, all Reinsured Liabilities, evaluated as of the effective date of termination, and assets equal to those Reinsured Liabilities, less any amounts actually allowed to Cedent by Reinsurer as a ceding commission on that portion of the Reinsured Liabilities being returned as unearned premium reserve, and upon payment of such, Reinsurer shall be released of all liability for its Reinsured Liabilities under this RSLIC Quota Share Reinsurance Agreement. ARTICLE IX COLLATERALIZATION Section 9.1 Collateralization. On or prior to the date hereof, Reinsurer shall establish, pursuant to the trust agreement attached hereto as EXHIBIT B (the "Trust Agreement"), a grantor trust of Reinsurer naming Cedent as beneficiary with a Delaware bank that is a member of the Federal Reserve System which is reasonably satisfactory to Cedent (the "Trust Account"). The aggregate amount of assets (consisting of cash and other investment assets permitted by the Trust Agreement) required to be maintained by Reinsurer in the Trust Account in accordance with Section 9.3 hereof shall be, at all times on and after the Closing Date, an amount equal to the sum of (i) Reinsurer's aggregate obligations to Cedent under this RSLIC Quota Share Reinsurance Agreement, net of collectible Reinsurance Recoverables and collectible Net Premium Receivables, plus (ii) at all times Landmark is an Affiliate of RIC, Reinsurer's aggregate obligations under the Landmark Quota Share Reinsurance Agreement, net of collectible Reinsurance Recoverables and collectible Net Premium Receivables (as such terms are defined in such agreement), plus (iii) Reinsurer's aggregate obligations under the RIC Quota Share Reinsurance Agreement, net of collectible Reinsurance Recoverables and collectible Net Premium Receivables (as such terms are defined in such agreement), less (iv) RIC's aggregate obligations to Landmark under the RIC (Landmark) Quota Share Reinsurance Agreement (such amount, the "Required Balance"). Section 9.2 The Trust Account. (a) On the Closing Date, the Trust Account shall be funded as follows: (i) Cedent shall place in the Trust Account cash and/or "Acceptable Investments" (as such term is defined under the Trust Agreement, and together with cash, "Qualifying Assets") in an amount equal to Royal's estimate of the Net Unearned Premium Reserve less the amount of the Aggregate Ceding Commission; provided, however, Cedent shall not be required to place Qualifying Assets into the Trust Account in excess of the amount actually collected in respect of the Net Unearned Premium Reserve by Cedent at or prior to the Closing Date less the amount of the Aggregate Ceding Commission; and provided, further, with respect to premium actually collected by RSUI at or prior to the Closing Date in respect of the Net Unearned Premium Reserve and not paid to Cedent, Cedent shall cause RSUI to place, on the Closing Date, Qualifying Assets in such amount into the Trust Account. 12 (ii) Cedent shall assign to the Trust Account all Premium Receivables net of premium receivables to be ceded to the Unaffiliated Reinsurers with respect to such Reinsured Contracts (the "Net Premium Receivables") in accordance with the Assignment of Net Premium Receivables Agreement attached hereto as EXHIBIT C. Net Premium Receivables which are actually collected shall be referred to herein as the "Collected Net Premium." (iii) Reinsurer shall place in the Trust Account Qualifying Assets in an amount equal to the Aggregate Ceding Commission. (iv) Reinsurer shall assign to the Trust Account all reinsurance recoverables of the Reinsurer relating to the catastrophe excess of loss reinsurance purchased with respect to the Reinsured Contracts (the "Cat Cover Reinsurance Recoverables") in accordance with the Assignment of Reinsurance Recoverables Agreement attached hereto as EXHIBIT D. (b) At any time on and after the Closing Date, until the Trust Agreement is terminated pursuant to the provisions found therein, Cedent and Reinsurer agree to the following: (i) Cedent shall, and Reinsurer shall cause RSUI to place in the Trust Account all Collected Net Premium as soon as practicable upon receipt of the Collected Net Premium, but no later than five (5) Business Days after receipt of such Collected Net Premium. (ii) In the event Cedent reasonably determines that any portion of the Net Premium Receivables is uncollectible, Reinsurer shall place in the Trust Account Qualifying Assets equal to the amount of the Net Premium Receivables which is deemed uncollectible. Net Premium Receivables shall be deemed uncollectible if they become due and owing for 90 days or more. (iii) In the event Cedent reasonably determines that any Reinsurance Recoverables from Unaffiliated Reinsurers relating to the Reinsured Contracts are uncollectible, Reinsurer shall place in the Trust Account Qualifying Assets equal to the amount of Reinsurance Recoverables which are deemed uncollectible, but only to the extent the obligations relate to the Reinsured Liabilities. If such uncollectiblity is due to the creditworthiness of Unaffiliated Reinsurers, Cedent shall make such determination consistent with the treatment of other recoverables from such reinsurers in its own financial statements. (iv) In the event the aggregate fair market value of the assets held in the Trust Account, determined pursuant to the Trust Agreement (the "Market Value"), is below the Required Balance, Reinsurer shall deposit in the Trust Account such additional Qualifying Assets as may be necessary to increase the Market Value of the Trust Account assets to the Required Balance. Section 9.3 Reporting and Payment. 13 (a) The assets held in the Trust Account shall be invested in permissible investments under the investment provisions of the insurance laws of Delaware and New Hampshire and in accordance with the investment guidelines of Reinsurer attached hereto as EXHIBIT E (the "URC Investment Guidelines"). As long as the Trust Agreement remains in force, no amendments to the URC Investment Guidelines shall be made without the express written consent of Cedent, which consent shall not be unreasonably denied or delayed. Reinsurer shall calculate the Required Balance and the Market Value as of the last day of each month and report the amount of the Required Balance and the Market Value, together with supporting detail, to Cedent and the Trustee of the Trust Account (the "Trustee") within fifteen (15) days after the end of such month. The parties hereto shall agree upon mutually satisfactory procedures for the calculation of the Required Balance and the Market Value. (b) No later than five (5) Business Days after Reinsurer's delivery of such report (or within 2 Business Days of agreement or determination of any dispute pursuant to Section 9.3(c)), Reinsurer shall deposit in the Trust Account such additional Qualifying Assets as may be necessary to increase the Market Value of the Trust Account assets to the Required Balance. No later than five (5) Business Days after Cedent's receipt of such report (or within 2 Business Days of agreement or determination of any dispute pursuant to Section 9.3(c)), Cedent shall direct Trustee to pay to Reinsurer any amount by which the aggregate Market Value of the Trust Account assets exceeds the Required Balance. Prior to delivering any assets for deposit in the Trust Account, Reinsurer shall execute assignments or endorsements in blank of all of Reinsurer's right, title and interest in such assets, so that, upon the direction of Cedent, Trustee may negotiate any such assets without consent or signature of Reinsurer or any person or entity. (c) In the event that Cedent disagrees with Reinsurer's calculation of the Required Balance and/or the Market Value other than in respect of incurred but not reported reserves, it shall notify the Reinsurer of such disagreement in writing. If the dispute cannot be agreed between Cedent and Reinsurer within five (5) Business Days of notification, the dispute shall be resolved by the Neutral Auditors in accordance with the provisions of Section 1.10 of the Acquisition Agreement. (d) For the duration of this RSLIC Quota Share Reinsurance Agreement, Reinsurer agrees to deliver to Cedent, in addition to the monthly report described in Section 9.3(a), (i) within thirty (30) days after the end of every calendar quarter, a review prepared by a nationally recognized independent actuarial firm of Reinsurer's loss and expenses reserves supporting Reinsurer's calculations of the Required Balance and the Market Value; and (ii) within sixty (60) days after the end of each calendar year, an opinion issued by a nationally recognized independent actuarial firm, supporting Reinsurer's calculation of the Required Balance and the Market Value. Section 9.4 Withdrawals from Trust Account. (a) Cedent, as beneficiary of the Trust Account, may withdraw assets from the Trust Account at any time and from time to time, notwithstanding any other 14 provisions of this RSLIC Quota Share Reinsurance Agreement or the Trust Agreement, and such assets may be utilized and applied by Cedent, or any successor by operation of law of Cedent, including any liquidator, rehabilitator, receiver of conservator of Cedent, without diminution because of insolvency on the part of Cedent or Reinsurer; provided, however, that Cedent may only withdraw such assets for one or more of the following purposes: (i) to reimburse Cedent for any Reinsured Liabilities paid by Cedent to the extent not paid by Reinsurer when due; (ii) to make payment to Reinsurer of any amounts that exceed the Required Balance; (iii) to pay any other amounts that are due to Cedent to the extent not paid directly to Cedent by Reinsurer when due; or (iv) to secure the Trust Account assets upon any attempt by Reinsurer to terminate the Trust Account without establishing other collateral acceptable to Cedent, other than in accordance of the terms of the Trust. (b) Cedent shall withdraw assets from the Trust to (i) make payment to Reinsurer of any amounts that exceed the Required Balance and (ii) at the request of Reinsurer, to reimburse Cedent for any Reinsured Liabilities paid by Cedent. ARTICLE X DUTY OF COOPERATION Section 10.1 Full Cooperation. The parties hereto shall cooperate in a commercially reasonable manner in order to accomplish the objectives of this RSLIC Quota Share Reinsurance Agreement including, without limitation, making available to each other their respective officers and employees for interviews and meetings with governmental authorities and furnishing any additional assistance, information and documentation as may be reasonably requested by the other party from time to time. Section 10.2 Furnishing of Relevant Information. Upon request, each party hereto shall furnish to the other relevant information concerning the Reinsured Contracts and Reinsured Liabilities, including but not limited to studies used in the determination of reserves and other Reinsured Liabilities, and each shall have the right to review and copy the books and records of the other concerning such Reinsured Contracts and Reinsured Liabilities upon reasonable notice, during normal business hours and at the requesting party's own cost and expense. ARTICLE XI INDEMNIFICATION 15 Section 11.1 Indemnification by Reinsurer. Reinsurer hereby indemnifies Cedent and its Affiliates and its and their respective officers, directors, employees, agents and representatives against and agrees to hold each of them harmless from any and all Damages incurred or suffered by any of them arising out of or relating to (i) the Reinsured Contracts, (ii) the Reinsured Liabilities, (iii) any breach or nonfulfillment by Reinsurer of, or any failure by Reinsurer to perform, any of the terms or conditions of, or any duties or obligations under, this RSLIC Quota Share Reinsurance Agreement, and (iv) any enforcement of this indemnity. Section 11.2 Indemnification by Cedent. Cedent hereby indemnifies Reinsurer and its Affiliates and its and their respective officers, directors, employees, agents and representatives against and agrees to hold each of them harmless from any and all Damages incurred or suffered by any of them arising out of or relating to (i) Excluded Liabilities, (ii) any breach or nonfulfillment by Cedent of, or any failure by Cedent to perform, any of the terms or conditions of, or any duties or obligations under, this RSLIC Quota Share Reinsurance Agreement or the RSLIC Administrative Services Agreement other than breaches or nonfulfillments which result, directly or indirectly, from the failure of the Administrator to perform its obligations under RSLIC Administrative Services Agreement, and (iii) any enforcement of this indemnity; provided, however, notwithstanding anything to the contrary in this Article XI, Cedent shall not be required to indemnify RSUI to the extent RSUI has any indemnification obligation towards Cedent under the other Quota Share Reinsurance Agreements, the Administrative Services Agreement and the Claims Servicing Agreement. ARTICLE XII REINSURANCE CREDIT Section 12.1 Reinsurance Credit. Notwithstanding any other provision of this RSLIC Quota Share Reinsurance Agreement to the contrary, if Reinsurer becomes unauthorized or otherwise unaccredited in any State, the District of Columbia, Canada or any other jurisdiction where authorization or accreditation is required by insurance regulatory authorities in order for Cedent to obtain full credit on its statutory quarterly and annual statements filed with such jurisdiction for the reinsurance being provided under this RSLIC Quota Share Reinsurance Agreement, Reinsurer, upon the request of Cedent, will immediately establish, at its sole cost and option, a Trust Agreement and/or a Qualifying Letter of Credit in an amount necessary to permit Cedent to obtain full credit for such reinsurance in such jurisdiction. Section 12.2 Notification. Reinsurer shall notify Cedent within five (5) Business Days of any loss of license or authorization or other change or condition that may affect the ability of Cedent to obtain full credit for the reinsurance being provided under this RSLIC Quota Share Reinsurance Agreement. 16 ARTICLE XIII ARBITRATION Section 13.1 Arbitration. As a condition precedent to any cause of action, any and all disputes between Cedent and Reinsurer arising out of, relating to, or concerning this RSLIC Quota Share Reinsurance Agreement, whether sounding in contract or tort and whether arising during or after termination of this RSLIC Quota Share Reinsurance Agreement, including whether the dispute is subject to arbitration, shall be submitted to the decision of a board of arbitration composed of two arbitrators and an umpire ("Board") meeting at a site in Wilmington, Delaware. The arbitration shall be conducted under the Federal Arbitration Act and shall proceed as set forth below. Section 13.2 Notice of Arbitration. A notice requesting arbitration, or any other notice made in connection therewith, shall be in writing and shall be sent certified or registered mail, return receipt requested to the affected parties. The notice requesting arbitration shall state in particulars all issues to be resolved in the view of the claimant, shall appoint the arbitrator selected by the claimant and shall set a tentative date for the hearing, which date shall be no sooner than ninety (90) days and no later than one hundred fifty (150) days from the date that the notice requesting arbitration is mailed. Within thirty (30) days of receipt of claimant's notice, the respondent shall notify claimant of any additional issues to be resolved in the arbitration and of the name of its appointed arbitrator. Section 13.3 Arbitration Panel. Unless otherwise mutually agreed, the members of the Board shall be impartial and disinterested and shall be active or former executive officers of property-casualty insurance companies, reinsurance companies, or Lloyd's Underwriters or active or inactive lawyers with at least twenty (20) years of experience in insurance and reinsurance. Cedent and Reinsurer shall each appoint an arbitrator and the two (2) arbitrators shall choose an umpire before instituting the hearing. If the respondent fails to appoint its arbitrator within thirty (30) days after having received claimant's written request for arbitration, the claimant is authorized to and shall appoint the second arbitrator. If the two arbitrators fail to agree upon the appointment of an umpire within thirty (30) days after notification of the appointment of the second arbitrator, within ten (10) days thereof, the two (2) arbitrators shall request the American Arbitration Association ("AAA") to appoint an umpire for the arbitration with the qualifications set forth in this Article. If the AAA fails to name an umpire, either party may apply to the court named below to appoint an umpire with the above required qualifications. The umpire shall promptly notify in writing all parties to the arbitration of his selection and of the scheduled date for the hearing. Upon resignation or death of any member of the Board, a replacement shall be appointed in the same fashion as the resigning or deceased member was appointed. Section 13.4 Submission of Briefs. The claimant and respondent shall each submit initial briefs to the Board outlining the issues in dispute and the basis, authority and reasons for their respective positions within thirty (30) days of the date of notice of appointment of the umpire. The claimant and the respondent may submit reply 17 briefs to the Board within ten (10) days after filing of the initial brief(s). Initial and reply briefs may be amended by the submitting party at any time, but not later than ten (10) days prior to the date of commencement of the arbitration hearing. Reasonable responses shall be allowed at the arbitration hearing to new material contained in any amendments filed to the briefs but not previously responded to. Section 13.5 Arbitration Board's Decision. The Board shall make a decision and award with regard to the terms of this RSLIC Quota Share Reinsurance Agreement and the original intentions of the parties to the extent reasonably ascertainable. The Board's decision and award shall be in writing and shall state the factual and legal basis for the decision and award. The decision and award shall be based upon a hearing in which evidence shall be allowed and which the formal rules of evidence shall not strictly apply but in which cross examination and rebuttal shall be allowed. At its own election or at the request of the Board, either party may submit a post-hearing brief for consideration of the Board within twenty (20) days of the close of the hearing. The Board shall make its decision and award within thirty (30) days following the close of the hearing or the submission of post-hearing briefs, whichever is later, unless the parties consent to an extension. Every decision by the Board shall be by a majority of the members of the Board and each decision and award by the majority of the members of the Board shall be final and binding upon all parties to the proceeding. Section 13.6 Jurisdiction. Either party may apply to the Chancery Court of the State of Delaware for an order compelling arbitration or confirming any decision and the award; a judgment of that Court shall thereupon be entered on any decision or award. If such an order is issued, the attorneys' fees of the party so applying and court costs will be paid by the party against whom confirmation is sought. The Board may award interest calculated from the date the Board determines that any amounts due the prevailing party should have been paid to the prevailing party. Section 13.7 Expenses. Each party shall bear the expense of the one arbitrator appointed by it and shall jointly and equally bear with the other party the expense of any stenographer requested, and of the umpire. Section 13.8 Production of Documents and Witnesses. Subject to customary and recognized legal rules of privilege, each party participating in the arbitration shall have the obligation to produce those documents and as witnesses to the arbitration those of its employees as any other participating party reasonably requests providing always that the same witnesses and documents be obtainable and relevant to the issues before the arbitration and not be unduly burdensome or excessive. The parties may mutually agree as to pre-hearing discovery prior to the arbitration hearing and in the absence of agreement, upon the request of any party, pre-hearing discovery may be conducted as the Board shall determine in its sole discretion to be in the interest of fairness, full disclosure, and a prompt hearing, decision and award by the Board. The Board shall be the final judge of the procedures of the Board, the conduct of the arbitration, of the rules of evidence, the rules of privilege and production and of excessiveness and relevancy of any witnesses and documents upon the petition of any 18 participating party. To the extent permitted by law, the Board shall have the authority to issue subpoenas and other orders to enforce their decisions. Section 13.9 Relief Available. Nothing herein shall be construed to prevent any participating party from applying to the Chancery Court of the State of Delaware to issue a restraining order or other equitable relief to maintain the "status quo" of the parties participating in the arbitration pending the decision and award by the Board or to prevent any party from incurring irreparable harm or damage at any time prior to the decision and award of the Board. The Board shall also have the authority to issue interim decisions or awards in the interest of fairness, full disclosure, and a prompt and orderly hearing and decision and award by the Board. Section 13.10 Consolidation. In the event that there is a dispute between the Cedent and Reinsurer which implicates the provisions of this RSLIC Quota Share Reinsurance Agreement and the RSLIC Administrative Services Agreement, Cedent and Reinsurer hereby agree to consolidate any such dispute under such agreements in a single arbitration proceeding. ARTICLE XIV MISCELLANEOUS PROVISIONS Section 14.1 Amendment, Modification and Waiver. This RSLIC Quota Share Reinsurance Agreement may not be amended, modified or waived except by an instrument or instruments in writing signed and delivered on behalf of each of the parties hereto. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privileged. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. Section 14.2 Entire Agreement. This RSLIC Quota Share Reinsurance Agreement (together with the exhibits hereto and the other agreements, documents and instruments delivered in connection herewith) the Acquisition Agreement, the RSLIC Administrative Services Agreement and the other Ancillary Agreements constitute the entire agreement among the parties with respect to the subject matter hereof and thereof and supersede all other prior agreements and understandings, both written and verbal, among the parties or any of them with respect to the subject matter hereof. Section 14.3 Governing Law. This RSLIC Quota Share Reinsurance Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Section 14.4 Severability. Any term or provision of this RSLIC Quota Share Reinsurance Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability 19 without rendering invalid or unenforceable the remaining terms and provisions of this RSLIC Quota Share Reinsurance Agreement or affecting the validity or enforceability of any of the terms or provisions of this RSLIC Quota Share Reinsurance Agreement in any other jurisdiction. If any provision of this RSLIC Quota Share Reinsurance Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as would be enforceable. Section 14.5 Counterparts. This RSLIC Quota Share Reinsurance Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. Section 14.6 Consent to Jurisdiction. Each of the parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the state and federal courts located in the State of Delaware for the purposes of enforcing this RSLIC Quota Share Agreement or the RSLIC Administrative Services Agreement. If any action is brought in a state court, the parties shall take such actions as are within their control to cause any matter contemplated hereby to be assigned to the Chancery Court of the State of Delaware. In any action, suit or other proceeding, each of the parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claims that it is not subject to the jurisdiction of the above courts, that such action or suit is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper. Each of the parties hereto also agrees that any final and unappealable judgment against a party hereto in connection with any action, suit or other proceeding shall be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States. A certified or exemplified copy of such award or judgment shall be conclusive evidence of the fact and amount of such award or judgment. Section 14.7 Third Party Beneficiaries. Except for the provisions of Article XI, nothing in this RSLIC Quota Share Reinsurance Agreement, express or implied, is intended to or shall confer upon any person, other than the parties hereto any rights, benefits or remedies of any nature whatsoever under or by reason of this RSLIC Quota Share Reinsurance Agreement. Section 14.8 Binding; Assignment. This RSLIC Quota Share Reinsurance Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Neither this RSLIC Quota Share Reinsurance Agreement, nor any rights, interests or obligations hereunder, may be directly or indirectly assigned, delegated, sublicensed or transferred by any party to this RSLIC Quota Share Reinsurance Agreement, in whole or in part, to any other person (including any bankruptcy trustee) by operation of law or otherwise, whether voluntarily or involuntarily, without the prior written consent of the parties hereto. Section 14.9 Specific Performance. The parties recognize and agree that if for any reason any of the provisions of this RSLIC Quota Share Reinsurance Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate and irreparable harm or injury would be caused for which money 20 damages would not be an adequate remedy. Accordingly, each party agrees that, in addition to any other available remedies, each other party shall be entitled to an injunction restraining any violation or threatened violation of any of the provisions of this RSLIC Quota Share Reinsurance Agreement without the necessity of posting a bond or other form of security pending the outcome of any arbitration. In the event that any action should be brought in equity to enforce any of the provisions of this RSLIC Quota Share Reinsurance Agreement, no party will allege, and each party hereby waives the defense, that there is an adequate remedy at law. Section 14.10 Descriptive Headings. The descriptive article and section headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this RSLIC Quota Share Reinsurance Agreement. Section 14.11 Waiver of Doctrine of Utmost Good Faith. Reinsurer absolutely and irrevocably waives resort to the doctrine of "utmost good faith" or any similar doctrine in connection with the formation or performance of this Agreement. Section 14.12 Expenses. Unless otherwise specifically provided herein, all costs and expenses incurred in connection with this RSLIC Quota Share Reinsurance Agreement shall be paid by the party incurring such cost or expense. Section 14.13 Survival. The provisions of Articles XI, XIII and XIV hereof shall survive the termination of this RSLIC Quota Share Reinsurance Agreement. Section 14.14 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by facsimile (which is confirmed), by courier (delivery of which is confirmed), or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties to this RSLIC Quota Share Reinsurance Agreement as follows: If to Cedent: Laura S. Lawrence, Esq. General Counsel Royal Indemnity Company 9300 Arrowpoint Blvd. Charlotte, NC 28273 Telephone No.: (704) 522-2851 Facsimile No.: (704) 522-2313 With a copy to (which shall not constitute notice to Cedent for purposes of this Section 14.14): 21 Robert J. Sullivan, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Telephone No.: 212-735-2930 Facsimile No.: 212-735-2000 If to Reinsurer: Underwriters Reinsurance Company Mr. David E. Leonard Executive Vice President c/o Royal Specialty Underwriting, Inc. 945 East Paces Ferry Road Atlanta, GA 30326 Telephone No.: (404) 231-2366 Facsimile No.: (404) 231-3755 With copies to (which shall not constitute notice to Reinsurer for purposes of this Section 14.14): Robert M. Hart, Esq. General Counsel Alleghany Corporation 375 Park Avenue Suite 3201 New York, New York 10152 Telephone No.: (212) 752-1356 Facsimile No.: (212) 759-8149 and Aileen C. Meehan, Esq. William W. Rosenblatt, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Telephone No.: (212) 259-8000 Facsimile No.: (212) 259-6333 or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. In no event shall the provision of notice pursuant to this Section 14.14 constitute notice for service of any writ, process or summons in any suit, action or other proceeding. Section 14.15 Interpretation. 22 (a) When a reference is made in this RSLIC Quota Share Reinsurance Agreement to a Section or Article, such reference shall be to a section or article of this RSLIC Quota Share Reinsurance Agreement unless otherwise clearly indicated to the contrary. Whenever the words "include", "includes" or "including" are used in this RSLIC Quota Share Reinsurance Agreement, they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this RSLIC Quota Share Reinsurance Agreement as a whole and not to any particular provision of this RSLIC Quota Share Reinsurance Agreement. The meaning assigned to each term used in this RSLIC Quota Share Reinsurance Agreement shall be equally applicable to both the singular and the plural forms of such term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. (b) The parties have participated jointly in the negotiation and drafting of this RSLIC Quota Share Reinsurance Agreement; consequently, in the event an ambiguity or question of intent or interpretation arises, this RSLIC Quota Share Reinsurance Agreement shall be construed as if drafted jointly by the parties thereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this RSLIC Quota Share Reinsurance Agreement. Section 14.16 Construction. This RSLIC Quota Share Reinsurance Agreement is the result of arms-length negotiations between the parties hereto and has been prepared jointly by the parties. In applying and interpreting the provisions of this RSLIC Quota Share Reinsurance Agreement, there shall be no presumptions that this RSLIC Quota Share Reinsurance Agreement was prepared by any one party or that this RSLIC Quota Share Reinsurance Agreement shall be construed in favor of or against any one party. Section 14.17 Territory. This RSLIC Quota Share Reinsurance Agreement applies only to losses arising out of Reinsured Contracts written in the United States of America, its territories and possessions. Section 14.18 Confidentiality. Each party hereto will hold, and will use its reasonable best efforts to cause its Affiliates, and their respective representatives to hold, in strict confidence from any Person (other than any such Affiliates or representatives), except with the prior written consent of the other party or unless (i) compelled to disclose by judicial or administrative process (including without limitation in connection with obtaining the necessary approvals of this Agreement and the transactions contemplated hereby of governmental or regulatory authorities) or by other requirements of Applicable Law or (ii) disclosed in an action or proceeding brought by a party hereto in pursuit of its rights or in the exercise of its remedies hereunder, this RSLIC Quota Share Reinsurance Agreement, the terms and conditions hereof, and all documents and information concerning the other party or any of its Affiliates furnished to it by the other party or such other party's representatives in connection with the transactions contemplated hereby, except to the extent that such documents or information can be shown to have been (a) previously known by the party receiving such 23 documents or information, (b) in the public domain (either prior to or after the furnishing of such documents or information hereunder) through no fault of such receiving party or (c) later acquired by the receiving party from another source if the receiving party is not aware that such source is under an obligation to another party hereto to keep such documents and information confidential. 24 IN WITNESS WHEREOF, Cedent and Reinsurer have caused their names to be subscribed by their respective authorized officers. ROYAL SURPLUS LINES INSURANCE COMPANY By: /s/ Stephen M. Mulready ---------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer UNDERWRITERS REINSURANCE COMPANY By: /s/ James P. Slattery ---------------------------- Name: James P. Slattery Title: President EX-10.7 9 y88779exv10w7.txt CONTENTS TO QUOTA SHARE REINSURANCE AGREEMENT Exhibit 10.7 List of Contents of Exhibits and Schedules to the Royal Surplus Lines Insurance Company Quota Share Reinsurance Agreement Exhibits Description -------- ------------ Exhibit A Form of Accounting and Settlement Reports Exhibit B Form of Trust Agreement Exhibit C Assignment of Net Premium Receivables Exhibit D Assignment of Reinsurance Recoverables Exhibit E URC Investment Guidelines Schedules Description --------- ----------- Schedule 2.1 Terrorism Allocation Methodology Schedule 2.4 Reinsurance Contracts EX-10.8 10 y88779exv10w8.txt QUOTA SHARE REINSURANCE AGREEMENT EXHIBIT 10.8 QUOTA SHARE REINSURANCE AGREEMENT By and Between LANDMARK AMERICAN INSURANCE COMPANY (as Cedent) and UNDERWRITERS REINSURANCE COMPANY (as Reinsurer) DATED: July 1, 2003 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS Section 1.1 Definitions......................................................................... 2 ARTICLE II BASIS OF REINSURANCE Section 2.1 Cession............................................................................. 7 Section 2.2 Basis of Reinsurance................................................................ 7 Section 2.3 Effect of Reinsured Contracts....................................................... 7 Section 2.4 Other Reinsurance................................................................... 7 ARTICLE III PREMIUMS AND ALLOWANCES Section 3.1 Cedent's Payment Obligations........................................................ 8 Section 3.2 Reinsurer's Payment Obligations..................................................... 8 Section 3.3 Reinsurance Administration.......................................................... 9 ARTICLE IV CONSIDERATION Section 4.1 Consideration....................................................................... 9 ARTICLE V ACCOUNTING AND REINSURANCE SETTLEMENT Section 5.1 Delivery of Accounting and Settlement Reports....................................... 9 Section 5.2 Report of Allowances................................................................ 10 Section 5.3 Payment of Amounts Indicated in Accounting and Settlement Reports................... 10 ARTICLE VI REINSURED CONTRACT ADMINISTRATION Section 6.1 Administrative Services............................................................. 10 ARTICLE VII INSOLVENCY Section 7.1 Insolvency.......................................................................... 11 Section 7.2 Notice of Pendency of Claim......................................................... 11 Section 7.3 Notice of Insolvency................................................................ 11 ARTICLE VIII DURATION AND TERMINATION Section 8.1 Effective Date...................................................................... 11 Section 8.2 Termination......................................................................... 11 ARTICLE IX COLLATERALIZATION Section 9.1 Collateralization................................................................... 12 Section 9.2 The Trust Account................................................................... 12 Section 9.3 Reporting and Payment............................................................... 14 Section 9.4 Withdrawals from Trust Account...................................................... 15
ARTICLE X DUTY OF COOPERATION Section 10.1 Full Cooperation.................................................................... 15 Section 10.2 Furnishing of Relevant Information.................................................. 16 ARTICLE XI INDEMNIFICATION Section 11.1 Indemnification by Reinsurer........................................................ 16 Section 11.2 Indemnification by Cedent........................................................... 16 ARTICLE XII REINSURANCE CREDIT Section 12.1 Reinsurance Credit.................................................................. 16 Section 12.2 Notification........................................................................ 17 ARTICLE XIII ARBITRATION Section 13.1 Arbitration......................................................................... 17 Section 13.2 Notice of Arbitration............................................................... 17 Section 13.3 Arbitration Panel................................................................... 17 Section 13.4 Submission of Briefs................................................................ 18 Section 13.5 Arbitration Board's Decision........................................................ 18 Section 13.6 Jurisdiction........................................................................ 18 Section 13.7 Expenses............................................................................ 18 Section 13.8 Production of Documents and Witnesses............................................... 19 Section 13.9 Relief Available.................................................................... 19 Section 13.10 Consolidation....................................................................... 19 ARTICLE XIV MISCELLANEOUS PROVISIONS Section 14.1 Amendment, Modification and Waiver.................................................. 19 Section 14.2 Entire Agreement.................................................................... 19 Section 14.3 Governing Law....................................................................... 20 Section 14.4 Severability........................................................................ 20 Section 14.5 Counterparts........................................................................ 20 Section 14.6 Consent to Jurisdiction............................................................. 20 Section 14.7 Third Party Beneficiaries........................................................... 20 Section 14.8 Binding; Assignment................................................................. 21 Section 14.9 Specific Performance................................................................ 21 Section 14.10 Descriptive Headings................................................................ 21 Section 14.11 Waiver of Doctrine of Utmost Good Faith............................................. 21 Section 14.12 Expenses............................................................................ 21 Section 14.13 Survival............................................................................ 21 Section 14.14 Notices............................................................................. 21 Section 14.15 Interpretation...................................................................... 23 Section 14.16 Construction........................................................................ 23 Section 14.17 Territory........................................................................... 24 Section 14.18 Confidentiality..................................................................... 24
ii EXHIBITS EXHIBIT A Form of Accounting and Settlement Reports EXHIBIT B Form of Trust Agreement EXHIBIT C Assignment of Net Premium Receivables EXHIBIT D Assignment of Reinsurance Recoverables EXHIBIT E URC Investment Guidelines
SCHEDULES Schedule 2.1 Terrorism Allocation Methodology Schedule 2.4 Reinsurance Contracts
iii QUOTA SHARE REINSURANCE AGREEMENT THIS QUOTA SHARE REINSURANCE AGREEMENT (together with all Exhibits hereto, this "Landmark Quota Share Reinsurance Agreement") is made as of the Effective Date (as defined herein), by and between Landmark American Insurance Company, an insurance company organized and existing under the laws of the State of Oklahoma ("Cedent"), and Underwriters Reinsurance Company, a property and casualty insurance company organized under the laws of the State of New Hampshire ("Reinsurer"). WHEREAS, Cedent is a wholly-owned subsidiary of Royal Group, Inc., a Delaware corporation ("Royal"), and Reinsurer is a wholly-owned subsidiary of Alleghany Insurance Holdings LLC, a Delaware limited liability company ("AIHL"); - - WHEREAS, Royal and AIHL have entered into an Acquisition Agreement, dated as of June 6, 2003 (the "Acquisition Agreement"), pursuant to which AIHL will purchase all of the issued and outstanding shares of common stock of Royal Specialty Underwriting, Inc., a Georgia corporation and wholly-owned subsidiary of Royal ("RSUI"), and certain other assets of Royal and its Affiliates, including the renewal rights to insurance contracts underwritten by RSUI; WHEREAS, pursuant to the Assignment and Assumption Agreement dated as of June 30, 2003 (the "Assignment Agreement"), AIHL assigned to RSUI Group, Inc., a Delaware corporation and a wholly-owned subsidiary of AIHL ("RSUI Group"), and RSUI Group assumed from AIHL, all of AIHL's rights and obligations under the Acquisition Agreement; WHEREAS, pursuant to the terms of the Acquisition Agreement and the Assignment Agreement, Royal and RSUI Group have agreed that Royal shall cause Cedent, and RSUI Group shall cause Reinsurer, to enter into this Landmark Quota Share Reinsurance Agreement, pursuant to which Cedent will cede, and Reinsurer will assume, on a 100% quota share basis, the liabilities and obligations arising out of (i) the insurance contracts issued by RSUI, as agent, in Cedent's name with an effective date (new or renewal) on or after the Effective Date; and (ii) the RSUI-Produced Insurance Contracts (as defined below) which are in force on the Effective Date, but only to the extent they arise out of, or relate to, periods on or after the Effective Date; WHEREAS, Cedent wishes to cede to Reinsurer certain liabilities relating to such insurance contracts and Reinsurer desires to assume such liabilities, subject to the terms and conditions of this Landmark Quota Share Reinsurance Agreement; and WHEREAS, RSUI will administer all aspects of the Reinsured Contracts and the Reinsured Liabilities (all as defined below) subject to the terms and conditions of the Landmark Administrative Services Agreement (as defined below). NOW, THEREFORE, for and in consideration of the premises and the promises and the mutual agreements hereinafter set forth and set forth in the Acquisition Agreement and RIC Administrative Services Agreement, the parties hereto, intending to be legally bound, covenant and agree as follows: ARTICLE I DEFINITIONS Section 1.1 Definitions. Capitalized terms used but not defined herein and which are defined in the Acquisition Agreement shall have the meanings ascribed to them in the Acquisition Agreement. As used in this Landmark Quota Share Reinsurance Agreement, the following terms shall have the meanings set forth herein: "AAA" shall have the meaning set forth in Section 13.3. "Acquisition Agreement" shall have the meaning set forth in the recitals. "Affiliate" of any Person means another Person that from time to time, directly or indirectly controls, is controlled by, or is under common control with, such first Person, where "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a Person, whether through the ownership of voting securities, by contract, as trustee or executor, or otherwise. For the purposes of this Landmark Quota Share Reinsurance Agreement, the term "Affiliated" has a meaning correlative to the foregoing. "AIHL" shall have the meaning set forth in the recitals. "Administrative Services Agreements" shall mean the Landmark Administrative Services Agreement, the RIC Administrative Services Agreement, the RSLIC Administrative Services Agreement and the RICA Administrative Services Agreement, collectively. "Aggregate Ceding Commission" shall have the meaning set forth in the Acquisition Agreement. "Ancillary Agreements" means this Landmark Quota Share Reinsurance Agreement and the other agreements identified as Ancillary Agreements in the Acquisition Agreement. "Applicable Law" means any applicable order, law, statute, regulation, rule, ordinance, writ, injunction, directive, judgment, decree, principal of common law, constitution or treaty enacted, promulgated, issued, enforced or entered by any Governmental Entity, including any amendments thereto that may be adopted from time to time. "Assignment Agreement" shall have the meaning set forth in the recitals. 2 "Assignment of Reinsurance Recoverables Agreement" shall have the meaning set forth in the Acquisition Agreement. "Assumed Contracts" shall mean the RSUI-Produced Insurance Contracts which are in-force on the Effective Date, the actual or contingent liabilities and obligations of which are assumed by Reinsurer pursuant to this Landmark Quota Share Reinsurance Agreement, to the extent such liabilities and obligations arise out of, or relate to, periods on and after the Effective Date. "Board" shall have the meaning set forth in Section 13.1. "Business Day" means a Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions in the State of New York are not authorized or obligated by Applicable Law to close. "Cat Cover Reinsurance Recoverables" shall have the meaning set forth in Section 9.2(a)(iv). "Claims Servicing Agreement" shall mean the claims servicing agreement entered into as of the date hereof by and between RSUI, RIC, RSLIC and other insurer Affiliates of Royal. "Closing" means the closing of the transactions contemplated by the Acquisition Agreement. "Closing Date" shall mean the date on which the Closing takes place. "Collected Net Premium" shall have the meaning set forth in Section 9.2(a)(ii). "Damages" means all costs, expenses, fines, penalties, losses, judgments, damages, Reinsured Liabilities and other amounts (including attorneys', actuaries', accountants' and experts' fees and settlement amounts) arising out of any suit, claim or proceeding. "Effective Date" means July 1, 2003. "Excluded Liabilities" means any liability or obligation of Cedent for: (1) Extra Contractual Liabilities and any related attorneys' fees and other expenses incurred by Cedent (i) to the extent caused by acts, errors or omissions by Cedent or any of its officers, employees, agents or representatives that occurred prior to the Effective Date, (ii) to the extent arising in respect of the RSUI-Produced Insurance Contracts other than the Reinsured Contracts, or (iii) as a result of assuming the administration of Excluded Liabilities as provided in Section 5.2 of the Landmark Administrative Services Agreement. 3 (2) any losses and expenses incurred under the RSUI-Produced Insurance Contracts other than the Reinsured Contracts, including any and all loss development relating thereto; and (3) any liability or obligation arising out of or relating to Cedent's failure to follow in all material respects any written recommendation made by the Administrator (as defined in the Landmark Administrative Services Agreement) pursuant to the Landmark Administrative Services Agreement unless by following such recommendation Cedent, in its reasonable judgment, would not comply in all material respects with Applicable Law or the terms of the Reinsured Contracts, in which case all liabilities and obligations arising from changes necessary to conform the conduct contemplated by such recommendation in all material respects to Applicable Law and the terms of the Reinsured Contracts shall be considered Reinsured Liabilities. "Extra Contractual Liabilities" means all liabilities or obligations, other than those arising under the express terms of and within the express limits of the RSUI-Produced Insurance Contracts, whether to policyholders, Governmental Entities or any other Person, which liabilities and obligations shall include, without limitation, any liability for punitive, exemplary, special or any other form of extra-contractual damages relating to the RSUI-Produced Insurance Contracts which arises from any act, error or omission, whether or not intentional, in bad faith or otherwise, including, without limitation, any act, error or omission relating to (i) the investigation, coverage analysis, defense, trial, settlement or handling of claims, benefits, or payments arising out of or relating to the RSUI-Produced Insurance Contracts or (ii) the failure to pay or the delay in payment of benefits, claims or any other amounts due or alleged to be due under or in connection with the RSUI-Produced Insurance Contracts. "Governmental Entity" means any foreign, domestic, federal, territorial, state or local U.S. or non-U.S. governmental authority, quasi-governmental authority, instrumentality, court or government self-regulatory organization, commission, tribunal or organization or any political or other subdivision, department, branch or representative of any of the foregoing. "Landmark" means Landmark American Insurance Company. "Landmark Administrative Services Agreement" means the Landmark Administrative Services Agreement being entered into between Reinsurer and Cedent relative to this Landmark Quota Share Reinsurance Agreement. "Market Value" shall have the meaning set forth in Section 9.2(b). "Net Premium Receivables" shall have the meaning set forth in Section 9.2(a)(ii). "Net Unearned Premium Reserves" shall mean the aggregate amount of all unearned premium reserves, calculated as of the Effective Date, related to all Assumed 4 Contracts, less the unearned premiums to be ceded to Unaffiliated Reinsurers with respect to such Assumed Contracts. "Neutral Auditors" shall have the meaning set forth in the Acquisition Agreement. "90-Day Treasury Rate" means the annual yield rate, as of any given date, of actively traded U.S. Treasury securities having remaining duration to maturity of three months, as such rate is published under "Treasury Constant Maturities" in Federal Reserve Statistical Release H.15(519). "Person" means an individual, corporation, partnership, joint venture, association, limited liability company, trust, unincorporated organization, or other entity. "Policyholder(s)" means, as applicable, the named insureds under, or policyholders with respect to, the Reinsured Contracts or any other person entitled to payment under the Reinsured Contracts. "Premium Receivables" means premium receivables relating to the Reinsured Contracts. "Qualifying Assets" shall have the meaning set forth in Section 9.2(a)(i). "Quota Share Reinsurance Agreements" shall mean this Landmark Quota Share Reinsurance Agreement, the RIC Quota Share Reinsurance Agreement and the RSLIC Quota Share Reinsurance Agreement, collectively. "Reinsurance Recoverables" means all amounts due under reinsurance agreements entered into with Unaffiliated Reinsurers relating to the Reinsured Contracts, including all receivables, recoverables, returns, amounts in respect of profit sharing and all other sums to which Cedent may be entitled under the third party reinsurance agreements except to the extent related to reinsurance recoverables for Excluded Liabilities. "Reinsured Contracts" means (i) for so long as Cedent is an affiliate of RIC, all policies, binders and contracts of insurance written and issued in Cedent's name by or on behalf of RSUI, as agent, with an effective date, new or renewal, on or after the Effective Date; and (ii) Assumed Contracts. "Reinsured Liabilities" means all liabilities and obligations of any nature arising out of or relating to the Reinsured Contracts, including without limitation (i) any loss or allocated loss expense or unearned premium obligation, (ii) Extra Contractual Liabilities and any related attorney fees and other expenses, and (iii) any liabilities and obligations arising out of or relating to a right to purchase additional coverage and obligations arising under legal or regulatory requirements, but excluding Excluded Liabilities. "Required Balance" shall have the meaning set forth in Section 9.1. 5 "RIC" means Royal Indemnity Company. "RIC (Landmark) Quota Share Reinsurance Agreement" means the RIC (Landmark) Quota Share Reinsurance Agreement being entered into between Landmark, as cedent, and RIC, as reinsurer, subsequent to the date hereof. "RIC Quota Share Reinsurance Agreement" means the Quota Share Reinsurance Agreement being entered into between Royal Indemnity Company, as cedent, and Underwriters Reinsurance Company, as reinsurer, effective July 1, 2003. "RICA" means Royal Insurance Company of America, an Illinois company. "Royal" shall have the meaning set forth in the recitals. "Royal Intercompany Reinsurance Pooling Agreement" means the Royal Insurance 1989 Reinsurance Pooling Agreement, as amended, made by and among American and Foreign Insurance Company, Globe Indemnity Company, Royal Indemnity Company, Royal Insurance Company of America, Safeguard Insurance Company, Security Insurance Company of Hartford, Employee Benefits Insurance Company, Design Professionals Insurance Company, The Connecticut Indemnity Company, The Fire and Casualty Insurance Company of Connecticut, EBI Indemnity Company, Guaranty National Insurance Company, Phoenix Assurance Company of New York, The Sea Insurance Company of America and Viking Insurance Company of Wisconsin. "RSLIC" means Royal Surplus Lines Insurance Company. "RSLIC Quota Share Reinsurance Agreement" means the Quota Share Reinsurance Agreement being entered into between Royal Surplus Lines Insurance Company, as cedent, and Underwriters Reinsurance Company, as reinsurer, effective July 1, 2003. "RSUI Group" shall have the meaning set forth in the recitals. "RSUI-Produced Insurance Contracts" shall mean all policies, binders and contracts of insurance (both direct and assumed) underwritten by RSUI and issued by a Royal Insurer Affiliate (as such term is defined in the Acquisition Agreement). "Tax" or "Taxes" means all federal, state, county, local, municipal, foreign and other taxes, assessments, duties or similar charges of any kind whatsoever, including all corporate franchise, income, gross receipts, occupation, windfall profits, sales, use, ad valorem, value-added, profits, license, withholding, payroll, employment, excise, insurance premium, real property, personal property, customs, net worth, capital gains, transfer, stamp, documentary, social security, disability, environmental, alternative minimum, estimated, recapture and other taxes, and including all interest, penalties and additions imposed with respect thereto. 6 "Terrorism Loss Allocation Methodology" shall have the meaning set forth in Section 2.1. "Terrorism Treaty" shall have the meaning set forth in the Acquisition Agreement "Trust Account" shall have the meaning set forth in Section 9.1. "Trust Agreement" shall have the meaning set forth in Section 9.1. "Trustee" shall have the meaning set forth in Section 9.3(a). "Unaffiliated Reinsurers" shall mean reinsurers unaffiliated with Cedent other than Reinsurer under this Landmark Quota Share Reinsurance Agreement. "URC Investment Guidelines" shall have the meaning set forth in Section 9.3(a). ARTICLE II BASIS OF REINSURANCE Section 2.1 Cession. As of the Effective Date, Cedent hereby cedes to Reinsurer, and Reinsurer hereby accepts and agrees to reinsure and indemnify Cedent for, one hundred percent (100%) of all Reinsured Liabilities, net of (i) collectible reinsurance from Unaffiliated Reinsurers and (ii) collectible allocated reinsurance recoveries under the Terrorism Treaties as allocated pursuant to the loss allocation methodology set forth on SCHEDULE 2.1 (the "Terrorism Loss Allocation Methodology"). The Reinsurer shall follow in all respects the fortunes of the Cedent with respect to the Reinsured Contracts and the Reinsured Liabilities being assumed by the Reinsurer under this Landmark Quota Share Reinsurance Agreement. Section 2.2 Basis of Reinsurance. The reinsurance provided by this Landmark Quota Share Reinsurance Agreement applies prior to any cession and retrocession by Cedent of pool liabilities to the other parties to the Royal Intercompany Reinsurance Pooling Agreement. Section 2.3 Effect of Reinsured Contracts. Except as otherwise set forth in this Landmark Quota Share Reinsurance Agreement, the reinsurance provided under this Landmark Quota Share Reinsurance Agreement shall be subject to the same clauses, terms, limits, conditions, endorsements, modifications, and waivers of or affecting the Reinsured Contracts, it being the intent of the parties that Reinsurer shall follow the fortunes and settlements made by or on behalf of the Cedent in all respects. Section 2.4 Other Reinsurance. In the event that there is reinsurance provided by Unaffiliated Reinsurers that relates to the Reinsured Contracts or the Reinsured Liabilities, the amount of Reinsurer's liability under this Landmark Quota 7 Share Reinsurance Agreement will be increased by reason of the inability of Cedent to collect any reinsurance from any such Unaffiliated Reinsurer, whether specific or general, that may have become due from them, whether that inability arises from insolvency or otherwise, except that Reinsurer's liability under this Landmark Quota Share Reinsurance Agreement will not be increased due to Cedent's inability to collect under the reinsurance contracts listed on SCHEDULE 2.4 hereto. ARTICLE III PREMIUMS AND ALLOWANCES Section 3.1 Cedent's Payment Obligations. Cedent agrees to pay or, if received by RSUI as agent, to cause RSUI in its capacity as Administrator under the Landmark Administrative Services Agreement to pay, to Reinsurer one hundred percent (100%) of the following amounts which are actually received by Cedent or RSUI in respect of the Reinsured Contracts: (a) premiums and other receivables to the extent they relate to the Reinsured Contracts; (b) litigation and claim recoveries from third parties to the extent they relate to the Reinsured Contracts and/or the Reinsured Liabilities; (c) any and all amounts paid by Reinsurer relating to the Reinsured Contracts which are not Reinsured Liabilities; and (d) any refunds or tax credits actually received by Cedent based upon such taxes and assessments for which Reinsurer has paid to, or on behalf of, Cedent pursuant to Sections 3.2(a)(ii) and 3.2(a)(iii). Section 3.2 Reinsurer's Payment Obligations. Reinsurer agrees to reimburse, or pay on behalf of, Cedent the following: (a) (i) any and all state and local premium, surplus lines, unauthorized insurance or other similar taxes imposed on premiums written, collected or received, as applicable under the law of the applicable jurisdiction, on or after the Effective Date relating to the Reinsured Contracts; (ii) any and all guaranty fund or other residual market assessments incurred by Cedent with respect to premiums relating to the Reinsured Contracts and the Reinsured Liabilities; and (iii) any and all state or local Taxes imposed on Cedent in connection with the performance of the parties' obligations pursuant to any of the Ancillary Agreements, to the extent that such obligations relate to the Reinsured Contracts; (b) producer compensation paid by the Cedent to the extent based on premiums arising from the Reinsured Contracts; 8 (c) any and all amounts actually paid by Cedent, other than by Administrator on Cedent's behalf under the Landmark Administrative Services Agreement, relating to the Reinsured Contracts which are Reinsured Liabilities; and (d) dividends actually paid to Policyholders by Cedent at the request of Reinsurer. Section 3.3 Reinsurance Administration. (a) Except for catastrophe excess of loss and property per risk excess of loss reinsurance which shall be purchased in the name of Reinsurer and except for the Terrorism Treaty which is purchased by Cedent, Reinsurer shall purchase all other reinsurance relating to the Reinsured Contracts in the name, and for the account, of Cedent. Except as provided in the Terrorism Treaty Allocation Agreement, the cost of all such reinsurance shall be born by Reinsurer. (b) Reinsurer and RSUI, as Administrator under the Landmark Administrative Services Agreement, shall have the responsibility and authority to take all steps reasonably necessary to administer the third party reinsurance contracts insofar as they relate to the Reinsured Liabilities other than the Terrorism Treaties and the reinsurance contracts listed as Schedule 2.2 hereto. (c) Reinsurer shall have a continuing obligation during the term of this Quota Share Reinsurance Agreement to fund the Bank Accounts (as such term is defined in the Landmark Administrative Services Agreement) in an amount sufficient to satisfy all Reinsured Liabilities as such liabilities become due. Notwithstanding any other provisions of the Landmark Quota Share Reinsurance Agreement to the contrary, Cedent shall have no responsibility whatsoever to provide funds to satisfy the Reinsured Liabilities or fund the Bank Accounts. ARTICLE IV CONSIDERATION Section 4.1 Consideration. The consideration to be paid to the Reinsurer for assuming the Reinsured Liabilities under the terms of this Landmark Quota Share Reinsurance Agreement is set forth in Section 3.1 hereof and Section 1.19 of the Acquisition Agreement. ARTICLE V ACCOUNTING AND REINSURANCE SETTLEMENT Section 5.1 Delivery of Accounting and Settlement Reports. Within thirty (30) days following the end of each calendar month, Reinsurer shall cause RSUI, in its capacity as Administrator for Cedent under the Landmark Administrative Services 9 Agreement, to provide Cedent and Reinsurer with accounting and settlement reports (including underlying journal entries contemplated by the Landmark Administrative Services Agreement) substantially in the format set forth in EXHIBIT A. Reinsurer and Cedent shall have the right to change the format of the reports upon thirty (30) days' prior written notice to RSUI; provided, however, that the change shall involve no material additional cost to Cedent. Section 5.2 Report of Allowances. Within thirty (30) days following receipt of the report required to be provided to Cedent and Reinsurer by RSUI under Section 5.1 hereof, RSUI shall provide Cedent and Reinsurer with a report of the allowances set forth in Section 3.2 in a format to be mutually agreed upon by the parties. Section 5.3 Payment of Amounts Indicated in Accounting and Settlement Reports. Simultaneously with RSUI 's delivery of the accounting and settlement reports required to be provided under Section 5.1 hereof, Reinsurer shall pay any amounts due to Cedent indicated by such accounting and settlement reports. Cedent shall pay any amount due to Reinsurer on or before the thirtieth (30th) Business Day following its receipt of the accounting and settlement reports required to be provided to Cedent by RSUI under Section 5.1 hereof. Any late payment of an amount required by this Landmark Quota Share Reinsurance Agreement to be paid or remitted by Cedent to Reinsurer or by Reinsurer to Cedent shall bear simple interest from and including the date such payment is due under this provision until, but excluding, the date of payment, at a rate per annum equal to the 90-Day Treasury Rate. ARTICLE VI REINSURED CONTRACT ADMINISTRATION Section 6.1 Administrative Services. (a) The Reinsured Contracts shall be administered by RSUI pursuant to the terms and conditions of the Landmark Administrative Services Agreement. Reinsurer acknowledges that RSUI, in acting as Administrator for Cedent under the Landmark Administrative Services Agreement, is acting on Reinsurer's behalf. Reinsurer further acknowledges that it shall not assert that any action or inaction of RSUI under the Landmark Administrative Services Agreement as grounds for denying Cedent coverage under this Landmark Quota Share Reinsurance Agreement or seeking indemnification from Cedent pursuant to Article XI hereof. (b) Notwithstanding any other provision of this Landmark Quota Share Reinsurance Agreement to the contrary, in no event shall the Cedent have any obligation or liability to the Reinsurer hereunder for any default of its obligations under this Landmark Quota Share Reinsurance Agreement caused by the failure of the Administrator to perform its obligations under the Landmark Administrative Services Agreement. 10 ARTICLE VII INSOLVENCY Section 7.1 Insolvency. In the event of the insolvency of Cedent, all reinsurance under this Landmark Quota Share Reinsurance Agreement shall be payable by Reinsurer on the basis of the liability of Cedent under the Reinsured Contracts without diminution because of the insolvency of Cedent. In the event of insolvency and the appointment of a conservator, liquidator or statutory successor of Cedent, all amounts payable by Reinsurer hereunder to Cedent shall be payable directly to Cedent or to such conservator, liquidator or statutory successor. Section 7.2 Notice of Pendency of Claim. It is understood, however, that in the event of the insolvency of Cedent, the liquidator or receiver or statutory successor of Cedent shall give written notice to Reinsurer of the pendency of a claim against Cedent on the Reinsured Contracts reinsured hereunder within a reasonable time after such claim is filed in the insolvency proceeding and during the pendency of such claim. Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses which it may deem available to Cedent or its liquidator or receiver or statutory successor. It is further understood that the expense thus incurred by Reinsurer shall be chargeable, subject to court approval, against Cedent as part of the expense of liquidation to the extent of a proportionate share of the benefit which may accrue to Cedent as a result of the defense undertaken by Reinsurer. Section 7.3 Notice of Insolvency. If either Cedent or Reinsurer becomes insolvent, such party shall notify the other party of the insolvency within five (5) Business Days thereof. ARTICLE VIII DURATION AND TERMINATION Section 8.1 Effective Date. This Landmark Quota Share Reinsurance Agreement shall commence on the Effective Date. This Landmark Quota Share Reinsurance Agreement shall remain in effect until all Reinsured Liabilities have been finally settled or expire unless earlier terminated according to the provisions of Section 8.2. Section 8.2 Termination. (a) This Landmark Quota Share Reinsurance Agreement may be terminated by a writing stating the effective date of termination: (i) by mutual written agreement of the parties at the time specified in such written agreement; or 11 (ii) at the option of Cedent, upon the issuance of an order of liquidation or rehabilitation against Reinsurer; provided, however, that in the event an order of liquidation or rehabilitation is issued against Reinsurer, before Cedent may terminate this Landmark Quota Share Reinsurance Agreement, Reinsurer shall have an opportunity to contest or appeal such order for a period of sixty (60) days from the date of issuance. (b) In the event that this Landmark Quota Share Reinsurance Agreement is terminated under Section 8.2(a)(ii), Reinsurer shall return or cause to be returned, within twenty (20) days by wire transfer of immediately available funds to an account designated by Cedent in writing, all Reinsured Liabilities, evaluated as of the effective date of termination, and assets equal to those Reinsured Liabilities, less any amounts actually allowed to Cedent by Reinsurer as a ceding commission on that portion of the Reinsured Liabilities being returned as unearned premium reserve, and upon payment of such, Reinsurer shall be released of all liability for its Reinsured Liabilities under this Landmark Quota Share Reinsurance Agreement. ARTICLE IX COLLATERALIZATION Section 9.1 Collateralization. On or prior to the date hereof, Reinsurer shall establish, pursuant to the trust agreement attached hereto as EXHIBIT B (the "Trust Agreement"), a grantor trust of Reinsurer naming Cedent as beneficiary with a Delaware bank that is a member of the Federal Reserve System which is reasonably satisfactory to Cedent (the "Trust Account"). The aggregate amount of assets (consisting of cash and other investment assets permitted by the Trust Agreement) required to be maintained by Reinsurer in the Trust Account in accordance with Section 9.3 hereof shall be, at all times on and after the Closing Date, an amount equal to the sum of (i) at all times Cedent is an Affiliate of RIC, Reinsurer's aggregate obligations to Cedent under this Landmark Quota Share Reinsurance Agreement, net of collectible Reinsurance Recoverables and collectible Net Premium Receivables, plus (ii) Reinsurer's aggregate obligations under the RIC Quota Share Reinsurance Agreement, net of collectible Reinsurance Recoverables and collectible Net Premium Receivables (as such terms are defined in such agreement), plus (iii) Reinsurer's aggregate obligations under the RSLIC Quota Share Reinsurance Agreement, net of collectible Reinsurance Recoverables and collectible Net Premium Receivables (as such terms are defined in such agreement), less (iv) RIC's aggregate obligations to Cedent under the RIC (Landmark) Quota Share Reinsurance Agreement (such amount, the "Required Balance"). Section 9.2 The Trust Account. (a) On the Closing Date, the Trust Account shall be funded as follows: (i) Cedent shall place in the Trust Account cash and/or "Acceptable Investments" (as such term is defined under the Trust Agreement, 12 and together with cash, "Qualifying Assets") in an amount equal to Royal's estimate of the Net Unearned Premium Reserve less the amount of the Aggregate Ceding Commission; provided, however, Cedent shall not be required to place Qualifying Assets into the Trust Account in excess of the amount actually collected in respect of the Net Unearned Premium Reserve by Cedent at or prior to the Closing Date less the amount of the Aggregate Ceding Commission; and provided, further, with respect to premium actually collected by RSUI at or prior to the Closing Date in respect of the Net Unearned Premium Reserve and not paid to Cedent, Cedent shall cause RSUI to place, on the Closing Date, Qualifying Assets in such amount into the Trust Account. (ii) Cedent shall assign to the Trust Account all Premium Receivables net of premium receivables to be ceded to the Unaffiliated Reinsurers with respect to such Reinsured Contracts (the "Net Premium Receivables") in accordance with the Assignment of Net Premium Receivables Agreement attached hereto as EXHIBIT C. Net Premium Receivables which are actually collected shall be referred to herein as the "Collected Net Premium." (iii) Reinsurer shall place in the Trust Account Qualifying Assets in an amount equal to the Aggregate Ceding Commission. (iv) Reinsurer shall assign to the Trust Account all reinsurance recoverables of the Reinsurer relating to the catastrophe excess of loss reinsurance purchased with respect to the Reinsured Contracts (the "Cat Cover Reinsurance Recoverables") in accordance with the Assignment of Reinsurance Recoverables Agreement attached hereto as EXHIBIT D. (b) At any time on and after the Closing Date, until the Trust Agreement is terminated pursuant to the provisions found therein, Cedent and Reinsurer agree to the following: (i) Cedent shall, and Reinsurer shall cause RSUI to place in the Trust Account all Collected Net Premium as soon as practicable upon receipt of the Collected Net Premium, but no later than five (5) Business Days after receipt of such Collected Net Premium. (ii) In the event Cedent reasonably determines that any portion of the Net Premium Receivables is uncollectible, Reinsurer shall place in the Trust Account Qualifying Assets equal to the amount of the Net Premium Receivables which is deemed uncollectible. Net Premium Receivables shall be deemed uncollectible if they become due and owing for 90 days or more. (iii) In the event Cedent reasonably determines that any Reinsurance Recoverables from Unaffiliated Reinsurers relating to the Reinsured Contracts are uncollectible, Reinsurer shall place in the Trust Account Qualifying Assets equal to the amount of Reinsurance Recoverables which are deemed uncollectible, but only to the extent the obligations relate to the Reinsured 13 Liabilities. If such uncollectiblity is due to the creditworthiness of Unaffiliated Reinsurers, Cedent shall make such determination consistent with the treatment of other recoverables from such reinsurers in its own financial statements. (iv) In the event the aggregate fair market value of the assets held in the Trust Account, determined pursuant to the Trust Agreement (the "Market Value"), is below the Required Balance, Reinsurer shall deposit in the Trust Account such additional Qualifying Assets as may be necessary to increase the Market Value of the Trust Account assets to the Required Balance. Section 9.3 Reporting and Payment. (a) The assets held in the Trust Account shall be invested in permissible investments under the investment provisions of the insurance laws of Delaware and New Hampshire and in accordance with the investment guidelines of Reinsurer attached hereto as EXHIBIT E (the "URC Investment Guidelines"). As long as the Trust Agreement remains in force, no amendments to the URC Investment Guidelines shall be made without the express written consent of Cedent, which consent shall not be unreasonably denied or delayed. Reinsurer shall calculate the Required Balance and the Market Value as of the last day of each month and report the amount of the Required Balance and the Market Value, together with supporting detail, to Cedent and the Trustee of the Trust Account (the "Trustee") within fifteen (15) days after the end of such month. The parties hereto shall agree upon mutually satisfactory procedures for the calculation of the Required Balance and the Market Value. (b) No later than five (5) Business Days after Reinsurer's delivery of such report (or within 2 Business Days of agreement or determination of any dispute pursuant to Section 9.3(c)), Reinsurer shall deposit in the Trust Account such additional Qualifying Assets as may be necessary to increase the Market Value of the Trust Account assets to the Required Balance. No later than five (5) Business Days after Cedent's receipt of such report (or within 2 Business Days of agreement or determination of any dispute pursuant to Section 9.3(c)), Cedent shall direct Trustee to pay to Reinsurer any amount by which the aggregate Market Value of the Trust Account assets exceeds the Required Balance. Prior to delivering any assets for deposit in the Trust Account, Reinsurer shall execute assignments or endorsements in blank of all of Reinsurer's right, title and interest in such assets, so that, upon the direction of Cedent, Trustee may negotiate any such assets without consent or signature of Reinsurer or any person or entity. (c) In the event that Cedent disagrees with Reinsurer's calculation of the Required Balance and/or the Market Value other than in respect of incurred but not reported reserves, it shall notify the Reinsurer of such disagreement in writing. If the dispute cannot be agreed between Cedent and Reinsurer within five (5) Business Days of notification, the dispute shall be resolved by the Neutral Auditors in accordance with the provisions of Section 1.10 of the Acquisition Agreement. 14 (d) For the duration of this Landmark Quota Share Reinsurance Agreement, Reinsurer agrees to deliver to Cedent, in addition to the monthly report described in Section 9.3(a), (i) within thirty (30) days after the end of every calendar quarter, a review prepared by a nationally recognized independent actuarial firm of Reinsurer's loss and expenses reserves supporting Reinsurer's calculations of the Required Balance and the Market Value; and (ii) within sixty (60) days after the end of each calendar year, an opinion issued by a nationally recognized independent actuarial firm, supporting Reinsurer's calculation of the Required Balance and the Market Value. Section 9.4 Withdrawals from Trust Account. (a) Cedent, as beneficiary of the Trust Account, may withdraw assets from the Trust Account at any time and from time to time, notwithstanding any other provisions of this Landmark Quota Share Reinsurance Agreement or the Trust Agreement, and such assets may be utilized and applied by Cedent, or any successor by operation of law of Cedent, including any liquidator, rehabilitator, receiver of conservator of Cedent, without diminution because of insolvency on the part of Cedent or Reinsurer; provided, however, that Cedent may only withdraw such assets for one or more of the following purposes: (i) to reimburse Cedent for any Reinsured Liabilities paid by Cedent to the extent not paid by Reinsurer when due; (ii) to make payment to Reinsurer of any amounts that exceed the Required Balance; (iii) to pay any other amounts that are due to Cedent to the extent not paid directly to Cedent by Reinsurer when due; or (iv) to secure the Trust Account assets upon any attempt by Reinsurer to terminate the Trust Account without establishing other collateral acceptable to Cedent, other than in accordance of the terms of the Trust. (b) Cedent shall withdraw assets from the Trust to (i) make payment to Reinsurer of any amounts that exceed the Required Balance and (ii) at the request of Reinsurer, to reimburse Cedent for any Reinsured Liabilities paid by Cedent. ARTICLE X DUTY OF COOPERATION Section 10.1 Full Cooperation. The parties hereto shall cooperate in a commercially reasonable manner in order to accomplish the objectives of this Landmark Quota Share Reinsurance Agreement including, without limitation, making available to each other their respective officers and employees for interviews and meetings with governmental authorities and furnishing any additional assistance, information and documentation as may be reasonably requested by the other party from time to time. 15 Section 10.2 Furnishing of Relevant Information. Upon request, each party hereto shall furnish to the other relevant information concerning the Reinsured Contracts and Reinsured Liabilities, including but not limited to studies used in the determination of reserves and other Reinsured Liabilities, and each shall have the right to review and copy the books and records of the other concerning such Reinsured Contracts and Reinsured Liabilities upon reasonable notice, during normal business hours and at the requesting party's own cost and expense. ARTICLE XI INDEMNIFICATION Section 11.1 Indemnification by Reinsurer. Reinsurer hereby indemnifies Cedent and its Affiliates and its and their respective officers, directors, employees, agents and representatives against and agrees to hold each of them harmless from any and all Damages incurred or suffered by any of them arising out of or relating to (i) the Reinsured Contracts, (ii) the Reinsured Liabilities, (iii) any breach or nonfulfillment by Reinsurer of, or any failure by Reinsurer to perform, any of the terms or conditions of, or any duties or obligations under, this Landmark Quota Share Reinsurance Agreement, and (iv) any enforcement of this indemnity. Section 11.2 Indemnification by Cedent. Cedent hereby indemnifies Reinsurer and its Affiliates and its and their respective officers, directors, employees, agents and representatives against and agrees to hold each of them harmless from any and all Damages incurred or suffered by any of them arising out of or relating to (i) Excluded Liabilities, (ii) any breach or nonfulfillment by Cedent of, or any failure by Cedent to perform, any of the terms or conditions of, or any duties or obligations under, this Landmark Quota Share Reinsurance Agreement or the Landmark Administrative Services Agreement other than breaches or nonfulfillments which result, directly or indirectly, from the failure of the Administrator to perform its obligations under Landmark Administrative Services Agreement, and (iii) any enforcement of this indemnity; provided, however, notwithstanding anything to the contrary in this Article XI, Cedent shall not be required to indemnify RSUI to the extent RSUI has any indemnification obligation towards Cedent under the other Quota Share Reinsurance Agreements, the Administrative Services Agreement and the Claims Servicing Agreement. ARTICLE XII REINSURANCE CREDIT Section 12.1 Reinsurance Credit. Notwithstanding any other provision of this Landmark Quota Share Reinsurance Agreement to the contrary, if Reinsurer becomes unauthorized or otherwise unaccredited in any State, the District of Columbia, Canada or any other jurisdiction where authorization or accreditation is required by 16 insurance regulatory authorities in order for Cedent to obtain full credit on its statutory quarterly and annual statements filed with such jurisdiction for the reinsurance being provided under this Landmark Quota Share Reinsurance Agreement, Reinsurer, upon the request of Cedent, will immediately establish, at its sole cost and option, a Trust Agreement and/or a Qualifying Letter of Credit in an amount necessary to permit Cedent to obtain full credit for such reinsurance in such jurisdiction. Section 12.2 Notification. Reinsurer shall notify Cedent within five (5) Business Days of any loss of license or authorization or other change or condition that may affect the ability of Cedent to obtain full credit for the reinsurance being provided under this Landmark Quota Share Reinsurance Agreement. ARTICLE XIII ARBITRATION Section 13.1 Arbitration. As a condition precedent to any cause of action, any and all disputes between Cedent and Reinsurer arising out of, relating to, or concerning this Landmark Quota Share Reinsurance Agreement, whether sounding in contract or tort and whether arising during or after termination of this Landmark Quota Share Reinsurance Agreement, including whether the dispute is subject to arbitration, shall be submitted to the decision of a board of arbitration composed of two arbitrators and an umpire ("Board") meeting at a site in Wilmington, Delaware. The arbitration shall be conducted under the Federal Arbitration Act and shall proceed as set forth below. Section 13.2 Notice of Arbitration. A notice requesting arbitration, or any other notice made in connection therewith, shall be in writing and shall be sent certified or registered mail, return receipt requested to the affected parties. The notice requesting arbitration shall state in particulars all issues to be resolved in the view of the claimant, shall appoint the arbitrator selected by the claimant and shall set a tentative date for the hearing, which date shall be no sooner than ninety (90) days and no later than one hundred fifty (150) days from the date that the notice requesting arbitration is mailed. Within thirty (30) days of receipt of claimant's notice, the respondent shall notify claimant of any additional issues to be resolved in the arbitration and of the name of its appointed arbitrator. Section 13.3 Arbitration Panel. Unless otherwise mutually agreed, the members of the Board shall be impartial and disinterested and shall be active or former executive officers of property-casualty insurance companies, reinsurance companies, or Lloyd's Underwriters or active or inactive lawyers with at least twenty (20) years of experience in insurance and reinsurance. Cedent and Reinsurer shall each appoint an arbitrator and the two (2) arbitrators shall choose an umpire before instituting the hearing. If the respondent fails to appoint its arbitrator within thirty (30) days after having received claimant's written request for arbitration, the claimant is authorized to and shall appoint the second arbitrator. If the two arbitrators fail to agree upon the appointment of an umpire within thirty (30) days after notification of the appointment of the second 17 arbitrator, within ten (10) days thereof, the two (2) arbitrators shall request the American Arbitration Association ("AAA") to appoint an umpire for the arbitration with the qualifications set forth in this Article. If the AAA fails to name an umpire, either party may apply to the court named below to appoint an umpire with the above required qualifications. The umpire shall promptly notify in writing all parties to the arbitration of his selection and of the scheduled date for the hearing. Upon resignation or death of any member of the Board, a replacement shall be appointed in the same fashion as the resigning or deceased member was appointed. Section 13.4 Submission of Briefs. The claimant and respondent shall each submit initial briefs to the Board outlining the issues in dispute and the basis, authority and reasons for their respective positions within thirty (30) days of the date of notice of appointment of the umpire. The claimant and the respondent may submit reply briefs to the Board within ten (10) days after filing of the initial brief(s). Initial and reply briefs may be amended by the submitting party at any time, but not later than ten (10) days prior to the date of commencement of the arbitration hearing. Reasonable responses shall be allowed at the arbitration hearing to new material contained in any amendments filed to the briefs but not previously responded to. Section 13.5 Arbitration Board's Decision. The Board shall make a decision and award with regard to the terms of this Landmark Quota Share Reinsurance Agreement and the original intentions of the parties to the extent reasonably ascertainable. The Board's decision and award shall be in writing and shall state the factual and legal basis for the decision and award. The decision and award shall be based upon a hearing in which evidence shall be allowed and which the formal rules of evidence shall not strictly apply but in which cross examination and rebuttal shall be allowed. At its own election or at the request of the Board, either party may submit a post-hearing brief for consideration of the Board within twenty (20) days of the close of the hearing. The Board shall make its decision and award within thirty (30) days following the close of the hearing or the submission of post-hearing briefs, whichever is later, unless the parties consent to an extension. Every decision by the Board shall be by a majority of the members of the Board and each decision and award by the majority of the members of the Board shall be final and binding upon all parties to the proceeding. Section 13.6 Jurisdiction. Either party may apply to the Chancery Court of the State of Delaware for an order compelling arbitration or confirming any decision and the award; a judgment of that Court shall thereupon be entered on any decision or award. If such an order is issued, the attorneys' fees of the party so applying and court costs will be paid by the party against whom confirmation is sought. The Board may award interest calculated from the date the Board determines that any amounts due the prevailing party should have been paid to the prevailing party. Section 13.7 Expenses. Each party shall bear the expense of the one arbitrator appointed by it and shall jointly and equally bear with the other party the expense of any stenographer requested, and of the umpire. 18 Section 13.8 Production of Documents and Witnesses. Subject to customary and recognized legal rules of privilege, each party participating in the arbitration shall have the obligation to produce those documents and as witnesses to the arbitration those of its employees as any other participating party reasonably requests providing always that the same witnesses and documents be obtainable and relevant to the issues before the arbitration and not be unduly burdensome or excessive. The parties may mutually agree as to pre-hearing discovery prior to the arbitration hearing and in the absence of agreement, upon the request of any party, pre-hearing discovery may be conducted as the Board shall determine in its sole discretion to be in the interest of fairness, full disclosure, and a prompt hearing, decision and award by the Board. The Board shall be the final judge of the procedures of the Board, the conduct of the arbitration, of the rules of evidence, the rules of privilege and production and of excessiveness and relevancy of any witnesses and documents upon the petition of any participating party. To the extent permitted by law, the Board shall have the authority to issue subpoenas and other orders to enforce their decisions. Section 13.9 Relief Available. Nothing herein shall be construed to prevent any participating party from applying to the Chancery Court of the State of Delaware to issue a restraining order or other equitable relief to maintain the "status quo" of the parties participating in the arbitration pending the decision and award by the Board or to prevent any party from incurring irreparable harm or damage at any time prior to the decision and award of the Board. The Board shall also have the authority to issue interim decisions or awards in the interest of fairness, full disclosure, and a prompt and orderly hearing and decision and award by the Board. Section 13.10 Consolidation. In the event that there is a dispute between the Cedent and Reinsurer which implicates the provisions of this Landmark Quota Share Reinsurance Agreement and the Landmark Administrative Services Agreement, Cedent and Reinsurer hereby agree to consolidate any such dispute under such agreements in a single arbitration proceeding. ARTICLE XIV MISCELLANEOUS PROVISIONS Section 14.1 Amendment, Modification and Waiver. This Landmark Quota Share Reinsurance Agreement may not be amended, modified or waived except by an instrument or instruments in writing signed and delivered on behalf of each of the parties hereto. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privileged. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. Section 14.2 Entire Agreement. This Landmark Quota Share Reinsurance Agreement (together with the exhibits hereto and the other agreements, 19 documents and instruments delivered in connection herewith) the Acquisition Agreement, the Landmark Administrative Services Agreement and the other Ancillary Agreements constitute the entire agreement among the parties with respect to the subject matter hereof and thereof and supersede all other prior agreements and understandings, both written and verbal, among the parties or any of them with respect to the subject matter hereof. Section 14.3 Governing Law. This Landmark Quota Share Reinsurance Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Section 14.4 Severability. Any term or provision of this Landmark Quota Share Reinsurance Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Landmark Quota Share Reinsurance Agreement or affecting the validity or enforceability of any of the terms or provisions of this Landmark Quota Share Reinsurance Agreement in any other jurisdiction. If any provision of this Landmark Quota Share Reinsurance Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as would be enforceable. Section 14.5 Counterparts. This Landmark Quota Share Reinsurance Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. Section 14.6 Consent to Jurisdiction. Each of the parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the state and federal courts located in the State of Delaware for the purposes of enforcing this Landmark Quota Share Agreement or the Landmark Administrative Services Agreement. If any action is brought in a state court, the parties shall take such actions as are within their control to cause any matter contemplated hereby to be assigned to the Chancery Court of the State of Delaware. In any action, suit or other proceeding, each of the parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claims that it is not subject to the jurisdiction of the above courts, that such action or suit is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper. Each of the parties hereto also agrees that any final and unappealable judgment against a party hereto in connection with any action, suit or other proceeding shall be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States. A certified or exemplified copy of such award or judgment shall be conclusive evidence of the fact and amount of such award or judgment. Section 14.7 Third Party Beneficiaries. Except for the provisions of Article XI, nothing in this Landmark Quota Share Reinsurance Agreement, express or implied, is intended to or shall confer upon any person, other than the parties hereto any 20 rights, benefits or remedies of any nature whatsoever under or by reason of this Landmark Quota Share Reinsurance Agreement. Section 14.8 Binding; Assignment. This Landmark Quota Share Reinsurance Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Neither this Landmark Quota Share Reinsurance Agreement, nor any rights, interests or obligations hereunder, may be directly or indirectly assigned, delegated, sublicensed or transferred by any party to this Landmark Quota Share Reinsurance Agreement, in whole or in part, to any other person (including any bankruptcy trustee) by operation of law or otherwise, whether voluntarily or involuntarily, without the prior written consent of the parties hereto. Section 14.9 Specific Performance. The parties recognize and agree that if for any reason any of the provisions of this Landmark Quota Share Reinsurance Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate and irreparable harm or injury would be caused for which money damages would not be an adequate remedy. Accordingly, each party agrees that, in addition to any other available remedies, each other party shall be entitled to an injunction restraining any violation or threatened violation of any of the provisions of this Landmark Quota Share Reinsurance Agreement without the necessity of posting a bond or other form of security pending the outcome of any arbitration. In the event that any action should be brought in equity to enforce any of the provisions of this Landmark Quota Share Reinsurance Agreement, no party will allege, and each party hereby waives the defense, that there is an adequate remedy at law. Section 14.10 Descriptive Headings. The descriptive article and section headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Landmark Quota Share Reinsurance Agreement. Section 14.11 Waiver of Doctrine of Utmost Good Faith. Reinsurer absolutely and irrevocably waives resort to the doctrine of "utmost good faith" or any similar doctrine in connection with the formation or performance of this Agreement. Section 14.12 Expenses. Unless otherwise specifically provided herein, all costs and expenses incurred in connection with this Landmark Quota Share Reinsurance Agreement shall be paid by the party incurring such cost or expense. Section 14.13 Survival. The provisions of Articles XI, XIII and XIV hereof shall survive the termination of this Landmark Quota Share Reinsurance Agreement. Section 14.14 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by facsimile (which is confirmed), by courier (delivery of which is confirmed), or by registered or certified mail 21 (postage prepaid, return receipt requested) to the respective parties to this Landmark Quota Share Reinsurance Agreement as follows: If to Cedent: Laura S. Lawrence, Esq. General Counsel Royal Indemnity Company 9300 Arrowpoint Blvd. Charlotte, NC 28273 Telephone No.: (704) 522-2851 Facsimile No.: (704) 522-2313 With a copy to (which shall not constitute notice to Cedent for purposes of this Section 14.14): Robert J. Sullivan, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Telephone No.: 212-735-2930 Facsimile No.: 212-735-2000 If to Reinsurer: Underwriters Reinsurance Company Mr. David E. Leonard Executive Vice President c/o Royal Specialty Underwriting, Inc. 945 East Paces Ferry Road Atlanta, GA 30326 Telephone No.: (404) 231-2366 Facsimile No.: (404) 231-3755 With copies to (which shall not constitute notice to Reinsurer for purposes of this Section 14.14): Robert M. Hart, Esq. General Counsel Alleghany Corporation 375 Park Avenue Suite 3201 New York, New York 10152 Telephone No.: (212) 752-1356 Facsimile No.: (212) 759-8149 22 and Aileen C. Meehan, Esq. William W. Rosenblatt, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Telephone No.: (212) 259-8000 Facsimile No.: (212) 259-6333 or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. In no event shall the provision of notice pursuant to this Section 14.14 constitute notice for service of any writ, process or summons in any suit, action or other proceeding. Section 14.15 Interpretation. (a) When a reference is made in this Landmark Quota Share Reinsurance Agreement to a Section or Article, such reference shall be to a section or article of this Landmark Quota Share Reinsurance Agreement unless otherwise clearly indicated to the contrary. Whenever the words "include", "includes" or "including" are used in this Landmark Quota Share Reinsurance Agreement, they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Landmark Quota Share Reinsurance Agreement as a whole and not to any particular provision of this Landmark Quota Share Reinsurance Agreement. The meaning assigned to each term used in this Landmark Quota Share Reinsurance Agreement shall be equally applicable to both the singular and the plural forms of such term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. (b) The parties have participated jointly in the negotiation and drafting of this Landmark Quota Share Reinsurance Agreement; consequently, in the event an ambiguity or question of intent or interpretation arises, this Landmark Quota Share Reinsurance Agreement shall be construed as if drafted jointly by the parties thereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Landmark Quota Share Reinsurance Agreement. Section 14.16 Construction. This Landmark Quota Share Reinsurance Agreement is the result of arms-length negotiations between the parties hereto and has been prepared jointly by the parties. In applying and interpreting the provisions of this Landmark Quota Share Reinsurance Agreement, there shall be no presumptions that this Landmark Quota Share Reinsurance Agreement was prepared by any one party or that this Landmark Quota Share Reinsurance Agreement shall be construed in favor of or against any one party. 23 Section 14.17 Territory. This Landmark Quota Share Reinsurance Agreement applies only to losses arising out of Reinsured Contracts written in the United States of America, its territories and possessions. Section 14.18 Confidentiality. Each party hereto will hold, and will use its reasonable best efforts to cause its Affiliates, and their respective representatives to hold, in strict confidence from any Person (other than any such Affiliates or representatives), except with the prior written consent of the other party or unless (i) compelled to disclose by judicial or administrative process (including without limitation in connection with obtaining the necessary approvals of this Agreement and the transactions contemplated hereby of governmental or regulatory authorities) or by other requirements of Applicable Law or (ii) disclosed in an action or proceeding brought by a party hereto in pursuit of its rights or in the exercise of its remedies hereunder, this Landmark Quota Share Reinsurance Agreement, the terms and conditions hereof, and all documents and information concerning the other party or any of its Affiliates furnished to it by the other party or such other party's representatives in connection with the transactions contemplated hereby, except to the extent that such documents or information can be shown to have been (a) previously known by the party receiving such documents or information, (b) in the public domain (either prior to or after the furnishing of such documents or information hereunder) through no fault of such receiving party or (c) later acquired by the receiving party from another source if the receiving party is not aware that such source is under an obligation to another party hereto to keep such documents and information confidential. 24 IN WITNESS WHEREOF, Cedent and Reinsurer have caused their names to be subscribed by their respective authorized officers. LANDMARK AMERICAN INSURANCE COMPANY By: /s/ Stephen M. Mulready ---------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer UNDERWRITERS REINSURANCE COMPANY By: /s/ James P. Slattery ---------------------------- Name: James P. Slattery Title: President EX-10.9 11 y88779exv10w9.txt CONTENTS TO QUOTA SHARE REINSURANCE AGREEMENT Exhibit 10.9 List of Contents of Exhibits and Schedules to the Landmark American Insurance Company Quota Share Reinsurance Agreement Exhibits Description -------- ----------- Exhibit A Form of Accounting and Settlement Reports Exhibit B Form of Trust Agreement Exhibit C Assignment of Net Premium Receivables Exhibit D Assignment of Reinsurance Recoverables Exhibit E URC Investment Guidelines Schedules Description --------- ----------- Schedule 2.1 Terrorism Allocation Methodology Schedule 2.4 Reinsurance Contracts EX-10.10 12 y88779exv10w10.txt ADMINISTRATIVE SERVICES AGREEMENT EXHIBIT 10.10 ADMINISTRATIVE SERVICES AGREEMENT BY AND AMONG ROYAL INDEMNITY COMPANY, ROYAL SPECIALTY UNDERWRITING, INC. AND UNDERWRITERS REINSURANCE COMPANY DATED JULY 1, 2003 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS Section 1.1 Definitions........................................................................ 2 ARTICLE II APPOINTMENT; PERFORMANCE STANDARDS Section 2.1 Appointment........................................................................ 5 Section 2.2 Standards.......................................................................... 5 ARTICLE III SERVICES TO BE PROVIDED BY ADMINISTRATOR Section 3.1 Administrative Services............................................................ 6 Section 3.2 Administration..................................................................... 6 ARTICLE IV REGULATORY COMPLIANCE AND CUSTOMER ISSUES Section 4.1 Certain Regulatory Filings......................................................... 6 Section 4.2 Changes in Applicable Laws......................................................... 6 Section 4.3 Inquiries, Notification and Customer Complaints.................................... 7 Section 4.4 Management of Customer Relationships............................................... 7 Section 4.5 Maintenance of Treaty Reinsurance.................................................. 7 ARTICLE V AUTHORITY Section 5.1 Authority.......................................................................... 7 Section 5.2 Administration of Excluded Liabilities............................................. 8 Section 5.3 Marketing and Advertising.......................................................... 9 ARTICLE VI OTHER SERVICES AND FEES FOR SERVICES Section 6.1 Additional Services................................................................ 9 Section 6.2 Fee for Services................................................................... 9 Section 6.3 Services Provided by Insurer....................................................... 9 ARTICLE VII REPORTS, ELECTRONIC PREMIUM AND LOSS DATA Section 7.1 Reports, Electronic Premium and Loss Data.......................................... 10 Section 7.2 Payment of Amounts................................................................. 10 ARTICLE VIII BOOKS AND RECORDS; BANK ACCOUNTS Section 8.1 Access to Books and Records........................................................ 11 Section 8.2 Bank Accounts...................................................................... 12 ARTICLE IX INABILITY TO PERFORM SERVICES; ERRORS Section 9.1 Inability to Perform Services...................................................... 13 Section 9.2 Errors............................................................................. 13
i ARTICLE X LEGAL ACTIONS Section 10.1 Regulatory Proceedings............................................................. 13 Section 10.2 Compliance of Reinsured Contracts.................................................. 14 Section 10.3 Defense of Litigation.............................................................. 14 Section 10.4 Communications Regarding Certain Matters........................................... 15 ARTICLE XI DURATION; TERMINATION Section 11.1 Duration........................................................................... 15 Section 11.2 Termination........................................................................ 15 ARTICLE XII CONFIDENTIALITY Section 12.1 Use of Confidential Information.................................................... 16 Section 12.2 Confidentiality of Individuals..................................................... 16 Section 12.3 Disclosure......................................................................... 16 ARTICLE XIII INDEMNIFICATION Section 13.1 Indemnification by Insurer......................................................... 17 Section 13.2 Indemnification by Administrator................................................... 17 Section 13.3 Indemnification Procedure.......................................................... 17 Section 13.4 Relationship to RIC Quota Share Reinsurance Agreement.............................. 17 ARTICLE XIV ARBITRATION Section 14.1 Arbitration........................................................................ 18 Section 14.2 Notice of Arbitration.............................................................. 18 Section 14.3 Arbitration Panel.................................................................. 18 Section 14.4 Submission of Briefs............................................................... 18 Section 14.5 Arbitration Board's Decision....................................................... 19 Section 14.6 Jurisdiction....................................................................... 19 Section 14.7 Expenses........................................................................... 19 Section 14.8 Production of Documents and Witnesses.............................................. 19 Section 14.9 Relief Available................................................................... 20 Section 14.10 Consolidation...................................................................... 20 ARTICLE XV MISCELLANEOUS Section 15.1 Cooperation........................................................................ 20 Section 15.2 Amendment, Modification and Waiver................................................. 20 Section 15.3 Relationship....................................................................... 20 Section 15.4 Entire Agreement................................................................... 21 Section 15.5 Governing Law...................................................................... 21 Section 15.6 Severability....................................................................... 21 Section 15.7 Counterparts....................................................................... 21 Section 15.8 Consent to Jurisdiction............................................................ 21 Section 15.9 Third Party Beneficiaries.......................................................... 22 Section 15.10 Binding; Assignment................................................................ 22 Section 15.11 Specific Performance............................................................... 22
ii Section 15.12 Descriptive Headings............................................................... 22 Section 15.13 Expenses........................................................................... 22 Section 15.14 Use of Name........................................................................ 22 Section 15.15 Survival........................................................................... 22 Section 15.16 Subcontracting..................................................................... 23 Section 15.17 Notices............................................................................ 23 Section 15.18 Interpretation..................................................................... 25
EXHIBITS Exhibit A Administrative Services Intellectual Property License Agreement Exhibit B RSA Reinsurance Security Guidelines Exhibit C Form of Report Required Pursuant to Section 7.1 SCHEDULES Schedule 4.5(a) Levels of Treaty Reinsurance iii ADMINISTRATIVE SERVICES AGREEMENT This ADMINISTRATIVE SERVICES AGREEMENT, dated as of July 1, 2003 (hereinafter referred to as the "RIC Administrative Services Agreement") is made and entered into by and among ROYAL INDEMNITY COMPANY, a Delaware property and casualty insurance company ("Insurer"), ROYAL SPECIALTY UNDERWRITING, INC., a Georgia company ("RSUI" or "Administrator"), and UNDERWRITERS REINSURANCE COMPANY, a property and casualty insurance company organized under the laws of the State of New Hampshire ("Reinsurer"). WHEREAS, prior to the Effective Date (defined below), RSUI has underwritten certain insurance and reinsurance contracts on behalf of Insurer and administered the claims, reinsurance recoverables and premium activity relating to such contracts; WHEREAS, pursuant to an Acquisition Agreement, dated as of June 6, 2003 (the "Acquisition Agreement"), by and between Royal Group, Inc., a Delaware corporation ("Royal") and Alleghany Insurance Holdings LLC, a Delaware limited liability company ("AIHL"), the parties agreed, among other things, that Royal will sell, and AIHL will buy, all of the issued and outstanding shares of common stock of RSUI; WHEREAS, pursuant to the Assignment and Assumption Agreement dated as of June 30, 2003 (the "Assignment Agreement"), AIHL assigned to RSUI Group, Inc., a Delaware corporation and a wholly-owned subsidiary of AIHL ("RSUI Group"), and RSUI Group assumed from AIHL, all of AIHL's rights and obligations under the Acquisition Agreement; WHEREAS, pursuant to the terms of the Acquisition Agreement and the Assignment Agreement, Royal and RSUI Group have agreed that Royal shall cause Insurer, and RSUI Group shall cause Reinsurer, to enter into a Quota Share Reinsurance Agreement (the "RIC Quota Share Reinsurance Agreement"), pursuant to which Insurer has agreed to cede to Reinsurer, and Reinsurer has agreed to assume, on a 100% quota share basis, the liabilities and obligations arising out of (i) the insurance contracts issued by Reinsurer in Insurer's name (or in the name of Royal Insurance Company of America, and 100% reinsured by Insurer) with an effective date (new or renewal) on or after the Effective Date; and (ii) the RSUI-Produced Insurance Contracts (defined below) which are in force on the Effective Date, but only to the extent they arise out of, or relate to, periods on or after the Effective Date; WHEREAS, Insurer wishes to appoint Administrator to provide all administrative services and other services with respect to the Reinsured Contracts and Reinsured Liabilities (as such terms are defined in the RIC Quota Share Reinsurance Agreement), and Administrator desires to provide such administrative services in consideration of Insurer entering into the RIC Quota Share Reinsurance Agreement; and WHEREAS, the parties agree that Administrator shall continue, for the duration of this RIC Administrative Services Agreement, to administer the claims, reinsurance recoverables and premium activity relating to the Reinsured Contracts on the Computer Systems and to prepare and deliver reports relating to such administration to Insurer in substantially the same manner as RSUI has been doing prior to the Effective Date. NOW, THEREFORE, for and in consideration of the premises and the promises and the mutual agreements hereinafter set forth and set forth in the Acquisition Agreement and RIC Quota Share Reinsurance Agreement, the parties hereto, intending to be legally bound, covenant and agree as follows: ARTICLE I DEFINITIONS Section 1.1 Definitions. Capitalized terms used but not defined herein and which are defined in the RIC Quota Share Reinsurance Agreement shall have the meanings ascribed to them in the RIC Quota Share Reinsurance Agreement. As used in this RIC Administrative Services Agreement, the following terms shall have the meanings set forth herein: "AAA" shall have the meaning set forth in Section 14.3 hereof. "Acquisition Agreement" shall have the meaning set forth in the recitals. "Administrative Services" shall have the meaning set forth in Section 3.1 hereof. "Administrative Services Intellectual Property License Agreement" shall have the meaning set forth in Section 2.1(d) hereof. "Administrator" shall have the meaning set forth in the recitals. "Affiliate" of any Person means another Person that as from time to time, directly or indirectly controls, is controlled by, or is under common control with, such first Person, where "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a Person, whether through the ownership of voting securities, by contract, as trustee or executor, or otherwise. For the purposes of this RIC Administrative Services Agreement, the term "Affiliated" has a meaning correlative to the foregoing. "AIHL" shall have the meaning set forth in the recitals. "Applicable Law" means any applicable order, law, statute, regulation, rule, ordinance, writ, injunction, directive, judgment, decree, principal of common law, constitution or treaty enacted, promulgated, issued, enforced or entered by any Governmental Entity, including any amendments thereto that may be adopted from time to time. 2 "Assignment Agreement" shall have the meaning set forth in the recitals. "Bank Accounts" shall have the meaning set forth in Section 8.2 hereof. "Board" shall have the meaning set forth in Section 14.1 hereof. "Books and Records" means the originals or copies of all customer lists, policy information, insurance contract forms, administrative and pricing manuals, medical procedure code lists, claim records, sales records, underwriting records, financial records, compliance records, data files prepared for or filed with regulators of the Business (as such term is defined in the Acquisition Agreement) and premium tax records, each in the possession or control of RSUI, Royal or any of its Affiliates, or, after the Closing, AIHL or any of its Affiliates and used in the operation of the Business, whether or not stored in hardcopy form or on magnetic or optical media (to the extent not subject to licensing restrictions), but excluding (i) prior to the Closing, any such lists, information and records that are prohibited from being disclosed or transferred by Applicable Law or regulatory requirements and (ii) any such information that is part of any consolidated, unitary, combined or similar Tax Return except to the extent directly related to RSUI. "Business Day" means a Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions in the State of New York are not authorized or obligated by Applicable Law to close. "Closing" shall mean the closing of the transactions contemplated under the Acquisition Agreement. "Closing Date" shall mean the date of the Closing. "Computer Systems" means the PODS relational database, the ENTRII: Premium registration system (electronic user interface populated by B-File database) and other computer systems RSUI utilizes, and utilized immediately prior to the Closing, to perform the Administrative Services. "Damages" shall have the meaning set forth in the RIC Quota Share Reinsurance Agreement. "Effective Date" shall have the meaning set forth in the RIC Quota Share Reinsurance Agreement. "Excluded Liabilities" shall have the meaning set forth in the RIC Quota Share Reinsurance Agreement. "Governmental Entities" shall have the meaning set forth in the RIC Quota Share Reinsurance Agreement. "Material Regulatory Proceeding" shall have the meaning set forth in Section 10.1(c) hereof. 3 "90-Day Treasury Rate" means the annual yield rate, as of any given date, of actively traded U.S. Treasury securities having remaining duration to maturity of three months, as such rate is published under "Treasury Constant Maturities" in Federal Reserve Statistical Release H.15(519). "Person" shall have the meaning set forth in the RIC Quota Share Reinsurance Agreement. "Policyholder" shall have the meaning set forth in the RIC Quota Share Reinsurance Agreement. "Producers" shall mean any reinsurance intermediary, agent or other producer of Insurer. "Quota Share Reinsurance Agreements" shall mean, collectively, the RIC Quota Share Reinsurance Agreement, the RSLIC Quota Share Reinsurance Agreement and the Landmark Quota Share Reinsurance Agreement, as such terms are defined in the Acquisition Agreement. "Reinsured Contracts" shall have the meaning set forth in the RIC Quota Share Reinsurance Agreement. "Reinsured Liabilities" shall have the meaning set forth in the RIC Quota Share Reinsurance Agreement. "Reinsurer" shall have the meaning set forth in the recitals. "Representative" shall mean, with respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel accounts and financial advisors. "Royal" shall have the meaning set forth in the recitals. "RSUI" shall have the meaning set forth in the recitals. "RSUI Group" shall have the meaning set forth in the recitals. "RSUI-Produced Insurance Contracts" shall have the meaning set forth in the RIC Quota Share Reinsurance Agreement. "Subsidiary" of any Person means another Person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its Board of Directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first Person. 4 "Transition Services Agreement" shall mean the Transition Services Agreement entered into by and between Royal and AIHL on the Closing Date pursuant to the Acquisition Agreement. ARTICLE II APPOINTMENT; PERFORMANCE STANDARDS Section 2.1 Appointment. (a) Insurer hereby appoints Administrator as its agent and attorney-in-fact to provide the Administrative Services and other services specified herein with respect to the Reinsured Contracts and the Reinsured Liabilities on the terms, and subject to the limitations and conditions, set forth in this RIC Administrative Services Agreement, and Administrator hereby accepts such appointment and agrees to perform such Administrative Services on behalf of and in the name of Insurer in accordance with the terms and conditions of this RIC Administrative Services Agreement. (b) Administrator represents that it has or will obtain and maintain any and all licenses required under Applicable Law to perform its obligations under this RIC Administrative Services Agreement. (c) The intention of the parties hereto is that Administrator shall perform all Administrative Services in such a manner as to minimize the involvement of Insurer and its Affiliates, subject to the requirements of any Applicable Law that require that specific actions be taken by Insurer without the Administrator acting on its behalf. (d) Administrator's access to the Computer Systems controlled by Insurer that are necessary for it to provide the Administrative Services and other services specified herein shall be governed by the Administrative Services Intellectual Property License Agreement, the form of which is attached hereto as EXHIBIT A (the "Administrative Services Intellectual Property License Agreement"). Section 2.2 Standards. (a) Administrator acknowledges that the performance of the Administrative Services in an accurate and timely manner is of paramount importance to Insurer. Subject to the provisions of this RIC Administrative Services Agreement, Administrator agrees that in providing the Administrative Services: (i) it shall conduct itself in accordance with all administrative and claims handling standards utilized by leading property and casualty insurers, which standards are at least equal to the standards pursuant to which RSUI administered the RSUI-Produced Insurance Contracts and the related liabilities immediately prior to the Effective Date; (ii) it shall comply in all material respects with all Applicable Laws relating to the Reinsured Contracts and the Reinsured Liabilities and to the conduct of the activities contemplated hereby; and (iii) it shall comply with the terms of the Reinsured Contracts. 5 (b) For the duration of this RIC Administrative Services Agreement, Administrator hereby covenants that it will employ and retain staff with the experience, skill and expertise to perform the Administrative Services the Administrator is obligated to perform hereunder in a manner consistent with the standards set forth in Section 2.2(a) hereof. In connection therewith, Administrator shall have suitable business continuity plans in place. (c) Administrator shall in all respects administer the Reinsured Contracts in a manner which would not adversely affect the reputation of the Insurer. (d) Notwithstanding anything in this RIC Administrative Services Agreement to the contrary, Insurer shall retain the authority to make all final decisions with respect to the administration of the Reinsured Contracts, and shall consult with the Administrator of its intention to do so. ARTICLE III SERVICES TO BE PROVIDED BY ADMINISTRATOR Section 3.1 Administrative Services. While this RIC Administrative Services Agreement is in effect, Administrator shall provide the Administrative Services, including, but not limited to, all services currently provided and all services currently performed by RSUI and/or Insurer or required to be provided by Applicable Law or the Reinsured Contracts, and generally, any and all other services incidental to the administration of the Reinsured Contracts and the Reinsured Liabilities (the "Administrative Services"). Section 3.2 Administration. Administrator shall continue, for the duration of this RIC Administrative Services Agreement, to administer the claims, reinsurance recoverables and premium activity relating to the Reinsured Contracts on RSUI's existing systems and to prepare and deliver reports relating to such administration to Insurer's Computer Systems in substantially the same manner as RSUI has been doing prior to the Effective Date and as provided in the Administrative Services Intellectual Property License Agreement. ARTICLE IV REGULATORY COMPLIANCE AND CUSTOMER ISSUES Section 4.1 Certain Regulatory Filings. Administrator and the Reinsurer shall use best efforts to obtain all policy form, rate and rule filings necessary to enable Reinsurer or an Affiliate to issue in Reinsurer's or such Affiliate's own name contracts or policies similar to the Reinsured Contracts as soon as practicable after the Effective Date. Section 4.2 Changes in Applicable Laws. From time to time, Administrator and Insurer shall share with each other information they have in their 6 possession relating to material changes in Applicable Laws in order to ensure the Reinsured Contracts are administered in compliance with Applicable Laws. Section 4.3 Inquiries, Notification and Customer Complaints. Administrator shall promptly notify Insurer regarding any inquiries or notifications received from Governmental Entities and any inquiries and complaints received from Producers or other customers with respect to the Reinsured Contracts and the Reinsured Liabilities. Section 4.4 Management of Customer Relationships. Each of Administrator and Insurer shall appoint one senior executive whose responsibility shall be to work with the other party in overseeing that the standards and the provisions set forth in this Article IV and elsewhere are complied with, in particular with respect to issues involving management of customer relationships. Section 4.5 Maintenance of Treaty Reinsurance. (a) Each of Administrator and Reinsurer shall maintain minimum levels of treaty reinsurance as set forth in SCHEDULE 4.5(a) hereto. (b) Commencing with any renewal of the treaties set forth in Schedule 4.5(a), Reinsurer shall purchase a level of catastrophe reinsurance protection which would protect Reinsurer's surplus loss to no more than 10% arising out of a single catastrophe on a one in a 250 year modeling event standard. (c) All third party reinsurance with respect to the Reinsured Contracts placed by Administrator in the name of Insurer must comply with the RSA Reinsurance Security Guidelines attached hereto as EXHIBIT B. ARTICLE V AUTHORITY Section 5.1 Authority (a) Insurer agrees that, on and after the Effective Date, Administrator shall have the authority to issue the Reinsured Contracts in Insurer's name for the benefit of the Reinsurer; provided, however, except as otherwise required by Applicable Laws, Administrator shall have no authority to issue the Reinsured Contracts or take other actions authorized under this Section 5.1 in Insurer's name in any state on or after the earlier of (i) thirty (30) days after the date the Administrator or an Affiliate of the Administrator obtains all policy form, rate and rule filings necessary to enable the Reinsurer or an Affiliate to issue in Reinsurer's or such Affiliate's own name contracts or policies similar to the RSUI-Produced Insurance Contracts in a particular state, and (ii) one (1) year after the Effective Date. 7 (b) Administrator acknowledges that its authority to issue the Reinsured Contracts in Insurer's name pursuant to this Section 5.1 is subject to the following additional limitations: (i) Administrator shall not assign or delegate its authority to a third party other than the Reinsurer; (ii) Administrator shall not issue any Reinsured Contracts outside the United States, (iii) the Reinsured Contracts shall be limited to the type of business comprising the RSUI-Produced Insurance Contracts as of the date hereof; (iv) in issuing the Reinsured Contracts, Administrator shall observe similar policy wordings and policy limits found in the RSUI-Produced Insurance Contracts; (v) the aggregate gross written premiums attributable to the business ceded under the Quota Share Reinsurance Agreements collectively (exclusive of the unearned premium attributable to the Assumed Contracts under the respective Quota Share Reinsurance Agreement as of the Effective Date) shall not exceed one billion dollars in the aggregate; provided, however, the aggregate gross written premiums attributable to the business ceded under the RIC Quota Share Reinsurance Agreement solely (exclusive of the unearned premium attributable to the Assumed Contracts under the RIC Quota Share Reinsurance Agreement as of the Effective Date) shall not exceed five hundred million dollars; and (vi) any other limitations as may be contained in the Managing General Agency Agreement, dated as of the Closing Date, by and between Insurer and Administrator. (c) Notwithstanding anything to the contrary in this RIC Administrative Services Agreement or the RIC Quota Share Reinsurance Agreement, Administrator shall have no authority under the RIC Quota Share Reinsurance Agreement to issue the Reinsured Contracts in Insurer's name on a non-admitted or surplus lines basis. Section 5.2 Administration of Excluded Liabilities. (a) Insurer shall retain liability and administrative responsibility for all Excluded Liabilities. Insurer shall reimburse Administrator for all reasonable out-of-pocket costs and expenses incurred by Administrator in connection with the administration of Excluded Liabilities. (b) With respect to any claims (including claims for reinsurance recoveries) presented in which both Reinsured Liabilities and Excluded Liabilities are alleged and where the predominant claim activities and costs relate to Excluded Liabilities, Administrator, on behalf of Reinsurer, shall notify Insurer and Insurer will either assume the administration of such claim activities or fund Administrator's out-of-pocket costs and expenses of such claim activities to the extent they relate to Excluded Liabilities. (c) In the event claims are presented in connection with Reinsured Liabilities, and it is in question whether a Reinsured Liability or an Excluded Liability is at issue, Administrator, on behalf of Reinsurer, shall defend or prosecute such claim and Insurer and Administrator shall resolve the responsibility for any amount of loss, allocated loss expense or other costs and expenses pursuant to the provisions of the RIC Quota Share Reinsurance Agreement. In the event that, during the course of a claim, it 8 becomes clear that the claim (or a portion thereof) is an Excluded Liability, Administrator shall notify Insurer and Insurer will either assume the administration of such claim (or the Excluded Liability portion thereof) or fund the out-of-pocket costs and expenses of such claim activities to the extent they relate to Excluded Liabilities. (d) In the event that a claim (including claims for reinsurance recoveries) presented in connection with a Reinsured Contract is not a Reinsured Liability or is an Excluded Liability, Insurer shall have the sole responsibility to defend or prosecute such claim. (e) With respect to those matters described in (b), (c) and (d) of this Section 5.2, the party administering the claim shall be provided the full cooperation of the other party as well as the Reinsurer and shall be responsible for reimbursing such other party for any out-of-pocket costs and expenses incurred by such party in providing such cooperation. Section 5.3 Marketing and Advertising. Subject to the terms of the Transitional Trademark License Agreement, Insurer hereby grants Administrator and the Reinsurer the authority to prepare, print, publish and distribute descriptive brochures and other promotional material related to the Reinsured Contracts and to engage in or direct all other marketing activities related thereto. ARTICLE VI OTHER SERVICES AND FEES FOR SERVICES Section 6.1 Additional Services. If Administrator or Insurer, as the case may be, requires from the other party services to be provided with respect to the Reinsured Contracts which are not otherwise contemplated under this RIC Administrative Services Agreement, the parties shall negotiate in good faith to reach a mutually acceptable arrangement with respect to the provision of such services. Each party shall reasonably compensate such other party for such additional services provided by such other party. Section 6.2 Fee for Services. Except as otherwise specifically provided for by this RIC Administrative Services Agreement, Administrator shall provide Administrative Services pursuant to this RIC Administrative Services Agreement at its own expense (or at the expense of the Reinsurer), subject to the other terms in this RIC Administrative Services Agreement, in consideration for the promises made by Insurer under this RIC Administrative Services Agreement, the Acquisition Agreement, the RIC Quota Share Reinsurance Agreement, the Transition Services Agreement and the other Ancillary Agreements (as such term is defined in the Acquisition Agreement) to which it is a party, and shall not receive any separate fee from Insurer for the provision of Administrative Services. Section 6.3 Services Provided by Insurer. Insurer agrees to promptly notify Administrator with respect to any inquiries or notifications received from 9 Governmental Entities or from Producers, including, without limitation, inquiries regarding consumer inquiries and complaints, market conduct exams, zone exams, summons and complaints, subpoenas and Internal Revenue Service inquiries relating to the Reinsured Contracts and the Reinsured Liabilities. ARTICLE VII REPORTS, ELECTRONIC PREMIUM AND LOSS DATA Section 7.1 Reports, Electronic Premium and Loss Data. (a) Administrator shall collect, administer and provide to Insurer all necessary quality information and data for Insurer to continue to maintain financial and statistical data with respect to the Reinsured Contracts and Reinsured Liabilities in order to permit Insurer to timely make all required regulatory, statistical, and financial reports and filings. All information and data provided by Administrator to Insurer pursuant to this Article VII will be provided as reasonably requested by Insurer. Without limiting the generality of the foregoing, Administrator shall prepare all reports needed by Insurer or the Seller in connection with the Reinsured Liabilities and the Reinsured Contracts to enable Insurer or the Seller to comply with Applicable Law and any and all reporting or filing requirements. Any monthly, quarterly or year-end reports required to be prepared by Administrator shall be prepared on a timely basis in order for Insurer or the Seller to comply with any filing deadlines required. (b) During the term of this RIC Administrative Services Agreement, Administrator shall transmit to Insurer, within thirty (30) days following the end of each calendar month, a summary report in form and substance as set forth in EXHIBIT C hereto, of all activity relating to the Reinsured Contracts and Reinsured Liabilities for the period reported. The report shall include, but not be limited to, the amount of premiums, commissions, related expenses, reserves and paid losses, as applicable; provided, however, that notwithstanding anything herein to the contrary, in no event shall such reports be deemed to indicate that the Administrator or the Reinsurer has any obligation to pay to the Insurer any amount in respect of Excluded Liabilities which may be reflected on such reports. Section 7.2 Payment of Amounts. Except to the extent that this RIC Administrative Services Agreement or the RIC Quota Share Reinsurance Agreement provides otherwise and regardless of whether any amounts due to either party are being disputed pursuant to the provisions of Article XV hereof, all amounts due either party under this RIC Administrative Services Agreement shall be paid on or before the thirtieth (30th) Business Days of delivery of such report, and any amount not paid on or before the thirtieth (30th) Business Day period shall bear simple interest at the 90-Day Treasury Rate from the twentieth Business Day until the date of payment. 10 ARTICLE VIII BOOKS AND RECORDS; BANK ACCOUNTS Section 8.1 Access to Books and Records. (a) To the extent permitted by Applicable Law, from the date hereof until the date on which Insurer has fulfilled all of its obligations to Administrator under this RIC Administrative Services Agreement, and at any time (without limitation) as may be required in Administrator's reasonable judgment in order for Administrator to comply with any Applicable Law or to perform its obligations or responsibilities under this RIC Administrative Services Agreement, Administrator and its Representatives may from time to time reasonably request, and Insurer shall provide, at reasonable times during normal business hours, full and open access to examine all Books and Records under the control of Insurer pertaining to the Reinsured Contracts, the Reinsured Liabilities and the RSUI-Produced Insurance Contracts, and services to be provided under this RIC Administrative Services Agreement, and to discuss any matters relating to the Reinsured Contracts or the Reinsured Liabilities and services to be provided under this RIC Administrative Services Agreement with the employees and agents of Insurer who are familiar therewith, so that Administrator shall have sufficient opportunity to make whatever investigation it shall deem necessary and desirable in connection with the transactions contemplated by this RIC Administrative Services Agreement. The Administrator shall also have reasonable access to Insurer's Computer Systems and accounting systems for such purposes. Such access and opportunity shall be exercised by Administrator and such Representatives in a manner that shall not interfere unreasonably with the operations of Insurer. Such access shall include the right of Administrator to make and retain copies of any Books and Records relating to the Reinsured Contracts or the Reinsured Liabilities to the extent that Administrator reasonably determines that it requires copies of any such Books and Records in order to carry out the transactions contemplated by this RIC Administrative Services Agreement or for any legitimate business purposes related to this RIC Administrative Services Agreement. (b) To the extent permitted by Applicable Law, from the date hereof until the date on which Administrator has fulfilled all of its obligations to perform services for Insurer under this RIC Administrative Services Agreement, and at any time (without limitation) as may be required in the reasonable judgment of Insurer for Insurer to comply with any Applicable Law or to perform its obligations or responsibilities under this RIC Administrative Services Agreement, Insurer and its Representatives may from time to time reasonably request, and Administrator shall provide, at reasonable times during normal business hours, full and open access to examine the Books and Records of Administrator and of its independent auditor pertaining to the Reinsured Contracts, the Reinsured Liabilities and the RSUI-Produced Insurance Contracts, and to the services to be provided under this RIC Administrative Services Agreement (including, but not limited to, the Books and Records transferred to Administrator pursuant to this Section 8.1 and still then retained by Administrator) and to discuss such Reinsured Contracts, Reinsured Liabilities and services with the employees and agents of Administrator who are familiar therewith, so that Insurer shall have sufficient opportunity to make whatever 11 investigation it shall deem necessary and desirable in connection with the transactions contemplated by this RIC Administrative Services Agreement. Such access and opportunity shall be exercised by Insurer and such Representatives in a manner that shall not interfere unreasonably with the operations of Administrator. Such access shall include the right of Insurer to make and retain copies of any Books and Records relating to the Reinsured Contracts and Reinsured Liabilities to the extent that Insurer reasonably determines that it requires copies of any such Books and Records in order to carry out the transactions contemplated by this RIC Administrative Services Agreement or for any legitimate business purposes related to this RIC Administrative Services Agreement. (c) During the term of this RIC Administrative Services Agreement, Administrator shall retain all Books and Records relating to the Reinsured Contracts and Reinsured Liabilities transferred by Insurer or produced by Administrator on behalf of Insurer to the extent such Books and Records are required by Applicable Law to be retained by either Administrator or Insurer, but in any case, for at least ten (10) years after termination of the Reinsured Contracts applicable to such Books and Records. (d) Each party hereto shall pay all storage and related expenses associated with any Books and Records relating to the Reinsured Contracts and Reinsured Liabilities, and copies thereof, that it retains in its possession. (e) Administrator shall provide security for the Books and Records that are in its possession. Administrator shall comply with all Applicable Laws, including, without limitation, privacy laws applicable to the Insurer, in connection with all such data and Books and Records. Administrator shall cooperate with any regulatory authority having jurisdiction over Insurer in providing access to such Books and Records. (f) Following expiration of this RIC Administrative Services Agreement other than by reason of Insurer's termination pursuant to Section 11.2 hereof, all Books and Records pertaining to the Reinsured Contracts and Reinsured Liabilities shall be the sole property of Reinsurer, unless otherwise provided by Applicable Law or herein and provided that Insurer shall have full access to such Books and Records to the extent required to respond to regulatory, statistical, tax or similar inquiries or investigations and for Insurer to defend any claim against it. Section 8.2 Bank Accounts (a) During the term of this RIC Administrative Services Agreement, Administrator may establish and maintain accounts with banking institutions to provide the Administrative Services (the "Bank Accounts"). The Administrator shall have the exclusive authority over the Bank Accounts including, within reason, the exclusive authority to (i) open the Bank Accounts in the name of Insurer, (ii) designate the authorized signatories on the Bank Accounts, (iii) issue drafts on and make deposits in the Bank Accounts in the name of Insurer, and (iv) make withdrawals from the Bank Accounts. The Administrator agrees to limit transactions using these Bank Accounts to only those transactions that pertain to the RIC Quota Share Reinsurance Agreement. Insurer shall do all things reasonably necessary to enable Administrator to open and 12 maintain the Bank Accounts including, without limitation, executing and delivering such depository resolutions and other documents as may be requested from time to time by the banking institutions. Insurer agrees that without Administrator's prior written consent or as may be required by Applicable Law or regulatory authorization it shall not make any changes to the authorized signatories on the Bank Accounts or attempt to withdraw any funds therefrom. Administrator and the Reinsurer will have the sole obligation to the Bank Accounts and shall own all funds deposited in the Bank Accounts. Administrator shall be responsible for all abandoned property laws requirements and obligations, and shall pay all fees and charges made in connection with such accounts. (b) Notwithstanding any provision of this RIC Administrative Services Agreement to the contrary, the Administrator shall have no authority to borrow money or incur any indebtedness on behalf of the Insurer or permit any Bank Accounts to become overdrawn. ARTICLE IX INABILITY TO PERFORM SERVICES; ERRORS Section 9.1 Inability to Perform Services. In the event that Administrator shall be unable to perform any Administrative Service for a period that could reasonably be expected to exceed ninety (90) days or such shorter period as may be required by Applicable Law or the Reinsured Contracts, Administrator and Insurer shall mutually agree on alternative means of providing such services. If alternative means for the provision of the Administrative Services cannot be agreed upon by the parties, Insurer may procure such Administrative Services for the Reinsured Contracts and Reinsured Liabilities by commercially reasonable means. Administrator and the Reinsurer shall be solely responsible for all costs incurred in restoring Administrative Services which have not been provided due to its failure to adhere to its obligations under this RIC Administrative Services Agreement. Section 9.2 Errors. Administrator shall, at its own expense, correct any errors in the Administrative Services caused by it within a reasonable time (not to exceed thirty (30) days) after receiving written notice thereof from Insurer or otherwise. ARTICLE X LEGAL ACTIONS Section 10.1 Regulatory Proceedings. (a) If Insurer or Administrator receive notice of, or otherwise become aware of, any regulatory investigation or proceeding relating to the Reinsured Contracts or the Reinsured Liabilities, Insurer or Administrator, as applicable, shall promptly notify the other party thereof. Subject to the provisions of Section 10.1(c), Administrator shall have the authority to respond to and resolve all regulatory matters and regulatory investigations and proceedings relating to the Reinsured Contracts and Reinsured 13 Liabilities to the extent the resolution is limited to the Reinsured Contracts or Reinsured Liabilities. (b) Subject to the provisions of Section 10.1(c), Administrator will promptly respond on behalf of Insurer to inquiries received from Governmental Entities and Administrator shall conduct whatever investigation is reasonable under the circumstances in order to respond to such inquiries. Administrator shall promptly notify in writing Insurer of any inquiry to which Administrator determines that it will not provide a response in order to permit the Insurer to timely respond. (c) Notwithstanding anything contained herein to the contrary, the parties shall mutually agree to an appropriate response, including which party should respond, to any regulatory investigation or proceeding relating to the Reinsured Contracts or the Reinsured Liabilities which could reasonably be expected to have meaningful adverse effect on any business of the Insurer other than the Reinsured Contracts, or which could meaningfully and adversely interfere with the business, assets, liabilities, obligations, reputation, license, permit, financial condition or results of operations of Insurer or any of its Affiliates (a "Material Regulatory Proceeding"), and the parties hereby agree to cooperate and coordinate in resolving any and all Material Regulatory Proceedings. The parties recognize that, as the issuing company, Insurer retains ultimate responsibility for resolution of the matters contemplated by this Section 10.1. Notwithstanding anything to the contrary contained in this RIC Administrative Services Agreement, neither Insurer nor Administrator shall have the authority to institute, prosecute, defend or maintain any legal or regulatory proceedings on behalf of the other party without the prior written consent of such other party except to the extent expressly provided for by this RIC Administrative Services Agreement. Section 10.2 Compliance of Reinsured Contracts. Insurer, Administrator and Reinsurer agree to cooperate with each other and the various Governmental Entities in maintaining the Reinsured Contracts in compliance in all material respects with Applicable Laws. If Administrator determines that any of the Reinsured Contracts are materially not in compliance with such Applicable Laws, Administrator shall so notify in writing Insurer and take whatever action is reasonably necessary to bring such Reinsured Contracts into compliance with Applicable Law. Administrator shall prepare any necessary amendments to such Reinsured Contracts and shall prepare any necessary filings for the purpose of obtaining governmental authority approval for such amendments. Section 10.3 Defense of Litigation. Administrator and Reinsurer shall defend, at their own expense and in the name of Insurer when necessary, any action brought in connection with any Reinsured Contract or relating to any Reinsured Liability; provided, however, Insurer shall have the right, at its own expense, to engage its own separate legal representation and to fully participate in the defense of any litigation with respect to the Reinsured Contracts or the Reinsured Liabilities in which Insurer is named as a party without waiving any rights to indemnification it may have under Article XIII hereof; provided, however, that Administrator and Reinsurer shall have the exclusive authority to control such litigation, and to settle any litigation if (i) Administrator and 14 Reinsurer pay all settlement amounts with respect thereto, (ii) the settlement does not involve any restriction or condition which could reasonably be expected to have an adverse effect on Insurer's business other than the Reinsured Contracts, and (iii) Administrator or Reinsurer obtains a complete release for Insurer, its officers, directors, Representatives and Affiliates with respect to such litigation. Section 10.4 Communications Regarding Certain Matters. Insurer shall promptly (i) notify Administrator in writing if it receives any information or correspondence with respect to any suit, claim, action or proceeding relating to the Reinsured Contracts or the Reinsured Liabilities, or any written communication threatening any of the foregoing and (ii) forward to Administrator any documents it receives relating to any of the matters referred to in clause (i) of this Section 10.4. ARTICLE XI DURATION; TERMINATION Section 11.1 Duration. This RIC Administrative Services Agreement shall become effective as of the Effective Date and continue until a date which is the earlier of (A) a date which is the later of (i) the date on which none of the Reinsured Contracts remains in force; (ii) the date on which Insurer has no further Reinsured Liabilities; or (iii) the date on which no further Administrative Services are required, or (B) the date on which this RIC Administrative Services Agreement is terminated according to the provisions of Section 11.2 hereof. Section 11.2 Termination. (a) This RIC Administrative Services Agreement may be terminated at any time upon the mutual written consent of the parties hereto, which writing shall state the effective date and relevant terms of termination. (b) This RIC Administrative Services Agreement is subject to immediate termination at the option of Insurer, upon written notice to Administrator upon the issuance of an order of liquidation or rehabilitation against the Reinsurer or bankruptcy or insolvency proceedings against the Administrator; provided, however, that in the event an order of liquidation or rehabilitation is issued against the Reinsurer, before Insurer may terminate this RIC Administrative Services Agreement, Administrator or Reinsurer shall have the opportunity to contest or appeal such order for a period of sixty (60) days from the date of issuance. (c) Upon termination of this RIC Administrative Services Agreement pursuant to Section 11.2(a) or (b) hereof, Administrator and Reinsurer shall cooperate fully in the prompt transfer of the applicable Administrative Services and Books and Records maintained by Administrator pursuant to Section 8.1 hereof (or, where appropriate, copies thereof) to Insurer or Insurer's designee, so that Insurer or its designee shall be able to perform the applicable Administrative Services without interruption following termination of this RIC Administrative Services Agreement. 15 (d) Upon any termination of this Administrative Services Agreement, each party shall retain its right to bring actions for, and receive damages to, which it may be entitled under Applicable Law. ARTICLE XII CONFIDENTIALITY Section 12.1 Use of Confidential Information. Insurer, Reinsurer and Administrator acknowledge that they will have access to confidential and proprietary information concerning the other party and its businesses, which information is not readily available to the public, and acknowledge that Insurer, Reinsurer and Administrator have taken and will continue to take reasonable actions to ensure such information is not made available to the public. Insurer, Reinsurer and Administrator further agree that they will not at any time (during the term hereof or thereafter) disclose to any Person (except Insurer, Reinsurer or Administrator and their Affiliates and the officers, directors, employees, agents and Representatives of Insurer, Reinsurer and Administrator and their Affiliates who require such information in order to perform their duties in connection with the services provided hereunder), directly or indirectly, or make any use of, for any purpose other than those contemplated by the Acquisition Agreement, this RIC Administrative Services Agreement or the RIC Quota Share Reinsurance Agreement, any information or trade secrets relating to the Reinsured Contracts or the Reinsured Liabilities or the business affairs of Insurer, Reinsurer or Administrator, including the identity of and/or the compensation arrangements with, any Affiliates and Subsidiaries of Insurer, Reinsurer and Administrator, so long as such information remains confidential. Section 12.2 Confidentiality of Individuals. Information that identifies an individual covered under one of the Reinsured Contracts may be confidential. Reinsurer and Administrator shall take all reasonable precautions to prevent disclosure or use of information identifying individuals covered under such Reinsured Contracts for a purpose unrelated to the performance of this RIC Administrative Services Agreement. Reinsurer and Administrator shall comply with all Applicable Laws and regulations, as in effect on the date hereof or as hereafter adopted or amended. With respect to Reinsured Contracts reinsured by Reinsurer, Insurer shall take all reasonable precautions to prevent disclosure or use of information identifying individuals for a purpose unrelated to the performance of this RIC Administrative Services Agreement. Section 12.3 Disclosure. Reinsurer, Administrator or Insurer may disclose confidential information in the following circumstances (or as otherwise provided by the provisions of this RIC Administrative Services Agreement): (i) in response to a court order or formal discovery request after notice to the other party (to the extent such notice is reasonably practicable); provided, however, that such disclosure shall be limited only to the extent that is required by such court order or formal disclosure request; 16 (ii) if a proper request is made by any regulatory authority after notice to the other party (to the extent such notice is reasonably practicable); provided, however, that such disclosure shall be limited only to the extent that is required by such regulatory authority; (iii) at the proper request of Insurer or Policyholder or his/her legal representative; provided, however, that such disclosure shall be limited only to the extent that is reasonably necessary to satisfy such a request; or (iv) as otherwise required by Applicable Law or the rules of any relevant stock exchange. ARTICLE XIII INDEMNIFICATION Section 13.1 Indemnification by Insurer. Insurer hereby indemnifies Administrator and its Affiliates and its and their respective officers, directors, employees, agents and Representatives against, and agrees to hold each of them harmless from any and all Damages incurred or suffered by any of them arising out of or relating to, (i) any Excluded Liabilities; (ii) any breach or nonfulfillment by Insurer of, or any failure by Insurer to perform, any of the covenants, terms or conditions of, or any duties or obligations under, this RIC Administrative Services Agreement; and (iii) any enforcement of this indemnity. Section 13.2 Indemnification by Administrator. Administrator hereby indemnifies Insurer and its Affiliates and its and their respective officers, directors, employees, agents and Representatives against, and agrees to hold each of them harmless from any and all Damages incurred or suffered by any of them arising out of or relating to, (i) any Reinsured Liabilities; (ii) any breach or nonfulfillment by Administrator of, or any failure by Administrator to perform, any of the covenants, terms or conditions of, or any duties or obligations under, this RIC Administrative Services Agreement; and (iii) any enforcement of this indemnity. Section 13.3 Indemnification Procedure. In the event either Insurer or Administrator shall have a claim for indemnity against the other party under the terms of this RIC Administrative Services Agreement, the parties shall follow the procedures set forth in Article XV of the Acquisition Agreement. Section 13.4 Relationship to RIC Quota Share Reinsurance Agreement. Nothing contained in this Article XIII is intended to supersede any provisions of the RIC Quota Share Reinsurance Agreement. 17 ARTICLE XIV ARBITRATION Section 14.1 Arbitration. As a condition precedent to any cause of action, any and all disputes between Insurer on one side and Administrator and Reinsurer on the other side arising out of, relating to, or concerning this RIC Administrative Services Agreement, whether sounding in contract or tort and whether arising during or after termination of this RIC Administrative Services Agreement, including whether the dispute is subject to arbitration, shall be submitted to the decision of a board of arbitration composed of two arbitrators and an umpire ("Board") meeting at a site in Wilmington, Delaware. The arbitration shall be conducted under the Federal Arbitration Act and shall proceed as set forth below. Section 14.2 Notice of Arbitration. A notice requesting arbitration, or any other notice made in connection therewith, shall be in writing and shall be sent certified or registered mail, return receipt requested to the affected parties. The notice requesting arbitration shall state in particulars all issues to be resolved in the view of the claimant, shall appoint the arbitrator selected by the claimant and shall set a tentative date for the hearing, which date shall be no sooner than ninety (90) days and no later than one hundred fifty (150) days from the date that the notice requesting arbitration is mailed. Within thirty (30) days of receipt of claimant's notice, the respondent shall notify claimant of any additional issues to be resolved in the arbitration and of the name of its appointed arbitrator. Section 14.3 Arbitration Panel. Unless otherwise mutually agreed, the members of the Board shall be impartial and disinterested and shall be active or former executive officers of property-casualty insurance companies, reinsurance companies, or Lloyd's Underwriters or active or inactive lawyers with at least twenty (20) years of experience in insurance and reinsurance. Insurer and Administrator shall each appoint an arbitrator and the two (2) arbitrators shall choose an umpire before instituting the hearing. If the respondent fails to appoint its arbitrator within thirty (30) days after having received claimant's written request for arbitration, the claimant is authorized to and shall appoint the second arbitrator. If the two arbitrators fail to agree upon the appointment of an umpire within thirty (30) days after notification of the appointment of the second arbitrator, within ten (10) days thereof, the two (2) arbitrators shall request the American Arbitration Association ("AAA") to appoint an umpire for the arbitration with the qualifications set forth in this Article. If the AAA fails to name an umpire, either party may apply to the court named below to appoint an umpire with the above required qualifications. The umpire shall promptly notify in writing all parties to the arbitration of his selection and of the scheduled date for the hearing. Upon resignation or death of any member of the Board, a replacement shall be appointed in the same fashion as the resigning or deceased member was appointed. Section 14.4 Submission of Briefs. The claimant and respondent shall each submit initial briefs to the Board outlining the issues in dispute and the basis, authority and reasons for their respective positions within thirty (30) days of the date of 18 notice of appointment of the umpire. The claimant and the respondent may submit reply briefs to the Board within ten (10) days after filing of the initial brief(s). Initial and reply briefs may be amended by the submitting party at any time, but not later than ten (10) days prior to the date of commencement of the arbitration hearing. Reasonable responses shall be allowed at the arbitration hearing to new material contained in any amendments filed to the briefs but not previously responded to. Section 14.5 Arbitration Board's Decision. The Board shall make a decision and award with regard to the terms of this RIC Administrative Services Agreement and the original intentions of the parties to the extent reasonably ascertainable. The Board's decision and award shall be in writing and shall state the factual and legal basis for the decision and award. The decision and award shall be based upon a hearing in which evidence shall be allowed and which the formal rules of evidence shall not strictly apply but in which cross examination and rebuttal shall be allowed. At its own election or at the request of the Board, either party may submit a post-hearing brief for consideration of the Board within twenty (20) days of the close of the hearing. The Board shall make its decision and award within thirty (30) days following the close of the hearing or the submission of post-hearing briefs, whichever is later, unless the parties consent to an extension. Every decision by the Board shall be by a majority of the members of the Board and each decision and award by the majority of the members of the Board shall be final and binding upon all parties to the proceeding. Section 14.6 Jurisdiction. Either party may apply to the Chancery Court of the State of Delaware for an order compelling arbitration or confirming any decision and the award; a judgment of that court shall thereupon be entered on any decision or award. If such an order is issued, the attorneys' fees of the party so applying and court costs will be paid by the party against whom confirmation is sought. The Board may award interest calculated from the date the Board determines that any amounts due the prevailing party should have been paid to the prevailing party. Section 14.7 Expenses. Each party shall bear the expense of the one arbitrator appointed by it and shall jointly and equally bear with the other party the expense of any stenographer requested, and of the umpire. Section 14.8 Production of Documents and Witnesses. Subject to customary and recognized legal rules of privilege, each party participating in the arbitration shall have the obligation to produce those documents and as witnesses to the arbitration those of its employees as any other participating party reasonably requests providing always that the same witnesses and documents be obtainable and relevant to the issues before the arbitration and not be unduly burdensome or excessive. The parties may mutually agree as to pre-hearing discovery prior to the arbitration hearing and in the absence of agreement, upon the request of any party, pre-hearing discovery may be conducted as the Board shall determine in its sole discretion to be in the interest of fairness, full disclosure, and a prompt hearing, decision and award by the Board. The Board shall be the final judge of the procedures of the Board, the conduct of the arbitration, of the rules of evidence, the rules of privilege and production and of excessiveness and relevancy of any witnesses and documents upon the petition of any 19 participating party. To the extent permitted by law, the Board shall have the authority to issue subpoenas and other orders to enforce their decisions. Section 14.9 Relief Available. Nothing herein shall be construed to prevent any participating party from applying to the Chancery Court of the State of Delaware to issue a restraining order or other equitable relief to maintain the "status quo" of the parties participating in the arbitration pending the decision and award by the Board or to prevent any party from incurring irreparable harm or damage at any time prior to the decision and award of the Board. The Board shall also have the authority to issue interim decisions or awards in the interest of fairness, full disclosure, and a prompt and orderly hearing and decision and award by the Board. Section 14.10 Consolidation. In the event that there is a dispute between the Insurer, on one side, and Administrator and the Reinsurer on the other, which implicates the provisions of this RIC Administrative Services Agreement and the RIC Quota Share Reinsurance Agreement, Insurer and Administrator hereby agree to consolidate any such dispute under such agreements in a single arbitration proceeding. ARTICLE XV MISCELLANEOUS Section 15.1 Cooperation. The parties hereto shall cooperate in a commercially reasonable manner in order that the duties assumed by Administrator will be effectively, efficiently and promptly discharged. The parties hereto will use their best efforts to (i) give effect to the intent of this RIC Administrative Services Agreement, the Acquisition Agreement, the RIC Quota Share Reinsurance Agreement and the other Ancillary Agreements and (ii) refrain from conduct which would frustrate the intent of any such agreement. Each party shall, at all reasonable times under the circumstances, make available to the other party properly authorized personnel for the purpose of consultation and decision. Section 15.2 Amendment, Modification and Waiver. This RIC Administrative Services Agreement may not be amended, modified or waived except by an instrument or instruments in writing signed and delivered on behalf of each of the parties hereto. Section 15.3 Relationship. Insurer and Administrator are and shall remain independent contractors and not employees of the other party. Except as expressly granted in this RIC Administrative Services Agreement or otherwise by the other party in writing or as may be required by Applicable Law or as necessary to perform the services to be provided hereunder or to obtain the benefits hereof, no party shall have any authority, express or implied, to act as an agent of the other party or its Subsidiaries or Affiliates under this RIC Administrative Services Agreement. Except as otherwise provided by this RIC Administrative Services Agreement or by any other agreement between the parties, each party shall be responsible for the payment of all employment, income and social security taxes arising in connection with the 20 compensation payable to its personnel involved in the provision of the services hereunder. Section 15.4 Entire Agreement. This RIC Administrative Services Agreement (together with the exhibits hereto and the other agreements, documents and instruments delivered in connection herewith) the Acquisition Agreement, the RIC Quota Share Reinsurance Agreement and the other Ancillary Agreements constitute the entire agreement among the parties with respect to the subject matter hereof and thereof and supersede all other prior agreements and understandings, both written and verbal, among the parties or any of them with respect to the subject matter hereof. Section 15.5 Governing Law. This RIC Administrative Services Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Section 15.6 Severability. Any term or provision of this RIC Administrative Services Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this RIC Administrative Services Agreement or affecting the validity or enforceability of any of the terms or provisions of this RIC Administrative Services Agreement in any other jurisdiction. If any provision of this RIC Administrative Services Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as would be enforceable. Section 15.7 Counterparts. This RIC Administrative Services Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. Section 15.8 Consent to Jurisdiction. Each of the parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the state and federal court located in the State of Delaware for the purposes of enforcing this RIC Administrative Services Agreement or the other Ancillary Agreements. If any action is brought in a state court, the parties shall take such actions as are within their control to cause any matter contemplated hereby to be assigned to the Chancery Court in the State of Delaware. In any action, suit or other proceeding, each of the parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claims that it is not subject to the jurisdiction of the above courts, that such action or suit is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper. Each of the parties hereto also agrees that any final and unappealable judgment against a party hereto in connection with any action, suit or other proceeding shall be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States. A certified or exemplified copy of such award or judgment shall be conclusive evidence of the fact and amount of such award or judgment. 21 Section 15.9 Third Party Beneficiaries. Except for the provisions of Article XIII, nothing in this RIC Administrative Services Agreement, express or implied, is intended to or shall confer upon any Person other than the parties hereto any rights, benefits or remedies of any nature whatsoever under or by reason of this RIC Administrative Services Agreement. Section 15.10 Binding; Assignment. This RIC Administrative Services Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and legal representatives. Neither this RIC Administrative Services Agreement, nor any rights, interests or obligations hereunder, may be directly or indirectly assigned, delegated, sublicensed or transferred by any party to this RIC Administrative Services Agreement, in whole or in part, to any other Person (including any bankruptcy trustee) by operation of law or otherwise, whether voluntarily or involuntarily, without the prior written consent of the parties hereto. Section 15.11 Specific Performance. The parties recognize and agree that if for any reason any of the provisions of this RIC Administrative Services Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate and irreparable harm or injury would be caused for which money damages would not be an adequate remedy. Accordingly, each party agrees that, in addition to any other available remedies, each other party shall be entitled to an injunction restraining any violation or threatened violation of any of the provisions of this RIC Administrative Services Agreement without the necessity of posting a bond or other form of security. In the event that any action should be brought in equity to enforce any of the provisions of this RIC Administrative Services Agreement, no party will allege, and each party hereby waives the defense, that there is an adequate remedy at law. Section 15.12 Descriptive Headings. The descriptive article and section headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this RIC Administrative Services Agreement. Section 15.13 Expenses. Unless otherwise specifically provided herein or in the Acquisition Agreement, Transition Services Agreement or RIC Quota Share Reinsurance Agreement, all costs and expenses incurred in connection with this RIC Administrative Services Agreement shall be paid by the party incurring such cost or expense. Section 15.14 Use of Name. Except as otherwise set forth in the Acquisition Agreement, the RIC Quota Share Reinsurance Agreement or the other Ancillary Agreements, neither party shall use the name, trademark, service mark, logo or identification of the other party without the other party's prior written consent. Section 15.15 Survival. The provisions of Article XII, Article XIII and Article XV hereof shall survive the termination of this RIC Administrative Services Agreement. 22 Section 15.16 Subcontracting. Administrator may subcontract for the performance of any Administrative Services that Administrator is to provide hereunder upon receipt of the prior written consent of Insurer, which consent shall not be unreasonably withheld or delayed; provided, however, that such subcontracting shall not be deemed to relieve Administrator of its obligations under this RIC Administrative Services Agreement. Section 15.17 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by facsimile (which is confirmed), by courier (delivery of which is confirmed) or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties to this RIC Administrative Services Agreement as follows: If to Insurer: Laura S. Lawrence, Esq. General Counsel Royal Group, Inc. 9300 Arrowpoint Blvd. Charlotte, NC 28273 Telephone No.: (704) 522-2851 Facsimile No.: (704) 522-2313 With a copy to (which shall not constitute notice to Insurer for purposes of this Section 15.17): Robert J. Sullivan, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Telephone No.: 212-735-2930 Facsimile No.: 212-735-2000 23 If to Administrator: Royal Specialty Underwriting, Inc. Mr. David E. Leonard Executive Vice President 945 East Paces Ferry Road Atlanta, GA 30326 Telephone No.: (404) 231-2366 Facsimile No: (404) 231-3755 With copies to (which shall not constitute notice to the Administrator for purposes of this Section 15.17): Robert M. Hart, Esq. General Counsel Alleghany Corporation 375 Park Avenue, Suite 3201 New York, New York 10152 Telephone No.: (212) 752-1356 Facsimile No.: (212) 759-8149 and Aileen C. Meehan, Esq. William W. Rosenblatt, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Telephone No.: (212) 259-8000 Facsimile No.: (212) 259-6333 If to Reinsurer: Underwriters Reinsurance Company Mr. David E. Leonard Executive Vice President 945 East Paces Ferry Road Atlanta, GA 30326 Telephone No.: (404) 231-2366 Facsimile No: (404) 231-3755 With copies to (which shall not constitute notice to the Reinsurer for purposes of this Section 15.17): Robert M. Hart, Esq. General Counsel Alleghany Corporation 24 375 Park Avenue, Suite 3201 New York, New York 10152 Telephone No.: (212) 752-1356 Facsimile No.: (212) 759-8149 and Aileen C. Meehan, Esq. William W. Rosenblatt, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Telephone No.: (212) 259-8000 Facsimile No.: (212) 259-6333 or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. In no event shall the provision of notice pursuant to this Section 15.17 constitute notice for service of any writ, process or summons in any suit, action or other proceeding. Section 15.18 Interpretation. (a) When a reference is made in this RIC Administrative Services Agreement to a Section or Article, such reference shall be to a section or article of this RIC Administrative Services Agreement unless otherwise clearly indicated to the contrary. Whenever the words "include", "includes" or "including" are used in this RIC Administrative Services Agreement, they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this RIC Administrative Services Agreement as a whole and not to any particular provision of this RIC Administrative Services Agreement. The meaning assigned to each term used in this RIC Administrative Services Agreement shall be equally applicable to both the singular and the plural forms of such term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. (b) The parties have participated jointly in the negotiation and drafting of this RIC Administrative Services Agreement; consequently, in the event an ambiguity or question of intent or interpretation arises, this RIC Administrative Services Agreement shall be construed as if drafted jointly by the parties thereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this RIC Administrative Services Agreement. 25 IN WITNESS WHEREOF, this RIC Administrative Services Agreement has been duly executed by a duly authorized officer of each party hereto as of the date first above written. ROYAL INDEMNITY COMPANY By: /s/ Stephen M. Mulready --------------------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer ROYAL SPECIALTY UNDERWRITING, INC. By: /s/ James A. Dixon --------------------------------------- Name: James A. Dixon Title: Chairman UNDERWRITERS REINSURANCE COMPANY By: /s/ James P. Slattery --------------------------------------- Name: James P. Slattery Title: President EX-10.11 13 y88779exv10w11.txt CONTENTS TO ADMINISTRATIVE SERVICES AGREEMENT Exhibit 10.11 List of Contents of Exhibits and Schedules to the Royal Indemnity Company Administrative Services Agreement Exhibits Description -------- ----------- Exhibit A Administrative Services Intellectual Property License Agreement Exhibit B RSA Reinsurance Security Guidelines Exhibit C Form of Report Required Pursuant to Section 7.1 Schedules Description --------- ----------- Schedule 4.5(a) Levels of Treaty Reinsurance EX-10.12 14 y88779exv10w12.txt ADMINISTRATIVE SERVICES AGREEMENT EXHIBIT 10.12 ADMINISTRATIVE SERVICES AGREEMENT BY AND AMONG ROYAL SURPLUS LINES INSURANCE COMPANY, ROYAL SPECIALTY UNDERWRITING, INC. AND UNDERWRITERS REINSURANCE COMPANY DATED JULY 1, 2003 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS Section 1.1 Definitions......................................................................... 2 ARTICLE II APPOINTMENT; PERFORMANCE STANDARDS Section 2.1 Appointment......................................................................... 5 Section 2.2 Standards........................................................................... 5 ARTICLE III SERVICES TO BE PROVIDED BY ADMINISTRATOR Section 3.1 Administrative Services............................................................. 6 Section 3.2 Administration...................................................................... 6 ARTICLE IV REGULATORY COMPLIANCE AND CUSTOMER ISSUES Section 4.1 Certain Regulatory Filings.......................................................... 6 Section 4.2 Changes in Applicable Laws.......................................................... 6 Section 4.3 Inquiries, Notification and Customer Complaints..................................... 7 Section 4.4 Management of Customer Relationships................................................ 7 Section 4.5 Maintenance of Treaty Reinsurance................................................... 7 ARTICLE V AUTHORITY Section 5.1 Authority........................................................................... 7 Section 5.2 Administration of Excluded Liabilities.............................................. 8 Section 5.3 Marketing and Advertising........................................................... 9 ARTICLE VI OTHER SERVICES AND FEES FOR SERVICES Section 6.1 Additional Services................................................................. 9 Section 6.2 Fee for Services.................................................................... 9 Section 6.3 Services Provided by Insurer........................................................ 9 ARTICLE VII REPORTS, ELECTRONIC PREMIUM AND LOSS DATA Section 7.1 Reports, Electronic Premium and Loss Data........................................... 10 Section 7.2 Payment of Amounts.................................................................. 10 ARTICLE VIII BOOKS AND RECORDS; BANK ACCOUNTS Section 8.1 Access to Books and Records......................................................... 11 Section 8.2 Bank Accounts....................................................................... 13 ARTICLE IX INABILITY TO PERFORM SERVICES; ERRORS Section 9.1 Inability to Perform Services....................................................... 13 Section 9.2 Errors.............................................................................. 13
i ARTICLE X LEGAL ACTIONS Section 10.1 Regulatory Proceedings.............................................................. 13 Section 10.2 Compliance of Reinsured Contracts................................................... 14 Section 10.3 Defense of Litigation............................................................... 14 Section 10.4 Communications Regarding Certain Matters............................................ 15 ARTICLE XI DURATION; TERMINATION Section 11.1 Duration............................................................................ 15 Section 11.2 Termination......................................................................... 15 ARTICLE XII CONFIDENTIALITY Section 12.1 Use of Confidential Information..................................................... 16 Section 12.2 Confidentiality of Individuals...................................................... 16 Section 12.3 Disclosure.......................................................................... 16 ARTICLE XIII INDEMNIFICATION Section 13.1 Indemnification by Insurer.......................................................... 17 Section 13.2 Indemnification by Administrator.................................................... 17 Section 13.3 Indemnification Procedure........................................................... 17 Section 13.4 Relationship to RSLIC Quota Share Reinsurance Agreement............................. 17 ARTICLE XIV ARBITRATION Section 14.1 Arbitration......................................................................... 18 Section 14.2 Notice of Arbitration............................................................... 18 Section 14.3 Arbitration Panel................................................................... 18 Section 14.4 Submission of Briefs................................................................ 18 Section 14.5 Arbitration Board's Decision........................................................ 19 Section 14.6 Jurisdiction........................................................................ 19 Section 14.7 Expenses............................................................................ 19 Section 14.8 Production of Documents and Witnesses............................................... 19 Section 14.9 Relief Available.................................................................... 20 Section 14.10 Consolidation....................................................................... 20 ARTICLE XV MISCELLANEOUS Section 15.1 Cooperation......................................................................... 20 Section 15.2 Amendment, Modification and Waiver.................................................. 20 Section 15.3 Relationship........................................................................ 20 Section 15.4 Entire Agreement.................................................................... 21 Section 15.5 Governing Law....................................................................... 21 Section 15.6 Severability........................................................................ 21 Section 15.7 Counterparts........................................................................ 21 Section 15.8 Consent to Jurisdiction............................................................. 21 Section 15.9 Third Party Beneficiaries........................................................... 22 Section 15.10 Binding; Assignment................................................................. 22 Section 15.11 Specific Performance................................................................ 22
ii Section 15.12 Descriptive Headings................................................................ 22 Section 15.13 Expenses............................................................................ 22 Section 15.14 Use of Name......................................................................... 22 Section 15.15 Survival............................................................................ 22 Section 15.16 Subcontracting...................................................................... 23 Section 15.17 Notices............................................................................. 23 Section 15.18 Interpretation...................................................................... 25
EXHIBITS Exhibit A Administrative Services Intellectual Property License Agreement Exhibit B RSA Reinsurance Security Guidelines Exhibit C Form of Report Required Pursuant to Section 7.1 SCHEDULES Schedule 4.5(a) Levels of Treaty Reinsurance iii ADMINISTRATIVE SERVICES AGREEMENT This ADMINISTRATIVE SERVICES AGREEMENT, dated as of July 1, 2003 (hereinafter referred to as the "RSLIC Administrative Services Agreement") is made and entered into by and among ROYAL SURPLUS LINES INSURANCE COMPANY, a Connecticut company ("Insurer"), ROYAL SPECIALTY UNDERWRITING, INC., a Georgia company ("RSUI" or "Administrator"), and UNDERWRITERS REINSURANCE COMPANY, a property and casualty insurance company organized under the laws of the State of New Hampshire ("Reinsurer"). WHEREAS, prior to the Effective Date (defined below), RSUI has underwritten certain insurance and reinsurance contracts on behalf of Insurer and administered the claims, reinsurance recoverables and premium activity relating to such contracts; WHEREAS, pursuant to an Acquisition Agreement, dated as of June 6, 2003 (the "Acquisition Agreement"), by and between Royal Group, Inc., a Delaware corporation ("Royal") and Alleghany Insurance Holdings LLC, a Delaware limited liability company ("AIHL"), the parties agreed, among other things, that Royal will sell, and AIHL will buy, all of the issued and outstanding shares of common stock of RSUI; WHEREAS, pursuant to the Assignment and Assumption Agreement dated as of June 30, 2003 (the "Assignment Agreement"), AIHL assigned to RSUI Group, Inc., a Delaware corporation and a wholly-owned subsidiary of AIHL ("RSUI Group"), and RSUI Group assumed from AIHL, all of AIHL's rights and obligations under the Acquisition Agreement; WHEREAS, pursuant to the terms of the Acquisition Agreement and the Assignment Agreement, Royal and RSUI Group have agreed that Royal shall cause Insurer, and RSUI Group shall cause Reinsurer, to enter into a Quota Share Reinsurance Agreement (the "RSLIC Quota Share Reinsurance Agreement"), pursuant to which Insurer has agreed to cede to Reinsurer, and Reinsurer has agreed to assume, on a 100% quota share basis, the liabilities and obligations arising out of (i) the insurance contracts issued by Reinsurer in Insurer's name with an effective date (new or renewal) on or after the Effective Date; and (ii) the RSUI-Produced Insurance Contracts (defined below) which are in force on the Effective Date, but only to the extent they arise out of, or relate to, periods on or after the Effective Date; WHEREAS, Insurer wishes to appoint Administrator to provide all administrative services and other services with respect to the Reinsured Contracts and Reinsured Liabilities (as such terms are defined in the RSLIC Quota Share Reinsurance Agreement), and Administrator desires to provide such administrative services in consideration of Insurer entering into the RSLIC Quota Share Reinsurance Agreement; and WHEREAS, the parties agree that Administrator shall continue, for the duration of this RSLIC Administrative Services Agreement, to administer the claims, reinsurance recoverables and premium activity relating to the Reinsured Contracts on the Computer Systems and to prepare and deliver reports relating to such administration to Insurer in substantially the same manner as RSUI has been doing prior to the Effective Date. NOW, THEREFORE, for and in consideration of the premises and the promises and the mutual agreements hereinafter set forth and set forth in the Acquisition Agreement and RSLIC Quota Share Reinsurance Agreement, the parties hereto, intending to be legally bound, covenant and agree as follows: ARTICLE I DEFINITIONS Section 1.1 Definitions. Capitalized terms used but not defined herein and which are defined in the RSLIC Quota Share Reinsurance Agreement shall have the meanings ascribed to them in the RSLIC Quota Share Reinsurance Agreement. As used in this RSLIC Administrative Services Agreement, the following terms shall have the meanings set forth herein: "AAA" shall have the meaning set forth in Section 14.3 hereof. "Acquisition Agreement" shall have the meaning set forth in the recitals. "Administrative Services" shall have the meaning set forth in Section 3.1 hereof. "Administrative Services Intellectual Property License Agreement" shall have the meaning set forth in Section 2.1(d) hereof. "Administrator" shall have the meaning set forth in the recitals. "Affiliate" of any Person means another Person that as from time to time, directly or indirectly controls, is controlled by, or is under common control with, such first Person, where "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a Person, whether through the ownership of voting securities, by contract, as trustee or executor, or otherwise. For the purposes of this RSLIC Administrative Services Agreement, the term "Affiliated" has a meaning correlative to the foregoing. "AIHL" shall have the meaning set forth in the recitals. "Applicable Law" means any applicable order, law, statute, regulation, rule, ordinance, writ, injunction, directive, judgment, decree, principal of common law, constitution or treaty enacted, promulgated, issued, enforced or entered by any Governmental Entity, including any amendments thereto that may be adopted from time to time. 2 "Assignment Agreement" shall have the meaning set forth in the recitals. "Bank Accounts" shall have the meaning set forth in Section 8.2 hereof. "Board" shall have the meaning set forth in Section 14.1 hereof. "Books and Records" means the originals or copies of all customer lists, policy information, insurance contract forms, administrative and pricing manuals, medical procedure code lists, claim records, sales records, underwriting records, financial records, compliance records, data files prepared for or filed with regulators of the Business (as such term is defined in the Acquisition Agreement) and premium tax records, each in the possession or control of RSUI, Royal or any of its Affiliates, or, after the Closing, AIHL or any of its Affiliates and used in the operation of the Business, whether or not stored in hardcopy form or on magnetic or optical media (to the extent not subject to licensing restrictions), but excluding (i) prior to the Closing, any such lists, information and records that are prohibited from being disclosed or transferred by Applicable Law or regulatory requirements and (ii) any such information that is part of any consolidated, unitary, combined or similar Tax Return except to the extent directly related to RSUI. "Business Day" means a Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions in the State of New York are not authorized or obligated by Applicable Law to close. "Closing" shall mean the closing of the transactions contemplated under the Acquisition Agreement. "Closing Date" shall mean the date of the Closing. "Computer Systems" means the PODS relational database, the ENTRII: Premium registration system (electronic user interface populated by B-File database) and other computer systems RSUI utilizes, and utilized immediately prior to the Closing, to perform the Administrative Services. "Damages" shall have the meaning set forth in the RSLIC Quota Share Reinsurance Agreement. "Effective Date" shall have the meaning set forth in the RSLIC Quota Share Reinsurance Agreement. "Excluded Liabilities" shall have the meaning set forth in the RSLIC Quota Share Reinsurance Agreement. "Governmental Entities" shall have the meaning set forth in the RSLIC Quota Share Reinsurance Agreement. "Material Regulatory Proceeding" shall have the meaning set forth in Section 10.1(c) hereof. 3 "90-Day Treasury Rate" means the annual yield rate, as of any given date, of actively traded U.S. Treasury securities having remaining duration to maturity of three months, as such rate is published under "Treasury Constant Maturities" in Federal Reserve Statistical Release H.15(519). "Person" shall have the meaning set forth in the RSLIC Quota Share Reinsurance Agreement. "Policyholder" shall have the meaning set forth in the RSLIC Quota Share Reinsurance Agreement. "Producers" shall mean any reinsurance intermediary, agent or other producer of Insurer. "Quota Share Reinsurance Agreements" shall mean, collectively, the RIC Quota Share Reinsurance Agreement, the RSLIC Quota Share Reinsurance Agreement and the Landmark Quota Share Reinsurance Agreement, as such terms are defined in the Acquisition Agreement. "Reinsured Contracts" shall have the meaning set forth in the RSLIC Quota Share Reinsurance Agreement. "Reinsured Liabilities" shall have the meaning set forth in the RSLIC Quota Share Reinsurance Agreement. "Reinsurer" shall have the meaning set forth in the recitals. "Representative" shall mean, with respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel accounts and financial advisors. "Royal" shall have the meaning set forth in the recitals. "RSUI" shall have the meaning set forth in the recitals. "RSUI Group" shall have the meaning set forth in the recitals. "RSUI-Produced Insurance Contracts" shall have the meaning set forth in the RSLIC Quota Share Reinsurance Agreement. "Subsidiary" of any Person means another Person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its Board of Directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first Person. 4 "Transition Services Agreement" shall mean the Transition Services Agreement entered into by and between Royal and AIHL on the Closing Date pursuant to the Acquisition Agreement. ARTICLE II APPOINTMENT; PERFORMANCE STANDARDS Section 2.1 Appointment. (a) Insurer hereby appoints Administrator as its agent and attorney-in-fact to provide the Administrative Services and other services specified herein with respect to the Reinsured Contracts and the Reinsured Liabilities on the terms, and subject to the limitations and conditions, set forth in this RSLIC Administrative Services Agreement, and Administrator hereby accepts such appointment and agrees to perform such Administrative Services on behalf of and in the name of Insurer in accordance with the terms and conditions of this RSLIC Administrative Services Agreement. (b) Administrator represents that it has or will obtain and maintain any and all licenses required under Applicable Law to perform its obligations under this RSLIC Administrative Services Agreement. (c) The intention of the parties hereto is that Administrator shall perform all Administrative Services in such a manner as to minimize the involvement of Insurer and its Affiliates, subject to the requirements of any Applicable Law that require that specific actions be taken by Insurer without the Administrator acting on its behalf. (d) Administrator's access to the Computer Systems controlled by Insurer that are necessary for it to provide the Administrative Services and other services specified herein shall be governed by the Administrative Services Intellectual Property License Agreement, the form of which is attached hereto as EXHIBIT A (the "Administrative Services Intellectual Property License Agreement"). Section 2.2 Standards. (a) Administrator acknowledges that the performance of the Administrative Services in an accurate and timely manner is of paramount importance to Insurer. Subject to the provisions of this RSLIC Administrative Services Agreement, Administrator agrees that in providing the Administrative Services: (i) it shall conduct itself in accordance with all administrative and claims handling standards utilized by leading property and casualty insurers, which standards are at least equal to the standards pursuant to which RSUI administered the RSUI-Produced Insurance Contracts and the related liabilities immediately prior to the Effective Date; (ii) it shall comply in all material respects with all Applicable Laws relating to the Reinsured Contracts and the Reinsured Liabilities and to the conduct of the activities contemplated hereby; and (iii) it shall comply with the terms of the Reinsured Contracts. 5 (b) For the duration of this RSLIC Administrative Services Agreement, Administrator hereby covenants that it will employ and retain staff with the experience, skill and expertise to perform the Administrative Services the Administrator is obligated to perform hereunder in a manner consistent with the standards set forth in Section 2.2(a) hereof. In connection therewith, Administrator shall have suitable business continuity plans in place. (c) Administrator shall in all respects administer the Reinsured Contracts in a manner which would not adversely affect the reputation of the Insurer. (d) Notwithstanding anything in this RSLIC Administrative Services Agreement to the contrary, Insurer shall retain the authority to make all final decisions with respect to the administration of the Reinsured Contracts, and shall consult with the Administrator of its intention to do so. ARTICLE III SERVICES TO BE PROVIDED BY ADMINISTRATOR Section 3.1 Administrative Services. While this RSLIC Administrative Services Agreement is in effect, Administrator shall provide the Administrative Services, including, but not limited to, all services currently provided and all services currently performed by RSUI and/or Insurer or required to be provided by Applicable Law or the Reinsured Contracts, and generally, any and all other services incidental to the administration of the Reinsured Contracts and the Reinsured Liabilities (the "Administrative Services"). Section 3.2 Administration. Administrator shall continue, for the duration of this RSLIC Administrative Services Agreement, to administer the claims, reinsurance recoverables and premium activity relating to the Reinsured Contracts on RSUI's existing systems and to prepare and deliver reports relating to such administration to Insurer's Computer Systems in substantially the same manner as RSUI has been doing prior to the Effective Date and as provided in the Administrative Services Intellectual Property License Agreement. ARTICLE IV REGULATORY COMPLIANCE AND CUSTOMER ISSUES Section 4.1 Certain Regulatory Filings. Administrator and the Reinsurer shall use best efforts to obtain all policy form, rate and rule filings necessary to enable Reinsurer or an Affiliate to issue in Reinsurer's or such Affiliate's own name contracts or policies similar to the Reinsured Contracts as soon as practicable after the Effective Date. Section 4.2 Changes in Applicable Laws. From time to time, Administrator and Insurer shall share with each other information they have in their 6 possession relating to material changes in Applicable Laws in order to ensure the Reinsured Contracts are administered in compliance with Applicable Laws. Section 4.3 Inquiries, Notification and Customer Complaints. Administrator shall promptly notify Insurer regarding any inquiries or notifications received from Governmental Entities and any inquiries and complaints received from Producers or other customers with respect to the Reinsured Contracts and the Reinsured Liabilities. Section 4.4 Management of Customer Relationships. Each of Administrator and Insurer shall appoint one senior executive whose responsibility shall be to work with the other party in overseeing that the standards and the provisions set forth in this Article IV and elsewhere are complied with, in particular with respect to issues involving management of customer relationships. Section 4.5 Maintenance of Treaty Reinsurance. (a) Each of Administrator and Reinsurer shall maintain minimum levels of treaty reinsurance as set forth in SCHEDULE 4.5(a) hereto. (b) Commencing with any renewal of the treaties set forth in Schedule 4.5(a), Reinsurer shall purchase a level of catastrophe reinsurance protection which would protect Reinsurer's surplus loss to no more than 10% arising out of a single catastrophe on a one in a 250 year modeling event standard. (c) All third party reinsurance with respect to the Reinsured Contracts placed by Administrator in the name of Insurer must comply with the RSA Reinsurance Security Guidelines attached hereto as EXHIBIT B. ARTICLE V AUTHORITY Section 5.1 Authority (a) Insurer agrees that, on and after the Effective Date, Administrator shall have the authority to issue the Reinsured Contracts in Insurer's name for the benefit of the Reinsurer; provided, however, except as otherwise required by Applicable Laws, Administrator shall have no authority to issue the Reinsured Contracts or take other actions authorized under this Section 5.1 in Insurer's name in any state on or after the earlier of (i) thirty (30) days after the date the Administrator or an Affiliate of the Administrator obtains all policy form, rate and rule filings necessary to enable the Reinsurer or an Affiliate to issue in Reinsurer's or such Affiliate's own name contracts or policies similar to the RSUI-Produced Insurance Contracts in a particular state, and (ii) one (1) year after the Effective Date; provided, further, however, with respect to the Reinsured Contracts issued in Texas, Insurer agrees that Administrator shall have the authority to issue Reinsured Contracts in Insurer's name for the benefit of Reinsurer until 7 December 31, 2004, or such earlier date as is agreed to by the parties in the event that Landmark American Insurance Company is authorized to issue policies on an excess or surplus lines basis in Texas prior to December 31, 2004. (b) Administrator acknowledges that its authority to issue the Reinsured Contracts in Insurer's name pursuant to this Section 5.1 is subject to the following additional limitations: (i) Administrator shall not assign or delegate its authority to a third party other than the Reinsurer; (ii) Administrator shall not issue any Reinsured Contracts outside the United States, (iii) the Reinsured Contracts shall be limited to the type of business comprising the RSUI-Produced Insurance Contracts as of the date hereof; (iv) in issuing the Reinsured Contracts, Administrator shall observe similar policy wordings and policy limits found in the RSUI-Produced Insurance Contracts; (v) the aggregate gross written premiums attributable to the business ceded under the Quota Share Reinsurance Agreements collectively (exclusive of the unearned premium attributable to the Assumed Contracts under the respective Quota Share Reinsurance Agreement as of the Effective Date) shall not exceed one billion dollars in the aggregate; provided, however, the aggregate gross written premiums attributable to the business ceded under the RSLIC Quota Share Reinsurance Agreement solely (exclusive of the unearned premium attributable to the Assumed Contracts under the RSLIC Quota Share Reinsurance Agreement as of the Effective Date) shall not exceed five hundred million dollars; and (vi) any other limitations as may be contained in the Managing General Agency Agreement, dated as of the Closing Date, by and between Insurer and Administrator. Section 5.2 Administration of Excluded Liabilities. (a) Insurer shall retain liability and administrative responsibility for all Excluded Liabilities. Insurer shall reimburse Administrator for all reasonable out-of-pocket costs and expenses incurred by Administrator in connection with the administration of Excluded Liabilities. (b) With respect to any claims (including claims for reinsurance recoveries) presented in which both Reinsured Liabilities and Excluded Liabilities are alleged and where the predominant claim activities and costs relate to Excluded Liabilities, Administrator, on behalf of Reinsurer, shall notify Insurer and Insurer will either assume the administration of such claim activities or fund Administrator's out-of-pocket costs and expenses of such claim activities to the extent they relate to Excluded Liabilities. (c) In the event claims are presented in connection with Reinsured Liabilities, and it is in question whether a Reinsured Liability or an Excluded Liability is at issue, Administrator, on behalf of Reinsurer, shall defend or prosecute such claim and Insurer and Administrator shall resolve the responsibility for any amount of loss, allocated loss expense or other costs and expenses pursuant to the provisions of the RSLIC Quota Share Reinsurance Agreement. In the event that, during the course of a claim, it becomes clear that the claim (or a portion thereof) is an Excluded Liability, Administrator shall notify Insurer and Insurer will either assume the administration of 8 such claim (or the Excluded Liability portion thereof) or fund the out-of-pocket costs and expenses of such claim activities to the extent they relate to Excluded Liabilities. (d) In the event that a claim (including claims for reinsurance recoveries) presented in connection with a Reinsured Contract is not a Reinsured Liability or is an Excluded Liability, Insurer shall have the sole responsibility to defend or prosecute such claim. (e) With respect to those matters described in (b), (c) and (d) of this Section 5.2, the party administering the claim shall be provided the full cooperation of the other party as well as the Reinsurer and shall be responsible for reimbursing such other party for any out-of-pocket costs and expenses incurred by such party in providing such cooperation. Section 5.3 Marketing and Advertising. Subject to the terms of the Transitional Trademark License Agreement, Insurer hereby grants Administrator and the Reinsurer the authority to prepare, print, publish and distribute descriptive brochures and other promotional material related to the Reinsured Contracts and to engage in or direct all other marketing activities related thereto. ARTICLE VI OTHER SERVICES AND FEES FOR SERVICES Section 6.1 Additional Services. If Administrator or Insurer, as the case may be, requires from the other party services to be provided with respect to the Reinsured Contracts which are not otherwise contemplated under this RSLIC Administrative Services Agreement, the parties shall negotiate in good faith to reach a mutually acceptable arrangement with respect to the provision of such services. Each party shall reasonably compensate such other party for such additional services provided by such other party. Section 6.2 Fee for Services. Except as otherwise specifically provided for by this RSLIC Administrative Services Agreement, Administrator shall provide Administrative Services pursuant to this RSLIC Administrative Services Agreement at its own expense (or at the expense of the Reinsurer), subject to the other terms in this RSLIC Administrative Services Agreement, in consideration for the promises made by Insurer under this RSLIC Administrative Services Agreement, the Acquisition Agreement, the RSLIC Quota Share Reinsurance Agreement, the Transition Services Agreement and the other Ancillary Agreements (as such term is defined in the Acquisition Agreement) to which it is a party, and shall not receive any separate fee from Insurer for the provision of Administrative Services. Section 6.3 Services Provided by Insurer. Insurer agrees to promptly notify Administrator with respect to any inquiries or notifications received from Governmental Entities or from Producers, including, without limitation, inquiries regarding consumer inquiries and complaints, market conduct exams, zone exams, 9 summons and complaints, subpoenas and Internal Revenue Service inquiries relating to the Reinsured Contracts and the Reinsured Liabilities. ARTICLE VII REPORTS, ELECTRONIC PREMIUM AND LOSS DATA Section 7.1 Reports, Electronic Premium and Loss Data. (a) Administrator shall collect, administer and provide to Insurer all necessary quality information and data for Insurer to continue to maintain financial and statistical data with respect to the Reinsured Contracts and Reinsured Liabilities in order to permit Insurer to timely make all required regulatory, statistical, and financial reports and filings. All information and data provided by Administrator to Insurer pursuant to this Article VII will be provided as reasonably requested by Insurer. Without limiting the generality of the foregoing, Administrator shall prepare all reports needed by Insurer or the Seller in connection with the Reinsured Liabilities and the Reinsured Contracts to enable Insurer or the Seller to comply with Applicable Law and any and all reporting or filing requirements. Any monthly, quarterly or year-end reports required to be prepared by Administrator shall be prepared on a timely basis in order for Insurer or the Seller to comply with any filing deadlines required. (b) During the term of this RSLIC Administrative Services Agreement, Administrator shall transmit to Insurer, within thirty (30) days following the end of each calendar month, a summary report in form and substance as set forth in EXHIBIT C hereto, of all activity relating to the Reinsured Contracts and Reinsured Liabilities for the period reported. The report shall include, but not be limited to, the amount of premiums, commissions, related expenses, reserves and paid losses, as applicable; provided, however, that notwithstanding anything herein to the contrary, in no event shall such reports be deemed to indicate that the Administrator or the Reinsurer has any obligation to pay to the Insurer any amount in respect of Excluded Liabilities which may be reflected on such reports. Section 7.2 Payment of Amounts. Except to the extent that this RSLIC Administrative Services Agreement or the RSLIC Quota Share Reinsurance Agreement provides otherwise and regardless of whether any amounts due to either party are being disputed pursuant to the provisions of Article XV hereof, all amounts due either party under this RSLIC Administrative Services Agreement shall be paid on or before the thirtieth (30th) Business Days of delivery of such report, and any amount not paid on or before the thirtieth (30th) Business Day period shall bear simple interest at the 90-Day Treasury Rate from the twentieth Business Day until the date of payment. 10 ARTICLE VIII BOOKS AND RECORDS; BANK ACCOUNTS Section 8.1 Access to Books and Records. (a) To the extent permitted by Applicable Law, from the date hereof until the date on which Insurer has fulfilled all of its obligations to Administrator under this RSLIC Administrative Services Agreement, and at any time (without limitation) as may be required in Administrator's reasonable judgment in order for Administrator to comply with any Applicable Law or to perform its obligations or responsibilities under this RSLIC Administrative Services Agreement, Administrator and its Representatives may from time to time reasonably request, and Insurer shall provide, at reasonable times during normal business hours, full and open access to examine all Books and Records under the control of Insurer pertaining to the Reinsured Contracts, the Reinsured Liabilities and the RSUI-Produced Insurance Contracts, and services to be provided under this RSLIC Administrative Services Agreement, and to discuss any matters relating to the Reinsured Contracts or the Reinsured Liabilities and services to be provided under this RSLIC Administrative Services Agreement with the employees and agents of Insurer who are familiar therewith, so that Administrator shall have sufficient opportunity to make whatever investigation it shall deem necessary and desirable in connection with the transactions contemplated by this RSLIC Administrative Services Agreement. The Administrator shall also have reasonable access to Insurer's Computer Systems and accounting systems for such purposes. Such access and opportunity shall be exercised by Administrator and such Representatives in a manner that shall not interfere unreasonably with the operations of Insurer. Such access shall include the right of Administrator to make and retain copies of any Books and Records relating to the Reinsured Contracts or the Reinsured Liabilities to the extent that Administrator reasonably determines that it requires copies of any such Books and Records in order to carry out the transactions contemplated by this RSLIC Administrative Services Agreement or for any legitimate business purposes related to this RSLIC Administrative Services Agreement. (b) To the extent permitted by Applicable Law, from the date hereof until the date on which Administrator has fulfilled all of its obligations to perform services for Insurer under this RSLIC Administrative Services Agreement, and at any time (without limitation) as may be required in the reasonable judgment of Insurer for Insurer to comply with any Applicable Law or to perform its obligations or responsibilities under this RSLIC Administrative Services Agreement, Insurer and its Representatives may from time to time reasonably request, and Administrator shall provide, at reasonable times during normal business hours, full and open access to examine the Books and Records of Administrator and of its independent auditor pertaining to the Reinsured Contracts, the Reinsured Liabilities and the RSUI-Produced Insurance Contracts, and to the services to be provided under this RSLIC Administrative Services Agreement (including, but not limited to, the Books and Records transferred to Administrator pursuant to this Section 8.1 and still then retained by Administrator) and to discuss such Reinsured Contracts, Reinsured Liabilities and services with the employees and agents of Administrator who are familiar therewith, so that Insurer shall have 11 sufficient opportunity to make whatever investigation it shall deem necessary and desirable in connection with the transactions contemplated by this RSLIC Administrative Services Agreement. Such access and opportunity shall be exercised by Insurer and such Representatives in a manner that shall not interfere unreasonably with the operations of Administrator. Such access shall include the right of Insurer to make and retain copies of any Books and Records relating to the Reinsured Contracts and Reinsured Liabilities to the extent that Insurer reasonably determines that it requires copies of any such Books and Records in order to carry out the transactions contemplated by this RSLIC Administrative Services Agreement or for any legitimate business purposes related to this RSLIC Administrative Services Agreement. (c) During the term of this RSLIC Administrative Services Agreement, Administrator shall retain all Books and Records relating to the Reinsured Contracts and Reinsured Liabilities transferred by Insurer or produced by Administrator on behalf of Insurer to the extent such Books and Records are required by Applicable Law to be retained by either Administrator or Insurer, but in any case, for at least ten (10) years after termination of the Reinsured Contracts applicable to such Books and Records. (d) Each party hereto shall pay all storage and related expenses associated with any Books and Records relating to the Reinsured Contracts and Reinsured Liabilities, and copies thereof, that it retains in its possession. (e) Administrator shall provide security for the Books and Records that are in its possession. Administrator shall comply with all Applicable Laws, including, without limitation, privacy laws applicable to the Insurer, in connection with all such data and Books and Records. Administrator shall cooperate with any regulatory authority having jurisdiction over Insurer in providing access to such Books and Records. (f) Following expiration of this RSLIC Administrative Services Agreement other than by reason of Insurer's termination pursuant to Section 11.2 hereof, all Books and Records pertaining to the Reinsured Contracts and Reinsured Liabilities shall be the sole property of Reinsurer, unless otherwise provided by Applicable Law or herein and provided that Insurer shall have full access to such Books and Records to the extent required to respond to regulatory, statistical, tax or similar inquiries or investigations and for Insurer to defend any claim against it. Section 8.2 Bank Accounts (a) During the term of this RSLIC Administrative Services Agreement, Administrator may establish and maintain accounts with banking institutions to provide the Administrative Services (the "Bank Accounts"). The Administrator shall have the exclusive authority over the Bank Accounts including, within reason, the exclusive authority to (i) open the Bank Accounts in the name of Insurer, (ii) designate the authorized signatories on the Bank Accounts, (iii) issue drafts on and make deposits in the Bank Accounts in the name of Insurer, and (iv) make withdrawals from the Bank Accounts. The Administrator agrees to limit transactions using these Bank Accounts to 12 only those transactions that pertain to the RSLIC Quota Share Reinsurance Agreement. Insurer shall do all things reasonably necessary to enable Administrator to open and maintain the Bank Accounts including, without limitation, executing and delivering such depository resolutions and other documents as may be requested from time to time by the banking institutions. Insurer agrees that without Administrator's prior written consent or as may be required by Applicable Law or regulatory authorization it shall not make any changes to the authorized signatories on the Bank Accounts or attempt to withdraw any funds therefrom. Administrator and the Reinsurer will have the sole obligation to the Bank Accounts and shall own all funds deposited in the Bank Accounts. Administrator shall be responsible for all abandoned property laws requirements and obligations, and shall pay all fees and charges made in connection with such accounts. (b) Notwithstanding any provision of this RSLIC Administrative Services Agreement to the contrary, the Administrator shall have no authority to borrow money or incur any indebtedness on behalf of the Insurer or permit any Bank Accounts to become overdrawn. ARTICLE IX INABILITY TO PERFORM SERVICES; ERRORS Section 9.1 Inability to Perform Services. In the event that Administrator shall be unable to perform any Administrative Service for a period that could reasonably be expected to exceed ninety (90) days or such shorter period as may be required by Applicable Law or the Reinsured Contracts, Administrator and Insurer shall mutually agree on alternative means of providing such services. If alternative means for the provision of the Administrative Services cannot be agreed upon by the parties, Insurer may procure such Administrative Services for the Reinsured Contracts and Reinsured Liabilities by commercially reasonable means. Administrator and the Reinsurer shall be solely responsible for all costs incurred in restoring Administrative Services which have not been provided due to its failure to adhere to its obligations under this RSLIC Administrative Services Agreement. Section 9.2 Errors. Administrator shall, at its own expense, correct any errors in the Administrative Services caused by it within a reasonable time (not to exceed thirty (30) days) after receiving written notice thereof from Insurer or otherwise. ARTICLE X LEGAL ACTIONS Section 10.1 Regulatory Proceedings. (a) If Insurer or Administrator receive notice of, or otherwise become aware of, any regulatory investigation or proceeding relating to the Reinsured Contracts or the Reinsured Liabilities, Insurer or Administrator, as applicable, shall promptly notify the other party thereof. Subject to the provisions of Section 10.1(c), Administrator shall 13 have the authority to respond to and resolve all regulatory matters and regulatory investigations and proceedings relating to the Reinsured Contracts and Reinsured Liabilities to the extent the resolution is limited to the Reinsured Contracts or Reinsured Liabilities. (b) Subject to the provisions of Section 10.1(c), Administrator will promptly respond on behalf of Insurer to inquiries received from Governmental Entities and Administrator shall conduct whatever investigation is reasonable under the circumstances in order to respond to such inquiries. Administrator shall promptly notify in writing Insurer of any inquiry to which Administrator determines that it will not provide a response in order to permit the Insurer to timely respond. (c) Notwithstanding anything contained herein to the contrary, the parties shall mutually agree to an appropriate response, including which party should respond, to any regulatory investigation or proceeding relating to the Reinsured Contracts or the Reinsured Liabilities which could reasonably be expected to have meaningful adverse effect on any business of the Insurer other than the Reinsured Contracts, or which could meaningfully and adversely interfere with the business, assets, liabilities, obligations, reputation, license, permit, financial condition or results of operations of Insurer or any of its Affiliates (a "Material Regulatory Proceeding"), and the parties hereby agree to cooperate and coordinate in resolving any and all Material Regulatory Proceedings. The parties recognize that, as the issuing company, Insurer retains ultimate responsibility for resolution of the matters contemplated by this Section 10.1. Notwithstanding anything to the contrary contained in this RSLIC Administrative Services Agreement, neither Insurer nor Administrator shall have the authority to institute, prosecute, defend or maintain any legal or regulatory proceedings on behalf of the other party without the prior written consent of such other party except to the extent expressly provided for by this RSLIC Administrative Services Agreement. Section 10.2 Compliance of Reinsured Contracts. Insurer, Administrator and Reinsurer agree to cooperate with each other and the various Governmental Entities in maintaining the Reinsured Contracts in compliance in all material respects with Applicable Laws. If Administrator determines that any of the Reinsured Contracts are materially not in compliance with such Applicable Laws, Administrator shall so notify in writing Insurer and take whatever action is reasonably necessary to bring such Reinsured Contracts into compliance with Applicable Law. Administrator shall prepare any necessary amendments to such Reinsured Contracts and shall prepare any necessary filings for the purpose of obtaining governmental authority approval for such amendments. Section 10.3 Defense of Litigation. Administrator and Reinsurer shall defend, at their own expense and in the name of Insurer when necessary, any action brought in connection with any Reinsured Contract or relating to any Reinsured Liability; provided, however, Insurer shall have the right, at its own expense, to engage its own separate legal representation and to fully participate in the defense of any litigation with respect to the Reinsured Contracts or the Reinsured Liabilities in which Insurer is named as a party without waiving any rights to indemnification it may have under Article XIII 14 hereof; provided, however, that Administrator and Reinsurer shall have the exclusive authority to control such litigation, and to settle any litigation if (i) Administrator and Reinsurer pay all settlement amounts with respect thereto, (ii) the settlement does not involve any restriction or condition which could reasonably be expected to have an adverse effect on Insurer's business other than the Reinsured Contracts, and (iii) Administrator or Reinsurer obtains a complete release for Insurer, its officers, directors, Representatives and Affiliates with respect to such litigation. Section 10.4 Communications Regarding Certain Matters. Insurer shall promptly (i) notify Administrator in writing if it receives any information or correspondence with respect to any suit, claim, action or proceeding relating to the Reinsured Contracts or the Reinsured Liabilities, or any written communication threatening any of the foregoing and (ii) forward to Administrator any documents it receives relating to any of the matters referred to in clause (i) of this Section 10.4. ARTICLE XI DURATION; TERMINATION Section 11.1 Duration. This RSLIC Administrative Services Agreement shall become effective as of the Effective Date and continue until a date which is the earlier of (A) a date which is the later of (i) the date on which none of the Reinsured Contracts remains in force; (ii) the date on which Insurer has no further Reinsured Liabilities; or (iii) the date on which no further Administrative Services are required, or (B) the date on which this RSLIC Administrative Services Agreement is terminated according to the provisions of Section 11.2 hereof. Section 11.2 Termination. (a) This RSLIC Administrative Services Agreement may be terminated at any time upon the mutual written consent of the parties hereto, which writing shall state the effective date and relevant terms of termination. (b) This RSLIC Administrative Services Agreement is subject to immediate termination at the option of Insurer, upon written notice to Administrator upon the issuance of an order of liquidation or rehabilitation against the Reinsurer or bankruptcy or insolvency proceedings against the Administrator; provided, however, that in the event an order of liquidation or rehabilitation is issued against the Reinsurer, before Insurer may terminate this RSLIC Administrative Services Agreement, Administrator or Reinsurer shall have the opportunity to contest or appeal such order for a period of sixty (60) days from the date of issuance. (c) Upon termination of this RSLIC Administrative Services Agreement pursuant to Section 11.2(a) or (b) hereof, Administrator and Reinsurer shall cooperate fully in the prompt transfer of the applicable Administrative Services and Books and Records maintained by Administrator pursuant to Section 8.1 hereof (or, where appropriate, copies thereof) to Insurer or Insurer's designee, so that Insurer or its 15 designee shall be able to perform the applicable Administrative Services without interruption following termination of this RSLIC Administrative Services Agreement. (d) Upon any termination of this Administrative Services Agreement, each party shall retain its right to bring actions for, and receive damages to, which it may be entitled under Applicable Law. ARTICLE XII CONFIDENTIALITY Section 12.1 Use of Confidential Information. Insurer, Reinsurer and Administrator acknowledge that they will have access to confidential and proprietary information concerning the other party and its businesses, which information is not readily available to the public, and acknowledge that Insurer, Reinsurer and Administrator have taken and will continue to take reasonable actions to ensure such information is not made available to the public. Insurer, Reinsurer and Administrator further agree that they will not at any time (during the term hereof or thereafter) disclose to any Person (except Insurer, Reinsurer or Administrator and their Affiliates and the officers, directors, employees, agents and Representatives of Insurer, Reinsurer and Administrator and their Affiliates who require such information in order to perform their duties in connection with the services provided hereunder), directly or indirectly, or make any use of, for any purpose other than those contemplated by the Acquisition Agreement, this RSLIC Administrative Services Agreement or the RSLIC Quota Share Reinsurance Agreement, any information or trade secrets relating to the Reinsured Contracts or the Reinsured Liabilities or the business affairs of Insurer, Reinsurer or Administrator, including the identity of and/or the compensation arrangements with, any Affiliates and Subsidiaries of Insurer, Reinsurer and Administrator, so long as such information remains confidential. Section 12.2 Confidentiality of Individuals. Information that identifies an individual covered under one of the Reinsured Contracts may be confidential. Reinsurer and Administrator shall take all reasonable precautions to prevent disclosure or use of information identifying individuals covered under such Reinsured Contracts for a purpose unrelated to the performance of this RSLIC Administrative Services Agreement. Reinsurer and Administrator shall comply with all Applicable Laws and regulations, as in effect on the date hereof or as hereafter adopted or amended. With respect to Reinsured Contracts reinsured by Reinsurer, Insurer shall take all reasonable precautions to prevent disclosure or use of information identifying individuals for a purpose unrelated to the performance of this RSLIC Administrative Services Agreement. Section 12.3 Disclosure. Reinsurer, Administrator or Insurer may disclose confidential information in the following circumstances (or as otherwise provided by the provisions of this RSLIC Administrative Services Agreement): (i) in response to a court order or formal discovery request after notice to the other party (to the extent such notice is 16 reasonably practicable); provided, however, that such disclosure shall be limited only to the extent that is required by such court order or formal disclosure request; (ii) if a proper request is made by any regulatory authority after notice to the other party (to the extent such notice is reasonably practicable); provided, however, that such disclosure shall be limited only to the extent that is required by such regulatory authority; (iii) at the proper request of Insurer or Policyholder or his/her legal representative; provided, however, that such disclosure shall be limited only to the extent that is reasonably necessary to satisfy such a request; or (iv) as otherwise required by Applicable Law or the rules of any relevant stock exchange. ARTICLE XIII INDEMNIFICATION Section 13.1 Indemnification by Insurer. Insurer hereby indemnifies Administrator and its Affiliates and its and their respective officers, directors, employees, agents and Representatives against, and agrees to hold each of them harmless from any and all Damages incurred or suffered by any of them arising out of or relating to, (i) any Excluded Liabilities; (ii) any breach or nonfulfillment by Insurer of, or any failure by Insurer to perform, any of the covenants, terms or conditions of, or any duties or obligations under, this RSLIC Administrative Services Agreement; and (iii) any enforcement of this indemnity. Section 13.2 Indemnification by Administrator. Administrator hereby indemnifies Insurer and its Affiliates and its and their respective officers, directors, employees, agents and Representatives against, and agrees to hold each of them harmless from any and all Damages incurred or suffered by any of them arising out of or relating to, (i) any Reinsured Liabilities; (ii) any breach or nonfulfillment by Administrator of, or any failure by Administrator to perform, any of the covenants, terms or conditions of, or any duties or obligations under, this RSLIC Administrative Services Agreement; and (iii) any enforcement of this indemnity. Section 13.3 Indemnification Procedure. In the event either Insurer or Administrator shall have a claim for indemnity against the other party under the terms of this RSLIC Administrative Services Agreement, the parties shall follow the procedures set forth in Article XV of the Acquisition Agreement. Section 13.4 Relationship to RSLIC Quota Share Reinsurance Agreement. Nothing contained in this Article XIII is intended to supersede any provisions of the RSLIC Quota Share Reinsurance Agreement. 17 ARTICLE XIV ARBITRATION Section 14.1 Arbitration. As a condition precedent to any cause of action, any and all disputes between Insurer on one side and Administrator and Reinsurer on the other side arising out of, relating to, or concerning this RSLIC Administrative Services Agreement, whether sounding in contract or tort and whether arising during or after termination of this RSLIC Administrative Services Agreement, including whether the dispute is subject to arbitration, shall be submitted to the decision of a board of arbitration composed of two arbitrators and an umpire ("Board") meeting at a site in Wilmington, Delaware. The arbitration shall be conducted under the Federal Arbitration Act and shall proceed as set forth below. Section 14.2 Notice of Arbitration. A notice requesting arbitration, or any other notice made in connection therewith, shall be in writing and shall be sent certified or registered mail, return receipt requested to the affected parties. The notice requesting arbitration shall state in particulars all issues to be resolved in the view of the claimant, shall appoint the arbitrator selected by the claimant and shall set a tentative date for the hearing, which date shall be no sooner than ninety (90) days and no later than one hundred fifty (150) days from the date that the notice requesting arbitration is mailed. Within thirty (30) days of receipt of claimant's notice, the respondent shall notify claimant of any additional issues to be resolved in the arbitration and of the name of its appointed arbitrator. Section 14.3 Arbitration Panel. Unless otherwise mutually agreed, the members of the Board shall be impartial and disinterested and shall be active or former executive officers of property-casualty insurance companies, reinsurance companies, or Lloyd's Underwriters or active or inactive lawyers with at least twenty (20) years of experience in insurance and reinsurance. Insurer and Administrator shall each appoint an arbitrator and the two (2) arbitrators shall choose an umpire before instituting the hearing. If the respondent fails to appoint its arbitrator within thirty (30) days after having received claimant's written request for arbitration, the claimant is authorized to and shall appoint the second arbitrator. If the two arbitrators fail to agree upon the appointment of an umpire within thirty (30) days after notification of the appointment of the second arbitrator, within ten (10) days thereof, the two (2) arbitrators shall request the American Arbitration Association ("AAA") to appoint an umpire for the arbitration with the qualifications set forth in this Article. If the AAA fails to name an umpire, either party may apply to the court named below to appoint an umpire with the above required qualifications. The umpire shall promptly notify in writing all parties to the arbitration of his selection and of the scheduled date for the hearing. Upon resignation or death of any member of the Board, a replacement shall be appointed in the same fashion as the resigning or deceased member was appointed. Section 14.4 Submission of Briefs. The claimant and respondent shall each submit initial briefs to the Board outlining the issues in dispute and the basis, authority and reasons for their respective positions within thirty (30) days of the date of 18 notice of appointment of the umpire. The claimant and the respondent may submit reply briefs to the Board within ten (10) days after filing of the initial brief(s). Initial and reply briefs may be amended by the submitting party at any time, but not later than ten (10) days prior to the date of commencement of the arbitration hearing. Reasonable responses shall be allowed at the arbitration hearing to new material contained in any amendments filed to the briefs but not previously responded to. Section 14.5 Arbitration Board's Decision. The Board shall make a decision and award with regard to the terms of this RSLIC Administrative Services Agreement and the original intentions of the parties to the extent reasonably ascertainable. The Board's decision and award shall be in writing and shall state the factual and legal basis for the decision and award. The decision and award shall be based upon a hearing in which evidence shall be allowed and which the formal rules of evidence shall not strictly apply but in which cross examination and rebuttal shall be allowed. At its own election or at the request of the Board, either party may submit a post-hearing brief for consideration of the Board within twenty (20) days of the close of the hearing. The Board shall make its decision and award within thirty (30) days following the close of the hearing or the submission of post-hearing briefs, whichever is later, unless the parties consent to an extension. Every decision by the Board shall be by a majority of the members of the Board and each decision and award by the majority of the members of the Board shall be final and binding upon all parties to the proceeding. Section 14.6 Jurisdiction. Either party may apply to the Chancery Court of the State of Delaware for an order compelling arbitration or confirming any decision and the award; a judgment of that court shall thereupon be entered on any decision or award. If such an order is issued, the attorneys' fees of the party so applying and court costs will be paid by the party against whom confirmation is sought. The Board may award interest calculated from the date the Board determines that any amounts due the prevailing party should have been paid to the prevailing party. Section 14.7 Expenses. Each party shall bear the expense of the one arbitrator appointed by it and shall jointly and equally bear with the other party the expense of any stenographer requested, and of the umpire. Section 14.8 Production of Documents and Witnesses. Subject to customary and recognized legal rules of privilege, each party participating in the arbitration shall have the obligation to produce those documents and as witnesses to the arbitration those of its employees as any other participating party reasonably requests providing always that the same witnesses and documents be obtainable and relevant to the issues before the arbitration and not be unduly burdensome or excessive. The parties may mutually agree as to pre-hearing discovery prior to the arbitration hearing and in the absence of agreement, upon the request of any party, pre-hearing discovery may be conducted as the Board shall determine in its sole discretion to be in the interest of fairness, full disclosure, and a prompt hearing, decision and award by the Board. The Board shall be the final judge of the procedures of the Board, the conduct of the arbitration, of the rules of evidence, the rules of privilege and production and of excessiveness and relevancy of any witnesses and documents upon the petition of any 19 participating party. To the extent permitted by law, the Board shall have the authority to issue subpoenas and other orders to enforce their decisions. Section 14.9 Relief Available. Nothing herein shall be construed to prevent any participating party from applying to the Chancery Court of the State of Delaware to issue a restraining order or other equitable relief to maintain the "status quo" of the parties participating in the arbitration pending the decision and award by the Board or to prevent any party from incurring irreparable harm or damage at any time prior to the decision and award of the Board. The Board shall also have the authority to issue interim decisions or awards in the interest of fairness, full disclosure, and a prompt and orderly hearing and decision and award by the Board. Section 14.10 Consolidation. In the event that there is a dispute between the Insurer, on one side, and Administrator and the Reinsurer on the other, which implicates the provisions of this RSLIC Administrative Services Agreement and the RSLIC Quota Share Reinsurance Agreement, Insurer and Administrator hereby agree to consolidate any such dispute under such agreements in a single arbitration proceeding. ARTICLE XV MISCELLANEOUS Section 15.1 Cooperation. The parties hereto shall cooperate in a commercially reasonable manner in order that the duties assumed by Administrator will be effectively, efficiently and promptly discharged. The parties hereto will use their best efforts to (i) give effect to the intent of this RSLIC Administrative Services Agreement, the Acquisition Agreement, the RSLIC Quota Share Reinsurance Agreement and the other Ancillary Agreements and (ii) refrain from conduct which would frustrate the intent of any such agreement. Each party shall, at all reasonable times under the circumstances, make available to the other party properly authorized personnel for the purpose of consultation and decision. Section 15.2 Amendment, Modification and Waiver. This RSLIC Administrative Services Agreement may not be amended, modified or waived except by an instrument or instruments in writing signed and delivered on behalf of each of the parties hereto. Section 15.3 Relationship. Insurer and Administrator are and shall remain independent contractors and not employees of the other party. Except as expressly granted in this RSLIC Administrative Services Agreement or otherwise by the other party in writing or as may be required by Applicable Law or as necessary to perform the services to be provided hereunder or to obtain the benefits hereof, no party shall have any authority, express or implied, to act as an agent of the other party or its Subsidiaries or Affiliates under this RSLIC Administrative Services Agreement. Except as otherwise provided by this RSLIC Administrative Services Agreement or by any other agreement between the parties, each party shall be responsible for the payment of all employment, income and social security taxes arising in connection with the 20 compensation payable to its personnel involved in the provision of the services hereunder. Section 15.4 Entire Agreement. This RSLIC Administrative Services Agreement (together with the exhibits hereto and the other agreements, documents and instruments delivered in connection herewith) the Acquisition Agreement, the RSLIC Quota Share Reinsurance Agreement and the other Ancillary Agreements constitute the entire agreement among the parties with respect to the subject matter hereof and thereof and supersede all other prior agreements and understandings, both written and verbal, among the parties or any of them with respect to the subject matter hereof. Section 15.5 Governing Law. This RSLIC Administrative Services Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Section 15.6 Severability. Any term or provision of this RSLIC Administrative Services Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this RSLIC Administrative Services Agreement or affecting the validity or enforceability of any of the terms or provisions of this RSLIC Administrative Services Agreement in any other jurisdiction. If any provision of this RSLIC Administrative Services Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as would be enforceable. Section 15.7 Counterparts. This RSLIC Administrative Services Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. Section 15.8 Consent to Jurisdiction. Each of the parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the state and federal court located in the State of Delaware for the purposes of enforcing this RSLIC Administrative Services Agreement or the other Ancillary Agreements. If any action is brought in a state court, the parties shall take such actions as are within their control to cause any matter contemplated hereby to be assigned to the Chancery Court in the State of Delaware. In any action, suit or other proceeding, each of the parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claims that it is not subject to the jurisdiction of the above courts, that such action or suit is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper. Each of the parties hereto also agrees that any final and unappealable judgment against a party hereto in connection with any action, suit or other proceeding shall be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States. A certified or exemplified copy of such award or judgment shall be conclusive evidence of the fact and amount of such award or judgment. 21 Section 15.9 Third Party Beneficiaries. Except for the provisions of Article XIII, nothing in this RSLIC Administrative Services Agreement, express or implied, is intended to or shall confer upon any Person other than the parties hereto any rights, benefits or remedies of any nature whatsoever under or by reason of this RSLIC Administrative Services Agreement. Section 15.10 Binding; Assignment. This RSLIC Administrative Services Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and legal representatives. Neither this RSLIC Administrative Services Agreement, nor any rights, interests or obligations hereunder, may be directly or indirectly assigned, delegated, sublicensed or transferred by any party to this RSLIC Administrative Services Agreement, in whole or in part, to any other Person (including any bankruptcy trustee) by operation of law or otherwise, whether voluntarily or involuntarily, without the prior written consent of the parties hereto. Section 15.11 Specific Performance. The parties recognize and agree that if for any reason any of the provisions of this RSLIC Administrative Services Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate and irreparable harm or injury would be caused for which money damages would not be an adequate remedy. Accordingly, each party agrees that, in addition to any other available remedies, each other party shall be entitled to an injunction restraining any violation or threatened violation of any of the provisions of this RSLIC Administrative Services Agreement without the necessity of posting a bond or other form of security. In the event that any action should be brought in equity to enforce any of the provisions of this RSLIC Administrative Services Agreement, no party will allege, and each party hereby waives the defense, that there is an adequate remedy at law. Section 15.12 Descriptive Headings. The descriptive article and section headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this RSLIC Administrative Services Agreement. Section 15.13 Expenses. Unless otherwise specifically provided herein or in the Acquisition Agreement, Transition Services Agreement or RSLIC Quota Share Reinsurance Agreement, all costs and expenses incurred in connection with this RSLIC Administrative Services Agreement shall be paid by the party incurring such cost or expense. Section 15.14 Use of Name. Except as otherwise set forth in the Acquisition Agreement, the RSLIC Quota Share Reinsurance Agreement or the other Ancillary Agreements, neither party shall use the name, trademark, service mark, logo or identification of the other party without the other party's prior written consent. Section 15.15 Survival. The provisions of Article XII, Article XIII and Article XV hereof shall survive the termination of this RSLIC Administrative Services Agreement. 22 Section 15.16 Subcontracting. Administrator may subcontract for the performance of any Administrative Services that Administrator is to provide hereunder upon receipt of the prior written consent of Insurer, which consent shall not be unreasonably withheld or delayed; provided, however, that such subcontracting shall not be deemed to relieve Administrator of its obligations under this RSLIC Administrative Services Agreement. Section 15.17 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by facsimile (which is confirmed), by courier (delivery of which is confirmed) or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties to this RSLIC Administrative Services Agreement as follows: If to Insurer: Laura S. Lawrence, Esq. General Counsel Royal Group, Inc. 9300 Arrowpoint Blvd. Charlotte, NC 28273 Telephone No.: (704) 522-2851 Facsimile No.: (704) 522-2313 With a copy to (which shall not constitute notice to Insurer for purposes of this Section 15.17): Robert J. Sullivan, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Telephone No.: 212-735-2930 Facsimile No.: 212-735-2000 23 If to Administrator: Royal Specialty Underwriting, Inc. Mr. David E. Leonard Executive Vice President 945 East Paces Ferry Road Atlanta, GA 30326 Telephone No.: (404) 231-2366 Facsimile No: (404) 231-3755 With copies to (which shall not constitute notice to the Administrator for purposes of this Section 15.17): Robert M. Hart, Esq. General Counsel Alleghany Corporation 375 Park Avenue, Suite 3201 New York, New York 10152 Telephone No.: (212) 752-1356 Facsimile No.: (212) 759-8149 and Aileen C. Meehan, Esq. William W. Rosenblatt, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Telephone No.: (212) 259-8000 Facsimile No.: (212) 259-6333 If to Reinsurer: Underwriters Reinsurance Company. Mr. David E. Leonard Executive Vice President c/o Royal Specialty Underwriting, Inc. 945 East Paces Ferry Road Atlanta, GA 30326 Telephone No.: (404) 231-2366 Facsimile No: (404) 231-3755 With copies to (which shall not constitute notice to the Reinsurer for purposes of this Section 15.17): Robert M. Hart, Esq. General Counsel 24 Alleghany Corporation 375 Park Avenue, Suite 3201 New York, New York 10152 Telephone No.: (212) 752-1356 Facsimile No.: (212) 759-8149 and Aileen C. Meehan, Esq. William W. Rosenblatt, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Telephone No.: (212) 259-8000 Facsimile No.: (212) 259-6333 or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. In no event shall the provision of notice pursuant to this Section 15.17 constitute notice for service of any writ, process or summons in any suit, action or other proceeding. Section 15.18 Interpretation. (a) When a reference is made in this RSLIC Administrative Services Agreement to a Section or Article, such reference shall be to a section or article of this RSLIC Administrative Services Agreement unless otherwise clearly indicated to the contrary. Whenever the words "include", "includes" or "including" are used in this RSLIC Administrative Services Agreement, they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this RSLIC Administrative Services Agreement as a whole and not to any particular provision of this RSLIC Administrative Services Agreement. The meaning assigned to each term used in this RSLIC Administrative Services Agreement shall be equally applicable to both the singular and the plural forms of such term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. (b) The parties have participated jointly in the negotiation and drafting of this RSLIC Administrative Services Agreement; consequently, in the event an ambiguity or question of intent or interpretation arises, this RSLIC Administrative Services Agreement shall be construed as if drafted jointly by the parties thereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this RSLIC Administrative Services Agreement. 25 IN WITNESS WHEREOF, this RSLIC Administrative Services Agreement has been duly executed by a duly authorized officer of each party hereto as of the date first above written. ROYAL SURPLUS LINES INSURANCE COMPANY By: /s/ Stephen M. Mulready ----------------------- Name: Stephen M. Mulready Title:President and Chief Executive Officer ROYAL SPECIALTY UNDERWRITING, INC. By: /s/ James A. Dixon ----------------------- Name: James A. Dixon Title: Chairman UNDERWRITERS REINSURANCE COMPANY By: /s/ James P. Slattery ------------------------ Name: James P. Slattery Title: President EX-10.13 15 y88779exv10w13.txt CONTENTS TO ADMINISTRATIVE SERVICES AGREEMENT Exhibit 10.13 List of Contents of Exhibits and Schedules to the Royal Surplus Lines Insurance Company Administrative Services Agreement Exhibits Description -------- ----------- Exhibit A Administrative Services Intellectual Property License Agreement Exhibit B RSA Reinsurance Security Guidelines Exhibit C Form of Report Required Pursuant to Section 7.1 Schedules Description --------- ----------- Schedule 4.5(a) Levels of Treaty Reinsurance EX-10.14 16 y88779exv10w14.txt ADMINISTRATIVE SERVICES AGREEMENT EXHIBIT 10.14 ADMINISTRATIVE SERVICES AGREEMENT BY AND AMONG ROYAL INSURANCE COMPANY OF AMERICA, ROYAL SPECIALTY UNDERWRITING, INC. AND UNDERWRITERS REINSURANCE COMPANY DATED JULY 1, 2003 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS Section 1.1 Definitions........................................................................ 2 ARTICLE II APPOINTMENT; PERFORMANCE STANDARDS Section 2.1 Appointment........................................................................ 5 Section 2.2 Standards.......................................................................... 5 ARTICLE III SERVICES TO BE PROVIDED BY ADMINISTRATOR Section 3.1 Administrative Services............................................................ 6 Section 3.2 Administration..................................................................... 6 ARTICLE IV REGULATORY COMPLIANCE AND CUSTOMER ISSUES Section 4.1 Certain Regulatory Filings......................................................... 6 Section 4.2 Changes in Applicable Laws......................................................... 7 Section 4.3 Inquiries, Notification and Customer Complaints.................................... 7 Section 4.4 Management of Customer Relationships............................................... 7 Section 4.5 Maintenance of Treaty Reinsurance.................................................. 7 ARTICLE V AUTHORITY Section 5.1 Authority.......................................................................... 7 Section 5.2 Administration of Excluded Liabilities............................................. 8 Section 5.3 Marketing and Advertising.......................................................... 9 ARTICLE VI OTHER SERVICES AND FEES FOR SERVICES Section 6.1 Additional Services................................................................ 9 Section 6.2 Fee for Services................................................................... 9 Section 6.3 Services Provided by Insurer....................................................... 9 ARTICLE VII REPORTS, ELECTRONIC PREMIUM AND LOSS DATA Section 7.1 Reports, Electronic Premium and Loss Data.......................................... 10 Section 7.2 Payment of Amounts................................................................. 10 ARTICLE VIII BOOKS AND RECORDS; BANK ACCOUNTS Section 8.1 Access to Books and Records........................................................ 11 Section 8.2 Bank Accounts...................................................................... 12 ARTICLE IX INABILITY TO PERFORM SERVICES; ERRORS Section 9.1 Inability to Perform Services...................................................... 13 Section 9.2 Errors............................................................................. 13
i ARTICLE X LEGAL ACTIONS Section 10.1 Regulatory Proceedings............................................................. 13 Section 10.2 Compliance of Reinsured Contracts.................................................. 14 Section 10.3 Defense of Litigation.............................................................. 14 Section 10.4 Communications Regarding Certain Matters........................................... 15 ARTICLE XI DURATION; TERMINATION Section 11.1 Duration........................................................................... 15 Section 11.2 Termination........................................................................ 15 ARTICLE XII CONFIDENTIALITY Section 12.1 Use of Confidential Information.................................................... 16 Section 12.2 Confidentiality of Individuals..................................................... 16 Section 12.3 Disclosure......................................................................... 16 ARTICLE XIII INDEMNIFICATION Section 13.1 Indemnification by Insurer......................................................... 17 Section 13.2 Indemnification by Administrator................................................... 17 Section 13.3 Indemnification Procedure.......................................................... 17 Section 13.4 Relationship to RIC Quota Share Reinsurance Agreement.............................. 17 ARTICLE XIV ARBITRATION Section 14.1 Arbitration........................................................................ 18 Section 14.2 Notice of Arbitration.............................................................. 18 Section 14.3 Arbitration Panel.................................................................. 18 Section 14.4 Submission of Briefs............................................................... 18 Section 14.5 Arbitration Board's Decision....................................................... 19 Section 14.6 Jurisdiction....................................................................... 19 Section 14.7 Expenses........................................................................... 19 Section 14.8 Production of Documents and Witnesses.............................................. 19 Section 14.9 Relief Available................................................................... 20 Section 14.10 Consolidation...................................................................... 20 ARTICLE XV MISCELLANEOUS Section 15.1 Cooperation........................................................................ 20 Section 15.2 Amendment, Modification and Waiver................................................. 20 Section 15.3 Relationship....................................................................... 20 Section 15.4 Entire Agreement................................................................... 21 Section 15.5 Governing Law...................................................................... 21 Section 15.6 Severability....................................................................... 21 Section 15.7 Counterparts....................................................................... 21 Section 15.8 Consent to Jurisdiction............................................................ 21 Section 15.9 Third Party Beneficiaries.......................................................... 22 Section 15.10 Binding; Assignment................................................................ 22 Section 15.11 Specific Performance............................................................... 22
ii Section 15.12 Descriptive Headings............................................................... 22 Section 15.13 Expenses........................................................................... 22 Section 15.14 Use of Name........................................................................ 22 Section 15.15 Survival........................................................................... 22 Section 15.16 Subcontracting..................................................................... 23 Section 15.17 Notices............................................................................ 23 Section 15.18 Interpretation..................................................................... 25
EXHIBITS Exhibit A Administrative Services Intellectual Property License Agreement Exhibit B RSA Reinsurance Security Guidelines Exhibit C Form of Report Required Pursuant to Section 7.1 SCHEDULES Schedule 4.5(a) Levels of Treaty Reinsurance iii ADMINISTRATIVE SERVICES AGREEMENT This ADMINISTRATIVE SERVICES AGREEMENT, dated as of July 1, 2003 (hereinafter referred to as the "RICA Administrative Services Agreement") is made and entered into by and among ROYAL INSURANCE COMPANY OF AMERICA, an Illinois company ("Insurer"), ROYAL SPECIALTY UNDERWRITING, INC., a Georgia company ("RSUI" or "Administrator"), and UNDERWRITERS REINSURANCE COMPANY, a property and casualty insurance company organized under the laws of the State of New Hampshire ("Reinsurer"). WHEREAS, prior to the Effective Date (defined below), RSUI has underwritten certain insurance and reinsurance contracts on behalf of Insurer and administered the claims, reinsurance recoverables and premium activity relating to such contracts; WHEREAS, pursuant to an Acquisition Agreement, dated as of June 6, 2003 (the "Acquisition Agreement"), by and between Royal Group, Inc., a Delaware corporation ("Royal") and Alleghany Insurance Holdings LLC, a Delaware limited liability company ("AIHL"), the parties agreed, among other things, that Royal will sell, and AIHL will buy, all of the issued and outstanding shares of common stock of RSUI; WHEREAS, pursuant to the Assignment and Assumption Agreement dated as of June 30, 2003 (the "Assignment Agreement"), AIHL assigned to RSUI Group, Inc., a Delaware corporation and a wholly-owned subsidiary of AIHL ("RSUI Group"), and RSUI Group assumed from AIHL, all of AIHL's rights and obligations under the Acquisition Agreement; WHEREAS, Insurer is a member of a reinsurance pool (the "Pool") of which RIC is the lead pool member; WHEREAS, pursuant to the terms of the Acquisition Agreement and the Assignment Agreement, Royal and RSUI Group have agreed that Royal shall cause Royal Indemnity Company ("RIC"), and RSUI Group shall cause Reinsurer, to enter into a Quota Share Reinsurance Agreement (the "RIC Quota Share Reinsurance Agreement"), pursuant to which RIC has agreed to cede to Reinsurer, and Reinsurer has agreed to assume, on a 100% quota share basis, the liabilities and obligations arising out of (i) the insurance contracts issued by Reinsurer in Insurer's name (and 100% reinsured by RIC through the Pool) with an effective date (new or renewal) on or after the Effective Date; and (ii) the RSUI-Produced Insurance Contracts (defined below) which are in force on the Effective Date, but only to the extent they arise out of, or relate to, periods on or after the Effective Date; WHEREAS, Insurer wishes to appoint Administrator to provide all administrative services and other services with respect to the Reinsured Contracts and Reinsured Liabilities (as such terms are defined in the RIC Quota Share Reinsurance Agreement), and Administrator desires to provide such administrative services in consideration of RIC entering into the RIC Quota Share Reinsurance Agreement; and WHEREAS, the parties agree that Administrator shall continue, for the duration of this RICA Administrative Services Agreement, to administer the claims, reinsurance recoverables and premium activity relating to the Reinsured Contracts on the Computer Systems and to prepare and deliver reports relating to such administration to Insurer in substantially the same manner as RSUI has been doing prior to the Effective Date. NOW, THEREFORE, for and in consideration of the premises and the promises and the mutual agreements hereinafter set forth and set forth in the Acquisition Agreement and RIC Quota Share Reinsurance Agreement, the parties hereto, intending to be legally bound, covenant and agree as follows: ARTICLE I DEFINITIONS Section 1.1 Definitions. Capitalized terms used but not defined herein and which are defined in the RIC Quota Share Reinsurance Agreement shall have the meanings ascribed to them in the RIC Quota Share Reinsurance Agreement. As used in this RICA Administrative Services Agreement, the following terms shall have the meanings set forth herein: "AAA" shall have the meaning set forth in Section 14.3 hereof. "Acquisition Agreement" shall have the meaning set forth in the recitals. "Administrative Services" shall have the meaning set forth in Section 3.1 hereof. "Administrative Services Intellectual Property License Agreement" shall have the meaning set forth in Section 2.1(d) hereof. "Administrator" shall have the meaning set forth in the recitals. "Affiliate" of any Person means another Person that as from time to time, directly or indirectly controls, is controlled by, or is under common control with, such first Person, where "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a Person, whether through the ownership of voting securities, by contract, as trustee or executor, or otherwise. For the purposes of this RICA Administrative Services Agreement, the term "Affiliated" has a meaning correlative to the foregoing. "AIHL" shall have the meaning set forth in the recitals. "Applicable Law" means any applicable order, law, statute, regulation, rule, ordinance, writ, injunction, directive, judgment, decree, principal of common law, constitution or treaty enacted, promulgated, issued, enforced or entered by any 2 Governmental Entity, including any amendments thereto that may be adopted from time to time. "Assignment Agreement" shall have the meaning set forth in the recitals. "Bank Accounts" shall have the meaning set forth in Section 8.2 hereof. "Board" shall have the meaning set forth in Section 14.1 hereof. "Books and Records" means the originals or copies of all customer lists, policy information, insurance contract forms, administrative and pricing manuals, medical procedure code lists, claim records, sales records, underwriting records, financial records, compliance records, data files prepared for or filed with regulators of the Business (as such term is defined in the Acquisition Agreement) and premium tax records, each in the possession or control of RSUI, Royal or any of its Affiliates, or, after the Closing, AIHL or any of its Affiliates and used in the operation of the Business, whether or not stored in hardcopy form or on magnetic or optical media (to the extent not subject to licensing restrictions), but excluding (i) prior to the Closing, any such lists, information and records that are prohibited from being disclosed or transferred by Applicable Law or regulatory requirements and (ii) any such information that is part of any consolidated, unitary, combined or similar Tax Return except to the extent directly related to RSUI. "Business Day" means a Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions in the State of New York are not authorized or obligated by Applicable Law to close. "Closing" shall mean the closing of the transactions contemplated under the Acquisition Agreement. "Closing Date" shall mean the date of the Closing. "Computer Systems" means the PODS relational database, the ENTRII: Premium registration system (electronic user interface populated by B-File database) and other computer systems RSUI utilizes, and utilized immediately prior to the Closing, to perform the Administrative Services. "Damages" shall have the meaning set forth in the RIC Quota Share Reinsurance Agreement. "Effective Date" shall have the meaning set forth in the RIC Quota Share Reinsurance Agreement. "Excluded Liabilities" shall have the meaning set forth in the RIC Quota Share Reinsurance Agreement. "Governmental Entities" shall have the meaning set forth in the RIC Quota Share Reinsurance Agreement. 3 "Material Regulatory Proceeding" shall have the meaning set forth in Section 10.1(c) hereof. "90-Day Treasury Rate" means the annual yield rate, as of any given date, of actively traded U.S. Treasury securities having remaining duration to maturity of three months, as such rate is published under "Treasury Constant Maturities" in Federal Reserve Statistical Release H.15(519). "Person" shall have the meaning set forth in the RIC Quota Share Reinsurance Agreement. "Policyholder" shall have the meaning set forth in the RIC Quota Share Reinsurance Agreement. "Producers" shall mean any reinsurance intermediary, agent or other producer of Insurer. "Quota Share Reinsurance Agreements" shall mean, collectively, the RIC Quota Share Reinsurance Agreement, the RSLIC Quota Share Reinsurance Agreement and the Landmark Quota Share Reinsurance Agreement, as such terms are defined in the Acquisition Agreement. "Reinsured Contracts" shall have the meaning set forth in the RIC Quota Share Reinsurance Agreement. "Reinsured Liabilities" shall have the meaning set forth in the RIC Quota Share Reinsurance Agreement. "Reinsurer" shall have the meaning set forth in the recitals. "Representative" shall mean, with respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel accounts and financial advisors. "RIC" shall have the meaning set forth in the recitals. "Royal" shall have the meaning set forth in the recitals. "RSUI" shall have the meaning set forth in the recitals. "RSUI Group" shall have the meaning set forth in the recitals. "RSUI-Produced Insurance Contracts" shall have the meaning set forth in the RIC Quota Share Reinsurance Agreement. "Subsidiary" of any Person means another Person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its Board of Directors or other governing body (or, if there are 4 no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first Person. "Transition Services Agreement" shall mean the Transition Services Agreement entered into by and between Royal and AIHL on the Closing Date pursuant to the Acquisition Agreement. ARTICLE II APPOINTMENT; PERFORMANCE STANDARDS Section 2.1 Appointment. (a) Insurer hereby appoints Administrator as its agent and attorney-in-fact to provide the Administrative Services and other services specified herein with respect to the Reinsured Contracts and the Reinsured Liabilities on the terms, and subject to the limitations and conditions, set forth in this RICA Administrative Services Agreement, and Administrator hereby accepts such appointment and agrees to perform such Administrative Services on behalf of and in the name of Insurer in accordance with the terms and conditions of this RICA Administrative Services Agreement. (b) Administrator represents that it has or will obtain and maintain any and all licenses required under Applicable Law to perform its obligations under this RICA Administrative Services Agreement. (c) The intention of the parties hereto is that Administrator shall perform all Administrative Services in such a manner as to minimize the involvement of Insurer and its Affiliates, subject to the requirements of any Applicable Law that require that specific actions be taken by Insurer without the Administrator acting on its behalf. (d) Administrator's access to the Computer Systems controlled by Insurer that are necessary for it to provide the Administrative Services and other services specified herein shall be governed by the Administrative Services Intellectual Property License Agreement, the form of which is attached hereto as EXHIBIT A (the "Administrative Services Intellectual Property License Agreement"). Section 2.2 Standards. (a) Administrator acknowledges that the performance of the Administrative Services in an accurate and timely manner is of paramount importance to Insurer. Subject to the provisions of this RICA Administrative Services Agreement, Administrator agrees that in providing the Administrative Services: (i) it shall conduct itself in accordance with all administrative and claims handling standards utilized by leading property and casualty insurers, which standards are at least equal to the standards pursuant to which RSUI administered the RSUI-Produced Insurance Contracts and the related liabilities immediately prior to the Effective Date; (ii) it shall comply in all material respects with all Applicable Laws relating to the Reinsured Contracts and the 5 Reinsured Liabilities and to the conduct of the activities contemplated hereby; and (iii) it shall comply with the terms of the Reinsured Contracts. (b) For the duration of this RICA Administrative Services Agreement, Administrator hereby covenants that it will employ and retain staff with the experience, skill and expertise to perform the Administrative Services the Administrator is obligated to perform hereunder in a manner consistent with the standards set forth in Section 2.2(a) hereof. In connection therewith, Administrator shall have suitable business continuity plans in place. (c) Administrator shall in all respects administer the Reinsured Contracts in a manner which would not adversely affect the reputation of the Insurer. (d) Notwithstanding anything in this RICA Administrative Services Agreement to the contrary, Insurer shall retain the authority to make all final decisions with respect to the administration of the Reinsured Contracts, and shall consult with the Administrator of its intention to do so. ARTICLE III SERVICES TO BE PROVIDED BY ADMINISTRATOR Section 3.1 Administrative Services. While this RICA Administrative Services Agreement is in effect, Administrator shall provide the Administrative Services, including, but not limited to, all services currently provided and all services currently performed by RSUI and/or Insurer or required to be provided by Applicable Law or the Reinsured Contracts, and generally, any and all other services incidental to the administration of the Reinsured Contracts and the Reinsured Liabilities (the "Administrative Services"). Section 3.2 Administration. Administrator shall continue, for the duration of this RICA Administrative Services Agreement, to administer the claims, reinsurance recoverables and premium activity relating to the Reinsured Contracts on RSUI's existing systems and to prepare and deliver reports relating to such administration to Insurer's Computer Systems in substantially the same manner as RSUI has been doing prior to the Effective Date and as provided in the Administrative Services Intellectual Property License Agreement. ARTICLE IV REGULATORY COMPLIANCE AND CUSTOMER ISSUES Section 4.1 Certain Regulatory Filings. Administrator and the Reinsurer shall use best efforts to obtain all policy form, rate and rule filings necessary to enable Reinsurer or an Affiliate to issue in Reinsurer's or such Affiliate's own name contracts or policies similar to the Reinsured Contracts as soon as practicable after the Effective Date. 6 Section 4.2 Changes in Applicable Laws. From time to time, Administrator and Insurer shall share with each other information they have in their possession relating to material changes in Applicable Laws in order to ensure the Reinsured Contracts are administered in compliance with Applicable Laws. Section 4.3 Inquiries, Notification and Customer Complaints. Administrator shall promptly notify Insurer regarding any inquiries or notifications received from Governmental Entities and any inquiries and complaints received from Producers or other customers with respect to the Reinsured Contracts and the Reinsured Liabilities. Section 4.4 Management of Customer Relationships. Each of Administrator and Insurer shall appoint one senior executive whose responsibility shall be to work with the other party in overseeing that the standards and the provisions set forth in this Article IV and elsewhere are complied with, in particular with respect to issues involving management of customer relationships. Section 4.5 Maintenance of Treaty Reinsurance. (a) Each of Administrator and Reinsurer shall maintain minimum levels of treaty reinsurance as set forth in SCHEDULE 4.5(a) hereto. (b) Commencing with any renewal of the treaties set forth in Schedule 4.5(a), Reinsurer shall purchase a level of catastrophe reinsurance protection which would protect Reinsurer's surplus loss to no more than 10% arising out of a single catastrophe on a one in a 250 year modeling event standard. (c) All third party reinsurance with respect to the Reinsured Contracts placed by Administrator in the name of Insurer must comply with the RSA Reinsurance Security Guidelines attached hereto as EXHIBIT B. ARTICLE V AUTHORITY Section 5.1 Authority (a) Insurer agrees that, on and after the Effective Date, Administrator shall have the authority to issue the Reinsured Contracts in Insurer's name for the benefit of the Reinsurer; provided, however, except as otherwise required by Applicable Laws, Administrator shall have no authority to issue the Reinsured Contracts or take other actions authorized under this Section 5.1 in Insurer's name in any state on or after the earlier of (i) thirty (30) days after the date the Administrator or an Affiliate of the Administrator obtains all policy form, rate and rule filings necessary to enable the Reinsurer or an Affiliate to issue in Reinsurer's or such Affiliate's own name contracts or policies similar to the RSUI-Produced Insurance Contracts in a particular state, and (ii) one (1) year after the Effective Date. 7 (b) Administrator acknowledges that its authority to issue the Reinsured Contracts in Insurer's name pursuant to this Section 5.1 is subject to the following additional limitations: (i) Administrator shall not assign or delegate its authority to a third party other than the Reinsurer; (ii) Administrator shall not issue any Reinsured Contracts outside the United States, (iii) the Reinsured Contracts shall be limited to the type of business comprising the RSUI-Produced Insurance Contracts as of the date hereof; (iv) in issuing the Reinsured Contracts, Administrator shall observe similar policy wordings and policy limits found in the RSUI-Produced Insurance Contracts; (v) the aggregate gross written premiums attributable to the business ceded under the Quota Share Reinsurance Agreements collectively (exclusive of the unearned premium attributable to the Assumed Contracts under the respective Quota Share Reinsurance Agreement as of the Effective Date) shall not exceed one billion dollars in the aggregate; provided, however, the aggregate gross written premiums attributable to the business ceded under the RIC Quota Share Reinsurance Agreement solely (exclusive of the unearned premium attributable to the Assumed Contracts under the RIC Quota Share Reinsurance Agreement as of the Effective Date) shall not exceed five hundred million dollars; and (vi) any other limitations as may be contained in the Managing General Agency Agreement, dated as of the Closing Date, by and between Insurer and Administrator. (c) Notwithstanding anything to the contrary in this RICA Administrative Services Agreement or the RIC Quota Share Reinsurance Agreement, Administrator shall have no authority under the RIC Quota Share Reinsurance Agreement to issue the Reinsured Contracts in Insurer's name on a non-admitted or surplus lines basis. Section 5.2 Administration of Excluded Liabilities. (a) Insurer shall retain liability and administrative responsibility for all Excluded Liabilities. Insurer shall reimburse Administrator for all reasonable out-of-pocket costs and expenses incurred by Administrator in connection with the administration of Excluded Liabilities. (b) With respect to any claims (including claims for reinsurance recoveries) presented in which both Reinsured Liabilities and Excluded Liabilities are alleged and where the predominant claim activities and costs relate to Excluded Liabilities, Administrator, on behalf of Reinsurer, shall notify Insurer and Insurer will either assume the administration of such claim activities or fund Administrator's out-of-pocket costs and expenses of such claim activities to the extent they relate to Excluded Liabilities. (c) In the event claims are presented in connection with Reinsured Liabilities, and it is in question whether a Reinsured Liability or an Excluded Liability is at issue, Administrator, on behalf of Reinsurer, shall defend or prosecute such claim and Insurer and Administrator shall resolve the responsibility for any amount of loss, allocated loss expense or other costs and expenses pursuant to the provisions of the RIC Quota Share Reinsurance Agreement. In the event that, during the course of a claim, it 8 becomes clear that the claim (or a portion thereof) is an Excluded Liability, Administrator shall notify Insurer and Insurer will either assume the administration of such claim (or the Excluded Liability portion thereof) or fund the out-of-pocket costs and expenses of such claim activities to the extent they relate to Excluded Liabilities. (d) In the event that a claim (including claims for reinsurance recoveries) presented in connection with a Reinsured Contract is not a Reinsured Liability or is an Excluded Liability, Insurer shall have the sole responsibility to defend or prosecute such claim. (e) With respect to those matters described in (b), (c) and (d) of this Section 5.2, the party administering the claim shall be provided the full cooperation of the other party as well as the Reinsurer and shall be responsible for reimbursing such other party for any out-of-pocket costs and expenses incurred by such party in providing such cooperation. Section 5.3 Marketing and Advertising. Subject to the terms of the Transitional Trademark License Agreement, Insurer hereby grants Administrator and the Reinsurer the authority to prepare, print, publish and distribute descriptive brochures and other promotional material related to the Reinsured Contracts and to engage in or direct all other marketing activities related thereto. ARTICLE VI OTHER SERVICES AND FEES FOR SERVICES Section 6.1 Additional Services. If Administrator or Insurer, as the case may be, requires from the other party services to be provided with respect to the Reinsured Contracts which are not otherwise contemplated under this RICA Administrative Services Agreement, the parties shall negotiate in good faith to reach a mutually acceptable arrangement with respect to the provision of such services. Each party shall reasonably compensate such other party for such additional services provided by such other party. Section 6.2 Fee for Services. Except as otherwise specifically provided for by this RICA Administrative Services Agreement, Administrator shall provide Administrative Services pursuant to this RICA Administrative Services Agreement at its own expense (or at the expense of the Reinsurer), subject to the other terms in this RICA Administrative Services Agreement, in consideration for the promises made by Insurer under this RICA Administrative Services Agreement, the Acquisition Agreement, the RIC Quota Share Reinsurance Agreement, the Transition Services Agreement and the other Ancillary Agreements (as such term is defined in the Acquisition Agreement) to which it is a party, and shall not receive any separate fee from Insurer for the provision of Administrative Services. Section 6.3 Services Provided by Insurer. Insurer agrees to promptly notify Administrator with respect to any inquiries or notifications received from 9 Governmental Entities or from Producers, including, without limitation, inquiries regarding consumer inquiries and complaints, market conduct exams, zone exams, summons and complaints, subpoenas and Internal Revenue Service inquiries relating to the Reinsured Contracts and the Reinsured Liabilities. ARTICLE VII REPORTS, ELECTRONIC PREMIUM AND LOSS DATA Section 7.1 Reports, Electronic Premium and Loss Data. (a) Administrator shall collect, administer and provide to Insurer all necessary quality information and data for Insurer to continue to maintain financial and statistical data with respect to the Reinsured Contracts and Reinsured Liabilities in order to permit Insurer to timely make all required regulatory, statistical, and financial reports and filings. All information and data provided by Administrator to Insurer pursuant to this Article VII will be provided as reasonably requested by Insurer. Without limiting the generality of the foregoing, Administrator shall prepare all reports needed by Insurer or the Seller in connection with the Reinsured Liabilities and the Reinsured Contracts to enable Insurer or the Seller to comply with Applicable Law and any and all reporting or filing requirements. Any monthly, quarterly or year-end reports required to be prepared by Administrator shall be prepared on a timely basis in order for Insurer or the Seller to comply with any filing deadlines required. (b) During the term of this RICA Administrative Services Agreement, Administrator shall transmit to Insurer, within thirty (30) days following the end of each calendar month, a summary report in form and substance as set forth in EXHIBIT C hereto, of all activity relating to the Reinsured Contracts and Reinsured Liabilities for the period reported. The report shall include, but not be limited to, the amount of premiums, commissions, related expenses, reserves and paid losses, as applicable; provided, however, that notwithstanding anything herein to the contrary, in no event shall such reports be deemed to indicate that the Administrator or the Reinsurer has any obligation to pay to the Insurer any amount in respect of Excluded Liabilities which may be reflected on such reports. Section 7.2 Payment of Amounts. Except to the extent that this RICA Administrative Services Agreement or the RIC Quota Share Reinsurance Agreement provides otherwise and regardless of whether any amounts due to either party are being disputed pursuant to the provisions of Article XV hereof, all amounts due either party under this RICA Administrative Services Agreement shall be paid on or before the thirtieth (30th) Business Days of delivery of such report, and any amount not paid on or before the thirtieth (30th) Business Day period shall bear simple interest at the 90-Day Treasury Rate from the twentieth Business Day until the date of payment. 10 ARTICLE VIII BOOKS AND RECORDS; BANK ACCOUNTS Section 8.1 Access to Books and Records. (a) To the extent permitted by Applicable Law, from the date hereof until the date on which Insurer has fulfilled all of its obligations to Administrator under this RICA Administrative Services Agreement, and at any time (without limitation) as may be required in Administrator's reasonable judgment in order for Administrator to comply with any Applicable Law or to perform its obligations or responsibilities under this RICA Administrative Services Agreement, Administrator and its Representatives may from time to time reasonably request, and Insurer shall provide, at reasonable times during normal business hours, full and open access to examine all Books and Records under the control of Insurer pertaining to the Reinsured Contracts, the Reinsured Liabilities and the RSUI-Produced Insurance Contracts, and services to be provided under this RICA Administrative Services Agreement, and to discuss any matters relating to the Reinsured Contracts or the Reinsured Liabilities and services to be provided under this RICA Administrative Services Agreement with the employees and agents of Insurer who are familiar therewith, so that Administrator shall have sufficient opportunity to make whatever investigation it shall deem necessary and desirable in connection with the transactions contemplated by this RICA Administrative Services Agreement. The Administrator shall also have reasonable access to Insurer's Computer Systems and accounting systems for such purposes. Such access and opportunity shall be exercised by Administrator and such Representatives in a manner that shall not interfere unreasonably with the operations of Insurer. Such access shall include the right of Administrator to make and retain copies of any Books and Records relating to the Reinsured Contracts or the Reinsured Liabilities to the extent that Administrator reasonably determines that it requires copies of any such Books and Records in order to carry out the transactions contemplated by this RICA Administrative Services Agreement or for any legitimate business purposes related to this RICA Administrative Services Agreement. (b) To the extent permitted by Applicable Law, from the date hereof until the date on which Administrator has fulfilled all of its obligations to perform services for Insurer under this RICA Administrative Services Agreement, and at any time (without limitation) as may be required in the reasonable judgment of Insurer for Insurer to comply with any Applicable Law or to perform its obligations or responsibilities under this RICA Administrative Services Agreement, Insurer and its Representatives may from time to time reasonably request, and Administrator shall provide, at reasonable times during normal business hours, full and open access to examine the Books and Records of Administrator and of its independent auditor pertaining to the Reinsured Contracts, the Reinsured Liabilities and the RSUI-Produced Insurance Contracts, and to the services to be provided under this RICA Administrative Services Agreement (including, but not limited to, the Books and Records transferred to Administrator pursuant to this Section 8.1 and still then retained by Administrator) and to discuss such Reinsured Contracts, Reinsured Liabilities and services with the employees and agents of Administrator who are familiar therewith, so that Insurer shall have sufficient opportunity to make whatever 11 investigation it shall deem necessary and desirable in connection with the transactions contemplated by this RICA Administrative Services Agreement. Such access and opportunity shall be exercised by Insurer and such Representatives in a manner that shall not interfere unreasonably with the operations of Administrator. Such access shall include the right of Insurer to make and retain copies of any Books and Records relating to the Reinsured Contracts and Reinsured Liabilities to the extent that Insurer reasonably determines that it requires copies of any such Books and Records in order to carry out the transactions contemplated by this RICA Administrative Services Agreement or for any legitimate business purposes related to this RICA Administrative Services Agreement. (c) During the term of this RICA Administrative Services Agreement, Administrator shall retain all Books and Records relating to the Reinsured Contracts and Reinsured Liabilities transferred by Insurer or produced by Administrator on behalf of Insurer to the extent such Books and Records are required by Applicable Law to be retained by either Administrator or Insurer, but in any case, for at least ten (10) years after termination of the Reinsured Contracts applicable to such Books and Records. (d) Each party hereto shall pay all storage and related expenses associated with any Books and Records relating to the Reinsured Contracts and Reinsured Liabilities, and copies thereof, that it retains in its possession. (e) Administrator shall provide security for the Books and Records that are in its possession. Administrator shall comply with all Applicable Laws, including, without limitation, privacy laws applicable to the Insurer, in connection with all such data and Books and Records. Administrator shall cooperate with any regulatory authority having jurisdiction over Insurer in providing access to such Books and Records. (f) Following expiration of this RICA Administrative Services Agreement other than by reason of Insurer's termination pursuant to Section 11.2 hereof, all Books and Records pertaining to the Reinsured Contracts and Reinsured Liabilities shall be the sole property of Reinsurer, unless otherwise provided by Applicable Law or herein and provided that Insurer shall have full access to such Books and Records to the extent required to respond to regulatory, statistical, tax or similar inquiries or investigations and for Insurer to defend any claim against it. Section 8.2 Bank Accounts (a) During the term of this RICA Administrative Services Agreement, Administrator may establish and maintain accounts with banking institutions to provide the Administrative Services (the "Bank Accounts"). The Administrator shall have the exclusive authority over the Bank Accounts including, within reason, the exclusive authority to (i) open the Bank Accounts in the name of Insurer, (ii) designate the authorized signatories on the Bank Accounts, (iii) issue drafts on and make deposits in the Bank Accounts in the name of Insurer, and (iv) make withdrawals from the Bank Accounts. The Administrator agrees to limit transactions using these Bank Accounts to only those transactions that pertain to the RIC Quota Share Reinsurance Agreement. Insurer shall do all things reasonably necessary to enable Administrator to open and 12 maintain the Bank Accounts including, without limitation, executing and delivering such depository resolutions and other documents as may be requested from time to time by the banking institutions. Insurer agrees that without Administrator's prior written consent or as may be required by Applicable Law or regulatory authorization it shall not make any changes to the authorized signatories on the Bank Accounts or attempt to withdraw any funds therefrom. Administrator and the Reinsurer will have the sole obligation to the Bank Accounts and shall own all funds deposited in the Bank Accounts. Administrator shall be responsible for all abandoned property laws requirements and obligations, and shall pay all fees and charges made in connection with such accounts. (b) Notwithstanding any provision of this RICA Administrative Services Agreement to the contrary, the Administrator shall have no authority to borrow money or incur any indebtedness on behalf of the Insurer or permit any Bank Accounts to become overdrawn. ARTICLE IX INABILITY TO PERFORM SERVICES; ERRORS Section 9.1 Inability to Perform Services. In the event that Administrator shall be unable to perform any Administrative Service for a period that could reasonably be expected to exceed ninety (90) days or such shorter period as may be required by Applicable Law or the Reinsured Contracts, Administrator and Insurer shall mutually agree on alternative means of providing such services. If alternative means for the provision of the Administrative Services cannot be agreed upon by the parties, Insurer may procure such Administrative Services for the Reinsured Contracts and Reinsured Liabilities by commercially reasonable means. Administrator and the Reinsurer shall be solely responsible for all costs incurred in restoring Administrative Services which have not been provided due to its failure to adhere to its obligations under this RICA Administrative Services Agreement. Section 9.2 Errors. Administrator shall, at its own expense, correct any errors in the Administrative Services caused by it within a reasonable time (not to exceed thirty (30) days) after receiving written notice thereof from Insurer or otherwise. ARTICLE X LEGAL ACTIONS Section 10.1 Regulatory Proceedings. (a) If Insurer or Administrator receive notice of, or otherwise become aware of, any regulatory investigation or proceeding relating to the Reinsured Contracts or the Reinsured Liabilities, Insurer or Administrator, as applicable, shall promptly notify the other party thereof. Subject to the provisions of Section 10.1(c), Administrator shall have the authority to respond to and resolve all regulatory matters and regulatory investigations and proceedings relating to the Reinsured Contracts and Reinsured 13 Liabilities to the extent the resolution is limited to the Reinsured Contracts or Reinsured Liabilities. (b) Subject to the provisions of Section 10.1(c), Administrator will promptly respond on behalf of Insurer to inquiries received from Governmental Entities and Administrator shall conduct whatever investigation is reasonable under the circumstances in order to respond to such inquiries. Administrator shall promptly notify in writing Insurer of any inquiry to which Administrator determines that it will not provide a response in order to permit the Insurer to timely respond. (c) Notwithstanding anything contained herein to the contrary, the parties shall mutually agree to an appropriate response, including which party should respond, to any regulatory investigation or proceeding relating to the Reinsured Contracts or the Reinsured Liabilities which could reasonably be expected to have meaningful adverse effect on any business of the Insurer other than the Reinsured Contracts, or which could meaningfully and adversely interfere with the business, assets, liabilities, obligations, reputation, license, permit, financial condition or results of operations of Insurer or any of its Affiliates (a "Material Regulatory Proceeding"), and the parties hereby agree to cooperate and coordinate in resolving any and all Material Regulatory Proceedings. The parties recognize that, as the issuing company, Insurer retains ultimate responsibility for resolution of the matters contemplated by this Section 10.1. Notwithstanding anything to the contrary contained in this RICA Administrative Services Agreement, neither Insurer nor Administrator shall have the authority to institute, prosecute, defend or maintain any legal or regulatory proceedings on behalf of the other party without the prior written consent of such other party except to the extent expressly provided for by this RICA Administrative Services Agreement. Section 10.2 Compliance of Reinsured Contracts. Insurer, Administrator and Reinsurer agree to cooperate with each other and the various Governmental Entities in maintaining the Reinsured Contracts in compliance in all material respects with Applicable Laws. If Administrator determines that any of the Reinsured Contracts are materially not in compliance with such Applicable Laws, Administrator shall so notify in writing Insurer and take whatever action is reasonably necessary to bring such Reinsured Contracts into compliance with Applicable Law. Administrator shall prepare any necessary amendments to such Reinsured Contracts and shall prepare any necessary filings for the purpose of obtaining governmental authority approval for such amendments. Section 10.3 Defense of Litigation. Administrator and Reinsurer shall defend, at their own expense and in the name of Insurer when necessary, any action brought in connection with any Reinsured Contract or relating to any Reinsured Liability; provided, however, Insurer shall have the right, at its own expense, to engage its own separate legal representation and to fully participate in the defense of any litigation with respect to the Reinsured Contracts or the Reinsured Liabilities in which Insurer is named as a party without waiving any rights to indemnification it may have under Article XIII hereof; provided, however, that Administrator and Reinsurer shall have the exclusive authority to control such litigation, and to settle any litigation if (i) Administrator and 14 Reinsurer pay all settlement amounts with respect thereto, (ii) the settlement does not involve any restriction or condition which could reasonably be expected to have an adverse effect on Insurer's business other than the Reinsured Contracts, and (iii) Administrator or Reinsurer obtains a complete release for Insurer, its officers, directors, Representatives and Affiliates with respect to such litigation. Section 10.4 Communications Regarding Certain Matters. Insurer shall promptly (i) notify Administrator in writing if it receives any information or correspondence with respect to any suit, claim, action or proceeding relating to the Reinsured Contracts or the Reinsured Liabilities, or any written communication threatening any of the foregoing and (ii) forward to Administrator any documents it receives relating to any of the matters referred to in clause (i) of this Section 10.4. ARTICLE XI DURATION; TERMINATION Section 11.1 Duration. This RICA Administrative Services Agreement shall become effective as of the Effective Date and continue until a date which is the earlier of (A) a date which is the later of (i) the date on which none of the Reinsured Contracts remains in force; (ii) the date on which Insurer has no further Reinsured Liabilities; or (iii) the date on which no further Administrative Services are required, or (B) the date on which this RICA Administrative Services Agreement is terminated according to the provisions of Section 11.2 hereof. Section 11.2 Termination. (a) This RICA Administrative Services Agreement may be terminated at any time upon the mutual written consent of the parties hereto, which writing shall state the effective date and relevant terms of termination. (b) This RICA Administrative Services Agreement is subject to immediate termination at the option of Insurer, upon written notice to Administrator upon the issuance of an order of liquidation or rehabilitation against the Reinsurer or bankruptcy or insolvency proceedings against the Administrator; provided, however, that in the event an order of liquidation or rehabilitation is issued against the Reinsurer, before Insurer may terminate this RICA Administrative Services Agreement, Administrator or Reinsurer shall have the opportunity to contest or appeal such order for a period of sixty (60) days from the date of issuance. (c) Upon termination of this RICA Administrative Services Agreement pursuant to Section 11.2(a) or (b) hereof, Administrator and Reinsurer shall cooperate fully in the prompt transfer of the applicable Administrative Services and Books and Records maintained by Administrator pursuant to Section 8.1 hereof (or, where appropriate, copies thereof) to Insurer or Insurer's designee, so that Insurer or its designee shall be able to perform the applicable Administrative Services without interruption following termination of this RICA Administrative Services Agreement. 15 (d) Upon any termination of this Administrative Services Agreement, each party shall retain its right to bring actions for, and receive damages to, which it may be entitled under Applicable Law. ARTICLE XII CONFIDENTIALITY Section 12.1 Use of Confidential Information. Insurer, Reinsurer and Administrator acknowledge that they will have access to confidential and proprietary information concerning the other party and its businesses, which information is not readily available to the public, and acknowledge that Insurer, Reinsurer and Administrator have taken and will continue to take reasonable actions to ensure such information is not made available to the public. Insurer, Reinsurer and Administrator further agree that they will not at any time (during the term hereof or thereafter) disclose to any Person (except Insurer, Reinsurer or Administrator and their Affiliates and the officers, directors, employees, agents and Representatives of Insurer, Reinsurer and Administrator and their Affiliates who require such information in order to perform their duties in connection with the services provided hereunder), directly or indirectly, or make any use of, for any purpose other than those contemplated by the Acquisition Agreement, this RICA Administrative Services Agreement or the RIC Quota Share Reinsurance Agreement, any information or trade secrets relating to the Reinsured Contracts or the Reinsured Liabilities or the business affairs of Insurer, Reinsurer or Administrator, including the identity of and/or the compensation arrangements with, any Affiliates and Subsidiaries of Insurer, Reinsurer and Administrator, so long as such information remains confidential. Section 12.2 Confidentiality of Individuals. Information that identifies an individual covered under one of the Reinsured Contracts may be confidential. Reinsurer and Administrator shall take all reasonable precautions to prevent disclosure or use of information identifying individuals covered under such Reinsured Contracts for a purpose unrelated to the performance of this RICA Administrative Services Agreement. Reinsurer and Administrator shall comply with all Applicable Laws and regulations, as in effect on the date hereof or as hereafter adopted or amended. With respect to Reinsured Contracts reinsured by Reinsurer, Insurer shall take all reasonable precautions to prevent disclosure or use of information identifying individuals for a purpose unrelated to the performance of this RICA Administrative Services Agreement. Section 12.3 Disclosure. Reinsurer, Administrator or Insurer may disclose confidential information in the following circumstances (or as otherwise provided by the provisions of this RICA Administrative Services Agreement): (i) in response to a court order or formal discovery request after notice to the other party (to the extent such notice is reasonably practicable); provided, however, that such disclosure shall be limited only to the extent that is required by such court order or formal disclosure request; 16 (ii) if a proper request is made by any regulatory authority after notice to the other party (to the extent such notice is reasonably practicable); provided, however, that such disclosure shall be limited only to the extent that is required by such regulatory authority; (iii) at the proper request of Insurer or Policyholder or his/her legal representative; provided, however, that such disclosure shall be limited only to the extent that is reasonably necessary to satisfy such a request; or (iv) as otherwise required by Applicable Law or the rules of any relevant stock exchange. ARTICLE XIII INDEMNIFICATION Section 13.1 Indemnification by Insurer. Insurer hereby indemnifies Administrator and its Affiliates and its and their respective officers, directors, employees, agents and Representatives against, and agrees to hold each of them harmless from any and all Damages incurred or suffered by any of them arising out of or relating to, (i) any Excluded Liabilities; (ii) any breach or nonfulfillment by Insurer of, or any failure by Insurer to perform, any of the covenants, terms or conditions of, or any duties or obligations under, this RICA Administrative Services Agreement; and (iii) any enforcement of this indemnity. Section 13.2 Indemnification by Administrator. Administrator hereby indemnifies Insurer and its Affiliates and its and their respective officers, directors, employees, agents and Representatives against, and agrees to hold each of them harmless from any and all Damages incurred or suffered by any of them arising out of or relating to, (i) any Reinsured Liabilities; (ii) any breach or nonfulfillment by Administrator of, or any failure by Administrator to perform, any of the covenants, terms or conditions of, or any duties or obligations under, this RICA Administrative Services Agreement; and (iii) any enforcement of this indemnity. Section 13.3 Indemnification Procedure. In the event either Insurer or Administrator shall have a claim for indemnity against the other party under the terms of this RICA Administrative Services Agreement, the parties shall follow the procedures set forth in Article XV of the Acquisition Agreement. Section 13.4 Relationship to RIC Quota Share Reinsurance Agreement. Nothing contained in this Article XIII is intended to supersede any provisions of the RIC Quota Share Reinsurance Agreement. 17 ARTICLE XIV ARBITRATION Section 14.1 Arbitration. As a condition precedent to any cause of action, any and all disputes between Insurer on one side and Administrator and Reinsurer on the other side arising out of, relating to, or concerning this RICA Administrative Services Agreement, whether sounding in contract or tort and whether arising during or after termination of this RICA Administrative Services Agreement, including whether the dispute is subject to arbitration, shall be submitted to the decision of a board of arbitration composed of two arbitrators and an umpire ("Board") meeting at a site in Wilmington, Delaware. The arbitration shall be conducted under the Federal Arbitration Act and shall proceed as set forth below. Section 14.2 Notice of Arbitration. A notice requesting arbitration, or any other notice made in connection therewith, shall be in writing and shall be sent certified or registered mail, return receipt requested to the affected parties. The notice requesting arbitration shall state in particulars all issues to be resolved in the view of the claimant, shall appoint the arbitrator selected by the claimant and shall set a tentative date for the hearing, which date shall be no sooner than ninety (90) days and no later than one hundred fifty (150) days from the date that the notice requesting arbitration is mailed. Within thirty (30) days of receipt of claimant's notice, the respondent shall notify claimant of any additional issues to be resolved in the arbitration and of the name of its appointed arbitrator. Section 14.3 Arbitration Panel. Unless otherwise mutually agreed, the members of the Board shall be impartial and disinterested and shall be active or former executive officers of property-casualty insurance companies, reinsurance companies, or Lloyd's Underwriters or active or inactive lawyers with at least twenty (20) years of experience in insurance and reinsurance. Insurer and Administrator shall each appoint an arbitrator and the two (2) arbitrators shall choose an umpire before instituting the hearing. If the respondent fails to appoint its arbitrator within thirty (30) days after having received claimant's written request for arbitration, the claimant is authorized to and shall appoint the second arbitrator. If the two arbitrators fail to agree upon the appointment of an umpire within thirty (30) days after notification of the appointment of the second arbitrator, within ten (10) days thereof, the two (2) arbitrators shall request the American Arbitration Association ("AAA") to appoint an umpire for the arbitration with the qualifications set forth in this Article. If the AAA fails to name an umpire, either party may apply to the court named below to appoint an umpire with the above required qualifications. The umpire shall promptly notify in writing all parties to the arbitration of his selection and of the scheduled date for the hearing. Upon resignation or death of any member of the Board, a replacement shall be appointed in the same fashion as the resigning or deceased member was appointed. Section 14.4 Submission of Briefs. The claimant and respondent shall each submit initial briefs to the Board outlining the issues in dispute and the basis, authority and reasons for their respective positions within thirty (30) days of the date of 18 notice of appointment of the umpire. The claimant and the respondent may submit reply briefs to the Board within ten (10) days after filing of the initial brief(s). Initial and reply briefs may be amended by the submitting party at any time, but not later than ten (10) days prior to the date of commencement of the arbitration hearing. Reasonable responses shall be allowed at the arbitration hearing to new material contained in any amendments filed to the briefs but not previously responded to. Section 14.5 Arbitration Board's Decision. The Board shall make a decision and award with regard to the terms of this RICA Administrative Services Agreement and the original intentions of the parties to the extent reasonably ascertainable. The Board's decision and award shall be in writing and shall state the factual and legal basis for the decision and award. The decision and award shall be based upon a hearing in which evidence shall be allowed and which the formal rules of evidence shall not strictly apply but in which cross examination and rebuttal shall be allowed. At its own election or at the request of the Board, either party may submit a post-hearing brief for consideration of the Board within twenty (20) days of the close of the hearing. The Board shall make its decision and award within thirty (30) days following the close of the hearing or the submission of post-hearing briefs, whichever is later, unless the parties consent to an extension. Every decision by the Board shall be by a majority of the members of the Board and each decision and award by the majority of the members of the Board shall be final and binding upon all parties to the proceeding. Section 14.6 Jurisdiction. Either party may apply to the Chancery Court of the State of Delaware for an order compelling arbitration or confirming any decision and the award; a judgment of that court shall thereupon be entered on any decision or award. If such an order is issued, the attorneys' fees of the party so applying and court costs will be paid by the party against whom confirmation is sought. The Board may award interest calculated from the date the Board determines that any amounts due the prevailing party should have been paid to the prevailing party. Section 14.7 Expenses. Each party shall bear the expense of the one arbitrator appointed by it and shall jointly and equally bear with the other party the expense of any stenographer requested, and of the umpire. Section 14.8 Production of Documents and Witnesses. Subject to customary and recognized legal rules of privilege, each party participating in the arbitration shall have the obligation to produce those documents and as witnesses to the arbitration those of its employees as any other participating party reasonably requests providing always that the same witnesses and documents be obtainable and relevant to the issues before the arbitration and not be unduly burdensome or excessive. The parties may mutually agree as to pre-hearing discovery prior to the arbitration hearing and in the absence of agreement, upon the request of any party, pre-hearing discovery may be conducted as the Board shall determine in its sole discretion to be in the interest of fairness, full disclosure, and a prompt hearing, decision and award by the Board. The Board shall be the final judge of the procedures of the Board, the conduct of the arbitration, of the rules of evidence, the rules of privilege and production and of excessiveness and relevancy of any witnesses and documents upon the petition of any 19 participating party. To the extent permitted by law, the Board shall have the authority to issue subpoenas and other orders to enforce their decisions. Section 14.9 Relief Available. Nothing herein shall be construed to prevent any participating party from applying to the Chancery Court of the State of Delaware to issue a restraining order or other equitable relief to maintain the "status quo" of the parties participating in the arbitration pending the decision and award by the Board or to prevent any party from incurring irreparable harm or damage at any time prior to the decision and award of the Board. The Board shall also have the authority to issue interim decisions or awards in the interest of fairness, full disclosure, and a prompt and orderly hearing and decision and award by the Board. Section 14.10 Consolidation. In the event that there is a dispute between the Insurer, on one side, and Administrator and the Reinsurer on the other, which implicates the provisions of this RICA Administrative Services Agreement and the RIC Quota Share Reinsurance Agreement, Insurer and Administrator hereby agree to consolidate any such dispute under such agreements in a single arbitration proceeding. ARTICLE XV MISCELLANEOUS Section 15.1 Cooperation. The parties hereto shall cooperate in a commercially reasonable manner in order that the duties assumed by Administrator will be effectively, efficiently and promptly discharged. The parties hereto will use their best efforts to (i) give effect to the intent of this RICA Administrative Services Agreement, the Acquisition Agreement, the RIC Quota Share Reinsurance Agreement and the other Ancillary Agreements and (ii) refrain from conduct which would frustrate the intent of any such agreement. Each party shall, at all reasonable times under the circumstances, make available to the other party properly authorized personnel for the purpose of consultation and decision. Section 15.2 Amendment, Modification and Waiver. This RICA Administrative Services Agreement may not be amended, modified or waived except by an instrument or instruments in writing signed and delivered on behalf of each of the parties hereto. Section 15.3 Relationship. Insurer and Administrator are and shall remain independent contractors and not employees of the other party. Except as expressly granted in this RICA Administrative Services Agreement or otherwise by the other party in writing or as may be required by Applicable Law or as necessary to perform the services to be provided hereunder or to obtain the benefits hereof, no party shall have any authority, express or implied, to act as an agent of the other party or its Subsidiaries or Affiliates under this RICA Administrative Services Agreement. Except as otherwise provided by this RICA Administrative Services Agreement or by any other agreement between the parties, each party shall be responsible for the payment of all employment, income and social security taxes arising in connection with the 20 compensation payable to its personnel involved in the provision of the services hereunder. Section 15.4 Entire Agreement. This RICA Administrative Services Agreement (together with the exhibits hereto and the other agreements, documents and instruments delivered in connection herewith) the Acquisition Agreement, the RIC Quota Share Reinsurance Agreement and the other Ancillary Agreements constitute the entire agreement among the parties with respect to the subject matter hereof and thereof and supersede all other prior agreements and understandings, both written and verbal, among the parties or any of them with respect to the subject matter hereof. Section 15.5 Governing Law. This RICA Administrative Services Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Section 15.6 Severability. Any term or provision of this RICA Administrative Services Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this RICA Administrative Services Agreement or affecting the validity or enforceability of any of the terms or provisions of this RICA Administrative Services Agreement in any other jurisdiction. If any provision of this RICA Administrative Services Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as would be enforceable. Section 15.7 Counterparts. This RICA Administrative Services Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. Section 15.8 Consent to Jurisdiction. Each of the parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the state and federal court located in the State of Delaware for the purposes of enforcing this RICA Administrative Services Agreement or the other Ancillary Agreements. If any action is brought in a state court, the parties shall take such actions as are within their control to cause any matter contemplated hereby to be assigned to the Chancery Court in the State of Delaware. In any action, suit or other proceeding, each of the parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claims that it is not subject to the jurisdiction of the above courts, that such action or suit is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper. Each of the parties hereto also agrees that any final and unappealable judgment against a party hereto in connection with any action, suit or other proceeding shall be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States. A certified or exemplified copy of such award or judgment shall be conclusive evidence of the fact and amount of such award or judgment. 21 Section 15.9 Third Party Beneficiaries. Except for the provisions of Article XIII, nothing in this RICA Administrative Services Agreement, express or implied, is intended to or shall confer upon any Person other than the parties hereto any rights, benefits or remedies of any nature whatsoever under or by reason of this RICA Administrative Services Agreement. Section 15.10 Binding; Assignment. This RICA Administrative Services Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and legal representatives. Neither this RICA Administrative Services Agreement, nor any rights, interests or obligations hereunder, may be directly or indirectly assigned, delegated, sublicensed or transferred by any party to this RICA Administrative Services Agreement, in whole or in part, to any other Person (including any bankruptcy trustee) by operation of law or otherwise, whether voluntarily or involuntarily, without the prior written consent of the parties hereto. Section 15.11 Specific Performance. The parties recognize and agree that if for any reason any of the provisions of this RICA Administrative Services Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate and irreparable harm or injury would be caused for which money damages would not be an adequate remedy. Accordingly, each party agrees that, in addition to any other available remedies, each other party shall be entitled to an injunction restraining any violation or threatened violation of any of the provisions of this RICA Administrative Services Agreement without the necessity of posting a bond or other form of security. In the event that any action should be brought in equity to enforce any of the provisions of this RICA Administrative Services Agreement, no party will allege, and each party hereby waives the defense, that there is an adequate remedy at law. Section 15.12 Descriptive Headings. The descriptive article and section headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this RICA Administrative Services Agreement. Section 15.13 Expenses. Unless otherwise specifically provided herein or in the Acquisition Agreement, Transition Services Agreement or RIC Quota Share Reinsurance Agreement, all costs and expenses incurred in connection with this RICA Administrative Services Agreement shall be paid by the party incurring such cost or expense. Section 15.14 Use of Name. Except as otherwise set forth in the Acquisition Agreement, the RIC Quota Share Reinsurance Agreement or the other Ancillary Agreements, neither party shall use the name, trademark, service mark, logo or identification of the other party without the other party's prior written consent. Section 15.15 Survival. The provisions of Article XII, Article XIII and Article XV hereof shall survive the termination of this RICA Administrative Services Agreement. 22 Section 15.16 Subcontracting. Administrator may subcontract for the performance of any Administrative Services that Administrator is to provide hereunder upon receipt of the prior written consent of Insurer, which consent shall not be unreasonably withheld or delayed; provided, however, that such subcontracting shall not be deemed to relieve Administrator of its obligations under this RICA Administrative Services Agreement. Section 15.17 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by facsimile (which is confirmed), by courier (delivery of which is confirmed) or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties to this RICA Administrative Services Agreement as follows: If to Insurer: Laura S. Lawrence, Esq. General Counsel Royal Group, Inc. 9300 Arrowpoint Blvd. Charlotte, NC 28273 Telephone No.: (704) 522-2851 Facsimile No.: (704) 522-2313 With a copy to (which shall not constitute notice to Insurer for purposes of this Section 15.17): Robert J. Sullivan, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Telephone No.: 212-735-2930 Facsimile No.: 212-735-2000 23 If to Administrator: Royal Specialty Underwriting, Inc. Mr. David E. Leonard Executive Vice President 945 East Paces Ferry Road Atlanta, GA 30326 Telephone No.: (404) 231-2366 Facsimile No: (404) 231-3755 With copies to (which shall not constitute notice to the Administrator for purposes of this Section 15.17): Robert M. Hart, Esq. General Counsel Alleghany Corporation 375 Park Avenue, Suite 3201 New York, New York 10152 Telephone No.: (212) 752-1356 Facsimile No.: (212) 759-8149 and Aileen C. Meehan, Esq. William W. Rosenblatt, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Telephone No.: (212) 259-8000 Facsimile No.: (212) 259-6333 If to Reinsurer: Underwriters Reinsurance Company. Mr. David E. Leonard Executive Vice President c/o Royal Specialty Underwriting, Inc. 945 East Paces Ferry Road Atlanta, GA 30326 Telephone No.: (404) 231-2366 Facsimile No: (404) 231-3755 With copies to (which shall not constitute notice to the Reinsurer for purposes of this Section 15.17): Robert M. Hart, Esq. General Counsel 24 Alleghany Corporation 375 Park Avenue, Suite 3201 New York, New York 10152 Telephone No.: (212) 752-1356 Facsimile No.: (212) 759-8149 and Aileen C. Meehan, Esq. William W. Rosenblatt, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Telephone No.: (212) 259-8000 Facsimile No.: (212) 259-6333 or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. In no event shall the provision of notice pursuant to this Section 15.17 constitute notice for service of any writ, process or summons in any suit, action or other proceeding. Section 15.18 Interpretation. (a) When a reference is made in this RICA Administrative Services Agreement to a Section or Article, such reference shall be to a section or article of this RICA Administrative Services Agreement unless otherwise clearly indicated to the contrary. Whenever the words "include", "includes" or "including" are used in this RICA Administrative Services Agreement, they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this RICA Administrative Services Agreement as a whole and not to any particular provision of this RICA Administrative Services Agreement. The meaning assigned to each term used in this RICA Administrative Services Agreement shall be equally applicable to both the singular and the plural forms of such term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. (b) The parties have participated jointly in the negotiation and drafting of this RICA Administrative Services Agreement; consequently, in the event an ambiguity or question of intent or interpretation arises, this RICA Administrative Services Agreement shall be construed as if drafted jointly by the parties thereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this RICA Administrative Services Agreement. 25 IN WITNESS WHEREOF, this RICA Administrative Services Agreement has been duly executed by a duly authorized officer of each party hereto as of the date first above written. ROYAL INSURANCE COMPANY OF AMERICA By: /s/ Stephen M. Mulready ------------------------ Name: Stephen M. Mulready Title: President and Chief Executive Officer ROYAL SPECIALTY UNDERWRITING, INC. By: /s/ James A. Dixon -------------------- Name: James A. Dixon Title: Chairman UNDERWRITERS REINSURANCE COMPANY By: /s/ James P. Stattery ----------------------- Name: James P. Slattery Title: President EX-10.15 17 y88779exv10w15.txt CONTENTS TO ADMINISTRATIVE SERVICES AGREEMENT Exhibit 10.15 List of Contents of Exhibits and Schedules to the Royal Insurance Company of America Administrative Services Agreement Exhibits Description -------- ----------- Exhibit A Administrative Services Intellectual Property License Agreement Exhibit B RSA Reinsurance Security Guidelines Exhibit C Form of Report Required Pursuant to Section 7.1 Schedules Description --------- ----------- Schedule 4.5(a) Levels of Treaty Reinsurance EX-10.16 18 y88779exv10w16.txt ADMINISTRATIVE SERVICES AGREEMENT EXHIBIT 10.16 ADMINISTRATIVE SERVICES AGREEMENT BY AND AMONG LANDMARK AMERICAN INSURANCE COMPANY, ROYAL SPECIALTY UNDERWRITING, INC. AND UNDERWRITERS REINSURANCE COMPANY DATED JULY 1, 2003 TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS Section 1.1 Definitions............................................ 2 ARTICLE II APPOINTMENT; PERFORMANCE STANDARDS Section 2.1 Appointment............................................ 5 Section 2.2 Standards.............................................. 5 ARTICLE III SERVICES TO BE PROVIDED BY ADMINISTRATOR Section 3.1 Administrative Services................................ 6 Section 3.2 Administration......................................... 6 ARTICLE IV REGULATORY COMPLIANCE AND CUSTOMER ISSUES Section 4.1 Certain Regulatory Filings............................. 6 Section 4.2 Changes in Applicable Laws............................. 6 Section 4.3 Inquiries, Notification and Customer Complaints........ 7 Section 4.4 Management of Customer Relationships................... 7 Section 4.5 Maintenance of Treaty Reinsurance...................... 7 ARTICLE V AUTHORITY Section 5.1 Authority.............................................. 7 Section 5.2 Administration of Excluded Liabilities................. 8 Section 5.3 Marketing and Advertising.............................. 9 ARTICLE VI OTHER SERVICES AND FEES FOR SERVICES Section 6.1 Additional Services.................................... 9 Section 6.2 Fee for Services....................................... 9 Section 6.3 Services Provided by Insurer........................... 9 ARTICLE VII REPORTS, ELECTRONIC PREMIUM AND LOSS DATA Section 7.1 Reports, Electronic Premium and Loss Data.............. 10 Section 7.2 Payment of Amounts..................................... 10 ARTICLE VIII BOOKS AND RECORDS; BANK ACCOUNTS Section 8.1 Access to Books and Records............................ 11 Section 8.2 Bank Accounts.......................................... 12 ARTICLE IX INABILITY TO PERFORM SERVICES; ERRORS Section 9.1 Inability to Perform Services.......................... 13 Section 9.2 Errors................................................. 13
i ARTICLE X LEGAL ACTIONS Section 10.1 Regulatory Proceedings................................. 13 Section 10.2 Compliance of Reinsured Contracts...................... 14 Section 10.3 Defense of Litigation.................................. 15 Section 10.4 Communications Regarding Certain Matters............... 15 ARTICLE XI DURATION; TERMINATION Section 11.1 Duration............................................... 15 Section 11.2 Termination............................................ 15 ARTICLE XII CONFIDENTIALITY Section 12.1 Use of Confidential Information........................ 16 Section 12.2 Confidentiality of Individuals......................... 16 Section 12.3 Disclosure............................................. 16 ARTICLE XIII INDEMNIFICATION Section 13.1 Indemnification by Insurer............................. 17 Section 13.2 Indemnification by Administrator....................... 17 Section 13.3 Indemnification Procedure.............................. 17 Section 13.4 Relationship to Landmark Quota Share Reinsurance Agreement.............................................. 18 ARTICLE XIV ARBITRATION Section 14.1 Arbitration............................................ 18 Section 14.2 Notice of Arbitration.................................. 18 Section 14.3 Arbitration Panel...................................... 18 Section 14.4 Submission of Briefs................................... 19 Section 14.5 Arbitration Board's Decision........................... 19 Section 14.6 Jurisdiction........................................... 19 Section 14.7 Expenses............................................... 19 Section 14.8 Production of Documents and Witnesses.................. 19 Section 14.9 Relief Available....................................... 20 Section 14.10 Consolidation.......................................... 20 ARTICLE XV MISCELLANEOUS Section 15.1 Cooperation............................................ 20 Section 15.2 Amendment, Modification and Waiver..................... 20 Section 15.3 Relationship........................................... 20 Section 15.4 Entire Agreement....................................... 21 Section 15.5 Governing Law.......................................... 21 Section 15.6 Severability........................................... 21 Section 15.7 Counterparts........................................... 21 Section 15.8 Consent to Jurisdiction................................ 21 Section 15.9 Third Party Beneficiaries.............................. 22 Section 15.10 Binding; Assignment.................................... 22 Section 15.11 Specific Performance................................... 22
ii Section 15.12 Descriptive Headings................................... 22 Section 15.13 Expenses............................................... 22 Section 15.14 Use of Name............................................ 22 Section 15.15 Survival............................................... 23 Section 15.16 Subcontracting......................................... 23 Section 15.17 Notices................................................ 23 Section 15.18 Interpretation......................................... 25
EXHIBITS Exhibit A Administrative Services Intellectual Property License Agreement Exhibit B RSA Reinsurance Security Guidelines Exhibit C Form of Report Required Pursuant to Section 7.1 SCHEDULES Schedule 4.5(a) Levels of Treaty Reinsurance iii ADMINISTRATIVE SERVICES AGREEMENT This ADMINISTRATIVE SERVICES AGREEMENT, dated as of July 1, 2003 (hereinafter referred to as the "Landmark Administrative Services Agreement") is made and entered into by and among LANDMARK AMERICAN INSURANCE COMPANY, an insurance company organized and existing under the laws of the State of Oklahoma ("Insurer"), ROYAL SPECIALTY UNDERWRITING, INC., a Georgia company ("RSUI" or "Administrator"), and UNDERWRITERS REINSURANCE COMPANY, a property and casualty insurance company organized under the laws of the State of New Hampshire ("Reinsurer"). WHEREAS, prior to the Effective Date (defined below), RSUI has underwritten certain insurance and reinsurance contracts on behalf of Insurer and administered the claims, reinsurance recoverables and premium activity relating to such contracts; WHEREAS, pursuant to an Acquisition Agreement, dated as of June 6, 2003 (the "Acquisition Agreement"), by and between Royal Group, Inc., a Delaware corporation ("Royal") and Alleghany Insurance Holdings LLC, a Delaware limited liability company ("AIHL"), the parties agreed, among other things, that Royal will sell, and AIHL will buy, all of the issued and outstanding shares of common stock of RSUI; WHEREAS, pursuant to the Assignment and Assumption Agreement dated as of June 30, 2003 (the "Assignment Agreement"), AIHL assigned to RSUI Group, Inc., a Delaware corporation and a wholly-owned subsidiary of AIHL ("RSUI Group"), and RSUI Group assumed from AIHL, all of AIHL's rights and obligations under the Acquisition Agreement; WHEREAS, pursuant to the terms of the Acquisition Agreement and the Assignment Agreement, Royal and RSUI Group have agreed that Royal shall cause Insurer, and RSUI Group shall cause Reinsurer, to enter into a Quota Share Reinsurance Agreement (the "Landmark Quota Share Reinsurance Agreement"), pursuant to which Insurer has agreed to cede to Reinsurer, and Reinsurer has agreed to assume, on a 100% quota share basis, the liabilities and obligations arising out of (i) the insurance contracts issued by Reinsurer in Insurer's name with an effective date (new or renewal) on or after the Effective Date; and (ii) the RSUI-Produced Insurance Contracts (defined below) which are in force on the Effective Date, but only to the extent they arise out of, or relate to, periods on or after the Effective Date; WHEREAS, Insurer wishes to appoint Administrator to provide all administrative services and other services with respect to the Reinsured Contracts and Reinsured Liabilities (as such terms are defined in the Landmark Quota Share Reinsurance Agreement), and Administrator desires to provide such administrative services in consideration of Insurer entering into the Landmark Quota Share Reinsurance Agreement; and WHEREAS, the parties agree that Administrator shall continue, for the duration of this Landmark Administrative Services Agreement, to administer the claims, reinsurance recoverables and premium activity relating to the Reinsured Contracts on the Computer Systems and to prepare and deliver reports relating to such administration to Insurer in substantially the same manner as RSUI has been doing prior to the Effective Date. NOW, THEREFORE, for and in consideration of the premises and the promises and the mutual agreements hereinafter set forth and set forth in the Acquisition Agreement and Landmark Quota Share Reinsurance Agreement, the parties hereto, intending to be legally bound, covenant and agree as follows: ARTICLE I DEFINITIONS Section 1.1 Definitions. Capitalized terms used but not defined herein and which are defined in the Landmark Quota Share Reinsurance Agreement shall have the meanings ascribed to them in the Landmark Quota Share Reinsurance Agreement. As used in this Landmark Administrative Services Agreement, the following terms shall have the meanings set forth herein: "AAA" shall have the meaning set forth in Section 14.3 hereof. "Acquisition Agreement" shall have the meaning set forth in the recitals. "Administrative Services" shall have the meaning set forth in Section 3.1 hereof. "Administrative Services Intellectual Property License Agreement" shall have the meaning set forth in Section 2.1(d) hereof. "Administrator" shall have the meaning set forth in the recitals. "Affiliate" of any Person means another Person that as from time to time, directly or indirectly controls, is controlled by, or is under common control with, such first Person, where "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a Person, whether through the ownership of voting securities, by contract, as trustee or executor, or otherwise. For the purposes of this Landmark Administrative Services Agreement, the term "Affiliated" has a meaning correlative to the foregoing. "AIHL" shall have the meaning set forth in the recitals. "Applicable Law" means any applicable order, law, statute, regulation, rule, ordinance, writ, injunction, directive, judgment, decree, principal of common law, constitution or treaty enacted, promulgated, issued, enforced or entered by any 2 Governmental Entity, including any amendments thereto that may be adopted from time to time. "Assignment Agreement" shall have the meaning set forth in the recitals. "Bank Accounts" shall have the meaning set forth in Section 8.2 hereof. "Board" shall have the meaning set forth in Section 14.1 hereof. "Books and Records" means the originals or copies of all customer lists, policy information, insurance contract forms, administrative and pricing manuals, medical procedure code lists, claim records, sales records, underwriting records, financial records, compliance records, data files prepared for or filed with regulators of the Business (as such term is defined in the Acquisition Agreement) and premium tax records, each in the possession or control of RSUI, Royal or any of its Affiliates, or, after the Closing, AIHL or any of its Affiliates and used in the operation of the Business, whether or not stored in hardcopy form or on magnetic or optical media (to the extent not subject to licensing restrictions), but excluding (i) prior to the Closing, any such lists, information and records that are prohibited from being disclosed or transferred by Applicable Law or regulatory requirements and (ii) any such information that is part of any consolidated, unitary, combined or similar Tax Return except to the extent directly related to RSUI. "Business Day" means a Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions in the State of New York are not authorized or obligated by Applicable Law to close. "Closing" shall mean the closing of the transactions contemplated under the Acquisition Agreement. "Closing Date" shall mean the date of the Closing. "Computer Systems" means the PODS relational database, the ENTRII: Premium registration system (electronic user interface populated by B-File database) and other computer systems RSUI utilizes, and utilized immediately prior to the Closing, to perform the Administrative Services. "Damages" shall have the meaning set forth in the Landmark Quota Share Reinsurance Agreement. "Effective Date" shall have the meaning set forth in the Landmark Quota Share Reinsurance Agreement. "Excluded Liabilities" shall have the meaning set forth in the Landmark Quota Share Reinsurance Agreement. "Governmental Entities" shall have the meaning set forth in the Landmark Quota Share Reinsurance Agreement. 3 "Material Regulatory Proceeding" shall have the meaning set forth in Section 10.1(c) hereof. "90-Day Treasury Rate" means the annual yield rate, as of any given date, of actively traded U.S. Treasury securities having remaining duration to maturity of three months, as such rate is published under "Treasury Constant Maturities" in Federal Reserve Statistical Release H.15(519). "Person" shall have the meaning set forth in the Landmark Quota Share Reinsurance Agreement. "Policyholder" shall have the meaning set forth in the Landmark Quota Share Reinsurance Agreement. "Producers" shall mean any reinsurance intermediary, agent or other producer of Insurer. "Quota Share Reinsurance Agreements" shall mean, collectively, the RIC Quota Share Reinsurance Agreement, the RSLIC Quota Share Reinsurance Agreement and the Landmark Quota Share Reinsurance Agreement, as such terms are defined in the Acquisition Agreement. "Reinsured Contracts" shall have the meaning set forth in the Landmark Quota Share Reinsurance Agreement. "Reinsured Liabilities" shall have the meaning set forth in the Landmark Quota Share Reinsurance Agreement. "Reinsurer" shall have the meaning set forth in the recitals. "Representative" shall mean, with respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel accounts and financial advisors. "Royal" shall have the meaning set forth in the recitals. "RSUI" shall have the meaning set forth in the recitals. "RSUI Group" shall have the meaning set forth in the recitals. "RSUI-Produced Insurance Contracts" shall have the meaning set forth in the Landmark Quota Share Reinsurance Agreement. "Subsidiary" of any Person means another Person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its Board of Directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first Person. 4 "Transition Services Agreement" shall mean the Transition Services Agreement entered into by and between Royal and AIHL on the Closing Date pursuant to the Acquisition Agreement. ARTICLE II APPOINTMENT; PERFORMANCE STANDARDS Section 2.1 Appointment. (a) Insurer hereby appoints Administrator as its agent and attorney-in-fact to provide the Administrative Services and other services specified herein with respect to the Reinsured Contracts and the Reinsured Liabilities on the terms, and subject to the limitations and conditions, set forth in this Landmark Administrative Services Agreement, and Administrator hereby accepts such appointment and agrees to perform such Administrative Services on behalf of and in the name of Insurer in accordance with the terms and conditions of this Landmark Administrative Services Agreement. (b) Administrator represents that it has or will obtain and maintain any and all licenses required under Applicable Law to perform its obligations under this Landmark Administrative Services Agreement. (c) The intention of the parties hereto is that Administrator shall perform all Administrative Services in such a manner as to minimize the involvement of Insurer and its Affiliates, subject to the requirements of any Applicable Law that require that specific actions be taken by Insurer without the Administrator acting on its behalf. (d) Administrator's access to the Computer Systems controlled by Insurer that are necessary for it to provide the Administrative Services and other services specified herein shall be governed by the Administrative Services Intellectual Property License Agreement, the form of which is attached hereto as EXHIBIT A (the "Administrative Services Intellectual Property License Agreement"). Section 2.2 Standards. (a) Administrator acknowledges that the performance of the Administrative Services in an accurate and timely manner is of paramount importance to Insurer. Subject to the provisions of this Landmark Administrative Services Agreement, Administrator agrees that in providing the Administrative Services: (i) it shall conduct itself in accordance with all administrative and claims handling standards utilized by leading property and casualty insurers, which standards are at least equal to the standards pursuant to which RSUI administered the RSUI-Produced Insurance Contracts and the related liabilities immediately prior to the Effective Date; (ii) it shall comply in all material respects with all Applicable Laws relating to the Reinsured Contracts and the Reinsured Liabilities and to the conduct of the activities contemplated hereby; and (iii) it shall comply with the terms of the Reinsured Contracts. 5 (b) For the duration of this Landmark Administrative Services Agreement, Administrator hereby covenants that it will employ and retain staff with the experience, skill and expertise to perform the Administrative Services the Administrator is obligated to perform hereunder in a manner consistent with the standards set forth in Section 2.2(a) hereof. In connection therewith, Administrator shall have suitable business continuity plans in place. (c) Administrator shall in all respects administer the Reinsured Contracts in a manner which would not adversely affect the reputation of the Insurer. (d) Notwithstanding anything in this Landmark Administrative Services Agreement to the contrary, Insurer shall retain the authority to make all final decisions with respect to the administration of the Reinsured Contracts, and shall consult with the Administrator of its intention to do so. ARTICLE III SERVICES TO BE PROVIDED BY ADMINISTRATOR Section 3.1 Administrative Services. While this Landmark Administrative Services Agreement is in effect, Administrator shall provide the Administrative Services, including, but not limited to, all services currently provided and all services currently performed by RSUI and/or Insurer or required to be provided by Applicable Law or the Reinsured Contracts, and generally, any and all other services incidental to the administration of the Reinsured Contracts and the Reinsured Liabilities (the "Administrative Services"). Section 3.2 Administration. Administrator shall continue, for the duration of this Landmark Administrative Services Agreement, to administer the claims, reinsurance recoverables and premium activity relating to the Reinsured Contracts on RSUI's existing systems and to prepare and deliver reports relating to such administration to Insurer's Computer Systems in substantially the same manner as RSUI has been doing prior to the Effective Date and as provided in the Administrative Services Intellectual Property License Agreement. ARTICLE IV REGULATORY COMPLIANCE AND CUSTOMER ISSUES Section 4.1 Certain Regulatory Filings. Administrator and the Reinsurer shall use best efforts to obtain all policy form, rate and rule filings necessary to enable Reinsurer or an Affiliate to issue in Reinsurer's or such Affiliate's own name contracts or policies similar to the Reinsured Contracts as soon as practicable after the Effective Date. Section 4.2 Changes in Applicable Laws. From time to time, Administrator and Insurer shall share with each other information they have in their 6 possession relating to material changes in Applicable Laws in order to ensure the Reinsured Contracts are administered in compliance with Applicable Laws. Section 4.3 Inquiries, Notification and Customer Complaints. Administrator shall promptly notify Insurer regarding any inquiries or notifications received from Governmental Entities and any inquiries and complaints received from Producers or other customers with respect to the Reinsured Contracts and the Reinsured Liabilities. Section 4.4 Management of Customer Relationships. Each of Administrator and Insurer shall appoint one senior executive whose responsibility shall be to work with the other party in overseeing that the standards and the provisions set forth in this Article IV and elsewhere are complied with, in particular with respect to issues involving management of customer relationships. Section 4.5 Maintenance of Treaty Reinsurance. (a) Each of Administrator and Reinsurer shall maintain minimum levels of treaty reinsurance as set forth in SCHEDULE 4.5(a) hereto. (b) Commencing with any renewal of the treaties set forth in Schedule 4.5(a), Reinsurer shall purchase a level of catastrophe reinsurance protection which would protect Reinsurer's surplus loss to no more than 10% arising out of a single catastrophe on a one in a 250 year modeling event standard. (c) All third party reinsurance with respect to the Reinsured Contracts placed by Administrator in the name of Insurer must comply with the RSA Reinsurance Security Guidelines attached hereto as EXHIBIT B. ARTICLE V AUTHORITY Section 5.1 Authority (a) Insurer agrees that, on and after the Effective Date, Administrator shall have the authority to issue the Reinsured Contracts in Insurer's name for the benefit of the Reinsurer; provided, however, except as otherwise required by Applicable Laws, Administrator shall have no authority to issue the Reinsured Contracts or take other actions authorized under this Section 5.1 in Insurer's name in any state on or after the earlier of (i) thirty (30) days after the date the Administrator or an Affiliate of the Administrator obtains all policy form, rate and rule filings necessary to enable the Reinsurer or an Affiliate to issue in Reinsurer's or such Affiliate's own name contracts or policies similar to the RSUI-Produced Insurance Contracts in a particular state, and (ii) one (1) year after the Effective Date. 7 (b) Administrator acknowledges that its authority to issue the Reinsured Contracts in Insurer's name pursuant to this Section 5.1 is subject to the following additional limitations: (i) Administrator shall not assign or delegate its authority to a third party other than the Reinsurer; (ii) Administrator shall not issue any Reinsured Contracts outside the United States, (iii) the Reinsured Contracts shall be limited to the type of business comprising the RSUI-Produced Insurance Contracts as of the date hereof; (iv) in issuing the Reinsured Contracts, Administrator shall observe similar policy wordings and policy limits found in the RSUI-Produced Insurance Contracts; (v) the aggregate gross written premiums attributable to the business ceded under the Quota Share Reinsurance Agreements collectively (exclusive of the unearned premium attributable to the Assumed Contracts under the respective Quota Share Reinsurance Agreement as of the Effective Date) shall not exceed one billion dollars in the aggregate; provided, however, the aggregate gross written premiums attributable to the business ceded under the Landmark Quota Share Reinsurance Agreement solely (exclusive of the unearned premium attributable to the Assumed Contracts under the Landmark Quota Share Reinsurance Agreement as of the Effective Date) shall not exceed five hundred million dollars; and (vi) any other limitations as may be contained in the Managing General Agency Agreement, dated as of the Closing Date, by and between Insurer and Administrator. Section 5.2 Administration of Excluded Liabilities. (a) Insurer shall retain liability and administrative responsibility for all Excluded Liabilities. Insurer shall reimburse Administrator for all reasonable out-of-pocket costs and expenses incurred by Administrator in connection with the administration of Excluded Liabilities. (b) With respect to any claims (including claims for reinsurance recoveries) presented in which both Reinsured Liabilities and Excluded Liabilities are alleged and where the predominant claim activities and costs relate to Excluded Liabilities, Administrator, on behalf of Reinsurer, shall notify Insurer and Insurer will either assume the administration of such claim activities or fund Administrator's out-of-pocket costs and expenses of such claim activities to the extent they relate to Excluded Liabilities. (c) In the event claims are presented in connection with Reinsured Liabilities, and it is in question whether a Reinsured Liability or an Excluded Liability is at issue, Administrator, on behalf of Reinsurer, shall defend or prosecute such claim and Insurer and Administrator shall resolve the responsibility for any amount of loss, allocated loss expense or other costs and expenses pursuant to the provisions of the Landmark Quota Share Reinsurance Agreement. In the event that, during the course of a claim, it becomes clear that the claim (or a portion thereof) is an Excluded Liability, Administrator shall notify Insurer and Insurer will either assume the administration of such claim (or the Excluded Liability portion thereof) or fund the out-of-pocket costs and expenses of such claim activities to the extent they relate to Excluded Liabilities. 8 (d) In the event that a claim (including claims for reinsurance recoveries) presented in connection with a Reinsured Contract is not a Reinsured Liability or is an Excluded Liability, Insurer shall have the sole responsibility to defend or prosecute such claim. (e) With respect to those matters described in (b), (c) and (d) of this Section 5.2, the party administering the claim shall be provided the full cooperation of the other party as well as the Reinsurer and shall be responsible for reimbursing such other party for any out-of-pocket costs and expenses incurred by such party in providing such cooperation. Section 5.3 Marketing and Advertising. Subject to the terms of the Transitional Trademark License Agreement, Insurer hereby grants Administrator and the Reinsurer the authority to prepare, print, publish and distribute descriptive brochures and other promotional material related to the Reinsured Contracts and to engage in or direct all other marketing activities related thereto. ARTICLE VI OTHER SERVICES AND FEES FOR SERVICES Section 6.1 Additional Services. If Administrator or Insurer, as the case may be, requires from the other party services to be provided with respect to the Reinsured Contracts which are not otherwise contemplated under this Landmark Administrative Services Agreement, the parties shall negotiate in good faith to reach a mutually acceptable arrangement with respect to the provision of such services. Each party shall reasonably compensate such other party for such additional services provided by such other party. Section 6.2 Fee for Services. Except as otherwise specifically provided for by this Landmark Administrative Services Agreement, Administrator shall provide Administrative Services pursuant to this Landmark Administrative Services Agreement at its own expense (or at the expense of the Reinsurer), subject to the other terms in this Landmark Administrative Services Agreement, in consideration for the promises made by Insurer under this Landmark Administrative Services Agreement, the Acquisition Agreement, the Landmark Quota Share Reinsurance Agreement, the Transition Services Agreement and the other Ancillary Agreements (as such term is defined in the Acquisition Agreement) to which it is a party, and shall not receive any separate fee from Insurer for the provision of Administrative Services. Section 6.3 Services Provided by Insurer. Insurer agrees to promptly notify Administrator with respect to any inquiries or notifications received from Governmental Entities or from Producers, including, without limitation, inquiries regarding consumer inquiries and complaints, market conduct exams, zone exams, summons and complaints, subpoenas and Internal Revenue Service inquiries relating to the Reinsured Contracts and the Reinsured Liabilities. 9 ARTICLE VII REPORTS, ELECTRONIC PREMIUM AND LOSS DATA Section 7.1 Reports, Electronic Premium and Loss Data. (a) Administrator shall collect, administer and provide to Insurer all necessary quality information and data for Insurer to continue to maintain financial and statistical data with respect to the Reinsured Contracts and Reinsured Liabilities in order to permit Insurer to timely make all required regulatory, statistical, and financial reports and filings. All information and data provided by Administrator to Insurer pursuant to this Article VII will be provided as reasonably requested by Insurer. Without limiting the generality of the foregoing, Administrator shall prepare all reports needed by Insurer or the Seller in connection with the Reinsured Liabilities and the Reinsured Contracts to enable Insurer or the Seller to comply with Applicable Law and any and all reporting or filing requirements. Any monthly, quarterly or year-end reports required to be prepared by Administrator shall be prepared on a timely basis in order for Insurer or the Seller to comply with any filing deadlines required. (b) During the term of this Landmark Administrative Services Agreement, Administrator shall transmit to Insurer, within thirty (30) days following the end of each calendar month, a summary report in form and substance as set forth in EXHIBIT C hereto, of all activity relating to the Reinsured Contracts and Reinsured Liabilities for the period reported. The report shall include, but not be limited to, the amount of premiums, commissions, related expenses, reserves and paid losses, as applicable; provided, however, that notwithstanding anything herein to the contrary, in no event shall such reports be deemed to indicate that the Administrator or the Reinsurer has any obligation to pay to the Insurer any amount in respect of Excluded Liabilities which may be reflected on such reports. Section 7.2 Payment of Amounts. Except to the extent that this Landmark Administrative Services Agreement or the Landmark Quota Share Reinsurance Agreement provides otherwise and regardless of whether any amounts due to either party are being disputed pursuant to the provisions of Article XV hereof, all amounts due either party under this Landmark Administrative Services Agreement shall be paid on or before the thirtieth (30th) Business Days of delivery of such report, and any amount not paid on or before the thirtieth (30th) Business Day period shall bear simple interest at the 90-Day Treasury Rate from the twentieth Business Day until the date of payment. 10 ARTICLE VIII BOOKS AND RECORDS; BANK ACCOUNTS Section 8.1 Access to Books and Records. (a) To the extent permitted by Applicable Law, from the date hereof until the date on which Insurer has fulfilled all of its obligations to Administrator under this Landmark Administrative Services Agreement, and at any time (without limitation) as may be required in Administrator's reasonable judgment in order for Administrator to comply with any Applicable Law or to perform its obligations or responsibilities under this Landmark Administrative Services Agreement, Administrator and its Representatives may from time to time reasonably request, and Insurer shall provide, at reasonable times during normal business hours, full and open access to examine all Books and Records under the control of Insurer pertaining to the Reinsured Contracts, the Reinsured Liabilities and the RSUI-Produced Insurance Contracts, and services to be provided under this Landmark Administrative Services Agreement, and to discuss any matters relating to the Reinsured Contracts or the Reinsured Liabilities and services to be provided under this Landmark Administrative Services Agreement with the employees and agents of Insurer who are familiar therewith, so that Administrator shall have sufficient opportunity to make whatever investigation it shall deem necessary and desirable in connection with the transactions contemplated by this Landmark Administrative Services Agreement. The Administrator shall also have reasonable access to Insurer's Computer Systems and accounting systems for such purposes. Such access and opportunity shall be exercised by Administrator and such Representatives in a manner that shall not interfere unreasonably with the operations of Insurer. Such access shall include the right of Administrator to make and retain copies of any Books and Records relating to the Reinsured Contracts or the Reinsured Liabilities to the extent that Administrator reasonably determines that it requires copies of any such Books and Records in order to carry out the transactions contemplated by this Landmark Administrative Services Agreement or for any legitimate business purposes related to this Landmark Administrative Services Agreement. (b) To the extent permitted by Applicable Law, from the date hereof until the date on which Administrator has fulfilled all of its obligations to perform services for Insurer under this Landmark Administrative Services Agreement, and at any time (without limitation) as may be required in the reasonable judgment of Insurer for Insurer to comply with any Applicable Law or to perform its obligations or responsibilities under this Landmark Administrative Services Agreement, Insurer and its Representatives may from time to time reasonably request, and Administrator shall provide, at reasonable times during normal business hours, full and open access to examine the Books and Records of Administrator and of its independent auditor pertaining to the Reinsured Contracts, the Reinsured Liabilities and the RSUI-Produced Insurance Contracts, and to the services to be provided under this Landmark Administrative Services Agreement (including, but not limited to, the Books and Records transferred to Administrator pursuant to this Section 8.1 and still then retained by Administrator) and to discuss such Reinsured Contracts, Reinsured Liabilities and 11 services with the employees and agents of Administrator who are familiar therewith, so that Insurer shall have sufficient opportunity to make whatever investigation it shall deem necessary and desirable in connection with the transactions contemplated by this Landmark Administrative Services Agreement. Such access and opportunity shall be exercised by Insurer and such Representatives in a manner that shall not interfere unreasonably with the operations of Administrator. Such access shall include the right of Insurer to make and retain copies of any Books and Records relating to the Reinsured Contracts and Reinsured Liabilities to the extent that Insurer reasonably determines that it requires copies of any such Books and Records in order to carry out the transactions contemplated by this Landmark Administrative Services Agreement or for any legitimate business purposes related to this Landmark Administrative Services Agreement. (c) During the term of this Landmark Administrative Services Agreement, Administrator shall retain all Books and Records relating to the Reinsured Contracts and Reinsured Liabilities transferred by Insurer or produced by Administrator on behalf of Insurer to the extent such Books and Records are required by Applicable Law to be retained by either Administrator or Insurer, but in any case, for at least ten (10) years after termination of the Reinsured Contracts applicable to such Books and Records. (d) Each party hereto shall pay all storage and related expenses associated with any Books and Records relating to the Reinsured Contracts and Reinsured Liabilities, and copies thereof, that it retains in its possession. (e) Administrator shall provide security for the Books and Records that are in its possession. Administrator shall comply with all Applicable Laws, including, without limitation, privacy laws applicable to the Insurer, in connection with all such data and Books and Records. Administrator shall cooperate with any regulatory authority having jurisdiction over Insurer in providing access to such Books and Records. (f) Following expiration of this Landmark Administrative Services Agreement other than by reason of Insurer's termination pursuant to Section 11.2 hereof, all Books and Records pertaining to the Reinsured Contracts and Reinsured Liabilities shall be the sole property of Reinsurer, unless otherwise provided by Applicable Law or herein and provided that Insurer shall have full access to such Books and Records to the extent required to respond to regulatory, statistical, tax or similar inquiries or investigations and for Insurer to defend any claim against it. Section 8.2 Bank Accounts (a) During the term of this Landmark Administrative Services Agreement, Administrator may establish and maintain accounts with banking institutions to provide the Administrative Services (the "Bank Accounts"). The Administrator shall have the exclusive authority over the Bank Accounts including, within reason, the exclusive authority to (i) open the Bank Accounts in the name of Insurer, (ii) designate the authorized signatories on the Bank Accounts, (iii) issue drafts on and make deposits in the Bank Accounts in the name of Insurer, and (iv) make withdrawals from the Bank 12 Accounts. The Administrator agrees to limit transactions using these Bank Accounts to only those transactions that pertain to the Landmark Quota Share Reinsurance Agreement. Insurer shall do all things reasonably necessary to enable Administrator to open and maintain the Bank Accounts including, without limitation, executing and delivering such depository resolutions and other documents as may be requested from time to time by the banking institutions. Insurer agrees that without Administrator's prior written consent or as may be required by Applicable Law or regulatory authorization it shall not make any changes to the authorized signatories on the Bank Accounts or attempt to withdraw any funds therefrom. Administrator and the Reinsurer will have the sole obligation to the Bank Accounts and shall own all funds deposited in the Bank Accounts. Administrator shall be responsible for all abandoned property laws requirements and obligations, and shall pay all fees and charges made in connection with such accounts. (b) Notwithstanding any provision of this Landmark Administrative Services Agreement to the contrary, the Administrator shall have no authority to borrow money or incur any indebtedness on behalf of the Insurer or permit any Bank Accounts to become overdrawn. ARTICLE IX INABILITY TO PERFORM SERVICES; ERRORS Section 9.1 Inability to Perform Services. In the event that Administrator shall be unable to perform any Administrative Service for a period that could reasonably be expected to exceed ninety (90) days or such shorter period as may be required by Applicable Law or the Reinsured Contracts, Administrator and Insurer shall mutually agree on alternative means of providing such services. If alternative means for the provision of the Administrative Services cannot be agreed upon by the parties, Insurer may procure such Administrative Services for the Reinsured Contracts and Reinsured Liabilities by commercially reasonable means. Administrator and the Reinsurer shall be solely responsible for all costs incurred in restoring Administrative Services which have not been provided due to its failure to adhere to its obligations under this Landmark Administrative Services Agreement. Section 9.2 Errors. Administrator shall, at its own expense, correct any errors in the Administrative Services caused by it within a reasonable time (not to exceed thirty (30) days) after receiving written notice thereof from Insurer or otherwise. ARTICLE X LEGAL ACTIONS Section 10.1 Regulatory Proceedings. (a) If Insurer or Administrator receive notice of, or otherwise become aware of, any regulatory investigation or proceeding relating to the Reinsured Contracts or the Reinsured Liabilities, Insurer or Administrator, as applicable, shall promptly notify 13 the other party thereof. Subject to the provisions of Section 10.1(c), Administrator shall have the authority to respond to and resolve all regulatory matters and regulatory investigations and proceedings relating to the Reinsured Contracts and Reinsured Liabilities to the extent the resolution is limited to the Reinsured Contracts or Reinsured Liabilities. (b) Subject to the provisions of Section 10.1(c), Administrator will promptly respond on behalf of Insurer to inquiries received from Governmental Entities and Administrator shall conduct whatever investigation is reasonable under the circumstances in order to respond to such inquiries. Administrator shall promptly notify in writing Insurer of any inquiry to which Administrator determines that it will not provide a response in order to permit the Insurer to timely respond. (c) Notwithstanding anything contained herein to the contrary, the parties shall mutually agree to an appropriate response, including which party should respond, to any regulatory investigation or proceeding relating to the Reinsured Contracts or the Reinsured Liabilities which could reasonably be expected to have meaningful adverse effect on any business of the Insurer other than the Reinsured Contracts, or which could meaningfully and adversely interfere with the business, assets, liabilities, obligations, reputation, license, permit, financial condition or results of operations of Insurer or any of its Affiliates (a "Material Regulatory Proceeding"), and the parties hereby agree to cooperate and coordinate in resolving any and all Material Regulatory Proceedings. The parties recognize that, as the issuing company, Insurer retains ultimate responsibility for resolution of the matters contemplated by this Section 10.1. Notwithstanding anything to the contrary contained in this Landmark Administrative Services Agreement, neither Insurer nor Administrator shall have the authority to institute, prosecute, defend or maintain any legal or regulatory proceedings on behalf of the other party without the prior written consent of such other party except to the extent expressly provided for by this Landmark Administrative Services Agreement. Section 10.2 Compliance of Reinsured Contracts. Insurer, Administrator and Reinsurer agree to cooperate with each other and the various Governmental Entities in maintaining the Reinsured Contracts in compliance in all material respects with Applicable Laws. If Administrator determines that any of the Reinsured Contracts are materially not in compliance with such Applicable Laws, Administrator shall so notify in writing Insurer and take whatever action is reasonably necessary to bring such Reinsured Contracts into compliance with Applicable Law. Administrator shall prepare any necessary amendments to such Reinsured Contracts and shall prepare any necessary filings for the purpose of obtaining governmental authority approval for such amendments. Section 10.3 Defense of Litigation. Administrator and Reinsurer shall defend, at their own expense and in the name of Insurer when necessary, any action brought in connection with any Reinsured Contract or relating to any Reinsured Liability; provided, however, Insurer shall have the right, at its own expense, to engage its own separate legal representation and to fully participate in the defense of any litigation with respect to the Reinsured Contracts or the Reinsured Liabilities in which Insurer is named 14 as a party without waiving any rights to indemnification it may have under Article XIII hereof; provided, however, that Administrator and Reinsurer shall have the exclusive authority to control such litigation, and to settle any litigation if (i) Administrator and Reinsurer pay all settlement amounts with respect thereto, (ii) the settlement does not involve any restriction or condition which could reasonably be expected to have an adverse effect on Insurer's business other than the Reinsured Contracts, and (iii) Administrator or Reinsurer obtains a complete release for Insurer, its officers, directors, Representatives and Affiliates with respect to such litigation. Section 10.4 Communications Regarding Certain Matters. Insurer shall promptly (i) notify Administrator in writing if it receives any information or correspondence with respect to any suit, claim, action or proceeding relating to the Reinsured Contracts or the Reinsured Liabilities, or any written communication threatening any of the foregoing and (ii) forward to Administrator any documents it receives relating to any of the matters referred to in clause (i) of this Section 10.4. ARTICLE XI DURATION; TERMINATION Section 11.1 Duration. This Landmark Administrative Services Agreement shall become effective as of the Effective Date and continue until a date which is the earlier of (A) a date which is the later of (i) the date on which none of the Reinsured Contracts remains in force; (ii) the date on which Insurer has no further Reinsured Liabilities; or (iii) the date on which no further Administrative Services are required, or (B) the date on which this Landmark Administrative Services Agreement is terminated according to the provisions of Section 11.2 hereof. Section 11.2 Termination. (a) This Landmark Administrative Services Agreement may be terminated at any time upon the mutual written consent of the parties hereto, which writing shall state the effective date and relevant terms of termination. (b) This Landmark Administrative Services Agreement is subject to immediate termination at the option of Insurer, upon written notice to Administrator upon the issuance of an order of liquidation or rehabilitation against the Reinsurer or bankruptcy or insolvency proceedings against the Administrator; provided, however, that in the event an order of liquidation or rehabilitation is issued against the Reinsurer, before Insurer may terminate this Landmark Administrative Services Agreement, Administrator or Reinsurer shall have the opportunity to contest or appeal such order for a period of sixty (60) days from the date of issuance. (c) Upon termination of this Landmark Administrative Services Agreement pursuant to Section 11.2(a) or (b) hereof, Administrator and Reinsurer shall cooperate fully in the prompt transfer of the applicable Administrative Services and Books and Records maintained by Administrator pursuant to Section 8.1 hereof (or, 15 where appropriate, copies thereof) to Insurer or Insurer's designee, so that Insurer or its designee shall be able to perform the applicable Administrative Services without interruption following termination of this Landmark Administrative Services Agreement. (d) Upon any termination of this Administrative Services Agreement, each party shall retain its right to bring actions for, and receive damages to, which it may be entitled under Applicable Law. ARTICLE XII CONFIDENTIALITY Section 12.1 Use of Confidential Information. Insurer, Reinsurer and Administrator acknowledge that they will have access to confidential and proprietary information concerning the other party and its businesses, which information is not readily available to the public, and acknowledge that Insurer, Reinsurer and Administrator have taken and will continue to take reasonable actions to ensure such information is not made available to the public. Insurer, Reinsurer and Administrator further agree that they will not at any time (during the term hereof or thereafter) disclose to any Person (except Insurer, Reinsurer or Administrator and their Affiliates and the officers, directors, employees, agents and Representatives of Insurer, Reinsurer and Administrator and their Affiliates who require such information in order to perform their duties in connection with the services provided hereunder), directly or indirectly, or make any use of, for any purpose other than those contemplated by the Acquisition Agreement, this Landmark Administrative Services Agreement or the Landmark Quota Share Reinsurance Agreement, any information or trade secrets relating to the Reinsured Contracts or the Reinsured Liabilities or the business affairs of Insurer, Reinsurer or Administrator, including the identity of and/or the compensation arrangements with, any Affiliates and Subsidiaries of Insurer, Reinsurer and Administrator, so long as such information remains confidential. Section 12.2 Confidentiality of Individuals. Information that identifies an individual covered under one of the Reinsured Contracts may be confidential. Reinsurer and Administrator shall take all reasonable precautions to prevent disclosure or use of information identifying individuals covered under such Reinsured Contracts for a purpose unrelated to the performance of this Landmark Administrative Services Agreement. Reinsurer and Administrator shall comply with all Applicable Laws and regulations, as in effect on the date hereof or as hereafter adopted or amended. With respect to Reinsured Contracts reinsured by Reinsurer, Insurer shall take all reasonable precautions to prevent disclosure or use of information identifying individuals for a purpose unrelated to the performance of this Landmark Administrative Services Agreement. Section 12.3 Disclosure. Reinsurer, Administrator or Insurer may disclose confidential information in the following circumstances (or as otherwise provided by the provisions of this Landmark Administrative Services Agreement): 16 (i) in response to a court order or formal discovery request after notice to the other party (to the extent such notice is reasonably practicable); provided, however, that such disclosure shall be limited only to the extent that is required by such court order or formal disclosure request; (ii) if a proper request is made by any regulatory authority after notice to the other party (to the extent such notice is reasonably practicable); provided, however, that such disclosure shall be limited only to the extent that is required by such regulatory authority; (iii) at the proper request of Insurer or Policyholder or his/her legal representative; provided, however, that such disclosure shall be limited only to the extent that is reasonably necessary to satisfy such a request; or (iv) as otherwise required by Applicable Law or the rules of any relevant stock exchange. ARTICLE XIII INDEMNIFICATION Section 13.1 Indemnification by Insurer. Insurer hereby indemnifies Administrator and its Affiliates and its and their respective officers, directors, employees, agents and Representatives against, and agrees to hold each of them harmless from any and all Damages incurred or suffered by any of them arising out of or relating to, (i) any Excluded Liabilities; (ii) any breach or nonfulfillment by Insurer of, or any failure by Insurer to perform, any of the covenants, terms or conditions of, or any duties or obligations under, this Landmark Administrative Services Agreement; and (iii) any enforcement of this indemnity. Section 13.2 Indemnification by Administrator. Administrator hereby indemnifies Insurer and its Affiliates and its and their respective officers, directors, employees, agents and Representatives against, and agrees to hold each of them harmless from any and all Damages incurred or suffered by any of them arising out of or relating to, (i) any Reinsured Liabilities; (ii) any breach or nonfulfillment by Administrator of, or any failure by Administrator to perform, any of the covenants, terms or conditions of, or any duties or obligations under, this Landmark Administrative Services Agreement; and (iii) any enforcement of this indemnity. Section 13.3 Indemnification Procedure. In the event either Insurer or Administrator shall have a claim for indemnity against the other party under the terms of this Landmark Administrative Services Agreement, the parties shall follow the procedures set forth in Article XV of the Acquisition Agreement. 17 Section 13.4 Relationship to Landmark Quota Share Reinsurance Agreement. Nothing contained in this Article XIII is intended to supersede any provisions of the Landmark Quota Share Reinsurance Agreement. ARTICLE XIV ARBITRATION Section 14.1 Arbitration. As a condition precedent to any cause of action, any and all disputes between Insurer on one side and Administrator and Reinsurer on the other side arising out of, relating to, or concerning this Landmark Administrative Services Agreement, whether sounding in contract or tort and whether arising during or after termination of this Landmark Administrative Services Agreement, including whether the dispute is subject to arbitration, shall be submitted to the decision of a board of arbitration composed of two arbitrators and an umpire ("Board") meeting at a site in Wilmington, Delaware. The arbitration shall be conducted under the Federal Arbitration Act and shall proceed as set forth below. Section 14.2 Notice of Arbitration. A notice requesting arbitration, or any other notice made in connection therewith, shall be in writing and shall be sent certified or registered mail, return receipt requested to the affected parties. The notice requesting arbitration shall state in particulars all issues to be resolved in the view of the claimant, shall appoint the arbitrator selected by the claimant and shall set a tentative date for the hearing, which date shall be no sooner than ninety (90) days and no later than one hundred fifty (150) days from the date that the notice requesting arbitration is mailed. Within thirty (30) days of receipt of claimant's notice, the respondent shall notify claimant of any additional issues to be resolved in the arbitration and of the name of its appointed arbitrator. Section 14.3 Arbitration Panel. Unless otherwise mutually agreed, the members of the Board shall be impartial and disinterested and shall be active or former executive officers of property-casualty insurance companies, reinsurance companies, or Lloyd's Underwriters or active or inactive lawyers with at least twenty (20) years of experience in insurance and reinsurance. Insurer and Administrator shall each appoint an arbitrator and the two (2) arbitrators shall choose an umpire before instituting the hearing. If the respondent fails to appoint its arbitrator within thirty (30) days after having received claimant's written request for arbitration, the claimant is authorized to and shall appoint the second arbitrator. If the two arbitrators fail to agree upon the appointment of an umpire within thirty (30) days after notification of the appointment of the second arbitrator, within ten (10) days thereof, the two (2) arbitrators shall request the American Arbitration Association ("AAA") to appoint an umpire for the arbitration with the qualifications set forth in this Article. If the AAA fails to name an umpire, either party may apply to the court named below to appoint an umpire with the above required qualifications. The umpire shall promptly notify in writing all parties to the arbitration of his selection and of the scheduled date for the hearing. Upon resignation or death of any member of the Board, a replacement shall be appointed in the same fashion as the resigning or deceased member was appointed. 18 Section 14.4 Submission of Briefs. The claimant and respondent shall each submit initial briefs to the Board outlining the issues in dispute and the basis, authority and reasons for their respective positions within thirty (30) days of the date of notice of appointment of the umpire. The claimant and the respondent may submit reply briefs to the Board within ten (10) days after filing of the initial brief(s). Initial and reply briefs may be amended by the submitting party at any time, but not later than ten (10) days prior to the date of commencement of the arbitration hearing. Reasonable responses shall be allowed at the arbitration hearing to new material contained in any amendments filed to the briefs but not previously responded to. Section 14.5 Arbitration Board's Decision. The Board shall make a decision and award with regard to the terms of this Landmark Administrative Services Agreement and the original intentions of the parties to the extent reasonably ascertainable. The Board's decision and award shall be in writing and shall state the factual and legal basis for the decision and award. The decision and award shall be based upon a hearing in which evidence shall be allowed and which the formal rules of evidence shall not strictly apply but in which cross examination and rebuttal shall be allowed. At its own election or at the request of the Board, either party may submit a post-hearing brief for consideration of the Board within twenty (20) days of the close of the hearing. The Board shall make its decision and award within thirty (30) days following the close of the hearing or the submission of post-hearing briefs, whichever is later, unless the parties consent to an extension. Every decision by the Board shall be by a majority of the members of the Board and each decision and award by the majority of the members of the Board shall be final and binding upon all parties to the proceeding. Section 14.6 Jurisdiction. Either party may apply to the Chancery Court of the State of Delaware for an order compelling arbitration or confirming any decision and the award; a judgment of that court shall thereupon be entered on any decision or award. If such an order is issued, the attorneys' fees of the party so applying and court costs will be paid by the party against whom confirmation is sought. The Board may award interest calculated from the date the Board determines that any amounts due the prevailing party should have been paid to the prevailing party. Section 14.7 Expenses. Each party shall bear the expense of the one arbitrator appointed by it and shall jointly and equally bear with the other party the expense of any stenographer requested, and of the umpire. Section 14.8 Production of Documents and Witnesses. Subject to customary and recognized legal rules of privilege, each party participating in the arbitration shall have the obligation to produce those documents and as witnesses to the arbitration those of its employees as any other participating party reasonably requests providing always that the same witnesses and documents be obtainable and relevant to the issues before the arbitration and not be unduly burdensome or excessive. The parties may mutually agree as to pre-hearing discovery prior to the arbitration hearing and in the absence of agreement, upon the request of any party, pre-hearing discovery may be conducted as the Board shall determine in its sole discretion to be in the interest of fairness, full disclosure, and a prompt hearing, decision and award by the Board. The 19 Board shall be the final judge of the procedures of the Board, the conduct of the arbitration, of the rules of evidence, the rules of privilege and production and of excessiveness and relevancy of any witnesses and documents upon the petition of any participating party. To the extent permitted by law, the Board shall have the authority to issue subpoenas and other orders to enforce their decisions. Section 14.9 Relief Available. Nothing herein shall be construed to prevent any participating party from applying to the Chancery Court of the State of Delaware to issue a restraining order or other equitable relief to maintain the "status quo" of the parties participating in the arbitration pending the decision and award by the Board or to prevent any party from incurring irreparable harm or damage at any time prior to the decision and award of the Board. The Board shall also have the authority to issue interim decisions or awards in the interest of fairness, full disclosure, and a prompt and orderly hearing and decision and award by the Board. Section 14.10 Consolidation. In the event that there is a dispute between the Insurer, on one side, and Administrator and the Reinsurer on the other, which implicates the provisions of this Landmark Administrative Services Agreement and the Landmark Quota Share Reinsurance Agreement, Insurer and Administrator hereby agree to consolidate any such dispute under such agreements in a single arbitration proceeding. ARTICLE XV MISCELLANEOUS Section 15.1 Cooperation. The parties hereto shall cooperate in a commercially reasonable manner in order that the duties assumed by Administrator will be effectively, efficiently and promptly discharged. The parties hereto will use their best efforts to (i) give effect to the intent of this Landmark Administrative Services Agreement, the Acquisition Agreement, the Landmark Quota Share Reinsurance Agreement and the other Ancillary Agreements and (ii) refrain from conduct which would frustrate the intent of any such agreement. Each party shall, at all reasonable times under the circumstances, make available to the other party properly authorized personnel for the purpose of consultation and decision. Section 15.2 Amendment, Modification and Waiver. This Landmark Administrative Services Agreement may not be amended, modified or waived except by an instrument or instruments in writing signed and delivered on behalf of each of the parties hereto. Section 15.3 Relationship. Insurer and Administrator are and shall remain independent contractors and not employees of the other party. Except as expressly granted in this Landmark Administrative Services Agreement or otherwise by the other party in writing or as may be required by Applicable Law or as necessary to perform the services to be provided hereunder or to obtain the benefits hereof, no party shall have any authority, express or implied, to act as an agent of the other party or its 20 Subsidiaries or Affiliates under this Landmark Administrative Services Agreement. Except as otherwise provided by this Landmark Administrative Services Agreement or by any other agreement between the parties, each party shall be responsible for the payment of all employment, income and social security taxes arising in connection with the compensation payable to its personnel involved in the provision of the services hereunder. Section 15.4 Entire Agreement. This Landmark Administrative Services Agreement (together with the exhibits hereto and the other agreements, documents and instruments delivered in connection herewith) the Acquisition Agreement, the Landmark Quota Share Reinsurance Agreement and the other Ancillary Agreements constitute the entire agreement among the parties with respect to the subject matter hereof and thereof and supersede all other prior agreements and understandings, both written and verbal, among the parties or any of them with respect to the subject matter hereof. Section 15.5 Governing Law. This Landmark Administrative Services Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Section 15.6 Severability. Any term or provision of this Landmark Administrative Services Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Landmark Administrative Services Agreement or affecting the validity or enforceability of any of the terms or provisions of this Landmark Administrative Services Agreement in any other jurisdiction. If any provision of this Landmark Administrative Services Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as would be enforceable. Section 15.7 Counterparts. This Landmark Administrative Services Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. Section 15.8 Consent to Jurisdiction. Each of the parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the state and federal court located in the State of Delaware for the purposes of enforcing this Landmark Administrative Services Agreement or the other Ancillary Agreements. If any action is brought in a state court, the parties shall take such actions as are within their control to cause any matter contemplated hereby to be assigned to the Chancery Court in the State of Delaware. In any action, suit or other proceeding, each of the parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claims that it is not subject to the jurisdiction of the above courts, that such action or suit is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper. Each of the parties hereto also agrees that any final and unappealable judgment against a party hereto in connection with any action, suit or other proceeding shall be conclusive and binding on such party and that 21 such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States. A certified or exemplified copy of such award or judgment shall be conclusive evidence of the fact and amount of such award or judgment. Section 15.9 Third Party Beneficiaries. Except for the provisions of Article XIII, nothing in this Landmark Administrative Services Agreement, express or implied, is intended to or shall confer upon any Person other than the parties hereto any rights, benefits or remedies of any nature whatsoever under or by reason of this Landmark Administrative Services Agreement. Section 15.10 Binding; Assignment. This Landmark Administrative Services Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and legal representatives. Neither this Landmark Administrative Services Agreement, nor any rights, interests or obligations hereunder, may be directly or indirectly assigned, delegated, sublicensed or transferred by any party to this Landmark Administrative Services Agreement, in whole or in part, to any other Person (including any bankruptcy trustee) by operation of law or otherwise, whether voluntarily or involuntarily, without the prior written consent of the parties hereto. Section 15.11 Specific Performance. The parties recognize and agree that if for any reason any of the provisions of this Landmark Administrative Services Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate and irreparable harm or injury would be caused for which money damages would not be an adequate remedy. Accordingly, each party agrees that, in addition to any other available remedies, each other party shall be entitled to an injunction restraining any violation or threatened violation of any of the provisions of this Landmark Administrative Services Agreement without the necessity of posting a bond or other form of security. In the event that any action should be brought in equity to enforce any of the provisions of this Landmark Administrative Services Agreement, no party will allege, and each party hereby waives the defense, that there is an adequate remedy at law. Section 15.12 Descriptive Headings. The descriptive article and section headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Landmark Administrative Services Agreement. Section 15.13 Expenses. Unless otherwise specifically provided herein or in the Acquisition Agreement, Transition Services Agreement or Landmark Quota Share Reinsurance Agreement, all costs and expenses incurred in connection with this Landmark Administrative Services Agreement shall be paid by the party incurring such cost or expense. Section 15.14 Use of Name. Except as otherwise set forth in the Acquisition Agreement, the Landmark Quota Share Reinsurance Agreement or the other Ancillary Agreements, neither party shall use the name, trademark, service mark, logo or identification of the other party without the other party's prior written consent. 22 Section 15.15 Survival. The provisions of Article XII, Article XIII and Article XV hereof shall survive the termination of this Landmark Administrative Services Agreement. Section 15.16 Subcontracting. Administrator may subcontract for the performance of any Administrative Services that Administrator is to provide hereunder upon receipt of the prior written consent of Insurer, which consent shall not be unreasonably withheld or delayed; provided, however, that such subcontracting shall not be deemed to relieve Administrator of its obligations under this Landmark Administrative Services Agreement. Section 15.17 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by facsimile (which is confirmed), by courier (delivery of which is confirmed) or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties to this Landmark Administrative Services Agreement as follows: If to Insurer: Laura S. Lawrence, Esq. General Counsel Royal Group, Inc. 9300 Arrowpoint Blvd. Charlotte, NC 28273 Telephone No.: (704) 522-2851 Facsimile No.: (704) 522-2313 With a copy to (which shall not constitute notice to Insurer for purposes of this Section 15.17): Robert J. Sullivan, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Telephone No.: 212-735-2930 Facsimile No.: 212-735-2000 23 If to Administrator: Royal Specialty Underwriting, Inc. Mr. David E. Leonard Executive Vice President 945 East Paces Ferry Road Atlanta, GA 30326 Telephone No.: (404) 231-2366 Facsimile No: (404) 231-3755 With copies to (which shall not constitute notice to the Administrator for purposes of this Section 15.17): Robert M. Hart, Esq. General Counsel Alleghany Corporation 375 Park Avenue, Suite 3201 New York, New York 10152 Telephone No.: (212) 752-1356 Facsimile No.: (212) 759-8149 and Aileen C. Meehan, Esq. William W. Rosenblatt, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Telephone No.: (212) 259-8000 Facsimile No.: (212) 259-6333 If to Reinsurer: Underwriters Reinsurance Company Mr. David E. Leonard Executive Vice President c/o Royal Specialty Underwriting, Inc. 945 East Paces Ferry Road Atlanta, GA 30326 Telephone No.: (404) 231-2366 Facsimile No: (404) 231-3755 With copies to (which shall not constitute notice to the Reinsurer for purposes of this Section 15.17): Robert M. Hart, Esq. General Counsel 24 Alleghany Corporation 375 Park Avenue, Suite 3201 New York, New York 10152 Telephone No.: (212) 752-1356 Facsimile No.: (212) 759-8149 and Aileen C. Meehan, Esq. William W. Rosenblatt, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Telephone No.: (212) 259-8000 Facsimile No.: (212) 259-6333 or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. In no event shall the provision of notice pursuant to this Section 15.17 constitute notice for service of any writ, process or summons in any suit, action or other proceeding. Section 15.18 Interpretation. (a) When a reference is made in this Landmark Administrative Services Agreement to a Section or Article, such reference shall be to a section or article of this Landmark Administrative Services Agreement unless otherwise clearly indicated to the contrary. Whenever the words "include", "includes" or "including" are used in this Landmark Administrative Services Agreement, they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Landmark Administrative Services Agreement as a whole and not to any particular provision of this Landmark Administrative Services Agreement. The meaning assigned to each term used in this Landmark Administrative Services Agreement shall be equally applicable to both the singular and the plural forms of such term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. (b) The parties have participated jointly in the negotiation and drafting of this Landmark Administrative Services Agreement; consequently, in the event an ambiguity or question of intent or interpretation arises, this Landmark Administrative Services Agreement shall be construed as if drafted jointly by the parties thereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Landmark Administrative Services Agreement. 25 IN WITNESS WHEREOF, this Landmark Administrative Services Agreement has been duly executed by a duly authorized officer of each party hereto as of the date first above written. LANDMARK AMERICAN INSURANCE COMPANY By: Stephen M. Mulready --------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer ROYAL SPECIALTY UNDERWRITING, INC. By: /s/ James A. Dixon ---------------------- Name: James A. Dixon Title: Chairman UNDERWRITERS REINSURANCE COMPANY By: /s/ James P. Slattery ----------------------- Name: James P. Slattery Title: President EX-10.17 19 y88779exv10w17.txt CONTENTS TO ADMINISTRATIVE SERVICES AGREEMENT Exhibit 10.17 List of Contents of Exhibits and Schedules to the Landmark American Insurance Company Administrative Services Agreement Exhibits Description -------- ----------- Exhibit A Administrative Services Intellectual Property License Agreement Exhibit B RSA Reinsurance Security Guidelines Exhibit C Form of Report Required Pursuant to Section 7.1 Schedules Description --------- ----------- Schedule 4.5(a) Levels of Treaty Reinsurance EX-10.18 20 y88779exv10w18.txt TRUST AGREEMENT Exhibit 10.18 TRUST AGREEMENT by and among ROYAL INDEMNITY COMPANY, ROYAL SURPLUS LINES INSURANCE COMPANY, and LANDMARK AMERICAN INSURANCE COMPANY (hereinafter referred to collectively as the "Beneficiary") and UNDERWRITERS REINSURANCE COMPANY (hereinafter referred to as the "Grantor") and LASALLE BANK NATIONAL ASSOCIATION (hereinafter referred to as the "Trustee") PREAMBLE This TRUST AGREEMENT (the "Trust Agreement") is made and entered into on July 1, 2003 by and among Royal Indemnity Company, a Delaware property and casualty insurance company ("RIC"), Royal Surplus Lines Insurance Company, a Delaware property and casualty insurance company ("RSLIC") and Landmark American Insurance Company, an Oklahoma property and casualty insurance company ("Landmark," and together with RIC, RSLIC and their respective successors and assigns, the "Beneficiary"), and Underwriters Reinsurance Company, a New Hampshire property and casualty insurance company (together with its successors and assigns, the "Grantor"), and LaSalle Bank National Association, a national banking association (hereinafter referred to as "Trustee"), in connection with those certain Quota Share Reinsurance Agreements, effective July 1, 2003, by and between the Grantor, as Reinsurer, and RIC, RSLIC and Landmark, as cedents (the "Quota Share Reinsurance Agreements"); and WHEREAS, any amounts deposited in the Trust Account by the Grantor, the Beneficiary and Royal Specialty Underwriting, Inc., a Georgia company and an agent of the Beneficiary under certain administrative services agreements ("RSUI"), hereunder are collateral for any amounts due and unpaid to the Beneficiary as cedents under the Quota Share Reinsurance Agreements. NOW THEREFORE, the Grantor, the Beneficiary and the Trustee, in consideration of the mutual covenants contained herein and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and upon the terms and conditions hereinafter set forth, agree as follows: ARTICLE I DEFINED TERMS Section 1.1 Definitions. The following terms, when used in this Trust Agreement, shall have the meanings set forth herein: (a) "Acceptable Investments" mean investments prescribed or permitted under the investment provisions of the insurance laws of Delaware and New Hampshire and under the URC Investment Guidelines. (b) "Assets" shall have the meaning ascribed to such term in Section 2.1. (c) "Beneficiary" shall have the meaning ascribed to such term in the Preamble. (d) "Business Day" means a Monday, Tuesday, Wednesday, Thursday or Friday on which banking institutions in the State of Illinois are not authorized or obligated by Applicable Law to close. (e) "Cat Cover Reinsurance Recoverables" shall have the meaning ascribed to such term in the Quota Share Reinsurance Agreements. (f) "Closing Date" means July 1, 2003. (g) "Grantor" shall have the meaning ascribed to such term in the Preamble. (h) "Net Premium Receivables" shall have the meaning ascribed to such term in the Quota Share Reinsurance Agreements. (i) "Quota Share Reinsurance Agreements" shall have the meaning ascribed to such term in the Preamble. (j) "Reinsurance Recoverables" shall have the meaning ascribed to such term in the Quota Share Reinsurance Agreements. (k) "Required Balance" shall mean an amount equal to Grantor's aggregate obligations to the Beneficiary under the Quota Share Reinsurance Agreements, net of (i) collectible Reinsurance Recoverables (as such term is defined in the respective Quota Share Reinsurance Agreements), (ii) collectible Net Premium Receivables (as such term is defined in the respective Quota Share Reinsurance Agreements) and (iii) the amount of Royal Indemnity Company's aggregate obligations to Landmark American Insurance Company under the RIC (Landmark) Quota Share Reinsurance Agreement to be entered into by and between Royal Indemnity Company, as cedent, and Landmark American Insurance Company, as reinsurer, subsequent to the date hereof. (l) "RSUI" shall have the meaning ascribed to such term in the Preamble. (m) "Securities Intermediary" shall mean LaSalle Bank National Association. 2 (n) "Trust Account" shall have the meaning ascribed to such term in Section 2.1. (o) "Trust Agreement" shall have the meaning ascribed to such term in the Preamble. (p) "Trustee" shall have the meaning ascribed to such term in the Preamble. (q) "URC Investment Guidelines" shall have the meaning ascribed to such term in the Quota Share Reinsurance Agreements. Section 1.2 Interpretation. When a reference is made in this Trust Agreement to a Section or Article, such reference shall be to a section or article of this Trust Agreement unless otherwise clearly indicated to the contrary. Whenever the words "include", "includes" or "including" are used in this Trust Agreement, they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Trust Agreement as a whole and not to any particular provision of this Trust Agreement. The meaning assigned to each term used in this Trust Agreement shall be equally applicable to both the singular and the plural forms of such term. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. ARTICLE II CREATION OF TRUST ACCOUNT Section 2.1 Obligation of the Grantor. On or prior to the date hereof, the Grantor shall procure with the Trustee, in the name of the Grantor but for the sole benefit of the Beneficiary, an account with number 03-9253000 (ref. account name: Underwriters Reinsurance Company, Grantor) (which in its totality shall be hereinafter referred to as the "Trust Account"). The Grantor shall maintain in such Trust Account assets consisting of cash and/ or Acceptable Investments (hereinafter collectively referred to as the "Assets") in an amount equal to the Required Balance. Section 2.2 Purpose of Trust. (a) The Assets in the Trust Account shall be held by the Trustee for the purposes set forth herein. The Grantor grants to the Trustee all trust powers necessary and reasonable in the performance of its duties hereunder. (b) The Grantor agrees that, for United States federal income tax purposes, (i) the Trust shall be formed and operated in a manner that ensures that the 3 Trust constitutes a "grantor trust" and, (ii) any and all income or gain derived from the Assets held in the Trust shall constitute income or gain of the Grantor as the owner of the Assets. Section 2.3 Designation of Agents. Except as otherwise expressly provided in this Trust Agreement, any statement, certificate, notice, request, consent, approval, or other instrument to be delivered or furnished by Grantor and/or Beneficiary shall be sufficiently executed if executed in the name of Grantor and/or Beneficiary by such officer or officers of Grantor and/or Beneficiary or by such other agent or agents of Grantor and/or Beneficiary as may be designated in a resolution or letter of advice by Grantor and/or Beneficiary. Written notice of such designation by Grantor and/or Beneficiary shall be filed with the Trustee. The Trustee shall be protected in acting upon any written statement or other instrument made by such officer or agent of Grantor and/or Beneficiary with respect to the authority conferred on him. ARTICLE III MAINTENANCE OF THE TRUST Section 3.1 Funding of Trust Account. On the Closing Date, (i) the Beneficiary shall place Assets in the Trust Account in an amount equal to $173,383,109.00, representing the amount required to be placed in the Trust Account on the Closing Date by the Beneficiary pursuant to Section 9.2(a)(i) of the Quota Share Reinsurance Agreements; (ii) the Grantor shall place Assets in the Trust Account in an amount equal to $47,703,000.00, representing the amount required to be placed in the Trust Account on the Closing Date by the Grantor pursuant to Section 9.2(a)(iii) of the Quota Share Reinsurance Agreements; (iii) the Grantor shall execute and deliver the Assignment of Reinsurance Recoverables attached hereto as EXHIBIT A; and (iv) the Beneficiary shall execute and deliver the Assignment of Net Premium Receivables attached hereto as EXHIBIT B. Section 3.2 Substitution of Trust Account Assets. The Grantor may at any time substitute or exchange Assets contained in the Trust Account, provided (i) such assets so substituted or exchanged are cash and/or Acceptable Investments and (ii) the aggregate fair market value of the Assets is not decreased below an amount equal to the Required Balance as of the prior month end. Upon any substitution or exchange as provided for herein, the Grantor shall certify to the Trustee that such substitution or exchange meets the requirements of this Section 3.2. Section 3.3 Books and Records. The Trustee shall keep full and complete records of the administration of the Trust Account. The Grantor and the Beneficiary may examine such records at any time during business hours through any person or persons duly authorized in writing by Grantor or the Beneficiary. 4 Section 3.4 Conversion to Regulation 114 Trust. In the event that RIC, RSLIC or Landmark is unable to take financial statement credit for the reinsurance provided under the Quota Share Reinsurance Agreement to which it is a party, the parties hereto shall agree to either (i) convert this Trust Agreement to a trust agreement in form and substance satisfactory to the parties, in compliance with New York Insurance Regulation 114 or (ii) remove RIC, RSLIC or Landmark, as the case may be, as a party to this Trust Agreement (with a corresponding adjustment to the Required Balance hereunder), with the Grantor providing RIC, RSLIC or Landmark, as the case may be, a trust, in form and substance satisfactory to such party and the Grantor, in compliance with New York Insurance Regulation 114 in order to permit such party to take full financial statement credit for the reinsurance provided under the Quota Share Reinsurance Agreement to which it is a party and the transfer to such trust of Assets in an amount equal to the portion of the Required Balance related to the obligations to such party. ARTICLE IV RELEASE AND ADJUSTMENT OF TRUST ACCOUNT ASSETS Section 4.1 Change in Required Balance. If as of any month end there is a reduction or increase in the amount of the Required Balance, the Beneficiary shall (i) certify in writing to the Trustee as to the amount of such reduction or increase and (ii) provide the Grantor a copy of the written certification transmitted to the Trustee. Section 4.2 Adjustment of Trust Account Assets. (a) If the fair market value of the Assets maintained in the Trust Account is greater than the Required Balance as of any month end, then within five (5) Business Days of such determination, the Trustee shall, upon written signed direction from the Grantor, withdraw from the Trust Account and transfer to the Grantor Assets having a fair market value equal to such excess. (b) If the fair market value of the Assets maintained in the Trust Account is less than the Required Balance as of such month end, then within five (5) Business Days of such determination, the Grantor shall cause to be placed into the Trust Account such additional assets as are necessary to ensure that the fair market value of the Assets maintained in the Trust Account is no less than the Required Balance. Section 4.3 Limitation on Release of Trust Account Assets. EXCEPT AS PROVIDED IN SECTION 4.4 OR ARTICLE VI HEREOF, IN NO EVENT SHALL THE TRUSTEE BE INSTRUCTED TO RELEASE ASSETS FROM THE TRUST ACCOUNT WHICH WOULD CAUSE THE AGGREGATE FAIR MARKET VALUE OF THE ASSETS HELD IN THE TRUST ACCOUNT TO BE DECREASED BELOW 5 THE AGGREGATE AMOUNT OF THE REQUIRED BALANCE AS OF THE MONTH END PRECEDING THE RELEASE OF SUCH ASSETS. Section 4.4 Release of Trust Account Assets to the Beneficiary. (a) Except as provided in Section 4.4(b), the Beneficiary may not withdraw Assets from the Trust Account without the prior written consent of the Grantor, a copy of which shall be provided by the Grantor to the Trustee. (b) In the event that the Grantor fails to make a payment of any amount when due to the Beneficiary pursuant to Section 3.2 of the Quota Share Reinsurance Agreements, the Beneficiary, without notice to the Grantor, shall be entitled to withdraw such amount on the first Business Day following the due date. In the event that the Grantor attempts to terminate the Trust Account without the written approval of the Beneficiary, the Beneficiary shall be entitled to withdraw the Assets maintained in the Trust Account prior to the date of termination and hold such assets in trust as collateral for the performance of the Reinsurer's obligations under the Quota Share Reinsurance Agreements. ARTICLE V DUTIES OF THE TRUSTEE Section 5.1 Acceptance of Assets by the Trustee. The Trustee shall accept for deposit into the Trust Account any asset provided such assets are cash or Acceptable Investments. Notwithstanding anything herein to the contrary, the Trustee shall not at any time be under any duty or responsibility to determine whether any assets constitute Acceptable Investments. The Trustee and its lawfully appointed successors is and are authorized and shall have the power to receive such securities and other property as Grantor from time to time may transfer or remit to the Trust Account and to hold and dispose of the same for the uses and purposes and in the manner and according to the provisions herein set forth. All such trusteed assets at all times shall be maintained as a trust account, separate and distinct from all other assets on the books and records of the Trustee, and shall be continuously kept in a safe place within the United States. Section 5.2 Collection of Interest and Dividends; Voting Rights. The Trustee is hereby authorized, without prior notice to the Grantor or the Beneficiary, to demand payment of and collect all interest or dividends on the Assets comprising the Trust Account if any, and the Trustee shall deposit all of such interest or dividends collected to the principal of the Trust Account. The Grantor shall have the full and unqualified right to vote and execute consents with respect to any shares of stock comprising the Trust Account. 6 Section 5.3 Obligations of the Trustee. The Trustee agrees to hold and disburse the various Assets of the Trust Account in accordance with the provisions expressed herein. Section 5.4 Responsibilities of Trustee. The Trustee, in the administration of this Trust Account, is to be bound solely by the express provisions herein, and such further written and signed directions and certifications as the appropriate party or parties may, under the conditions herein provided, deliver to the Trustee. The Trustee shall be under no obligation to enforce the Grantor's obligations under this Agreement, except as otherwise expressly provided or directed pursuant hereto; the Trustee's responsibilities shall be limited to the safe holding of the Assets comprising the Trust Account, and the Trustee shall be liable only for its own negligence, willful misconduct, lack of good faith or breach of fiduciary duty. The Trustee further agrees to forward upon request to the Beneficiary and upon request to the Grantor, a certified list and valuation of all Assets held under this Trust Agreement. Section 5.5 Monthly Reports. The Trustee agrees to provide copies of activity reports to the Beneficiary and the Grantor upon inception and within five (5) days following the end of each calendar month, which reports shall show all deposits, withdrawals and substitutions; a listing of securities held; and cash and cash equivalent balances, in the Trust Account as of the end of such month. The Trustee agrees to provide written notification to the Grantor and the Beneficiary within five (5) days of any deposits to or withdrawals from the Trust Account. Section 5.6 Resignation or Removal of the Trustee. The Trustee may at any time resign from, and terminate its capacity hereunder by delivery of written notice or resignation, effective not less than ninety (90) days after receipt by both the Beneficiary and the Grantor. The Trustee may be removed by the Grantor by (i) delivery to the Trustee and the Beneficiary of a written notice of removal, effective not less than ninety (90) days after receipt by the Trustee and the Beneficiary of the notice and (ii) receipt of Beneficiary's consent to such action, which consent shall not be unreasonably withheld. However, no such resignation by the Trustee or removal by the Grantor shall be effective until a successor to the Trustee shall have been duly appointed as provided in this Agreement and all the securities and other Assets in the Trust Account have been duly transferred to such successor. The Grantor, upon receipt of such notice, shall undertake to obtain the agreement of a qualified, successor depository, agreeable to the Beneficiary, to act in accordance with all agreements of the Trustee herein. The Beneficiary agrees not to unreasonably withhold approval of such Trustee. Upon the Trustee's delivery of the Assets to the qualified, successor depository, along with a closing statement showing all activities from the last monthly report, the Trustee shall be discharged of further responsibilities hereunder. 7 Section 5.7 Release of Information. The Trustee shall respond to any and all reasonable requests for information concerning the Trust Account or the Assets held therein by either of the parties to this Agreement. Section 5.8 Indemnification of the Trustee. Whenever an action by the Trustee is authorized by written signed direction pursuant to the provisions of this Agreement and such action is taken strictly in accordance with such written and signed direction by the appropriate party or parties, the party or parties authorizing such action hereby agree to indemnify the Trustee against all losses, damages, costs and expenses, including reasonable attorney's fee, resulting from any action so taken by the Trustee. Section 5.9 Charges of the Trustee. The Grantor agrees to pay all costs or fees charged by the Trustee for acting as the Trustee pursuant to this Agreement, as agreed between the Grantor and the Trustee, including fees incurred by the Trustee for legal services deemed necessary by the Trustee as a result of the Trustee's so acting; provided, however, that no such costs, fees or expenses shall be paid out of the Assets. Section 5.10 Limitations of Trustee. The Trustee shall in no way be responsible for determining the amount of securities required to be deposited; or to monitor whether or not the securities held within such Trust Account conform to the investment requirements contained herein. The Trustee shall be under no liability for any release of Assets made by it to the Grantor pursuant to Article IV. ARTICLE VI TERMINATION OF TRUST ACCOUNT Section 6.1 Termination with the Beneficiary's Written Consent. Upon receipt of the Beneficiary's written consent, the Grantor shall terminate this Agreement by: (a) giving thirty five (35) days' advance written notice to the Trustee and the Trustee giving thirty (30) days' advance written notice of such termination via certified mail to the Beneficiary; and (b) providing the Beneficiary with alternative security acceptable to the Beneficiary, in its sole discretion, prior to the effective date of termination. Upon such termination, the Trustee shall release Assets held and deposited under this Agreement to the Beneficiary and shall take any and all steps necessary to transfer absolutely and unequivocally all right, title and interest in such Assets and to deliver physical custody, if applicable, in such Assets to the Beneficiary or as otherwise directed by the Beneficiary. 8 ARTICLE VII SECURITY INTEREST IN THE TRUST ASSETS Section 7.1 Security Interest. The parties intend that the Trust Account is and at all times shall be the lawful owner of the Assets. However, to the extent that the Trust is not valid, the transfer of the Assets by the Grantor to the Trust Account is not effective, or the Transfer of the Assets by the Grantor may be characterized as a pledge rather than a lawful conveyance to the Trust, the Grantor hereby grants and transfers to RIC, as agent for the benefit of the Beneficiary, for the purposes set forth herein a first priority perfected security interest in all of the Grantor's right, title and interest in, to and under the Trust Account, all Assets credited to the Trust Account and any security entitlements arising with respect thereto to secure Grantor's obligations hereunder to the Beneficiary and this Trust Agreement shall constitute a security agreement under applicable law. In addition, the Grantor shall execute and deliver such UCC financing statements with respect to Trust Account that are reasonably deemed necessary by the Beneficiary in order to perfect such security interest in the Assets. Section 7.2 Appointment as Agent. Solely for the purpose of effectuating the grant set forth in Section 7.1, RSLIC and Landmark hereby appoint RIC as agent, and RIC hereby accepts the appointment. Section 7.3 "Financial Assets" Election. The Securities Intermediary hereby agrees that each Asset credited to the Trust Account shall be treated as a "financial asset" within the meaning of Section 8-102(a)(9) of the UCC. For purposes of this Trust Agreement, "UCC" shall mean the Uniform Commercial Code as in effect on the date hereof in the State of New York. Section 7.4 UCC Securities Account. The Securities Intermediary hereby confirms and agrees to the following: (a) The Trust Account is a "securities account" as such term is defined in UCC Section 8-501(b). For purposes of this Article VII, the Securities Intermediary shall be acting solely in its capacity as securities intermediary for the benefit of the Beneficiary under Article 8 of the Uniform Commercial Code. (b) The Securities Intermediary has established for the Trust Account account number 03-9253000 in the name "Underwriters Reinsurance Company, Grantor" and the Trustee shall not change the name or account number of the Trust Account without the prior written consent of the Beneficiary. All Assets delivered to the Trustee pursuant to this Trust Agreement will be promptly credited to the Trust Account. 9 Section 7.5 Entitlement Orders. If at any time the Securities Intermediary shall receive any order from the Beneficiary directing transfer or redemption of any Asset (an "Entitlement Order"), the Securities Intermediary shall comply with such Entitlement Order without further consent by the Grantor or any other person. If the Grantor is otherwise entitled to issue Entitlement Orders and such orders conflict with any Entitlement Order issued by the Beneficiary, the Securities Intermediary shall follow the orders issued by the Beneficiary. Section 7.6 Subordination of Lien; Waiver of Set-Off. In the event that the Securities Intermediary has or subsequently obtains by agreement, by operation of law or otherwise a security interest in the Trust Account or any security entitlement credited thereto in any capacity other than as Trustee of the Trust Account for the benefit of the Beneficiary, the Securities Intermediary hereby agrees that such security interest shall be subordinate to the security interest created hereunder. The Assets deposited to the Trust Account will not be subject to deduction, set-off, banker's lien, or any other right in favor of any person other than the Beneficiary (except that the Securities Intermediary may set off (i) all amounts due to the Securities Intermediary in respect of customary fees and expenses for the routine maintenance and operation of the Trust Account and (ii) the face amount of any checks which have been credited to the Trust Account but are subsequently returned unpaid because of uncollected or insufficient funds). Section 7.7 Choice of Law. Both this Trust Agreement and the Trust Account shall be governed by the laws of the State of New York. Regardless of any provision in any other agreement, for purposes of the UCC, New York shall be deemed to be the Securities Intermediary's jurisdiction and the Trust Account (as well as the securities entitlements related thereto) shall be governed by the laws of the State of New York. Section 7.8 Conflict with Other Agreements. (a) In the event of any conflict between this Trust Agreement (or any portion thereof) and any other agreement now existing or hereafter entered into, the terms of this Trust Agreement shall prevail; (b) The Securities Intermediary hereby confirms and agrees that: (i) There are no other agreements entered into between the Securities Intermediary and the Grantor with respect to the Trust Account; (ii) It has not entered into, and until the termination of the this Trust Agreement will not enter into, any agreement 10 with any other person relating to the Trust Account and/or any Assets credited thereto pursuant to which it has agreed to comply with Entitlement Orders of any person other than the Beneficiary; and (iii) It has not entered into, and until the termination of this Trust Agreement will not enter into, any agreement with the Grantor or the Beneficiary purporting to limit or condition the obligation of the Trustee to comply with Entitlement Orders as set forth in Section 7.4 hereof. Section 7.9 Adverse Claims. Except for the claims and interest of the Beneficiary and of the Grantor in the Trust Account, the Securities Intermediary does not know of any claim to, or interest in, the Trust Account or in any Asset credited thereto. If any person asserts any lien, encumbrance or adverse claim (including any writ, garnishment, judgment, warrant of attachment, execution or similar process) against the Trust Account or in any Asset carried therein, the Securities Intermediary will promptly notify the Beneficiary and the Grantor thereof. ARTICLE VIII GENERAL PROVISIONS Section 8.1 Failure to Act. The Beneficiary's failure at any time to exercise any of the rights or powers conferred upon it herein shall constitute neither a waiver of its right to exercise, nor stop it from exercising, any rights at any subsequent time, nor shall such failure reduce in any degree any liability or obligation for which the Grantor is bound hereunder. Section 8.2 Disputes. Any dispute arising out of, including the formation or validity thereof, or otherwise relating to, this Trust Agreement shall be subject to the provisions of Article XIV of the Quota Share Reinsurance Agreements. Section 8.3 Amendments. This Trust Agreement may be altered, amended or terminated at any time by written agreement executed by each party hereto and, in the case of Grantor's and Beneficiary's written agreement, delivered to the Trustee. Section 8.4 Assignment. This Agreement may not be assigned without the consent of the parties hereto and, subject to the receipt of such consent, shall be binding upon and inure to the benefit of the parties hereto, their successor and assigns. 11 Section 8.5 Counterparts. This Agreement may be executed in any number of counterparts or by attached documents, all of which shall constitute one and the same original. Section 8.6 Notices. Unless otherwise specifically provided herein, every notice required or permitted to be given under this Agreement shall be given in writing by personal delivery to the party to whom it is directed at the following addresses: Trustee: Robert K. Thompson Senior Vice President LaSalle Bank National Association 135 South LaSalle, Suite 1827 Chicago, Illinois 60603 Telephone No.: (312) 904-6549 Facsimile No.: (312) 904-0990 Grantor: Robert M. Hart, Esq. General Counsel Alleghany Corporation 375 Park Avenue Suite 3201 New York, New York 10152 Telephone No.: (212) 752-1356 Facsimile No.: (212) 759-8149 with a copy to (which shall not constitute notice to Grantor for purposes of this Section 8.6): Aileen C. Meehan, Esq. William W. Rosenblatt, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Telephone No.: (212) 259-8000 Facsimile No.: (212) 259-6333 Beneficiary: Laura S. Lawrence, Esq. General Counsel Royal Indemnity Company 12 9300 Arrowpoint Blvd. Charlotte, North Carolina 28273 Telephone No.: (704) 522-2851 Facsimile No.: (704) 522-2313 with a copy to (which shall not constitute notice to Beneficiary for purposes of this Section 8.6): Robert J. Sullivan, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Telephone No.: 212-735-2930 Facsimile No.: 212-735-2000 Section 8.7 Severability. In the event any provision of this Trust Agreement shall be held invalid or unenforceable for any reason, such invalidity or unenforceability shall not affect the remaining provisions of this Trust Agreement. 13 ARTICLE IX EFFECTIVE DATE AND EXECUTION IN WITNESS OF THE ABOVE, this Trust Agreement is executed in triplicate by the parties' duly authorized officers on the dates indicated below with an effective date of: July 1, 2003. ROYAL INDEMNITY COMPANY /s/ Stephen M. Mulready ----------------------------------------------------- By: Stephen M. Mulready ----------------------------------------------------- Title: President and Chief Executive Officer ----------------------------------------------------- DATE: ----------------------------------------------------- Attest: /s/ Judy S. Spitzer ------------------------------------- By: Judy S. Spitzer ------------------------------------- Title: Assistant Corporate Secretary ------------------------------------- DATE: ------------------------------------- ROYAL SURPLUS LINES INSURANCE COMPANY /s/ Stephen M. Mulready ----------------------------------------------------- By: Stephen M. Mulready ----------------------------------------------------- Title: President and Chief Executive Officer ----------------------------------------------------- DATE: ----------------------------------------------------- Attest: /s/ Judy S. Spitzer ------------------------------------- By: Judy S. Spitzer ------------------------------------- Title: Assistant Secretary ------------------------------------- DATE: ------------------------------------- LANDMARK AMERICAN INSURANCE COMPANY /s/ Stephen M. Mulready ----------------------------------------------------- By: Stephen M. Mulready ----------------------------------------------------- Title: President and Chief Executive Officer ----------------------------------------------------- DATE: ----------------------------------------------------- Attest: /s/ Judy S. Spitzer ------------------------------------- By: Judy S. Spitzer ------------------------------------- Title: Assistant Corporate Secretary ------------------------------------- DATE: ------------------------------------- UNDERWRITERS REINSURANCE COMPANY By: /s/ James P. Slattery ----------------------------------------------------- Title: President ----------------------------------------------------- DATE: 6/30/03 ----------------------------------------------------- Attest: /s/ Peter R. Sismondo ------------------------------------- Title: Secretary ------------------------------------- DATE: 6/30/03 ------------------------------------- LASALLE BANK NATIONAL ASSOCIATION By: /s/ James M. Feldman ----------------------------------------------------- Title: Group SVP ----------------------------------------------------- DATE: 6/30/03 ----------------------------------------------------- Attest: /s/ Ken Rakowski ------------------------------------- Title: FVP ------------------------------------- DATE: 6/30/03 ------------------------------------- LASALLE BANK NATIONAL ASSOCIATION (AS SECURITIES INTERMEDIARY UNDER ARTICLE VII OF THIS TRUST AGREEMENT) By: /s/ James M. Feldman ----------------------------------------------------- Title: Group SVP ----------------------------------------------------- DATE: 6/30/03 ----------------------------------------------------- Attest: /s/ Ken Rakowski ------------------------------------- Title: FVP ------------------------------------- DATE: 6/30/03 ------------------------------------- EX-10.19 21 y88779exv10w19.txt ASSIGNMENT OF NET PREMIUM RECEIVABLES EXHIBIT 10.19 ASSIGNMENT OF NET PREMIUM RECEIVABLES BY AND BETWEEN LASALLE BANK NATIONAL ASSOCIATION AND ROYAL INDEMNITY COMPANY, ROYAL SURPLUS LINES INSURANCE COMPANY, LANDMARK AMERICAN INSURANCE COMPANY ------------------------------- JULY 1, 2003 ------------------------------ This ASSIGNMENT OF NET PREMIUM RECEIVABLES (the "Assignment Agreement"), dated as of July 1, 2003, is entered into by and between Royal Indemnity Company ("RIC"), Royal Surplus Lines Insurance Company ("RSLIC"), Landmark American Insurance Company ("Landmark", and together with RIC and RSLIC, the "Ceding Companies") and LaSalle Bank National Association (the "Trustee"). Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Acquisition Agreement (defined below). W I T N E S S E T H WHEREAS, the Trustee is the trustee of "Underwriters Reinsurance Company, Grantor" trust (the "Trust"); WHEREAS, each of the Ceding Companies is a wholly-owned subsidiary of Royal Group, Inc., a Delaware corporation ("RGI"), and named beneficiary of the Trust; WHEREAS, pursuant to an Acquisition Agreement by and between RGI and Alleghany Insurance Holdings LLC, a Delaware limited liability company, dated June 6, 2003 (the "Acquisition Agreement"), RGI agreed to cause the Ceding Companies to place Qualifying Assets in an amount equal to their respective portions of the Estimated NUPR, net of their respective portions of the Aggregate Ceding Commission, into the Trust, subject to the terms and conditions set forth in the Acquisition Agreement; and WHEREAS, in connection with the transfer of the Estimated NUPR, each of the Ceding Companies have agreed to enter into this Assignment Agreement, pursuant to which the Ceding Companies will assign to the Trust, and grant the Trust a first priority perfected security interest in, all of the Ceding Companies' right, title and interest in, to and under all premium receivables related to the Reinsured Contracts, net of premiums ceded to third party reinsurers relating to such Reinsured Contracts (the "Assignment"). NOW, THEREFORE, in consideration of the foregoing and the respective covenants, agreements and conditions set forth herein and in the Acquisition Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: Section 1. ASSIGNMENT AND ASSUMPTION. (a) Subject to Section 1(b) hereto, each of the Ceding Companies hereby assigns, transfers, and conveys to the Trust all of Ceding Companies' right, title and interest in and to all of the premium receivables related to the Reinsured Contracts, net of premium receivables to be ceded to third party reinsurers relating to such Reinsured Contracts ("Net Premium Receivables"). (b) The parties hereto agree and acknowledge that Ceding Companies will not be obligated to pay any Net Premium Receivables to the Trust, unless such premiums are actually collected by the Ceding Companies. Section 2. ACCEPTANCE OF ASSIGNMENT. Trustee hereby accepts the Assignment. Section 3. ALL ACTIONS NECESSARY. Each party hereto, as reasonably requested by the other from time to time, shall take all reasonably appropriate action and execute any reasonably necessary and appropriate additional documents, instruments or conveyances of any kind (not containing additional representations and warranties, covenants or indemnities) which may be reasonably necessary to carry out any of the provisions of this Assignment Agreement. Section 4. PERFECTED INTEREST IN ASSIGNMENT. The parties intend that the Trustee shall at all times have a first priority, perfected security interest in the Net Premium 2 Receivables under the UCC and at common law. Each of the Ceding Companies shall use its reasonable best efforts to give effect to the foregoing requirements and shall provide the Trustee with the requisite power of attorney in order to allow the Trustee to execute and deliver UCC financing statements with respect to any and all intangible assets assigned or transferred to the Trustee hereunder. Section 5. TERMINATION OF ASSIGNMENT. The Assignment hereunder may be terminated (i) by the mutual written consent of the Ceding Companies and Trustee; or (ii) automatically upon the termination of the Trust pursuant to the terms of the Trust Agreement. Section 6. INTERPRETATION. Notwithstanding anything to the contrary contained in this Assignment Agreement, nothing contained herein shall be deemed to limit, restrict or modify in any manner the rights and obligations of the parties under the Quota Share Reinsurance Agreements, the Administrative Services Agreements or the Trust Agreement. In case of any conflict between this Assignment Agreement and (a) the Quota Share Reinsurance Agreements, (b) the Administrative Services Agreements, (c) the Trust Agreement, (d) any other Ancillary Agreement, or (e) the Acquisition Agreement, the Quota Share Reinsurance Agreements, the Administrative Services Agreements, the Trust Agreement, the other Ancillary Agreements or the Acquisition Agreement shall govern. Section 7. BINDING EFFECT; ASSIGNMENT. This Assignment Agreement shall be binding upon each of the Ceding Companies and its successors and assigns and legal representatives. Except as provided in this Assignment Agreement, neither this Assignment Agreement, nor any right or obligation hereunder, may be directly or indirectly assigned or transferred by any party, in whole or in part, to any third party (other than to Ceding Companies' successors and assigns), including, without limitation, any bankruptcy trustee, by operation of 3 law or otherwise, whether voluntary or involuntary, without the prior written consent of the parties hereto. Section 8. THIRD PARTY BENEFICIARIES. This Assignment Agreement shall inure to the benefit of the Trust, the Grantor and the Ceding Companies, as named beneficiaries of the Trust, and their successors and permitted assigns and shall be binding upon the Ceding Companies and their successors and assigns, and nothing herein is intended or shall be construed to confer upon any other Person any right, remedy or claim under or by reason of this Assignment Agreement or any term, covenant or condition hereof. Section 9. ARBITRATION. Any right of action hereunder or any dispute between the parties hereto arising out of, or relating to the formation, interpretation, performance, or breach of this Assignment Agreement, whether such dispute arises before or after termination of this Assignment Agreement, shall be submitted to arbitration in accordance with the terms and procedures of Article XIII of the Quota Share Reinsurance Agreements. Section 10. AMENDMENT. This Assignment Agreement may only be amended or modified by a written instrument executed by the parties hereto. Section 11. GOVERNING LAW. This Assignment Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principals of conflicts of laws thereof. Section 12. CONSENT TO JURISDICTION. Each of the parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the state and federal courts located in the State of Delaware for the purposes of enforcing this Assignment Agreement. If any action is brought in a state court, the parties shall take such actions as are within their control to cause any matter contemplated hereby to be assigned to the Chancery Court of the State of Delaware. In 4 any action, suit or other proceeding, each of the parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claims that it is not subject to the jurisdiction of the above courts, that such action or suit is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper. Each of the parties hereto also agrees that any final and unappealable judgment against a party hereto in connection with any action, suit or other proceeding shall be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States. A certified or exemplified copy of such award or judgment shall be conclusive evidence of the fact and amount of such award or judgment. Section 13. SEVERABILITY. Any term or provision of this Assignment Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Assignment Agreement or affecting the validity or enforceability of any of the terms or provisions of this Assignment Agreement in any other jurisdiction. If any provision of this Assignment Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as would be enforceable. Section 14. DESCRIPTIVE HEADINGS. The descriptive article and section headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Assignment Agreement. Section 15. COUNTERPARTS. This Assignment Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original, said counterparts together to constitute one and the same instrument. 5 IN WITNESS WHEREOF, this Assignment Agreement has been duly executed and delivered by the duly authorized officers of ROYAL INDEMNITY COMPANY, ROYAL SURPLUS LINES INSURANCE COMPANY, LANDMARK AMERICAN INSURANCE COMPANY, and LASALLE BANK NATIONAL ASSOCIATION as of the date first above written. ROYAL INDEMNITY COMPANY By: /s/ Stephen M. Mulready ------------------------ Name: Stephen M. Mulready Title: President and Chief Executive Officer ROYAL SURPLUS LINES INSURANCE COMPANY By: /s/ Stephen M. Mulready ------------------------ Name: Stephen M. Mulready Title: President and Chief Executive Officer LANDMARK AMERICAN INSURANCE COMPANY By: /s/ Stephen M. Mulready ------------------------ Name: Stephen M. Mulready Title: President and Chief Executive Officer LASALLE BANK NATIONAL ASSOCIATION By: /s/ James L. Turco ------------------------- Name: James L. Turco Title: Vice President EX-10.20 22 y88779exv10w20.txt ASSIGNMENT OF REINSURANCE RECOVERABLES EXHIBIT 10.20 ASSIGNMENT OF REINSURANCE RECOVERABLES BY AND AMONG UNDERWRITERS REINSURANCE COMPANY LASALLE BANK NATIONAL ASSOCIATION AND ROYAL INDEMNITY COMPANY, ROYAL SURPLUS LINES INSURANCE COMPANY, LANDMARK AMERICAN INSURANCE COMPANY ------------------------------- JULY 1, 2003 ------------------------------ This ASSIGNMENT OF REINSURANCE RECOVERABLES (the "Assignment Agreement"), dated as of July 1, 2003, is entered into by and among Royal Indemnity Company ("RIC"), Royal Surplus Lines Insurance Company ("RSLIC"), Landmark American Insurance Company ("Landmark", and together with RIC and RSLIC, the "Ceding Companies"), Underwriters Reinsurance Company, a property and casualty insurance company organized under the laws of New Hampshire ("Reinsurer"), and LaSalle Bank National Association (the "Trustee"). W I T N E S S E T H WHEREAS, each of the Ceding Companies has entered into quota share reinsurance agreements with Reinsurer, dated as of July 1, 2003 (collectively, the "Quota Share Reinsurance Agreements"), pursuant to which RIC, RSLIC and Landmark respectively have agreed to cede, and Reinsurer has agreed to assume, on a 100% quota share basis, the liabilities and obligations arising out of the Reinsured Contracts (as such term is defined in the respective Quota Share Reinsurance Agreements); WHEREAS, pursuant to Section 9.1 of the respective Quota Share Reinsurance Agreements, Reinsurer, as grantor, established the "Underwriter's Reinsurance Company, Grantor" trust (the "Trust") pursuant to a trust agreement as of July 1, 2003 (the "Trust Agreement") naming the Ceding Companies as sole and exclusive beneficiaries of the Trust, and agreed to maintain in such Trust cash and other Acceptable Investments (as such term is defined in the Trust Agreement (collectively, the "Qualifying Assets")) in an amount (the "Required Balance") equal to Reinsurer's aggregate obligations to the Ceding Companies under the Quota Share Reinsurance Agreements, net of (i) collectible Reinsurance Recoverables (as such term is defined in the respective Quota Share Reinsurance Agreements), (ii) RIC's obligations to Landmark under the RIC (Landmark) Quota Share Reinsurance Agreement (as such term is defined therein) and (iii) premium receivables; WHEREAS, pursuant to Section 9.2 of the respective Quota Share Reinsurance Agreements, each of the Ceding Companies and Reinsurer have agreed to enter into this Assignment Agreement, pursuant to which Reinsurer will assign to the Trust, and grant the Trust a first priority perfected security interest in, all of Reinsurer's right, title and interest in, to and under all Cat Cover Reinsurance Recoverables (as such term is defined in the respective Quota Share Reinsurance Agreements) under the catastrophe excess of loss reinsurance treaty or treaties purchased by the Reinsurer with respect to the Reinsured Contracts (the "Assignment"); and WHEREAS, the parties hereto agree and acknowledge that the purpose of the Assignment is to secure Reinsurer's obligation to the Ceding Companies to maintain Qualifying Assets in the Trust at or above the Required Balance. NOW, THEREFORE, in consideration of the foregoing and the respective covenants, agreements and conditions set forth herein and in the Quota Share Reinsurance Agreements, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: Section 1. DEFINITIONS. Certain capitalized terms used but not defined in this Assignment Agreement shall have the meanings ascribed to such terms in the respective Quota Share Reinsurance Agreements or the Trust Agreement. Section 2. ASSIGNMENT AND ASSUMPTION. 2 (a) Subject to Sections 2(d) and 2(e) hereto, Reinsurer hereby assigns, transfers, and conveys to the Trust all of Reinsurer's right, title and interest in and to all of the Cat Cover Reinsurance Recoverables. (b) Reinsurer agrees and acknowledges that the Assignment shall, without limitation, grant the Trustee the exclusive right to collect the Cat Cover Reinsurance Recoverables directly from the applicable third party reinsurer, but only if the Qualifying Assets are less than the Required Balance, and to retain the Cat Cover Reinsurance Recoverables to the extent that the aggregate fair market value of Qualifying Assets in the Trust do not at least equal the Required Balance. Reinsurer further agrees that it shall cooperate with the Beneficiary in instructing the Trustee to assign its right to collect such Cat Cover Reinsurance Recoverables directly from the applicable third party reinsurer to the Ceding Companies, as named beneficiaries of the Trust if the aggregate fair market value of Qualifying Assets in the Trust do not at least equal the Required Balance. Any Cat Cover Reinsurance Recoverables which are subject to the Assignment collected by the Reinsurer, Trustee and/or the Ceding Companies shall be deposited directly into the Trust. The failure by the Reinsurer, Trustee and/or the Ceding Companies to collect the Cat Cover Reinsurance Recoverables shall not relieve Reinsurer of any of its obligations under the Quota Share Reinsurance Agreements to maintain Qualifying Assets in the Trust in an amount equal to the Required Balance. (c) Reinsurer agrees and acknowledges that the Assignment shall, without limitation, entitle the Trustee (and/or the Ceding Companies to the extent the Trustee assigns its rights hereunder to the Ceding Companies) to enforce in the name of Reinsurer any right or claim of Reinsurer with respect to the Cat Cover Reinsurance Recoverables. Any assignment by the Trustee to the Ceding Companies under this Assignment Agreement shall be 3 solely for the purpose of enabling the Ceding Companies, as agent for the Trustee, to collect such Cat Cover Reinsurance Recoverables for deposit into the Trust. (d) The parties hereto agree and acknowledge that the purpose of the Assignment is to secure Reinsurer's obligation to the Ceding Companies to maintain Qualifying Assets in the Trust at or above the Required Balance. The rights of the Trustee under this Assignment Agreement with respect to collection of the Cat Cover Reinsurance Recoverables directly from the applicable third party reinsurer and enforcement of claims (or, if such rights are assigned to the Ceding Companies pursuant to the Trust Agreement, the Ceding Companies), are limited to the extent of the deficiency, if any, in the Required Balance. (e) The parties agree that all the proceeds of the Cat Cover Reinsurance Recoverables collected by the Trustee in excess of the amount necessary to maintain Qualified Assets in the Trust in an amount equal to the Required Balance shall be remitted by wire transfer of immediately available funds to the Reinsurer in accordance with Section 4.2(a) of the Trust Agreement. (f) The parties hereto agree and acknowledge that while the Assignment may not be revoked or terminated except pursuant to Section 6 hereof, Reinsurer will not be obligated to pay any Cat Cover Reinsurance Recoverables actually collected to the Trust, so long as, at the time any of the Cat Cover Reinsurance Recoverables are collected, the aggregate amount of Qualifying Assets maintained in the Trust is at or above the Required Balance. In the event the aggregate amount of cash and other Qualifying Assets maintained in the Trust is below the Required Balance, the Assignment hereunder shall be of all Cat Cover Reinsurance Recoverables due and owing, regardless of the amount of the deficiency in the Trust. 4 Section 3. ACCEPTANCE OF ASSIGNMENT. Trustee hereby accepts the Assignment. Section 4. ALL ACTIONS NECESSARY. Each party hereto, as reasonably requested by the other from time to time, shall take all reasonably appropriate action and execute any reasonably necessary and appropriate additional documents, instruments or conveyances of any kind (not containing additional representations and warranties, covenants or indemnities) which may be reasonably necessary to carry out any of the provisions of this Assignment Agreement. Section 5. PERFECTED INTEREST IN ASSIGNMENT. The parties intend that the Trustee shall at all times have a first priority, perfected security interest in the Cat Cover Reinsurance Recoverables under the UCC and at common law. Reinsurer shall use its reasonable best efforts to give effect to the foregoing requirements and shall provide the Trustee with the requisite power of attorney in order to allow the Trustee to execute and deliver UCC financing statements with respect to any and all intangible assets assigned or transferred to the Trustee hereunder. All costs and expenses incurred in connection with obtaining a first priority perfected security interest shall be paid by the Ceding Companies. Section 6. TERMINATION OF ASSIGNMENT. The Assignment hereunder may be terminated (i) by the mutual written consent of the Ceding Companies and Reinsurer; or (ii) automatically upon the termination of the Trust pursuant to the terms of the Trust Agreement. Section 7. INTERPRETATION. Notwithstanding anything to the contrary contained in this Assignment Agreement, nothing contained herein shall be deemed to limit, restrict or modify in any manner the rights and obligations of the parties under either the Quota Share Reinsurance Agreements, the Administrative Services Agreements or the Trust 5 Agreement. In case of any conflict between this Assignment Agreement and (a) the Quota Share Reinsurance Agreements, (b) the Administrative Services Agreements, (c) the Trust Agreement, (d) any other Ancillary Agreement, or (e) the Acquisition Agreement, the Quota Share Reinsurance Agreements, the Administrative Services Agreements, the Trust Agreement, the other Ancillary Agreements or the Acquisition Agreement shall govern. Section 8. BINDING EFFECT; ASSIGNMENT. This Assignment Agreement shall be binding upon Reinsurer and its successors and assigns and legal representatives. Except as provided in this Assignment Agreement, neither this Assignment Agreement, nor any right or obligation hereunder, may be directly or indirectly assigned or transferred by any party, in whole or in part, to any third party (other than to Reinsurer's successors and assigns), including, without limitation, any bankruptcy trustee, by operation of law or otherwise, whether voluntary or involuntary, without the prior written consent of the parties hereto. Section 9. THIRD PARTY BENEFICIARIES. This Assignment Agreement shall inure to the benefit of the Trust and the Ceding Companies, as named beneficiaries of the Trust, and their successors and permitted assigns and shall be binding upon Reinsurer and its successors and assigns, and nothing herein is intended or shall be construed to confer upon any other Person any right, remedy or claim under or by reason of this Assignment Agreement or any term, covenant or condition hereof. Section 10. AMENDMENT. This Assignment Agreement may only be amended or modified by a written instrument executed by the parties hereto. Section 11. GOVERNING LAW. This Assignment Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principals of conflicts of laws thereof. 6 Section 12. ARBITRATION. Any right of action hereunder or any dispute between the parties hereto arising out of, or relating to the formation, interpretation, performance, or breach of this Assignment Agreement, whether such dispute arises before or after termination of this Assignment Agreement, shall be submitted to arbitration in accordance with the terms and procedures of Article XIII of the Quota Share Reinsurance Agreements. Section 13. CONSENT TO JURISDICTION. Subject to Section 11 of this Assignment Agreement, each of the parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the state and federal courts located in the State of Delaware for the purposes of enforcing this Assignment Agreement. If any action is brought in a state court, the parties shall take such actions as are within their control to cause any matter contemplated hereby to be assigned to the Chancery Court of the State of Delaware. In any action, suit or other proceeding, each of the parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claims that it is not subject to the jurisdiction of the above courts, that such action or suit is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper. Each of the parties hereto also agrees that any final and unappealable judgment against a party hereto in connection with any action, suit or other proceeding shall be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States. A certified or exemplified copy of such award or judgment shall be conclusive evidence of the fact and amount of such award or judgment. Section 14. SEVERABILITY. Any term or provision of this Assignment Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or 7 unenforceable the remaining terms and provisions of this Assignment Agreement or affecting the validity or enforceability of any of the terms or provisions of this Assignment Agreement in any other jurisdiction. If any provision of this Assignment Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as would be enforceable. Section 15. DESCRIPTIVE HEADINGS. The descriptive article and section headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Assignment Agreement. Section 16. COUNTERPARTS. This Assignment Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original, said counterparts together to constitute one and the same instrument. 8 IN WITNESS WHEREOF, this Assignment Agreement has been duly executed and delivered by the duly authorized officers of ROYAL INDEMNITY COMPANY, ROYAL SURPLUS LINES INSURANCE COMPANY, LANDMARK AMERICAN INSURANCE COMPANY, UNDERWRITERS REINSURANCE COMPANY, and LASALLE BANK NATIONAL ASSOCIATION as of the date first above written. ROYAL INDEMNITY COMPANY By: /s/ Stephen M. Mulready --------------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer ROYAL SURPLUS LINES INSURANCE COMPANY By: /s/ Stephen M. Mulready --------------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer LANDMARK AMERICAN INSURANCE COMPANY By: /s/ Stephen M. Mulready --------------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer UNDERWRITERS REINSURANCE COMPANY By: /s/ James P. Slattery ---------------------------------- Name: James P. Slattery Title: President LASALLE BANK NATIONAL ASSOCIATION By: /s/ James L. Turco ----------------------------------- Name: James L. Turco Title: Vice President EX-10.21 23 y88779exv10w21.txt ADMINISTRATIVE SERVICES PROPERTY LICENSE AGREEMENT EXHIBIT 10.21 ADMINISTRATIVE SERVICES INTELLECTUAL PROPERTY LICENSE AGREEMENT This ADMINISTRATIVE SERVICES INTELLECTUAL PROPERTY LICENSE AGREEMENT (this "Agreement") is dated as of July 1, 2003 (the "Effective Date"), and is among ROYAL INDEMNITY COMPANY, a Delaware property and casualty insurance company ("Licensor"), and ROYAL SPECIALTY UNDERWRITING, INC., a corporation organized under the laws of Georgia ("Licensee"). Licensor and Licensee are sometimes referred to herein individually as, "Party" and collectively as, the "Parties." Capitalized terms used but not defined herein and which are defined in the Service Agreement (as defined below), shall have the meanings ascribed to them in the Service Agreement. WHEREAS, Licensee and an affiliate of Licensor are parties to that certain RSLIC Administrative Services Agreement, of even date herewith (the "Service Agreement"), pursuant to which Licensee agrees to perform the Administrative Services under the Service Agreement (collectively, the "Services"); WHEREAS, in order for Licensee to provide the Services under the Service Agreement, Section 2.1(d) of the Service Agreement provides that Licensee's access to the Computer Systems controlled by Licensor that are necessary for it to provide the Services and other services specified therein shall be governed by the terms of this Agreement; and WHEREAS, Licensor and Licensee are each willing to enter into such arrangements on the terms and conditions set forth herein; NOW THEREFORE, in consideration of the foregoing premises, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereto hereby covenant and agree as follows: 1. LICENSE GRANT; TERM. 1.1 License Grant. (a) Effective upon the Effective Date and subject to all the terms and conditions of this Agreement, Licensor hereby grants to Licensee, and Licensee hereby accepts from Licensor, during the Term a limited, royalty-free, non-exclusive, non-transferable or assignable (except as set forth in Section 8.6), sub-licenseable (as set forth in Section 8.7) license to (i) access through transmission media as specified on Schedule 1.1(1), display and use the Computer Systems, including, without limitation, the databases and software described in Schedule 1.1(2) hereto and related documentation, if any, and (ii) download data from, and upload data to, Licensor's Network System, in agreed-upon format solely in connection with the Services under the Service Agreement. The license shall include at no charge any changes, modifications and upgrades to the Computer Systems as Licensor may develop from time to time and/or make available through the Network System or otherwise. For purposes of this Agreement, "Network System" shall mean Licensor's servers on which the Computer Systems reside, which servers are located at Licensor facilities at 9300 Arrowpoint Blvd., Charlotte, North Carolina, as may be relocated at Licensor's discretion upon thirty (30) days' prior written notice to Licensee. (b) With respect to any Computer Systems accessed by Licensee on Licensor's Network System via website, and/or otherwise via the Internet or Licensor's intranet in accordance with the terms herein: (i) Licensor will act at its sole cost to maintain all communications equipment inside the Network System firewalls and necessary for Licensee to access the Computer Systems. Licensee shall be responsible for maintaining access to communications equipment as necessary to access and use the Computer Systems, and download and upload data from inside the Network System firewall. Each Party shall be responsible for its own transmission, reception, storing and handling of originated electronic documents, and provide and maintain the equipment, software, services, and testing necessary to perform such Party's obligations under this Agreement effectively and reliably. (ii) Licensee covenants to Licensor that it shall provide security levels consistent with Licensor's practices to protect all Computer Systems that Licensee accesses hereunder against the risk of penetration by a third party by (1) protecting against intrusions, (2) encrypting of Licensor Confidential Information transactions, and (3) ensuring that anti-virus software is up-to-date and that DAT files are updated regularly. 1.2 Exclusion of All Other Rights. Except as expressly provided herein, Licensor grants no rights or licenses under this Agreement whatsoever in or to the Computer Systems or any other Licensor products, services or other Licensor intellectual proprietary or personal rights. All rights and licenses not expressly granted in this Agreement are hereby expressly reserved by Licensor or Licensee, as the case may be. 1.3 Restrictions. Except to the extent expressly permitted herein, or by prior written permission of Licensor, Licensee shall not, and shall not authorize any third party to: (a) modify, alter, or otherwise create any derivative work of the Computer Systems or any portion thereof; (b) sublicense, transfer or assign (except as provided in Sections 8.6 or 8.7 herein) the Computer Systems or any right with respect thereto; (c) rent, lease, outsource or distribute the Computer Systems; (d) copy all or any portion of the Computer Systems, including but not limited to, the documentation, if any; and (e) disassemble, decompile, reverse engineer, translate, or otherwise convert to human readable form, in whole or in part, any portion of the Computer Systems, except to the extent such foregoing restriction is expressly prohibited by Applicable Law. 1.4 Consultation and Training. Licensor shall provide such consultation and training as may be reasonable and necessary to ensure accurate receipt of or download of data and as otherwise may be reasonably necessary for Licensee to perform the Services under the Service Agreement. 1.5 Documentation. Licensor shall provide Licensee from time to time during the Term documentation pertaining to the use of the Computer Systems as may be reasonably necessary for Licensee to perform the Services under the Service Agreement, to the extent such documentation exists and has not already been provided to Licensee. 1.6 Support and Maintenance. Licensor shall provide such support and maintenance as may be reasonably necessary for Licensee to perform the Services under 2 the Service Agreement consistent with Licensor's support and maintenance of the Computer Systems provided to Licensee before the Closing. Such maintenance and support shall include, at a minimum technical support as follows: a Licensor-designated information system coordinator shall accept and respond diligently to all reasonable technical support inquiries posed by Licensee relating to: (i) errors made by Licensor and encountered by Licensee in Licensee's access to and use of the Computer Systems as provided herein; (ii) simple explanations of the Computer Systems functionality, and (iii) maintenance of the Computer Systems as may be provided as part of Licensor's regular Network System maintenance for Licensor's own business purposes. 1.7 Duration. This Agreement, including any licenses granted hereunder, shall become effective as of the Effective Date and continue until such time as the Service Agreement shall expire or otherwise be terminated in accordance with Section 11.1 of the Service Agreement, unless earlier terminated in accordance with Section 8.15 herein. 2. OWNERSHIP. 2.1 Computer Systems. Licensee acknowledges and agrees that, as between Licensor and Licensee, ownership of and title in and to the Computer Systems and all Intellectual Property Rights in or to the Computer Systems are and shall remain in Licensor. For purposes of this Agreement, "Intellectual Property Rights" means, collectively, patents, trade secrets (as defined in the Restatement, Second, Torts), copyrights, trade names, rights in trade dress, and all other intellectual property rights, whether arising under the laws of the United States or any other state, country or jurisdiction, including all rights or causes of action for infringement or misappropriation of any of the foregoing, in each case now existing or hereafter arising during the term of this Agreement. 3. PROTECTION OF COMPUTER SYSTEMS. 3.1 Legal Action. Except as set forth below, Licensor shall maintain sole control and discretion over the prosecution and protection of all rights, including all Intellectual Property Rights, in and to the Computer Systems. 3.2 Protection of Intellectual Property Rights. 3.2.1 Licensee shall promptly notify Licensor in writing of any unauthorized use, infringement, misappropriation, dilution or other violation of the Computer Systems of which it becomes aware or suspects. 3.2.2 Licensor shall have the primary right, but not the obligation, to bring and control any suits against any unauthorized use, infringement, misappropriation, dilution or other violation of the Computer Systems, unless Licensor otherwise consents in writing. In the event that Licensor elects not to exercise this right, Licensor (at Licensee's request) shall execute appropriate documents to authorize Licensee to bring and to control such action, and Licensor shall reasonably assist Licensee in any such action, including being named as a party to such litigation as required by applicable law. Licensor shall have the right to participate and be represented in any such action, suit or proceeding by its own counsel at its own expense. 3 3.2.3 Licensee agrees to reasonably cooperate with Licensor, at Licensor's cost (except for de minimis expenses, which shall be borne by Licensee), in any litigation or other enforcement action that Licensor may undertake to enforce or protect the Computer Systems, including, upon Licensor's reasonable request, the execution, filing and delivery of all documents and proof necessary for such purpose. Licensee shall have the right to participate and be represented in any such action, suit or proceeding by its own counsel at its own expense. 3.2.4 Except as expressly stated in this Section 3.2, each party shall bear the costs, fees and expenses incurred by such party in complying with the provisions of this Section 3.2, including those incurred in bringing or controlling any such suits. 4. REPRESENTATIONS AND WARRANTIES. 4.1 Each party hereto represents and warrants that: (i) it is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation and has full power and authority (corporate and otherwise) to own its properties and assets and to conduct its business as now being conducted; (ii) it has the corporate power and authority to enter into this Agreement, and the execution, delivery and performance of this Agreement and the transactions and other documents contemplated hereby have been duly authorized by all necessary corporate action on the part of such party; (iii) this Agreement has been duly executed and delivered by authorized officers of each party, and constitutes a legal, valid and binding obligation of the party, fully enforceable against such party in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar laws of general applicability relating to or affecting creditors' rights, and general equity principles. 4.2 Licensor represents and warrants that: (i) Licensor has the right to grant the licenses granted herein; (ii) Licensee's use of the Computer Systems in the performance of the Services and its obligations under the Service Agreement does not and will not violate or infringe the Intellectual Property Rights of any person who is not a party to this Agreement; (iii) Licensor will not knowingly include or insert, or knowingly permit or cause any third party to include or insert, any computer virus on the Computer Systems that will be available to Licensee; (iv) the Computer Systems shall, during the course of this agreement, be free of material defects; and (v) Licensor shall make the Computer Systems available to Licensee as reasonably necessary for Licensee to perform the Services. 4.3 EXCEPT AS SET FORTH IN SECTIONS 4.1 AND 4.2, (A) THE COMPUTER SYSTEMS ARE PROVIDED ON AN "AS IS" BASIS, WITHOUT WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT, PROPER COOPERATION OR INTERFACING WITH THIRD PARTY INFORMATION TECHNOLOGY OR OTHER WARRANTIES, CONDITIONS, GUARANTEES OR REPRESENTATIONS, WHETHER EXPRESS OR IMPLIED; AND (B) LICENSEE EXPRESSLY WAIVES 4 ANY AND ALL RIGHTS IT MAY HAVE UNDER THE UNIFORM COMMERCIAL CODE. 5. INDEMNIFICATION. 5.1 Licensee will indemnify, defend and hold harmless Licensor and its employees, officers and directors from and against all claims, liabilities, suits, damages, costs and expenses, including, without limitation, reasonable attorneys' fees, resulting from any claim brought by any third party (excluding any Affiliate of Licensor) alleging infringement by Licensee of such third party's Intellectual Property Rights arising out of Licensee's use of the Computer Systems outside the scope of use of the Computer Systems permitted to Licensee hereunder and/or that is contrary to the rights granted to Licensee herein, except for losses, liabilities or damages arising from the sole claim that the Computer Systems or Licensor's grant hereunder infringe the Intellectual Property Rights of such third party, independent of Licensee's use thereof. 5.2 Licensor will indemnify, defend and hold harmless Licensee and its employees, officers and directors from and against all claims, liabilities, suits, damages, costs and expenses, including, without limitation, reasonable attorneys' fees, resulting from any claim brought by any third party alleging infringement by Licensee of such third party's Intellectual Property Rights arising out of Licensee's use of the Computer Systems to the extent such use of the Computer Systems falls within the scope of or is not contrary to the rights granted to Licensee herein. Notwithstanding anything to the contrary in the foregoing sentence, Licensor shall not indemnify Licensee with respect to the possibility of infringement by Combination Use of the Computer Systems. The Parties agree that Licensor has no duty to investigate or to warn Licensee of any such possibility. As used herein, "Combination Use" means use of any Computer System outside the scope of the license granted herein or use of the Computer Systems in combination or conjunction with any software other than the Computer Systems, any unauthorized modifications under Section 1.3, or combination with any Licensee hardware. 5.3 In the event that either Licensor or Licensee wishes to assert a claim for indemnification under this Section 5, such party seeking indemnification (the "Indemnified Party") shall deliver written notice (a "Claims Notice") to the other party (the "Indemnifying Party") no later than ten (10) Business Days after such claim becomes known to the Indemnified Party, specifying the facts constituting the basis for, and the amount (if known) of the claim asserted. Failure to deliver a Claims Notice with respect to a claim in a timely manner as specified in the preceding sentence shall not release the Indemnifying Party from any of its obligations under this Section 5, except to the extent the Indemnifying Party is materially prejudiced by such failure. 6. DISCLAIMER OF CONSEQUENTIAL AND SPECIAL DAMAGES. TO THE MAXIMUM EXTENT PERMITTED BY LAW, NEITHER PARTY NOR ANY RELATED ENTITY THEREOF SHALL BE LIABLE TO THE OTHER PARTY, ANY RELATED ENTITY THEREOF OR ANY OTHER THIRD PERSON UNDER THIS AGREEMENT FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, RELIANCE OR PUNITIVE DAMAGES OR LOST OR IMPUTED PROFITS, LOST DATA OR COST OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES, WHETHER LIABILITY IS ASSERTED IN CONTRACT, TORT (INCLUDING 5 NEGLIGENCE AND STRICT PRODUCT LIABILITY) INDEMNITY OR CONTRIBUTION, AND IRRESPECTIVE OF WHETHER A PARTY OR ANY RELATED ENTITY HAS BEEN ADVISED OF THE POSSIBILITY OF ANY SUCH LOSS OR DAMAGE. 7. CONFIDENTIALITY; ARBITRATION. 7.1 All confidential and proprietary information shall be protected in accordance with Article XII of the Service Agreement. 7.2 All disputes between the Parties shall be subject to the provisions of Article XIV of the Service Agreement. 8. GENERAL. 8.1 Amendment, Modification and Waiver. This Agreement may not be amended, modified or waived except by an instrument or instruments in writing signed and delivered on behalf of each of the Parties hereto. 8.2 Entire Agreement. This Agreement, the Service Agreement and the other Ancillary Agreements between or, as the case may be, among the Parties (together with the exhibits hereto and the other agreements, documents and instruments delivered in connection herewith) constitute the entire agreement among the Parties with respect to the subject matter hereof and thereof and supersede all other prior agreements and understandings, both written and verbal, among the Parties or any of them with respect to the subject matter hereof. 8.3 Interpretation. (a) When a reference is made in this Agreement to a Section, such reference shall be to a section of this Agreement unless otherwise clearly indicated to the contrary. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement. The meaning assigned to each term used in this Agreement shall be equally applicable to both the singular and the plural forms of such term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. (b) The Parties have participated jointly in the negotiation and drafting of this Agreement; consequently, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties thereto, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provision of this Agreement. 8.4 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by telecopy (which is confirmed), by courier 6 (delivery of which is confirmed) or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties to this Agreement as follows: If to Licensor: Laura S. Lawrence, Esq. General Counsel Royal Group, Inc. 9300 Arrowpoint Blvd. Charlotte, NC 28273 Telephone No.: (704) 522-2851 Facsimile No.: (704) 522-2313 With a copy to (which shall not constitute notice to Licensor for purposes of this Section 8.4): Robert J. Sullivan, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Telephone No.: 212-735-2930 Facsimile No.: 212-735-2000 If to Royal Specialty Underwriting, Inc: Royal Specialty Underwriting, Inc. Mr. David E. Leonard Executive Vice President 945 East Paces Ferry Road Atlanta, GA 30326 Telephone No.: (404) 231-2366 Facsimile No.: (404) 231-3755 With a copy to (which shall not constitute notice to the Licensee for purposes of this Section 8.4): Aileen C. Meehan, Esq. William W. Rosenblatt, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Telephone No.: (212) 259-8000 Telecopy No.: (212) 259-6333 or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. In no event shall the 7 provision of notice pursuant to this Section 8.4 constitute notice for service of any writ, process or summons in any suit, action or other proceeding. 8.5 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 8.6 Assignment; Binding Agreement. This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and assigns and legal representatives. Neither this Agreement, nor any rights, interests or obligations hereunder, may be directly or indirectly assigned, delegated, sublicensed or transferred by any Party to this Agreement, in whole or in part, to any other person (including any bankruptcy trustee) by operation of law or otherwise, whether voluntarily or involuntarily, without the prior written consent of the Parties hereto; provided, however, that this Agreement may assigned by any Party in the event that such Party assigns its rights under the Service Agreement pursuant to Section 15.10 of the Service Agreement. 8.7 Sublicense. Licensee may sublicense its rights hereunder to permitted subcontractors under Section 15.16 of the Service Agreement upon receipt of the prior written consent of Licensor, which consent shall not be unreasonably withheld or delayed. 8.8 Third Party Beneficiaries. Except for the provisions of Section 5, nothing in this Agreement, express or implied, is intended to or shall confer upon any person other than the Parties hereto any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. 8.9 Specific Performance. The Parties recognize and agree that if for any reason any of the provisions of this Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate and irreparable harm or injury would be caused for which money damages would not be an adequate remedy. Accordingly, each Party agrees that, in addition to any other available remedies, each other Party shall be entitled to an injunction restraining any violation or threatened violation of any of the provisions of this Agreement without the necessity of posting a bond or other form of security. In the event that any action should be brought in equity to enforce any of the provisions of this Agreement, no party will allege, and each party hereby waives the defense, that there is an adequate remedy at law. 8.10 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as would be enforceable. 8.11 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. 8.12 Consent to Jurisdiction. Each of the Parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the state and federal court located 8 in the State of Delaware for the purposes of enforcing this Agreement or the other Ancillary Agreements. If any action is brought in a state court, the Parties shall take such actions as are within their control to cause any matter contemplated hereby to be assigned to the Chancery Court in the State of Delaware. In any action, suit or other proceeding, each of the Parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claims that it is not subject to the jurisdiction of the above courts, that such action or suit is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper. Each of the Parties hereto also agrees that any final and unappealable judgment against a party hereto in connection with any action, suit or other proceeding shall be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States. A certified or exemplified copy of such award or judgment shall be conclusive evidence of the fact and amount of such award or judgment. 8.13 Descriptive Headings. The descriptive section headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. 8.14 Survival. The provisions of Sections 5, 7 and 8 hereof shall survive the termination of this Agreement. 8.15 Termination. (a) A Party may terminate this Agreement with respect to another Party immediately upon notice if such other Party files a petition for bankruptcy or insolvency, has an involuntary petition under bankruptcy laws filed against it, and such petition shall not be dismissed within 60 days after filing thereof, commences an action providing for relief under bankruptcy laws, files for appointment of a receiver, or is adjudicated a bankrupt concern. (b) Agreement may be terminated by either party for any other material breach by the other upon delivery of a sixty (60) days' written notice of termination, if any such breach remains uncured during such sixty (60) day period. 8.16 Bankruptcy Protection. All rights and licenses granted under or pursuant to this Agreement by Licensor to Licensee are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the Bankruptcy Code (11 U.S.C. Section 101 et seq.), licenses of rights to "intellectual property" as defined therein. The Parties agree that Licensee, as licensee of such rights, shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code. The Parties further agree that, in the event that any proceeding shall be instituted by or against Licensor seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking an entry of an order for relief or Appointment of a receiver, trustee or other similar official for it or any substantial part of its property or it shall take any action to authorize any of the foregoing actions (each a "Proceeding"), Licensee shall have the right to retain and enforce its rights under this Agreement, including but not limited to the following rights: 9 (a) the right to continue to use the Computer Systems and all documentation and other supporting material related thereto, in accordance with the terms and conditions of this Agreement; and (b) the right to a complete duplicate of (or complete access to, as appropriate) all Computer Systems and the source code for the Computer Systems and all embodiments of such, and Licensor shall promptly deliver, or shall promptly cause to be delivered the same to Licensee (i) upon any such commencement of a Proceeding upon written request therefor by Licensee, unless Licensor elects and is permitted to continue to perform all of its obligations under this Agreement, or (ii) if not delivered under (i) above, upon the rejection of this Agreement by or on behalf of Licensor upon written request therefor by Licensee. Licensor shall maintain all Computer Systems in tangible form. 10 IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed on its behalf by its officer thereunto duly authorized, all as of the day and year first above written. LICENSOR: ROYAL INDEMNITY COMPANY By: /s/ Stephen M. Mulready -------------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer LICENSEE: ROYAL SPECIALTY UNDERWRITING, INC. By: /s/ James A. Dixon -------------------------------- Name: James A. Dixon Title: Chairman SCHEDULE 1.1(1) TRANSMISSION SPECIFICATIONS Access through Wide Area Network Access via the Internet SCHEDULE 1.1(2) COMPUTER SYSTEMS COMPUTER SYSTEMS AND DATABASES: 1) Premium Interface - RSUI transmits all premium transactions such as policies and endorsements. This data is processed by Royal into the premium accounting system. RSUI transmits the data via the Internet using the FTP protocol, into a dataset named PRODDS1.P6IA.PREMREG.EA2701 that resides on the Royal mainframe. The Host job that runs on the Royal mainframe to process the data is named 5A27. 2) UIS Interface - RSUI transmits policy information that is used to populate Royal's UIS clearance system. This data is transmitted via the Internet using the FTP protocol. The dataset name is P00011.RSUI.UIS and the Host job name is H8C505. 3) B-File Database and user interface provided via Royal Host system. 4) PODS Database (relational database that is a relational copy of B-File) 5) ENTRI: Premium registration system 6) INFONET - This is a Royal developed system that incorporates ISONET with Royal's proprietary information. 7) ISONET 8) The following databases on Field1 server accessible via Lotus Notes (note that access to these databases may require Lotus Notes; Licensor will not be providing Lotus Notes to Licensee hereunder): CL\State Filing Handbook.nsf CL\UMUIM.nsf Cl\CHARTS.nsf CS\State Reporting.nsf CL\RRF.nsf CS\DEREG.nsf CL\HAZIND.NSF CS\Laws-DOI.NSF Complaint Log 9) Any other Licensor software and information technology systems, if any, as may be necessary for Licensee to perform the Services under the Service Agreement to the extent that Licensor has the right to make such systems available to Licensee. EX-10.22 24 y88779exv10w22.txt ADMINISTRATIVE SERVICES PROPERTY LICENSE AGREEMENT EXHIBIT 10.22 ADMINISTRATIVE SERVICES INTELLECTUAL PROPERTY LICENSE AGREEMENT This ADMINISTRATIVE SERVICES INTELLECTUAL PROPERTY LICENSE AGREEMENT (this "Agreement") is dated as of July 1, 2003 (the "Effective Date"), and is among ROYAL INDEMNITY COMPANY, a Delaware property and casualty insurance company ("Licensor"), and ROYAL SPECIALTY UNDERWRITING, INC., a corporation organized under the laws of Georgia ("Licensee"). Licensor and Licensee are sometimes referred to herein individually as, "Party" and collectively as, the "Parties." Capitalized terms used but not defined herein and which are defined in the Service Agreement (as defined below), shall have the meanings ascribed to them in the Service Agreement. WHEREAS, Licensee and an affiliate of Licensor are parties to that certain RICA Administrative Services Agreement, of even date herewith (the "Service Agreement"), pursuant to which Licensee agrees to perform the Administrative Services under the Service Agreement (collectively, the "Services"); WHEREAS, in order for Licensee to provide the Services under the Service Agreement, Section 2.1(d) of the Service Agreement provides that Licensee's access to the Computer Systems controlled by Licensor that are necessary for it to provide the Services and other services specified therein shall be governed by the terms of this Agreement; and WHEREAS, Licensor and Licensee are each willing to enter into such arrangements on the terms and conditions set forth herein; NOW THEREFORE, in consideration of the foregoing premises, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereto hereby covenant and agree as follows: 1. LICENSE GRANT; TERM. 1.1 License Grant. (a) Effective upon the Effective Date and subject to all the terms and conditions of this Agreement, Licensor hereby grants to Licensee, and Licensee hereby accepts from Licensor, during the Term a limited, royalty-free, non-exclusive, non-transferable or assignable (except as set forth in Section 8.6), sub-licenseable (as set forth in Section 8.7) license to (i) access through transmission media as specified on Schedule 1.1(1), display and use the Computer Systems, including, without limitation, the databases and software described in Schedule 1.1(2) hereto and related documentation, if any, and (ii) download data from, and upload data to, Licensor's Network System, in agreed-upon format solely in connection with the Services under the Service Agreement. The license shall include at no charge any changes, modifications and upgrades to the Computer Systems as Licensor may develop from time to time and/or make available through the Network System or otherwise. For purposes of this Agreement, "Network System" shall mean Licensor's servers on which the Computer Systems reside, which servers are located at Licensor facilities at 9300 Arrowpoint Blvd., Charlotte, North Carolina, as may be relocated at Licensor's discretion upon thirty (30) days' prior written notice to Licensee. (b) With respect to any Computer Systems accessed by Licensee on Licensor's Network System via website, and/or otherwise via the Internet or Licensor's intranet in accordance with the terms herein: (i) Licensor will act at its sole cost to maintain all communications equipment inside the Network System firewalls and necessary for Licensee to access the Computer Systems. Licensee shall be responsible for maintaining access to communications equipment as necessary to access and use the Computer Systems, and download and upload data from inside the Network System firewall. Each Party shall be responsible for its own transmission, reception, storing and handling of originated electronic documents, and provide and maintain the equipment, software, services, and testing necessary to perform such Party's obligations under this Agreement effectively and reliably. (ii) Licensee covenants to Licensor that it shall provide security levels consistent with Licensor's practices to protect all Computer Systems that Licensee accesses hereunder against the risk of penetration by a third party by (1) protecting against intrusions, (2) encrypting of Licensor Confidential Information transactions, and (3) ensuring that anti-virus software is up-to-date and that DAT files are updated regularly. 1.2 Exclusion of All Other Rights. Except as expressly provided herein, Licensor grants no rights or licenses under this Agreement whatsoever in or to the Computer Systems or any other Licensor products, services or other Licensor intellectual proprietary or personal rights. All rights and licenses not expressly granted in this Agreement are hereby expressly reserved by Licensor or Licensee, as the case may be. 1.3 Restrictions. Except to the extent expressly permitted herein, or by prior written permission of Licensor, Licensee shall not, and shall not authorize any third party to: (a) modify, alter, or otherwise create any derivative work of the Computer Systems or any portion thereof; (b) sublicense, transfer or assign (except as provided in Sections 8.6 or 8.7 herein) the Computer Systems or any right with respect thereto; (c) rent, lease, outsource or distribute the Computer Systems; (d) copy all or any portion of the Computer Systems, including but not limited to, the documentation, if any; and (e) disassemble, decompile, reverse engineer, translate, or otherwise convert to human readable form, in whole or in part, any portion of the Computer Systems, except to the extent such foregoing restriction is expressly prohibited by Applicable Law. 1.4 Consultation and Training. Licensor shall provide such consultation and training as may be reasonable and necessary to ensure accurate receipt of or download of data and as otherwise may be reasonably necessary for Licensee to perform the Services under the Service Agreement. 1.5 Documentation. Licensor shall provide Licensee from time to time during the Term documentation pertaining to the use of the Computer Systems as may be reasonably necessary for Licensee to perform the Services under the Service Agreement, to the extent such documentation exists and has not already been provided to Licensee. 1.6 Support and Maintenance. Licensor shall provide such support and maintenance as may be reasonably necessary for Licensee to perform the Services under 2 the Service Agreement consistent with Licensor's support and maintenance of the Computer Systems provided to Licensee before the Closing. Such maintenance and support shall include, at a minimum technical support as follows: a Licensor-designated information system coordinator shall accept and respond diligently to all reasonable technical support inquiries posed by Licensee relating to: (i) errors made by Licensor and encountered by Licensee in Licensee's access to and use of the Computer Systems as provided herein; (ii) simple explanations of the Computer Systems functionality, and (iii) maintenance of the Computer Systems as may be provided as part of Licensor's regular Network System maintenance for Licensor's own business purposes. 1.7 Duration. This Agreement, including any licenses granted hereunder, shall become effective as of the Effective Date and continue until such time as the Service Agreement shall expire or otherwise be terminated in accordance with Section 11.1 of the Service Agreement, unless earlier terminated in accordance with Section 8.15 herein. 2. OWNERSHIP. 2.1 Computer Systems. Licensee acknowledges and agrees that, as between Licensor and Licensee, ownership of and title in and to the Computer Systems and all Intellectual Property Rights in or to the Computer Systems are and shall remain in Licensor. For purposes of this Agreement, "Intellectual Property Rights" means, collectively, patents, trade secrets (as defined in the Restatement, Second, Torts), copyrights, trade names, rights in trade dress, and all other intellectual property rights, whether arising under the laws of the United States or any other state, country or jurisdiction, including all rights or causes of action for infringement or misappropriation of any of the foregoing, in each case now existing or hereafter arising during the term of this Agreement. 3. PROTECTION OF COMPUTER SYSTEMS. 3.1 Legal Action. Except as set forth below, Licensor shall maintain sole control and discretion over the prosecution and protection of all rights, including all Intellectual Property Rights, in and to the Computer Systems. 3.2 Protection of Intellectual Property Rights. 3.2.1 Licensee shall promptly notify Licensor in writing of any unauthorized use, infringement, misappropriation, dilution or other violation of the Computer Systems of which it becomes aware or suspects. 3.2.2 Licensor shall have the primary right, but not the obligation, to bring and control any suits against any unauthorized use, infringement, misappropriation, dilution or other violation of the Computer Systems, unless Licensor otherwise consents in writing. In the event that Licensor elects not to exercise this right, Licensor (at Licensee's request) shall execute appropriate documents to authorize Licensee to bring and to control such action, and Licensor shall reasonably assist Licensee in any such action, including being named as a party to such litigation as required by applicable law. Licensor shall have the right to participate and be represented in any such action, suit or proceeding by its own counsel at its own expense. 3 3.2.3 Licensee agrees to reasonably cooperate with Licensor, at Licensor's cost (except for de minimis expenses, which shall be borne by Licensee), in any litigation or other enforcement action that Licensor may undertake to enforce or protect the Computer Systems, including, upon Licensor's reasonable request, the execution, filing and delivery of all documents and proof necessary for such purpose. Licensee shall have the right to participate and be represented in any such action, suit or proceeding by its own counsel at its own expense. 3.2.4 Except as expressly stated in this Section 3.2, each party shall bear the costs, fees and expenses incurred by such party in complying with the provisions of this Section 3.2, including those incurred in bringing or controlling any such suits. 4. REPRESENTATIONS AND WARRANTIES. 4.1 Each party hereto represents and warrants that: (i) it is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation and has full power and authority (corporate and otherwise) to own its properties and assets and to conduct its business as now being conducted; (ii) it has the corporate power and authority to enter into this Agreement, and the execution, delivery and performance of this Agreement and the transactions and other documents contemplated hereby have been duly authorized by all necessary corporate action on the part of such party; (iii) this Agreement has been duly executed and delivered by authorized officers of each party, and constitutes a legal, valid and binding obligation of the party, fully enforceable against such party in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar laws of general applicability relating to or affecting creditors' rights, and general equity principles. 4.2 Licensor represents and warrants that: (i) Licensor has the right to grant the licenses granted herein; (ii) Licensee's use of the Computer Systems in the performance of the Services and its obligations under the Service Agreement does not and will not violate or infringe the Intellectual Property Rights of any person who is not a party to this Agreement; (iii) Licensor will not knowingly include or insert, or knowingly permit or cause any third party to include or insert, any computer virus on the Computer Systems that will be available to Licensee; (iv) the Computer Systems shall, during the course of this agreement, be free of material defects; and (v) Licensor shall make the Computer Systems available to Licensee as reasonably necessary for Licensee to perform the Services. 4.3 EXCEPT AS SET FORTH IN SECTIONS 4.1 AND 4.2, (A) THE COMPUTER SYSTEMS ARE PROVIDED ON AN "AS IS" BASIS, WITHOUT WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT, PROPER COOPERATION OR INTERFACING WITH THIRD PARTY INFORMATION TECHNOLOGY OR OTHER WARRANTIES, CONDITIONS, GUARANTEES OR REPRESENTATIONS, WHETHER EXPRESS OR IMPLIED; AND (B) LICENSEE EXPRESSLY WAIVES 4 ANY AND ALL RIGHTS IT MAY HAVE UNDER THE UNIFORM COMMERCIAL CODE. 5. INDEMNIFICATION. 5.1 Licensee will indemnify, defend and hold harmless Licensor and its employees, officers and directors from and against all claims, liabilities, suits, damages, costs and expenses, including, without limitation, reasonable attorneys' fees, resulting from any claim brought by any third party (excluding any Affiliate of Licensor) alleging infringement by Licensee of such third party's Intellectual Property Rights arising out of Licensee's use of the Computer Systems outside the scope of use of the Computer Systems permitted to Licensee hereunder and/or that is contrary to the rights granted to Licensee herein, except for losses, liabilities or damages arising from the sole claim that the Computer Systems or Licensor's grant hereunder infringe the Intellectual Property Rights of such third party, independent of Licensee's use thereof. 5.2 Licensor will indemnify, defend and hold harmless Licensee and its employees, officers and directors from and against all claims, liabilities, suits, damages, costs and expenses, including, without limitation, reasonable attorneys' fees, resulting from any claim brought by any third party alleging infringement by Licensee of such third party's Intellectual Property Rights arising out of Licensee's use of the Computer Systems to the extent such use of the Computer Systems falls within the scope of or is not contrary to the rights granted to Licensee herein. Notwithstanding anything to the contrary in the foregoing sentence, Licensor shall not indemnify Licensee with respect to the possibility of infringement by Combination Use of the Computer Systems. The Parties agree that Licensor has no duty to investigate or to warn Licensee of any such possibility. As used herein, "Combination Use" means use of any Computer System outside the scope of the license granted herein or use of the Computer Systems in combination or conjunction with any software other than the Computer Systems, any unauthorized modifications under Section 1.3, or combination with any Licensee hardware. 5.3 In the event that either Licensor or Licensee wishes to assert a claim for indemnification under this Section 5, such party seeking indemnification (the "Indemnified Party") shall deliver written notice (a "Claims Notice") to the other party (the "Indemnifying Party") no later than ten (10) Business Days after such claim becomes known to the Indemnified Party, specifying the facts constituting the basis for, and the amount (if known) of the claim asserted. Failure to deliver a Claims Notice with respect to a claim in a timely manner as specified in the preceding sentence shall not release the Indemnifying Party from any of its obligations under this Section 5, except to the extent the Indemnifying Party is materially prejudiced by such failure. 6. DISCLAIMER OF CONSEQUENTIAL AND SPECIAL DAMAGES. TO THE MAXIMUM EXTENT PERMITTED BY LAW, NEITHER PARTY NOR ANY RELATED ENTITY THEREOF SHALL BE LIABLE TO THE OTHER PARTY, ANY RELATED ENTITY THEREOF OR ANY OTHER THIRD PERSON UNDER THIS AGREEMENT FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, RELIANCE OR PUNITIVE DAMAGES OR LOST OR IMPUTED PROFITS, LOST DATA OR COST OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES, WHETHER LIABILITY IS ASSERTED IN CONTRACT, TORT (INCLUDING 5 NEGLIGENCE AND STRICT PRODUCT LIABILITY) INDEMNITY OR CONTRIBUTION, AND IRRESPECTIVE OF WHETHER A PARTY OR ANY RELATED ENTITY HAS BEEN ADVISED OF THE POSSIBILITY OF ANY SUCH LOSS OR DAMAGE. 7. CONFIDENTIALITY; ARBITRATION. 7.1 All confidential and proprietary information shall be protected in accordance with Article XII of the Service Agreement. 7.2 All disputes between the Parties shall be subject to the provisions of Article XIV of the Service Agreement. 8. GENERAL. 8.1 Amendment, Modification and Waiver. This Agreement may not be amended, modified or waived except by an instrument or instruments in writing signed and delivered on behalf of each of the Parties hereto. 8.2 Entire Agreement. This Agreement, the Service Agreement and the other Ancillary Agreements between or, as the case may be, among the Parties (together with the exhibits hereto and the other agreements, documents and instruments delivered in connection herewith) constitute the entire agreement among the Parties with respect to the subject matter hereof and thereof and supersede all other prior agreements and understandings, both written and verbal, among the Parties or any of them with respect to the subject matter hereof. 8.3 Interpretation. (a) When a reference is made in this Agreement to a Section, such reference shall be to a section of this Agreement unless otherwise clearly indicated to the contrary. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement. The meaning assigned to each term used in this Agreement shall be equally applicable to both the singular and the plural forms of such term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. (b) The Parties have participated jointly in the negotiation and drafting of this Agreement; consequently, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties thereto, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provision of this Agreement. 8.4 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by telecopy (which is confirmed), by courier 6 (delivery of which is confirmed) or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties to this Agreement as follows: If to Licensor: Laura S. Lawrence, Esq. General Counsel Royal Group, Inc. 9300 Arrowpoint Blvd. Charlotte, NC 28273 Telephone No.: (704) 522-2851 Facsimile No.: (704) 522-2313 With a copy to (which shall not constitute notice to Licensor for purposes of this Section 8.4): Robert J. Sullivan, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Telephone No.: 212-735-2930 Facsimile No.: 212-735-2000 If to Royal Specialty Underwriting, Inc: Royal Specialty Underwriting, Inc. Mr. David E. Leonard Executive Vice President 945 East Paces Ferry Road Atlanta, GA 30326 Telephone No.: (404) 231-2366 Facsimile No.: (404) 231-3755 With a copy to (which shall not constitute notice to the Licensee for purposes of this Section 8.4): Aileen C. Meehan, Esq. William W. Rosenblatt, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Telephone No.: (212) 259-8000 Telecopy No.: (212) 259-6333 or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. In no event shall the 7 provision of notice pursuant to this Section 8.4 constitute notice for service of any writ, process or summons in any suit, action or other proceeding. 8.5 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 8.6 Assignment; Binding Agreement. This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and assigns and legal representatives. Neither this Agreement, nor any rights, interests or obligations hereunder, may be directly or indirectly assigned, delegated, sublicensed or transferred by any Party to this Agreement, in whole or in part, to any other person (including any bankruptcy trustee) by operation of law or otherwise, whether voluntarily or involuntarily, without the prior written consent of the Parties hereto; provided, however, that this Agreement may assigned by any Party in the event that such Party assigns its rights under the Service Agreement pursuant to Section 15.10 of the Service Agreement. 8.7 Sublicense. Licensee may sublicense its rights hereunder to permitted subcontractors under Section 15.16 of the Service Agreement upon receipt of the prior written consent of Licensor, which consent shall not be unreasonably withheld or delayed. 8.8 Third Party Beneficiaries. Except for the provisions of Section 5, nothing in this Agreement, express or implied, is intended to or shall confer upon any person other than the Parties hereto any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. 8.9 Specific Performance. The Parties recognize and agree that if for any reason any of the provisions of this Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate and irreparable harm or injury would be caused for which money damages would not be an adequate remedy. Accordingly, each Party agrees that, in addition to any other available remedies, each other Party shall be entitled to an injunction restraining any violation or threatened violation of any of the provisions of this Agreement without the necessity of posting a bond or other form of security. In the event that any action should be brought in equity to enforce any of the provisions of this Agreement, no party will allege, and each party hereby waives the defense, that there is an adequate remedy at law. 8.10 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as would be enforceable. 8.11 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. 8.12 Consent to Jurisdiction. Each of the Parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the state and federal court located 8 in the State of Delaware for the purposes of enforcing this Agreement or the other Ancillary Agreements. If any action is brought in a state court, the Parties shall take such actions as are within their control to cause any matter contemplated hereby to be assigned to the Chancery Court in the State of Delaware. In any action, suit or other proceeding, each of the Parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claims that it is not subject to the jurisdiction of the above courts, that such action or suit is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper. Each of the Parties hereto also agrees that any final and unappealable judgment against a party hereto in connection with any action, suit or other proceeding shall be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States. A certified or exemplified copy of such award or judgment shall be conclusive evidence of the fact and amount of such award or judgment. 8.13 Descriptive Headings. The descriptive section headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. 8.14 Survival. The provisions of Sections 5, 7 and 8 hereof shall survive the termination of this Agreement. 8.15 Termination. (a) A Party may terminate this Agreement with respect to another Party immediately upon notice if such other Party files a petition for bankruptcy or insolvency, has an involuntary petition under bankruptcy laws filed against it, and such petition shall not be dismissed within 60 days after filing thereof, commences an action providing for relief under bankruptcy laws, files for appointment of a receiver, or is adjudicated a bankrupt concern. (b) Agreement may be terminated by either party for any other material breach by the other upon delivery of a sixty (60) days' written notice of termination, if any such breach remains uncured during such sixty (60) day period. 8.16 Bankruptcy Protection. All rights and licenses granted under or pursuant to this Agreement by Licensor to Licensee are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the Bankruptcy Code (11 U.S.C. Section 101 et seq.), licenses of rights to "intellectual property" as defined therein. The Parties agree that Licensee, as licensee of such rights, shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code. The Parties further agree that, in the event that any proceeding shall be instituted by or against Licensor seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking an entry of an order for relief or Appointment of a receiver, trustee or other similar official for it or any substantial part of its property or it shall take any action to authorize any of the foregoing actions (each a "Proceeding"), Licensee shall have the right to retain and enforce its rights under this Agreement, including but not limited to the following rights: 9 (a) the right to continue to use the Computer Systems and all documentation and other supporting material related thereto, in accordance with the terms and conditions of this Agreement; and (b) the right to a complete duplicate of (or complete access to, as appropriate) all Computer Systems and the source code for the Computer Systems and all embodiments of such, and Licensor shall promptly deliver, or shall promptly cause to be delivered the same to Licensee (i) upon any such commencement of a Proceeding upon written request therefor by Licensee, unless Licensor elects and is permitted to continue to perform all of its obligations under this Agreement, or (ii) if not delivered under (i) above, upon the rejection of this Agreement by or on behalf of Licensor upon written request therefor by Licensee. Licensor shall maintain all Computer Systems in tangible form. 10 IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed on its behalf by its officer thereunto duly authorized, all as of the day and year first above written. LICENSOR: ROYAL INDEMNITY COMPANY By: /s/ Stephen M. Mulready ----------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer LICENSEE: ROYAL SPECIALTY UNDERWRITING, INC. By: /s/ James A. Dixon ----------------------------- Name: James A. Dixon Title: Chairman SCHEDULE 1.1(1) TRANSMISSION SPECIFICATIONS Access through Wide Area Network Access via the Internet SCHEDULE 1.1(2) COMPUTER SYSTEMS COMPUTER SYSTEMS AND DATABASES: 1) Premium Interface - RSUI transmits all premium transactions such as policies and endorsements. This data is processed by Royal into the premium accounting system. RSUI transmits the data via the Internet using the FTP protocol, into a dataset named PRODDS1.P6IA.PREMREG.EA2701 that resides on the Royal mainframe. The Host job that runs on the Royal mainframe to process the data is named 5A27. 2) UIS Interface - RSUI transmits policy information that is used to populate Royal's UIS clearance system. This data is transmitted via the Internet using the FTP protocol. The dataset name is P00011.RSUI.UIS and the Host job name is H8C505. 3) B-File Database and user interface provided via Royal Host system. 4) PODS Database (relational database that is a relational copy of B-File) 5) ENTRI: Premium registration system 6) INFONET - This is a Royal developed system that incorporates ISONET with Royal's proprietary information. 7) ISONET 8) The following databases on Field1 server accessible via Lotus Notes (note that access to these databases may require Lotus Notes; Licensor will not be providing Lotus Notes to Licensee hereunder): CL\State Filing Handbook.nsf CL\UMUIM.nsf Cl\CHARTS.nsf CS\State Reporting.nsf CL\RRF.nsf CS\DEREG.nsf CL\HAZIND.NSF CS\Laws-DOI.NSF Complaint Log 9) Any other Licensor software and information technology systems, if any, as may be necessary for Licensee to perform the Services under the Service Agreement to the extent that Licensor has the right to make such systems available to Licensee. EX-10.23 25 y88779exv10w23.txt ADMINISTRATIVE SERVICES PROPERTY LICENSE AGREEMENT EXHIBIT 10.23 ADMINISTRATIVE SERVICES INTELLECTUAL PROPERTY LICENSE AGREEMENT This ADMINISTRATIVE SERVICES INTELLECTUAL PROPERTY LICENSE AGREEMENT (this "Agreement") is dated as of July 1, 2003 (the "Effective Date"), and is among ROYAL INDEMNITY COMPANY, a Delaware property and casualty insurance company ("Licensor"), and ROYAL SPECIALTY UNDERWRITING, INC., a corporation organized under the laws of Georgia ("Licensee"). Licensor and Licensee are sometimes referred to herein individually as, "Party" and collectively as, the "Parties." Capitalized terms used but not defined herein and which are defined in the Service Agreement (as defined below), shall have the meanings ascribed to them in the Service Agreement. WHEREAS, Licensee and an affiliate of Licensor are parties to that certain RICA Administrative Services Agreement, of even date herewith (the "Service Agreement"), pursuant to which Licensee agrees to perform the Administrative Services under the Service Agreement (collectively, the "Services"); WHEREAS, in order for Licensee to provide the Services under the Service Agreement, Section 2.1(d) of the Service Agreement provides that Licensee's access to the Computer Systems controlled by Licensor that are necessary for it to provide the Services and other services specified therein shall be governed by the terms of this Agreement; and WHEREAS, Licensor and Licensee are each willing to enter into such arrangements on the terms and conditions set forth herein; NOW THEREFORE, in consideration of the foregoing premises, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereto hereby covenant and agree as follows: 1. LICENSE GRANT; TERM. 1.1 License Grant. (a) Effective upon the Effective Date and subject to all the terms and conditions of this Agreement, Licensor hereby grants to Licensee, and Licensee hereby accepts from Licensor, during the Term a limited, royalty-free, non-exclusive, non-transferable or assignable (except as set forth in Section 8.6), sub-licenseable (as set forth in Section 8.7) license to (i) access through transmission media as specified on Schedule 1.1(1), display and use the Computer Systems, including, without limitation, the databases and software described in Schedule 1.1(2) hereto and related documentation, if any, and (ii) download data from, and upload data to, Licensor's Network System, in agreed-upon format solely in connection with the Services under the Service Agreement. The license shall include at no charge any changes, modifications and upgrades to the Computer Systems as Licensor may develop from time to time and/or make available through the Network System or otherwise. For purposes of this Agreement, "Network System" shall mean Licensor's servers on which the Computer Systems reside, which servers are located at Licensor facilities at 9300 Arrowpoint Blvd., Charlotte, North Carolina, as may be relocated at Licensor's discretion upon thirty (30) days' prior written notice to Licensee. (b) With respect to any Computer Systems accessed by Licensee on Licensor's Network System via website, and/or otherwise via the Internet or Licensor's intranet in accordance with the terms herein: (i) Licensor will act at its sole cost to maintain all communications equipment inside the Network System firewalls and necessary for Licensee to access the Computer Systems. Licensee shall be responsible for maintaining access to communications equipment as necessary to access and use the Computer Systems, and download and upload data from inside the Network System firewall. Each Party shall be responsible for its own transmission, reception, storing and handling of originated electronic documents, and provide and maintain the equipment, software, services, and testing necessary to perform such Party's obligations under this Agreement effectively and reliably. (ii) Licensee covenants to Licensor that it shall provide security levels consistent with Licensor's practices to protect all Computer Systems that Licensee accesses hereunder against the risk of penetration by a third party by (1) protecting against intrusions, (2) encrypting of Licensor Confidential Information transactions, and (3) ensuring that anti-virus software is up-to-date and that DAT files are updated regularly. 1.2 Exclusion of All Other Rights. Except as expressly provided herein, Licensor grants no rights or licenses under this Agreement whatsoever in or to the Computer Systems or any other Licensor products, services or other Licensor intellectual proprietary or personal rights. All rights and licenses not expressly granted in this Agreement are hereby expressly reserved by Licensor or Licensee, as the case may be. 1.3 Restrictions. Except to the extent expressly permitted herein, or by prior written permission of Licensor, Licensee shall not, and shall not authorize any third party to: (a) modify, alter, or otherwise create any derivative work of the Computer Systems or any portion thereof; (b) sublicense, transfer or assign (except as provided in Sections 8.6 or 8.7 herein) the Computer Systems or any right with respect thereto; (c) rent, lease, outsource or distribute the Computer Systems; (d) copy all or any portion of the Computer Systems, including but not limited to, the documentation, if any; and (e) disassemble, decompile, reverse engineer, translate, or otherwise convert to human readable form, in whole or in part, any portion of the Computer Systems, except to the extent such foregoing restriction is expressly prohibited by Applicable Law. 1.4 Consultation and Training. Licensor shall provide such consultation and training as may be reasonable and necessary to ensure accurate receipt of or download of data and as otherwise may be reasonably necessary for Licensee to perform the Services under the Service Agreement. 1.5 Documentation. Licensor shall provide Licensee from time to time during the Term documentation pertaining to the use of the Computer Systems as may be reasonably necessary for Licensee to perform the Services under the Service Agreement, to the extent such documentation exists and has not already been provided to Licensee. 1.6 Support and Maintenance. Licensor shall provide such support and maintenance as may be reasonably necessary for Licensee to perform the Services under 2 the Service Agreement consistent with Licensor's support and maintenance of the Computer Systems provided to Licensee before the Closing. Such maintenance and support shall include, at a minimum technical support as follows: a Licensor-designated information system coordinator shall accept and respond diligently to all reasonable technical support inquiries posed by Licensee relating to: (i) errors made by Licensor and encountered by Licensee in Licensee's access to and use of the Computer Systems as provided herein; (ii) simple explanations of the Computer Systems functionality, and (iii) maintenance of the Computer Systems as may be provided as part of Licensor's regular Network System maintenance for Licensor's own business purposes. 1.7 Duration. This Agreement, including any licenses granted hereunder, shall become effective as of the Effective Date and continue until such time as the Service Agreement shall expire or otherwise be terminated in accordance with Section 11.1 of the Service Agreement, unless earlier terminated in accordance with Section 8.15 herein. 2. OWNERSHIP. 2.1 Computer Systems. Licensee acknowledges and agrees that, as between Licensor and Licensee, ownership of and title in and to the Computer Systems and all Intellectual Property Rights in or to the Computer Systems are and shall remain in Licensor. For purposes of this Agreement, "Intellectual Property Rights" means, collectively, patents, trade secrets (as defined in the Restatement, Second, Torts), copyrights, trade names, rights in trade dress, and all other intellectual property rights, whether arising under the laws of the United States or any other state, country or jurisdiction, including all rights or causes of action for infringement or misappropriation of any of the foregoing, in each case now existing or hereafter arising during the term of this Agreement. 3. PROTECTION OF COMPUTER SYSTEMS. 3.1 Legal Action. Except as set forth below, Licensor shall maintain sole control and discretion over the prosecution and protection of all rights, including all Intellectual Property Rights, in and to the Computer Systems. 3.2 Protection of Intellectual Property Rights. 3.2.1 Licensee shall promptly notify Licensor in writing of any unauthorized use, infringement, misappropriation, dilution or other violation of the Computer Systems of which it becomes aware or suspects. 3.2.2 Licensor shall have the primary right, but not the obligation, to bring and control any suits against any unauthorized use, infringement, misappropriation, dilution or other violation of the Computer Systems, unless Licensor otherwise consents in writing. In the event that Licensor elects not to exercise this right, Licensor (at Licensee's request) shall execute appropriate documents to authorize Licensee to bring and to control such action, and Licensor shall reasonably assist Licensee in any such action, including being named as a party to such litigation as required by applicable law. Licensor shall have the right to participate and be represented in any such action, suit or proceeding by its own counsel at its own expense. 3 3.2.3 Licensee agrees to reasonably cooperate with Licensor, at Licensor's cost (except for de minimis expenses, which shall be borne by Licensee), in any litigation or other enforcement action that Licensor may undertake to enforce or protect the Computer Systems, including, upon Licensor's reasonable request, the execution, filing and delivery of all documents and proof necessary for such purpose. Licensee shall have the right to participate and be represented in any such action, suit or proceeding by its own counsel at its own expense. 3.2.4 Except as expressly stated in this Section 3.2, each party shall bear the costs, fees and expenses incurred by such party in complying with the provisions of this Section 3.2, including those incurred in bringing or controlling any such suits. 4. REPRESENTATIONS AND WARRANTIES. 4.1 Each party hereto represents and warrants that: (i) it is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation and has full power and authority (corporate and otherwise) to own its properties and assets and to conduct its business as now being conducted; (ii) it has the corporate power and authority to enter into this Agreement, and the execution, delivery and performance of this Agreement and the transactions and other documents contemplated hereby have been duly authorized by all necessary corporate action on the part of such party; (iii) this Agreement has been duly executed and delivered by authorized officers of each party, and constitutes a legal, valid and binding obligation of the party, fully enforceable against such party in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar laws of general applicability relating to or affecting creditors' rights, and general equity principles. 4.2 Licensor represents and warrants that: (i) Licensor has the right to grant the licenses granted herein; (ii) Licensee's use of the Computer Systems in the performance of the Services and its obligations under the Service Agreement does not and will not violate or infringe the Intellectual Property Rights of any person who is not a party to this Agreement; (iii) Licensor will not knowingly include or insert, or knowingly permit or cause any third party to include or insert, any computer virus on the Computer Systems that will be available to Licensee; (iv) the Computer Systems shall, during the course of this agreement, be free of material defects; and (v) Licensor shall make the Computer Systems available to Licensee as reasonably necessary for Licensee to perform the Services. 4.3 EXCEPT AS SET FORTH IN SECTIONS 4.1 AND 4.2, (A) THE COMPUTER SYSTEMS ARE PROVIDED ON AN "AS IS" BASIS, WITHOUT WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT, PROPER COOPERATION OR INTERFACING WITH THIRD PARTY INFORMATION TECHNOLOGY OR OTHER WARRANTIES, CONDITIONS, GUARANTEES OR REPRESENTATIONS, WHETHER EXPRESS OR IMPLIED; AND (B) LICENSEE EXPRESSLY WAIVES 4 ANY AND ALL RIGHTS IT MAY HAVE UNDER THE UNIFORM COMMERCIAL CODE. 5. INDEMNIFICATION. 5.1 Licensee will indemnify, defend and hold harmless Licensor and its employees, officers and directors from and against all claims, liabilities, suits, damages, costs and expenses, including, without limitation, reasonable attorneys' fees, resulting from any claim brought by any third party (excluding any Affiliate of Licensor) alleging infringement by Licensee of such third party's Intellectual Property Rights arising out of Licensee's use of the Computer Systems outside the scope of use of the Computer Systems permitted to Licensee hereunder and/or that is contrary to the rights granted to Licensee herein, except for losses, liabilities or damages arising from the sole claim that the Computer Systems or Licensor's grant hereunder infringe the Intellectual Property Rights of such third party, independent of Licensee's use thereof. 5.2 Licensor will indemnify, defend and hold harmless Licensee and its employees, officers and directors from and against all claims, liabilities, suits, damages, costs and expenses, including, without limitation, reasonable attorneys' fees, resulting from any claim brought by any third party alleging infringement by Licensee of such third party's Intellectual Property Rights arising out of Licensee's use of the Computer Systems to the extent such use of the Computer Systems falls within the scope of or is not contrary to the rights granted to Licensee herein. Notwithstanding anything to the contrary in the foregoing sentence, Licensor shall not indemnify Licensee with respect to the possibility of infringement by Combination Use of the Computer Systems. The Parties agree that Licensor has no duty to investigate or to warn Licensee of any such possibility. As used herein, "Combination Use" means use of any Computer System outside the scope of the license granted herein or use of the Computer Systems in combination or conjunction with any software other than the Computer Systems, any unauthorized modifications under Section 1.3, or combination with any Licensee hardware. 5.3 In the event that either Licensor or Licensee wishes to assert a claim for indemnification under this Section 5, such party seeking indemnification (the "Indemnified Party") shall deliver written notice (a "Claims Notice") to the other party (the "Indemnifying Party") no later than ten (10) Business Days after such claim becomes known to the Indemnified Party, specifying the facts constituting the basis for, and the amount (if known) of the claim asserted. Failure to deliver a Claims Notice with respect to a claim in a timely manner as specified in the preceding sentence shall not release the Indemnifying Party from any of its obligations under this Section 5, except to the extent the Indemnifying Party is materially prejudiced by such failure. 6. DISCLAIMER OF CONSEQUENTIAL AND SPECIAL DAMAGES. TO THE MAXIMUM EXTENT PERMITTED BY LAW, NEITHER PARTY NOR ANY RELATED ENTITY THEREOF SHALL BE LIABLE TO THE OTHER PARTY, ANY RELATED ENTITY THEREOF OR ANY OTHER THIRD PERSON UNDER THIS AGREEMENT FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, RELIANCE OR PUNITIVE DAMAGES OR LOST OR IMPUTED PROFITS, LOST DATA OR COST OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES, WHETHER LIABILITY IS ASSERTED IN CONTRACT, TORT (INCLUDING 5 NEGLIGENCE AND STRICT PRODUCT LIABILITY) INDEMNITY OR CONTRIBUTION, AND IRRESPECTIVE OF WHETHER A PARTY OR ANY RELATED ENTITY HAS BEEN ADVISED OF THE POSSIBILITY OF ANY SUCH LOSS OR DAMAGE. 7. CONFIDENTIALITY; ARBITRATION. 7.1 All confidential and proprietary information shall be protected in accordance with Article XII of the Service Agreement. 7.2 All disputes between the Parties shall be subject to the provisions of Article XIV of the Service Agreement. 8. GENERAL. 8.1 Amendment, Modification and Waiver. This Agreement may not be amended, modified or waived except by an instrument or instruments in writing signed and delivered on behalf of each of the Parties hereto. 8.2 Entire Agreement. This Agreement, the Service Agreement and the other Ancillary Agreements between or, as the case may be, among the Parties (together with the exhibits hereto and the other agreements, documents and instruments delivered in connection herewith) constitute the entire agreement among the Parties with respect to the subject matter hereof and thereof and supersede all other prior agreements and understandings, both written and verbal, among the Parties or any of them with respect to the subject matter hereof. 8.3 Interpretation. (a) When a reference is made in this Agreement to a Section, such reference shall be to a section of this Agreement unless otherwise clearly indicated to the contrary. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement. The meaning assigned to each term used in this Agreement shall be equally applicable to both the singular and the plural forms of such term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. (b) The Parties have participated jointly in the negotiation and drafting of this Agreement; consequently, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties thereto, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provision of this Agreement. 8.4 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by telecopy (which is confirmed), by courier 6 (delivery of which is confirmed) or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties to this Agreement as follows: If to Licensor: Laura S. Lawrence, Esq. General Counsel Royal Group, Inc. 9300 Arrowpoint Blvd. Charlotte, NC 28273 Telephone No.: (704) 522-2851 Facsimile No.: (704) 522-2313 With a copy to (which shall not constitute notice to Licensor for purposes of this Section 8.4): Robert J. Sullivan, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Telephone No.: 212-735-2930 Facsimile No.: 212-735-2000 If to Royal Specialty Underwriting, Inc: Royal Specialty Underwriting, Inc. Mr. David E. Leonard Executive Vice President 945 East Paces Ferry Road Atlanta, GA 30326 Telephone No.: (404) 231-2366 Facsimile No.: (404) 231-3755 With a copy to (which shall not constitute notice to the Licensee for purposes of this Section 8.4): Aileen C. Meehan, Esq. William W. Rosenblatt, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Telephone No.: (212) 259-8000 Telecopy No.: (212) 259-6333 or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. In no event shall the 7 provision of notice pursuant to this Section 8.4 constitute notice for service of any writ, process or summons in any suit, action or other proceeding. 8.5 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 8.6 Assignment; Binding Agreement. This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and assigns and legal representatives. Neither this Agreement, nor any rights, interests or obligations hereunder, may be directly or indirectly assigned, delegated, sublicensed or transferred by any Party to this Agreement, in whole or in part, to any other person (including any bankruptcy trustee) by operation of law or otherwise, whether voluntarily or involuntarily, without the prior written consent of the Parties hereto; provided, however, that this Agreement may assigned by any Party in the event that such Party assigns its rights under the Service Agreement pursuant to Section 15.10 of the Service Agreement. 8.7 Sublicense. Licensee may sublicense its rights hereunder to permitted subcontractors under Section 15.16 of the Service Agreement upon receipt of the prior written consent of Licensor, which consent shall not be unreasonably withheld or delayed. 8.8 Third Party Beneficiaries. Except for the provisions of Section 5, nothing in this Agreement, express or implied, is intended to or shall confer upon any person other than the Parties hereto any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. 8.9 Specific Performance. The Parties recognize and agree that if for any reason any of the provisions of this Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate and irreparable harm or injury would be caused for which money damages would not be an adequate remedy. Accordingly, each Party agrees that, in addition to any other available remedies, each other Party shall be entitled to an injunction restraining any violation or threatened violation of any of the provisions of this Agreement without the necessity of posting a bond or other form of security. In the event that any action should be brought in equity to enforce any of the provisions of this Agreement, no party will allege, and each party hereby waives the defense, that there is an adequate remedy at law. 8.10 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as would be enforceable. 8.11 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. 8.12 Consent to Jurisdiction. Each of the Parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the state and federal court located 8 in the State of Delaware for the purposes of enforcing this Agreement or the other Ancillary Agreements. If any action is brought in a state court, the Parties shall take such actions as are within their control to cause any matter contemplated hereby to be assigned to the Chancery Court in the State of Delaware. In any action, suit or other proceeding, each of the Parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claims that it is not subject to the jurisdiction of the above courts, that such action or suit is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper. Each of the Parties hereto also agrees that any final and unappealable judgment against a party hereto in connection with any action, suit or other proceeding shall be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States. A certified or exemplified copy of such award or judgment shall be conclusive evidence of the fact and amount of such award or judgment. 8.13 Descriptive Headings. The descriptive section headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. 8.14 Survival. The provisions of Sections 5, 7 and 8 hereof shall survive the termination of this Agreement. 8.15 Termination. (a) A Party may terminate this Agreement with respect to another Party immediately upon notice if such other Party files a petition for bankruptcy or insolvency, has an involuntary petition under bankruptcy laws filed against it, and such petition shall not be dismissed within 60 days after filing thereof, commences an action providing for relief under bankruptcy laws, files for appointment of a receiver, or is adjudicated a bankrupt concern. (b) Agreement may be terminated by either party for any other material breach by the other upon delivery of a sixty (60) days' written notice of termination, if any such breach remains uncured during such sixty (60) day period. 8.16 Bankruptcy Protection. All rights and licenses granted under or pursuant to this Agreement by Licensor to Licensee are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the Bankruptcy Code (11 U.S.C. Section 101 et seq.), licenses of rights to "intellectual property" as defined therein. The Parties agree that Licensee, as licensee of such rights, shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code. The Parties further agree that, in the event that any proceeding shall be instituted by or against Licensor seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking an entry of an order for relief or Appointment of a receiver, trustee or other similar official for it or any substantial part of its property or it shall take any action to authorize any of the foregoing actions (each a "Proceeding"), Licensee shall have the right to retain and enforce its rights under this Agreement, including but not limited to the following rights: 9 (a) the right to continue to use the Computer Systems and all documentation and other supporting material related thereto, in accordance with the terms and conditions of this Agreement; and (b) the right to a complete duplicate of (or complete access to, as appropriate) all Computer Systems and the source code for the Computer Systems and all embodiments of such, and Licensor shall promptly deliver, or shall promptly cause to be delivered the same to Licensee (i) upon any such commencement of a Proceeding upon written request therefor by Licensee, unless Licensor elects and is permitted to continue to perform all of its obligations under this Agreement, or (ii) if not delivered under (i) above, upon the rejection of this Agreement by or on behalf of Licensor upon written request therefor by Licensee. Licensor shall maintain all Computer Systems in tangible form. 10 IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed on its behalf by its officer thereunto duly authorized, all as of the day and year first above written. LICENSOR: ROYAL INDEMNITY COMPANY By: /s/ Stephen M. Mulready -------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer LICENSEE: ROYAL SPECIALTY UNDERWRITING, INC. By: /s/ James A. Dixon --------------------------- Name: James A. Dixon Title: Chairman SCHEDULE 1.1(1) TRANSMISSION SPECIFICATIONS Access through Wide Area Network Access via the Internet SCHEDULE 1.1(2) COMPUTER SYSTEMS COMPUTER SYSTEMS AND DATABASES: 1) Premium Interface - RSUI transmits all premium transactions such as policies and endorsements. This data is processed by Royal into the premium accounting system. RSUI transmits the data via the Internet using the FTP protocol, into a dataset named PRODDS1.P6IA.PREMREG.EA2701 that resides on the Royal mainframe. The Host job that runs on the Royal mainframe to process the data is named 5A27. 2) UIS Interface - RSUI transmits policy information that is used to populate Royal's UIS clearance system. This data is transmitted via the Internet using the FTP protocol. The dataset name is P00011.RSUI.UIS and the Host job name is H8C505. 3) B-File Database and user interface provided via Royal Host system. 4) PODS Database (relational database that is a relational copy of B-File) 5) ENTRI: Premium registration system 6) INFONET - This is a Royal developed system that incorporates ISONET with Royal's proprietary information. 7) ISONET 8) The following databases on Field1 server accessible via Lotus Notes (note that access to these databases may require Lotus Notes; Licensor will not be providing Lotus Notes to Licensee hereunder): CL\State Filing Handbook.nsf CL\UMUIM.nsf Cl\CHARTS.nsf CS\State Reporting.nsf CL\RRF.nsf CS\DEREG.nsf CL\HAZIND.NSF CS\Laws-DOI.NSF Complaint Log 9) Any other Licensor software and information technology systems, if any, as may be necessary for Licensee to perform the Services under the Service Agreement to the extent that Licensor has the right to make such systems available to Licensee. EX-10.24 26 y88779exv10w24.txt ADMINISTRATIVE SERVICE PROPERTY LICENSE AGREEMENT EXHIBIT 10.24 ADMINISTRATIVE SERVICES INTELLECTUAL PROPERTY LICENSE AGREEMENT This ADMINISTRATIVE SERVICES INTELLECTUAL PROPERTY LICENSE AGREEMENT (this "Agreement") is dated as of July 1, 2003 (the "Effective Date"), and is among ROYAL INDEMNITY COMPANY, a Delaware property and casualty insurance company ("Licensor"), and ROYAL SPECIALTY UNDERWRITING, INC., a corporation organized under the laws of Georgia ("Licensee"). Licensor and Licensee are sometimes referred to herein individually as, "Party" and collectively as, the "Parties." Capitalized terms used but not defined herein and which are defined in the Service Agreement (as defined below), shall have the meanings ascribed to them in the Service Agreement. WHEREAS, Licensor and Licensee are parties to that certain Landmark Administrative Services Agreement, of even date herewith (the "Service Agreement"), pursuant to which Licensee agrees to perform the Administrative Services under the Service Agreement (collectively, the "Services"); WHEREAS, in order for Licensee to provide the Services under the Service Agreement, Section 2.1(d) of the Service Agreement provides that Licensee's access to the Computer Systems controlled by Licensor that are necessary for it to provide the Services and other services specified therein shall be governed by the terms of this Agreement; and WHEREAS, Licensor and Licensee are each willing to enter into such arrangements on the terms and conditions set forth herein; NOW THEREFORE, in consideration of the foregoing premises, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereto hereby covenant and agree as follows: 1. LICENSE GRANT; TERM. 1.1 License Grant. (a) Effective upon the Effective Date and subject to all the terms and conditions of this Agreement, Licensor hereby grants to Licensee, and Licensee hereby accepts from Licensor, during the Term a limited, royalty-free, non-exclusive, non-transferable or assignable (except as set forth in Section 8.6), sub-licenseable (as set forth in Section 8.7) license to (i) access through transmission media as specified on Schedule 1.1(1), display and use the Computer Systems, including, without limitation, the databases and software described in Schedule 1.1(2) hereto and related documentation, if any, and (ii) download data from, and upload data to, Licensor's Network System, in agreed-upon format solely in connection with the Services under the Service Agreement. The license shall include at no charge any changes, modifications and upgrades to the Computer Systems as Licensor may develop from time to time and/or make available through the Network System or otherwise. For purposes of this Agreement, "Network System" shall mean Licensor's servers on which the Computer Systems reside, which servers are located at Licensor facilities at 9300 Arrowpoint Blvd., Charlotte, North Carolina, as may be relocated at Licensor's discretion upon thirty (30) days' prior written notice to Licensee. (b) With respect to any Computer Systems accessed by Licensee on Licensor's Network System via website, and/or otherwise via the Internet or Licensor's intranet in accordance with the terms herein: (i) Licensor will act at its sole cost to maintain all communications equipment inside the Network System firewalls and necessary for Licensee to access the Computer Systems. Licensee shall be responsible for maintaining access to communications equipment as necessary to access and use the Computer Systems, and download and upload data from inside the Network System firewall. Each Party shall be responsible for its own transmission, reception, storing and handling of originated electronic documents, and provide and maintain the equipment, software, services, and testing necessary to perform such Party's obligations under this Agreement effectively and reliably. (ii) Licensee covenants to Licensor that it shall provide security levels consistent with Licensor's practices to protect all Computer Systems that Licensee accesses hereunder against the risk of penetration by a third party by (1) protecting against intrusions, (2) encrypting of Licensor Confidential Information transactions, and (3) ensuring that anti-virus software is up-to-date and that DAT files are updated regularly. 1.2 Exclusion of All Other Rights. Except as expressly provided herein, Licensor grants no rights or licenses under this Agreement whatsoever in or to the Computer Systems or any other Licensor products, services or other Licensor intellectual proprietary or personal rights. All rights and licenses not expressly granted in this Agreement are hereby expressly reserved by Licensor or Licensee, as the case may be. 1.3 Restrictions. Except to the extent expressly permitted herein, or by prior written permission of Licensor, Licensee shall not, and shall not authorize any third party to: (a) modify, alter, or otherwise create any derivative work of the Computer Systems or any portion thereof; (b) sublicense, transfer or assign (except as provided in Sections 8.6 or 8.7 herein) the Computer Systems or any right with respect thereto; (c) rent, lease, outsource or distribute the Computer Systems; (d) copy all or any portion of the Computer Systems, including but not limited to, the documentation, if any; and (e) disassemble, decompile, reverse engineer, translate, or otherwise convert to human readable form, in whole or in part, any portion of the Computer Systems, except to the extent such foregoing restriction is expressly prohibited by Applicable Law. 1.4 Consultation and Training. Licensor shall provide such consultation and training as may be reasonable and necessary to ensure accurate receipt of or download of data and as otherwise may be reasonably necessary for Licensee to perform the Services under the Service Agreement. 1.5 Documentation. Licensor shall provide Licensee from time to time during the Term documentation pertaining to the use of the Computer Systems as may be reasonably necessary for Licensee to perform the Services under the Service Agreement, to the extent such documentation exists and has not already been provided to Licensee. 1.6 Support and Maintenance. Licensor shall provide such support and maintenance as may be reasonably necessary for Licensee to perform the Services under 2 the Service Agreement consistent with Licensor's support and maintenance of the Computer Systems provided to Licensee before the Closing. Such maintenance and support shall include, at a minimum technical support as follows: a Licensor-designated information system coordinator shall accept and respond diligently to all reasonable technical support inquiries posed by Licensee relating to: (i) errors made by Licensor and encountered by Licensee in Licensee's access to and use of the Computer Systems as provided herein; (ii) simple explanations of the Computer Systems functionality, and (iii) maintenance of the Computer Systems as may be provided as part of Licensor's regular Network System maintenance for Licensor's own business purposes. 1.7 Duration. This Agreement, including any licenses granted hereunder, shall become effective as of the Effective Date and continue until such time as the Service Agreement shall expire or otherwise be terminated in accordance with Section 11.1 of the Service Agreement, unless earlier terminated in accordance with Section 8.15 herein. 2. OWNERSHIP. 2.1 Computer Systems. Licensee acknowledges and agrees that, as between Licensor and Licensee, ownership of and title in and to the Computer Systems and all Intellectual Property Rights in or to the Computer Systems are and shall remain in Licensor. For purposes of this Agreement, "Intellectual Property Rights" means, collectively, patents, trade secrets (as defined in the Restatement, Second, Torts), copyrights, trade names, rights in trade dress, and all other intellectual property rights, whether arising under the laws of the United States or any other state, country or jurisdiction, including all rights or causes of action for infringement or misappropriation of any of the foregoing, in each case now existing or hereafter arising during the term of this Agreement. 3. PROTECTION OF COMPUTER SYSTEMS. 3.1 Legal Action. Except as set forth below, Licensor shall maintain sole control and discretion over the prosecution and protection of all rights, including all Intellectual Property Rights, in and to the Computer Systems. 3.2 Protection of Intellectual Property Rights. 3.2.1 Licensee shall promptly notify Licensor in writing of any unauthorized use, infringement, misappropriation, dilution or other violation of the Computer Systems of which it becomes aware or suspects. 3.2.2 Licensor shall have the primary right, but not the obligation, to bring and control any suits against any unauthorized use, infringement, misappropriation, dilution or other violation of the Computer Systems, unless Licensor otherwise consents in writing. In the event that Licensor elects not to exercise this right, Licensor (at Licensee's request) shall execute appropriate documents to authorize Licensee to bring and to control such action, and Licensor shall reasonably assist Licensee in any such action, including being named as a party to such litigation as required by applicable law. Licensor shall have the right to participate and be represented in any such action, suit or proceeding by its own counsel at its own expense. 3 3.2.3 Licensee agrees to reasonably cooperate with Licensor, at Licensor's cost (except for de minimis expenses, which shall be borne by Licensee), in any litigation or other enforcement action that Licensor may undertake to enforce or protect the Computer Systems, including, upon Licensor's reasonable request, the execution, filing and delivery of all documents and proof necessary for such purpose. Licensee shall have the right to participate and be represented in any such action, suit or proceeding by its own counsel at its own expense. 3.2.4 Except as expressly stated in this Section 3.2, each party shall bear the costs, fees and expenses incurred by such party in complying with the provisions of this Section 3.2, including those incurred in bringing or controlling any such suits. 4. REPRESENTATIONS AND WARRANTIES. 4.1 Each party hereto represents and warrants that: (i) it is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation and has full power and authority (corporate and otherwise) to own its properties and assets and to conduct its business as now being conducted; (ii) it has the corporate power and authority to enter into this Agreement, and the execution, delivery and performance of this Agreement and the transactions and other documents contemplated hereby have been duly authorized by all necessary corporate action on the part of such party; (iii) this Agreement has been duly executed and delivered by authorized officers of each party, and constitutes a legal, valid and binding obligation of the party, fully enforceable against such party in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar laws of general applicability relating to or affecting creditors' rights, and general equity principles. 4.2 Licensor represents and warrants that: (i) Licensor has the right to grant the licenses granted herein; (ii) Licensee's use of the Computer Systems in the performance of the Services and its obligations under the Service Agreement does not and will not violate or infringe the Intellectual Property Rights of any person who is not a party to this Agreement; (iii) Licensor will not knowingly include or insert, or knowingly permit or cause any third party to include or insert, any computer virus on the Computer Systems that will be available to Licensee; (iv) the Computer Systems shall, during the course of this agreement, be free of material defects; and (v) Licensor shall make the Computer Systems available to Licensee as reasonably necessary for Licensee to perform the Services. 4.3 EXCEPT AS SET FORTH IN SECTIONS 4.1 AND 4.2, (A) THE COMPUTER SYSTEMS ARE PROVIDED ON AN "AS IS" BASIS, WITHOUT WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT, PROPER COOPERATION OR INTERFACING WITH THIRD PARTY INFORMATION TECHNOLOGY OR OTHER WARRANTIES, CONDITIONS, GUARANTEES OR REPRESENTATIONS, WHETHER EXPRESS OR IMPLIED; AND (B) LICENSEE EXPRESSLY WAIVES 4 ANY AND ALL RIGHTS IT MAY HAVE UNDER THE UNIFORM COMMERCIAL CODE. 5. INDEMNIFICATION. 5.1 Licensee will indemnify, defend and hold harmless Licensor and its employees, officers and directors from and against all claims, liabilities, suits, damages, costs and expenses, including, without limitation, reasonable attorneys' fees, resulting from any claim brought by any third party (excluding any Affiliate of Licensor) alleging infringement by Licensee of such third party's Intellectual Property Rights arising out of Licensee's use of the Computer Systems outside the scope of use of the Computer Systems permitted to Licensee hereunder and/or that is contrary to the rights granted to Licensee herein, except for losses, liabilities or damages arising from the sole claim that the Computer Systems or Licensor's grant hereunder infringe the Intellectual Property Rights of such third party, independent of Licensee's use thereof. 5.2 Licensor will indemnify, defend and hold harmless Licensee and its employees, officers and directors from and against all claims, liabilities, suits, damages, costs and expenses, including, without limitation, reasonable attorneys' fees, resulting from any claim brought by any third party alleging infringement by Licensee of such third party's Intellectual Property Rights arising out of Licensee's use of the Computer Systems to the extent such use of the Computer Systems falls within the scope of or is not contrary to the rights granted to Licensee herein. Notwithstanding anything to the contrary in the foregoing sentence, Licensor shall not indemnify Licensee with respect to the possibility of infringement by Combination Use of the Computer Systems. The Parties agree that Licensor has no duty to investigate or to warn Licensee of any such possibility. As used herein, "Combination Use" means use of any Computer System outside the scope of the license granted herein or use of the Computer Systems in combination or conjunction with any software other than the Computer Systems, any unauthorized modifications under Section 1.3, or combination with any Licensee hardware. 5.3 In the event that either Licensor or Licensee wishes to assert a claim for indemnification under this Section 5, such party seeking indemnification (the "Indemnified Party") shall deliver written notice (a "Claims Notice") to the other party (the "Indemnifying Party") no later than ten (10) Business Days after such claim becomes known to the Indemnified Party, specifying the facts constituting the basis for, and the amount (if known) of the claim asserted. Failure to deliver a Claims Notice with respect to a claim in a timely manner as specified in the preceding sentence shall not release the Indemnifying Party from any of its obligations under this Section 5, except to the extent the Indemnifying Party is materially prejudiced by such failure. 6. DISCLAIMER OF CONSEQUENTIAL AND SPECIAL DAMAGES. TO THE MAXIMUM EXTENT PERMITTED BY LAW, NEITHER PARTY NOR ANY RELATED ENTITY THEREOF SHALL BE LIABLE TO THE OTHER PARTY, ANY RELATED ENTITY THEREOF OR ANY OTHER THIRD PERSON UNDER THIS AGREEMENT FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, RELIANCE OR PUNITIVE DAMAGES OR LOST OR IMPUTED PROFITS, LOST DATA OR COST OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES, WHETHER LIABILITY IS ASSERTED IN CONTRACT, TORT (INCLUDING 5 NEGLIGENCE AND STRICT PRODUCT LIABILITY) INDEMNITY OR CONTRIBUTION, AND IRRESPECTIVE OF WHETHER A PARTY OR ANY RELATED ENTITY HAS BEEN ADVISED OF THE POSSIBILITY OF ANY SUCH LOSS OR DAMAGE. 7. CONFIDENTIALITY; ARBITRATION. 7.1 All confidential and proprietary information shall be protected in accordance with Article XII of the Service Agreement. 7.2 All disputes between the Parties shall be subject to the provisions of Article XIV of the Service Agreement. 8. GENERAL. 8.1 Amendment, Modification and Waiver. This Agreement may not be amended, modified or waived except by an instrument or instruments in writing signed and delivered on behalf of each of the Parties hereto. 8.2 Entire Agreement. This Agreement, the Service Agreement and the other Ancillary Agreements between or, as the case may be, among the Parties (together with the exhibits hereto and the other agreements, documents and instruments delivered in connection herewith) constitute the entire agreement among the Parties with respect to the subject matter hereof and thereof and supersede all other prior agreements and understandings, both written and verbal, among the Parties or any of them with respect to the subject matter hereof. 8.3 Interpretation. (a) When a reference is made in this Agreement to a Section, such reference shall be to a section of this Agreement unless otherwise clearly indicated to the contrary. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement. The meaning assigned to each term used in this Agreement shall be equally applicable to both the singular and the plural forms of such term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. (b) The Parties have participated jointly in the negotiation and drafting of this Agreement; consequently, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties thereto, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provision of this Agreement. 8.4 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by telecopy (which is confirmed), by courier 6 (delivery of which is confirmed) or by registered or certified mail (postage prepaid, return receipt requested) to the respective Parties to this Agreement as follows: If to Licensor: Laura S. Lawrence, Esq. General Counsel Royal Group, Inc. 9300 Arrowpoint Blvd. Charlotte, NC 28273 Telephone No.: (704) 522-2851 Facsimile No.: (704) 522-2313 With a copy to (which shall not constitute notice to Licensor for purposes of this Section 8.4): Robert J. Sullivan, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Telephone No.: 212-735-2930 Facsimile No.: 212-735-2000 If to Royal Specialty Underwriting, Inc: Royal Specialty Underwriting, Inc. Mr. David E. Leonard Executive Vice President 945 East Paces Ferry Road Atlanta, GA 30326 Telephone No.: (404) 231-2366 Facsimile No.: (404) 231-3755 With a copy to (which shall not constitute notice to the Licensee for purposes of this Section 8.4): Aileen C. Meehan, Esq. William W. Rosenblatt, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Telephone No.: (212) 259-8000 Telecopy No.: (212) 259-6333 or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. In no event shall the 7 provision of notice pursuant to this Section 8.4 constitute notice for service of any writ, process or summons in any suit, action or other proceeding. 8.5 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 8.6 Assignment; Binding Agreement. This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and assigns and legal representatives. Neither this Agreement, nor any rights, interests or obligations hereunder, may be directly or indirectly assigned, delegated, sublicensed or transferred by any Party to this Agreement, in whole or in part, to any other person (including any bankruptcy trustee) by operation of law or otherwise, whether voluntarily or involuntarily, without the prior written consent of the Parties hereto; provided, however, that this Agreement may assigned by any Party in the event that such Party assigns its rights under the Service Agreement pursuant to Section 15.10 of the Service Agreement. 8.7 Sublicense. Licensee may sublicense its rights hereunder to permitted subcontractors under Section 15.16 of the Service Agreement upon receipt of the prior written consent of Licensor, which consent shall not be unreasonably withheld or delayed. 8.8 Third Party Beneficiaries. Except for the provisions of Section 5, nothing in this Agreement, express or implied, is intended to or shall confer upon any person other than the Parties hereto any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. 8.9 Specific Performance. The Parties recognize and agree that if for any reason any of the provisions of this Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate and irreparable harm or injury would be caused for which money damages would not be an adequate remedy. Accordingly, each Party agrees that, in addition to any other available remedies, each other Party shall be entitled to an injunction restraining any violation or threatened violation of any of the provisions of this Agreement without the necessity of posting a bond or other form of security. In the event that any action should be brought in equity to enforce any of the provisions of this Agreement, no party will allege, and each party hereby waives the defense, that there is an adequate remedy at law. 8.10 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as would be enforceable. 8.11 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. 8.12 Consent to Jurisdiction. Each of the Parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the state and federal court located 8 in the State of Delaware for the purposes of enforcing this Agreement or the other Ancillary Agreements. If any action is brought in a state court, the Parties shall take such actions as are within their control to cause any matter contemplated hereby to be assigned to the Chancery Court in the State of Delaware. In any action, suit or other proceeding, each of the Parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claims that it is not subject to the jurisdiction of the above courts, that such action or suit is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper. Each of the Parties hereto also agrees that any final and unappealable judgment against a party hereto in connection with any action, suit or other proceeding shall be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States. A certified or exemplified copy of such award or judgment shall be conclusive evidence of the fact and amount of such award or judgment. 8.13 Descriptive Headings. The descriptive section headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. 8.14 Survival. The provisions of Sections 5, 7 and 8 hereof shall survive the termination of this Agreement. 8.15 Termination. (a) A Party may terminate this Agreement with respect to another Party immediately upon notice if such other Party files a petition for bankruptcy or insolvency, has an involuntary petition under bankruptcy laws filed against it, and such petition shall not be dismissed within 60 days after filing thereof, commences an action providing for relief under bankruptcy laws, files for appointment of a receiver, or is adjudicated a bankrupt concern. (b) Agreement may be terminated by either party for any other material breach by the other upon delivery of a sixty (60) days' written notice of termination, if any such breach remains uncured during such sixty (60) day period. 8.16 Bankruptcy Protection. All rights and licenses granted under or pursuant to this Agreement by Licensor to Licensee are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the Bankruptcy Code (11 U.S.C. Section 101 et seq.), licenses of rights to "intellectual property" as defined therein. The Parties agree that Licensee, as licensee of such rights, shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code. The Parties further agree that, in the event that any proceeding shall be instituted by or against Licensor seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking an entry of an order for relief or Appointment of a receiver, trustee or other similar official for it or any substantial part of its property or it shall take any action to authorize any of the foregoing actions (each a "Proceeding"), Licensee shall have the right to retain and enforce its rights under this Agreement, including but not limited to the following rights: 9 (a) the right to continue to use the Computer Systems and all documentation and other supporting material related thereto, in accordance with the terms and conditions of this Agreement; and (b) the right to a complete duplicate of (or complete access to, as appropriate) all Computer Systems and the source code for the Computer Systems and all embodiments of such, and Licensor shall promptly deliver, or shall promptly cause to be delivered the same to Licensee (i) upon any such commencement of a Proceeding upon written request therefor by Licensee, unless Licensor elects and is permitted to continue to perform all of its obligations under this Agreement, or (ii) if not delivered under (i) above, upon the rejection of this Agreement by or on behalf of Licensor upon written request therefor by Licensee. Licensor shall maintain all Computer Systems in tangible form. 10 IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed on its behalf by its officer thereunto duly authorized, all as of the day and year first above written. LICENSOR: ROYAL INDEMNITY COMPANY By: /s/ Stephen M. Mulready ----------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer LICENSEE: ROYAL SPECIALTY UNDERWRITING, INC. By: /s/ James A. Dixon ----------------------------- Name: James A. Dixon Title: Chairman SCHEDULE 1.1(1) TRANSMISSION SPECIFICATIONS Access through Wide Area Network Access via the Internet SCHEDULE 1.1(2) COMPUTER SYSTEMS COMPUTER SYSTEMS AND DATABASES: 1) Premium Interface - RSUI transmits all premium transactions such as policies and endorsements. This data is processed by Royal into the premium accounting system. RSUI transmits the data via the Internet using the FTP protocol, into a dataset named PRODDS1.P6IA.PREMREG.EA2701 that resides on the Royal mainframe. The Host job that runs on the Royal mainframe to process the data is named 5A27. 2) UIS Interface - RSUI transmits policy information that is used to populate Royal's UIS clearance system. This data is transmitted via the Internet using the FTP protocol. The dataset name is P00011.RSUI.UIS and the Host job name is H8C505. 3) B-File Database and user interface provided via Royal Host system. 4) PODS Database (relational database that is a relational copy of B-File) 5) ENTRI: Premium registration system 6) INFONET - This is a Royal developed system that incorporates ISONET with Royal's proprietary information. 7) ISONET 8) The following databases on Field1 server accessible via Lotus Notes (note that access to these databases may require Lotus Notes; Licensor will not be providing Lotus Notes to Licensee hereunder): CL\State Filing Handbook.nsf CL\UMUIM.nsf Cl\CHARTS.nsf CS\State Reporting.nsf CL\RRF.nsf CS\DEREG.nsf CL\HAZIND.NSF CS\Laws-DOI.NSF Complaint Log 9) Any other Licensor software and information technology systems, if any, as may be necessary for Licensee to perform the Services under the Service Agreement to the extent that Licensor has the right to make such systems available to Licensee. EX-10.25 27 y88779exv10w25.txt CLAIMS SERVICING AGREEMENT EXHIBIT 10.25 CLAIMS SERVICING AGREEMENT BY AND AMONG UNDERWRITERS REINSURANCE COMPANY, ROYAL INDEMNITY COMPANY, ROYAL SURPLUS LINES INSURANCE COMPANY, LANDMARK AMERICAN INSURANCE COMPANY, ROYAL INSURANCE COMPANY OF AMERICA, AMERICAN AND FOREIGN INSURANCE COMPANY, GLOBE INDEMNITY COMPANY, SAFEGUARD INSURANCE COMPANY AND PHOENIX ASSURANCE COMPANY OF NEW YORK DATED: JULY 1, 2003 TABLE OF CONTENTS
Page CLAIMS SERVICING AGREEMENT....................................................................................... 1 RECITALS:........................................................................................................ 1 ARTICLE I DEFINITIONS............................................................................................ 2 Section 1.1 Definitions................................................................................ 2 ARTICLE II APPOINTMENT........................................................................................... 4 Section 2.1 Appointment and Acceptance of Appointment.................................................. 4 ARTICLE III PERFORMANCE STANDARDS................................................................................ 5 Section 3.1 Performance Standards...................................................................... 5 ARTICLE IV SERVICES TO BE PROVIDED BY URC........................................................................ 6 Section 4.1 Claims Services............................................................................ 6 Section 4.2 Handling of Certain Types of Claims Services............................................... 12 Section 4.3 Conflict of Interest Arising in Connection with Performance of Claims Services............. 13 ARTICLE V FEES FOR CLAIMS SERVICES............................................................................... 13 Section 5.1 Payment for Claims Services................................................................ 13 ARTICLE VI OTHER SERVICES AND FEES FOR SERVICES.................................................................. 14 Section 6.1 Additional Services........................................................................ 14 ARTICLE VII BOOKS; AUDITS; BANK ACCOUNTS......................................................................... 14 Section 7.1 Reports.................................................................................... 14 Section 7.2 Audits..................................................................................... 14 ARTICLE VIII INABILITY TO PERFORM SERVICES; ERRORS............................................................... 17 Section 8.1 Inability to Perform Services.............................................................. 17 Section 8.2 Errors..................................................................................... 18 ARTICLE IX LEGAL ACTIONS BY GOVERNMENTAL ENTITIES................................................................ 18 Section 9.1 Regulatory Proceedings..................................................................... 18 Section 9.2 Defense of Litigation...................................................................... 18 Section 9.3 URC Communications Regarding Certain Matters............................................... 18 ARTICLE X DURATION............................................................................................... 18 Section 10.1 Duration................................................................................... 18 ARTICLE XI TERMINATION........................................................................................... 19 Section 11.1 Mutual Agreement........................................................................... 19 Section 11.2 Termination by URC......................................................................... 19
i Section 11.3 Termination by the Royal Insurer Affiliates................................................ 19 Section 11.4 Return of Books and Records to URC......................................................... 20 Section 11.5 Transition Period.......................................................................... 20 Section 11.6 No Prejudice............................................................................... 20 ARTICLE XII CONFIDENTIALITY...................................................................................... 21 Section 12.1 Use of Confidential Information............................................................ 21 Section 12.2 Confidentiality of Individuals............................................................. 21 Section 12.3 Disclosure................................................................................. 21 ARTICLE XIII [INTENTIONALLY OMITTED]............................................................................. 22 ARTICLE XIV INDEMNIFICATION...................................................................................... 22 Section 14.1 Indemnification by the Royal Insurer Affiliates............................................ 22 Section 14.2 Indemnification by URC..................................................................... 22 Section 14.3 Indemnification Procedure.................................................................. 22 ARTICLE XV ARBITRATION........................................................................................... 22 Section 15.1 Arbitration................................................................................ 22 Section 15.2 Notice of Arbitration...................................................................... 23 Section 15.3 Arbitration Panel.......................................................................... 23 Section 15.4 Submission of Briefs....................................................................... 23 Section 15.5 Arbitration Board's Decision............................................................... 23 Section 15.6 Jurisdiction............................................................................... 24 Section 15.7 Expenses................................................................................... 24 Section 15.8 Production of Documents and Witnesses...................................................... 24 Section 15.9 Relief Available........................................................................... 24 Section 15.10 Consolidation.............................................................................. 25 ARTICLE XVI MISCELLANEOUS........................................................................................ 25 Section 16.1 Cooperation................................................................................ 25 Section 16.2 Amendment, Modification and Waiver......................................................... 25 Section 16.3 Relationship............................................................................... 25 Section 16.4 Entire Agreement........................................................................... 26 Section 16.5 Governing Law.............................................................................. 26 Section 16.6 Severability............................................................................... 26 Section 16.7 Counterparts............................................................................... 26 Section 16.8 Consent to Jurisdiction.................................................................... 26 Section 16.9 Third Party Beneficiaries.................................................................. 26 Section 16.10 Binding; Assignment........................................................................ 27 Section 16.11 Specific Performance....................................................................... 27 Section 16.12 Descriptive Headings....................................................................... 27 Section 16.13 Use of Name................................................................................ 27 Section 16.14 Notices.................................................................................... 27 Section 16.15 Interpretation............................................................................. 29
ii EXHIBITS EXHIBIT A List of Royal Insurer Affiliates EXHIBIT B Claims Servicing Information Technology License Agreement EXHIBIT C Claims Expenses iii CLAIMS SERVICING AGREEMENT THIS CLAIMS SERVICING AGREEMENT (this "Agreement") is made and entered into as of this 1st day of July, 2003 by and between Underwriters Reinsurance Company, a New Hampshire company ("URC"), Royal Indemnity Company, a Delaware property and casualty insurance company ("RIC"), Royal Surplus Lines Insurance Company, a Connecticut insurance company ("RSLIC"), Landmark American Insurance Company, a property and casualty insurance company organized under the laws of Oklahoma ("Landmark"), Royal Insurance Company of America, a property and casualty insurance company organized under the laws of Illinois ("RICA") and certain other insurer affiliates of Royal Group, Inc, a Delaware corporation and the parent company of RIC and RSLIC ("Royal"), listed on Exhibit A hereto (RIC, RSLIC, Landmark, RICA and the Royal Insurer Affiliates listed on Exhibit A to this Agreement, collectively, the "Royal Insurer Affiliates"). RECITALS: WHEREAS, prior to the Closing Date (defined below), Royal Specialty Underwriting, Inc., a Georgia company ("RSUI") has underwritten certain insurance and reinsurance contracts on behalf of the Royal Insurer Affiliates and administered the claims and reinsurance recoverables relating to such contracts; WHEREAS, pursuant to the Acquisition Agreement ("Acquisition Agreement"), dated as of June 6, 2003, by and between Royal and Alleghany Insurance Holdings LLC, a Delaware limited liability company ("AIHL"), the parties agreed, among other things, that Royal will sell to AIHL, and AIHL will buy, all of the issued and outstanding shares of common stock of RSUI; WHEREAS, pursuant to the Assignment and Assumption Agreement dated as of June 30, 2003 (the "Assignment Agreement"), AIHL assigned to RSUI Group, Inc., a Delaware corporation and a wholly-owned subsidiary of AIHL ("RSUI Group"), and RSUI Group assumed from AIHL, all of AIHL's rights and obligations under the Acquisition Agreement; WHEREAS, pursuant to the terms of the Acquisition Agreement and the Assignment Agreement, Royal and RSUI Group have agreed that Royal shall cause the Royal Insurer Affiliates, and Royal Group shall cause URC, to enter into this Agreement; WHEREAS, pursuant to the terms and conditions of this Agreement, URC will provide to the Royal Insurer Affiliates on and after the Closing Date all Claims Services (defined below) and other services with respect to the Covered Contracts (defined below); NOW, THEREFORE, in consideration of these premises and the terms and conditions set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, URC and the Royal Insurer Affiliates agree as follows: ARTICLE I DEFINITIONS SECTION 1.1 DEFINITIONS. Capitalized terms used but not defined herein and which are defined in the Acquisition Agreement, shall have the meanings ascribed to them in the Acquisition Agreement. As used in this Agreement, the following terms shall have the meanings set forth herein: "Acquisition Agreement" shall have the meaning set forth in the recitals. "Affiliate" shall have the meaning set forth in the Acquisition Agreement. "Agreement" shall mean the Claims Servicing Agreement by and between URC and the Royal Insurer Affiliates, dated as of July 1, 2003. "AIHL" shall have the meaning set forth in the recitals. "Applicable Law" shall have the meaning set forth in the Acquisition Agreement. "Assignment Agreement" shall have the meaning set forth in the recitals. "Board" shall have the meaning set forth in Section 15.1. "Books and Records" shall mean the originals or copies of all customer lists, policy information, insurance policies, insurance contract forms, administrative and pricing manuals, medical procedure code lists, claim records and files, sales records, underwriting records and files, financial records, compliance records, data filed prepared for or filed with Governmental Entities relating to the Covered Contracts and premium taxes, whether or not stored in hardcopy form or on magnetic or optical media (to the extent not subject to licensing restrictions), but excluding, prior to the Closing Date, any such lists, information and records that are prohibited from being disclosed by Applicable Law or regulatory requirements. "Business Day" shall have the meaning set forth in the Acquisition Agreement. "Claims Expenses" shall mean all fair and reasonable and necessary fees, costs and expenses related to or incurred by URC in connection with the investigation, handling and settling of claims arising under the Covered Contracts as set forth in Exhibit C. "Claims Services" shall have the meaning set forth in Section 4.1 hereof. "Closing Date" shall have the meaning set forth in the Acquisition Agreement. 2 "Computer Systems" means the CLASS, other computer systems the Royal Insurance Affiliates utilize to handle claims and incidents, and the Claims System (SID), the computer system RSUI utilizes to handle claims and incidents and the databases on Field 1 server accessible via Lotus Notes. "Covered Contracts" means all policies and contracts of insurance (both direct and assumed) underwritten by RSUI and issued by the Royal Insurer Affiliates prior to the Effective Date. "Damages" shall have the meaning set forth in the Acquisition Agreement. "Effective Date" shall mean July 1, 2003. "Extra Contractual Liabilities" means, with respect to any Covered Contract, all liabilities or obligations, other than those arising under the express terms of and within the express limits of the Covered Contracts, whether to policyholders, Governmental Entities or any other Person, which liabilities and obligations shall include, without limitation, any liability for punitive, exemplary, special or any other form of extra-contractual damages relating to the Covered Contracts which arises from any act, error or omission, whether or not intentional, in bad faith or otherwise, including, without limitation, any act, error or omission relating to (i) the investigation, coverage analysis, defense, trial, settlement or handling of claims, benefits, or payments arising out of or relating to the Covered Contracts or (ii) the failure to pay or the delay in payment of benefits, claims or any other amounts due or alleged to be due under or in connection with the Covered Contracts. "Governmental Entity" shall have the meaning set forth in the Acquisition Agreement. "Landmark" shall have the meaning set forth in the introduction. "90-Day Treasury Rate" means the annual yield rate, as of any given date, of actively traded U.S. Treasury securities having remaining duration to maturity of three months, as such rate us published under "Treasury Constant Maturities" in Federal Reserve Statistical Release H.15 (519). "Obligations in Excess of Policy Limits" means all liabilities or obligations incurred in excess of the limits of the Covered Contracts because of (i) the failure by URC or the Royal Insurer Affiliates, as applicable, to settle within the applicable policy limit or (ii) the negligence, fraud or bad faith of URC or the Royal Insurer Affiliates, as applicable, in the defense, trial or appeal of any action against its insured or reinsured. "Permits" shall mean all permits, licenses, authorizations, variances, exemptions, orders, registrations and approvals of all Governmental Entities which are 3 required for the conduct of RSUI's and URC's business relative to their performance of the Claims Services. "Person" shall have the meaning set forth in the Acquisition Agreement. "Producer" shall have the meaning set forth in the Acquisition Agreement. "Representative" shall have the meaning set forth in the Acquisition Agreement. "Royal" shall have the meaning set forth in the introduction. "Royal Affiliate Insurers Indemnified Party" shall have the meaning in Section 14.2 "Royal Group" shall have the meaning set forth in the recitals. "Royal Insurer Affiliates" shall have the meaning set forth in the introduction. "RIC" shall have the meaning set forth in the introduction. "RICA" shall have the meaning set forth in the introduction. "RSLIC" shall have the meaning set forth in the introduction. "RSUI" shall have the meaning set forth in the recitals. "Subsidiary" shall have the meaning set forth in the Acquisition Agreement. "Tax" or "Taxes" shall have the meaning set forth in the Acquisition Agreement. "Third Party Reinsurance Contracts" shall have the meaning set forth in the Acquisition Agreement. "URC" shall have the meaning set forth in the introduction. "URC Indemnified Party" shall have the meaning set forth in Section 14.1. ARTICLE II APPOINTMENT SECTION 2.1 APPOINTMENT AND ACCEPTANCE OF APPOINTMENT. (a) The Royal Insurer Affiliates hereby appoint URC to provide the Claims Services and other services specified herein with respect to the Covered Contracts on the terms, and subject to the limitations and conditions, set forth in this Agreement. URC hereby accepts such 4 appointment and agrees to perform such Claims Services on behalf of and in the name of the Royal Insurer Affiliates in accordance with the terms and conditions of this Agreement. (b) URC represents that it and/or RSUI has or will obtain and maintain any and all Permits required under Applicable Law to perform their obligations under this Agreement. (c) URC's access to the Computer Systems controlled by the Royal Insurer Affiliates that are necessary for it to provide the Claims Services and other services specified herein shall be governed by the Claims Servicing Information Technology License Agreement, the form of which is attached hereto as Exhibit B. ARTICLE III PERFORMANCE STANDARDS SECTION 3.1 PERFORMANCE STANDARDS. URC agrees that on and after the Closing Date it shall: (a) Perform the Claims Services in an accurate and timely manner and acknowledges that the performance of the Claims Services in an accurate and timely manner is of paramount importance to the Royal Insurer Affiliates. Subject to the provisions of this Agreement, URC agrees that in providing the Claims Services it shall (i) conduct itself in accordance with all reasonable commercial and professional standards, which are: (A) at least equal to the standards pursuant to which RSUI administered claims involving the Covered Contracts immediately prior to the Closing Date or (B) to the extent URC performs claims or other similar services for any other insurer (other than the Royal Insurer Affiliates) using standards that are higher than those standards pursuant to which RSUI administered claims involving the Covered Contracts immediately prior to the Closing Date, then URC shall automatically adopt those higher standards in its performance of the Claims Services under this Agreement; (ii) comply with: (A) all Applicable Laws relating to the Covered Contracts and to the conduct of the activities contemplated hereby; (B) all reasonable, written guidelines that the Royal Insurer Affiliates may from time to time establish and provide to URC, provided that URC shall have thirty (30) days to implement the guidelines from the date such guidelines are received by URC from the Royal Insurer Affiliates; and (C) the terms and conditions of this Agreement; (iii) carry on its affairs in the ordinary course of business as was conducted by RSUI prior to the Closing Date and not make or institute any unusual method of doing business, accounting or operation with respect to the Claims Services to be provided under this Agreement, except with the prior written approval of the Royal Insurer Affiliates; and (iv) act at all times in good faith. URC shall in all respects perform the Claims Services relating to the Covered Contracts in a manner which would not adversely affect the reputation of the Royal Insurer Affiliates. (b) For the duration of this Agreement, URC hereby covenants that it will employ and retain an adequate number of employees with the experience, skill and expertise to perform the Claims Services URC is obligated to perform hereunder in a manner consistent with the standards set forth in Section 3.1(a) hereof. 5 ARTICLE IV SERVICES TO BE PROVIDED BY URC SECTION 4.1 CLAIMS SERVICES. On and after the Closing Date, and except as otherwise provided in Section 4.2, Article IX or any other provision of this Agreement, URC shall investigate, adjust, settle, handle and process all claims, including those basic services set forth below, with respect to incidents arising under the Covered Contracts prior to the Effective Date ("Claims Services"). The Claims Services shall be provided in accordance with the Royal Insurer Affiliates' claim handling guidelines and generally accepted claims servicing practices within the settlement limits set forth below until each claim is closed, the Agreement is terminated or as otherwise directed by the Royal Insurer Affiliates. (a) Confirmation of Coverage. (i) where coverage is clear and the expected loss does not exceed $500,000 net, confirm coverage for claims; (ii) where expected loss exceeds $500,000 net, notify and consult with the Royal Insurer Affiliates regarding any coverage confirmation or commitment and promptly deliver to the Royal Insurer Affiliates and, simultaneously therewith, to the broker, agent, insured or insured's counsel, copies of any such coverage confirmation or commitment correspondence; (iii) where coverage is not clear or is disputed, issue a reservation-of-rights letter and provide a copy of such letter to the Royal Insurer Affiliates; (iv) where URC determines that no coverage exists, regardless of the amount of claimed or expected loss, obtain advance authority from the Royal Insurance Affiliates before formally declining coverage and URC shall provide to the Royal Insurance Affiliates and the insured (if not the claimant) a copy of any correspondence formally declining coverage; provided, however, that the Royal Insurer Affiliates shall provide to URC such advance authority no later than ten (10) Business Days following receipt thereof ; and (v) where, in URC's best professional judgment, a coverage dispute exists or any new or novel coverage issue is raised, URC shall consult with the Royal Insurer Affiliates within five (5) days of URC first becoming aware of such dispute or new or novel coverage issue. The resolution of such dispute or such new or novel coverage issue shall be handled by the Royal Insurer Affiliates, although, if requested by the Royal Insurer Affiliates, URC will cooperate and participate fully in the handling of such disputes. (b) Claim Processing. (i) provide forms necessary for the submission and processing of claims and to receive the claims; 6 (ii) utilize and regularly populate the Computer Systems by providing electronic data transmittal to CLASS on a daily basis in a format to be agreed upon by the parties;; (iii) provide coding on the CLASS system, including severe injury coding, if practicable; (iv) reconcile on a regular basis the electronic records in CLASS to those in SID to ensure that the two systems remain compatible; (v) set up all claims in the Computer Systems within five (5) working days of being reported to URC; (vi) establish claim adjustment files for all claims that must contain reasonably sufficient documentation in chronological order to allow the adjuster and the Royal Insurer Affiliates to evaluate the merits of each claim; (vii) update regularly the claim adjustment files; (viii) make a good faith effort with regard to primary files to contact the insured and claimant within twenty-four (24) hours of receipt of a notice of each claim and document such efforts; (ix) confirm in writing receipt of new claims to the broker and insured within five (5) working days of receipt by URC; (x) promptly investigate each claim to determine its validity and compensability in accordance with industry standards; (xi) establish and maintain reasonable and adequate reserves utilizing the Royal Insurer Affiliates reserving philosophy set forth below; (xii) adjust claims for property and/or physical damage by preparing, when necessary, itemized estimates and/or appraisals of damage in accordance with industry standards and Applicable Law; (xiii) handle all claims as developments occur, monitor them at least once every sixty (60) days, and schedule a repeating diary review date of no more than sixty (60) days, depending on the circumstances, of the claim. Provide necessary supervision, resulting in proper supervisor documentation, in the claim files; (xiv) track aggregates and provide appropriate notifications to insureds, brokers and excess carriers; (xv) provide excess insurers with any reports they may reasonably require in a timely manner; 7 (xvi) in cases where the Covered Contract is an excess policy, once notified of a claim by the primary insurer, keep current on developments of the claim and send notices to the primary carrier as appropriate; (xvii) bill and collect deductibles; (xviii) comply with claims file maintenance, record retention and reconciliation requirements in conformity with the standards for performance set forth by this Agreement or as otherwise required by Applicable laws; (xix) performance of all administrative and clerical work; and (xx) participate in regular conference calls with the Royal Insurer Affiliates at mutually agreeable times to discuss the status of claims and claims management strategies. (c) Litigation Management. (i) refer all litigation (including litigation in which URC engages monitoring or coverage counsel) and actions involving a duty to defend to Royal Insured Affiliates' approved defense counsel, if possible, or otherwise obtain prior approval from the Royal Insurer Affiliates; (ii) follow the Royal Insurer Affiliates' litigation management guidelines and procedures; (iii) engage and direct, as necessary, outside consultants or other professionals in connection with the processing and handling of any claim, provided, however, that if the cost of the consultant or other professional is greater than $20,000, obtain the prior written consent of the Royal Insurer Affiliates; (iv) consult with the Royal Insurer Affiliates' Environmental Claim Unit on environmental cases over $1 million net or if coverage is to be accepted where there is an absolute pollution exclusion or on declaratory judgment actions; (v) advise the Royal Insurer Affiliates promptly upon URC's receipt of any actions for declaratory judgment; (vi) advise the Royal Insurer Affiliates of any mediations and, if requested by the Royal Insurer Affiliates, attend such mediations; and (vii) advise and obtain the authorization of the Royal Insurer Affiliates prior to initiating any legal proceedings in the name of the Royal Insurer Affiliates. (d) Settlement of Claims. 8 (i) obtain the written approval of the Royal Insurer Affiliates before settling or committing to settle any claim in an amount that has the potential to exceed $500,000 net or similar claims that, in the aggregate, have the potential to exceed $500,000 net; (ii) provide timely notice of claims that will require payment authorizations; (iii) structure annuity settlement exclusively through Protected Settlements, Inc.; (iv) adjust settlement amounts on a going-forward basis upon the Royal Insurer Affiliates providing thirty (30) days written notice to URC relating to such settlement adjustment amounts; and (v) retain, when practicable, the Royal Insurer Affiliates' settlement specialists, the names of such specialists to be provided to URC by the Royal Insurer Affiliates. (e) Reserving. (i) establish proper reserves as soon as adequate information exists based on the most likely outcome of the claim; (ii) where the reserve to be set is $500,000 net or greater, notify and obtain approval from the Royal Insurer Affiliates; (iii) evaluate reserves using the following criteria and document such in the Computer Systems: 1) facts related to the claim; 2) liability analysis; 3) if relevant, coverage analysis; and 4) damages and defense costs analysis. (iv) provide, on a quarterly basis, actuarial loss reserve reports to the Royal Insurer Affiliates in a form, electronic or otherwise, as reasonably requested by the Royal Insurer Affiliates (f) Subrogation, Indemnity and Contribution. (i) pursue all possibilities of subrogation, indemnity or contribution; 9 (ii) handle all aspects of the subrogation, indemnity or contribution with respect to paid losses under the Covered Contracts; (iii) these activities include, but are not limited to, the following: 1) notify the Royal Insurer Affiliates after subrogation, indemnity or contribution potential is identified; 2) conduct all actions necessary to pursue such subrogation, indemnity or contribution; 3) document these efforts in file notes; and 4) code recovery checks in the Computer Systems and send them to the Royal Insurer Affiliates. (iv) Royal Insurer Affiliates shall pay all expenses related to subrogation, indemnity and contribution in addition to any fees owed under the Agreement. URC shall seek prior written approval for any such fees expected to exceed $25,000. (g) Complaints. (h) provide a reasonable and timely response to any inquiry, complaint or request received from any claimant, Producer, or other interested party pertaining to or regarding the Covered Contracts; (ii) promptly notify the Royal Insurer Affiliates with respect to any inquiries or notifications received from any Governmental Entity relating to the Covered Contracts; (iii) provide a reasonable response to any inquiries, complaints or requests received from any Governmental Entity pertaining to or regarding the Covered Contracts, within five (5) days of receipt or within the time frame prescribed by the Governmental Entity and send a copy of the inquiry, complaint or request along with the response to the Royal Insurer Affiliates; and (iv) properly record any inquiry, complaint or request received from any claimant, Producer, Governmental Entity or other interested party within ten (10) days of receipt in a separate complaint log database maintained by the Royal Insurer Affiliates. (h) Reinsurance. URC shall perform certain services in connection with collection and accounting under the Third Party Reinsurance Contracts for the Covered Contracts including the following: (i) collect and process reinsurance for the Covered Contracts under the Third Party Reinsurance Contracts; 10 (ii) receive notices and other communications from the Royal Insurer Affiliates under agreements relating to the Covered Contracts; (iii) prepare and issue statements and billings of amounts due under the Third Party Reinsurance Contracts, including any related supporting documentation; (iv) correspond and otherwise communicate with reinsurers involving Covered Contracts regarding collection of any balances due and respond to any inquiry of the Royal Insurer Affiliates; (v) make recommendations to the Royal Insurer Affiliates regarding commutations and settlements of amounts due under the Third Party Reinsurance Contracts; provided, however, that URC is prohibited from agreeing or promising to agree to any commutation without the prior written approval of the Royal Insurer Affiliates; (vi) notify reinsurers of all relevant matters (including, but not limited to, the existence, development and settlement of claims) in accordance with the terms of any reinsurance agreement; (vii) provide administration, draw down, and collection of any letters of credit, funds held under trust agreements, outstanding cash advances and any proceeds thereof provided under the Third Party Reinsurance Contracts and apply them against reinsurance recoverables and/or return to the Royal Insurer Affiliates; (viii) make recommendations to the Royal Insurer Affiliates regarding commencement of collection actions (i.e., litigation or arbitration) to collect any unpaid balances under the Third Party Reinsurance Contracts; and (ix) prepare all reports and electronic transmittals necessary for completion of the financial statements of the Royal Insurer Affiliates. (i) All such other actions, advice and assistance as are reasonably necessary or otherwise required in the administration of all such claims arising under the Covered Contracts. (j) During the term of this Agreement, any Claims Services, or any activity relating to a specific claim or series of claims to be performed by URC, may be terminated, in whole or in part, upon the Royal Insurer Affiliates providing sixty (60) days written notice to URC. Such termination is at the sole option of the Royal Insurer Affiliates and may be limited to specific product lines or specific classes/types of claims within product lines. During the term of this Agreement, the Royal Insurer Affiliates may request, at their sole discretion, that any Claims Services, or any activity relating to a specific claim or series of claims, in whole or in part, be transferred, with the full assistance and cooperation of URC, to a third-party designated by the Royal Insurer Affiliates. 11 SECTION 4.2 HANDLING OF CERTAIN TYPES OF CLAIMS SERVICES. (a) URC shall initially handle the following claims: (i) Extra-Contractual Liabilities claims arising under any of the Covered Contracts; for the avoidance of any doubt, URC shall handle all other aspects of any claims arising under any of the Covered Contracts (other than Extra-Contractual Liabilities); (ii) liability claims over $1 million net; (iii) property or other claims over $1 million net; (iv) claims that in URC's best professional judgment have the potential to exceed the amounts set forth in (ii) or (iii) above; or (v) claims identified by Royal Insurer Affiliates in their sole discretion. Provided, however, that any claim involving a matter set forth in (i)-(iv) above shall be promptly reported by URC to the Royal Insurer Affiliates, with such report to be provided to the Royal Insurer Affiliates within three (3) Business Days from the date when URC first becomes aware of any such claim. URC shall continue to handle any claim involving a matter set forth in (i)-(iv) above, unless and until the Royal Insurer Affiliates notify URC that the Royal Insurer Affiliates will assume the handling of any such claim, or portion thereof. To the extent the Royal Insurer Affiliates determine to exclusively handle any such claim, or portion thereof, URC shall promptly forward all materials relating to any such claim, or portion thereof, to the Royal Insurer Affiliates; provided, however, that, if requested by the Royal Insurer Affiliates, URC will fully cooperate and participate in the handling of the claims, or any portion thereof, set forth in (i)-(v) above. Notwithstanding anything in this Section 4.2 to the contrary, to the extent a claim set forth in (i)-(iv) above involves both a contractual portion and an Extra Contractual Liability portion, and in the event the Royal Insurer Affiliates determine that URC should no longer handle the underlying contractual portion of such claim, then URC, at the direction of the Royal Insurer Affiliates, shall transfer the underlying contractual portion of such claim to a third party administrator of the Royal Insurer Affiliates' sole choosing; provided, however, that such third party administrator shall not be an Affiliate of either party. Both URC and the Royal Insurer Affiliates shall be equally responsible for paying all expenses incurred by such third party administrator in the administration of its duties regarding the underlying contractual portion of any such claims. (b) URC shall promptly notify the Royal Insurer Affiliates upon URC learning of any claim, arbitration demand or lawsuit filed involving an exposure which in URC's best professional judgment could have a reasonable potential of becoming an Obligation in Excess of Policy Limits. (c) URC shall have no authority to make any payments of any kind relating to the Covered Contracts for which there is no reasonable basis to conclude that the Royal 12 Insurer Affiliates are legally or contractually obligated to make such payments under the Covered Contracts. (d) Except as specifically authorized by the Royal Insurer Affiliates in writing, URC shall have no authority to enter into any agreements or to take other actions on behalf of the Royal Insurer Affiliates, to alter, amend any of the Covered Contracts, to modify, waive or extend any of their provisions or to represent to third parties that it has the authority to do any of the foregoing; provided, however, that the parties shall agree to those changes, alterations or amendments that are administrative in nature and that URC may effectuate without having to obtain any prior authorization from the Royal Insurer Affiliates. SECTION 4.3 CONFLICT OF INTEREST ARISING IN CONNECTION WITH PERFORMANCE OF CLAIMS SERVICES. The Royal Insurer Affiliates shall have the authority to impose on URC reasonable procedures, safeguards and guidelines that, in the reasonable discretion of the Royal Insurer Affiliates, are necessary to avoid, minimize or address any conflict of interest that may arise in the course of URC's performance of the Claims Services. In the event any conflict or potential conflict of interest shall arise in the performance of URC's obligations under this Agreement, URC shall promptly notify in writing the Royal Insurer Affiliates of such conflict or potential conflict of interest. The Royal Insurer Affiliates shall have the option of assuming any Claims Services to the extent any such Service causes a conflict of interest to arise. ARTICLE V FEES FOR CLAIMS SERVICES SECTION 5.1 PAYMENT FOR CLAIMS SERVICES Claims Expenses. As detailed more fully in Exhibit C to this Agreement, the Royal Insurer Affiliates shall, on the first day of each month of every quarter, reimburse URC for one-third of the Claims Expenses that URC estimates it will reasonably incur for each quarter in connection with performance of the Claims Services under this Agreement. Within fifteen days after each quarter-end, URC shall furnish the Royal Insurer Affiliates with a statement detailing the Claims Expenses that it incurred for the quarter just ending. Within fifteen days thereafter, the Royal Insurance Affiliates shall reimburse URC, or vice versa, as applicable, for any difference in amount between what the Royal Insurance Affiliates paid URC in total for each quarter and the total Claims Expenses URC ultimately incurred for that quarter. (b) Projection of Expense. No later than five (5) Business Days before the beginning of each quarter, URC shall prepare for the approval of the Royal Insurer Affiliates a projection of the Claims Expenses for the following quarter. Such projection shall: (i) reflect a fair and reasonable allocation of URC's services for the Royal Insurer Affiliates; (ii) be done in conformity with customary insurance accounting practices; and (iii) reflect URC's reasonable best efforts to contain costs in its provision of Claims Services hereunder. 13 (c) Adjustments of Charges. In the event any party (other than the Royal Insurer Affiliates) to whom URC provides claims-related services is charged an amount for any service that is less than the amount the Royal Insurer Affiliates are being charged under this Agreement for any such or similar service, then URC, without any action required on the part of the Royal Insurer Affiliates, shall promptly adjust the rate it charges the Royal Insurer Affiliates for such service to reflect the rate URC charges the other party. ARTICLE VI OTHER SERVICES AND FEES FOR SERVICES SECTION 6.1 ADDITIONAL SERVICES. If the Royal Insurer Affiliates require services to be provided with respect to the Covered Contracts that are not otherwise contemplated under this Agreement, the parties shall negotiate in good faith to reach a mutually acceptable arrangement with respect to the provision of such services. The Royal Insurer Affiliates shall reasonably compensate URC for any such additional services provided by URC. ARTICLE VII BOOKS; AUDITS; BANK ACCOUNTS SECTION 7.1 REPORTS. (a) URC shall collect, administer and provide to the Royal Insurer Affiliates all information and data required for the Royal Insurer Affiliates to continue to maintain financial and statistical data with respect to the Covered Contracts in order to permit the Royal Insurer Affiliates to timely make all required regulatory, statistical, and financial reports and filings. All information and data provided by URC to the Royal Insurer Affiliates pursuant to this Article VII will be provided as reasonably requested by the Royal Insurer Affiliates. Without limiting the generality of the foregoing, URC shall prepare all reports and electronic transmittals needed by the Royal Insurer Affiliates or their parent companies in connection with the Covered Contracts to enable the Royal Insurer Affiliates or their parent companies parent to comply with Applicable Law and any and all reporting or filing requirements. Any monthly, quarterly or year-end reports required to be prepared by URC shall be prepared on a timely basis in order for the Royal Insurer Affiliates or their parent companies to comply with any filing deadlines required. (b) During the term of this Agreement, URC shall transmit to the Royal Insurer Affiliates on a monthly basis: (i) reports showing claim activity, including new/arising claims, closings, pendings, loss runs, adjuster case loads, (ii) narratives on claims over $500,000 net and (iii) other reports as the Royal Insurer Affiliates shall reasonably request. SECTION 7.2 AUDITS. (b) Upon reasonable advance written notice, which notice shall not be fewer than five (5) Business Days, the Royal Insurer Affiliates and any designated auditor (at the Royal Insurer 14 Affiliate's expense) or regulatory authority shall have the right to audit, inspect and copy all Books and Records in URC's possession or under its control relating to the Claims Services. Upon reasonable written notice, URC shall provide such auditors and inspectors, as the Royal Insurer Affiliates or any regulatory authority may designate, with reasonable access during normal business days and hours to RSUI's business location for the purpose of performing audits or inspections of the business systems and processes of URC utilized in connection with supporting the delivery of the Claims Services to URC under this Agreement. URC shall reasonably cooperate with, and provide such auditors and inspectors or any regulatory authority having jurisdiction over the Royal Insurer Affiliates or URC, with any assistance that they reasonably may require. In performing any such audit, the Royal Insurer Affiliates and its designated auditors shall use commercially reasonable efforts to minimize any disruption to URC's normal business operations. (c) With respect to audits or inspections not involving a Governmental Entity, the Royal Insurer Affiliates may notify URC of any alleged deficiencies in its business systems and processes or failure to comply with the Agreement. URC agrees that it shall use commercially reasonable efforts to correct such deficiencies or failures. (d) The Royal Insurer Affiliates shall have access to URC's books, records and papers related to providing Claims Services, until the earlier of: (i) the retention of the original Books and Records by the Royal Insurer Affiliates; or (ii) ten (10) years from the termination of this Agreement. (e) All physical files and materials gathered or obtained by URC in the course of providing Claims Services under this Agreement, including electronic file notes, shall be and remain the Royal Insurer Affiliates' sole property; provided, however, that URC shall be permitted to copy or otherwise retain, information set forth in such files and materials to the extent that URC reasonably requires such information in order to carry out the transactions contemplated by this Agreement or for any legitimate business purpose. Further, as custodial agent of the Royal Insurer Affiliates for purposes of file retention only, URC shall retain and store the Books and Records for ten (10) years after the termination of the Agreement unless the Royal Insurer Affiliates requests the return of, and retain possession of the original Books and Records. The Parties agree that the Royal Insurer Affiliates shall have full access to and sole ownership of all original Books and Records. (f) Upon termination of this Agreement or as otherwise agreed to by the parties, URC shall return to the Royal Insurer Affiliates, within a reasonable time period, and in a format acceptable to the Royal Insurer Affiliates, or in original format as transferred by the Royal Insurer Affiliates to URC, all Books and Records, in any form, that are related to the Claims Services provided by URC under the terms of this Agreement; provided, however, that URC shall be permitted to copy or otherwise retain, use and disclose information set forth in such files and materials to the extent that URC reasonably requires such information for purposes of its own legitimate business purposes. (g) To the extent permitted by Applicable Law, and at any time as may be required in order for URC to comply with any Applicable Law or to perform its obligations or 15 responsibilities under this Agreement, URC and its representatives may from time to time, upon providing at least five (5) days prior written notice to the Royal Insurer Affiliates, reasonably request, and the Royal Insurer Affiliates shall provide, at reasonable times during normal business hours, full and open access to examine all Books and Records under the control of the Royal Insurer Affiliates pertaining to the Covered Contracts and the Claims Services to be provided under this Agreement and to discuss any matters relating to the Covered Contracts and the Claims Services to be provided under this Agreement with the employees and agents of the Royal Insurer Affiliates who are familiar therewith, so that URC shall have sufficient opportunity to make whatever investigation it shall deem necessary and desirable to effectuate this Agreement, provided, however, URC shall not have access to the Royal Insurer Affiliate's claim files on Extra Contractual Liabilities. Such access and opportunity shall be exercised by URC in a manner that shall not interfere unreasonably with the operations of the Royal Insurer Affiliates. Such access shall include the right of URC to make and retain copies of any Books and Records relating to the Covered Contracts to the extent that URC reasonably determines that it requires copies of any such Books and Records in order to carry out the transactions contemplated by this Agreement or for any legitimate business purposes related to this Agreement. Notwithstanding anything in Section 7.2 or any other provision of this Agreement to the contrary, Section 7.2(f) shall not require that the Royal Insurer Affiliates provide access or copies to URC of any Books and Records of the Royal Insurer Affiliates relating to the Covered Contracts the nondisclosure of which is required by Applicable Law or contractual obligation. (h) URC shall pay all storage and related expenses associated with any Books and Records relating to the Covered Contracts, and copies thereof, that it retains in its possession. (i) URC shall provide security for the Books and Records that are in its possession. URC shall comply with all Applicable Laws, including, without limitation, privacy laws applicable to the Royal Insurer Affiliates, in connection with all such data and Books and Records. (j) URC shall be obligated to update all Books and Records, as well as those that URC produces in the course of providing the Claims Services under this Agreement, and maintain adequate back-ups relating to all Books and Records, as well as those that URC produces in the course of providing the Claims Services under this Agreement, to ensure that all Books and Records, as well as those that URC produces in the course of providing the Claims Services under this Agreement, are maintained in accordance with all Applicable Law. 16 SECTION 7.3 MANUAL CHECKS. (a) In connection with URC's performance of the Claims Services, to the extent the need should arise for a manual check or an emergency payment to be made, URC shall contact the Royal Insurer Affiliates' Corporate Claim Support Department. In connection with any request by URC for a manual check or an emergency payment, URC shall provide the following information by electronic transmittal or facsimile at least three (3) Business Days prior to the date when payments are due: (i) the claim number; (ii) the full name of the payee; (iii) the reason for the payment; (iv) the amount of the payment; (v) the mailing address to which the payment should be made; and (vi) instructions regarding the mailing and/or overnight delivery of the payment. (b) Notwithstanding anything to the contrary in Section 7.3(a), in an extreme situation where payment has to be received the same day, URC shall request by electronic transmittal or facsimile, prior to 11 am Eastern Standard Time whenever practicable, that the Royal Insurer Affiliates' Corporate Claims Support Department wire the payment. In such situations, URC shall supply the following information: (i) the claim number; (ii) the name of the payee; (iii) the reason for the payment; (iv) the amount of the payment; (v) the bank account number where the payment ought to be wired; (vi) the bank name; (vii) and the A/B/A number. ARTICLE VIII INABILITY TO PERFORM SERVICES; ERRORS SECTION 8.1 INABILITY TO PERFORM SERVICES. (a) In the event that URC shall be unable to perform any Claims Service for a period that could reasonably be expected to exceed thirty (30) days or such shorter period as may be required by Applicable Law or the Covered Contracts, the Royal Insurer Affiliates may procure such Claims Services for the Covered Contracts by commercially reasonable means, with the full assistance and cooperation of URC. URC shall be solely responsible for all costs incurred in restoring Claims Services which have not been provided due to its failure to adhere to its obligations under this Agreement; provided, however, that URC shall not pay any of the costs incurred by the Royal Insurer Affiliates as a result of URC's inability to perform Claims Services to the extent URC's inability to perform such Claims Services arises from circumstances or events entirely beyond URC's control; provided, further, however, that to the extent URC is obligated to pay the Royal Insurer Affiliates as a result of URC's inability to perform Claims Services due to circumstances or events completely and entirely beyond URC's control, the amount URC shall pay to the Royal Insurer Affiliates shall be equal to the difference between: (i) the cost that URC charges the Royal Insurer Affiliates under this Agreement for those Claims Services that it is unable to perform and (ii) the cost to the Royal Insurer Affiliates of procuring such Claims Services elsewhere. (b) Notwithstanding anything in this Section 8.1 to the contrary, and notwithstanding URC's inability to perform those Claims Services that are completely and entirely beyond URC's control, to the extent URC is able to perform Claims Services, or any portion of Claims Services, that is or remains within URC's control, then URC shall be obligated to perform all such Claims 17 Services, or any portion of such Claims Services, that is within its control pursuant to the terms and conditions of this Agreement. SECTION 8.2 ERRORS. URC shall, at its own expense, correct any errors in the Claims Services caused by it within a reasonable time (not to exceed thirty (30) days) after receiving written notice thereof from the Royal Insurer Affiliates or otherwise. ARTICLE IX LEGAL ACTIONS BY GOVERNMENTAL ENTITIES SECTION 9.1 REGULATORY PROCEEDINGS.If the Royal Insurer Affiliates or URC receive notice of, or otherwise become aware of, any regulatory investigation or proceeding relating to the Covered Contracts, the Royal Insurer Affiliates or URC, as applicable, shall promptly notify the other party thereof. The Royal Insurer Affiliates shall have the sole authority to respond to and resolve all regulatory matters and regulatory investigations and proceedings relating to the Covered Contracts. The Royal Insurer Affiliates shall determine an appropriate response, including whether the Royal Insurer Affiliates or URC should respond to any regulatory investigation or proceeding relating to the Covered Contracts. To the extent requested by the Royal Insurer Affiliates, URC shall cooperate and participate fully in responding to any regulatory investigation or proceeding relating to the Covered Contracts; provided, however, that the Royal Insurer Affiliates shall have the ultimate authority in providing any such response. SECTION 9.2 DEFENSE OF LITIGATION The Royal Insurer Affiliates shall defend any action brought by a Governmental Entity in connection with the Covered Contracts. At the Royal Insurer Affiliates' request, URC shall cooperate and participate fully in any such litigation; provided, however, that the Royal Insurer Affiliates shall have the exclusive authority to control such litigation. SECTION 9.3 URC COMMUNICATIONS REGARDING CERTAIN MATTERS. URC shall promptly (i) notify the Royal Insurer Affiliates in writing if it receives any information or correspondence with respect to any suit, claim, action or proceeding brought by a Governmental Entity relating to the Covered Contracts, or any written communication threatening any of the foregoing and (ii) forward to the Royal Insurer Affiliates any documents it receives relating to any of the matters referred to in clause (i) of this Section 9.3. ARTICLE X DURATION SECTION 10.1 DURATION. This Agreement shall become effective as of the Closing Date and continue until the date on which no further Claims Services are required by the Royal Insurer Affiliates, unless this Agreement is terminated according to the provisions of Article XI hereof. 18 ARTICLE XI TERMINATION SECTION 11.1 MUTUAL AGREEMENT. This Agreement may be terminated at any time upon the mutual written consent of the parties hereto. SECTION 11.2 TERMINATION BY URC. This Agreement is subject to immediate termination at the option of URC, upon (i) ninety (90) days written notice to the Royal Insurance Affiliates; provided, however, that no such notice may be provided by URC at any time within the first two years of the execution of this Agreement or (ii) on the occurrence of any of the following events: (a) the filing of any petition for insolvency, rehabilitation, conservation, supervision or similar proceeding by or against any of the Royal Insurer Affiliates or any of their statutory representatives (though termination shall be limited solely with respect to any of the Royal Insurer Affiliates against whom such petition is filed); provided, however, that in the event an involuntary petition for insolvency, rehabilitation, conservation, supervision or similar proceeding is filed against any of the Royal Insurer Affiliates, before URC may terminate this Agreement, the Royal Insurer Affiliates shall have an opportunity to contest and dismiss the filing of such petition for a period of sixty (60) days from the date of the filing of the petition; (b) upon sixty (60) days written notice by URC if (i) the Royal Insurer Affiliates fail to make payment of any Claims Expense in accordance with Article V of this Agreement; provided, however, if any of the Claims Expenses are in dispute, failure to make such payment shall not be cause for termination under this Section 11.2(b); or (ii) as a result of a material breach by the Royal Insurer Affiliates of any material term or condition of this Agreement, provided such failure has not been cured within thirty (30) days after the date such payment was due. (c) Notwithstanding anything in this Section 11.2 to the contrary, in the event the Royal Insurer Affiliates adjust URC's claims settling authority under Section 4.1(d) of this Agreement to an amount below $250,000 net, then URC shall have the right to terminate this Agreement upon providing the Royal Insurer Affiliates one hundred eighty (180) days prior written notice. SECTION 11.3 TERMINATION BY THE ROYAL INSURER AFFILIATES. This Agreement is subject to immediate termination at the option of the Royal Insurer Affiliates, upon (i) ninety (90) days written notice to URC or (ii) on the occurrence of any of the following events: (a) the filing of any petition for bankruptcy or insolvency or similar proceeding by or against RSUI or URC or their statutory representative; provided, however, that in the event an bankruptcy or insolvency or similar proceeding is filed against RSUI or URC, before the Royal Insurer Affiliates may terminate this Agreement, URC shall have an opportunity to contest and dismiss the filing of such petition for a period of sixty (60) days from the date of the filing of the petition; 19 (b) if, as a result of the loss of any Permit, RSUI or URC is unable to perform their obligations hereunder (in such event, termination is to be limited to the affected obligations); or (c) a material breach by URC of any material term or condition of this Agreement that is not cured by URC within sixty (60) days of receipt of written notice from the Royal Insurer Affiliates of such breach. SECTION 11.4 RETURN OF BOOKS AND RECORDS TO URC. Upon termination of this Agreement, URC shall cooperate fully in the prompt transfer of the Books and Records maintained by URC, as well as the Books and Records produced by URC in connection with its performance of the Claims Services, to the Royal Insurer Affiliates or the Royal Insurer Affiliates' designee, so that the Royal Insurer Affiliates or their designee shall be able to perform the Claims Services without interruption following termination of this Agreement; provided, however, that URC shall be permitted to make and keep copies of such Books and Records. SECTION 11.5 TRANSITION PERIOD. In the event of termination, URC shall cooperate fully and completely in providing such Claims Services as are necessary for a period of time that is reasonably necessary to transfer the Claims Services to a new Person. The Royal Insurer Affiliates shall reimburse URC at a rate to be mutually agreed to by the parties for the Claims Services URC performs during the transfer of the Claims Services to another Person . SECTION 11.6 NO PREJUDICE. The termination of this Agreement shall be without prejudice to any rights or liabilities of any party hereunder which shall have accrued prior to such termination and shall not affect any provision of this Agreement that are expressly or by necessary implication intended to survive such termination. 20 ARTICLE XII CONFIDENTIALITY SECTION 12.1 USE OF CONFIDENTIAL INFORMATION. URC acknowledges that it will have access to confidential and proprietary information concerning the Royal Insurer Affiliates and their businesses, which information is not readily available to the public, and acknowledge that URC has taken and will continue to take reasonable actions to ensure such information is not made available to the public. URC further agrees that it will not at any time (during the term hereof or thereafter) disclose to any Person (except URC and its Affiliates and the officers, directors, employees, agents and representatives of URC and who require such information in order to perform their duties in connection with the services provided hereunder), directly or indirectly, or make any use of, for any purpose other than those contemplated by this Agreement, any information or trade secrets relating to the Covered Contracts or the business affairs of the Royal Insurer Affiliates, including the identity of and/or the compensation arrangements with, any Affiliates and Subsidiaries of the Royal Insurer Affiliates and, so long as such information remains confidential. SECTION 12.2 CONFIDENTIALITY OF INDIVIDUALS. Information that identifies a Person covered under one of the Covered Contracts may be confidential. URC shall take all reasonable precautions to prevent disclosure or use of information identifying individuals covered under such Covered Contracts for a purpose unrelated to the performance of this Agreement. URC shall comply with all Applicable Laws and regulations, as in effect on the date hereof or as hereafter adopted or amended. With respect to Covered Contracts, URC shall take all reasonable precautions to prevent disclosure or use of information identifying individuals for a purpose unrelated to the performance of this Agreement. SECTION 12.3 DISCLOSURE. URC may disclose confidential information in the following circumstances (or as otherwise provided by the provisions of this Agreement): (i) in response to a court order or formal discovery request after notice to the other party (to the extent such notice is reasonably practicable); provided, however, that such disclosure shall be limited only to the extent that is required by such court order or formal disclosure request; (ii) if a proper request is made by any regulatory authority after notice to the other party (to the extent such notice is reasonably practicable); provided, however, that such disclosure shall be limited only to the extent that is required by such regulatory authority; (iii) at the proper request of URC or its legal representative; provided, however, that such disclosure shall be limited only to the extent that is reasonably necessary to satisfy such a request; or (iv) as otherwise required by Applicable Law. 21 ARTICLE XIII [INTENTIONALLY OMITTED] ARTICLE XIV INDEMNIFICATION SECTION 14.1 INDEMNIFICATION BY THE ROYAL INSURER AFFILIATES. The Royal Insurer Affiliates shall indemnify URC and its officers, directors and members (each, an "URC Indemnified Party") and shall hold each URC Indemnified Party harmless from and against all Damages which are asserted against, imposed upon or incurred by any URC Indemnified Party as a result of or in connection with the performance by URC of the Claims Services, except to the extent that such Damages are attributable to: (i) the negligence or willful misconduct of URC; (ii) a breach by URC, or its directors, officers, employees or Representatives, of its obligations under this Agreement; or (iii) losses arising out of claims by any Person involving Extra Contractual Liabilities or Obligations in Excess of Policy Limits attributable to acts or omissions of URC, or its directors, officers, employees or Representatives, in the performance of the Claims Services. SECTION 14.2 INDEMNIFICATION BY URC. URC shall indemnify the Royal Insurer Affiliates and its officers, directors, members and employees (each, a "Royal Insurer Affiliates Indemnified Party") and shall hold each Royal Insurer Affiliates Indemnified Party harmless from all Damages asserted against, imposed upon or incurred by any of the Royal Insurer Affiliates Indemnified Party in the performance by URC, or its directors, officers, employees or Representatives, of the Claims Services to the extent such Damage is attributable to: (i) the negligence or willful misconduct of URC; (ii) a breach by URC, or its directors, officers, employees or Representatives, of its obligations under this Agreement; or (iii) losses arising out of claims by any Person involving Extra Contractual Liabilities or Obligations in Excess of Policy Limits attributable to acts or omissions of URC, or its directors, officers, employees or Representatives, in the performance of the Claims Services. SECTION 14.3 INDEMNIFICATION PROCEDURE. In the event either the Royal Insurer Affiliates or URC shall have a claim for indemnity against the other party under the terms of this Agreement, the parties shall follow the procedures set forth in the Acquisition Agreement. ARTICLE XV ARBITRATION SECTION 15.1 ARBITRATION. As a condition precedent to any cause of action, any and all disputes between the Royal Insurer Affiliates and URC arising out of, relating to, or concerning this Agreement, whether sounding in contract or tort and whether arising during or after 22 termination of this Agreement, including whether the dispute is subject to arbitration, shall be submitted to the decision of a board of arbitration composed of two arbitrators and an umpire ("Board") meeting at a site in Wilmington, Delaware. The arbitration shall be conducted under the Federal Arbitration Act and shall proceed as set forth below. SECTION 15.2 NOTICE OF ARBITRATION. A notice requesting arbitration, or any other notice made in connection therewith, shall be in writing and shall be sent certified or registered mail, return receipt requested to the affected parties. The notice requesting arbitration shall state in particulars all issues to be resolved in the view of the claimant, shall appoint the arbitrator selected by the claimant and shall set a tentative date for the hearing, which date shall be no sooner than ninety (90) days and no later than one hundred fifty (150) days from the date that the notice requesting arbitration is mailed. Within thirty (30) days of receipt of claimant's notice, the respondent shall notify claimant of any additional issues to be resolved in the arbitration and of the name of its appointed arbitrator. SECTION 15.3 ARBITRATION PANEL. Unless otherwise mutually agreed, the members of the Board shall be impartial and disinterested and shall be active or former executive officers of property-casualty insurance companies, reinsurance companies or Lloyd's Underwriters or active or inactive lawyers with at least twenty (20) years of experience in insurance. The Royal Insurer Affiliates and URC shall each appoint an arbitrator and the two (2) arbitrators shall choose an umpire before instituting the hearing. If the respondent fails to appoint its arbitrator within thirty (30) days after having received claimant's written request for arbitration, the claimant is authorized to and shall appoint the second arbitrator. If the two arbitrators fail to agree upon the appointment of an umpire within thirty (30) days after notification of the appointment of the second arbitrator, within ten (10) days thereof, the two (2) arbitrators shall request the American Arbitration Association ("AAA") to appoint an umpire for the arbitration with the qualifications set forth in this Article. If the AAA fails to name an umpire, either party may apply to the court named below to appoint an umpire with the above required qualifications. The umpire shall promptly notify in writing all parties to the arbitration of his selection and of the scheduled date for the hearing. Upon resignation or death of any member of the Board, a replacement shall be appointed in the same fashion as the resigning or deceased member was appointed. SECTION 15.4 SUBMISSION OF BRIEFS. The claimant and respondent shall each submit initial briefs to the Board outlining the issues in dispute and the basis, authority and reasons for their respective positions within thirty (30) days of the date of notice of appointment of the umpire. The claimant and the respondent may submit reply briefs to the Board within ten (10) days after filing of the initial brief(s). Initial and reply briefs may be amended by the submitting party at any time, but not later than ten (10) days prior to the date of commencement of the arbitration hearing. Reasonable responses shall be allowed at the arbitration hearing to new material contained in any amendments filed to the briefs but not previously responded to. SECTION 15.5 ARBITRATION BOARD'S DECISION. The Board shall make a decision and award with regard to the terms of this Agreement and the original intentions of the parties to the extent reasonably ascertainable. The Board's decision and award shall be in writing and shall state the factual and legal basis for the decision and award. The decision and award shall be based upon a hearing in which evidence shall be allowed and which the formal rules of evidence 23 shall not strictly apply but in which cross examination and rebuttal shall be allowed. At its own election or at the request of the Board, either party may submit a post-hearing brief for consideration of the Board within twenty (20) days of the close of the hearing. The Board shall make its decision and award within thirty (30) days following the close of the hearing or the submission of post-hearing briefs, whichever is later, unless the parties consent to an extension. Every decision by the Board shall be by a majority of the members of the Board and each decision and award by the majority of the members of the Board shall be final and binding upon all parties to the proceeding. SECTION 15.6 JURISDICTION. Either party may apply to any United States District Court in Delaware or to the Chancery Court of the State of Delaware for an order compelling arbitration or confirming any decision and the award; a judgment of that court shall thereupon be entered on any decision or award. If such an order is issued, the attorneys' fees of the party so applying and court costs will be paid by the party against whom confirmation is sought. The Board may award interest calculated from the date the Board determines that any amounts due the prevailing party should have been paid to the prevailing party. SECTION 15.7 EXPENSES. Each party shall bear the expense of the one arbitrator appointed by it and shall jointly and equally bear with the other party the expense of any stenographer requested, and of the umpire. Each party shall bear their own costs for litigation, including, but not limited to, witness fees, exhibits, depositions, experts, and attorneys fees. SECTION 15.8 PRODUCTION OF DOCUMENTS AND WITNESSES. Subject to customary and recognized legal rules of privilege, each party participating in the arbitration shall have the obligation to produce those documents and as witnesses to the arbitration those of its employees as any other participating party reasonably requests providing always that the same witnesses and documents be obtainable and relevant to the issues before the arbitration and not be unduly burdensome or excessive. The parties may mutually agree as to pre-hearing discovery prior to the arbitration hearing and in the absence of agreement, upon the request of any party, pre-hearing discovery may be conducted as the Board shall determine in its sole discretion to be in the interest of fairness, full disclosure, and a prompt hearing, decision and award by the Board. The Board shall be the final judge of the procedures of the Board, the conduct of the arbitration, of the rules of evidence, the rules of privilege and production and of excessiveness and relevancy of any witnesses and documents upon the petition of any participating party. To the extent permitted by law, the Board shall have the authority to issue subpoenas and other orders to enforce their decisions. SECTION 15.9 RELIEF AVAILABLE. Nothing herein shall be construed to prevent any participating party from applying to any United States District Court in Delaware or to the Chancery Court of the State of Delaware to issue a restraining order or other equitable relief to maintain the "status quo" of the parties participating in the arbitration pending the decision and award by the Board or to prevent any party from incurring irreparable harm or damage at any time prior to the decision and award of the Board. The Board shall also have the authority to issue interim decisions or awards in the interest of fairness, full disclosure, and a prompt and orderly hearing and decision and award by the Board. 24 SECTION 15.10 CONSOLIDATION. In the event that there is a dispute between the Royal Insurer Affiliates and URC which implicates the provisions of this Agreement, the Royal Insurer Affiliates and URC hereby agree to consolidate any such dispute under such agreements in a single arbitration proceeding. ARTICLE XVI MISCELLANEOUS SECTION 16.1 COOPERATION. (a) The parties hereto shall cooperate in a commercially reasonable manner in order that the duties assumed by URC will be effectively, efficiently and promptly discharged. The parties hereto will use their best efforts to (i) give effect to the intent of this Agreement and (ii) refrain from conduct which would frustrate the intent of any such agreement. Each party shall, at all reasonable times under the circumstances, make available to the other party properly authorized personnel for the purpose of consultation and decision. (b) URC shall reasonably cooperate with, and provide to the Royal Insurer Affiliates, any assistance, information, data, reports and electronic transmittals that the Royal Insurer Affiliates or their parent companies reasonably may require beyond the scope of Sections 7.1 and 7.2 herein to enable the Royal Insurer Affiliates or their parent companies to comply with Applicable Law and any and all reporting and filing requirements and audits or inspections by any Governmental Entity having jurisdiction over the Royal Insurer Affiliates or their parent companies. SECTION 16.2 AMENDMENT, MODIFICATION AND WAIVER. This Agreement may not be amended, modified or waived except by an instrument or instruments in writing signed and delivered on behalf of each of the parties hereto. SECTION 16.3 RELATIONSHIP. The Royal Insurer Affiliates and URC are and shall remain independent contractors and not employees of the other party. Except as expressly granted in this Agreement or otherwise by the other party in writing or as may be required by Applicable Law or as necessary to perform the services to be provided hereunder or to obtain the benefits hereof, no party shall have any authority, express or implied, to act as an agent of the other party or its Subsidiaries or Affiliates under this Agreement. Except as otherwise provided by this Agreement or by any other agreement between the parties, each party shall be responsible for the payment of all employment, income and social security taxes arising in connection with the compensation payable to its personnel involved in the provision of the services hereunder. 25 SECTION 16.4 ENTIRE AGREEMENT. This Agreement (together with the exhibits hereto and the other agreements, documents and instruments delivered in connection herewith) and the Acquisition Agreement constitute the entire agreement among the parties with respect to the subject matter hereof and thereof and supersede all other prior agreements and understandings, both written and verbal, among the parties or any of them with respect to the subject matter hereof. SECTION 16.5 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. SECTION 16.6 SEVERABILITY. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as would be enforceable. SECTION 16.7 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. SECTION 16.8 CONSENT TO JURISDICTION. Each of the parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the United States District Court in Delaware for the purposes of enforcing this Agreement. In any action, suit or other proceeding, each of the parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claims that it is not subject to the jurisdiction of the above courts, that such action or suit is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper. Each of the parties hereto also agrees that any final and unappealable judgment against a party hereto in connection with any action, suit or other proceeding shall be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States. A certified or exemplified copy of such award or judgment shall be conclusive evidence of the fact and amount of such award or judgment. SECTION 16.9 THIRD PARTY BENEFICIARIES. Nothing in this Agreement, express or implied, is intended to or shall confer upon any Person other than the parties hereto any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. 26 SECTION 16.10 BINDING; ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and legal representatives. Neither this Agreement, nor any rights, interests or obligations hereunder, may be directly or indirectly assigned, delegated, sublicensed or transferred by any party to this Agreement, in whole or in part, to any other Person (including any bankruptcy trustee) by operation of law or otherwise, whether voluntarily or involuntarily, without the prior written consent of the parties hereto. SECTION 16.11 SPECIFIC PERFORMANCE. The parties recognize and agree that if for any reason any of the provisions of this Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate and irreparable harm or injury would be caused for which money damages would not be an adequate remedy. Accordingly, each party agrees that, in addition to any other available remedies, each other party shall be entitled to an injunction restraining any violation or threatened violation of any of the provisions of this Agreement without the necessity of posting a bond or other form of security. In the event that any action should be brought in equity to enforce any of the provisions of this Agreement, no party will allege, and each party hereby waives the defense, that there is an adequate remedy at law. SECTION 16.12 DESCRIPTIVE HEADINGS. The descriptive article and section headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. SECTION 16.13 USE OF NAME. Except as otherwise set forth in the Acquisition Agreement, URC shall use the name, trademark, service mark, logo or identification of the Royal Insurer Affiliates without the Royal Insurer Affiliates' prior written consent. SECTION 16.14 NOTICES. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by telecopy (which is confirmed), or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties to this Agreement as follows: If to the Royal Insurer Affiliates: Laura S. Lawrence, Esq. General Counsel Royal Group, Inc. 9300 Arrowpoint Blvd. Charlotte, NC 28273 Telephone No.: (704) 522-2851 Facsimile No.: (704) 522-2313 With a copy to (which shall not constitute notice to the Royal Insurer Affiliates for purposes of this Section 16.14): 27 Robert J. Sullivan, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Telephone No.: (212) 735-2930 Facsimile No.: (212) 735-2000 If to URC: Mr. David E. Leonard Executive Vice President c/o Royal Specialty Underwriting, Inc. 945 East Paces Ferry Road Atlanta, GA 30326 Telephone No.: (404) 231-2366 Facsimile No.: (404) 231-3755 With a copy to (which shall not constitute notice to the URC for purposes of this Section 16.14): Aileen C. Meehan, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Telephone No.: (212) 259-8000 Facsimile No.: (212) 259-6333 or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. In no event shall the provision of notice pursuant to this Section 16.14 constitute notice for service of any writ, process or summons in any suit, action or other proceeding. 28 SECTION 16.15 INTERPRETATION. (a) When a reference is made in this Agreement to a Section or Article, such reference shall be to a section or article of this Agreement unless otherwise clearly indicated to the contrary. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement. The meaning assigned to each term used in this Agreement shall be equally applicable to both the singular and the plural forms of such term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. (b) The parties have participated jointly in the negotiation and drafting of this Agreement; consequently, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties thereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement. 29 IN WITNESS WHEREOF, this Claims Servicing Agreement has been duly executed by a duly authorized officer of each party hereto as of the date first above written. UNDERWRITERS REINSURANCE COMPANY By: /s/ James P. Slattery --------------------------------- Name: James P. Slattery Title: President ROYAL INDEMNITY COMPANY By: /s/ Stephen M. Mulready --------------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer ROYAL INSURANCE COMPANY OF AMERICA By: /s/ Stephen M. Mulready --------------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer ROYAL SURPLUS LINES INSURANCE COMPANY By: /s/ Stephen M. Mulready --------------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer LANDMARK AMERICAN INSURANCE COMPANY By:/s/ Stephen M. Mulready --------------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer AMERICAN AND FOREIGN INSURANCE COMPANY By: /s/ Stephen M. Mulready --------------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer GLOBE INDEMNITY COMPANY By: /s/ Stephen M. Mulready --------------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer SAFEGUARD INSURANCE COMPANY By: /s/ Stephen M. Mulready --------------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer PHOENIX ASSURANCE COMPANY OF NEW YORK By: /s/ Stephen M. Mulready --------------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer EX-10.26 28 y88779exv10w26.txt CONTENTS TO CLAIMS SERVICING AGREEMENT Exhibit 10.26 List of Contents of Exhibits and Schedules to the Claims Servicing Agreement Exhibits Description -------- ----------- Exhibit A List of Royal Insurer Affiliates Exhibit B Claims Servicing Information Technology License Agreement Exhibit C Claims Expenses Schedules Description --------- ----------- Schedule 1.1(1) Transmission Specifications Schedule 1.1(2) Computer Systems EX-10.27 29 y88779exv10w27.txt CLAIMS SERVICING LICENSE AGREEMENT EXHIBIT 10.27 CLAIMS SERVICING INFORMATION TECHNOLOGY LICENSE AGREEMENT This CLAIMS SERVICING INFORMATION TECHNOLOGY LICENSE AGREEMENT (this "Agreement") is dated as of July 1, 2003 (the "Effective Date"), and is between ROYAL INDEMNITY COMPANY ("Licensor"), a Delaware property and casualty insurance company, and UNDERWRITERS REINSURANCE COMPANY ("Licensee"), a corporation organized under the laws of New Hampshire. Licensor and Licensee are sometimes referred to herein individually as, "Party" and collectively as, the "Parties." Capitalized terms used but not defined herein and which are defined in the Service Agreement (as defined below), shall have the meanings ascribed to them in the Service Agreement. WHEREAS, Licensor and Licensee are parties to that certain Claims Servicing Agreement, of even date herewith (the "Service Agreement"), pursuant to which Licensee agrees to perform the Claims Services under the Service Agreement (collectively, the "Services"); and WHEREAS, in order for Licensee to provide the Services under the Service Agreement, Section 2.1(c) of the Service Agreement provides that Licensee' access to the Computer Systems controlled by Licensor that are necessary for it to provide the Services and other services specified therein shall be governed by the terms of this Agreement; and WHEREAS, Licensor and Licensee are each willing to enter into such arrangements on the terms and conditions set forth herein; NOW THEREFORE, in consideration of the foregoing premises, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereto hereby covenant and agree as follows: 1. LICENSE GRANT; TERM. 1.1 License Grant. (a) Effective upon the Effective Date and subject to all the terms and conditions of this Agreement, Licensor hereby grants to Licensee, and Licensee hereby accepts from Licensor, during the Term a limited, royalty-free, non-exclusive, non-transferable or assignable (except as set forth in Section 8.6), sub-licenseable (except as set forth in Section 8.6) license to (i) access through transmission media as specified on Schedule 1.1(1), display and use the Computer Systems, including, without limitation, the databases and software described in Schedule 1.1(2) hereto and related documentation, if any, and (ii) download data from, and upload data to, Licensor's Network System, in agreed-upon format solely in connection with the Services under the Service Agreement. The license shall include at no charge any changes, modifications and upgrades to the Computer Systems as Licensor may develop from time to time and/or make available through the Network System or otherwise. For purposes of this Agreement, "Network System" shall mean Licensor's servers on which the Computer Systems reside, which servers are located at Licensor facilities at 9300 Arrowpoint Blvd., Charlotte, North Carolina as may be relocated at Licensor's discretion upon thirty (30) days prior written notice to Licensee. (b) With respect to any Computer Systems accessed by Licensee on Licensor's Network System via website, and/or otherwise via the Internet or Licensor's intranet in accordance with the terms herein: (i) Licensor will act at its sole cost to maintain all communications equipment inside the Network System firewalls and necessary for Licensee to access the Computer Systems. Licensee shall be responsible for maintaining access to communications equipment as necessary to access and use the Computer Systems, and download and upload data from inside the Network System firewall. Each Party shall be responsible for its own transmission, reception, storing and handling of originated electronic documents, and provide and maintain the equipment, software, services, and testing necessary to perform such Party's obligations under this Agreement effectively and reliably. (ii) Licensee covenants to Licensor that it shall provide security levels consistent with Licensor's practices to protect all Computer Systems that Licensee accesses hereunder against the risk of penetration by a third party by (1) protecting against intrusions, (2) encrypting of Licensor Confidential Information transactions, and (3) ensuring that anti-virus software is up-to-date and that DAT files are updated regularly. 1.2 Exclusion of All Other Rights. Except as expressly provided herein, Licensor grants no rights or licenses under this Agreement whatsoever in or to the Computer Systems or any other Licensor products, services or other Licensor intellectual proprietary or personal rights. All rights and licenses not expressly granted in this Agreement are hereby expressly reserved by Licensor or Licensee, as the case may be. 1.3 Restrictions. Except to the extent expressly permitted herein, or by prior written permission of Licensor, Licensee shall not, and shall not authorize any third party to: (a) modify, alter, or otherwise create any derivative work of the Computer Systems or any portion thereof; (b) sublicense, transfer or assign (except as provided in Section 8.6 herein) the Computer Systems or any right with respect thereto; (c) rent, lease, outsource or distribute the Computer Systems; (d) copy all or any portion of the Computer Systems, including but not limited to, the documentation, if any; and (e) disassemble, decompile, reverse engineer, translate, or otherwise convert to human readable form, in whole or in part or any portion of the Computer Systems except to the extent such foregoing restriction is expressly prohibited by Applicable Law. 2 1.4 Consultation and Training. Licensor shall provide such consultation and training as may be reasonable and necessary to ensure accurate receipt of or download of data and as otherwise may be reasonably necessary for Licensee to perform the Services under the Service Agreement. 1.5 Documentation. Licensor shall provide Licensee from time to time during the Term documentation pertaining to the use of the Computer Systems as may be reasonably necessary for Licensee to perform the Services under the Service Agreement, to the extent such documentation exists and has not already been provided to Licensee. 1.6 Support and Maintenance. Licensor shall provide such support and maintenance as may be reasonably necessary for Licensee to perform the Services under the Service Agreement consistent with Licensor's support and maintenance of the Computer Systems provided to Licensee before the Closing. Such maintenance and support shall include, at a minimum technical support as follows: a Licensor-designated information system coordinator shall accept and respond diligently to all reasonable technical support inquiries posed by Licensee relating to: (i) errors made by Licensor and encountered by Licensee in Licensee's access to and use of the Computer Systems as provided herein; (ii) simple explanations of the Computer Systems functionality, and (iii) maintenance of the Computer Systems as may be provided as part of Licensor's regular Network System maintenance for Licensor's own business purposes. 1.7 Duration. This Agreement, including any licenses granted hereunder, shall become effective as of the Effective Date and continue until such time as the Service Agreement shall expire or otherwise be terminated in accordance with Section 10.1 of the Service Agreement, unless earlier terminated in accordance with Section 8.15 herein. 2. OWNERSHIP. 2.1 Computer Systems. Licensee acknowledges and agrees that, as between Licensor and Licensee, ownership of and title in and to the Computer Systems and all Intellectual Property Rights in or to the Computer Systems are and shall remain in Licensor. For purposes of this Agreement, "Intellectual Property Rights" means, collectively, patents, trade secrets (as defined in the Restatement, Second, Torts), copyrights, trade names, rights in trade dress, and all other intellectual property rights, whether arising under the laws of the United States or any other state, country or jurisdiction, including all rights or causes of action for infringement or misappropriation of any of the foregoing, in each case now existing or hereafter arising during the term of this Agreement. 3. PROTECTION OF COMPUTER SYSTEMS. 3.1 Legal Action. Except as set forth below, Licensor shall maintain sole control and discretion over the prosecution and protection of all rights, including all Intellectual Property Rights, in and to the Computer Systems. 3.2 Protection of Intellectual Property Rights. 3 3.2.1 Licensee shall promptly notify Licensor in writing of any unauthorized use, infringement, misappropriation, dilution or other violation of the Computer Systems of which it becomes aware or suspects. 3.2.2 Licensor shall have the primary right, but not the obligation, to bring and control any suits against any unauthorized use, infringement, misappropriation, dilution or other violation of the Computer Systems, unless Licensor otherwise consents in writing. In the event that Licensor elects not to exercise this right, Licensor (at Licensee's request) shall execute appropriate documents to authorize Licensee to bring and to control such action, and Licensor shall reasonably assist Licensee in any such action, including being named as a party to such litigation as required by applicable law. Licensor shall have the right to participate and be represented in any such action, suit or proceeding by its own counsel at its own expense. 3.2.3 Licensee agrees to reasonably cooperate with Licensor, at Licensor's cost (except for de minimis expenses, which shall be borne by Licensee), in any litigation or other enforcement action that Licensor may undertake to enforce or protect the Computer Systems, including, upon Licensor's reasonable request, the execution, filing and delivery of all documents and proof necessary for such purpose. Licensee shall have the right to participate and be represented in any such action, suit or proceeding by its own counsel at its own expense. 3.2.4 Except as expressly stated in this Section 3.2, each Party shall bear the costs, fees and expenses incurred by such Party in complying with the provisions of this Section 3.2, including those incurred in bringing or controlling any such suits. 4. REPRESENTATIONS AND WARRANTIES 4.1 Each Party hereto represents and warrants that: (i) it is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation and has full power and authority (corporate and otherwise) to own its properties and assets and to conduct its business as now being conducted; (ii) it has the corporate power and authority to enter into this Agreement, and the execution, delivery and performance of this Agreement and the transactions and other documents contemplated hereby have been duly authorized by all necessary corporate action on the part of such Party; (iii) this Agreement has been duly executed and delivered by authorized officers of each Party, and constitutes a legal, valid and binding obligation of the Party, fully enforceable against such Party in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and similar laws of general applicability relating to or affecting creditors' rights, and general equity principles. 4.2 Licensor represents and warrants that: (i) Licensor has the right to grant the licenses granted herein; (ii) Licensee's use of the Computer Systems in the 4 performance of the Services and its obligations under the Service Agreement does not and will not violate or infringe the Intellectual Property Rights of any Person who is not a Party to this Agreement; (iii) Licensor will not knowingly include or insert, or knowingly permit or cause any third party to include or insert, any computer virus on the Computer Systems that will be available to Licensee; (iv) the Computer Systems shall, during the course of this agreement, be free of material defects; and (v) Licensor shall make the Computer Systems available to Licensee as reasonably necessary for Licensee to perform the Services. 4.3 EXCEPT AS SET FORTH IN SECTIONS 4.1 AND 4.2, (A) THE COMPUTER SYSTEMS ARE PROVIDED ON AN "AS IS" BASIS, WITHOUT WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT, PROPER COOPERATION OR INTERFACING WITH THIRD PARTY INFORMATION TECHNOLOGY OR OTHER WARRANTIES, CONDITIONS, GUARANTEES OR REPRESENTATIONS, WHETHER EXPRESS OR IMPLIED; AND (B) LICENSEE EXPRESSLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE UNDER THE UNIFORM COMMERCIAL CODE. 5. INDEMNIFICATION 5.1 Licensee will indemnify, defend and hold harmless Licensor and its employees, officers and directors from and against all claims, liabilities, suits, damages, costs and expenses, including, without limitation, reasonable attorneys' fees, resulting from any claim brought by any third party (excluding any Affiliate of Licensor) alleging infringement by Licensee of such third party's Intellectual Property Rights arising out of Licensee's use of the Computer Systems outside the scope of use of the Computer Systems permitted to Licensee hereunder and/or that is contrary to the rights granted to Licensee herein, except for losses, liabilities or damages arising from the sole claim that the Computer Systems or Licensor's grant hereunder infringe the Intellectual Property Rights of such third party, independent of Licensee's use thereof. 5.2 Licensor will indemnify, defend and hold harmless Licensee and its employees, officers and directors from and against all claims, liabilities, suits, damages, costs and expenses, including, without limitation, reasonable attorneys' fees, resulting from any claim brought by any third party alleging infringement by Licensee of such third party's Intellectual Property Rights arising out of Licensee's use of the Computer Systems to the extent such use of the Computer Systems falls within the scope of or is not contrary to the rights granted to Licensee herein. Notwithstanding anything to the contrary in the foregoing sentence, Licensor shall not indemnify Licensee with respect to the possibility of infringement by Combination Use of the Computer Systems. The Parties agree that Licensor has no duty to investigate or to warn Licensee of any such possibility. As used herein, "Combination Use" means use of any Computer System outside the scope of the license granted herein or use of the Computer Systems in combination or conjunction with any software other than the Computer Systems, any 5 unauthorized modifications under Section 1.3, or combination with any Licensee hardware. 5.3 In the event that either Licensor or Licensee wishes to assert a claim for indemnification under this Section 5, such Party seeking indemnification (the "Indemnified Party") shall deliver written notice (a "Claims Notice") to the other Party (the "Indemnifying Party") no later than ten (10) Business Days after such claim becomes known to the Indemnified Party, specifying the facts constituting the basis for, and the amount (if known) of the claim asserted. Failure to deliver a Claims Notice with respect to a claim in a timely manner as specified in the preceding sentence shall not release the Indemnifying Party from any of its obligations under this Section 5, except to the extent the Indemnifying Party is materially prejudiced by such failure. 6. DISCLAIMER OF CONSEQUENTIAL AND SPECIAL DAMAGES. TO THE MAXIMUM EXTENT PERMITTED BY LAW, NEITHER PARTY NOR ANY RELATED ENTITY THEREOF SHALL BE LIABLE TO THE OTHER PARTY, ANY RELATED ENTITY THEREOF OR ANY OTHER THIRD PERSON UNDER THIS AGREEMENT FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, RELIANCE OR PUNITIVE DAMAGES OR LOST OR IMPUTED PROFITS, LOST DATA OR COST OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES, WHETHER LIABILITY IS ASSERTED IN CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT PRODUCT LIABILITY) INDEMNITY OR CONTRIBUTION, AND IRRESPECTIVE OF WHETHER A PARTY OR ANY RELATED ENTITY HAS BEEN ADVISED OF THE POSSIBILITY OF ANY SUCH LOSS OR DAMAGE. 7. CONFIDENTIALITY 7.1 All confidential and proprietary information shall be protected in accordance with Article XII of the Service Agreement. 7.2 All disputes between the Parties shall be subject to the provisions of Article XV of the Service Agreement. 8. GENERAL 8.1 Amendment, Modification and Waiver. This Agreement may not be amended, modified or waived except by an instrument or instruments in writing signed and delivered on behalf of each of the parties hereto. 8.2 Entire Agreement. This Agreement, the Service Agreement and the other Ancillary Agreements between the Parties (together with the schedules and exhibits hereto and the other agreements, documents and instruments delivered in connection herewith) constitute the entire agreement among the Parties with respect to the subject matter hereof and thereof and supersede all other prior agreements and understandings, both written and verbal, among the Parties or any of them with respect to the subject matter hereof. 6 8.3 Interpretation. (a) When a reference is made in this Agreement to a Section, such reference shall be to a section of this Agreement unless otherwise clearly indicated to the contrary. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement. The meaning assigned to each term used in this Agreement shall be equally applicable to both the singular and the plural forms of such term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. (b) The Parties have participated jointly in the negotiation and drafting of this Agreement; consequently, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties thereto, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provisions of this Agreement. 8.4 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by telecopy (which is confirmed), or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties to this Agreement as follows: If to the Licensor, to: Laura S. Lawrence, Esq. General Counsel Royal Group, Inc. 9300 Arrowpoint Blvd. Charlotte, NC 28273 Telephone No.: (704) 522-2851 Facsimile No.: (704) 522-2313 with a copy to (which shall not constitute notice to Licensor for purposes of this Section 8.4): Robert J. Sullivan, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Telephone No.: (212) 735-3000 Facsimile No.: (212) 735-2000 7 If to Licensee, to: Mr. David E. Leonard Executive Vice President c/o Royal Specialty Underwriting, Inc. 945 East Paces Ferry Road Atlanta, GA 30326 Telephone No.: (404) 231-2366 Facsimile No.: (404) 231-3755 with a copy to (which shall not constitute notice to Licensee for purposes of this Section 8.4): Aileen C. Meehan, Esq. William W. Rosenblatt, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Telephone No.: (212) 259-8000 Facsimile No.: (212) 259-6333 or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. In no event shall the provision of notice pursuant to this Section 8.4 constitute notice for service of any writ, process or summons in any suit, action or other proceeding. 8.5 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 8.6 Assignment; Binding Agreement. This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and assigns and legal representatives. Neither this Agreement, nor any rights, interests or obligations hereunder, may be directly or indirectly assigned, delegated, sublicensed or transferred by any Party to this Agreement, in whole or in part, to any other Person (including any bankruptcy trustee) by operation of law or otherwise, whether voluntarily or involuntarily, without the prior written consent of the Parties hereto; provided, however, that this Agreement may assigned by any Party in the event that such Party assigns its rights under the Service Agreement pursuant to Section 16.10 of the Service Agreement and Licensee may sublicense its rights to an affiliate solely in connection with such affiliate rendering the Services provided that Licensee and such affiliate both remain bound by all the terms and conditions set forth in this Agreement. 8.7 Third Party Beneficiaries. Except for the provisions of Section 5, nothing in this Agreement, express or implied, is intended to or shall confer upon any Person other than the Parties hereto any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. 8 8.8 Specific Performance. The Parties recognize and agree that if for any reason any of the provisions of this Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate and irreparable harm or injury would be caused for which money damages would not be an adequate remedy. Accordingly, each Party agrees that, in addition to any other available remedies, each other party shall be entitled to an injunction restraining any violation or threatened violation of any of the provisions of this Agreement without the necessity of posting a bond or other form of security. In the event that any action should be brought in equity to enforce any of the provisions of this Agreement, no Party will allege, and each Party hereby waives the defense, that there is an adequate remedy at law. 8.9 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as would be enforceable. 8.10 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. 8.11 Consent to Jurisdiction. Each of the Parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the state and federal court located in the State of Delaware for the purposes of enforcing this Agreement or the other Ancillary Agreements. The Parties shall take such actions as are within their control to cause any matter contemplated hereby to be assigned to the Chancery Court in the State of Delaware. In any action, suit or other proceeding, each of the Parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claims that it is not subject to the jurisdiction of the above courts, that such action or suit is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper. Each of the Parties hereto also agrees that any final and unappealable judgment against a Party hereto in connection with any action, suit or other proceeding shall be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States. A certified or exemplified copy of such award or judgment shall be conclusive evidence of the fact and amount of such award or judgment. 8.12 Descriptive Headings. The descriptive section headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. 8.13 Survival. The provisions of Sections 5, 7 and 8 hereof shall survive the termination of this Agreement. 9 8.14 Termination. (a) Either Party may terminate this Agreement immediately upon notice if the other Party files a petition for bankruptcy or insolvency, has an involuntary petition under bankruptcy laws filed against it and such petition shall not be dismissed within 60 days after filing thereof, commences an action providing for relief under bankruptcy laws, files for appointment of a receiver, or is adjudicated a bankrupt concern. (b) (b) Agreement may be terminated by either party for any other material breach by the other upon delivery of a sixty (60) days written notice of termination, if any such breach remains uncured during such sixty (60) day period. 8.15 Bankruptcy Protection. All rights and licenses granted under or pursuant to this Agreement by Licensor to Licensee are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the Bankruptcy Code (11 U.S.C. Section 101 et seq.), licenses of rights to "intellectual property" as defined therein. The Parties agree that Licensee, as licensees of such rights, shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code. The Parties further agree that, in the event that any proceeding shall be instituted by or against Licensor seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking an entry of an order for relief or Appointment of a receiver, trustee or other similar official for it or any substantial part of its property or it shall take any action to authorize any of the foregoing actions (each a "Proceeding"), Licensee shall have the right to retain and enforce its rights under this Agreement, including but not limited to the following rights: (a) the right to continue to use the Computer Systems and all documentation and other supporting material related thereto, in accordance with the terms and conditions of this Agreement; and (b) the right to a complete duplicate of (or complete access to, as appropriate) all Computer Systems and the source code for the Computer Systems and all embodiments of such, and Licensor shall promptly deliver, or shall promptly cause to be delivered the same to Licensee (i) upon any such commencement of a Proceeding upon written request therefor by Licensee, unless Licensor elects and is permitted to continue to perform all of its obligations under this Agreement, or (ii) if not delivered under (i) above, upon the rejection of this Agreement by or on behalf of Licensor upon written request therefor by Licensee. Licensor shall maintain all Computer Systems in tangible form. 10 IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed on its behalf by its officer thereunto duly authorized, all as of the day and year first above written. LICENSOR: ROYAL INDEMNITY COMPANY By: /s/ Stephen M. Mulready --------------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer LICENSEE: UNDERWRITERS REINSURANCE COMPANY By: /s/ James P. Slattery --------------------------------- Name: James P. Slattery Title: President 11 SCHEDULE 1.1(1) TRANSMISSION SPECIFICATIONS Access through Wide Area Network Access via the Internet SCHEDULE 1.1(2) COMPUTER SYSTEMS COMPUTER SYSTEMS AND DATABASES: 1) Claim Interface - URC transmits claim information that is used to populate the Royal CLASS system. This data is transmitted via the Internet using the FTP protocol. The dataset name is CLASS.URC.INTRFACE.PROD and the Host job name is H4D09. 2) CLASS database and user interface via the Royal Host system. 3) CISS Database (database containing a relational copy of CLASS claims data) 4) INFONET ISO Service Information comprised of ISO Suite software licensed in name of Royal Indemnity Company and customized components developed by Royal Indemnity Company. 5) ISONET Rate, Rule and Form Information for Divisions One, Three, Five, Six, Seven, Eight, Eleven, Twelve and Thirteen accessed through license in name of Royal Indemnity Company. 6) ISO Claim Search information accessed through license in name of Royal Indemnity Company. 7) The following databases accessible via Lotus Notes (note that access to these databases may require Lotus Notes; Licensor will not be providing Lotus Notes to Licensees hereunder): Complaint Log Litigation Management Guidelines 8) Any other Licensor software and information technology systems, if any, as may be necessary for Licensee to perform the Services under the Service Agreement to the extent that Licensor has the right to make such systems available to Licensees. EX-10.28 30 y88779exv10w28.txt RENEWAL RIGHTS AGREEMENT EXHIBIT 10.28 - -------------------------------------------------------------------------------- RENEWAL RIGHTS AGREEMENT by and among EACH OF THE SUBSIDIARIES OF ROYAL, INC. LISTED ON EXHIBIT A HERETO and ALLEGHANY INSURANCE HOLDINGS LLC Dated as of July 1, 2003 - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Page ---- ARTICLE I. DEFINITIONS................................................................................. 2 ARTICLE II. RENEWALS AND TERM.......................................................................... 2 ARTICLE III. COVENANTS AND AGREEMENTS.................................................................. 3 ARTICLE IV. DISPUTE RESOLUTION......................................................................... 3 ARTICLE V. MISCELLANEOUS PROVISIONS.................................................................... 4
EXHIBITS EXHIBIT A LIST OF ROYAL INSURER AFFILIATES EXHIBIT B FORM OF LETTER TO POLICYHOLDERS RENEWAL RIGHTS AGREEMENT This RENEWAL RIGHTS AGREEMENT (this "Agreement"), dated as of July 1, 2003, is entered into by each of the insurance company subsidiaries of Royal Group, Inc. ("Royal") listed on Exhibit A hereto (each a "Royal Insurer Affiliate" and collectively, the "Royal Insurer Affiliates") and Alleghany Insurance Holdings LLC, a Delaware limited liability company ("AIHL"). W I T N E S S E T H WHEREAS, the Acquisition Agreement, dated as of June 6, 2003 by and between Royal and AIHL (the "Acquisition Agreement") provides, among other things, for the sale by Royal and purchase by AIHL of all of the issued and outstanding shares of stock of Royal Specialty Underwriting, Inc., a Georgia company ("RSUI"), and certain of the assets of, and certain rights to, the Business (as such term is defined in the Acquisition Agreement) conducted by RSUI; WHEREAS, in connection with the Acquisition, on the Closing Date, each of Royal and AIHL desires to cause their respective Affiliates to enter into certain related agreements including, without limitation, the RIC Quota Share Reinsurance Agreement, the RSLIC Quota Share Reinsurance Agreement (together, the "Reinsurance Agreements"), the RIC Administrative Services Agreement and the RSLIC Administration Services Agreement (together, the "Administrative Services Agreements"); WHEREAS, from and after the Effective Date (as defined in the Quota Share Reinsurance Contracts), RSUI as agent shall have the authority to issue the Reinsured Contracts in the names of the Royal Insurer Affiliates, pursuant to the terms of the Administrative Services Agreements; WHEREAS, each of the Royal Insurer Affiliates and each of the insurance company Affiliates of AIHL (the "AIHL Insurer Affiliates") has agreed that, in accordance with the terms and conditions of this Agreement and the Acquisition Agreement, each of the Royal Insurer Affiliates shall assist in the rewriting of the Reinsured Contracts (as defined in the Reinsurance Agreements) by one or more of the AIHL Insurer Affiliates upon the terms and subject to the conditions set forth below; and WHEREAS, Royal wishes to transfer to AIHL, and AIHL wishes to accept and assume from Royal, all of the Royal Insurer Affiliates' rights, title and interest in the renewals of the Reinsured Contracts (the "Renewal Rights"). NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and in the Acquisition Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1 ARTICLE I. DEFINITIONS Section 1.1 Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Acquisition Agreement or the Quota Share Reinsurance Agreements. ARTICLE II. RENEWALS AND TERM Section 2.1 Rewritten Policies. From and after the Effective Date (as defined in the Quota Share Reinsurance Agreements), each of the Royal Insurer Affiliates shall assist the AIHL Insurer Affiliates in offering and issuing, in accordance with Applicable Law, new policies upon expiration of the Reinsured Contracts in the names of such AIHL Insurer Affiliates (the "Rewritten Policies"). Such assistance shall be provided by each of the Royal Insurer Affiliates in accordance with the terms of this Agreement, the Quota Share Reinsurance Agreements, the Administrative Services Agreements and the Transition Services Agreement. Section 2.2 Renewal Rights. In connection with the non-renewal of the RSUI-Produced Insurance Contracts or the issuance of Reinsured Contracts in the names of the Royal Insurer Affiliates in accordance with the terms of the Administrative Services Agreements, and to the extent permitted by Applicable Law and contractual obligations, AIHL, or its designated AIHL Insurer Affiliate, on behalf of each of the Royal Insurer Affiliates shall, from time to time, send to each insured, through such insured's insurance agent, broker or other independent producer, under each such policy to whom any of the AIHL Insurer Affiliates determines to issue a Rewritten Policy, a written notice substantially in the form of Exhibit B hereto as may be modified to comply with Applicable Law, or in such other form as AIHL shall determine is appropriate with the written consent of the relevant Royal Insurer Affiliate, encouraging such insured to have his or her policy rewritten by one of the AIHL Insurer Affiliates. Section 2.3 Transfer of Renewal Rights. Royal hereby transfers to AIHL all of the rights, title and interest of the Royal Insurer Affiliates in and to the Renewal Rights. Section 2.4 Term. This Agreement shall commence on the Effective Date and shall terminate on the second anniversary thereof. 2 ARTICLE III. COVENANTS AND AGREEMENTS Section 3.1 Expenses. The parties to this Agreement shall bear their respective expenses incurred in connection with the preparation, execution and performance of this Agreement and the transactions contemplated hereby, except to the extent otherwise provided under the Administrative Services Agreements or the Transition Services Agreement. Section 3.2 Examination of the Books and Records. Following the termination of this Agreement, AIHL and its Affiliates shall be entitled, through their employees, counsel, accountants, or other representatives, to make such examination of the Books and Records of the Royal Insurer Affiliates relating to the RSUI-Produced Insurance Contracts as any of the AIHL Insurer Affiliates may reasonably request for the purpose of effectuating the Rewritten Policies; provided, that a representative from the Royal Insurer Affiliates shall have the right to be present during such examination. Any such examination shall be conducted during normal business hours and upon reasonable prior notice. The information obtained pursuant to this provision shall be subject to the provisions of Section 17.16 of the Acquisition Agreement. Section 3.3 Issuance and Renewal of RSUI-Produced Insurance Contracts and Reinsured Contracts. Except as provided in the Administrative Services Agreements, and except as otherwise required by Applicable Law or the terms of any Reinsured Contracts, each of the Royal Insurer Affiliates covenants and agrees not to issue or renew Reinsured Contracts for the period commencing on the Closing Date and ending on the second anniversary of the Closing Date. Section 3.4 Further Assurances. During and after the term of this Agreement, without further consideration, each of the parties shall execute such documents and other papers, and take such further actions as may be reasonably required or desirable, or required under Applicable Law, to effectuate the provisions hereof and the transactions contemplated hereby. ARTICLE IV. DISPUTE RESOLUTION Section 4.1 Dispute Resolution. The procedures for the resolution of disputes under this Agreement shall be governed by the dispute resolution provisions of the Reinsurance Agreements. 3 ARTICLE V. MISCELLANEOUS PROVISIONS Section 5.1 Amendment, Modification and Waiver. This Agreement may not be amended, modified or waived except by an instrument or instruments in writing signed and delivered on behalf of each of the parties hereto. Section 5.2 Entire Agreement. This Agreement, the Acquisition Agreement and the other Ancillary Agreements (together with the schedules and exhibits hereto and thereto, the annexes hereto and thereto and the other agreements, documents and instruments delivered in connection herewith and therewith) constitute the entire agreement among the parties with respect to the subject matter hereof and thereof and supersede all other prior agreements and understandings (other than the Confidentiality Agreement), both written and verbal, among the parties or any of them with respect to the subject matter hereof. Section 5.3 Interpretation. (a) When a reference is made in this Agreement to a Section or Article, such reference shall be to a section or article of this Agreement unless otherwise clearly indicated to the contrary. Whenever the words "include," "includes" or "including" are used in this Agreement they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement. The meaning assigned to each term used in this Agreement shall be equally applicable to both the singular and the plural forms of such term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. (b) The parties have participated jointly in the negotiation and drafting of this Agreement; consequently, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties thereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement. Section 5.4 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in Person, by telecopy (delivery of which is confirmed), by courier (delivery of which is confirmed) or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties to this Agreement as follows: If to Royal, Inc. or the Royal Insurer Affiliates: Laura S. Lawrence, Esq. 4 General Counsel Royal, Inc. 9300 Arrowpoint Blvd. Charlotte, North Carolina 28273 Telephone No.: (704) 522-2851 Facsimile No.: (704) 522-2313 with a copy to (which shall not constitute notice to Royal, Inc. or the Royal Insurer Affiliates for purposes of this Section 5.4): Robert J. Sullivan, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Telephone No.: (212) 735-3000 Facsimile No.: (212) 735-2000 If to AIHL: Robert M. Hart, Esq. Alleghany Corporation 375 Park Avenue Suite 3201 New York, New York 10152 Telephone No.: (212) 752-1356 Facsimile No.: (212) 759-8149 with a copy to (which shall not constitute notice to AIHL for purposes of this Section 5.4): Aileen C. Meehan, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Telephone No.: (212) 259-8000 Telecopy No.: (212) 259-6333 or to such other address as the Person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. In no event shall the provision of notice pursuant to this Section 5.4 constitute notice for service of any writ, process or summons in any suit, action or other proceeding. Section 5.5 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 5 Section 5.6 Descriptive Headings. The descriptive article and section headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. Section 5.7 Assignment; Binding Agreement. Neither this Agreement, nor any rights, interests or obligations hereunder, may be directly or indirectly assigned, delegated, sublicensed or transferred by any party to this Agreement, in whole or in part, to any other Person (including any bankruptcy trustee) by operation of law or otherwise, whether voluntarily or involuntarily, without the prior written consent of the other party hereto, except that the AIHL shall have the right any time, without such consent, to assign, in whole or in part, its rights hereunder to any wholly owned Subsidiary of AIHL, provided that such assignment shall not relieve AIHL of any of its obligations hereunder. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Section 5.8 Third Party Beneficiaries. Nothing in this Agreement, express or implied, is intended to or shall confer upon any Person other than the parties hereto any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. Section 5.9 Specific Performance. The parties recognize and agree that if for any reason any of the provisions of this Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate and irreparable harm or injury would be caused for which money damages would not be an adequate remedy. Accordingly, each party agrees that, in addition to any other available remedies, each other party shall be entitled to an injunction restraining any violation or threatened violation of any of the provisions of this Agreement without the necessity of posting a bond or other form of security. In the event that any action should be brought in equity to enforce any of the provisions of this Agreement, no party will allege, and each party hereby waives the defense, that there is an adequate remedy at Law. Section 5.10 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as would be enforceable. Section 5.11 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. Section 5.12 Consent to Jurisdiction. Each of the parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the United States District Court located in Wilmington, Delaware, or if such court does not have jurisdiction, the Chancery Court of the State of Delaware for the purposes of enforcing 6 this Agreement or any of the Ancillary Agreements. In any action, suit or other proceeding, each of the parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claims that it is not subject to the jurisdiction of the above courts, that such action or suit is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper. Each of the parties hereto also agrees that any final and unappealable judgment against a party hereto in connection with any action, suit or other proceeding shall be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States. A certified or exemplified copy of such award or judgment shall be conclusive evidence of the fact and amount of such award or judgment. Section 5.13 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. Section 5.14 Extension; Waiver. At any time prior to the Closing Date, either party may (a) extend the time for the performance of any of the obligations or other acts of the other party, (b) waive any inaccuracies in the representations and warranties contained in this Agreement or in any document delivered pursuant to this Agreement of the other party or (c) waive compliance with any of the agreements or conditions contained in this Agreement of the other party. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. No delay on the part of any party in exercising any right hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right nor any single or partial exercise of any such right preclude any further exercise thereof or the exercise of any other such right. [SIGNATURE PAGE FOLLOWS] 7 IN WITNESS WHEREOF, the parties hereto have caused their names to be subscribed by their respective authorized officers. ALLEGHANY INSURANCE HOLDINGS LLC By: /s/ James P. Slattery ---------------------------- Name: James P. Slattery Title: President LANDMARK AMERICAN INSURANCE COMPANY By: /s/ Stephen M. Mulready ---------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer ROYAL INDEMNITY COMPANY By: /s/ Stephen M. Mulready ---------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer ROYAL SURPLUS LINES INSURANCE COMPANY By: /s/ Stephen M. Mulready ---------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer ROYAL INSURANCE COMPANY OF AMERICA By: /s/ Stephen M. Mulready ---------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer EX-10.29 31 y88779exv10w29.txt CONTENTS TO RENEWAL RIGHTS AGREEMENT Exhibit 10.29 List of Contents of Exhibits to the Renewal Rights Agreement Exhibits Description -------- ----------- Exhibit A List of Royal Insurer Affiliates Exhibit B Form of Letter to Policyholders EX-10.30 32 y88779exv10w30.txt TRANSITION SERVICES AGREEMENT EXHIBIT 10.30 TRANSITION SERVICES AGREEMENT BY AND AMONG ROYAL GROUP, INC., RSUI GROUP, INC. AND ROYAL SPECIALTY UNDERWRITING, INC. DATED: July 1, 2003 TABLE OF CONTENTS ARTICLE I PURPOSE............................................................................................ 1 SECTION 1.1 PURPOSE................................................................................ 1 ARTICLE II SERVICES.......................................................................................... 2 SECTION 2.1 SCOPE OF SERVICES...................................................................... 2 SECTION 2.2 TERM OF SERVICES....................................................................... 2 SECTION 2.3 LIMITATION ON OBLIGATION TO PROVIDE SERVICES........................................... 3 SECTION 2.4 INABILITY TO PERFORM SERVICES.......................................................... 4 SECTION 2.5 SERVICE STANDARDS; LEVEL OF SERVICE.................................................... 5 SECTION 2.6 REQUEST FOR ADDITIONAL SERVICES........................................................ 5 ARTICLE III PERSONNEL........................................................................................ 5 SECTION 3.1 PERSONNEL; SUBCONTRACTING.............................................................. 5 ARTICLE IV AMOUNTS DUE....................................................................................... 6 SECTION 4.1 PRICING; BILLING AND CASH SETTLEMENT................................................... 6 SECTION 4.2 OFFSET................................................................................. 6 SECTION 4.3 UNDERPERFORMANCE OF SERVICE LEVELS..................................................... 6 ARTICLE V COVENANTS.......................................................................................... 6 SECTION 5.1 COVENANTS.............................................................................. 6 ARTICLE VI TERMINATION....................................................................................... 7 SECTION 6.1 TERMINATION............................................................................ 7 ARTICLE VII INDEMNIFICATION.................................................................................. 7 SECTION 7.1 INDEMNIFICATION........................................................................ 7 SECTION 7.2 INDEMNIFICATION PROCEDURE.............................................................. 8 ARTICLE VIII ARBITRATION..................................................................................... 8 SECTION 8.1 ARBITRATION............................................................................ 8 SECTION 8.2 NOTICE OF ARBITRATION.................................................................. 8 SECTION 8.3 ARBITRATION PANEL...................................................................... 8 SECTION 8.4 SUBMISSION OF BRIEFS................................................................... 9 SECTION 8.5 ARBITRATION BOARD'S DECISION........................................................... 9 SECTION 8.6 JURISDICTION........................................................................... 9 SECTION 8.7 EXPENSES............................................................................... 10 SECTION 8.8 PRODUCTION OF DOCUMENTS AND WITNESSES.................................................. 10 SECTION 8.9 RELIEF AVAILABLE....................................................................... 10 SECTION 8.10 CONSOLIDATION.......................................................................... 10 ARTICLE IX MISCELLANEOUS..................................................................................... 10 SECTION 9.1 NOTICES................................................................................ 10 SECTION 9.2 ASSIGNMENT............................................................................. 12 SECTION 9.3 CONFIDENTIALITY........................................................................ 12 SECTION 9.4 COOPERATION............................................................................ 12 SECTION 9.5 GOVERNING LAW.......................................................................... 13 SECTION 9.6 DISCLAIMER............................................................................. 13
SECTION 9.7 OTHER.................................................................................. 13
SCHEDULE A Royal Transition Services/Information SCHEDULE B RSUI Transition Services SCHEDULE C Mutual Transition Services SCHEDULE D Excluded Services TRANSITION SERVICES AGREEMENT This TRANSITION SERVICES AGREEMENT (this "Agreement") is made and entered into as of this 1st day of July, 2003 by and among Royal Group, Inc., a Delaware corporation ("Seller"), RSUI Group, Inc., a Delaware corporation ("RSUI Group") and Royal Specialty Underwriting, Inc., a Georgia company ("RSUI"). Capitalized terms used and not otherwise defined in this Agreement shall have the meaning ascribed thereto in the Acquisition Agreement (as defined below). RECITALS: WHEREAS, pursuant to the Acquisition Agreement ("Acquisition Agreement"), dated as of June 6, 2003, by and between Seller and Alleghany Insurance Holdings LLC, a Delaware limited liability company and the sole stockholder of RSUI Group ("AIHL"), AIHL agreed to purchase from Seller, and Seller agreed to sell to AIHL, all of the issued and outstanding shares of common stock of RSUI; WHEREAS, pursuant to the Assignment and Assumption Agreement dated as of June 30, 2003 (the "Assignment Agreement"), AIHL assigned to RSUI Group, and RSUI Group assumed from AIHL, all of AIHL's rights and obligations under the Acquisition Agreement and the Ancillary Agreements; WHEREAS, pursuant to the terms of the Acquisition Agreement and the Assignment and Assumption Agreement, Seller, RSUI Group and RSUI have agreed to enter into this Agreement; WHEREAS, pursuant to the terms and conditions of this Agreement, each of Seller and RSUI shall provide specified services to each other in connection with the execution and implementation of the transactions described in the Acquisition Agreement; NOW, THEREFORE, in consideration of these premises and the terms and conditions set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I PURPOSE SECTION 1.1 PURPOSE. Seller, RSUI Group and RSUI desire to provide for the orderly transfer of responsibility for all matters that support or relate to the functions that are the subject of any Transition Services (as such term is defined below) with the ultimate goal being for each of Seller, on the one hand, and RSUI Group and/or RSUI, on the other hand, to assume responsibility for such Transition Services being provided to it as soon as practicable after the Closing Date. ARTICLE II SERVICES SECTION 2.1 SCOPE OF SERVICES. (a) Subject to the terms and conditions set forth in this Agreement, (i) Seller and its Affiliates shall provide to RSUI reasonable services requested by RSUI Group and/or RSUI of the type which were provided by Seller and its Affiliates to RSUI prior to the Closing Date as listed on SCHEDULE A (collectively, the "Royal Transition Services"), (ii) RSUI shall provide to Seller and its Affiliates, reasonable services requested by Seller of the type which were provided by RSUI to Seller or its Affiliates prior to the Closing Date as listed on SCHEDULE B hereto (collectively, the "RSUI Transition Services") and (iii) either party, as applicable, shall provide services of the type which were provided prior to the Closing Date for the mutual benefit of Seller and its Affiliates and RSUI as listed on SCHEDULE C hereto (collectively, the "Mutual Transition Services", together with the Royal Transition Services and the RSUI Transition Services, the "Transition Services"); provided, however, that each party shall only be required to provide such services to the other party to the extent that such services were provided by Seller or its Affiliates and RSUI as of the Closing Date. Notwithstanding anything to the contrary in this Agreement, Seller and its Affiliates shall not be required to provide any of the Excluded Services. (b) For purposes of this Agreement, "Excluded Services" shall mean any type or kind of service that includes the services listed on SCHEDULE D. (c) The parties shall further (i) use the Transition Services for substantially the same purposes and in substantially the same manner as Seller and its Affiliates, on the one hand, and RSUI, on the other hand, had used the Transition Services prior to the date of this Agreement and (ii) not resell any of the Transition Services to any Person whatsoever or permit the use of the Transition Services by any Person other than, in the case of the Royal Transition Services, in connection with the conduct of the Business in the ordinary course consistent with past practice. (d) The scope of the Transition Services covered by this Transition Services Agreement is not intended to include any type or kind of service which is explicitly provided for under one or more of the other Ancillary Agreements being entered into by the parties pursuant to the Acquisition Agreement. SECTION 2.2 TERM OF SERVICES. (a) The Transition Services shall continue for terms to be mutually agreed and/or specified in Schedule A and Schedule B for each such Royal Transition Services and RSUI Transition Services; provided, however, that no Transition Services shall be required to be provided by Seller or RSUI more than 12 months after the Closing Date, unless the term of such Transition Services for any period greater than 12 months is expressly provided in Schedules A, B or C or unless the parties specifically agree to an 2 extension of the terms for provision of Transition Services as contemplated by Section 2.6 hereof. (b) During the term the services are provided under this Agreement, both Seller and RSUI shall use reasonable best efforts to assume responsibility for such Transition Services being provided to them as soon as practicable. (c) Any Transition Service may be terminated or reduced by the recipient of such service for any reason and at any time during the term of this Agreement by delivery of written notice to the provider of such service not less than 45 days prior to the effective date of such termination as specified in such notice. The termination of any particular Transition Service shall not affect the continued provision of any other Transition Service then being provided. Once a Transition Service is terminated in accordance with the foregoing provision of this Agreement, the party receiving such Transition Service may request that such Transition Service be resumed pursuant thereto; provided, however, the party providing such Transition Service shall not be required to resume any such terminated Transition Service. (d) Nothing in this Agreement shall prevent Seller or RSUI during the term of this Agreement from obtaining any services which are Transition Services from any other Person. SECTION 2.3 LIMITATION ON OBLIGATION TO PROVIDE SERVICES. (a) Notwithstanding any of the obligations imposed on the parties pursuant to this Agreement, no party shall be under the obligation to obtain any license, systems, personnel or operations to provide or comply with the obligations set forth in this Agreement. In no event shall a party have any liability under this Agreement arising from the failure to obtain any additional license, systems, personnel or operations. (b) If any Affiliate of Seller or RSUI receiving any Transition Services ceases to be an Affiliate of such entity, any Transition Services provided to the Affiliate shall automatically terminate. (c) Seller shall not be deemed to be in violation of this Agreement if it is prevented from performing any of the Royal Transition Services for any reason beyond its reasonable control, including, without limitation, acts of God, nature, or of public enemy, strikes, or limitations of law, regulations or rules of the Federal or of any state or local government or of any agency thereof. Upon the occurrence of any such event which results in, or will result in, delay or failure to perform according to the terms of this Agreement, Seller will promptly notify RSUI Group and/or RSUI of such occurrence and the effect and/or anticipated effect of such occurrence. Seller will use its reasonable efforts to minimize disruptions in its performance and to resume performance of its obligations under this Agreement as soon as practical. If, by reason of any such event, Seller is excused from performance, then to the extent the services are not provided to RSUI, in the manner or at the times required under this Agreement, RSUI may obtain the 3 same or similar services from other sources without liability or obligation for payment to Seller for the provision of such services to RSUI. (d) Each of RSUI Group and RSUI shall not be deemed to be in violation of this Agreement if RSUI is prevented from performing any of the RSUI Transition Services for any reason beyond its reasonable control, including, without limitation, acts of God, nature, or of public enemy, strikes, or limitations of law, regulations or rules of the Federal or of any state or local government or of any agency thereof. Upon the occurrence of any such event which results in, or will result in, delay or failure to perform according to the terms of this Agreement, RSUI Group and/or RSUI will promptly notify Seller of such occurrence and the effect and/or anticipated effect of such occurrence. RSUI will use its reasonable efforts to minimize disruptions in its performance and to resume performance of its obligations under this Agreement as soon as practical. If, by reason of any such event, RSUI is excused from performance, then to the extent the services are not provided to the other party, in the manner or at the times required under Transition Services Agreement, Seller may obtain the same or similar services from other sources without liability or obligation for payment to RSUI Group and/or RSUI for the provision of such services to Seller. (e) The parties to this Agreement may modify or change the Transition Services so long as such changes are made in the ordinary course of business and do not materially diminish the Transition Services. (f) The failure of one party to this Agreement to timely provide the Transition Services in accordance with the provisions of this Agreement to the extent resulting from the failure of another party (including such other party's Affiliates) to meet its obligations under this Agreement, the Acquisition Agreement or any of the Ancillary Agreements, shall not be deemed a breach of this Agreement. (g) The parties hereto agree that Seller shall be obligated to provide the Royal Transition Service relating to the preparation of statutory statements only after RSUI Group has notified Seller no later than 45 days' prior to the year end of the year for which the preparation of such statutory statements are requested. Seller may hire third parties to assist in the preparation of such statutory statements and in the event Seller hires such third parties, RSUI Group shall be obligated to reimburse Seller for all costs and expenses incurred by Seller in connection therewith. SECTION 2.4 INABILITY TO PERFORM SERVICES. In the event that either Seller or any of its Affiliates, on the one hand, or RSUI, on the other hand, shall be unable to perform services as required by this Agreement for any reason for a period that can reasonably be expected to exceed three Business Days, the party unable to provide its service(s) shall cooperate with the other party in obtaining an alternative means of providing such services; provided that both parties shall use reasonable efforts to mitigate such inability or the adverse impact of such inability. The party unable to perform its service(s) will be responsible for all costs incurred in either restoring services or obtaining an alternative source of services, except to the extent that such party's failure to 4 perform is due to a breach by the other party of any representation or covenant under the Acquisition Agreement, this Agreement, or any other Ancillary Agreement. SECTION 2.5 SERVICE STANDARDS; LEVEL OF SERVICE. (a) Seller shall provide the Royal Transition Services and the Mutual Transition Services, if any, at a level of service substantially identical to that being provided to the Business prior to the Closing Date. (b) RSUI Group shall cause RSUI to provide the RSUI Transition Services and the Mutual Transition Services, if any, at a level substantially identical to that being provided to all the relevant businesses of Seller or its Affiliates by RSUI prior to the Closing Date. (c) No party shall be obligated during the term of this Agreement to provide services at a level in excess of the level of service provided prior to the Closing Date. SECTION 2.6 REQUEST FOR ADDITIONAL SERVICES. If RSUI Group, Seller or RSUI reasonably requests that the other party perform additional services not included within the scope of the Transition Services or increase the current Transition Services or extend the terms for provision of Transition Services, then the parties will promptly negotiate in good faith regarding whether such additional services or increased services shall be added to the Transition Services or whether Transition Services shall be performed for such extended period. ARTICLE III PERSONNEL SECTION 3.1 PERSONNEL; SUBCONTRACTING. (a) Both Seller, on the one hand, and RSUI Group and/or RSUI, on the other hand, will retain and employ a staff with experience, skill, diligence and expertise that it believes will be reasonably necessary to perform the Transition Services in accordance with the service standards referred to in Sections 2.5 and 5.1; provided, however, notwithstanding any other provision to the contrary set forth herein, neither party shall be obligated to hire additional staff, pay "stay bonuses" or incur similar extraordinary expenses in order to retain particular employees. (b) Seller may subcontract or renew any existing subcontract so long as its terms are not less advantageous for RSUI for the performance of any Royal Transition Services; provided, however, that Seller shall retain responsibility for the Royal Transition Services provided by subcontractors. (c) RSUI may subcontract or renew any existing subcontract so long as its terms are not less advantageous for Seller or any of its Affiliates for the performance 5 of any RSUI Transition Services; provided, however, that RSUI Group and/or RSUI shall retain responsibility for the RSUI Transition Services provided by subcontractors. ARTICLE IV AMOUNTS DUE SECTION 4.1 PRICING; BILLING AND CASH SETTLEMENT. (a) The fee, rate or amount to be charged for the Transition Services will reflect the fact that each of Seller and RSUI, respectively, shall provide their Royal Transition Services and RSUI Transition Services at a cost equal to their actual expenses for such service. The expense charged for such services shall equal 135% of the applicable hourly rate paid to employees who are necessary to provide such services. Amounts billed for such services shall be on an hourly basis. (b) Unless otherwise agreed by the parties, billing and cash settlement for Transition Services shall occur on a monthly basis. (c) Each of Seller and RSUI shall keep accurate books and records, consistent with its customary accounting and business practices, which relate directly to the performance of the Transition Services provided by such party under this Agreement. As part of its performance of Transition Services, each party shall, upon the other party's request, provide the other party reasonable supporting documentation of all costs incurred in connection with providing Transition Services completed through such time. SECTION 4.2 OFFSET. Each of the parties acknowledges that it shall have no right under this Agreement to offset any amounts due and owing (or to become due or owing) to the other party under this Agreement against any amounts due and owing by Seller or any of its Affiliates to RSUI Group and/or RSUI or any of their Affiliates, or by RSUI Group and/or RSUI or any of their Affiliates to Seller or any of its Affiliates, in either case, under the Acquisition Agreement or any other Ancillary Agreement. SECTION 4.3 UNDERPERFORMANCE OF SERVICE LEVELS. Seller and RSUI shall agree on cure periods and the amount of credits, fees, rates or amounts previously paid under this Agreement or that otherwise would subsequently be due, for underperformance of the service levels referred to in Section 2.5. The cure periods and amounts of credit shall be reasonable. ARTICLE V COVENANTS SECTION 5.1 COVENANTS. 6 (a) Seller agrees that Seller will use the same standard of care when providing the Royal Transition Services under this Agreement that Seller used when providing services to RSUI prior to the Closing Date. Seller agrees to assign sufficient resources, facilities and qualified personnel to provide the Royal Transition Services as are reasonably required to perform the Royal Transition Services in accordance with the standard set forth in the preceding sentence. (b) RSUI Group agrees that it will cause RSUI to use the same standard of care when providing the RSUI Transition Services under this Agreement that RSUI used when providing services to Seller prior to the Closing Date. RSUI Group agrees it will cause RSUI to assign sufficient resources, facilities and qualified personnel to provide the RSUI Transition Services as are reasonably required for RSUI to perform the RSUI Transition Services in accordance with the standard set forth in the preceding sentence. ARTICLE VI TERMINATION SECTION 6.1 TERMINATION. (a) This Agreement shall be terminated at a date no later than the end of the last term specified for a Transition Service as set forth under Section 2.2 hereto, but shall terminate at an earlier date in the event that all Transition Services provided for hereunder have been terminated. (b) In the event that RSUI Group and/or RSUI, on the one hand, or Seller, on the other hand, becomes or is declared bankrupt or insolvent, then the other party may immediately terminate this Agreement without any prior notice. (c) Upon any termination of this Agreement, all monies owing from one party to the other party, and all refunds of disputed amounts owing by one party to the other party under this Agreement, shall be due and payable, and each party shall cease providing Transition Services to the other party. ARTICLE VII INDEMNIFICATION SECTION 7.1 INDEMNIFICATION. (a) Seller shall indemnify RSUI Group and/or RSUI against, and shall hold RSUI Group and/or RSUI harmless from any damages suffered by RSUI Group and/or RSUI or arising from any third-party claims, costs, liabilities, judgments or awards resulting from the gross negligence, recklessness or willful misconduct of Seller or any of its Affiliates in connection with the performance of the Royal Transition Services, including any enforcement of this indemnity, after notice and opportunity to cure any 7 breach or nonfulfillment by Seller of, or any failure by Seller to perform, any of the covenants, terms or conditions of, or any duties or obligations under this Agreement. (b) RSUI Group shall indemnify Seller against, and shall hold Seller harmless from any damages suffered by Seller itself or any Affiliate of Seller or arising from any third-party claims, costs, liabilities, judgments or awards resulting from the gross negligence, recklessness or willful misconduct of RSUI or any of its Affiliates in connection with the performance of the RSUI Transition Services, including any enforcement of this indemnity, after notice and opportunity to cure any breach or nonfulfillment by RSUI Group and/or RSUI of, or any failure by RSUI Group and/or RSUI to perform, any of the covenants, terms or conditions of, or any duties or obligations under this Agreement. SECTION 7.2 INDEMNIFICATION PROCEDURE. In the event either Seller, on one hand, or RSUI Group and RSUI, on the other, shall have a claim for indemnity against the other party under the terms of this Agreement, the parties shall follow the procedures set forth in the Acquisition Agreement. ARTICLE VIII ARBITRATION SECTION 8.1 ARBITRATION. As a condition precedent to any cause of action, any and all disputes between Seller, on the one hand, and RSUI Group and/or RSUI, on the other hand, arising out of, relating to, or concerning this Agreement, whether sounding in contract or tort and whether arising during or after termination of this Agreement, including whether the dispute is subject to arbitration, shall be submitted to the decision of a board of arbitration composed of two arbitrators and an umpire ("Board") meeting at a site in Wilmington, Delaware. The arbitration shall be conducted under the Federal Arbitration Act and shall proceed as set forth below. SECTION 8.2 NOTICE OF ARBITRATION. A notice requesting arbitration, or any other notice made in connection therewith, shall be in writing and shall be sent certified or registered mail, return receipt requested to the affected parties. The notice requesting arbitration shall state in particulars all issues to be resolved in the view of the claimant, shall appoint the arbitrator selected by the claimant and shall set a tentative date for the hearing, which date shall be no sooner than ninety (90) days and no later than one hundred fifty (150) days from the date that the notice requesting arbitration is mailed. Within thirty (30) days of receipt of claimant's notice, the respondent shall notify claimant of any additional issues to be resolved in the arbitration and of the name of its appointed arbitrator. SECTION 8.3 ARBITRATION PANEL. Unless otherwise mutually agreed, the members of the Board shall be impartial and disinterested and shall be active or former executive officers of property-casualty insurance companies, reinsurance companies, or Lloyd's Underwriters or active or inactive lawyers with at least twenty (20) years of experience in insurance and reinsurance. Seller, on the one hand, and RSUI Group 8 and/or RSUI, on the other hand, shall each appoint an arbitrator and the two (2) arbitrators shall choose an umpire before instituting the hearing. If the respondent fails to appoint its arbitrator within thirty (30) days after having received claimant's written request for arbitration, the claimant is authorized to and shall appoint the second arbitrator. If the two arbitrators fail to agree upon the appointment of an umpire within thirty (30) days after notification of the appointment of the second arbitrator, within ten (10) days thereof, the two (2) arbitrators shall request the American Arbitration Association ("AAA") to appoint an umpire for the arbitration with the qualifications set forth in this Article. If the AAA fails to name an umpire, either party may apply to the court named below to appoint an umpire with the above required qualifications. The umpire shall promptly notify in writing all parties to the arbitration of his selection and of the scheduled date for the hearing. Upon resignation or death of any member of the Board, a replacement shall be appointed in the same fashion as the resigning or deceased member was appointed. SECTION 8.4 SUBMISSION OF BRIEFS. The claimant and respondent shall each submit initial briefs to the Board outlining the issues in dispute and the basis, authority and reasons for their respective positions within thirty (30) days of the date of notice of appointment of the umpire. The claimant and the respondent may submit reply briefs to the Board within ten (10) days after filing of the initial brief(s). Initial and reply briefs may be amended by the submitting party at any time, but not later than ten (10) days prior to the date of commencement of the arbitration hearing. Reasonable responses shall be allowed at the arbitration hearing to new material contained in any amendments filed to the briefs but not previously responded to. SECTION 8.5 ARBITRATION BOARD'S DECISION. The Board shall make a decision and award with regard to the terms of this Agreement and the original intentions of the parties to the extent reasonably ascertainable. The Board's decision and award shall be in writing and shall state the factual and legal basis for the decision and award. The decision and award shall be based upon a hearing in which evidence shall be allowed and which the formal rules of evidence shall not strictly apply but in which cross examination and rebuttal shall be allowed. At its own election or at the request of the Board, either party may submit a post-hearing brief for consideration of the Board within twenty (20) days of the close of the hearing. The Board shall make its decision and award within thirty (30) days following the close of the hearing or the submission of post-hearing briefs, whichever is later, unless the parties consent to an extension. Every decision by the Board shall be by a majority of the members of the Board and each decision and award by the majority of the members of the Board shall be final and binding upon all parties to the proceeding. SECTION 8.6 JURISDICTION. Either party may apply to the Chancery Court of the State of Delaware for an order compelling arbitration or confirming any decision and the award; a judgment of that Court shall thereupon be entered on any decision or award. If such an order is issued, the attorneys' fees of the party so applying and court costs will be paid by the party against whom confirmation is sought. The Board may award interest calculated from the date the Board determines that any amounts due the prevailing party should have been paid to the prevailing party. 9 SECTION 8.7 EXPENSES. Each party shall bear the expense of the one arbitrator appointed by it and shall jointly and equally bear with the other party the expense of any stenographer requested, and of the umpire. SECTION 8.8 PRODUCTION OF DOCUMENTS AND WITNESSES. Subject to customary and recognized legal rules of privilege, each party participating in the arbitration shall have the obligation to produce those documents and as witnesses to the arbitration those of its employees as any other participating party reasonably requests providing always that the same witnesses and documents be obtainable and relevant to the issues before the arbitration and not be unduly burdensome or excessive. The parties may mutually agree as to pre-hearing discovery prior to the arbitration hearing and in the absence of agreement, upon the request of any party, pre-hearing discovery may be conducted as the Board shall determine in its sole discretion to be in the interest of fairness, full disclosure, and a prompt hearing, decision and award by the Board. The Board shall be the final judge of the procedures of the Board, the conduct of the arbitration, of the rules of evidence, the rules of privilege and production and of excessiveness and relevancy of any witnesses and documents upon the petition of any participating party. To the extent permitted by law, the Board shall have the authority to issue subpoenas and other orders to enforce their decisions. SECTION 8.9 RELIEF AVAILABLE. Nothing herein shall be construed to prevent any participating party from applying to the Chancery Court of the State of Delaware to issue a restraining order or other equitable relief to maintain the "status quo" of the parties participating in the arbitration pending the decision and award by the Board or to prevent any party from incurring irreparable harm or damage at any time prior to the decision and award of the Board. The Board shall also have the authority to issue interim decisions or awards in the interest of fairness, full disclosure, and a prompt and orderly hearing and decision and award by the Board. SECTION 8.10 CONSOLIDATION. In the event that there is a dispute among Seller, RSUI Group and RSUI which implicates the provisions of this Agreement, the parties hereby agree to consolidate any such disputes under such agreements in a single arbitration proceeding. ARTICLE IX MISCELLANEOUS SECTION 9.1 NOTICES. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by facsimile (which is confirmed), by courier (delivery of which is confirmed) or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties to this RIC Administrative Services Agreement as follows: 10 If to Seller: Laura S. Lawrence, Esq. General Counsel Royal Group, Inc. 9300 Arrowpoint Blvd. Charlotte, NC 28273 Telephone No.: (704) 522-2851 Facsimile No.: (704) 522-2313 With a copy to (which shall not constitute notice to Insurer for purposes of this Section 9.1): Robert J. Sullivan, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Telephone No.: 212-735-2930 Facsimile No.: 212-735-2000 If to RSUI Group: Mr. David E. Leonard Executive Vice President RSUI Group, Inc. c/o Royal Specialty Underwriting, Inc. 945 East Paces Ferry Road Atlanta, GA 30326 Telephone No.: (404) 231-2366 Facsimile No: (404) 231-3755 With copies to (which shall not constitute notice to the Administrator for purposes of this Section 9.1): Robert M. Hart, Esq. General Counsel Alleghany Corporation 375 Park Avenue, Suite 3201 New York, New York 10152 Telephone No.: (212) 752-1356 Facsimile No.: (212) 759-8149 and Aileen C. Meehan, Esq. William W. Rosenblatt, Esq. Dewey Ballantine LLP 11 1301 Avenue of the Americas New York, New York 10019 Telephone No.: (212) 259-8000 Facsimile No.: (212) 259-6333 or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. In no event shall the provision of notice pursuant to this Section 9.1 constitute notice for service of any writ, process or summons in any suit, action or other proceeding. SECTION 9.2 ASSIGNMENT. Neither this Agreement nor any of the rights, interests and obligations of the parties hereunder may be assigned by any of the parties thereto without the prior written consent of the other parties thereto, except that (a) RSUI Group may assign its rights and obligations under this Agreement to any Affiliate of RSUI Group without the prior written consent of Seller, (b) Seller may assign any of its rights and obligations hereunder to any of its wholly owned subsidiaries organized in the United States without the prior written consent of RSUI Group and/or RSUI and (c) an assignment by operation of law in connection with a merger or consolidation shall not require the consent of the other party thereto. Notwithstanding the foregoing, each of Seller, RSUI Group and RSUI shall remain liable for all of their respective obligations under this Agreement. Subject to the first sentence of this Section 9.2, the Transition Agreement shall be binding upon and inure to the benefit of the parties thereto and their respective successors and assigns and no other person shall have any right, obligation or benefit hereunder. Any attempted assignment or transfer in violation of this Section 9.2 shall be void. SECTION 9.3 CONFIDENTIALITY. Each party hereto will hold, and will use its reasonable best efforts to cause its Affiliates, and their respective representatives to hold, in strict confidence from any Person (other than any such Affiliates or representatives), except with the prior written consent of the other party or unless (i) compelled to disclose by judicial or administrative process (including without limitation in connection with obtaining the necessary approvals of this Agreement and the transactions contemplated hereby of governmental or regulatory authorities) or by other requirements of Applicable Law or (ii) disclosed in an action or proceeding brought by a party hereto in pursuit of its rights or in the exercise of its remedies hereunder, this Agreement, the terms and conditions hereof, and all documents and information concerning the other party or any of its Affiliates furnished to it by the other party or such other party's representatives in connection with the transactions contemplated hereby, except to the extent that such documents or information can be shown to have been (a) previously known by the party receiving such documents or information, (b) in the public domain (either prior to or after the furnishing of such documents or information hereunder) through no fault of such receiving party or (c) later acquired by the receiving party from another source if the receiving party is not aware that such source is under an obligation to another party hereto to keep such documents and information confidential. SECTION 9.4 COOPERATION. Seller, RSUI Group and RSUI shall share information and otherwise cooperate to the extent necessary to facilitate the provision of 12 services under this Agreement. The parties will cooperate in a commercially reasonable manner in order that the respective obligations of the parties under this Agreement will be effectively, efficiently and promptly discharged. Each party shall, at all reasonable times under the circumstances, make available to the other party properly authorized personnel for the purpose of consultation and decision. SECTION 9.5 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of law thereof. SECTION 9.6 DISCLAIMER. The parties shall make no representations or warranties, express or implied, with respect to the Transition Services to be provided and the implied warranties or merchantability and fitness for a particular purpose shall be specifically excluded with respect to the Transition Services. SECTION 9.7 OTHER. There shall be no representations and warranties in this Agreement. 13 IN WITNESS WHEREOF, this Transition Services Agreement has been duly executed by a duly authorized officer of each party hereto as of the date first above written. ROYAL GROUP, INC. By: /s/ Stephen M. Mulready ------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer ALLEGHANY INSURANCE HOLDINGS LLC By: /s/ James P. Slattery ------------------------- Name: James P. Slattery Title: President ROYAL SPECIALTY UNDERWRITING, INC. By: /s/ James A. Dixon ------------------------- Name: James A. Dixon Title: Chairman EX-10.31 33 y88779exv10w31.txt CONTENTS TO TRANSITION SERVICES GREEMENT Exhibit 10.31 List of Contents of Schedules to the Transition Services Agreement Schedules Description --------- ------------ Schedule A Royal Transition Services/Information Schedule B RSUI Transition Services Schedule C Mutual Transition Services Schedule D Excluded Services EX-10.32 34 y88779exv10w32.txt TRANSITIONAL TRADEMARK LICENSE AGREEMENT EXHIBIT 10.32 TRANSITIONAL TRADEMARK LICENSE AGREEMENT THIS TRANSITIONAL TRADEMARK LICENSE AGREEMENT (this "Agreement"), dated as of July 1, 2003, is by and among ROYAL & SUNALLIANCE USA, INC., ("Licensor"), a corporation organized under the laws of Delaware, ROYAL SPECIALTY UNDERWRITING, INC. ("RSUI"), a corporation organized under the laws of Georgia, and RSA SURPLUS LINES INSURANCE SERVICES, INC., a corporation organized under the laws of Delaware ("RSA SLISI", each of RSUI and RSA SLISI a "Licensee", and together "Licensees"). WHEREAS, Licensor is the owner of the Licensed Marks (as hereinafter defined); and WHEREAS, prior to the date hereof, each Licensee was an indirect, wholly-owned subsidiary of Licensor, and each Licensee was using the Licensed Marks pursuant to an unwritten license from Licensor; and WHEREAS, Royal Group, Inc., a subsidiary of Assignor, and Alleghany Corporation ("Alleghany") have entered into that certain Acquisition Agreement, dated June 6, 2003 (the "Acquisition Agreement"), pursuant to which Alleghany acquired all of Licensees' issued and outstanding shares of common stock and certain operating assets used in the Business (as such term is defined in the Acquisition Agreement); and WHEREAS, in order to effect an orderly transition of Licensees' operations as contemplated under the Acquisition Agreement, the parties hereto acknowledge that Licensees need to use the Licensed Marks as such were used by Licensees prior to the Closing for a limited period; and WHEREAS, a condition to the closing of the transactions contemplated by the Acquisition Agreement is the execution and delivery of this Agreement by the parties hereto. NOW THEREFORE, in consideration of the execution, delivery and performance of the obligations under the Acquisition Agreement and this Agreement, the mutual covenants hereafter set forth and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Licensor and Licensees agree as follows: 1. DEFINITIONS. Capitalized terms used but not defined herein and which are defined in the Acquisition Agreement shall have the meanings ascribed to them in the Acquisition Agreement. 2. TERM. The term of this Agreement shall begin on the Closing Date and shall terminate six (6) months after the Closing Date (the "Term"), unless extended by written mutual agreement among Licensor and Licensees. 3. GRANT OF LICENSE 3.1 Subject to the terms of this Agreement, Licensor hereby grants to each Licensee a royalty-free, personal, non-exclusive, non-transferable (subject to Section 3.2), non-sublicenseable (subject to Section 3.2) license during the Term to use the Licensed Marks as used by such Licensee prior to the Closing Date, including, without limitation, in connection with the offering and sale of insurance products and services in accordance with practices current as of the Closing Date, on advertisements, brochures, letterhead stationery, as necessary regulatory forms, and in other ways customary to the trade. For purposes of this Agreement, "Licensed Marks" shall mean the following marks and design marks, or any portion thereof: "Royal", the half-navigator design as depicted on Exhibit A(1), "Royal & Sun Alliance", "Royal & SunAlliance" plus design, as shown in Exhibit A(2). 3.2 Each Licensee may assign this Agreement and its rights under this Agreement to any Affiliate or any other entity with which it is merged or that acquires substantially all of its assets and shall be permitted to sublicense its rights to Affiliates; provided, however that, no assignment shall release Licensee from its obligations under this Agreement and provided, further, that in case of an assignment to any Affiliate, if the assignee breaches any representations and warranties hereunder, then Licensor, in addition to any right or remedy, may proceed directly against Licensee for such breach without first proceeding against such assignee or exhausting any right or remedies against such assignee. 3.3 Restrictions. (a) Licensees shall use the Licensed Marks only in a manner and to the extent substantially consistent with Licensees' use of the Licensed Marks prior to the Closing Date, and Licensees shall offer insurance products and services under the Licensed Marks in compliance with all regulatory and other legal requirements of the jurisdiction in which they operate. (b) Nothing herein shall be construed as prohibiting or limiting the adoption or use of other designations, trademarks, service marks or trade names by Licensees; provided, however, that, subject to the provisions of the Acquisition Agreement and the Service Mark Assignment, during the Term neither Licensee shall adopt or use as one of its own trademarks or trade names, a trademark or trade name which includes or is confusingly similar to the Licensed Marks, nor shall Licensee combine any other name or trademark with any of the Licensed Marks or otherwise modify or alter any of the Licensed Marks; provided, further, however, Licensor expressly agrees and acknowledges that use or registration by the Licensees of the trademark, service mark and trade name "RSUI" shall not be a breach of this Section 3.2(c). Licensees agree that, during the Term, whenever Licensor calls their attention to any reasonable confusion or reasonable risk of confusion, they will, within a reasonable period of time and at Licensor's cost, accept any reasonable suggestion that may be made by Licensor for avoiding such confusion. 2 4. QUALITY CONTROL 4.1 Licensees acknowledge that the Licensed Marks have established valuable goodwill and are well-regarded by consumers as representing insurance products and services of the highest caliber, and that it is of great importance to Licensor that this valuable goodwill and reputation be maintained. Licensees undertake and agree that in the use of the Licensed Marks and the promotion and sale of insurance products they will conduct their respective businesses in a manner which will uphold the reputation of the Licensed Marks in the marketplace, and that they will not engage in any commercial or other practices which would reasonably be anticipated to injure, impair the value of, or otherwise detract from the reputation and goodwill associated with the Licensor or the Licensed Marks. Licensor expressly agrees and acknowledges that any use of the Licensed Marks by Licensees that is substantially consistent with Licensees' use prior to the Closing Date and Applicable Law shall not constitute a breach of this Section 4.1. 4.2 All products and services covered by the grant of license hereunder shall conform to standards of quality at least comparable to those generally prevailing on the Closing Date with respect to similar products and services sold under the Licensed Marks by or on behalf of Licensee, consistent with Licensees' current use of the Licensed Marks immediately before the Closing Date. 4.3 Licensees shall supply to Licensor at such time as is reasonably requested by Licensor (i) representative samples of any products or services used in connection with the Licensed Marks, (ii) a reasonable number of samples of advertising, and (iii) subject to Applicable Law, information on regulatory compliance so that Licensor can monitor the use of the Licensed Marks and the quality of the products and services offered thereunder. In addition, upon reasonable request and reasonable prior notice, Licensor may inspect during regular business hours all facilities operated by Licensees to verify proper use of the Licensed Marks as provided herein. Licensor shall not, by means of such inspection, interfere with Licensee's operations. All information received or reviewed by Licensor in connection with the exercise of its rights under this Section 4.3 shall be Confidential Information (as defined in Section 8) subject to the provisions of Section 8. If a Licensee fails to meet any applicable quality standard, then Licensor may request that such Licensee take reasonable steps to remedy any such deficiencies and such Licensee shall use commercially reasonable efforts to comply with such requests. 5. OWNERSHIP AND REGISTRATIONS OF LICENSED MARKS 5.1 Subject to the provisions of the Service Mark Assignment, Licensees acknowledge that, as among the parties, Licensor owns all right, title and interest in the Licensed Marks and agrees that any use of the Licensed Marks by Licensees and the goodwill associated therewith, in any manner whatsoever, for purposes of trademark, service mark and trade name ownership, registration, maintenance and enforcement shall inure to the benefit of Licensor. The parties hereto agree that no right, title, or interest in the Licensed Marks is being transferred to Licensee under this Agreement, except the right to use them in the manner and subject to the terms and 3 conditions set forth herein. 5.2 Subject to the provisions of the Service Mark Assignment, Licensees agree that they shall not, directly or indirectly: (i) use any Licensed Mark in any way that would be reasonably likely to impair its validity as a trademark; (ii) challenge or take any other action that would be reasonably likely to impair Licensor's rights in any Licensed Mark or impair its validity or enforceability as a trademark, or call into question the validity or ownership of any of the Licensed Marks or their registrations in any jurisdiction; (iii) apply for the registration of the Licensed Marks, or any name or mark which is confusingly similar to the Licensed Marks; or (iv) use or promote, any name or mark that is confusingly similar to the Licensed Marks. Licensee agrees to execute any acknowledgements or waivers that may be required to establish Licensor as the sole and exclusive owner of the Licensed Marks. 6. BREACH OF AGREEMENT; TERMINATION 6.1 Licensor may without prejudice to its other remedies terminate this Agreement immediately by notice in writing to Licensees on or after the occurrence of any of the following: (a) the commission of one or more material breaches of this Agreement by any Licensee which are not capable of remedy; (b) the commission of a material breach of this Agreement by any Licensee which is capable of remedy (a "Remediable Breach") which shall not have been remedied within a period of one (1) month after the party in breach has been given notice in writing specifying such Remediable Breach and requiring it to be remedied; provided, however, that such one-month period shall be extended for such additional period, not to exceed thirty (30) days, as shall be reasonably necessary if that Remediable Breach is incapable of remedy within that one-month period and during that one-month period the party in breach shall diligently endeavor to remedy that Remediable Breach, but only if such extension would not reasonably be expected to have a material adverse effect on the validity of the Licensed Marks. (c) the bankruptcy or insolvency of, a general assignment for the benefit of creditors or similar event by, or the appointment of a trustee, receiver or similar person for the Licensees. 6.2 Except as set forth in Section 6.1 herein, in no event shall any party to this Agreement have the right to terminate this Agreement or the rights granted hereunder during the Term. Except as set forth in Section 6.1 herein, in the event that either Licensee has committed a material breach of this Agreement, Licensor shall be entitled to all legal remedies (except termination of this Agreement) and injunctive or other equitable relief as a remedy for any such breach (including, without limitation, enjoining any of Licensee's actions that are in breach of this Agreement). 4 6.3 Upon a termination of this Agreement with respect to a Licensee, such Licensee shall, at Licensor's election, either deliver to Licensor all materials that include the Licensed Marks, including, but not limited to, advertisements, brochures, letterhead stationery and regulatory forms, or certify that such materials have been destroyed. 6.4 Upon the termination of this Agreement, the rights and obligations of the parties shall terminate, except that the provisions of Articles 7, 8 and 9 shall survive termination of this Agreement. Expiration or termination of this Agreement shall not discharge, affect or modify any rights or obligations which accrue or are incurred prior to the date of expiration or termination. 7. DISCLAIMER; INDEMNIFICATION 7.1 Representations; Disclaimer of Warranties. (a) Licensor represents and warrants to Licensees that (i) Licensor has the right to grant the licenses granted herein, (ii) Licensee's use of the Licensed Marks in the same manner as used by Licensees in the conduct of their respective operations prior to the Closing Date does not and will not violate or infringe the Intellectual Property rights of any Person who is not a party to this Agreement, and (iii) the Licensed Marks comprise all the trademarks, service marks, trade names and trade dress owned or controlled by Licensor and its Affiliates as were used by Licensees prior to the Closing Date in connection with the operation of the Business. (b) EXCEPT AS SET FORTH IN SECTION 7.1(a), NEITHER PARTY MAKES ANY REPRESENTATION AND WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, IN RELATION TO THE LICENSED MARKS OR ANY OTHER MATTER RELATED TO THIS AGREEMENT. WITHOUT LIMITING THE FOREGOING, BUT SUBJECT TO THE REPRESENTATIONS AND WARRANTIES INCLUDED IN SECTION 7.1(a), EACH PARTY EXPRESSLY DISCLAIMS ANY AND ALL IMPLIED WARRANTIES, INCLUDING, WITHOUT LIMITATION, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT. (c) LIMITATIONS ON DAMAGES. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER OR ANY OTHER PERSON FOR ANY INDIRECT, INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES INCURRED BY ANY PERSON, OR FOR ANY PUNITIVE OR EXEMPLARY DAMAGES IN CONNECTION WITH ANY CAUSE OF ACTION ARISING FROM OR RELATED TO THIS AGREEMENT, REGARDLESS OF THE THEORY OF LIABILITY ON WHICH SUCH CLAIMS ARE BASED, AND EVEN IF SUCH PARTY IS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR CLAIMS. 5 7.2 Each Licensee shall indemnify and agree to hold Licensor and its Affiliates harmless from, against and in respect of and shall reimburse Licensor and/or its Affiliates for any and all loss, liability or damage (including reasonable attorneys' fees and costs and expenses) resulting from any claim brought by any third party (excluding any Affiliate of Licensor) alleging infringement by Licensee of such third party's Trademark rights based upon such Licensee's use of the Licensed Marks to the extent such use of the Licensed Marks exceeds the scope of or is contrary to the rights granted to such Licensee herein, except for losses, liabilities or damages arising from any claim that the Licensed Marks or Licensor's grant hereunder infringe or otherwise violate the Trademark rights of such third party independent of any such Licensee use of the Licensed Marks beyond the scope of or contrary to the rights granted to such Licensee herein. 7.3 In the event that Licensor wishes to assert a claim for indemnification under Section 7.2, Licensor shall deliver written notice (a "Claims Notice") to Licensees no later than ten (10) Business Days after such claim becomes known to Licensor, specifying the facts constituting the basis for, and the amount (if known) of the claim asserted. Failure to deliver a Claims Notice with respect to a claim in a timely manner as specified in the preceding sentence shall not release Licensee from any of its obligations under Section 7.2, except to the extent Licensees are materially prejudiced by such failure. 8. CONFIDENTIALITY 8.1 Each party hereto will hold, and will use its reasonable best efforts to cause its Affiliates and representatives to hold, in strict confidence from any Person (other than any such Affiliates or representatives), this Agreement the terms and conditions hereof and thereof, and all documents and information concerning the other party or any of its Affiliates (the "Confidential Information") furnished to it by the other party (the "Disclosing Party") or such Disclosing Party's representatives in connection with this Agreement, except to the extent that such Confidential Information can be shown to have been (a) previously known by the party receiving such Confidential Information (the "Receiving Party"), (b) in the public domain (either prior to or after the furnishing of such Confidential Information hereunder) through no fault of such Receiving Party or (c) later acquired by the Receiving Party from another source if the Receiving Party is not aware that such source is under an obligation to another party hereto to keep such Confidential Information confidential; provided that, a Receiving Party may make any disclosure of Confidential Information (i) the use of such Confidential Information is reasonably required in connection with disclosure of the tax treatment and any facts that may be relevant to the tax structure of the transactions contemplated by this Agreement, (ii) with the prior written consent of the other party, (iii) if compelled to disclose by judicial or administrative process (including, without limitation, in connection with obtaining the necessary approvals for this Agreement and the transactions contemplated hereby of governmental or regulatory authorities) or by other requirements of Applicable Law or the rules of a national securities exchange or (iv) in connection with an action or proceeding brought by a party hereto in pursuit of its rights or in the exercise of its remedies hereunder. In the event a Receiving Party 6 becomes compelled to disclose Confidential Information as described in clauses (iii) and (iv) above, such party will provide the Disclosing Party with prompt notice of such legal proceedings so that the Disclosing Party may seek an appropriate protective order or other appropriate relief or waive compliance with the provisions of this Section 8.1. In the absence of a protective order or a waiver from the Disclosing Party, the Receiving Party compelled to disclose Confidential Information is permitted to disclose that portion (and only that portion) of the Confidential Information that such Receiving Party is legally compelled to disclose; provided, however, that the Receiving Party must use reasonable efforts to obtain reliable assurance that confidential treatment will be accorded by any Person to whom any Confidential Information is disclosed. 9. GENERAL 9.1 Amendment, Modification and Waiver. This Agreement may not be amended, modified or waived except by an instrument or instruments in writing signed and delivered on behalf of each of the parties hereto. 9.2 Entire Agreement. This Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and thereof and supersede all other prior agreements and understandings (other than the Confidentiality Agreement), both written and verbal, among the parties or any of them with respect to the subject matter hereof. 9.3 Interpretation. (a) When a reference is made in this Agreement to a Section or Article, such reference shall be to a section or article of this Agreement unless otherwise clearly indicated to the contrary. Whenever the words "include," "includes" or "including" are used in this Agreement they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement. The meaning assigned to each term used in this Agreement shall be equally applicable to both the singular and the plural forms of such term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. (b) The parties have participated jointly in the negotiation and drafting of this Agreement; consequently, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties thereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement. 9.4 Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to 7 have been duly given upon receipt) by delivery in Person, by telecopy (delivery of which is confirmed), by courier (delivery of which is confirmed) or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties to this Agreement as follows: If to the Licensor, to: Laura S. Lawrence, Esq. General Counsel Royal & SunAlliance USA, Inc. 9300 Arrowpoint Blvd. Charlotte, North Carolina 28273 Telephone No.: (704) 522-2851 Facsimile No.: (704) 522-2313 with a copy to (which shall not constitute notice to Licensor for purposes of this Section 9.4): Robert J. Sullivan, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Telephone No.: (212) 735-3000 Facsimile No.: (212) 735-2000 If to a Licensee: Royal Specialty Underwriting, Inc. Mr. David E. Leonard Executive Vice President 945 East Paces Ferry Road Atlanta, GA 30326 Telephone No.: (404) 231-2366 Facsimile No.: (404) 231-3755 with a copy to (which shall not constitute notice to Licensee for purposes of this Section 9.4): Aileen C. Meehan, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Telephone No.: (212) 259-8000 Facsimile No.: (212) 259-6333 All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. in the place of receipt and such day is a Business Day. Otherwise, any such notice, request or communication 8 shall be deemed not to have been received until the next succeeding Business Day in the place of receipt. 9.5 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 9.6 Assignment; Binding Agreement. Subject to Section 3.2, neither this Agreement, nor any rights, interests or obligations hereunder, may be directly or indirectly assigned, delegated, sublicensed or transferred by Licensees, in whole or in part, to any other Person (including any bankruptcy trustee) by operation of law or otherwise, whether voluntarily or involuntarily, without the prior written consent of Licensor, except that each Licensee shall have the right any time, without such consent, to assign, in whole or in part, its rights hereunder to any wholly owned Subsidiary of such Licensee, provided that such assignment shall not relieve such Licensee of any of its obligations hereunder. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 9.7 Third Party Beneficiaries. Nothing in this Agreement, express or implied, is intended to or shall confer upon any Person other than the parties hereto any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. 9.8 Specific Performance. The parties recognize and agree that if for any reason any of the provisions of this Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate and irreparable harm or injury would be caused for which money damages would not be an adequate remedy. Accordingly, each party agrees that, in addition to any other available remedies, each other party shall be entitled to an injunction restraining any violation or threatened violation of any of the provisions of this Agreement without the necessity of posting a bond or other form of security. In the event that any action should be brought in equity to enforce any of the provisions of this Agreement, no party will allege, and each party hereby waives the defense, that there is an adequate remedy at Law. 9.9 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as would be enforceable. 9.10 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. 9 9.11 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 9.12 Consent to Jurisdiction. Each of the parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the state and federal courts located in the State of Delaware for the purposes of enforcing this Agreement or any of the Ancillary Agreements. If any action is brought in a state court, the parties shall take such actions as are within their control to cause any matter contemplated hereby to be assigned to the Chancery Court of the State of Delaware. In any action, suit or other proceeding, each of the parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claims that it is not subject to the jurisdiction of the above courts, that such action or suit is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper. Each of the parties hereto also agrees that any final and unappealable judgment against a party hereto in connection with any action, suit or other proceeding shall be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States. A certified or exemplified copy of such award or judgment shall be conclusive evidence of the fact and amount of such award or judgment. 10 IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed on its behalf by its officer thereunto duly authorized, all as of the day and year first above written. LICENSOR: ROYAL & SUNALLIANCE USA, INC. By: /s/ Laura Lawrence ------------------------- Laura Lawrence Senior Vice President LICENSEES: ROYAL SPECIALTY UNDERWRITING, INC. By: /s/ E.G. Lassiter, III --------------------------- E.G. Lassiter, III President and Chief Executive Officer RSA SURPLUS LINES INSURANCE SERVICES, INC. By: /s/ E.G. Lassiter, III -------------------------- E.G. Lassiter, III President and Chief Executive Officer EXHIBIT A(1) [LOGO] EXHIBIT A(2) [ROYAL & SUNALLIANCE LOGO] EX-10.33 35 y88779exv10w33.txt EMPLOYEE LEASING AGREEMENT EXHIBIT 10.33 EMPLOYEE LEASING AGREEMENT by and among ROYAL INDEMNITY COMPANY and UNDERWRITERS REINSURANCE COMAPNY Dated as of July 1, 2003 EMPLOYEE LEASING AGREEMENT (this "Agreement"), dated as of July 1, 2003, by and between ROYAL INDEMNITY COMPANY, a corporation organized under the laws of the State of Delaware ("Royal Indemnity"), and UNDERWRITERS REINSURANCE COMAPNY, a corporation organized under the laws of the State of New Hampshire ("URC"). WHEREAS, URC is in the business of insurance and reinsurance and requires individuals to perform services to permit the conduct of its business; and WHEREAS, Alleghany Insurance Holding LLC ("AIHL") has entered into an agreement with Royal Group, Inc. ("Royal Group") denominated as the Acquisition Agreement and dated as of June 6, 2003 (the "Acquisition Agreement"), pursuant to which AIHL shall acquire from Royal Group, among other things, all of the issued and outstanding stock of Royal Specialty Underwriting, Inc. ("RSUI"); and WHEREAS, Royal Indemnity currently employs individuals experienced in performing services involved in the underwriting and administering of insurance and reinsurance, and Royal Indemnity is willing to lease those employees to URC until URC offers employment to such individuals following the acquisition of RSUI by AIHL; and WHEREAS, this is the Employee Leasing Agreement contemplated by the Acquisition Agreement; and WHEREAS, the Acquisition Agreement permits AIHL to assign its rights under the Acquisition Agreement and any Ancillary Agreement without prior written consent to any wholly owned Subsidiary, which term includes URC, and AIHL has assigned its rights under the Employee Leasing Agreement to URC; and WHEREAS, following the consummation of the acquisition of RSUI pursuant to the Acquisition Agreement, URC will be an Affiliate of RSUI; and WHEREAS, Royal Indemnity and URC acknowledge that, as a result of this Agreement, URC and Royal Indemnity may be viewed as shared employers or joint employers for the purposes of certain laws and regulations. It is not the intent of either party to escape certain risks and responsibilities that flow from URC's development and/or distribution of products or delivery of services through employees. These risks and responsibilities include but are not necessarily limited to, premises liability, workplace safety, professional negligence, general negligence and both federal and state employment laws and regulations. Royal Indemnity and URC recognize that under certain laws, both parties may be covered as employers, while under other laws, only one of the parties may be deemed to be the employer. NOW, THEREFORE, in consideration of the foregoing premises, the mutual agreements and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: ARTICLE I Definitions Capitalized terms not otherwise defined herein shall have the following meanings: "Records" means copies of all records (including computer generated, recorded or stored records) relating to the Leased Employees, including all personnel records and such other employment-related records in the possession or control of Royal Indemnity or any Affiliate relating to the Leased Employees as URC shall reasonably request for URC to conduct its business or to comply with any applicable employment law, rule or regulation. "Cause" means (i) the failure or refusal of a Leased Employee to substantially perform the material duties of his or her employment with Royal Indemnity, as determined by URC with the consent of Royal Indemnity (which consent shall not be unreasonably withheld, conditioned or delayed), (ii) the commission by a Leased Employee of a crime involving moral turpitude or that results in the loss, suspension or forfeiture of any license or registration required by the Leased Employee for the performance of his or her duties, or (iii) the Leased Employee's willful engagement in conduct which is materially injurious to the business of URC. A Leased Employee shall be deemed to have been terminated without cause if he or she terminates employment because of a refusal to accept a transfer to a business location with URC after July 1, 2003, which is more than fifty miles from his or her location of employment as of July 1, 2003, or if his or her job duties or employment status with RSUI are materially and adversely altered by URC, without his or her consent, from his duties or status immediately prior to July 1, 2003. "COBRA" means Section 601 et seq. of ERISA and Section 4980B of the Code and state and local laws of similar import, including all rules and regulations promulgated thereunder. "Leased Employee" means any RSUI Employee who performs services on behalf of URC after July 1, 2003. "RSUI Employee" means each of the active, full and part-time employees of Royal Indemnity who are identified on Schedule 11.1(a) of the Acquisition Agreement and any New Hire. "Severance Costs" means the sum of (i) the amount paid by Royal Indemnity to any Terminated Employee and the cost of any severance benefits provided to such Terminated Employee pursuant to the severance plans and policies of Royal Indemnity in effect during the Term, (ii) the additional costs, if any, paid or incurred by Royal Indemnity as a result of COBRA coverage with respect to any Terminated Employee and any "qualifying event" that occurs with respect to any Leased Employee during the Term, (iii) the amount of the payment, if any, to a Terminated Employee in 2 respect of accrued Paid Time Off ("PTO") pursuant to the vacation pay/PTO plan and policies of Royal Indemnity in effect at the time of termination of the Terminated Employee, (iv) the Taxes payable (without duplication) in respect of the amounts payable in respect of the Terminated Employee that are paid by Royal Indemnity, and (v) the amount of any additional expense of Royal Indemnity incurred on behalf of Terminated Employees at the request of URC. "Taxes" means the amount of federal, state and local income and employment taxes payable by Royal Indemnity (exclusive of any amount payable or borne by, or deducted from, amounts otherwise payable to any Leased Employee or Terminated Employee) and other withholdings or payments required by federal, state or local law or regulations, including but not limited to, Social Security taxes paid in accordance with the Federal Insurance Contribution Act, but not including the Medicare portion of contributions in respect of the Federal Insurance Contribution Act, Federal Unemployment Tax Act, and any taxes or other charges in respect of workers' compensation and unemployment insurance benefits. "Terminated Employee" means any Leased Employee who is terminated at the request of URC other than for Cause, including any Leased Employee who declines to accept URC's offer of employment (as contemplated by Article IX) and does not become a Transferred Employee. "Transferred Employee" means a Leased Employee who becomes an active employee of URC on January 1, 2004. Any other capitalized term used herein and not otherwise defined shall have the meaning ascribed to such term in the Acquisition Agreement. Whenever the singular term is used in the Agreement, the same shall include the plural, and whenever the plural is used in the Agreement, the same shall include the singular, where appropriate. ARTICLE II Term The term of this Agreement (the "Term") shall commence (or be deemed to have commenced) on 12:01 a.m. (Eastern time) on July 1, 2003, and end on 11:59:59 p.m. on December 31, 2003; provided that for each Leased Employee, the time used to determine the expiration of the Term shall be the local time at such Leased Employee's primary work location. Notwithstanding the expiration of the Term, the obligations of Royal Indemnity and URC hereunder shall survive the expiration of this Agreement. 3 ARTICLE III Staffing (a) During the Term, Royal Indemnity agrees to use its reasonable best efforts to continue to employ the Leased Employees and to make the Leased Employees available exclusively to URC (or its Affiliates) to perform those services performed by the RSUI Employees prior to July 1, 2003, in connection with the business and activities previously conducted by URC; provided, however, that Royal Indemnity shall not be required to incur any increased cost or expense not currently incurred or paid by Royal Indemnity related to any Leased Employee to continue such Leased Employee's employment except for those costs and expenses for which Royal Indemnity is entitled to reimbursement by URC hereunder, and provided further, that during the Term, no Leased Employee shall be transferred to, nor shall the services of any Leased Employee be shared with, Royal Indemnity or its Affiliates. Further, upon the request of URC, Royal Indemnity shall use reasonable efforts to hire individuals requested by URC and shall terminate the employment of any Leased Employee as of a date specified by URC, provided such employment and/or termination is not in violation of Royal Indemnity's employment policies and procedures or applicable law, as reasonably determined by Royal Indemnity. During the Term, Royal Indemnity agrees that it shall not terminate the employment of any Leased Employee without the prior consent of URC, which shall not be unreasonably withheld. During the Term, Royal Indemnity shall use its reasonable best efforts not to enter into any collective bargaining agreement or any labor contract with any labor union or association representing any Leased Employees unless otherwise required by applicable law. (b) Nothing contained herein shall preclude URC (or any Affiliate) from simultaneously employing any individual, (including any Leased Employee) for all or any part of the Term, or from electing or appointing any Leased Employee as an officer of, or to a position with, URC (or any Affiliate) during the Term. No provision of this Agreement shall be construed as limiting or modifying the terms of any employment agreement between URC (or any Affiliate) and any Leased Employee. Notwithstanding any provision in this Agreement to the contrary, during the Term and for a period of twelve (12) months following the expiration of the Term, URC (or any Affiliate) may not employ any RSUI Employee who does not become a Leased Employee. ARTICLE IV Payments (a) In exchange for Royal Indemnity's provision of staffing services to URC hereunder, URC shall pay to Royal Indemnity, after receiving a written statement from Royal Indemnity (not more frequently than bi-weekly) setting forth the details and providing reasonable documentation thereof, the following amounts paid or incurred by Royal Indemnity related to the Leased Employees: (i) an amount equal to 135% of the Compensation (as such term is defined in Article VI, below) paid to, or accrued by, the Leased Employees during the Term, (ii) any and all Special Payments (as such term is 4 defined in Article VI) paid by URC to or on behalf of the Leased Employees from time to time during the Term, (iii) all Taxes payable on or with respect to the employment of the Leased Employees or the compensation payable to them during the Term, and (iv) all other reasonably documented out-of-pocket expenses incurred by Royal Indemnity and previously approved or authorized by URC related to the Leased Employees during the Term. For purposes of determining the amount of Compensation earned in, or with respect to, any period, the Compensation payable to an employee in respect of a particular period, i.e., annually, monthly, weekly, shall be deemed earned ratably with respect to each calendar day in such period. (b) In addition to the foregoing amounts payable to Royal Indemnity for providing the staffing services to URC during the Term, URC shall pay to Royal Indemnity all Severance Costs, whether incurred by Royal Indemnity during or after the Term in connection with any Leased Employee. Royal Indemnity shall periodically (not more frequently than bi-weekly) submit a written statement to URC setting forth in reasonable detail the Severance Costs paid by Royal Indemnity since the last such statement. (c) All amounts set forth on the statements submitted to URC by Royal Indemnity shall be paid by URC within two (2) weeks after the date such statement is submitted to URC. Notwithstanding any provision of this Agreement or rule of law to the contrary, Royal Indemnity may terminate this Agreement in the event URC fails after the Closing to pay at least 100% of any Compensation provided by Royal Indemnity to Leased Employees at the time set forth herein; provided that Royal Indemnity first provides URC at least thirty (30) days' written notice of its failure to pay and Royal Indemnity's intent to terminate the Agreement at the end of the 30-day period if such payment is not made by the end of such 30-day period. In addition to all other relief available, URC shall pay Royal Indemnity interest on any amounts payable beyond the due date at the Applicable Rate. ARTICLE V Supervision All Leased Employees shall be subject to the management and direction of URC, including the designation of tasks to be performed and the method of accomplishing such tasks. URC shall have reasonable access during regular working hours to all Records relating to the Leased Employees; provided that Royal Indemnity and URC shall observe all privacy laws with respect to the Leased Employees' health and personnel information. Royal Indemnity shall promptly notify URC if Royal Indemnity or any Affiliate receives notice of any Leased Employee's actual, pending or threatened termination of employment with Royal Indemnity (other than as a result of the request of URC) or intent not to accept the offer of employment by URC or its specified Affiliates at the end of the Term. 5 ARTICLE VI Wages and Salaries Royal Indemnity will be responsible for paying and shall pay to or on behalf of each Leased Employee all wages, salaries and other compensation earned during the Term (collectively "Compensation"), for deducting all employment taxes, withholdings and other legally required contributions (such as in the nature of social security payments) which are required to be deducted from such Compensation, for paying all Taxes on or with respect to such Compensation and for any reporting, disclosure or withholding obligations in connection therewith. The rate of Compensation payable to each Leased Employee immediately prior to July 1, 2003, (or, in the case of any individual hired at the request of URC, the rate of Compensation as approved by URC) shall not be increased or decreased by Royal Indemnity during the Term without the prior consent of URC, unless otherwise required in accordance with applicable law; provided, however, that Royal Indemnity shall implement such changes in the rate of Compensation of the Leased Employees and Royal Indemnity shall make such special, non-recurring, non-performance based payments (including, for example, any retention payments or sign-on bonuses) or reimburse such other compensatory amounts as directed by URC ("Special Payments"). Notwithstanding the foregoing, the sum of all Compensation and any Special Payments (excluding a one-time maximum aggregate payment of $2.250 million made to Leased Employees in the form of a retention or non-performance based bonus) paid to the Leased Employees (1) during any bi-weekly pay period shall not exceed $1,000,000; and (2) during the Term shall not in the aggregate exceed $12,500,000. URC shall not be obligated to pay any Compensation to the Leased Employees directly, nor shall URC be responsible for paying directly to any governmental agency any Taxes, withholdings, or other legally required contributions (such as in the nature of social security payments due), or for reporting or disclosure obligations in connection therewith with respect to the Leased Employees. Royal Indemnity shall not be obligated to pay as Compensation, and shall not pay, the 2003 Bonus Payment. Nothing herein shall be interpreted as limiting the obligation of URC to make payments to Royal Indemnity pursuant to Article IV. ARTICLE VII Employee Benefits During the Term, the Leased Employees shall remain participants in the same benefit plans and programs of Royal Indemnity provided to similarly situated Royal Indemnity employees who are not Leased Employees. During the Term, URC shall not be obligated to provide any employee benefits to the Leased Employees. During the Term, Royal Indemnity shall also continue in effect the current general liability and professional liability insurance covering the Leased Employees to the same extent provided to similarly situated Royal Indemnity employees, provided such coverage is permitted under the terms of the applicable insurance policies. Royal Indemnity shall also retain during the Term and thereafter: (i) responsibility and liability for any severance amounts or benefits, including but not limited to COBRA coverage, to which 6 any Leased Employee who does not become a Transferred Employee may be entitled; and (ii) the obligation with respect to COBRA coverage for any "qualifying event" occurring during the Term with respect to any RSUI Employee (but the foregoing shall not be interpreted as limiting the obligation of URC to make payments to Royal Indemnity pursuant to Article IV). No amount shall be payable by URC to Royal Indemnity for providing any of the employee benefits, it being intended that the amount payable to Royal Indemnity pursuant to Article IV will fully compensate Royal Indemnity for all employee benefits earned by Leased Employees and paid or provided by Royal Indemnity to the Leased Employees (and their spouses and dependents) during or after the Term. In addition, Royal Indemnity agrees not to make any change with respect to any severance plan and policy or any vacation pay/PTO plan and policy for any Leased Employee other than a change that is uniformly applicable to all similarly situated Royal Indemnity employees. ARTICLE VIII Personnel Policies Except as specified herein, or as required by law, all terms and conditions of employment applicable to the Leased Employees shall be governed by the personnel policies and practices generally applicable to all employees of Royal Indemnity, as such policies and practices may be amended from time to time during the Term. ARTICLE IX Transfer Under the terms of the Acquisition Agreement, RSUI or an Affiliates, which includes URC, shall make an offer of employment to each Leased Employee, such employment to commence during or immediately after the end of the Term. Royal Indemnity and URC shall cooperate in all reasonable respects in connection with, the transfer of employment of any Leased Employee to URC or its specified Affiliates. Royal Indemnity shall not (and shall cause its Affiliates not to) take any action to solicit, aid or encourage any Leased Employee not to become a Transferred Employee. ARTICLE X Covenants, Warranties and Indemnification Each of URC and Royal Indemnity warrants to the other that it will not discriminate against candidates for leased employment or Leased Employees on the basis of race, gender, color, religion, national origin, age, disability, veteran's status, or any other protected classification, or because a Leased Employee has reported or is about to report a violation or suspected violation of any law. Each of URC and Royal Indemnity further warrants to the other that it will not sexually or otherwise harass any Leased Employee. 7 URC shall indemnify and hold Royal Indemnity and its shareholders, directors, employees, agents, successors, and assigns harmless for any consequences or liabilities, including attorney's fees, costs, and other expenses, which arise from allegations with respect to candidates for leased employment or Leased Employees, including but not limited to allegations that candidates for leased employment or Leased Employees were harassed, discriminated against, made to work in an unsafe work environment, not paid properly due to URC's failure to provide accurate information or verify information as accurate, not properly supervised, or not properly licensed or certified. This hold harmless provision shall also extend to any claims for any damages or injunctive relief against Royal Indemnity or its agents which arise out of URC's acts, errors, omissions, negligent acts, statutory violations or failure to adhere to some other duty or obligation. Royal Indemnity agrees that it will use its good faith best efforts to comply with all legal and regulatory requirements in connection with the employment of the Leased Employees. ARTICLE XI Miscellaneous Provisions SECTION 11.1. No Third Party Beneficiaries. This Agreement and all conditions and provisions hereof are for the sole and exclusive benefit of the parties hereto and their respective successors and assigns and are not intended for the benefit of any other person. In particular, nothing in this Agreement, express or implied, is intended to or shall confer upon any person other than the parties hereto any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement or shall be construed to give any Leased Employee or his or her respective heirs, assigns or beneficiaries any legal or equitable right, remedy or claim under or in respect to this Agreement or any provision contained herein. SECTION 11.2. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by telecopy (delivery of which is confirmed), by courier (delivery of which is confirmed) or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties to this Agreement as follows: If to URC: James A. Dixon Chairman Underwriters Reinsurance Company 945 East Paces Ferry Road Atlanta, GA 30326 Telephone: (404) 266-3020 Facsimile: (404) 364-6480 8 With concurrent copies to (which shall not constitute notice to URC): Robert M. Hart, Esq. General Counsel Alleghany Corporation 375 Park Avenue Suite 3201 New York, New York 10152 Telephone: (212) 752-1356 Facsimile: (212) 759-8149 Richard D. Belford, Esq. Swidler Berlin Shereff Friedman, LLP The Chrysler Building, 405 Lexington Avenue New York, N.Y. 10017 Telephone: (212) 891-9449 Facsimile: (212) 891-9598 If to Royal Indemnity: Laura Lawrence, Esq. General Counsel Royal Indemnity Company 9300 Arrowpoint Road Charlotte, NC 28273 Telephone: (704) 522-2851 Facsimile: (704) 522-2313 With concurrent copies to (which shall not constitute notice to Royal Indemnity): Michael Ott, Esq. Assistant General Counsel Royal Indemnity Company 9300 Arrowpoint Road Charlotte, NC 28273 Telephone: (704) 522-3522 Facsimile: (704) 522-2688 and Robert J. Sullivan, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 9 Telephone: (212) 735-3000 Facsimile: 212-735-2000 or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. In no event shall the provision of notice pursuant to this Section 11.2 constitute notice for service of any writ, process or summons in any suit, action or other proceeding. SECTION 11.3. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. SECTION 11.4. Descriptive Headings. The descriptive article and section headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. SECTION 11.5. Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as would be enforceable. SECTION 11.6. Relationship of Parties. Nothing herein contained shall constitute Royal Indemnity or any of its respective Affiliates, on the one hand, and URC or any of its Affiliates, on the other hand, as members of any partnership, joint venture, association, syndicate, or other entity, or be deemed to confer on any of them any express, implied, or apparent authority to incur any obligation or liability on behalf of another party, except as otherwise expressly provided herein. SECTION 11.7. Assignment; Binding Effect. Neither this Agreement, nor any of the rights, interests or obligations hereunder, may be assigned, in whole or in part, by any party without the prior written consent of the other parties hereto and any such assignment that is not consented to shall be null and void; provided, that upon prior written notice, either party may assign to any of its Affiliates all or any part of its rights, interests or obligations under this Agreement (including, without limitation, the staffing services of all or any Leased Employee for all or any part of the Term); provided, further, that no such assignment shall relieve any party of any liability under this Agreement. It being understood for the avoidance of doubt that in the event either party shall merge or consolidate with another person or entity, such merger or consolidation shall not be deemed to be an assignment and, accordingly, no consent of any person shall be required hereunder. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors, permitted assigns and legal representatives. SECTION 11.8. Integration. This Agreement and the Acquisition Agreement constitute the entire agreement among Royal Indemnity and URC relating to 10 the subject matter hereof and supersede all prior and contemporaneous agreements, understandings, negotiations, and discussions, whether oral or written, of Royal Indemnity and URC with respect thereto and there are no general or specific warranties, representations or other agreements by or among Royal Indemnity and URC in connection with the entering into of this Agreement or the subject matter hereof except as specifically set forth or contemplated herein or in the Acquisition Agreement. Notwithstanding the foregoing, except as specifically set forth herein, this Agreement shall not be interpreted as modifying the obligations and rights of the parties as set forth in the Acquisition Agreement. SECTION 11.9. Amendments. This Agreement may not be amended, modified or waived except by an instrument or instruments in writing signed and delivered on behalf of each of the parties hereto. SECTION 11.10. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. SECTION 11.11. Consent to Jurisdiction. Each of the parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the state and federal courts located in the State of Delaware for the purpose of enforcing this Agreement. The parties shall take such actions as are within their control to cause any matter contemplated hereby to be assigned to the Chancery Court of the State of Delaware. In any action, suit or other proceeding, each of the parties hereto irrevocably and unconditionally waives and agree not to assert by way of motion, as a defense or otherwise any claims that it is not subject to the jurisdiction of the above courts, that such action or suit is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper. Each of the parties hereto also agrees that any final and unappealable judgment against a party hereto in connection with any action, suit or other proceeding shall be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside the United States. A certified or exemplified copy of such award or judgment shall be conclusive evidence of the fact and amount of such award or judgment. SECTION 11.12. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 11.13. Interpretation. (a) When a reference is made in this Agreement to a Section or Article, such reference shall be to a section or article of this Agreement unless otherwise clearly indicated to the contrary. Whenever the words "include," "includes" or "including" are used in this Agreement they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole 11 and not to any particular provision of this Agreement. The meaning assigned to each term used in this Agreement shall be equally applicable to both the singular and the plural forms of such term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. (b) URC and Royal Indemnity have participated jointly in the negotiation and drafting of this Agreement; consequently, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties thereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement. SECTION 11.14. Waiver. No consent or waiver, express or implied, by any party to or of any breach or default by any other party in the performance by such other party of its obligations hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance of obligations hereunder by such other party hereunder. Failure on the part of any party to complain of any act or failure to act of any other party or to declare any other party in default, irrespective of how long such failure continues, shall not constitute a waiver by such first party of any of its rights hereunder. SECTION 11.15. IP. Royal Indemnity hereby transfers, conveys and assigns to URC its entire right, title and interest in and to all copyrights, patents, trade secrets, trademarks and other intellectual property (in each case, both in the United States and foreign countries), including, without limitation, any and all writings, drawings, inventions, designs, processes, discoveries, ideas and computer programs (including software codes), including any improvements and modifications and any other work product, documentation, notes and materials related to the foregoing (whether or not copyrightable or patentable), developed or created by one or more of the Leased Employees during the Term (collectively, the "Developments"). Royal Indemnity hereby agrees to cooperate fully with URC, both during and after the Term in whatever respect URC reasonably deems necessary or desirable with regard to the procurements, maintenance and enforcement of all rights relating to any of the Developments, including, without limitation, executing, acknowledging and delivering and causing its applicable employees to execute, acknowledge and deliver all papers and relevant information, including, without limitation, copyright applications, patent applications, affidavits, declarations, oaths, testimony in connection with a proceeding, formal assignments and conveyances, assignments of priority rights and powers of attorney. Royal Indemnity further agrees that if URC is unable, after reasonable effort, to secure Royal Indemnity's signature on any such papers, any executive officer of URC shall be entitled to execute any such papers as the agent and the attorney in fact of Royal Indemnity, and Royal Indemnity hereby irrevocably designates and appoints each executive officer of URC as its agent and attorney-in-fact to execute any such papers on its behalf, and to take any and all actions as URC, with the full power of substitution therein, may reasonably deem necessary or desirable to protect its rights and interests in any Development, under the conditions described in this sentence. 12 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duty authorized representatives as the date first above written. ROYAL INDEMNITY COMPANY By: /s/ Stephen M. Mulready ---------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer UNDERWRITERS REINSURANCE COMPANY By: /s/ James P. Slattery ----------------------------- Name: James P. Slattery Title: President EX-10.34 36 y88779exv10w34.txt MANAGING GENERAL AGENCY AGREEMENT EXHIBIT 10.34 MANAGING GENERAL AGENCY AGREEMENT BY AND BETWEEN ROYAL SPECIALTY UNDERWRITING, INC., (As Managing General Agent) ROYAL INDEMNITY COMPANY, ROYAL SURPLUS LINES INSURANCE COMPANY, ROYAL INSURANCE COMPANY OF AMERICA, AND LANDMARK AMERICAN INSURANCE COMPANY DATED JULY 1, 2003 TABLE OF CONTENTS ARTICLE I DEFINITIONS........................................................... 2 SECTION 1.1 DEFINITIONS...................................................... 2 ARTICLE II APPOINTMENT.......................................................... 3 ARTICLE III TERM OF MGA AGREEMENT............................................... 4 ARTICLE IV MGA SERVICES TO BE PERFORMED BY RSUI................................. 4 SECTION 4.1 MGA SERVICES..................................................... 4 SECTION 4.2 UNDERWRITING SERVICES............................................ 4 SECTION 4.3 ADMINISTRATIVE SERVICES.......................................... 4 SECTION 4.4 HANDLING OF ROYAL INSURER AFFILIATES' FUNDS...................... 5 SECTION 4.5 BOOKS AND RECORDS................................................ 5 ARTICLE V UNAUTHORIZED ACTIONS.................................................. 6 ARTICLE VI TERMINATION.......................................................... 6 ARTICLE VII CONFIDENTIALITY..................................................... 7 SECTION 7.1 USE OF CONFIDENTIAL INFORMATION.................................. 7 SECTION 7.2 CONFIDENTIALITY OF INDIVIDUALS................................... 7 SECTION 7.3 DISCLOSURE....................................................... 7 ARTICLE VIII INDEMNIFICATION.................................................... 8 SECTION 8.1 INDEMNIFICATION BY THE ROYAL INSURER AFFILIATES.................. 8 SECTION 8.2 INDEMNIFICATION BY RSUI.......................................... 8 SECTION 8.3 INDEMNIFICATION PROCEDURE........................................ 8 ARTICLE IX ARBITRATION.......................................................... 8 SECTION 9.1 ARBITRATION...................................................... 9 SECTION 9.2 NOTICE OF ARBITRATION............................................ 9 SECTION 9.3 ARBITRATION PANEL................................................ 9 SECTION 9.4 SUBMISSION OF BRIEFS............................................. 9 SECTION 9.5 ARBITRATION BOARD'S DECISION..................................... 10 SECTION 9.6 JURISDICTION..................................................... 10 SECTION 9.7 EXPENSES......................................................... 10 SECTION 9.8 PRODUCTION OF DOCUMENTS AND WITNESSES............................ 10 SECTION 9.9 RELIEF AVAILABLE................................................. 10 SECTION 9.10 CONSOLIDATION................................................... 11 ARTICLE X MISCELLANEOUS......................................................... 11 SECTION 10.1 COOPERATION..................................................... 11 SECTION 10.2 AMENDMENT, MODIFICATION AND WAIVER.............................. 11 SECTION 10.3 ENTIRE AGREEMENT................................................ 11 SECTION 10.4 GOVERNING LAW................................................... 11 SECTION 10.5 SEVERABILITY.................................................... 11 SECTION 10.6 COUNTERPARTS.................................................... 12 SECTION 10.7 CONSENT TO JURISDICTION......................................... 12 SECTION 10.8 THIRD PARTY BENEFICIARIES....................................... 12 SECTION 10.9 NON-ASSIGNABILITY............................................... 12
i SECTION 10.10 SPECIFIC PERFORMANCE........................................... 12 SECTION 10.11 DESCRIPTIVE HEADINGS........................................... 12 SECTION 10.12 USE OF NAME.................................................... 12 SECTION 10.13 NOTICES........................................................ 13 SECTION 10.14 INTERPRETATION................................................. 14
EXHIBIT A LIST OF ROYAL INSURER AFFILIATES EXHIBIT B UNDERWRITING GUIDELINES ii MANAGING GENERAL AGENCY AGREEMENT This Managing General Agency Agreement (the "MGA Agreement"), dated July 1, 2003 is being entered into by and between Royal Specialty Underwriting, Inc., a Georgia business corporation ("RSUI"), and certain insurer affiliates of Royal Group, Inc, a Delaware business corporation ("Royal"), listed on Exhibit A hereto (the "Royal Insurer Affiliates"). RECITALS: WHEREAS, prior to the date hereof, RSUI has underwritten certain insurance and reinsurance contracts on behalf of the Royal Insurer Affiliates and administered the claims and reinsurance recoverables relating to such contracts; WHEREAS, pursuant to the Acquisition Agreement ("Acquisition Agreement"), dated as of June 6, 2003, by and between Royal and Alleghany Insurance Holdings LLC, a Delaware limited liability company ("AIHL"), the parties agreed, among other things, that Royal will sell to Alleghany, and Alleghany will purchase from Royal, all of the issued and outstanding shares of common stock of RSUI; and WHEREAS, as part of such Acquisition Agreement, Royal and Alleghany have agreed that Royal shall cause the Royal Insurer Affiliates, and Alleghany shall cause RSUI, to enter into this MGA Agreement; and WHEREAS, in connection with the Acquisition Agreement, certain of Royal's insurer affiliates, namely, Royal Indemnity Company, a Delaware property and casualty insurance company ("RIC"), Royal Surplus Lines Insurance Company, a Connecticut surplus lines insurer ("RSLIC") and Landmark American Insurance Company, an Oklahoma insurance company ("Landmark"), will each enter into a quota share reinsurance agreement with Underwriters Reinsurance Company, a New Hampshire stock insurance company ("URC"). NOW, THEREFORE, in consideration of these promises and the terms of conditions set forth herein, and in consideration of the parties and certain of their affiliates entering into the RIC Quota Share Reinsurance Agreement, the RSLIC Quota Share Reinsurance Agreement, the Landmark Quota Share Reinsurance Agreement (defined below) (collectively, the "Quota Share Reinsurance Agreements"), the RIC Administrative Services Agreement, the RSLIC Administrative Services Agreement, the RICA Administrative Services Agreement and the Landmark Administrative Services Agreement (collectively, the "Administrative Services Agreements") and the Landmark Purchase Agreement, the receipt and sufficiency of which are hereby acknowledged, RSUI and the Royal Insurer Affiliates agree as follows: 1 ARTICLE I DEFINITIONS SECTION 1.1 DEFINITIONS Capitalized terms used but not defined herein and which are defined in the Quota Share Reinsurance Agreements shall have the meanings ascribed to them in such agreements. As used in this MGA Agreement, the following terms shall have the meanings set forth herein: "Acquisition Agreement" shall have the meaning set forth in the recitals. "Administrative Services Agreements" shall mean the RIC Administrative Services Agreement, the RSLIC Administrative Services Agreement, the RICA Administrative Services Agreement and the Landmark Administrative Services Agreement, collectively. "AIHL" shall have the meaning set forth in the recitals. "Books and Records" shall have the meaning set forth in the Administrative Services Agreements. "GNIC" shall mean Guaranty National Insurance Company, a Colorado insurance company and an indirect, wholly-owned subsidiary of Royal. "Governmental Entity" shall have the meaning set forth in the Acquisition Agreement. "Landmark Ancillary Agreement" shall have the meaning set forth in the Landmark Purchase Agreement. "Landmark Purchase Agreement" shall mean the stock purchase agreement by and between AIHL and GNIC, dated June 6, 2003. "Landmark Quota Share Reinsurance Agreement" shall have the meaning set forth in the Landmark Quota Share Reinsurance Agreement. "MGA Services" shall have the meaning set forth in Section 4.1. "Permits" shall mean all permits, licenses, authorizations, variances, exemptions, orders, registrations and approvals of all Governmental Entities which are necessary for the conduct of RSUI's business relative to its performance of the MGA Services under this MGA Agreement. "Person" shall have the meaning set forth in the Acquisition Agreement. "Quota Share Reinsurance Agreements" shall mean the RIC Quota Share Reinsurance Agreement, the RSLIC Quota Share Reinsurance Agreement and the Landmark Quota Share Reinsurance Agreement, collectively. 2 "Representative" shall have the meaning set forth in the Acquisition Agreement. "RIC" shall have the meaning set forth in the recitals. "RICA" shall mean Royal Insurance Company of America. "RSLIC" shall have the meaning set forth in the recitals. "Royal" shall have the meaning set forth in the introduction. "Royal Affiliate Insurers Indemnified Party" shall have the meaning in Section 8.2. "Royal Insurer Affiliates" shall have the meaning set forth in the introduction. "RSUI" shall have the meaning set forth in the introduction hereto. "RSUI Indemnified Party" shall have the meaning set forth in Section 8.1. "Underwriting Guidelines" shall have the meaning set forth in Section 4.2. "URC" shall have meaning set forth in the recitals. ARTICLE II APPOINTMENT SECTION 2.1 The Royal Insurer Affiliates hereby appoint RSUI as their managing general agent to perform on and after the Closing Date the services set forth in Article IV of this MGA Agreement with respect to the Reinsured Contracts ("MGA Services"). RSUI hereby accepts such appointment and agrees to render the MGA Services to the Royal Insurer Affiliates in the manner and to the extent set forth herein. The Royal Insurer Affiliates shall have ultimate responsibility for, and control, of all services performed hereunder by RSUI. SECTION 2.2 RSUI shall, at all times, act as an independent contractor. The relationship created herein is not to be construed as a joint venture between RSUI and the Royal Insurer Affiliates or any form of partnership between RSUI and the Royal Insurer Affiliates. SECTION 2.3 In entering into this MGA Agreement, RSUI warrants and represents that it has the requisite Permits to carry out the duties and obligations required of it under this MGA Agreement. For the duration of this MGA Agreement, RSUI hereby covenants that it will: (i) employ and retain an adequate number of employees with the experience, skill and expertise to perform the MGA Services RSUI is obligated to perform under this 3 MGA Agreement; (ii) maintain any and all Permits required under Applicable Law to perform its obligations under the MGA Agreement and (iii) perform the MGA Services hereunder in accordance with all Applicable Law. ARTICLE III TERM OF MGA AGREEMENT SECTION 3.1 This MGA Agreement shall be continuous in nature and shall remain in effect until terminated in accordance with the provisions set forth in Article VI; provided, however, notwithstanding anything in this Article III or this MGA Agreement to the contrary, RSUI shall automatically cease underwriting, issuing or binding all Reinsured Contracts in the name of the Royal Insurer Affiliates twelve months from the date of this MGA Agreement. Notwithstanding the termination of RSUI's underwriting authority, however, all of the other authority granted to RSUI under this MGA Agreement shall continue until the earlier of when: (i) all of the Reinsured Liabilities are extinguished or (ii) this MGA Agreement is terminated. ARTICLE IV MGA SERVICES TO BE PERFORMED BY RSUI SECTION 4.1 MGA SERVICES. RSUI shall perform all the services set forth in Sections 4.2, 4.3, 4.4 and 4.5 of this Article IV (collectively, the "MGA Services"). SECTION 4.2 UNDERWRITING SERVICES. RSUI shall solicit, underwrite, bind and issue Reinsured Contracts strictly in accordance with Royal Insurance Affiliates' underwriting guidelines, which are attached as Exhibit B, as those guidelines may be modified or amended from time-to-time by mutual agreement of RSUI and the Royal Insurer Affiliates ("Underwriting Guidelines"). Each of RSUI and the Royal Insurer Affiliates shall notify the other in writing of any proposed changes that either RSUI or the Royal Insurer Affiliates would like to be reflected in the Underwriting Guidelines. SECTION 4.3 ADMINISTRATIVE SERVICES (a) RSUI shall investigate, adjust, settle, handle and process all claims with respect to the Reinsured Contacts, including performing all the services set forth in Section 3.1 of each of the Administrative Services Agreements, subject to precisely the same terms and conditions, restrictions and limitations set forth in the Administrative Services Agreements. 4 (b) (i) Notwithstanding anything in this Article IV of this MGA Agreement or the Underwriting Guidelines to the contrary: (A) All claims relating to the Reinsured Contracts must be reported to the Royal Insurer Affiliates in a timely manner. (B) At the request of any of the Royal Insurer Affiliates, RSUI shall provide a report of any claim involving any Reinsured Contract that is of a type set forth in Section 4(7) of Chapter 47 of Title 33 of the Georgia Insurance Code. SECTION 4.4 HANDLING OF ROYAL INSURER AFFILIATES' FUNDS (a) All money received by RSUI on behalf of the Royal Insurer Affiliates under this MGA Agreement shall be held by RSUI in a fiduciary capacity in a segregated account at a bank which is a member of the Federal Reserve System. Within five days of RSUI receiving any money on behalf of the Royal Insurer Affiliates under this MGA Agreement, RSUI shall transfer such money to such trust account. (b) Prior to the transfer of any monies into the trust account, RSUI shall place all funds its receives on behalf of the Royal Insurer Affiliates in an account segregated from all other funds or monies held by RSUI either on behalf of itself or on behalf of other third parties. RSUI shall not commingle any of monies it receives on behalf of the Royal Insurer Affiliates with any other funds. (c) RSUI shall render accounts to the Royal Insurer Affiliates and URC detailing all transactions under this MGA Agreement on a monthly basis. Such accounting shall be performed on the same basis and in the same manner that RSUI rendered such accounting to the Royal Insurer Affiliates immediately prior to the Closing Date. SECTION 4.5 BOOKS AND RECORDS The duties and obligations of RSUI and the Royal Insurer Affiliates with respect to the Books and Records shall be performed in accordance with the requirements set forth under the Administrative Services Agreements. SECTION 4.6 PAYMENT FOR MGA SERVICES All of RSUI's compensation for the performance of the MGA Services hereunder, as well as all expenses of any kind incurred by RSUI in the performance of the MGA Services, shall be determined and paid solely by AIHL and its Affiliates. Neither the Royal Insurer Affiliates nor any of their Affiliates shall have any obligation whatsoever under this MGA Agreement to pay RSUI for the MGA Services, or for any expenses incurred by RSUI in performing the MGA Services. 5 ARTICLE V UNAUTHORIZED ACTIONS SECTION 5.1 Notwithstanding any other provision of this MGA Agreement or the Administrative Services Agreements to the contrary, without the prior written approval of the Royal Insurer Affiliates, RSUI shall not: (a) issue, underwrite or bind any Reinsured Contracts in the name of the Royal Insurer Affiliates on and after the first anniversary of this Agreement; (b) commit the Royal Insurer Affiliates to participate in any insurance or reinsurance syndicates; (c) appoint any producer without assuring that the producer is lawfully licensed to transact the type of insurance for which he is appointed; (d) collect any payment from a reinsurer or pay or commit a Royal Insurer Affiliate to any claim settlement with a reinsurer, without the prior approval of the applicable Royal Insurer Affiliate. If prior approval is given, a report must be promptly forwarded to the applicable Royal Insurer Affiliate; or (e) jointly employ an individual who is employed with any of the Royal Insurer Affiliates. Notwithstanding anything in this Section 5.1 to the contrary, RSUI shall have the authority to bind reinsurance or retrocessions on behalf of the Royal Insurer Affiliates pursuant to the terms and conditions of the Administrative Services Agreements. ARTICLE VI TERMINATION SECTION 6.1 (a) The parties may terminate this Agreement on the same basis that the parties may terminate the Administrative Services Agreement. 6 ARTICLE VII CONFIDENTIALITY SECTION 7.1 USE OF CONFIDENTIAL INFORMATION. RSUI acknowledges that it will have access to confidential and proprietary information concerning the Royal Insurer Affiliates and their businesses, which information is not readily available to the public, and acknowledge that RSUI and its Affiliates has taken and will continue to take reasonable actions to ensure such information is not made available to the public. RSUI further agrees that it will not at any time (during the term hereof or thereafter) disclose to any Person (except its Affiliates and the officers, directors, employees, agents and representatives of RSUI and its Affiliates who require such information in order to perform their duties in connection with the services provided hereunder), directly or indirectly, or make any use of, for any purpose other than those contemplated by this MGA Agreement, the Administrative Services Agreements and the Quota Share Reinsurance Agreements, any information or trade secrets relating to the Reinsured Contracts or the business affairs of the Royal Insurer Affiliates, including the identity of and/or the compensation arrangements with, any Affiliates of the Royal Insurer Affiliates and, so long as such information remains confidential. SECTION 7.2 CONFIDENTIALITY OF INDIVIDUALS. Information that identifies a Person covered under one of the Reinsured Contracts may be confidential. RSUI shall take all reasonable precautions to prevent disclosure or use of information identifying individuals covered under such Reinsured Contracts for a purpose unrelated to the performance of its obligations under this MGA Agreement. RSUI shall comply with all Applicable Laws as in effect on the date hereof or as hereafter adopted or amended. With respect to Reinsured Contracts, RSUI shall take all reasonable precautions to prevent disclosure or use of information identifying individuals for a purpose unrelated to the performance of its obligations under this MGA Agreement. SECTION 7.3 DISCLOSURE. RSUI may disclose confidential information in the following circumstances: (i) to URC; (ii) in response to a court order or formal discovery request after notice to the other party (to the extent such notice is reasonably practicable); provided, however, that such disclosure shall be limited only to the extent that is required by such court order or formal disclosure request; (iii) if a proper request is made by any regulatory authority after notice to the other party (to the extent such notice is reasonably practicable); provided, however, that such disclosure shall be limited only to the extent that is required by such regulatory authority; (iv) as otherwise required by Applicable Law; or 7 (v) as otherwise provided by the provisions of this MGA Agreement. ARTICLE VIII INDEMNIFICATION SECTION 8.1 INDEMNIFICATION BY THE ROYAL INSURER AFFILIATES. The Royal Insurer Affiliates shall indemnify RSUI and its officers, directors (each, an "RSUI Indemnified Party") and shall hold each RSUI Indemnified Party harmless from and against all Damages which are asserted against, imposed upon or incurred by any RSUI Indemnified Party as a result of or in connection with the performance by RSUI of the MGA Services, except to the extent that such Damages are attributable to: (i) the negligence or willful misconduct of RSUI, its officers, directors, employees or Representatives; or (ii) a breach by RSUI, its officers, directors, employees or Representatives of its obligations under this MGA Agreement. SECTION 8.2 INDEMNIFICATION BY RSUI. RSUI shall indemnify the Royal Insurer Affiliates and its officers, directors and employees (each, a "Royal Insurer Affiliates Indemnified Party") and shall hold each Royal Insurer Affiliates Indemnified Party harmless from all Damages asserted against, imposed upon or incurred by any of the Royal Insurer Affiliates Indemnified Party in the performance by RSUI of the MGA Services to the extent such Damage is attributable to: (i) the negligence or willful misconduct of RSUI, its officers, directors, employees or Representatives; or (ii) a breach by RSUI, its officers, directors employees or Representatives of its obligations under this MGA Agreement. SECTION 8.3 INDEMNIFICATION PROCEDURE. In the event either the Royal Insurer Affiliates or RSUI shall have a claim for indemnity against the other party under the terms of this MGA Agreement, the parties shall follow the procedures set forth in Article XIV of the Acquisition Agreement. SECTION 8.4 NO DUPLICATION. Any liability for indemnification hereunder shall be determined without duplication of recovery by reason of (i) the state of facts giving rise to such liability constituting a breach of more than one representation, warranty, covenant or agreement or (ii) the liability of the RSUI Indemnified Party or the Royal Insurer Affiliates Indemnified Party or any Affiliate thereof under a Landmark Ancillary Agreement, the Acquisition Agreement or an Ancillary Agreement (as such term is defined in the Acquisition Agreement). ARTICLE IX ARBITRATION 8 SECTION 9.1 ARBITRATION. As a condition precedent to any cause of action, any and all disputes between RSUI and the Royal Insurer Affiliates arising out of, relating to, or concerning this MGA Agreement, whether sounding in contract or tort and whether arising during or after termination of this MGA Agreement, shall be submitted to the decision of a board of arbitration composed of two arbitrators and an umpire ("Board") meeting at a site in Wilmington, Delaware. The arbitration shall be conducted under the Federal Arbitration Act and shall proceed as set forth below. SECTION 9.2 NOTICE OF ARBITRATION. A notice requesting arbitration, or any other notice made in connection therewith, shall be in writing and shall be sent certified or registered mail, return receipt requested to the affected parties. The notice requesting arbitration shall state in particulars all issues to be resolved in the view of the claimant, shall appoint the arbitrator selected by the claimant and shall set a tentative date for the hearing, which date shall be no sooner than ninety (90) days and no later than one hundred fifty (150) days from the date that the notice requesting arbitration is mailed. Within thirty (30) days of receipt of claimant's notice, the respondent shall notify claimant of any additional issues to be resolved in the arbitration and of the name of its appointed arbitrator. SECTION 9.3 ARBITRATION PANEL. Unless otherwise mutually agreed, the members of the Board shall be impartial and disinterested and shall be active or former executive officers of property-casualty insurance companies, reinsurance companies, or Lloyd's Underwriters or active or inactive lawyers with at least twenty (20) years of experience in insurance and reinsurance. RSUI and the Royal Insurer Affiliates shall each appoint an arbitrator and the two (2) arbitrators shall choose an umpire before instituting the hearing. If the respondent fails to appoint its arbitrator within thirty (30) days after having received claimant's written request for arbitration, the claimant is authorized to and shall appoint the second arbitrator. If the two arbitrators fail to agree upon the appointment of an umpire within thirty (30) days after notification of the appointment of the second arbitrator, within ten (10) days thereof, the two (2) arbitrators shall request the American Arbitration Association ("AAA") to appoint an umpire for the arbitration with the qualifications set forth in this Article. If the AAA fails to name an umpire, either party may apply to the court named below to appoint an umpire with the above required qualifications. The umpire shall promptly notify in writing all parties to the arbitration of his selection and of the scheduled date for the hearing. Upon resignation or death of any member of the Board, a replacement shall be appointed in the same fashion as the resigning or deceased member was appointed. SECTION 9.4 SUBMISSION OF BRIEFS. The claimant and respondent shall each submit initial briefs to the Board outlining the issues in dispute and the basis, authority and reasons for their respective positions within thirty (30) days of the date of notice of appointment of the umpire. The claimant and the respondent may submit reply briefs to the Board within ten (10) days after filing of the initial brief(s). Initial and reply briefs may be amended by the submitting party at any time, but not later than ten (10) days prior to the date of commencement of the arbitration hearing. Reasonable responses shall be allowed at the arbitration hearing to new material contained in any amendments filed to the briefs but not previously responded to. 9 SECTION 9.5 ARBITRATION BOARD'S DECISION. The Board shall make a decision and award with regard to the terms of this MGA Agreement and the original intentions of the parties to the extent reasonably ascertainable. The Board's decision and award shall be in writing and shall state the factual and legal basis for the decision and award. The decision and award shall be based upon a hearing in which evidence shall be allowed and which the formal rules of evidence shall not strictly apply but in which cross examination and rebuttal shall be allowed. At its own election or at the request of the Board, either party may submit a post-hearing brief for consideration of the Board within twenty (20) days of the close of the hearing. The Board shall make its decision and award within thirty (30) days following the close of the hearing or the submission of post-hearing briefs, whichever is later, unless the parties consent to an extension. Every decision by the Board shall be by a majority of the members of the Board and each decision and award by the majority of the members of the Board shall be final and binding upon all parties to the proceeding. SECTION 9.6 JURISDICTION. Either party may apply to the Chancery Court of the State of Delaware for an order compelling arbitration or confirming any decision and the award; a judgment of that Court shall thereupon be entered on any decision or award. If such an order is issued, the attorneys' fees of the party so applying and court costs will be paid by the party against whom confirmation is sought. The Board may award interest calculated from the date the Board determines that any amounts due the prevailing party should have been paid to the prevailing party. SECTION 9.7 EXPENSES. Each party shall bear the expense of the one arbitrator appointed by it and shall jointly and equally bear with the other party the expense of any stenographer requested, and of the umpire. SECTION 9.8 PRODUCTION OF DOCUMENTS AND WITNESSES. Subject to customary and recognized legal rules of privilege, each party participating in the arbitration shall have the obligation to produce those documents and as witnesses to the arbitration those of its employees as any other participating party reasonably requests providing always that the same witnesses and documents be obtainable and relevant to the issues before the arbitration and not be unduly burdensome or excessive. The parties may mutually agree as to pre-hearing discovery prior to the arbitration hearing and in the absence of agreement, upon the request of any party, pre-hearing discovery may be conducted as the Board shall determine in its sole discretion to be in the interest of fairness, full disclosure, and a prompt hearing, decision and award by the Board. The Board shall be the final judge of the procedures of the Board, the conduct of the arbitration, of the rules of evidence, the rules of privilege and production and of excessiveness and relevancy of any witnesses and documents upon the petition of any participating party. To the extent permitted by law, the Board shall have the authority to issue subpoenas and other orders to enforce their decisions. SECTION 9.9 RELIEF AVAILABLE. Nothing herein shall be construed to prevent any participating party from applying to the Chancery Court of the State of Delaware to issue a restraining order or other equitable relief to maintain the "status quo" of the parties participating in the arbitration pending the decision and award by the Board or to prevent 10 any party from incurring irreparable harm or damage at any time prior to the decision and award of the Board. The Board shall also have the authority to issue interim decisions or awards in the interest of fairness, full disclosure, and a prompt and orderly hearing and decision and award by the Board. SECTION 9.10 CONSOLIDATION. In the event that there is a dispute between the Royal Insurer Affiliates and RSUI under this MGA Agreement as well as one or more disputes involving any of the Ancillary Agreements, RSUI, URC and the Royal Insurer Affiliates agree to consolidate all such disputes under such agreements in a single arbitration proceeding. ARTICLE X MISCELLANEOUS SECTION 10.1 COOPERATION. The parties hereto shall cooperate in a commercially reasonable manner in order that the duties assumed by RSUI hereunder will be effectively, efficiently and promptly discharged. The parties hereto will use their best efforts to (i) give effect to the intent of this MGA Agreement and (ii) refrain from conduct which would frustrate the intent of any such MGA Agreement. Each party shall, at all reasonable times under the circumstances, make available to the other party properly authorized personnel for the purpose of consultation and decision. SECTION 10.2 AMENDMENT, MODIFICATION AND WAIVER. This MGA Agreement may not be amended, modified or waived except by an instrument or instruments in writing signed and delivered on behalf of each of the parties hereto. SECTION 10.3 ENTIRE AGREEMENT. This MGA Agreement, the Acquisition Agreement and the Ancillary Agreements among the parties with respect to the subject matter hereof and thereof and supersede all other prior agreements and understandings, both written and verbal, among the parties or any of them with respect to the subject matter hereof. SECTION 10.4 GOVERNING LAW. This MGA Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. SECTION 10.5 SEVERABILITY. Any term or provision of this MGA Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this MGA Agreement or affecting the validity or enforceability of any of the terms or provisions of this MGA Agreement in any other jurisdiction. If any provision of this MGA Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as would be enforceable. 11 SECTION 10.6 COUNTERPARTS. This MGA Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same MGA Agreement. SECTION 10.7 CONSENT TO JURISDICTION. Each of the parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the Chancery Court for the State of Delaware for the purposes of enforcing this MGA Agreement. In any action, suit or other proceeding, each of the parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claims that it is not subject to the jurisdiction of the above courts, that such action or suit is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper. Each of the parties hereto also agrees that any final and unappealable judgment against a party hereto in connection with any action, suit or other proceeding shall be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States. A certified or exemplified copy of such award or judgment shall be conclusive evidence of the fact and amount of such award or judgment. SECTION 10.8 THIRD PARTY BENEFICIARIES. Except as set forth in Article VIII of this MGA Agreement, and except with respect to URC, nothing in this MGA Agreement, express or implied, is intended to or shall confer upon any Person other than the parties hereto any rights, benefits or remedies of any nature whatsoever under or by reason of this MGA Agreement. SECTION 10.9 NON-ASSIGNABILITY. Neither RSUI nor the Royal Insurer Affiliates may assign, in whole or in part, any of their obligations or duties under this MGA Agreement. SECTION 10.10 SPECIFIC PERFORMANCE. The parties recognize and agree that if for any reason any of the provisions of this MGA Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate and irreparable harm or injury would be caused for which money damages would not be an adequate remedy. Accordingly, each party agrees that, in addition to any other available remedies, each other party shall be entitled to an injunction restraining any violation or threatened violation of any of the provisions of this MGA Agreement without the necessity of posting a bond or other form of security. In the event that any action should be brought in equity to enforce any of the provisions of this MGA Agreement, no party will allege, and each party hereby waives the defense, that there is an adequate remedy at law. SECTION 10.11 DESCRIPTIVE HEADINGS. The descriptive article and section headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this MGA Agreement. SECTION 10.12 USE OF NAME. Except as otherwise set forth in the Acquisition Agreement, RSUI shall not use the name, trademark, service mark, logo or identification of the Royal Insurer Affiliates without the Royal Insurer Affiliates' prior written consent. 12 SECTION 10.13 NOTICES. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by telecopy (which is confirmed), or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties to this MGA Agreement as follows: If to the Royal Insurer Affiliates: Laura S. Lawrence, Esq. General Counsel Royal Group, Inc. 9300 Arrowpoint Blvd. Charlotte, NC 28273 Telephone No.: (704) 522-2851 Facsimile No.: (704) 522-2313 With a copy to (which shall not constitute notice to the Royal Insurer Affiliates for purposes of this Section 10.13): Robert J. Sullivan, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Telephone No.: (212) 735-2930 Facsimile No.: (212) 735-2000 If to RSUI: James Dixon President and Chief Executive Officer Royal Specialty Underwriting, Inc. 945 East Paces Ferry Road Atlanta, Georgia 30326 Telephone No.: (404) 231-2360 Facsimile No.: (404) 231-3755 With a copy to (which shall not constitute notice to the RSUI for purposes of this Section 10.13): Aileen Meehan, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Telephone No.: (212) 259-8000 Telecopy No.: (212) 259-6333 13 or to such other address as the person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. In no event shall the provision of notice pursuant to this Section 10.13 constitute notice for service of any writ, process or summons in any suit, action or other proceeding. SECTION 10.14 INTERPRETATION.When a reference is made in this MGA Agreement to a Section or Article, such reference shall be to a section or article of this MGA Agreement unless otherwise clearly indicated to the contrary. Whenever the words "include," "includes" or "including" are used in this MGA Agreement, they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this MGA Agreement as a whole and not to any particular provision of this MGA Agreement. The meaning assigned to each term used in this MGA Agreement shall be equally applicable to both the singular and the plural forms of such term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. The parties have participated jointly in the negotiation and drafting of this MGA Agreement; consequently, in the event an ambiguity or question of intent or interpretation arises, this MGA Agreement shall be construed as if drafted jointly by the parties thereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this MGA Agreement. 14 IN WITNESS WHEREOF, this Managing General Agency Agreement has been duly executed by a duly authorized officer of each party hereto as of the date first above written. ROYAL SPECIALTY UNDERWRITING, INC. By: /s/ James A. Dixon ------------------------- Name: James A. Dixon Title: Chairman ROYAL INDEMNITY COMPANY By: /s/ Stephen M. Mulready -------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer ROYAL SURPLUS LINES INSURANCE COMPANY By: /s/ Stephen M. Mulready --------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer ROYAL INSURANCE COMPANY OF AMERICA By: /s/ Stephen M. Mulready ---------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer LANDMARK AMERICAN INSURANCE COMPANY By: /s/ Stephen M. Mulready ----------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer EX-10.35 37 y88779exv10w35.txt CONTENTS TO MANAGING GENERAL AGENCY AGREEMENT Exhibit 10.35 List of Contents of Exhibits to the Managing General Agency Agreement Exhibits Description -------- ------------ Exhibit A List of Royal Insurer Affiliates Exhibit B Underwriting Guidelines EX-10.36 38 y88779exv10w36.txt STOCK PURCHASE AGREEMENT EXHIBIT 10.36 -------------------------------------------------------- STOCK PURCHASE AGREEMENT by and between ALLEGHANY INSURANCE HOLDINGS LLC and ROYAL GROUP, INC. Dated as of July 1, 2003 -------------------------------------------------------- Table of Contents
Page ---- ARTICLE I Certain Definitions........................................................... 1 Section 1.1. Definitions.............................................................. 1 ARTICLE II The Purchase and Sale Transaction............................................. 4 Section 2.1. Purchase and Sale of the Shares.......................................... 4 Section 2.2. Purchase Price........................................................... 4 Section 2.3. Closing.................................................................. 4 Section 2.4. Stock Certificates....................................................... 4 ARTICLE III Representations and Warranties of Seller...................................... 5 Section 3.1. Good Title to Shares..................................................... 5 Section 3.2. Capitalization of RSA SLISI.............................................. 5 Section 3.3. Organization and Standing of RSA SLISI................................... 5 Section 3.4. Permit................................................................... 6 Section 3.5. Assets and Property; No Liabilities...................................... 6 Section 3.6. Authority; No Conflict................................................... 6 Section 3.7. Non-Contravention........................................................ 7 Section 3.8. Taxes.................................................................... 7 ARTICLE IV Representations and Warranties Relating to Purchaser.......................... 8 Section 4.1. Authority; No Conflict................................................... 8 Section 4.2. Non-Contravention........................................................ 8 ARTICLE V Conditions Precedent.......................................................... 8 Section 5.1. Governmental Entity Filings and Approvals................................ 8 Section 5.2. Liabilities.............................................................. 9 Section 5.3. Assets................................................................... 9 Section 5.4. FIRPTA Certificate....................................................... 9 ARTICLE VI Tax Matters................................................................... 10 Section 6.1. Transfer Taxes........................................................... 10 Section 6.2. Tax Matters.............................................................. 10 Section 6.3. Computation of Tax Liabilities........................................... 11 Section 6.4. Seller's Indemnity for Taxes............................................. 12 Section 6.5. Assistance and Cooperation............................................... 12 Section 6.6. Refunds.................................................................. 13 Section 6.7. Contests................................................................. 13
i Table of Contents
Page ---- Section 6.8. Post-Closing Actions which Affect Seller's Liability for Taxes........... 14 Section 6.9. Section 338(h)(10) Election.............................................. 15 ARTICLE VII Name Change................................................................... 16 Section 7.1. Name of RSA SLISI........................................................ 16 ARTICLE VIII Indemnification............................................................... 17 Section 8.1. Survival of Representations, Warranties and Covenants.................... 17 Section 8.2. Obligation of Seller to Indemnify........................................ 17 Section 8.3. Obligations of Purchaser to Indemnify.................................... 18 Section 8.4. Notice of Indemnifying Party............................................. 18 Section 8.5. Purchase Price Adjustment................................................ 19 ARTICLE IX Miscellaneous................................................................. 20 Section 9.1. Notices.................................................................. 20 Section 9.2. Termination.............................................................. 21 Section 9.3. Amendment, Modification and Waiver....................................... 21 Section 9.4. Governing Law............................................................ 21 Section 9.5. Descriptive Headings..................................................... 21 Section 9.6. Assignment; Binding Agreement............................................ 21 Section 9.7. Third Party Beneficiaries................................................ 22 Section 9.8. Specific Performance..................................................... 22 Section 9.9. Severability............................................................. 22 Section 9.10. Counterparts............................................................. 22 Section 9.11. Entire Agreement......................................................... 22 Section 9.12. Consent to Jurisdiction.................................................. 22 Section 9.13. Waiver of Jury Trial..................................................... 23 Section 9.14. Interpretation........................................................... 23
EXHIBITS EXHIBIT A Assignment and Assumption Agreement SCHEDULES Schedule 3.8 Tax ii STOCK PURCHASE AGREEMENT This Stock Purchase Agreement (this "Agreement"), dated as of July 1, 2003, is made by and between Royal Group, Inc., a Delaware corporation ("Seller"), and Alleghany Insurance Holdings LLC, a Delaware limited liability company ("Purchaser"). WITNESSETH WHEREAS, Seller owns all of the issued and outstanding shares of capital stock of RSA Surplus Lines Insurance Services, Inc., a corporation organized and existing under the laws of the State of Delaware ("RSA SLISI"), consisting of 200 shares of common stock, with no par value (the "Shares"); WHEREAS, RSA SLISI is the owner of the California broker license (the "Permit") and party to certain Producer Agreements (as defined below); WHEREAS, Seller and Purchaser have entered into an acquisition agreement dated June 6, 2003 (the "Acquisition Agreement"), pursuant to which Purchaser agreed to purchase from Seller, and Seller agreed to sell to Purchaser, all of the issued and outstanding common stock of Royal Specialty Underwriting, Inc., a Georgia company ("RSUI"); WHEREAS, Purchaser desires to acquire the Shares, in part, for purposes of utilizing the Permit and Producer Agreements in conjunction with its planned acquisition of RSUI pursuant to the terms and conditions of the Acquisition Agreement; WHEREAS, pursuant to the terms and conditions in this Agreement, Purchaser desires to purchase from Seller, and Seller desires to sell to Purchaser, all of the Shares; and NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties, intending to be legally bound, do hereby represent, warrant, covenant and agree as follows: ARTICLE I CERTAIN DEFINITIONS SECTION 1.1. DEFINITIONS. The following terms, when used in this Agreement, shall have the meanings set forth herein. The terms defined below shall be deemed to refer to the singular or plural as the context requires. "Acquisition Agreement" shall have the meaning set forth in the recitals. "Agreement" shall have the meaning set forth in the preamble. "Applicable Law" means any applicable order, law, statute, regulation, rule, ordinance, writ, injunction, directive, judgment, decree, principal of common law, constitution or treaty enacted, promulgated, issued, enforced or entered by any Governmental Entity, including any amendments thereto that may be adopted from time to time. "Assignment and Assumption Agreement" shall have the meaning set forth in Section 3.5. "Closing" shall have the meaning set forth in Section 2.3. "Closing Date" shall have the meaning set forth in Section 2.3. "Code" means the Internal Revenue Code of 1986, as amended. "Final Allocation" shall have the meaning set forth in Section 6.9(a). "Damages" shall have the meaning set forth in Section 7.2. "Final Seller's Tax Cost" shall have the meaning set forth in Section 6.9(a). "Governmental Entity" shall mean any foreign, domestic, federal, territorial, state or local U.S. or non-U.S. governmental authority, quasi-governmental authority, instrumentality, court or government, self-regulatory organization, commission, tribunal or organization or any political or other subdivision, department, branch or representative of any of the foregoing. "Income Tax" means any federal, state, local or foreign income, alternative, minimum, franchise, profits, or other similar Tax (but only if determined with respect to net income) or deficiencies with respect thereto (including interest and penalties thereon and additions thereto). "Income Tax Return" means any Tax Return with respect to Income Taxes. "Indemnifying Party" shall have the meaning set forth in Section 8.4. "Indemnitee" shall have the meaning set forth in Section 8.4. "Independent Firm" shall have the meaning set forth in Section 6.2(d). "Parent" shall have the meaning set forth in Section 3.8. "Parent Group" shall have the meaning set forth in Section 3.8. "Permit" shall have the meaning set forth in the recitals. 2 "Person" shall mean an individual, corporation, partnership, joint venture, association, limited liability company, trust, unincorporated organization, or other entity. "Pre-Closing Tax Period" means a taxable year or period ending on or before the Closing Date. "Producer Agreements" shall mean the producer agreements of RSA SLISI entered into with (i) 3D Star Insurance Services and (ii) Adco General Corp. "Post-Closing Tax Period" means a taxable year or period beginning after the Closing Date. "Proposed Allocation" shall have the meaning set forth in Section 6.9(a). "Purchase Price" shall have the meaning set forth in Section 2.2. "Purchaser" shall have the meaning set forth in the preamble. "RIC" means Royal Indemnity Company, a Delaware insurance company. "RSA SLISI" shall have the meaning set forth in the recitals. "RSUI" shall have the meaning set forth in the recitals. "Section 338 Elections" shall have the meaning set forth in Section 6.9(a). "Section 338 Forms" shall have the meaning set forth in Section 6.9(b). "Seller" shall have the meaning set forth in the preamble. "Seller's Tax Cost" shall have the meaning set forth in Section 6.9(a). "Shares" shall have the meaning set forth in the recitals. "Straddle Period" means a taxable year or period beginning on or before, and ending after, the Closing Date. "Tax" or "Taxes" means all federal, state, county, local, municipal, foreign and other taxes, assessments, duties or similar charges of any kind whatsoever, including all corporate franchise, income, gross receipts, occupation, windfall profits, sales, use, ad valorem, value-added, profits, license, withholding, payroll, employment, excise, insurance premium, real property, personal property, customs, net worth, capital gains, transfer, stamp, documentary, social security, disability, environmental, alternative minimum, estimated, recapture and other taxes, and including all interest, penalties and additions imposed with respect thereto. "Tax Claim" shall have the meaning set forth in Section 6.7. 3 "Tax Return" means any and all returns, declarations, reports, claims for refund, information returns, or other documents or statements relating to Taxes required to be supplied to any Taxing Authority, including any schedule or attachment thereto and any amendment or supplement thereof. "Taxing Authority" means any domestic, foreign, federal, national, state, county or municipal or other local government, any subdivision, agency, commission or authority thereof, or any quasi-governmental body exercising regulatory authority with respect to Taxes. "Transfer Taxes" means any and all transfer, documentary, sales, use, gross receipts, stamp, registration, value added, recording, escrow and other similar Taxes and fees (including any out-of-pocket filing expenses, penalties and interest) incurred in connection with the transactions contemplated by this Agreement (including recording and escrow fees and any real property or leasehold interest transfer or gains tax and any similar Tax). ARTICLE II THE PURCHASE AND SALE TRANSACTION SECTION 2.1. PURCHASE AND SALE OF THE SHARES. Purchaser agrees to purchase from Seller, and Seller agrees to sell, assign, transfer and deliver to Purchaser at Purchaser's direction, on the Closing Date, the Shares, for the consideration specified in Section 2.2, on the terms and conditions provided for herein. SECTION 2.2. PURCHASE PRICE. Purchaser agrees to pay to Seller, and Seller agrees to accept from Purchaser, as consideration for the sale of the Shares, $10.00 (the "Purchase Price"), which amount shall be payable by Purchaser by wire transfer of immediately available funds on the Closing Date. SECTION 2.3. CLOSING. (a) The consummation of the sale and purchase of the Shares (the "Closing") shall take place at 10:00 a.m., New York City time, on the date hereof, which shall be the same date as the closing of the transactions contemplated by the Acquisition Agreement (the "Closing Date"). The Closing shall take place at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, New York 10036 or at such other location as the parties may agree upon in writing. (b) At the Closing, each of the parties shall deliver or cause to be delivered to the intended recipient the monies, documents and instruments required to be delivered by or on behalf of such party at or prior to the Closing pursuant to the terms of this Agreement. SECTION 2.4. STOCK CERTIFICATES. At the Closing, subject to Purchaser's payment of the Purchase Price to Seller, Seller shall deliver to Purchaser certificates representing all of the Shares, duly assigned to Purchaser and duly endorsed 4 in blank or accompanied by stock powers duly executed and with all stock transfer tax stamps affixed. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER As of the Closing Date, Seller hereby represents, warrants and agrees as follows: SECTION 3.1. GOOD TITLE TO SHARES. Seller has good and valid title to the Shares free and clear of any lien, charge, proxy or encumbrance. The Shares are duly authorized, validly issued, fully paid, non-assessable and free of preemptive rights or right of first refusal or other right or restriction. SECTION 3.2. CAPITALIZATION OF RSA SLISI. (a) The authorized capital stock of RSA SLISI consists of 200 shares of common stock, no par value, all of which are issued and outstanding. No other class of equity securities, preferred stocks, bonds, debentures, notes or other securities of any kind of RSA SLISI is authorized, issued or outstanding. (b) RSA SLISI does not own any proprietary interest or equity interest in, or any interest convertible or exchangeable into a proprietary interest or equity interest in, any Person. (c) RSA SLISI has not issued any securities in violation of any preemptive or similar rights. There are no outstanding options, warrants, calls, preemptive or other rights, commitments, subscriptions or agreements of any kind (absolute, contingent or otherwise) to which RSA SLISI is a party, or by which RSA SLISI is bound to purchase or otherwise receive, nor are there any securities or instruments of any kind convertible into or exchangeable for, any capital stock (including, without limitation, outstanding, authorized but unissued, unauthorized, treasury or other shares thereof) or other equity interest of RSA SLISI. Neither RSA SLISI nor Seller is a party to any agreement with a third party which places any restriction upon, or which creates any voting trust, proxy, or other agreement or understanding with respect to, the voting, purchase, redemption, acquisition or transfer of, or the declaration or payment of any dividend or distribution on, any shares of capital stock of RSA SLISI. There are no restrictions upon, or voting trusts, proxies or other agreements or understandings with respect to, the voting, purchase, redemption, acquisition or transfer of, or the declaration or payment of any dividend or distribution on, any shares of capital stock of RSA SLISI. SECTION 3.3. ORGANIZATION AND STANDING OF RSA SLISI. RSA SLISI is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority to carry on its business as now being conducted. Other than the Permit, RSA SLISI does not own, lease or operate any assets or properties. RSA SLISI is duly qualified or licensed to do 5 business in the State of California and is in good standing as a foreign corporation in each jurisdiction in which the nature of its business makes such qualification or licensing necessary. Seller has made available to Purchaser prior to the execution of this Agreement true, correct and complete copies of the certificate of incorporation and bylaws, as currently in effect, for RSA SLISI. SECTION 3.4. PERMIT. The Permit held by RSA SLISI is valid and in full force and effect, and RSA SLISI is in compliance in all material respect with such Permit. To the knowledge of Seller, no material violations exist in respect of the Permit and no action, inquiry, investigation or proceeding is pending or threatened, which would reasonably be expected to result in the cancellation, revocation, amendment, failure to renew, limitation, modification, suspension or revocation of the Permit. SECTION 3.5. ASSETS AND PROPERTY; NO LIABILITIES. (a) As of the Closing Date, RSA SLISI shall have no assets, except (i) its corporate charter, (ii) the Permit, which will be valid and enforceable, (iii) the minimum amount of assets, if any, required by the California Department of Insurance to maintain the Permit or such additional amount as permitted in this Agreement, with such assets to consist only of cash and U.S. Treasury notes, and (iv) the Producer Agreements. Seller shall cause all other assets and properties of RSA SLISI to be assigned to RIC on or prior to the Closing Date pursuant to an Assignment and Assumption Agreement attached hereto as EXHIBIT A (the "Assignment and Assumption Agreement"). (b) All liabilities of RSA SLISI shall have been assumed by RIC on or prior to the Closing Date pursuant to the Assignment and Assumption Agreement. On the Closing Date, RSA SLISI shall have no liabilities of any nature, whether absolute, accrued, contingent or otherwise or whether due or to become due which have not been assumed by RIC pursuant to the Assignment and Assumption Agreement. SECTION 3.6. AUTHORITY; NO CONFLICT. Seller has all requisite power and authority to enter into and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby, including, without limitation, the sale of the Shares. The execution, delivery and performance of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby, have been duly and validly authorized by all necessary action on the part of Seller and no other proceedings on the part of Seller (including any proceedings on the part of stockholders of Seller) are necessary to authorize the execution, delivery and performance of this Agreement or the consummation of any of the transactions contemplated hereby. This Agreement has been duly executed and delivered by Seller and, assuming the due authorization, execution and delivery of this Agreement by Purchaser, constitutes a legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms and conditions, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, rehabilitation, or similar laws affecting the enforcement of creditors' rights generally or by insurance regulatory authorities. 6 SECTION 3.7. NON-CONTRAVENTION. The execution, delivery and performance by Seller of this Agreement does not and will not (i) violate the certificate of incorporation or bylaws of Seller and the certificate of incorporation or bylaws of RSA SLISI, (ii) give rise to any right of termination under any material agreement to which Seller or RSA SLISI is a party or (iii) result in the creation of any lien on the Shares or any material lien on any material asset of Seller or RSA SLISI. SECTION 3.8. TAXES. Other than as set forth in SCHEDULE 3.8: (a) Arrowpoint General Partnership ("Parent") is the common parent of an affiliated group of corporations (within the meaning of section 1504(a) of the Code) (such group, the "Parent Group") which files consolidated federal income Tax Returns. From October 28, 1997 through the Closing Date, Parent has included (or, with respect to the taxable year ending on the Closing Date, will include) RSA SLISI in its consolidated federal income Tax Return as a member of the Parent Group. (b) Other than as set forth on Schedule 3.8: (i) For all periods ending on or after December 31, 1997, and for which the relevant statutes of limitation have not expired, RSA SLISI has filed (or joined in the filing of) when due (after taking into account all properly requested extensions) all material Tax Returns required by Applicable Law to be filed with respect to RSA SLISI and all Taxes shown to be due on such Tax Returns have been paid; (ii) all such Tax Returns were true, correct and complete in all material respects as of the time of such filing or after taking into account any changes thereto reflected on any amended Tax Returns; (iii) there is no action, suit, proceeding, investigation, audit or claim now pending against, or with respect to, RSA SLISI in respect of any material Tax or assessment, nor is any claim for additional Tax or assessment being asserted by any Taxing Authority; (iv) except for the Parent Group, RSA SLISI has never been a member of an affiliated, consolidated, combined or unitary group; (v) since October 28, 1997, no claim has been asserted in writing by any Taxing Authority in a jurisdiction in which RSA SLISI does not currently file a Tax Return that it is or may be subject to Tax by such jurisdiction; (vi) RSA SLISI is not a party to any agreement (other than an agreement entered into in the ordinary course of business for the purchase or lease of assets, the borrowing of money, the hiring of employees or consultants or other commercial transactions in the ordinary course of business), whether written or unwritten, providing for the payment of Taxes, payment for Tax losses, entitlement to refunds or similar Tax matters; (vii) RSA SLISI has withheld and remitted to its applicable taxing authorities all Taxes required to be withheld in connection with any material amounts paid or owing to any employee, creditor, attorney, independent contractor or other Person; (viii) since October 28, 1997, neither Parent, Seller, nor RSA SLISI has made, changed or revoked, or permitted to be made, changed or revoked, any material election or method of accounting with respect to material Taxes affecting or relating to RSA SLISI, or entered into, or permitted to be entered into, any closing or other agreement or settlement with respect to Taxes affecting or relating to RSA SLISI; (ix) no ruling with respect to Taxes (other than a request for a determination of the status of a qualified plan) has been requested by or on behalf of RSA SLISI or by Parent with respect to any transaction involving RSA SLISI that could affect the liability of RSA 7 SLISI for Taxes for any period after the Closing; (x) RSA SLISI has no liability for the Taxes of any Person (other than pursuant to Treasury Regulation Section 1.1502-6, or any analogous state, local or foreign law or regulation) as a transferee or successor; and (xi) the statutes of limitations for Tax years of RSA SLISI have closed for all such years ending prior to January 1, 2000. ARTICLE IV REPRESENTATIONS AND WARRANTIES RELATING TO PURCHASER As of the Closing Date, Purchaser hereby represents, warrants and agrees as follows: SECTION 4.1. AUTHORITY; NO CONFLICT. Purchaser has all requisite power and authority to enter into and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby, including, without limitation, the purchase of the Shares. The execution, delivery and performance of this Agreement by Purchaser and the consummation by Purchaser of the transactions contemplated hereby, have been duly and validly authorized by all necessary action on the part of Purchaser and no other proceedings on the part of Purchaser are necessary to authorize the execution, delivery and performance of this Agreement or the consummation of any of the transactions contemplated hereby. This Agreement has been duly executed and delivered by Purchaser and, assuming the due authorization, execution and delivery of this Agreement by Seller, constitutes a legal, valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms and conditions, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, rehabilitation, or similar laws affecting the enforcement of creditors' rights generally or by insurance regulatory authorities. SECTION 4.2. NON-CONTRAVENTION. The execution, delivery and performance by Purchaser of this Agreement does not and will not (i) violate the certificate of incorporation or bylaws (or comparable organizational documents) of Purchaser or (ii) give rise to any right of termination under any material agreement to which Purchaser is a party. ARTICLE V CONDITIONS PRECEDENT SECTION 5.1. GOVERNMENTAL ENTITY FILINGS AND APPROVALS. (a) Purchaser and Seller shall (i) cooperate and use their reasonable best efforts to obtain all consents, approvals and agreements of all Governmental Entities necessary to authorize, approve or permit the consummation of the transactions contemplated by this Agreement at the earliest possible time hereafter, (ii) as promptly as practicable hereafter, file or submit, or cause to be filed or submitted, to all Governmental 8 Entities all required notices, applications, documents and other materials necessary in connection with the consummation of the transactions contemplated hereby and (iii) use their respective reasonable best efforts to respond as promptly as practicable to all inquires received from all Governmental Entities for additional information or documentation in connection with such transactions. Purchaser and Seller shall promptly advise each other upon receiving any communication from any Governmental Entity whose consent or approval is required for consummation of the transactions contemplated by this Agreement. Purchaser and Seller shall furnish to the other such necessary information and reasonable assistance as the other may reasonably request in connection with its preparation of necessary filings or submissions to any Governmental Entity. For purposes of this Agreement, the covenant of the parties to use their "reasonable best efforts" shall not require any party to agree to limit the conduct of its business or to divest itself of any material assets or properties. (b) It is a condition precedent for the consummation of the transactions contemplated by this Agreement that, on or prior to the Closing, all permits, authorizations and approvals mentioned in the previous paragraph be obtained and be in full force and effect. SECTION 5.2. LIABILITIES. It is a condition precedent for the consummation of the transactions contemplated by this Agreement that, on or prior to the Closing Date, RIC shall have assumed all liabilities and obligations of RSA SLISI pursuant to the terms and conditions of the Assignment and Assumption Agreement. At or prior to the Closing Date, Seller shall cause each of RIC and RSA SLISI to execute and deliver to Purchaser the Assignment and Assumption Agreement. SECTION 5.3. ASSETS. It is a condition precedent for the consummation of the transactions contemplated by this Agreement that, as of the Closing Date, Seller shall have removed all assets of RSA SLISI except (i) its corporate charter, (ii) the Permit, (iii) the minimum amount of assets, if any, required by the California Department of Insurance to maintain the Permit or such additional amount as permitted in this Agreement, with such assets to consist only of cash and U.S. Treasury notes, and (iv) the Producer Agreements. SECTION 5.4. FIRPTA CERTIFICATE. It is a condition precedent for the consummation of the transactions contemplated by this Agreement that, on or prior to the Closing Date, Seller shall deliver to Purchaser a certificate satisfying the requirements of Treasury Regulation section 1.1445-2(b)(2). SECTION 5.5. RESIGNATION OF RSA SLISI DIRECTORS. It is a condition precedent to the consummation of the transactions contemplated by this Agreement that, as of the Closing Date, Seller shall have caused each of the directors of RSA SLISI who is not an employee of RSUI to submit their letters of resignation effective as of the Closing Date. SECTION 5.6. CORPORATE RECORDS. As soon as practicable following the Closing Date, Seller shall deliver to Purchaser all minute books, stock 9 ledgers, stock books, canceled or unused stock certificates, corporate seals, books, records (including but not limited to, for all open Tax periods, any Income Tax Returns, records and worksheets relating to Taxes, as well as any Tax closing or settlement agreements and any Tax examinations or similar reports, but excluding any such records that are part of any consolidated, combined, unitary or similar Tax Return except to the extent solely related to RSA SLISI), files, personnel records, policy forms, stationery, software, data, documents and properties of RSA SLISI that are in the possession of any of Seller or its other Affiliates. ARTICLE VI TAX MATTERS SECTION 6.1. TRANSFER TAXES. All Transfer Taxes, if any, arising out of or in connection with the transactions contemplated by this Agreement shall be borne equally by Seller and Purchaser. The parties shall cause all appropriate stock Transfer Tax stamps to be affixed to the certificate or certificates representing the Shares so sold and delivered. Seller and Purchaser shall reasonably cooperate in the preparation, execution and filing of, all Tax Returns, applications or other documents regarding any Transfer Taxes that become payable in connection with the sale of the Shares pursuant to this Agreement. SECTION 6.2. TAX MATTERS. Except as provided in Section 6.1 hereof: (a) Parent or Seller shall file or cause to be filed when due all Tax Returns that are required to be filed for any Pre-Closing Period by or with respect to RSA SLISI or the Permit and Parent or Seller shall remit (or cause to be remitted) any Taxes due in respect of such Tax Returns. All such Tax Returns will be prepared in a manner consistent with the past practice of Seller and RSA SLISI. (b) Purchaser shall file or cause to be filed when due all Tax Returns that are required to be filed for any Post-Closing Period or any Straddle Period by or with respect to RSA SLISI or the Permit and, subject to Sections 6.2(d) and 6.3 hereof, Purchaser shall remit (or cause to be remitted) any Taxes due in respect of such Tax Returns. (c) Purchaser shall cause RSA SLISI to prepare in a manner consistent with past practice of RSA SLISI, and to deliver to Parent or Seller, all relevant Tax information relating to RSA SLISI reasonably required to permit Parent or Seller to file or cause to be filed when due all Tax Returns required to be filed or caused to be filed by Parent or Seller pursuant to Section 6.2(a) of this Agreement. (d) In the case of any Tax Return for any Straddle Period, Purchaser shall provide Seller with copies of the completed Tax Return for such taxable period and a schedule apportioning the Tax shown on such Tax Return as between Seller and Purchaser and specifying the amount due to or from Seller (all computed in accordance 10 with Section 6.3 hereof), together with such related work papers and other documents as Seller shall reasonably request, no later than forty-five (45) days before the due date for the filing of such Tax Return. Seller and its authorized representatives shall have the right to review the Tax Return and schedule received from Purchaser pursuant to the terms of this Section 6.2(d). Seller and Purchaser agree to consult each other and resolve in good faith any issues arising under the terms of this Section 6.2(d) as a result of the review of any such Tax Returns and schedule received from Purchaser. If the parties agree upon the contents of the Tax Return and the schedule, then the Tax Return shall be filed as so agreed and the amount of Tax, if any, due from Seller shall be paid by Seller to Purchaser no later than two (2) days prior to the date of filing of such Tax Return or the amount of Tax due, if any, from Purchaser to Seller shall be paid by Purchaser to Seller no later than three (3) days after the date of filing of such Tax Return. If the parties are unable to resolve any dispute as to any Tax Return or accompanying schedule within thirty (30) days after the provision of such Tax Return or schedule to the Seller, the parties shall refer the dispute to an independent mutually agreed upon nationally recognized accounting firm (the "Independent Firm") to act as an arbitrator to resolve the disagreement prior to the due date of the filing of such Tax Return. The Independent Firm's determination shall be final and binding upon the parties, and all fees and expenses relating to the engagement of the Independent Firm shall be shared equally by Seller and Purchaser. (e) Seller or Parent shall cause any Tax sharing agreement or similar arrangement with respect to Taxes involving RSA SLISI, on the one hand, and Seller, Parent or any Affiliates of either, on the other hand, to be terminated effective as of the Closing Date, so that to the extent any such agreement or arrangement relates to RSA SLISI after the Closing Date, none of RSA SLISI, Seller, Parent nor the Affiliates of any of them shall have any obligation thereunder to the other, whether to make payment or otherwise, under any such agreement or arrangement for any past, present or future period. (f) Except as otherwise expressly contemplated by this Agreement, from the date hereof to and including the Closing Date, neither Parent nor Seller without the prior written consent of Purchaser (which consent shall not be unreasonably withheld, conditioned or delayed) will permit RSA SLISI to directly or indirectly (i) make, change or revoke, or permit to be made, changed or revoked, any material election or method of accounting, with respect to Taxes affecting RSA SLISI for Post-Closing Tax Periods, or (ii) enter into, or permit to be entered into, any closing or other agreement or settlement with respect to Taxes of RSA SLISI affecting or relating to Post-Closing Tax Periods. SECTION 6.3. COMPUTATION OF TAX LIABILITIES. To the extent permitted or required by Applicable Law or administrative practice, (i) the taxable period of RSA SLISI that began on January 1 of the calendar year which includes the Closing Date shall be treated as closing as of the close of business on the Closing Date, notwithstanding the foregoing, (ii) all transactions not in the ordinary course of business and properly allocable thereunder to the portion of the day after the Closing shall be reported on Purchaser's consolidated United States federal income Tax Return to the extent permitted by Treasury Regulation section 1.1502-76(b)(1)(ii)(B) and shall be 11 similarly reported on other Tax Returns of Purchaser or its Affiliates to the extent permitted by Applicable Law, and (iii) no election shall be made under Treasury Regulation Section 1.1502-76(b)(2)(ii) (relating to ratable allocation of a year's items). For purposes of this Agreement, where it is necessary to apportion between Seller and Purchaser the Tax liability of an entity for a Straddle Period (which is not treated under the immediately preceding sentence as closing on the Closing Date), such liability shall be apportioned between the period deemed to end at the close of the Closing Date, and the period deemed to begin at the beginning of the day following the Closing Date on the basis of an interim closing of the books, except that Taxes (such as real property Taxes) imposed on a periodic basis shall be allocated on a daily basis. In determining Seller's liability for Taxes pursuant to this Agreement, Seller shall be credited with the amount of estimated or actual Taxes paid by or on behalf of RSA SLISI prior to the Closing. To the extent that Seller's liability for Taxes of RSA SLISI for a Straddle Period is less than the amount of estimated or actual Taxes previously paid by or on behalf of RSA SLISI with respect to such Straddle Period, Purchaser shall pay Seller the difference within three (3) days of the filing of the Tax Return relating to such Tax. Parent, Seller and the Purchaser further agree to file all Tax Returns (including, without limitation, all State income Tax Returns), handle the contest of any audit and otherwise act for all Tax purposes consistent with the provisions of this Section 6.3. SECTION 6.4. SELLER'S INDEMNITY FOR TAXES. Notwithstanding anything contained in this Agreement to the contrary: (a) Seller shall pay and shall indemnify and hold harmless the Purchaser, RSA SLISI and their respective Affiliates, successors and permitted assigns from: (i) all liability for Taxes of RSA SLISI for all Pre-Closing Tax Periods and the Seller's portion of the Straddle Period (as determined pursuant to Section 6.2(d) hereof), including any liability of the Parent Group for additional Taxes arising solely as a result of the Section 338 Elections if elected, as set forth below; (ii) all liability resulting by reason of the several liability of RSA SLISI pursuant to Treasury Regulations Section 1.1502-6 or any similar provision of Applicable Law or by reason of RSA SLISI ever having been a member of any consolidated, combined or unitary group on or prior to the Closing Date; and (iii) all Damages attributable to any misrepresentation or breach or non-performance of warranty or agreement made by the Seller or the Parent in Section 3.8 or this Article VI. (b) The representations and warranties of Seller and the agreements of the parties contained in this Article VI shall survive the Closing and shall continue in full force and effect until thirty (30) days after the expiration of the statute of limitations of the Tax to which the representation, warranty or agreement relates. There shall be no limit on the aggregate amount for which Seller shall be liable under Section 6.4(a) hereof and no deductible shall apply. SECTION 6.5. ASSISTANCE AND COOPERATION. After the Closing Date, both Seller and Purchaser shall (and shall cause their respective Affiliates to) in good faith cooperate with and assist the other in connection with the preparation of any Tax Returns (including any amended Tax Returns), the determination of the 12 requesting party's own liability for Taxes, any audit or other examination by any Taxing Authority, or any judicial or administrative proceedings relating to liability for Taxes. The party requesting assistance hereunder shall (i) make such request in writing and (ii) reimburse the other party for the reasonable out-of-pocket expenses incurred in providing such assistance. In addition, neither party shall dispose of any Tax workpapers, books or records relating to RSA SLISI during the six-year period following the Closing Date, and thereafter shall give the other party written notice before disposing of such items and a reasonable opportunity to copy or take possession of the same prior to their disposition. Each party shall be free to dispose of such items after the expiration of the six-year period, unless such other party provides notice within thirty (30) days of the expiration of the six-year period that such other party intends to copy or take possession of such items. Any information obtained pursuant to this Section 6.5 shall be held in strict confidence and shall be used solely in connection with the reason for which it was requested. SECTION 6.6. REFUNDS. Any Tax refund (including any interest in respect thereof but net of any Tax imposed thereon) received by Purchaser or its Affiliates, and any amounts credited against Tax to which Purchaser or any of its Affiliates becomes entitled (including by way of any amended Tax Returns), that relate to any taxable period, or portion thereof, ending on or before the Closing Date shall be for the account of Seller, and Purchaser shall pay over to Seller any such refund or the amount of any such credit within five (5) days after receipt or entitlement thereto. Purchaser shall pay Seller interest at the rate prescribed under section 6621(a)(1) of the Code, compounded daily, on any amount not paid when due pursuant to the preceding sentence. SECTION 6.7. CONTESTS. Notwithstanding anything to the contrary contained in this Agreement: (a) After the Closing Date, Purchaser shall notify Seller in writing within ten (10) days of the date a claim is made or threatened in writing by any Taxing Authority that, if successful, may reasonably result in an indemnity payment by Seller under Section 6.4 (a "Tax Claim"). Such notice shall contain factual information describing in reasonable detail the nature and basis of such claim and the amount thereof, to the extent known, and shall include copies of any notice or other document received from any Taxing Authority in respect of any such asserted Tax liability. Failure by Purchaser to give such notice to the Seller shall not relieve the Seller of any liability that it may have on account of its indemnification obligation under this Article VI, except to the extent that Seller is materially and adversely prejudiced thereby in the defense of such Tax Claim; provided, however, that irrespective of whether the Seller is materially or adversely prejudiced, Seller shall be permitted to reduce any liability Seller may have on account of its indemnification obligation under this Article VI by the amount of its actual, out-of-pocket monetary damages that are caused by the Purchaser's failure to timely give the notice required pursuant to this Section 6.7(a). (b) Seller will have the right, at its option, upon timely notice to Purchaser, to assume at its own expense control of any audit or other defense of any Tax Claim (other than a Tax Claim relating solely to Taxes of RSA SLISI for a Straddle 13 Period, which as described below, the parties shall jointly control) with its own counsel, provided that Seller's notice acknowledges Seller's indemnification liability for such claim. Seller's right to control a Tax Claim will be limited to issues in respect of which amounts in dispute would be paid by Seller or for which Seller would be liable pursuant to Section 6.4. Costs of defending or contesting such Tax Claims are to be borne by Seller unless the Tax Claim relates to a Straddle Period, in which event such costs shall be fairly apportioned as described below. Purchaser and RSA SLISI at their own expense each shall cooperate with Seller in contesting any Tax Claim, which cooperation shall include the retention and, upon Seller's request, the provision of records and information that are reasonably relevant to such Tax Claim and making employees available on a mutually convenient basis to provide additional information or explanation of any material provided hereunder. Notwithstanding the foregoing, Seller shall neither consent nor agree to the settlement of any Tax Claim with respect to any liability for Taxes that may affect the liability for any state, federal or foreign income tax of RSA SLISI or any affiliated group (as defined in section 1504(a) of the Code) of which RSA SLISI is a member for any Post-Closing Tax Period without the prior written consent of Purchaser, which consent shall not be unreasonably withheld, conditioned or delayed, and neither Seller, nor any Affiliate of Seller, shall file an amended Tax Return that may increase the liability for Taxes of RSA SLISI for any Post-Closing Tax Period without the prior written consent of Purchaser, which consent shall not be unreasonably withheld, conditioned or delayed. Purchaser and Seller shall jointly control all proceedings taken in connection with any Tax Claims relating solely to a Straddle Period of RSA SLISI and each party shall bear its own out-of-pocket costs and expenses of the contest and all joint costs and expenses of the contest shall be borne in the same ratio as the applicable proposed Tax would be allocated. SECTION 6.8. POST-CLOSING ACTIONS WHICH AFFECT SELLER'S LIABILITY FOR TAXES. (a) Purchaser shall not allow or cause RSA SLISI to take, or fail to take, any action or omit to take any action after the Closing Date as to which Seller has notified Purchaser in writing on or before the Closing Date if the taking of such action or the failure to take such action will increase the Taxes of RSA SLISI for any Pre-Closing Tax Period provided that the taking of such action or the failure to take such action does not materially affect the conduct of the RSA SLISI's business after the Closing Date. (b) None of Purchaser or any Affiliate of Purchaser shall (or shall cause or permit RSA SLISI to) amend, refile or otherwise modify any Tax Return relating in whole or in part to RSA SLISI with respect to any Pre-Closing Tax Period without the prior written consent of Seller, which consent may be withheld in the sole discretion of Seller. (c) None of Purchaser or any Affiliate of Purchaser shall (or shall cause or permit RSA SLISI to) carryback for federal, state, local or foreign Tax purposes to any Pre-Closing Tax Period or to the portion of any Straddle Period ending before the Closing Date of RSA SLISI, Seller, or any Affiliate of Seller, any operating losses, net operating losses, capital losses, tax credits or similar items arising in, resulting from, or 14 generated in connection with a taxable year of Purchaser or any Affiliate of Purchaser, or portion thereof, ending on or after the Closing Date. SECTION 6.9. SECTION 338(h)(10) ELECTION. (a) Within ninety (90) days of the Closing Date, Purchaser shall furnish Seller with Purchaser's proposed allocation of the Purchase Price among the RSA SLISI Shares and the other transactions, rights and obligations contemplated pursuant to this Agreement and the Ancillary Agreements, the determination of the ADSP (as defined in applicable Treasury Regulations under Section 338 of the Code) and the allocation of ADSP among the assets of the RSA SLISI and other relevant items (the "Proposed Allocation"). Purchaser and Seller each agree to consult in good faith with regard to the proposed determination and the Proposed Allocation, provided that Seller shall accept Purchaser's final determination of the ADSP and the Proposed Allocation to the extent that they are reasonable and consistent with Applicable Law (which, when accepted, shall become the "Final Allocation"). Within thirty (30) days after the determination of the Final Allocation, Seller shall deliver to Purchaser a schedule setting forth in reasonable detail the additional amount of cash ("Seller's Tax Cost") that Seller reasonably estimates is necessary to ensure that the net proceeds derived by Seller from the sale of the RSA SLISI Shares if the Purchaser elects to make the elections provided for under Section 338(h)(10) of the Code and any similar elections required to be, or treated as, made under any applicable state or local Tax laws as a result of the federal election (collectively, the "Section 338 Elections") is not less than the amount of net proceeds Seller would have derived from the sale of the RSA SLISI Shares in the absence of the Section 338 Elections. The Seller's Tax Cost shall be computed (1) on an after-Tax basis including, without limitation any additional Taxes imposed on the receipt of any additional amounts or any additional Taxes attributable to the allocation of ADSP to anything other than the RSA SLISI Shares, and (2) on the basis such that the after-Tax proceeds to Seller of the receipt of the Final Purchase Price plus the Seller's Tax Cost equals the amount of after-Tax proceeds the Seller would have received from the sale of the RSA SLISI Shares in exchange for the Final Purchase Price if the Section 338 Elections were not made and the entire final Purchase Price were allocable solely to the RSA SLISI Shares. Purchaser and Seller each agree to consult in good faith with regard to the determination and calculation of Seller's Tax Cost, provided that Purchaser shall accept Seller's final determination of Seller's Tax Cost to the extent that it is reasonable and consistent with Applicable Law (which, when accepted, shall become the "Final Seller's Tax Cost"). (b) Within fifteen (15) days after the agreement or determination of the Final Seller's Tax Cost, Purchaser shall notify Seller of Purchaser's decision as to whether to make the Section 338 Elections. If Purchaser decides to make the Section 338 Elections, Seller agrees to (or to cause Parent to, if applicable) join with Purchaser in making timely and irrevocable Section 338 Elections, provided Seller receives the payment of the Final Seller's Tax Cost as provided in Section 6.9(c) hereof. If Purchaser decides to make the Section 338 Elections, Purchaser shall be solely responsible for preparing drafts of all forms, attachments and schedules necessary to effectuate the Section 338 Elections, including, without limitation, IRS Form 8023 or applicable successor form, and any similar forms or applicable successor forms under applicable 15 state or local income tax laws (the "Section 338 Forms"), and Purchaser shall furnish a copy of the draft Section 338 Forms to Seller for Seller's review and comment, which Seller agrees to do promptly. Seller shall, and if required, Seller shall cause Parent to, cooperate in good faith with Purchaser's preparation of the Section 338 Forms, and Seller agrees to promptly provide (or cause Parent to promptly provide) to Purchaser true, correct and complete information regarding Seller (or Parent or Parent Group, if applicable) reasonably requested by Purchaser and necessary to complete the Section 338 Forms. (c) Thereafter, Purchaser shall deliver to Seller for execution by Seller (or Parent, if applicable) the final Section 338 Forms. Within five (5) days of delivering the final Section 338 Forms to Seller, Purchaser shall pay to Seller (by wire transfer in U.S. Dollars of immediately available funds to the bank account specified by Seller to Purchaser) an amount equal to the Final Seller's Tax Cost, and Seller (or Parent, if applicable) agrees to and shall simultaneously execute and deliver to Purchaser the final Section 338 Forms. (d) If Purchaser has paid to Seller the Final Seller's Tax Cost, then Seller agrees that Seller (i) shall, or shall cause Parent to, report the acquisition of RSA SLISI by Purchaser in a manner consistent with the making of the Section 338 Elections (ii) shall not, and shall cause Parent and each member of Parent Group not to, take a position in any Tax Return or audit or any proceeding before any Taxing Authority or otherwise inconsistent with the Section 338 Elections, including the determination of the ADSP and the Final Allocation shown thereon, unless and to the extent required to do so pursuant to a determination (as defined in Section 1313(a) of the Code or any similar state or local law). (e) Purchaser shall bear the costs and expenses of preparing the Section 338 Forms and the Proposed and Final Allocations. ARTICLE VII NAME CHANGE SECTION 7.1. NAME OF RSA SLISI. As promptly as practicable following the Closing, but in no event later than six (6) months following the Closing Date, Purchase shall, and shall cause RSA SLISI to make appropriate filings with all Governmental Entities and any other applicable registries to change the legal name and any tradename of RSA SLISI to a name that does not include "Royal", "RSA" or anything confusingly similar thereto. Seller agrees that the foregoing shall not be deemed to prohibit RSA SLISI or any of its Affiliates from adopting a new name that allows for the use of the acronym "RSUI" or from using "RSUI" or "Specialty Underwriting" in its corporate name. 16 ARTICLE VIII INDEMNIFICATION SECTION 8.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. (a) The representations and warranties of the parties contained in this Agreement shall survive the Closing and shall continue in full force and effect until one (1) year following the Closing Date, after which time such representations and warranties shall terminate and have no further force or effect, except that the representations and warranties contained in Section 3.1 (Good Title to Shares), Section 3.2 (Capitalization) and Section 3.5 (Assets and Property; No Liabilities) shall survive indefinitely, and the representations and warranties contained in Section 3.8 (Taxes) shall survive until the time set forth in Section 6.4(b) hereof. The period during which any such representation and warranty survives is the "Survival Period" for such representation and warranty. Notwithstanding the foregoing, any representation or warranty that would otherwise terminate shall survive with respect to losses in respect of any Action of which notice is given pursuant to this Agreement prior to the end of the Survival Period, until such Action (as defined herein) is finally resolved and any related losses are paid. (b) Unless otherwise limited by the terms of this Agreement, covenants of the parties contained in this Agreement shall survive the Closing indefinitely. (c) In the event of a breach of any of such representations, warranties, covenants or agreements, the party to whom such representations, warranties, covenants or agreements have been made shall have all rights and remedies for such breach available to it under the provisions of this Agreement, whether at law or equity, regardless of any knowledge of, disclosure to, or investigation made by or on behalf of, such party on or before the Closing Date. SECTION 8.2. OBLIGATION OF SELLER TO INDEMNIFY. Other than in respect of Taxes, indemnification for which shall be governed solely by Article VI hereof, Seller shall indemnify, defend and hold harmless Purchaser, together with its officers, directors, employees, Affiliates, successors, permitted assigns, agents and representatives, from and against any and all losses, judgments, claims, awards, damages, settlements, costs, interest, penalties, deficiencies and expenses, including, without limitation, court costs and reasonable attorneys' fees and expenses ("Damages"), arising out of, resulting from or relating to the following: (i) breach of any representation or warranty of Seller contained herein; (ii) any breach or non-performance of any of the covenants or agreements of Seller contained in this Agreement; (iii) the business of RSA SLISI prior to the Closing or any other business of Seller related to the business of RSA SLISI, or any act, omission, debt obligation or liability of Seller, its agents, contractors, employees, officers or directors; (iv) any and all such claims, losses, judgments, awards, damages, settlements, costs, interest, penalties, deficiencies and expenses, which are brought, levied or held against RSA SLISI, Purchaser or its Affiliates resulting from or 17 relating to the employment of any person by, or the provision of services by any person to, the RSA SLISI, including by way of illustration and not by way of limitation, claims based upon discrimination on the basis of race, gender, color, religion, national origin, age, disability, or other protected classification, the failure to pay any wages, compensation or other benefits payable or due to any such person, the failure to deduct or collect any and all employment taxes and withholdings, the failure to recognize veteran's rights or the harassment of any person, occurring on or before Closing Date; (v) any and all such claims, losses, judgments, awards, damages, settlements, costs, interest, penalties, deficiencies and expenses, which are brought, levied or held against RSA SLISI resulting from or relating to any "employee benefit plan," within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended, and any other employee benefit, fringe benefit, deferred or incentive compensation plan, fund, program, policy, arrangement or practice (each a "Plan") which has ever been maintained, sponsored or contributed to, or to which contributions were ever required to be made by, Seller, RSA SLISI or any person treated as a single employer with Seller or RSA SLISI under Section 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as amended, with respect to any act or omission occurring at any time (other than any claim relating to, resulting from or arising out of any Plan of Purchaser or any of its Affiliates and involving any act or omission after the Closing Date); or (vi) any and all actions, orders, writs, injunctions, judgments or decrees outstanding or any claims, suits, litigations, proceedings, arbitrations, inquiries, governmental audits or investigations (collectively, "Actions"), judgments, costs and expenses incidental to the foregoing. For purposes of the indemnification provided in Section 8.2, in determining whether the representations and warranties of Seller have been breached, no effect will be given to any materiality qualifier set forth in the representations and warranties. SECTION 8.3. OBLIGATIONS OF PURCHASER TO INDEMNIFY. Purchaser shall indemnify, defend and hold harmless Seller, together with its officers, directors, employees, Affiliates, successors, permitted assigns, agents and representatives from and against any and all losses, judgments, claims, awards, damages, settlements, costs, interest, penalties, deficiencies and expenses, including without limitation, reasonable attorneys' fees and expenses, arising out of, resulting from or relating to (i) any of Purchaser's breach of any representation or warranty of Purchaser in this Agreement; (ii) any breach or non-performance of any of the covenants or agreements of Purchaser contained in this Agreement; and (iii) any and all Actions, judgments, costs and expenses incidental to the foregoing. For purposes of the indemnification provided in Section 8.3, in determining whether the representations and warranties of Purchaser have been breached, no effect will be given to any materiality qualifier set forth in the representations and warranties. SECTION 8.4. NOTICE OF INDEMNIFYING PARTY. (a) If any party (the "Indemnitee") receives notice of any third-party claim or of the commencement of any Action or becomes aware of the occurrence of any event with respect to which any other party (or parties) (the "Indemnifying Party") is required to provide indemnification pursuant to Section 8.1 or 8.2, the Indemnitee shall promptly give the Indemnifying Party notice thereof. 18 (b) (i) The Indemnifying Party shall, upon receipt of such notice and upon its notifying the Indemnitee in writing that it shall indemnify all the Indemnitee in respect of such matter, be entitled to participate in or, at the Indemnifying Party's option, assume at its own expense the defense, appeal or settlement of such third party claim with respect to which such indemnity has been invoked with counsel of its own choosing (who shall be reasonably satisfactory to the Indemnified Party), and the Indemnitee shall fully cooperate with the Indemnifying Party in connection therewith including contesting such third party claim or making any counterclaim against the third party claimant; provided, however, that if the Indemnifying Party assumes the defense, appeal or settlement of such third party claim, (i) the Indemnifying Party shall reimburse the Indemnitee for out of pocket expenses incurred by the Indemnitee (such as travel costs, but not internal time charges) and (ii) the Indemnitee shall be entitled to employ one counsel to represent itself if an actual conflict of interest exists in the opinion of counsel to the Indemnitee between the Indemnifying Party and the Indemnitee in respect of such third party claim and in that event the reasonable fees and expenses of such counsel shall be paid by the Indemnifying Party (it being understood that the Indemnitee may employ not more than one counsel to represent it at the expense of the Indemnifying Party). Any Indemnitee is hereby authorized prior to the date on which its receives written notice from the Indemnifying Party that it intends to assume the defense, appeal or settlement of such third party claim, to file any motion, answer or other pleading and take such other action which it shall reasonably deem necessary to protect its interest or that of the Indemnifying Party until the date on which the Indemnitee receives such notice from the Indemnifying Party, provided that, prior to filing such motion, answer or other pleading or taking such other action, the Indemnitee shall have made reasonable efforts to consult with the Indemnifying Party. In the event that the Indemnifying Party fails to assume the defense, appeal or settlement of such third party claim within twenty (20) days after receipt of notice thereof from the Indemnitee, such Indemnitee shall have the right to undertake the defense or appeal of or settle or compromise such third party claim on behalf of and for the account and risk of the Indemnifying Party. (ii) Except as set forth in Section 8.4 (b)(i), no claim or demand may be settled by the Indemnitee without the consent of the Indemnifying Party, which consent shall not be unreasonably delayed or withheld. Unless the claim or demand seeks only dollar damages (all of which are to be paid by the Indemnifying Party), no such claim or demand may be settled by the Indemnifying Party without the consent of the Indemnitee, which consent shall not be unreasonably delayed or withheld. (iii) Seller and Purchaser shall make mutually available to each other all relevant information in their possession relating to any third party claim and shall cooperate with each other in the defense thereof. SECTION 8.5. PURCHASE PRICE ADJUSTMENT. Purchaser and Seller agree to treat, to the maximum extent permitted by Applicable Law, any payments 19 under Article VI or this Article VIII as an adjustment to the Purchase Price for all Tax purposes. ARTICLE IX MISCELLANEOUS SECTION 9.1. NOTICES. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in Person, by telecopy (delivery or which is confirmed), by courier (delivery of which is confirmed) or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties to this Agreement as follows: If to Seller: Laura S. Lawrence, Esq. General Counsel Royal Group, Inc. 9300 Arrowpoint Blvd. Charlotte, North Carolina 28273 Telephone No.: (704) 522-2851 Facsimile No.: (704) 522-2313 with a copy to (which shall not constitute notice to Seller for purposes of this Section 9.1): Robert J. Sullivan, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036 Telephone No.: (212) 735-3000 Facsimile No.: (212) 735-2000 If to Purchaser: Mr. David E. Leonard Executive Vice President Royal Specialty Underwriting, Inc. 945 East Paces Ferry Road Atlanta, Georgia 30326 Telephone No.: (404) 231-2366 Facsimile No.: (404) 231-3755 20 with copies to (which shall not constitute notice to Purchaser for purposes of this Section 9.1): Robert M. Hart, Esq. General Counsel Alleghany Corporation 375 Park Avenue Suite 3201 New York, New York 10152 Telephone No.: (212) 752-1356 Facsimile No.: (212) 759-8149 Aileen C. Meehan, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Telephone No.: (212) 259-8000 Facsimile No.: (212) 259-6333 or to such other address as the Person to whom notice is given may have previously furnished to the others in writing in the manner set forth above. In no event shall the provision of notice pursuant to this Section 9.1 constitute notice for service of any writ, process or summons in any suit, action or other proceeding. SECTION 9.2. TERMINATION. This Agreement may be terminated at any time by mutual agreement of Purchaser and Seller in writing. SECTION 9.3. AMENDMENT, MODIFICATION AND WAIVER. This Agreement may not be amended, modified or waived except by an instrument or instruments in writing signed and delivered on behalf of each of the parties hereto. SECTION 9.4. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. SECTION 9.5. DESCRIPTIVE HEADINGS. The descriptive article and section headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. SECTION 9.6. ASSIGNMENT; BINDING AGREEMENT. Neither this Agreement, nor any rights, interests or obligations hereunder, may be directly or indirectly assigned, delegated, sublicensed or transferred by any party to this Agreement, in whole or in part, to any other Person (including any bankruptcy trustee) by operation of law or otherwise, whether voluntarily or involuntarily, without the prior written consent of the other party hereto, except that Purchaser shall have the right any time, without such consent, to assign, in whole or in part, its rights hereunder to any wholly 21 owned Subsidiary of Purchaser, provided that such assignment shall not relieve Purchaser of any of its obligations hereunder. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. SECTION 9.7. THIRD PARTY BENEFICIARIES. Nothing in this Agreement, express or implied, is intended to or shall confer upon any Person other than the parties hereto any rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement. SECTION 9.8. SPECIFIC PERFORMANCE. The parties recognize and agree that if for any reason any of the provisions of this Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate and irreparable harm or injury would be caused for which money damages would not be an adequate remedy. Accordingly, each party agrees that, in addition to any other available remedies, each other party shall be entitled to an injunction restraining any violation or threatened violation of any of the provisions of this Agreement without the necessity of posting a bond or other form of security. In the event that any action should be brought in equity to enforce any of the provisions of this Agreement, no party will allege, and each party hereby waives the defense, that there is an adequate remedy at Law. SECTION 9.9. SEVERABILITY. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as would be enforceable. SECTION 9.10. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. SECTION 9.11. ENTIRE AGREEMENT. This Agreement and the Assignment and Assumption Agreement (together with the Seller Disclosure Schedules, the other schedules hereto and thereto, the exhibits hereto and thereto, the annexes hereto and thereto and the other agreements, documents and instruments delivered in connection herewith and therewith) constitute the entire agreement among the parties with respect to the subject matter hereof and thereof and supersede all other prior agreements and understandings, both written and verbal, among the parties or any of them with respect to the subject matter hereof. SECTION 9.12. CONSENT TO JURISDICTION. Each of the parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the Chancery Court of the State of Delaware (or such applicable state and federal court located in the State of Delaware) for the purposes of enforcing this Agreement. In any 22 action, suit or other proceeding, each of the parties hereto irrevocably and unconditionally waives and agrees not to assert by way of motion, as a defense or otherwise any claims that it is not subject to the jurisdiction of the above courts, that such action or suit is brought in an inconvenient forum or that the venue of such action, suit or other proceeding is improper. Each of the parties hereto also agrees that any final and unappealable judgment against a party hereto in connection with any action, suit or other proceeding shall be conclusive and binding on such party and that such award or judgment may be enforced in any court of competent jurisdiction, either within or outside of the United States. A certified or exemplified copy of such award or judgment shall be conclusive evidence of the fact and amount of such award or judgment. SECTION 9.13. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 9.14. INTERPRETATION. (a) When a reference is made in this Agreement to a Section or Article, such reference shall be to a section or article of this Agreement unless otherwise clearly indicated to the contrary. Whenever the words "include," "includes" or "including" are used in this Agreement they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement. The meaning assigned to each term used in this Agreement shall be equally applicable to both the singular and the plural forms of such term, and words denoting any gender shall include all genders. Where a word or phrase is defined herein, each of its other grammatical forms shall have a corresponding meaning. (b) The parties have participated jointly in the negotiation and drafting of this Agreement; consequently, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement. 23 IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase Agreement as of the date first above written. ROYAL GROUP, INC. By: /s/ Stephen M. Mulready ______________________________________ Name: Stephen M. Mulready Title: President and Chief Executive Officer ALLEGHANY INSURANCE HOLDINGS LLC By: /s/ James P. Slattery ______________________________________ Name: James P. Slattery Title: President EX-10.37 39 y88779exv10w37.txt CONTENTS TO STOCK PURCHASE AGREEMENT Exhibit 10.37 List of Contents of Exhibits and Schedules to the Stock Purchase Agreement Exhibits Description -------- ----------- Exhibit A Assignment and Assumption Agreement Schedules Description --------- ----------- Schedule 3.8 Tax EX-10.38 40 y88779exv10w38.txt ASSIGNMENT AND ASSUMPTION OF LIABILITIES AGREEMENT EXHIBIT 10.38 ASSIGNMENT AND ASSUMPTION OF LIABILITIES AGREEMENT THIS ASSIGNMENT AND ASSUMPTION OF LIABILITIES AGREEMENT (this "Assignment and Assumption of Liabilities Agreement") is made as of this date of July 1, 2003 by and between RSA Surplus Lines Insurance Services, Inc., a corporation organized and existing under the laws of the State of Delaware ("RSA SLISI") and Royal Indemnity Company, a Delaware insurance company ("RIC"). All capitalized terms used but not defined herein shall have the meaning ascribed to them in that certain Stock Purchase Agreement, dated as of July 1, 2003 (the "RSA SLISI Stock Purchase Agreement"), by and between Royal Group, Inc., a Delaware corporation ("Royal Group") and Alleghany Insurance Holdings LLC, a Delaware limited liability company ("AIHL"). WHEREAS, pursuant to the RSA SLISI Stock Purchase Agreement, Royal Group and AIHL agreed that Royal Group shall cause RIC and RSA SLISI to enter into this Assignment and Assumption of Liabilities Agreement, pursuant to which RSA SLISI shall assign all of the assets of RSA SLISI to RIC as of the Closing Date, other than certain excluded assets, and RIC shall assume all of the liabilities and obligations of RSA SLISI as of the Closing Date; WHEREAS, in connection with the transactions contemplated by the RSA SLISI Stock Purchase Agreement, among other things, RSA SLISI has agreed to execute this Assignment and Assumption of Liabilities Agreement and to assign all of the Assigned Assets (as such term is defined below) as partial consideration for the contemplated transactions; and WHEREAS, in connection with the transactions contemplated by the RSA SLISI Stock Purchase Agreement, among other things, RIC has agreed to execute this Assignment and Assumption of Liabilities Agreement and to pay, perform and discharge all of the Assumed Liabilities (as such term is defined below) as partial consideration for the contemplated transactions. NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged: 1. Assignment of Assets. Subject to the terms and conditions of this Assignment and Assumption of Liabilities Agreement, RSA SLISI hereby agrees to assign, transfer, convey and deliver any and all right, title and interest in the assets and property of RSA SLISI, as of the Closing Date, except (i) its corporate charter, (ii) the Permit, (iii) the minimum amount of assets, if any, required by the California Department of Insurance to maintain the Permit or such additional amount as permitted in the RSA SLISI Stock Purchase Agreement, and (iv) the Producer Agreements (the "Assigned Assets"), and RIC hereby agrees to the assignment, transfer, conveyance and delivery of the Assigned Assets; 2. Assumption of Liabilities. Subject to the terms and conditions of this Assignment and Assumption of Liabilities Agreement, RIC hereby agrees to assume, pay, perform and discharge all debts, obligations and liabilities, contracts and obligations of every kind, character or description of RSA SLISI, whether known or unknown, accrued, absolute, contingent or otherwise existing prior to the Closing Date (collectively, the "Assumed Liabilities"). 3. Indemnification. Without limitation of the indemnification obligations of RGI and affiliates of RGI under the Acquisition Agreement and the Ancillary Agreements (as defined in the Acquisition Agreement), RIC hereby agrees to indemnify and hold RSA SLISI harmless from and against any and all obligations, costs, expenses, interests or overdue charges, fees, claims, damages, judgments, penalties, deficiencies, taxes or liabilities of whatever kind or nature imposed on, sustained or incurred by RSA SLISI, to the extent they arise out of or relate to the Assumed Liabilities, including, without limitation, attorneys', accountants' and other investigatory fees and out-of-pocket expenses, actually expended or incurred by RSA SLISI (which costs shall not include any expenses associated with salaries or overhead related to employees of RSA SLISI). 4. Further Assurances. Upon request from RSA SLISI from time to time, RIC shall execute and deliver all documents and do all other reasonable acts that may be reasonably necessary to carry out and effectuate the intent and purpose of this Assignment and Assumption of Liabilities Agreement. Upon request from RIC from time to time, RSA SLISI shall execute and deliver all documents and do all other reasonable acts that may be reasonably necessary to carry out and effectuate the intent and purposes of this Assignment and Assumption of Liabilities Agreement. 5. Power of Attorney. RSA SLISI on behalf of itself and its successors, hereby irrevocably appoints RIC and its designated officers and directors as the true and lawful attorney of RSA SLISI to handle, satisfy and/or dispute the Assumed Liabilities as well as to execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, such assurances or documents, and to promptly perform, or cause to be performed, such further acts or deeds, which, in the reasonable discretion of said attorney may be necessary, desirable or expedient for the purpose of transferring to RIC the Assumed Liabilities. Such power of attorney, being coupled with an interest, shall not be revoked by the dissolution of RSA SLISI and may be exercised in the name and on behalf of RIC. 6. Governing Law. This Assignment and Assumption of Liabilities Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 2 7. Specific Performance. The parties recognize and agree that if for any reason any of the provisions of this Assignment and Assumption of Liabilities Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate and irreparable harm or injury would be caused for which money damages would not be an adequate remedy. Accordingly, each party agrees that, in addition to any other available remedies, each other party shall be entitled to an injunction restraining any violation or threatened violation of any of the provisions of this Assignment and Assumption of Liabilities Agreement without the necessity of posting a bond or other form of security pending the outcome of any arbitration. In the event that any action should be brought in equity to enforce any of the provisions of this Assignment and Assumption of Liabilities Agreement, no party will allege, and each party hereby waives the defense, that there is an adequate remedy at law. 8. Descriptive Headings. The descriptive article and section headings herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Assignment and Assumption of Liabilities Agreement. [SIGNATURE PAGE FOLLOWS] 3 IN WITNESS WHEREOF, each of the parties hereto has caused this instrument to be duly executed in its name by an authorized representative as of the date set forth above. ROYAL INDEMNITY COMPANY By: /s/ Stephen M. Mulready ---------------------------- Name: Stephen M. Mulready Title: President and Chief Executive Officer RSA SURPLUS LINES INSURANCE SERVICES, INC. By: /s/ James A. Dixon ----------------------------- Name: James A. Dixon Title: Chairman EX-10.39 41 y88779exv10w39.txt ASSIGNMENT AND ASSUMPTION AGREEMENT Exhibit 10.39 ASSIGNMENT AND ASSUMPTION AGREEMENT THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Assignment"), dated as of July 1, 2003, is entered into by and between Alleghany Insurance Holdings LLC, a Delaware limited liability company ("Assignor"), and RSUI Group, Inc., a Delaware corporation ("Assignee"). WITNESSETH: WHEREAS, Assignor is a party to that certain Stock Purchase Agreement, dated as of July 1, 2003 (the "Agreement"), by and between Assignor and Royal Group, Inc.; and WHEREAS, Assignor desires to assign to Assignee all of Assignor's rights under the Agreement and Assignee desires to assume all of Assignor's obligations of Assignor under the Agreement, subject to the terms of this Assignment. NOW, THEREFORE, in consideration of the foregoing premises and the following mutual terms and conditions, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Assignment of Rights. Subject to the terms and conditions of this Assignment, Assignor hereby agrees to assign, transfer, convey and deliver any and all of its rights under the Agreement and Assignee hereby agrees to the assignment, transfer, conveyance and delivery of such rights. 2. Assumption of Liabilities. Subject to the terms and conditions of this Assignment, Assignee hereby agrees to assume, pay, perform and discharge all debts, obligations and liabilities of every kind, character or description of Assignor under the Agreement. 3. Discharge. Assignor acknowledges that, in accordance with Section 9.6 of the Agreement, as between Assignor and Royal, this Assignment shall not relieve Assignor of any of its obligations under the Agreement. IN WITNESS WHEREOF, the parties have executed this Assignment effective as of the day and year first written above. ALLEGHANY INSURANCE HOLDINGS LLC By: /s/ Weston M. Hicks ----------------------------- Name: Weston M. Hicks Title: Chief Executive Officer RSUI GROUP, INC. By: /s/ James P. Slattery ----------------------------- Name: James P. Slattery Title: President EX-10.40 42 y88779exv10w40.txt ASSIGNMENT AND ASSUMPTION AGREEMENT Exhibit 10.40 ASSIGNMENT AND ASSUMPTION AGREEMENT THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Assignment"), dated as of July 1, 2003, is entered into by and between Alleghany Insurance Holdings LLC, a Delaware limited liability company ("Assignor"), and RSUI Group, Inc., a Delaware corporation ("Assignee"). WITNESSETH: WHEREAS, Assignor is a party to that certain Renewal Rights Agreement, dated as of July 1, 2003 (the "Agreement"), by and between Assignor and each of the insurance company subsidiaries of Royal Group, Inc. listed on Exhibit A thereto; and WHEREAS, Assignor desires to assign to Assignee all of Assignor's rights under the Agreement and Assignee desires to assume all of Assignor's obligations of Assignor under the Agreement, subject to the terms of this Agreement. NOW THEREFORE, in consideration of the foregoing premises and the following mutual terms and conditions, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Assignment of Rights. Subject to the terms and conditions of this Assignment, Assignor hereby agrees to assign, transfer, convey and deliver any and all of its rights under the Agreement and Assignee hereby agrees to the assignment, transfer, conveyance and delivery of such rights. 2. Assumption of Liabilities. Subject to the terms and conditions of this Assignment, Assignee hereby agrees to assume, pay, perform and discharge all debts, obligations and liabilities of every kind, character or description of Assignor under the Agreement. 3. Discharge. Assignor acknowledges that, in accordance with Section 5.7 of the Agreement, as between Assignor and Royal, this Assignment shall not relieve Assignor of any of its obligations under the Agreement. IN WITNESS WHEREOF, the parties have executed this Assignment effective as of the day and year first written above. ALLEGHANY INSURANCE HOLDINGS LLC By: /s/ Weston M. Hicks ------------------------------- Name: Weston M. Hicks Title: Chief Executive Officer RSUI GROUP, INC. By: /s/ James P. Slattery -------------------------------- Name: James P. Slattery Title: President EX-10.41 43 y88779exv10w41.txt ASSIGNMENT AND ASSUMPTION AGREEMENT Exhibit 10.41 ASSIGNMENT AND ASSUMPTION AGREEMENT THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Assignment"), dated as of July 1, 2003, is entered into by and between Alleghany Insurance Holdings LLC, a Delaware limited liability company ("Assignor"), and RSUI Group, Inc. a Delaware corporation ("Assignee"). WHITNESSETH: WHEREAS, Assignor is a party to that certain Transition Services Agreement, dated as of July 1, 2003 (the "Agreement"), by and between Assignor, Royal Group, Inc. and Royal Specialty Underwriting, Inc.; and WHEREAS, Assignor desires to assign to Assignee all of Assinor's rights under the Agreement and Assignee desires to assume all of Assignor's obligations of Assignor under the Agreement, subject to the terms of this Assignment. NOW, THEREFORE, in consideration of the foregoing premises and the following mutual terms and conditions, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. Assignment of Rights. Subject to the terms and -------------------- conditions of this Assignment, Assignor hereby agrees to assign, transfer, convey and deliver any and all of its rights under the Agreement and Assignee hereby agrees to the assignment, transfer, conveyance and delivery of such rights. 2. Assumption of Liabilities. Subject to the terms and -------------------------- conditions of this Assignment, Assignee hereby agrees to assume, pay, perform and discharge all debts, obligations and liabilities of every kind, character or description of Assignor under the Agreement. 3. Discharge. Assignor acknowledges that, in accordance --------- with Section 9.2 of the Agreement, as between Assignor and Royal, this Agreement shall not relieve Assignor of any of its obligations under the Agreement. IN WITNESS WHEREOF, the parties have executed this Assignment effective as of the day and year first written above. ALLEGHANY INSURANCE HOLDINGS LLC By: /s/ Weston M. Hicks ------------------------------- Name: Weston M. Hicks Title: Chief Executive Officer RSUI GROUP, INC. By: /s/ James P. Slattery ------------------------------- Name: James P. Slattery Title: President EX-10.42 44 y88779exv10w42.txt STOCK PURCHASE AGREEMENT Exhibit 10.42 -------------------------------------------------------- STOCK PURCHASE AGREEMENT by and between ALLEGHANY INSURANCE HOLDINGS LLC and GUARANTY NATIONAL INSURANCE COMPANY Dated as of June 6, 2003 -------------------------------------------------------- Table of Contents
Page ---- ARTICLE I Certain Definitions Section 1.1. Definitions ................................................... 2 ARTICLE II The Purchase and Sale Transaction Section 2.1. Purchase and Sale of the Shares ............................... 7 Section 2.2. Purchase Price ................................................ 7 Section 2.3. RIC (Landmark) Quota Share Reinsurance Agreement .............. 9 Section 2.4. RIC (Landmark) Administrative Services Agreement .............. 9 Section 2.5. Assumption of Liabilities ..................................... 9 Section 2.6. Closing ....................................................... 9 Section 2.7. Closing Items ................................................. 9 ARTICLE III Representations and Warranties by Seller Section 3.1. Organization and Standing ..................................... 10 Section 3.2. Authority; Corporate Action ................................... 11 Section 3.3. Non-Contravention ............................................. 11 Section 3.4. Organization and Qualification of the Company ................. 12 Section 3.5. No Subsidiaries of the Company ................................ 12 Section 3.6. Capitalization of the Company; Title to Shares ................ 12 Section 3.7. Articles of Incorporation and By-laws ......................... 12 Section 3.8. Validity ...................................................... 12 Section 3.9. Governmental Approvals ........................................ 12 Section 3.10. Financial Statements ......................................... 13 Section 3.11. Taxes ........................................................ 13 Section 3.12. Compliance with Applicable Law ............................... 14 Section 3.13. Litigation ................................................... 14 Section 3.14. Assets and Property; No Liabilities .......................... 15 Section 3.15. Material Agreements .......................................... 15 Section 3.16. Books and Records ............................................ 16 Section 3.17. Business of the Company; Authority; Permits .................. 16 Section 3.18. Reinsurance Ceded ............................................ 17 Section 3.19. Absence of Certain Changes or Events ......................... 17 Section 3.20. Intercompany Accounts ........................................ 17 Section 3.21. Brokers and Finders .......................................... 18 ARTICLE IV Representations and Warranties by Purchaser Section 4.1. Organization and Standing ..................................... 18 Section 4.2. Corporate Action .............................................. 18 Section 4.3. Validity ...................................................... 18 Section 4.4. Governmental Approvals ........................................ 18
i Section 4.5. Litigation .................................................... 18 Section 4.6. Non-Contravention ............................................. 19 Section 4.7. Investor Status and Compliance with Securities Laws ........... 19 Section 4.8. Brokers and Finders ........................................... 20 ARTICLE V Covenants of Seller Section 5.1. Conduct of Business ........................................... 20 Section 5.2. Prohibited Conduct ............................................ 20 Section 5.3. Confidentiality ............................................... 21 Section 5.4. Dividends and Other Distributions ............................. 21 Section 5.5. Books and Records ............................................. 21 Section 5.6. Notification of Changes and Default ........................... 22 Section 5.7. Statutory Deposits ............................................ 22 Section 5.8. Intercompany Contracts and Indebtedness ....................... 22 Section 5.9. Accounts, etc ................................................. 22 Section 5.10. Termination of Agreements .................................... 22 Section 5.11. Termination of 1993 Reinsurance Agreement .................... 22 Section 5.12. Governmental Approvals ....................................... 23 Section 5.13. Further Assurances; Cooperation Pending Closing .............. 23 Section 5.14. Transfer of Real Property, etc ............................... 23 Section 5.15. Company's Eligibility ........................................ 23 Section 5.16. Post-Closing Administrative Matters .......................... 24 Section 5.17. Directors and Officers ....................................... 24 Section 5.18. Record Keeping ............................................... 24 Section 5.19. Asset List Provided by Seller ................................ 24 Section 5.20. Novations .................................................... 24 Section 5.21. Termination Endorsement ...................................... 24 ARTICLE VI Covenants of Purchaser Section 6.1. Compliance with Oklahoma Insurance Law ........................ 25 Section 6.2. Post-Closing Access ........................................... 25 Section 6.3. Further Assurances; Cooperation Pending Closing ............... 25 Section 6.4. Notification of Changes and Default ........................... 25 Section 6.5. Certain Trademarks ............................................ 26 Section 6.6. Confidentiality ............................................... 26 Section 6.7. Governmental Approvals ........................................ 26 Section 6.8. Texas License ................................................. 26 ARTICLE VII Conditions Precedent to Obligation of Purchaser to Close Section 7.1. Proceedings Satisfactory; Certificates ........................ 26 Section 7.2. Compliance with Covenants ..................................... 27 Section 7.3. No Proceedings Pending ........................................ 27 Section 7.4. Regulatory Approvals .......................................... 27 Section 7.5. Liabilities ................................................... 28
ii Section 7.6. Delivery of Certificates for the Shares ....................... 28 Section 7.7. Closing Under the Acquisition Agreement Consummated ........... 28 ARTICLE VIII Conditions Precedent to Obligation of Seller to Close Section 8.1. Proceedings Satisfactory; Certificates ........................ 28 Section 8.2. Compliance with Covenants ..................................... 28 Section 8.3. Regulatory Approvals .......................................... 28 Section 8.4. No Proceedings Pending ........................................ 29 Section 8.5. Closing Under the Acquisition Agreement Consummated ........... 29 ARTICLE IX Indemnification Section 9.1. Seller Indemnity .............................................. 29 Section 9.2. Purchaser Indemnity ........................................... 30 Section 9.3. Valuation of Claim ............................................ 31 Section 9.4. Payment of Indemnification Loss ............................... 32 Section 9.5. Purchase Price Adjustment ..................................... 32 Section 9.6. No Duplication ................................................ 32 ARTICLE X Tax Matters Section 10.1. Transfer Taxes ............................................... 32 Section 10.2. Tax Matters .................................................. 32 Section 10.3. Computation of Tax Liabilities ............................... 33 Section 10.4. Seller's Indemnity for Taxes ................................. 34 Section 10.5. Assistance and Cooperation ................................... 35 Section 10.6. Refunds ...................................................... 35 Section 10.7. Contests ..................................................... 35 Section 10.8. Post-Closing Actions which Affect Seller's Liability for Taxes 36 Section 10.9. Section 338(h)(10) Election .................................. 37 ARTICLE XI Termination Section 11.1. Termination .................................................. 38 Section 11.2. Effect of Termination ........................................ 39 ARTICLE XII Miscellaneous Provisions Section 12.1. Expenses ..................................................... 39 Section 12.2. Schedules; This Agreement .................................... 39 Section 12.3. Modification ................................................. 40 Section 12.4. Waivers ...................................................... 40 Section 12.5. Survival of Obligations ...................................... 40 Section 12.6. Other Instruments to be Executed ............................. 40 Section 12.7. Public Statements; Confidentiality ........................... 40 Section 12.8. Parties Bound ................................................ 41 Section 12.9. Governing Law ................................................ 41
iii Section 12.10. Notices ..................................................... 41 Section 12.11. Number and Gender of Words .................................. 42 Section 12.12. Invalid Provisions .......................................... 42 Section 12.13. Headings .................................................... 42 Section 12.14. Third Party Beneficiaries ................................... 42 Section 12.15. Other Remedies .............................................. 43 Section 12.16. Entirety of Agreement ....................................... 43 Section 12.17. Multiple Counterparts; Effectiveness ........................ 43 Section 12.18. Assignment .................................................. 43
iv LIST OF EXHIBITS Exhibit A RIC (Landmark) Quota Share Reinsurance Agreement Exhibit B RIC (Landmark) Administrative Services Agreement Exhibit C Assumption of Liabilities Agreement
v LIST OF SCHEDULES SELLER DISCLOSURE SCHEDULES Schedule 1.1(a) Seller Persons with Knowledge Schedule 3.3 Non-Contravention Schedule 3.9 Governmental Approvals Schedule 3.11 Tax Schedule 3.12 Governmental Proceedings or Investigations Schedule 3.13 Litigation Schedule 3.14(a) Statutory Deposits Schedule 3.14(b) Company Bank Accounts and Safe Deposit Boxes Schedule 3.15(a) Material Agreements Schedule 3.15(b) Exceptions to Material Agreements Schedule 3.17(c)(i) Surplus Lines Eligibility States Schedule 3.17(c)(ii) Suspension or Termination of Surplus Lines Eligibility Schedule 3.18 Reinsurance Ceded Schedule 3.19 Exceptions to Absence of Certain Changes Schedule 3.20 Intercompany Accounts
PURCHASER DISCLOSURE SCHEDULES Schedule 1.1(b) Purchaser Persons with Knowledge Schedule 4.4 Governmental Approvals Schedule 4.5 Litigation Schedule 4.6(a) Non-Contravention
vi STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (together with the Exhibits and Schedules attached hereto and incorporated herein by reference, being hereinafter referred to as this "Agreement") is made and entered into as of the 6th day of June, 2003, by and between GUARANTY NATIONAL INSURANCE COMPANY, an insurance company organized and existing under the laws of the State of Colorado ("Seller"), ALLEGHANY INSURANCE HOLDINGS LLC, a Delaware limited liability company ("Purchaser") and, for purposes of Sections 5.12, 5.15 and 5.16 only, ROYAL INDEMNITY COMPANY, a Delaware property and casualty insurance company ("RIC"). W I T N E S S E T H : WHEREAS, this Agreement is being entered into concurrently with that certain acquisition agreement, dated June 6, 2003, between Royal Group, Inc., a Delaware corporation ("Royal") and Purchaser (the "Acquisition Agreement"); WHEREAS, Seller is an indirect wholly-owned subsidiary of Royal; WHEREAS, Seller owns of record and beneficially 1,000,000 shares of the common stock, $4.00 par value per share (the "Shares"), which shares constitute all of the issued and outstanding shares of the capital stock of LANDMARK AMERICAN INSURANCE COMPANY, an insurance company organized and existing under the laws of the State of Oklahoma (the "Company"); WHEREAS, the Company possesses various state licenses, authorizations and qualifications to engage in, and is engaged in, the business of writing insurance and surplus and excess lines insurance and related activities (collectively, the "Business"); WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to purchase from Seller, the Shares, all on the terms and conditions hereinafter set forth (the "Stock Purchase"); WHEREAS, in connection with the Stock Purchase, subject to the terms provided herein and the Landmark Ancillary Agreements (as defined herein) as of the Closing Date, (i) Seller shall cause the Company to enter into a quota share reinsurance agreement with RIC, pursuant to which RIC shall assume and reinsure all the liabilities of the Company existing as of the Closing Date net of collectible reinsurance and exclusive of the liabilities under the Company Insurance Contracts (as defined herein); (ii) Seller shall cause the Company to enter into an administrative services agreement with RIC, pursuant to which RIC shall provide administrative services to the Company with respect to the contracts and liabilities reinsured under said quota share reinsurance agreement; and (iii) RIC shall assume any other liabilities of the Company (excluding liabilities relating to the Company Insurance Contracts) not otherwise expressly assumed by RIC or retained by the Company. NOW THEREFORE, in consideration of the premises set forth above, and subject to the terms and conditions stated herein, the parties hereto agree as follows: ARTICLE I CERTAIN DEFINITIONS SECTION 1.1. DEFINITIONS. The following terms, when used in this Agreement, shall have the meanings set forth herein. The terms defined below shall be deemed to refer to the singular or plural as the context requires. "Acquisition Agreement" shall have the meaning set forth in the preamble. "Actions" shall have the meaning set forth in Section 3.13. "Affiliate" of any Person shall mean another Person that from time to time, directly or indirectly controls, is controlled by, or is under common control with, such first Person, where "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a Person, whether through the ownership of voting securities, by contract, as trustee or executor, or otherwise. For the purposes of this Agreement, the term "Affiliated" has a meaning correlative to the foregoing. "Agreement" shall have the meaning set forth in Section 12.2. "AIHL Insurance Co." shall have the meaning set forth in the Acquisition Agreement. "Annual Statement" shall have the meaning set forth in Section 3.10(b). "Applicable Law" shall mean any applicable order, law, statute, regulation, rule, ordinance, writ, injunction, directive, judgment, decree, principle of common law, constitution or treaty enacted, promulgated, issued, enforced or entered by any Governmental Entity, including any amendments thereto that may be adopted from time to time. "Assumption of Liabilities Agreement" shall have the meaning set forth in Section 2.5. "Books and Records" shall mean the originals or copies of all customer lists, policy information, insurance contract forms, administrative and pricing manuals, medical procedure code lists, claim records, sales records, underwriting records, financial records, compliance records (including, without limitation, the Company's insurance licenses and evidence of the Company's surplus lines authorizations and qualifications), complaint files, data files prepared for or filed with regulators of the Business and premium tax records, each in the possession or control of the Company, Seller or any of 2 its Affiliates, and used in the operation of the Business, whether or not stored in hardcopy form or on magnetic or optical media (to the extent not subject to licensing restrictions), but excluding (i) prior to the Closing, any such lists, information and records that are prohibited from being disclosed or transferred by Applicable Law or regulatory requirements and (ii) any such information that is part of any consolidated, unitary, combined or similar Tax Return except to the extent directly related to the Company. "Business" shall have the meaning set forth in the introduction. "Business Day" shall mean a Monday, Tuesday, Wednesday, Thrusday or Friday on which banking institutions in the State of New York are not authorized or obligated by Applicable Law to close. "Capital and Surplus Amount" shall mean the fair market value of the total assets of the Company (as determined pursuant to Section 2.2(c)) on the Valuation Date after giving effect to the transfer of assets and liabilities effected under the RIC (Landmark) Quota Share Reinsurance Agreement and the Assumption of Liabilities Agreement. "Claim" shall have the meaning set forth in Section 9.1(a). "Closing" shall have the meaning set forth in Section 2.6. "Closing Date" shall have the meaning set forth in Section 2.6. "Company" shall have the meaning set forth in the introduction. "Company Insurance Contracts" shall mean (i) all policies, binders and contracts of insurance (both direct and assumed) issued effective on or after the Effective Date (as such term is defined in the Acquisition Agreement) and prior to the Closing Date by the Company through RSUI as agent under the Landmark Administrative Services Agreement and (ii) the Assumed Contracts (as such term is defined in the Landmark Quota Share Reinsurance Agreement). "Damages" shall have the meaning set forth in Section 9.1(a). "Defense" shall have the meaning set forth in Section 9.2(b). "Final Allocation" shall have the meaning set forth in Section 10.9(a). "Final Seller's Tax Cost" shall have the meaning set forth in Section 10.9(a). "Governmental Entity" shall mean any foreign, domestic, federal, territorial, state or local U.S. or non-U.S. governmental authority, quasi-governmental authority, instrumentality, court or government, self-regulatory organization, commission, tribunal or organization or any political or other subdivision, department, branch or representative of any of the foregoing. 3 "Income Tax" means any federal, state, local or foreign income, alternative, minimum, franchise, profits, or other similar Tax (but only if determined with respect to net income) or deficiencies with respect thereto (including interest and penalties thereon and additions thereto). "Income Tax Return" means any Tax Return with respect to Income Taxes. "Indemnification Loss" shall have the meaning set forth in Section 9.3. "Indemnified Party" shall have the meaning set forth in Section 9.2(b). "Indemnifying Party" shall have the meaning set forth in Section 9.2(b). "Independent Firm" shall have the meaning set forth in Section 10.2(d). "Knowledge" with respect to: (i) Seller or any of its Affiliates which is a party to any Landmark Ancillary Agreement means the actual knowledge of the natural Persons listed in Schedule 1.1(a) and (ii) Purchaser or any of its Affiliates which is a party to any Landmark Ancillary Agreement means the actual knowledge of the natural Persons listed in Schedule 1.1(b). "Landmark Administrative Services Agreement" shall mean the administrative services agreement effective as of July 1, 2003, entered into by and among [AIHL Ins. Co.], RSUI and the Company, pursuant to the terms of the Acquisition Agreement. "Landmark Ancillary Agreements" shall mean the RIC (Landmark) Quota Share Reinsurance Agreement, the RIC (Landmark) Administrative Services Agreement, the Assumption of Liabilities Agreement, and the Termination Endorsement and any and all exhibits to each of the Landmark Ancillary Agreements. "Landmark Quota Share Reinsurance Agreement" shall mean the quota share agreement effective as of July 1, 2003, entered into by and between [AIHL Ins. Co.] and the Company, pursuant to the terms of the Acquisition Agreement. "Liability" or "Liabilities" shall mean a liability, obligation, Claim or cause of action (of any kind or nature whatsoever, whether absolute, accrued, contingent or other, and whether known or unknown) of the Company. "Lien" or "Liens" shall mean any mortgage, pledge, lien, encumbrance, charge, adverse Claim (whether pending or, to the Knowledge of the Person against whom the adverse Claim is being asserted, threatened) or restriction of any kind affecting title or resulting in an encumbrance against property, real or personal, tangible or intangible, or a security interest of any kind, including, without limitation, any conditional sale or other title retention agreement, any lease in the nature thereof, and any filing of or agreement to given any financing statement under the Uniform Commercial 4 Code (or equivalent statute) of any jurisdiction (other than a financing statement which is filed or given solely to protect the interest of a lessor). "Newly Authorized State" shall have the meaning set forth in Section 2.2(d). "1993 Reinsurance Agreement" shall mean the reinsurance agreement dated January 1, 1993, by and between the Seller and the Company. "Oklahoma Insurance Law" shall have the meaning set forth in Section 3.10(b). "Parent" shall have the meaning set forth in Section 3.11(a). "Parent Group" shall have the meaning set forth in Section 3.11(a). "Permits" shall mean all permits, licenses, authorizations, qualifications, variances, exemptions, orders, registrations and approvals of all Governmental Entities which are required for the conduct of the business of Seller, the Company or Purchaser, as applicable. "Person" shall mean an individual, corporation, partnership, joint venture, association, limited liability company, trust, unincorporated organization, or other entity. "Post-Closing Tax Period" means a taxable year or period beginning after the Closing Date. "Pre-Closing Tax Period" means a taxable year or period ending on or before the Closing Date. "Proposed Allocation" shall have the meaning set forth in Section 10.9(a). "Purchase Price" shall have the meaning set forth in Section 2.2. "Purchaser" shall have the meaning set forth in the introduction. "RIC" shall have the meaning set forth in the preamble. "RIC (Landmark) Administrative Services Agreement" shall have the meaning set forth in Section 2.4. "RIC (Landmark) Quota Share Reinsurance Agreement" shall have the meaning set forth in Section 2.3. "Royal" shall have the meaning set forth in the preamble. "Royal Insurer Affiliate" shall have the meaning ascribed to it in the Acquisition Agreement. 5 "RSUI" shall mean Royal Specialty Underwriting, Inc., a Georgia company. "Section 338 Elections" shall have the meaning set forth in Section 10.9(a). "Section 338 Forms" shall have the meaning set forth in Section 10.9(b). "Securities Act" shall have the meaning set forth in Section 4.7. "Seller" shall have the meaning set forth in the introduction. "Seller's Tax Cost" shall have the meaning set forth in Section 10.9(a). "Shares" shall have the meaning set forth in the preamble. "Statutory Deposits" shall have the meaning set forth in Section 3.14. "Statutory Financial Statements" shall have the meaning set forth in Section 3.10(a). "Stock Purchase" shall have the meaning set forth in the preamble. "Straddle Period" means a taxable year or period beginning on or before, and ending after, the Closing Date. "Tax" or "Taxes" shall mean all federal, state, county, local, municipal, foreign and other taxes, assessments, duties or similar charges of any kind whatsoever, including all corporate franchise, income, gross receipts, occupation, windfall profits, sales, use, ad valorem, value-added, profits, license, withholding, payroll, employment, excise, insurance premium, real property, personal property, customs, net worth, capital gains, transfer, stamp, documentary, social security, disability, environmental, alternative minimum, estimated, recapture and other taxes, and including all interest, penalties and additions imposed with respect thereto. "Tax Claim" shall have the meaning set forth in Section 10.7(a). "Tax Return" shall mean any and all returns, declarations, reports, claims for refund, information returns, or other documents or statements relating to Taxes required to be supplied to any Taxing Authority, including any schedule or attachment thereto and any amendment or supplement thereof. "Taxing Authority" shall mean any domestic, foreign, federal, national, state, county, or municipal or other local government, any subdivision, agency, commission or authority thereof, or any quasi-governmental body exercising regulatory authority with respect to Taxes. 6 "Transfer Taxes" means any and all transfer, documentary, sales, use, gross receipts, stamp, registration, value added, recording, escrow and other similar Taxes and fees (including any out-of-pocket filing expenses, penalties and interest) incurred in connection with the transactions contemplated by this Agreement (including recording and escrow fees and any real property or leasehold interest transfer or gains tax and any similar Tax). "Unauthorized States" shall have the meaning set forth in Section 2.2(d). "Valuation Date" shall have the meaning set forth in Section 2.2(b). ARTICLE II THE PURCHASE AND SALE TRANSACTION SECTION 2.1. PURCHASE AND SALE OF THE SHARES. Purchaser agrees to purchase from Seller, and Seller agrees to sell, assign, transfer and deliver to Purchaser, on the Closing Date, the Shares, for the consideration specified in Section 2.2, on the terms and conditions provided for herein. SECTION 2.2. PURCHASE PRICE. (a) Purchaser agrees to pay to Seller, and Seller agrees to accept from Purchaser, as consideration for the sale of the Shares, an amount payable at the Closing (the "Purchase Price"), such amount, subject to adjustment, if any, pursuant to Section 2.2(d), to be determined as follows: the sum of (1) three-million-five-hundred-thousand dollars ($3,500,000) and (2) the Capital and Surplus Amount. (b) On the day prior to the Closing Date, Seller shall provide Purchaser with a complete list and specific description of the assets which shall be held by the Company upon the Closing. Such description shall include a valuation as of the date which is the third Business Day immediately preceding the Closing Date (the "Valuation Date") of the fair market value of the assets so described. Purchaser shall have an opportunity at its own expense to verify such valuation and all information related thereto, concerning such assets. (c) The fair market value of marketable securities and fixed income assets, if any, listed on Schedule 3.14(a) shall be determined: (i) by reference to prices reported by Interactive Data Corporation, Muller Data Corporation, or a substantially similar recognized market quotations service commonly used by insurers to establish the fair market value of investment securities, plus (ii) interest accrued and dividends accrued as of the Valuation Date attributable to such marketable securities, and fixed income assets; provided, however, that interests in money market funds shall have a fair market value equal to their face or par value. (d) The Purchase Price for the Shares shall be subject to adjustment at the Closing in the following manner: 7 (i) In the event that the Company is not authorized to issue insurance policies on an excess or surplus lines basis in one or more of the states, other than the State of New York, listed on Schedule 3.17(c)(i) hereto (the "Unauthorized States"), on the Closing Date, the Purchase Price for the Shares payable at the Closing shall be decreased by an amount equal to $82,500 multiplied by the number of such Unauthorized States. In the event Seller shall cause the Company's authorization which has been terminated, revoked or suspended prior to the Closing Date to be reinstated within six (6) months of the Closing Date, Purchaser shall pay to Seller $82,500 for each Unauthorized State in which authorization is so reinstated within ten (10) days of such reinstatement. Seller shall provide Purchaser with satisfactory evidence of the reinstatement of the authorization. (ii) In the event that the Company is not authorized to issue insurance policies on an excess or surplus lines basis in the State of New York on the Closing Date, the Purchase Price for the Shares shall be decreased by an amount equal to $200,000. In the event that the Company's authorization in the State of New York has been terminated, revoked or suspended prior to the Closing Date and the Seller shall cause such authorization to be reinstated within six (6) months of the Closing Date, Purchaser shall pay to Seller $200,000 within ten (10) days of such reinstatement. Seller shall provide Purchaser with satisfactory evidence of the reinstatement. (iii) In the event that (A) the Company becomes authorized to issue insurance policies on an excess or surplus lines basis in any state not listed on Schedule 3.17(c)(i) (each such state a "Newly Authorized State") during the period commencing on the date hereof and ending thirty (30) days following the Closing Date and (B) the Purchase Price has been reduced pursuant to Section 2.2(d)(i) or (ii), the Purchase Price for the Shares shall be increased by an amount equal to $82,500 for each such Newly Authorized State (or $200,000 for California) and such amount shall be paid by Purchaser to Seller on the later of the Closing Date and two (2) Business Days of the Company's obtaining such authorization; provided, however, in no event shall the aggregate Purchase Price payable after giving effect to the adjustments pursuant to this Section 2.2(d) exceed the sum of (1) three million five hundred thousand dollars ($3,500,000) plus (2) the Capital and Surplus Amount. (iv) Following the closing, Seller and Purchaser shall cooperate and exert reasonable best efforts to try to have the Company's authorization to issue insurance policies on an excess or surplus lines basis in any state listed on Schedule 3.17(c)(i) hereto reinstated by the relevant regulatory authority; provided that the parties will consult with each other with respect to all such actions. (e) Any adjustments of Purchase Price pursuant to Section 2.2(d) shall be paid to Seller by cashier's check or by bank wire transfer. Each party will promptly notify the other of any event which it determines may require an adjustment of the Purchase Price. 8 (f) Subject to the last sentence of Section 7.3 hereof, Seller's sole remedy for a deficiency in any excess or surplus line authorization at Closing in any state or territory shall be as set forth in Section 2.2(d). SECTION 2.3. RIC (LANDMARK) QUOTA SHARE REINSURANCE AGREEMENT. On the Closing Date, Seller shall cause the Company to execute and deliver to Purchaser a quota share reinsurance agreement substantially in the form attached hereto as Exhibit A (the "RIC (Landmark) Quota Share Reinsurance Agreement"). SECTION 2.4. RIC (LANDMARK) ADMINISTRATIVE SERVICES AGREEMENT. On the Closing Date, Seller shall cause the Company to execute and deliver to Purchaser an administrative services agreement substantially in the form attached hereto as Exhibit B (the "RIC (Landmark) Administrative Services Agreement"). SECTION 2.5. ASSUMPTION OF LIABILITIES. On the Closing Date, Seller shall cause the Company to execute and deliver to Purchaser an assumption of liabilities agreement substantially in the form attached hereto as Exhibit C (the "Assumption of Liabilities Agreement"). SECTION 2.6. CLOSING. (a) The closing of the transactions contemplated hereunder (the "Closing") shall take place at 10:00 a.m., New York City time, on the first Business Day of the calendar month beginning after satisfaction or waiver of the terms and conditions set forth in Articles VII and VIII hereof (other than any such condition to be fulfilled at the Closing) (the "Closing Date"), at the offices of Skadden, Arps, Slate, Meagher & Flom LLP at Four Times Square, New York, New York 10036, or at such other location as the parties may mutually agree in writing. (b) At the Closing, subject to Purchaser's payment of the Purchase Price to Seller, (i) Seller shall deliver to Purchaser all of the Shares, duly assigned to Purchaser and duly endorsed in blank or accompanied by stock powers duly executed, and (ii) each of the parties shall deliver or cause to be delivered to the intended recipient the monies, documents and instruments required to be delivered by or on behalf of such party at or prior to the Closing pursuant to the terms of this Agreement. (c) The parties hereto acknowledge and agree that upon Seller's receipt of the Purchase Price, the transactions contemplated by this Agreement shall be deemed effective as of 12:01 a.m. on the Closing Date. SECTION 2.7. CLOSING ITEMS. (a) At the Closing, Seller or its Affiliates, as applicable, shall execute (except as to clause (vi) of paragraph (a) of this Section 2.7) and deliver to Purchaser the following: (i) the RIC (Landmark) Quota Share Reinsurance Agreement; (ii) the RIC (Landmark) Administrative Services Agreement; 9 (iii) the Assumption of Liabilities Agreement; (iv) the certificates representing all of the Shares in properly negotiable form; (v) evidence of termination of the 1993 Reinsurance Agreement between Seller and the Company; (vi) evidence of compliance with any applicable regulatory filings or approvals from which no exemption is available as provided in Section 5.12; (vii) certificates of a senior officer of Seller required by Section 7.1; and (viii) a certificate of Seller satisfying the requirements of Treasury Regulation section 1.1445-2(b)(2). (b) At the Closing, Purchaser shall execute (except as to clause (ii) of paragraph (b) of this Section 2.7) and deliver to Seller the following: (i) wire transfer of federal funds in the full amount payable as the Purchase Price for the Shares. (ii) evidence of compliance with any applicable regulatory filings or approvals from which exemption is available, as provided in Section 6.7; and (iii) a certificate of a senior officer of Purchaser required by Section 8.1. ARTICLE III REPRESENTATIONS AND WARRANTIES BY SELLER To induce Purchaser to enter into this Agreement, Seller represents and warrants to Purchaser, as of the date of this Agreement (except if another date is specified in the representation or warranty) and as of the Closing Date, as follows: SECTION 3.1. ORGANIZATION AND STANDING. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Colorado and has all requisite power and authority to own, lease and operate its assets and properties and to carry on its business as now being conducted. Seller is duly qualified or licensed to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, except for those jurisdictions where the failure to be so qualified or licensed or to be in good standing would not be likely to, individually or in the aggregate, have a material adverse effect on the ability of Seller to execute and deliver this Agreement, to perform its obligations hereunder or to consummate the transactions contemplated hereby. 10 SECTION 3.2. AUTHORITY; CORPORATE ACTION. Seller has all requisite power and authority to enter into and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby, including, without limitation, the sale of the Shares. Each of Seller, Royal and RIC has all requisite power and authority to execute and deliver the Landmark Ancillary Agreements to which it is a party, to perform its obligations thereunder and to consummate the transactions contemplated thereby. The execution, delivery and performance of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby, and the execution, delivery and performance of the Landmark Ancillary Agreements and the consummation of the transactions contemplated thereby, have been duly and validly authorized by all necessary action on the part of Seller, Royal and RIC and no other proceedings on the part of Seller, Royal and RIC (including any proceedings on the part of the stockholders and the Board of Directors of Seller, Royal and RIC) are necessary to authorize the execution, delivery and performance of this Agreement, the Landmark Ancillary Agreements or the consummation of any of the transactions contemplated hereby or thereby. This Agreement has been duly executed and delivered by Seller. On the Closing Date, the Landmark Ancillary Agreements will have been duly executed and delivered by Seller, Royal and RIC, as applicable. SECTION 3.3. NON-CONTRAVENTION. Except as set forth in Schedule 3.3, the execution, delivery and performance of this Agreement and the Landmark Ancillary Agreements do not, and the consummation of the transactions contemplated by this Agreement and the Landmark Ancillary Agreements will not conflict with, or result in any material breach, violation, impairment or revocation of, or default (with or without notice or lapse of time, or both) under, or give rise to the creation of a Lien, a right of termination, cancellation, revocation or acceleration of any obligation or loss of a benefit under (i) the certificate of incorporation and bylaws of Seller, the Company, Royal or RIC, (ii) any material loan or credit agreement, note, mortgage, indenture, lease, material agreement, concession, franchise, contractual license or similar authorization applicable to Seller, the Company, Royal or RIC or by or to which the properties or assets of Seller, the Company, Royal or RIC (including, without limitation, the Shares) may be bound or subject, or any other agreement listed on Schedule 3.15(a) to which Seller, the Company, Royal or RIC is a party, (iii) subject to the governmental filings and other matters referred to in Section 3.9 below, any Applicable Law applicable to Seller, the Company, Royal or RIC or to which the properties or assets of Seller, the Company, Royal or RIC may be bound or subject, or (iv) any order, writ, judgment, injunction, award, decree, law, statute, ordinance, rule or regulation of any Governmental Entity or any agreement with, or condition imposed by, any Governmental Entity, in each case, which is binding upon Seller, the Company, Royal or RIC or their respective assets in connection with the Business, other than, in the case of clauses (ii), (iii) and (iv), any such conflicts, violations, impairments, revocations, defaults, Liens, rights or losses which would not, individually or in the aggregate, have a material adverse effect on the ability of Seller, the Company Royal or RIC to execute and deliver this Agreement or the Landmark Ancillary Agreements, to perform its obligations hereunder and thereunder or to consummate the transactions contemplated hereby and thereby. 11 SECTION 3.4. ORGANIZATION AND QUALIFICATION OF THE COMPANY. The Company is a stock insurance company duly organized, validly existing, in good standing under the laws of the State of Oklahoma and is duly qualified and in good standing as a foreign corporation authorized to transact business under the laws of each jurisdiction in which the Company on the date hereof is required to be so qualified. SECTION 3.5. NO SUBSIDIARIES OF THE COMPANY. The Company has no subsidiaries and does not own, either directly or indirectly, more than 5% of the voting securities of any partnership, firm, association, corporation, joint stock company, trust, or any similar entity or any combination of the foregoing acting in concert. SECTION 3.6. CAPITALIZATION OF THE COMPANY; TITLE TO SHARES. The authorized capital stock of the Company consists of 1,000,000 shares of common stock, $4.00 par value per share, all of which have been and are now validly issued and outstanding, fully paid and nonassessable. The Shares constitute all of the issued and outstanding capital stock of the Company. Seller is the lawful record and beneficial owner of, and has good and marketable title to, the Shares free and clear of all Liens. Upon the transfer of the Shares to Purchaser in accordance with this Agreement, good and marketable title in and to such Shares will have been transferred to Purchaser, free and clear of all Liens. Except for the rights of Purchaser with respect to the Shares provided for herein, there are no outstanding options, warrants, other agreements or rights to purchase or otherwise acquire, or securities convertible into, any of the Shares. The Company has not issued any securities in violation of any preemptive or similar rights. Neither the Company nor Seller is a party to any agreement with a third party which places any restriction upon, or which creates any voting trust, proxy, or other agreement or understanding with respect to, the voting, purchase, redemption, acquisition or transfer of, or the declaration or payment of any dividend or distribution on, any shares of capital stock of the Company. SECTION 3.7. ARTICLES OF INCORPORATION AND BY-LAWS. Seller has delivered to Purchaser a true, correct and complete copy of the articles of incorporation and the by-laws of the Company, as amended, which have been approved by the applicable regulatory authorities and reflect all amendments thereto. The Board of Directors and the shareholder of the Company will not take any action for the purpose of effecting any amendment or modification of such articles of incorporation or by-laws except as otherwise expressly permitted or required by this Agreement. SECTION 3.8. VALIDITY. This Agreement constitutes the legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except only as limited by applicable bankruptcy, reorganization, insolvency, moratorium and other similar laws presently or hereafter in force affecting the enforcement of creditors' rights generally and subject to general equitable principles limiting the right to obtain specific performance or other equitable relief. SECTION 3.9. GOVERNMENTAL APPROVALS. Except as disclosed on Schedule 3.9, no authorization, consent or approval or other order or action of, or filing with, any Governmental Entity is required for (i) the execution and delivery of this Agreement by 12 Seller, or the Landmark Ancillary Agreements by Seller, the Company, Royal or RIC, as the case may be; (ii) the consummation by Seller of the transactions provided for herein; or (iii) the consummation by Seller, the Company, Royal or RIC of the transactions provided for in the Landmark Ancillary Agreements. SECTION 3.10. FINANCIAL STATEMENTS. (a) The statutory financial statements and accompanying supplemental schedules of the Company, filed with the Oklahoma Department of Insurance and any other applicable governmental department and delivered to Purchaser prior to the execution and delivery of this Agreement, as of, and for the years ended December 31, 2000, 2001 and 2002 and the first quarter for the year 2003 (the "Statutory Financial Statements"), have been prepared in accordance with accounting practices prescribed or permitted by the Oklahoma Department of Insurance applied on a consistent basis for the periods involved. The Statutory Financial Statements fairly present the financial condition, results of operations, changes in equity and changes in financial position of the Company as of and for the respective dates and periods indicated therein, in accordance with accounting practices prescribed or permitted by the Oklahoma Department of Insurance applied on a consistent basis for the periods involved. Seller has delivered or made available to Purchaser prior to the execution and delivery of this Agreement complete, correct and legible copies of the Statutory Financial Statements. (b) The investments of the Company reflected in the Annual Statement of the Company as of December 31, 2002 (the "Annual Statement"), filed with the Oklahoma Department of Insurance, comply with the requirements of the Oklahoma Insurance Code and the regulations thereunder (the "Oklahoma Insurance Law") as well as the insurance laws and regulations of any other applicable jurisdiction. SECTION 3.11. TAXES. (a) Arrowpoint General Partnership ("Parent") is the common parent of an affiliated group of corporations (within the meaning of section 1504(a) of the Code) (such group, the "Parent Group") which files consolidated federal income Tax Returns. From November 17, 1999 through the Closing Date, Parent has included (or, with respect to the taxable year ending on the Closing Date, will include) the Company in its consolidated federal income Tax Return as a member of the Parent Group. (b) (i) Other than as set forth in Schedule 3.11, for all periods ending after November 16, 1999, and for which the relevant statutes of limitation have not expired, the Company has filed (or joined in the filing of) when due (after taking into account all properly requested extensions) all material Tax Returns required by Applicable Law to be filed with respect to the Company and all Taxes shown to be due on such Tax Returns have been paid; (ii) all such Tax Returns were true, correct and complete in all material respects as of the time of such filing or after taking into account any changes thereto reflected on any amended Tax Returns; (iii) there is no action, suit, proceeding, investigation, audit or claim now pending against, or with respect to, the Company in respect of any material Tax or assessment, nor is any claim for additional Tax or assessment being asserted by any Taxing Authority; (iv) except for the Parent 13 Group, the Company has never been a member of an affiliated, consolidated, combined or unitary group; (v) since November 17, 1999, no claim has been asserted in writing by any Taxing Authority in a jurisdiction in which the Company does not currently file a Tax Return that it is or may be subject to Tax by such jurisdiction; (vi) the Company is not a party to any agreement (other than an agreement entered into in the ordinary course of business for the purchase or lease of assets, the borrowing of money, the hiring of employees or consultants or other commercial transactions in the ordinary course of business), whether written or unwritten, providing for the payment of Taxes, payment for Tax losses, entitlement to refunds or similar Tax matters; (vii) the Company has withheld and remitted to its applicable taxing authorities all Taxes required to be withheld in connection with any material amounts paid or owing to any employee, creditor, attorney, independent contractor or other Person; (viii) since November 17, 1999, neither Parent, Seller, nor the Company has made, changed or revoked, or permitted to be made, changed or revoked, any material election or method of accounting with respect to material Taxes affecting or relating to the Company, or entered into, or permitted to be entered into, any closing or other agreement or settlement with respect to Taxes affecting or relating to the Company; (ix) no ruling with respect to Taxes (other than a request for a determination of the status of a qualified plan) has been requested by or on behalf of the Company or by Parent with respect to any transaction involving the Company that could affect the liability of the Company for Taxes for any period after the Closing; (x) the Company has no liability for the Taxes of any Person (other than pursuant to Treasury Regulation Section 1.1502-6, or any analogous state, local or foreign law or regulation) as a transferee or successor; and (xi) the statutes of limitations for Tax years of the Company have closed for all such years ending prior to January 1, 2000. SECTION 3.12. COMPLIANCE WITH APPLICABLE LAW. (a) To the Knowledge of Seller, the Company is not in violation of any Applicable Law. The Company is not a party to or subject to any agreement, judgment, order, writ, injunction or decree of any court or Governmental Entity that could reasonably be expected to prevent in any material manner the Company from operating after the Closing. (b) Except as set forth in Schedule 3.12, during the past five years the Company has not been the subject of any governmental proceedings or investigations, including without limitation, any Oklahoma Department of Insurance proceedings or investigations, which were adversely determined, and resulted in the Company being bound or held to be in violation or contravention of any material law relating to its Business, Business practices or employment practices. Seller has made available to Purchaser examination reports of the Company issued by the applicable regulatory authorities since December 31, 2000. SECTION 3.13. LITIGATION. Except as set forth in Schedule 3.13, there is no action, order, writ, injunction, judgment or decree outstanding or any claim, suit, litigation, proceeding, arbitration, inquiry, governmental audit or investigation (collectively, "Actions") pending, or, to the Knowledge of Seller, threatened in writing, against Seller or the Company, by or before any court or other Governmental Entity, other than those which would not, individually or in the aggregate, prevent or materially 14 delay Seller or the Company from consummating the transactions contemplated by this Agreement and the Landmark Ancillary Agreements. SECTION 3.14. ASSETS AND PROPERTY; NO LIABILITIES. (a) The Company has good and marketable title to all of its assets and properties, free of any Lien, encumbrance, restriction, claim, charge or defect of title, except for statutory deposits required by the insurance departments of the states in which the Company is licensed, eligible, authorized or qualified to issue insurance policies on an excess or surplus lines basis, all of which are set forth in Schedule 3.14(a) ("Statutory Deposits"). As of the Closing Date, the Company will have no assets, except (i) the Statutory Deposits, (ii) the Reinsurance Recoverables (as such term is defined in the RIC (Landmark) Quota Share Reinsurance Agreement), (iii) the recoverables (if any) under the Assumption of Liabilities Agreement, (iv) assets and liabilities associated with the issuance of Accommodation Contracts (as such term is defined in the RIC (Landmark) Quota Share Reinsurance Agreement) and contracts issued pursuant to the Landmark Administrative Services Agreement, and (v) assets to be listed by Seller pursuant to Section 2.2.(b) (comprising the remainder of the Capital and Surplus Amount). (b) Schedule 3.14(b) contains a complete and correct listing of each bank account and safe deposit box maintained by the Company as of the date hereof. SECTION 3.15. MATERIAL AGREEMENTS. (a) Schedule 3.15(a) consists of a complete and correct listing of, and a description of the date, parties and the content of: (i) Each and every material written contract, agreement, commitment or arrangement, and, to Seller's Knowledge, each and every oral contract, agreement, commitment or arrangement to which the Company is a party or which is binding upon the Company except only for those (x) required to be specifically disclosed elsewhere in any other Schedule to this Agreement, or (y) insurance and reinsurance contracts to be assumed by RIC pursuant to the RIC (Landmark) Quota Share Reinsurance Agreement; and (ii) Without limiting the generality of the foregoing, each guaranty to which the Company is a party (except in respect of guarantees arising solely from the endorsement of negotiable instruments for deposit or collection in the ordinary course of conduct of the Business), each and every contract between the Company and Seller and affiliates of Seller, and each and every reinsurance contract to which the Company is a party as reinsurer. The contracts and guarantees listed in Schedule 3.15(a) hereto are in full force and effect and not subject to any existing breach or default. Except for the RIC (Landmark) Quota Share Reinsurance Agreement, the Landmark Quota Share Reinsurance Agreement and policies of insurance and reinsurance agreements made in the ordinary course of business for which Seller will provide indemnification to Purchaser (but not including the Company Insurance Contracts), as of the Closing Date, the Company will not be bound by any lease, contract, agreement or other commitment of any kind. 15 (b) Except as disclosed on Schedule 3.15(b), the Company: (i) is not a party to any agreement, commitment or instrument evidencing indebtedness of the Company whether directly or indirectly, by way of purchase money obligations, conditional sale, lease purchase, guaranty or otherwise which is not indemnified under the Assumption of Liabilities Agreement; (ii) is not a party to any contract containing covenants limiting the freedom of the Company to compete in any line of Business or with any Person after the Closing; (iii) is not a party to or obligated under any agreement, contract or other instrument to pay any fees, bonus or other amount upon or following any threatened or actual change in control, or change in the nature of the Business, of the Company which is not indemnifiable in this Agreement or to be assumed by RIC pursuant to the RIC (Landmark) Quota Share Reinsurance Agreement; (iv) is not a party to any material contract or agreement, not of the type covered by any other subsections of this Section 3.15 which by its terms does not terminate or is not terminable by and without penalty or cost to the Company within thirty (30) Business Days which is not indemnifiable in this Agreement or to be assumed by RIC pursuant to the RIC (Landmark) Quota Share Reinsurance Agreement; and (v) is not a party to any forward foreign-exchange contract or substantially identical instrument. SECTION 3.16. BOOKS AND RECORDS. The Books and Records of the Company are current and complete through the date hereof and will contain as of the date of the Closing, a true and correct record of all of the corporate actions and stock records of the Company through the Closing Date. All such Books and Records are maintained in accordance with requirements of the Oklahoma Insurance Law, including requirements as to their location. SECTION 3.17. BUSINESS OF THE COMPANY; AUTHORITY; PERMITS. (a) The Company has all requisite corporate power and authority to carry on all of its Business as the same is presently being conducted, and to own or otherwise possess all of the properties and assets (whether tangible, intangible or mixed) it owns or otherwise possesses. (b) The Company's Oklahoma and Texas insurance licenses are in full force and will be as of the Closing Date, and the Company has not received a notice of default or termination with respect to such license or any threatened cancellation or termination in connection therewith. 16 (c) Schedule 3.17(c)(i) contains a true and correct list of each state in which the Company is eligible, authorized or qualified to issue insurance policies on an excess or surplus lines basis. The eligibilities, authorizations and qualifications set forth on Schedule 3.17(c)(i), together with the Company's Oklahoma and Texas insurance licenses, constitute all applicable insurance licenses and surplus or excess lines insurance eligibilities, authorizations and qualifications, as the case may be, required for the conduct of the Business as now conducted. The Company shall be so eligible, authorized or qualified, as the case may be, as of the Closing Date. Other than as set forth in Schedule 3.17(c)(ii), the Company has not received any notice of suspension or termination with respect to any such eligibility, authorization or qualification or any threatened suspension, cancellation or termination in connection therewith. Schedule 3.17(c)(iii) lists the states where the Company or Seller, as the case may be, is preparing an application for surplus lines eligibility, authorization or qualification for the Company. (d) The Company is in good standing with any applicable insurance regulatory authority or any securities regulatory authority with respect to the conduct of the Business by the Company. (e) There are no agreements in force between the Company and agents or intermediaries that are distributors of products of the Company, and the authority of all agents or intermediaries (other than RSUI) to bind the Company either have been terminated or will be terminated before the Closing Date. (f) The Company has (i) timely paid all guaranty fund assessments that are due, or claimed or asserted by any insurance regulatory authority to be due from the Company, or (ii) provided for all such assessments in its Statutory Financial Statements. SECTION 3.18. REINSURANCE CEDED. Schedule 3.18 hereto contains a true and complete list of all reinsurance contracts for reinsurance ceded by the Company that are in force on the date of this Agreement. Neither the Company nor any reinsurer under any of such contracts presently in force has given notice of termination (provisional or otherwise) in respect of any such reinsurance contract. SECTION 3.19. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in Schedule 3.19, since March 31, 2003, (i) the Company has conducted the Business only in the usual and ordinary course consistent with past practice and (ii) there has not been any event that individually or in the aggregate with all other events has had, or could reasonably be expected to have, a material adverse effect on the Business. SECTION 3.20. INTERCOMPANY ACCOUNTS. Except as set forth on Schedule 3.20, as provided for in this Agreement, as provided for in the RIC (Landmark) Quota Share Reinsurance Agreement, or as will be assumed or indemnified by the Assumption of Liabilities Agreement, as of the Closing Date, there will be no liabilities, payments, contracts, commitments, reinsurance treaties or other arrangements or understandings in existence between the Company and Seller or between the Company and any of the Seller's Affiliates. 17 SECTION 3.21. BROKERS AND FINDERS. There is no broker or finder involved on behalf of Seller in connection with the transactions contemplated by this Agreement that would create a liability or obligation for either the Company or the Purchaser. ARTICLE IV REPRESENTATIONS AND WARRANTIES BY PURCHASER To induce Seller to enter into this Agreement, Purchaser represents and warrants to Seller, as of the date of this Agreement (except if another date is specified in the representation or warranty) and as of the Closing Date, as follows: SECTION 4.1. ORGANIZATION AND STANDING. Purchaser is a limited liability company duly organized, validly existing and in good standing under the laws of Delaware and has all requisite power and authority to carry on its business as now being conducted. Purchaser is a "United States Person" within the meaning of Code Section 7701(a)(30). SECTION 4.2. CORPORATE ACTION. The execution and delivery of this Agreement by Purchaser, and the consummation by Purchaser of the transactions contemplated herein, have been authorized by all requisite corporate action on the part of Purchaser, including the approval by (or subsequent ratification by) the members of Purchaser. SECTION 4.3. VALIDITY. This Agreement constitutes the legal, valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, except only as limited by applicable bankruptcy, reorganization, insolvency, moratorium and other similar laws presently or hereafter in force affecting the enforcement of creditors' rights generally and subject to general equitable principles limiting the right to obtain specific performance or other equitable relief. SECTION 4.4. GOVERNMENTAL APPROVALS. Except as disclosed on Schedule 4.4, no authorization, consent or approval or other order or action of, or filing with, any Governmental Entity is required for (i) the execution and delivery of (x) this Agreement by Purchaser, (y) the Landmark Ancillary Agreements by Purchaser; (ii) the consummation by Purchaser of the transactions provided for herein; or (iii) the consummation by Purchaser of the transactions provided for in the Landmark Ancillary Agreements. SECTION 4.5. LITIGATION. Except as set forth in Schedule 4.5, there are no Actions pending, or, to the Knowledge of Purchaser, threatened in writing, against Purchaser by or before any court or other Governmental Entity, other than those which would not, individually or in the aggregate, prevent or materially delay Purchaser from consummating the transactions contemplated by this Agreement and the Landmark Ancillary Agreements. 18 SECTION 4.6. NON-CONTRAVENTION. (a) Except as set forth in Schedule 4.6(a), the execution, delivery and performance of this Agreement and the Landmark Ancillary Agreements do not, and the consummation of the transactions contemplated by this Agreement and the Landmark Ancillary Agreements will not, conflict with, or result in any material breach, violation, impairment or revocation of, or default (with or without notice or lapse of time, or both) under, or give rise to the creation of a Lien, a right of termination, cancellation, revocation or acceleration of any obligation or loss of a benefit under (i) the certificate of incorporation and bylaws (or comparable organizational documents) of Purchaser, (ii) any material loan or credit agreement, note, mortgage, indenture, lease, material agreement, concession, franchise, contractual license or similar authorization applicable to Purchaser or its respective properties or assets or by or to which it or any material portion of its assets or properties may be bound or subject, (iii) subject to the governmental filings and other matters referred to in Section 4.6(b) below, any Applicable Law applicable to Purchaser or its respective properties or assets, (iv) any order, writ, judgment, injunction, award, decree, law, statute, ordinance, rule or regulation of any Governmental Entity or any agreement with, or condition imposed by, any Governmental Entity, in each case, which is binding upon Purchaser or (v) any Permit, other than, in the case of clauses (ii), (iii), (iv) and (v), any such conflicts, violations, impairments, revocations, defaults, Liens, rights or losses which would not, individually or in the aggregate, have a material adverse effect on the ability of Purchaser to execute and deliver this Agreement, to perform its obligations hereunder or to consummate the transactions contemplated hereby. (b) Except as set forth in Schedule 4.4, no consent, approval, license, order or authorization of, action by or in respect of, or registration, declaration or filing with, or notice to, any Governmental Entity or any other Person is required or necessary to be obtained, made or given by Purchaser in connection with (i) the execution and delivery of this Agreement and the Landmark Ancillary Agreements, (ii) the performance by Purchaser of its obligations hereunder and thereunder and (iii) the consummation by Purchaser of the transactions contemplated hereby and thereby. SECTION 4.7. INVESTOR STATUS AND COMPLIANCE WITH SECURITIES LAWS. (a) Purchaser is acquiring the Shares solely for its own account for investment and not with the view to, or for resale in connection with, any distribution thereof in violation of the Securities Act of 1933 (the "Securities Act") or any other domestic or foreign securities law. Purchaser acknowledges that the Shares are not registered under the Securities Act and may not be transferred or sold except pursuant to an applicable exemption therefrom. (b) Purchaser is an accredited investor within the meaning of Rule 501 of the Securities Act, has the financial ability to bear the economic risk of the investment in the Shares, can afford to sustain a complete loss of such investment and has no need for liquidity in the investment in the Shares. (c) Purchaser acknowledges that its representations and warranties contained herein are being relied on by Seller as a basis for an exemption of the purchase of the Shares, if any, from registration requirements of the Securities Act and any applicable state securities laws. 19 SECTION 4.8. BROKERS AND FINDERS. There is no broker or finder involved on behalf of Purchaser in connection with the transactions contemplated by this Agreement that could create a liability or obligation for the Seller. ARTICLE V COVENANTS OF SELLER SECTION 5.1. CONDUCT OF BUSINESS. Seller covenants and agrees that from and after the date of the execution and delivery of this Agreement through and including the Closing Date, except only as otherwise specifically required by or provided in this Agreement, Seller will use its reasonable best efforts to cause the Company to preserve its (i) charter, (ii) license to conduct an insurance business in the State of Oklahoma, and (iii) eligibility, qualification and/or authorization to issue insurance policies on an excess or surplus lines basis in those jurisdictions listed on Schedule 3.17(c)(i). Seller covenants and agrees that it will cause the Company not to issue or renew any policies of insurance on or after the tenth Business Day preceding the date hereof except (i) as expressly required by law, in which event, Seller will promptly notify Purchaser thereof, (ii) as contemplated by the Landmark Administrative Services Agreement with respect to business that is 100% reinsured by AIHL Insurance Co., or (iii) as contemplated by the RIC (Landmark) Administrative Services Agreement or the RIC (Landmark) Quota Share Reinsurance Agreement, with respect to business issued by the Company from and after the date hereof that is 100% reinsured by RIC. Between the date hereof and the Closing Date, Seller will not, and will not cause or permit the Company to, issue or enter into any subscription, option agreement or other commitment of any kind in respect of the issuance, transfer, sale or encumbrance of any of the Shares and Seller will retain full record and beneficial ownership of the Shares until the Closing or termination of this Agreement. SECTION 5.2. PROHIBITED CONDUCT. Except as contemplated by this Agreement or any Landmark Ancillary Agreement, between the date hereof and the Closing Date, unless Purchaser has given its prior written consent of such action as required by this Agreement, Seller shall not cause or permit the Company to: (a) amend its articles of incorporation or by-laws; (b) borrow any money or guarantee any obligation of others; (c) authorize the issuance of, nor issue or acquire, any stock or security of the Company of whatsoever kind, nor grant any option to purchase, or other right to acquire, any stock or securities of the Company; (d) reclassify or change the rights of any capital stock of the Company; 20 (e) make any offer or commitment or incur any obligation to enter into any contract, arrangement or transaction of a type described in any of subsections (b) through (d) of this Section 5.2; (f) incur, suffer or permit any Lien, Claim, charge, option or encumbrance upon the Shares, nor shall Seller transfer or dispose of any of such Shares nor grant any rights or options with respect thereto; (g) mortgage, pledge or subject to Liens, encumbrance, charge or equity any of its properties, assets or rights, other than in the ordinary course of Business or as contemplated by this Agreement; (h) make any loan commitment; or (i) make any business merger or acquisition in any form or transaction. SECTION 5.3. CONFIDENTIALITY. Seller shall not issue (nor shall Seller, prior to the Closing Date, permit the Company to issue) any press release or other public statement concerning the transactions contemplated by this Agreement without first providing Purchaser with a written copy of the text of such release or statement, and obtaining Purchaser's consent respecting such release or statement, which consent shall not be unreasonably withheld or delayed. Seller shall keep this Agreement, the terms hereof, and all documents and information relating hereto, or furnished pursuant to or in connection with this Agreement, or the transactions contemplated hereby, confidential. SECTION 5.4. DIVIDENDS AND OTHER DISTRIBUTIONS. Except as contemplated by this Agreement or any Landmark Ancillary Agreement, Seller covenants and agrees that between the date of execution of this Agreement and the Closing Date, Seller will not cause to be made, and will not permit the Company to make or agree to, any distribution of cash or of properties or other assets by way of dividends, distributions, redemptions or otherwise, and whether or not in respect of the Shares. SECTION 5.5. BOOKS AND RECORDS. Seller agrees that (i) between the date of execution of this Agreement and the Closing Date, Seller will cause the Company to make available to Purchaser and its authorized agents, actuaries, attorneys, accountants and other representatives (with the right to copy) at reasonable times and under reasonable circumstances all Books and Records, minute books, stock books, seals, examination reports, annual statements, financial statements, income tax returns, contracts and any other documents of the Company reasonably requested by Purchaser and (ii) after the Closing Date, Seller will retain all Books and Records and make available copies of all Books and Records to RIC, in order for RIC to fulfill its duties under the RIC (Landmark) Administrative Services Agreement. Seller will provide Purchaser with any information which Purchaser may reasonably request to respond to litigation, prepare Tax Returns and to comply with regulatory requirements and requests. In addition, both before and after the Closing Date, Seller shall instruct its officers, employees, counsel and accountants to be available for a reasonable period of time during 21 normal business hours for, and to respond to, any questions of Purchaser and its authorized representatives relating to the Company or the transactions contemplated by this Agreement. Purchaser recognizes the proprietary nature of all of these documents and agrees not to reveal their contents to any third party except to the extent required by Applicable Law. SECTION 5.6. NOTIFICATION OF CHANGES AND DEFAULT. Seller covenants and agrees that between the date of execution of this Agreement and the Closing Date, Seller will promptly give notice, or will cause the Company to give notice, to Purchaser of (i) the occurrence of any event or circumstance or the discovery of any inaccuracy, omission or mistake, which, in any way, would cause any warranty and representation made by Seller in Article III hereof, or any of the information or documents heretofore provided to Purchaser to be changed, modified, inaccurate or otherwise not true and correct in any material respect, whether as of the date of execution of this Agreement or any time subsequent thereto and prior to the Closing Date; or (ii) the occurrence of any events or circumstances that would result in a violation or breach by Seller of any of the terms and provisions of this Agreement obligatory upon Seller. SECTION 5.7. STATUTORY DEPOSITS. The deposits listed on Schedule 3.14(a) shall be maintained through the Closing Date and will constitute a portion of the assets to be retained in the Company to constitute the Capital and Surplus Amount. SECTION 5.8. INTERCOMPANY CONTRACTS AND INDEBTEDNESS. On the Closing Date, other than as contemplated by this Agreement or any Landmark Ancillary Agreement, there shall be no outstanding indebtedness or other liability of Seller or any of its Affiliates to the Company, or of the Company to Seller or any of its Affiliates and Seller shall have assumed any and all such indebtedness and liabilities of the Company of any nature whatsoever. SECTION 5.9. ACCOUNTS, ETC. On or before the Closing Date, Seller shall deliver to Purchaser a list of all of the Company's (i) bank accounts and the Persons authorized to draw thereon, (ii) safe deposit boxes and the Persons who have access thereto, (iii) deposits with regulatory agencies other than Statutory Deposits, (iv) security given to others in connection with insurance arrangements and (v) security held in connection with insurance arrangements, except to the extent that any of the foregoing have been closed or terminated prior to the Closing Date. SECTION 5.10. TERMINATION OF AGREEMENTS. On or prior to the Closing Date, Seller and the Company shall cause to be terminated any services agreements, expense sharing or cost allocation agreements, investment management agreements, tax allocation agreements and any other agreements between or among Seller or any of its Affiliates, and the Company, by mutual agreement; and on or before the Closing Date, the Company shall terminate all contracts listed on Schedule 3.15(a). SECTION 5.11. TERMINATION OF 1993 REINSURANCE AGREEMENT. On or prior to the Closing Date, subject to regulatory approval, Seller shall terminate the 1993 Reinsurance Agreement, in accordance with a termination endorsement to be executed by 22 Seller and the Company substantially in the form attached hereto as Exhibit D (the "Termination Endorsement"). SECTION 5.12. GOVERNMENTAL APPROVALS. Seller shall use reasonable best efforts to cause to be obtained by December 31, 2003 any necessary authorization, consent or approval or other order of action of or make any filing with, or give any notice to, any Person, court, administrative agency or other governmental or regulatory body or authority as is required for the Seller to consummate the transactions, contemplated in this Agreement and the Landmark Ancillary Agreements. Purchaser acknowledges that it is responsible for filing the application for acquisition of control of the Company in connection with Purchaser's acquisition of the Shares pursuant to the requirements of Section 1653 of Oklahoma's Insurance Law. Seller, RIC and Royal shall furnish such cooperation as may be reasonably requested by Purchaser in satisfying the requirements of Section 1653 of Oklahoma's Insurance Law for approval of the acquisition of control of the Company. SECTION 5.13. FURTHER ASSURANCES; COOPERATION PENDING CLOSING. (a) Until the Closing Date, Seller shall use its reasonable best efforts to take, or cause to be taken, all actions or do, or cause to be done, all things or execute any documents necessary, proper or advisable under Applicable Law to satisfy all conditions precedent and to consummate and make effective the transactions contemplated by this Agreement. (b) On and after the Closing Date, Seller, as reasonably requested from time to time by Purchaser, shall take all reasonably appropriate action and execute any additional documents, instruments or conveyances of any kind, which may be reasonably necessary to carry out any of the provisions hereof, including, without limitation, putting Purchaser in full possession and voting control of the Shares and giving effect to the assumption of liabilities by Seller under the RIC (Landmark) Quota Share Reinsurance Agreement. (c) Seller shall use its reasonable best efforts to cooperate and keep Purchaser informed in connection with all matters pertaining to the transactions contemplated by this Agreement. SECTION 5.14. TRANSFER OF REAL PROPERTY, ETC. At least ten (10) Business Days prior to the Closing Date, Seller and the Company shall use their best efforts to cause the Company to divest itself of any and all real property and personal property (in each case, whether owned, leased or rented), if any, in such a manner so as not to place any liabilities, including property tax liabilities or liabilities for cancellation of leases, contracts, etc., whatsoever on the Company. SECTION 5.15. COMPANY'S ELIGIBILITY. Immediately upon the execution of this Agreement, Purchaser, Seller, RIC and Royal shall cooperate to cause the Company to take all reasonable measures to become eligible to issue insurance policies on an excess or surplus lines basis in all jurisdictions within the United States or its territories selected by the Purchaser that are not listed on Schedule 3.17(c)(i). Purchaser shall take the actions set forth in this section with such assistance from Seller as it shall reasonably 23 request. Purchaser shall prepare, with Seller's full cooperation, any regulatory filings contemplated by this section. Seller shall not have any obligation to make any such filings without first reviewing and approving such filing, such approval not to be unreasonably withheld or delayed. SECTION 5.16. POST-CLOSING ADMINISTRATIVE MATTERS. (a) RIC covenants and agrees that after the Closing it will handle and administer any and all inquiries or Claims of whatever nature, and bear all expense in connection therewith, (i) from or with respect to any former agents, representatives or distributors of the Company; and (ii) with respect to any insurance policies issued or written by the Company prior to the Closing other than the Company Insurance Contracts. (b) Any and all assessments required to be paid or expended by the Company at any time in connection with insurance policies written by the Company prior to the Closing Date (and which are reinsured under the RIC (Landmark) Quota Share Reinsurance Agreement) and any refunds associated therewith shall be the sole obligation or property (as the case may be) of RIC and not of the Company. SECTION 5.17. DIRECTORS AND OFFICERS. Seller shall cause all of the directors and officers of the Company to tender to the Company, effective as of the Closing Date, their resignations as directors and officers of the Company. SECTION 5.18. RECORD KEEPING. Seller shall retain and make available as requested by the Company, Purchaser or Governmental Entities any records not transferred to Purchaser in conjunction with the transactions contemplated hereby that are necessary for the Company's compliance with any and all record keeping regulations promulgated by the Oklahoma Department of Insurance. SECTION 5.19. ASSET LIST PROVIDED BY SELLER. Seller covenants that, except for the assets listed on Schedule 3.14(a), the assets to be held by the Company upon the Closing listed shall consist only of U.S. Treasury bills, money market funds or cash. SECTION 5.20. NOVATIONS. Seller shall use its commercially reasonable best efforts to effectuate any Novations (as defined in Section 6.8) as soon as reasonably practicable following the Closing Date. SECTION 5.21. TERMINATION ENDORSEMENT. Prior to Closing, Seller shall cause the Company to prepare a form of termination endorsement among the Company, Seller and RIC with respect to the 1993 Reinsurance Agreement (as defined in the RIC (Landmark) Quota Share Reinsurance Agreement) the effect of which will be to (i) transfer from the Seller to the Company, and transfer from the Company to RIC, assets equal to the unearned premium and loss reserves held by Seller with respect to the cessions effected under the 1993 Reinsurance Agreement and (ii) terminate the 1993 Reinsurance Agreement (the "Termination Endorsement"). Seller shall cause the Company to file the Termination Endorsement (in form satisfactory to the Purchaser) with all applicable Governmental Authorities prior to the Closing. 24 ARTICLE VI COVENANTS OF PURCHASER SECTION 6.1. COMPLIANCE WITH OKLAHOMA INSURANCE LAW. Promptly after the date of execution of this Agreement, Purchaser shall file the application for acquisition of control of the Company, and all related materials, in connection with Purchaser's acquisition of the Shares pursuant to the requirements of Section 1653 of Oklahoma's Insurance Law and Purchaser shall take all other actions in connection with such filing required by Applicable Law and the Oklahoma Department of Insurance in order to permit Purchaser to be authorized (subject to the terms and conditions of this Agreement) to consummate the transactions contemplated by this Agreement. Purchaser further agrees to cooperate and respond promptly to any request by the Oklahoma Department of Insurance or any other Governmental Entity. Purchaser shall provide to Seller such portions of the acquisition of control filing with the Oklahoma Department of Insurance as Seller may reasonably request for the purpose of complying with the regulations governing in any jurisdiction. Subject to Applicable Law, Purchaser shall use its reasonable best effort to preserve the confidentiality of any of the items referred to in this Section 6.1. SECTION 6.2. POST-CLOSING ACCESS. After the Closing, Seller and/or RIC will afford to Purchaser, its agents and representatives access to the Books and Records in accordance with the RIC (Landmark) Administrative Services Agreement. SECTION 6.3. FURTHER ASSURANCES; COOPERATION PENDING CLOSING. (a) Until the Closing Date, Purchaser shall use its reasonable best efforts to take, or cause to be taken, all actions or do, or cause to be done, all things or execute any documents necessary, proper or advisable under Applicable Law to satisfy all conditions precedent and to consummate and make effective the transactions contemplated by this Agreement. (b) On and after the Closing Date, Purchaser, as reasonably requested from time to time by Seller, shall take all reasonably appropriate action and execute such documents and other papers which may be reasonably necessary to carry out any of the provisions hereof. (c) Purchaser shall use its reasonable best efforts to cooperate and keep Seller informed in connection with all matters directly pertaining to the transactions contemplated by this Agreement. SECTION 6.4. NOTIFICATION OF CHANGES AND DEFAULT. Purchaser covenants and agrees that between the date of execution of this Agreement and the Closing Date, Purchaser will promptly give notice to Seller of (i) the occurrence of any event or circumstance or the discovery of any inaccuracy, omission or mistake, which, in any way, would cause any warranty and representation made by Purchaser in Article IV hereof, or any of the information or documents heretofore provided to Seller to be changed, modified, inaccurate or otherwise not true and correct in any material respect, whether as of the date of execution of this Agreement or any time subsequent thereto and prior to the 25 Closing Date; or (ii) the occurrence of any events or circumstances that would result in a violation or breach by Purchaser of any of the terms and provisions of this Agreement obligatory upon Purchaser. SECTION 6.5. CERTAIN TRADEMARKS. Except as may otherwise be provided in an agreement between the Company and an Affiliate of the Seller, as soon as practicable following the Closing, Purchaser shall and shall cause the Company to discontinue all use of the trademarks and service marks "Royal" or "RSA" or any other trademarks or service marks of Seller or its Affiliates. SECTION 6.6. CONFIDENTIALITY. Purchaser shall not issue (nor shall Purchaser, following the Closing Date, permit the Company to issue) any press release or other public statement concerning the transactions contemplated by this Agreement without first providing Seller with a written copy of the text of such release or statement, and obtaining Seller's consent respecting such release or statement, which consent shall not be unreasonably withheld or delayed. Purchaser shall keep this Agreement, the terms hereof, and all documents and information relating hereto, or furnished pursuant to or in connection with this Agreement, or the transactions contemplated hereby, confidential. SECTION 6.7. GOVERNMENTAL APPROVALS. Purchaser shall use reasonable best efforts to cause to be obtained by December 31, 2003 any necessary authorization, consent or approval or other order of action of or make any filing with, or give any notice to, any Person, court, administrative agency or other governmental or regulatory body or authority as is required for the execution and delivery by Purchaser of this Agreement and the Landmark Ancillary Agreements. SECTION 6.8. TEXAS LICENSE. Purchaser shall cause the Company to not terminate its insurance license (as in effect prior to the Closing) in Texas until such time following the end of the Accommodation Period (as defined in the RIC (Landmark) Quota Share Reinsurance Agreement) that any requirements necessary to terminate the Company's admitted status in Texas (including any novations for contracts which cannot be cancelled and rewritten ("Novations") and which the Seller has used its commercially reasonable best efforts to novate as soon as reasonably practicable) have been satisfied. Purchaser shall cause the Company to cooperate with the Seller in satisfying the requirements of Section 5.20. ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATION OF PURCHASER TO CLOSE The obligation of Purchaser to effect the Closing are subject to the delivery by the Seller of the Shares to Purchaser and the satisfaction (or waiver by Purchaser) at or prior to the Closing of the following conditions precedent. SECTION 7.1. PROCEEDINGS SATISFACTORY; CERTIFICATES. All actions, proceedings, instruments, opinions and documents reasonably required to consummate the transactions provided for in this Agreement shall have been performed or obtained. 26 Seller shall have delivered to Purchaser on the Closing Date such documents and other evidence as Purchaser may reasonably request in order to establish the consummation of the transactions provided for in this Agreement, the taking of all corporate and other proceedings in connection herewith and the compliance by Seller with the conditions set forth in this Article VII, all in form and substance reasonably satisfactory to Purchaser. In addition, Purchaser shall have received a certificate or certificates, executed by a senior officer of Seller to the effect that the conditions of Sections 7.2 and 7.3 hereof have been satisfied. SECTION 7.2. COMPLIANCE WITH COVENANTS. Seller and the Company shall have complied in all material respects with and performed to the reasonable satisfaction of Purchaser, all covenants and agreements required to be performed by Seller and the Company herein on or before the Closing Date. SECTION 7.3. NO PROCEEDINGS PENDING. No injunction or restraining order shall prohibit or limit the right of Purchaser to consummate the transactions provided for in this Agreement, and no action, suit, proceeding or investigation by or before any court, administrative agency or other governmental authority of any kind shall have been instituted or threatened which may materially and adversely affect the ability of the Company to conduct the Business or which may result in restraining, prohibiting or invalidating, or seeking monetary damages by reason of consummation of, the transactions provided for in this Agreement. No request of or investigation by any Governmental Entity, administrative agency or other authority of any kind for deferral of the Closing Date shall be pending or threatened. The surplus or excess lines Permits of the Company in at least thirty-five (35) states shall be valid, unimpaired and in good standing on the Closing Date. SECTION 7.4. REGULATORY APPROVALS. The Oklahoma Department of Insurance shall have issued its written order of approval pursuant to the Oklahoma Insurance Law for (a) the acquisition of control of the Company by Purchaser and/or each parent company of Purchaser, (b) the termination of the 1993 Reinsurance Agreement and (c) the RIC (Landmark) Quota Share Reinsurance Agreement. The Colorado Department of Insurance shall have issued its written order of approval pursuant to the Colorado Insurance Law for (a) the termination of the 1993 Reinsurance Agreement and (b) the RIC (Landmark) Quota Share Reinsurance Agreement. Purchaser shall have obtained all other reasonably necessary and appropriate approvals of all Governmental Entities required to permit Purchaser to purchase the Shares and acquire control of the Company, in each case which are listed on Schedule 3.9. No such order, approval or authorization shall contain a condition, limitation or requirement binding on the Company or Purchaser which in the reasonable opinion of Purchaser is unacceptable. Furthermore, all reasonably necessary and appropriate filings required to be made prior to the Closing and listed on Schedule 3.9 shall have been made with all insurance regulatory agencies with respect to this Agreement and the agreements contemplated thereunder, including, but not limited to license requalification filings, if applicable, which shall have been filed by Company in all states where Company is licensed to transact business and where such a filing is required. Additionally, Seller or the Company shall have provided 27 to Purchaser original copies of the Company's good standing certificate within three weeks of the Closing for the Company's domiciliary state. SECTION 7.5. LIABILITIES. As of the Closing Date, pursuant to the RIC (Landmark) Quota Share Reinsurance Agreement and the Assumption of Liabilities Agreement, Seller shall have assumed or reinsured (a) all of the Company's insurance business whether in force or expired, as of a date no later than the Closing Date, including all liabilities and obligations relating thereto (with the recoverability of reinsurance being for the account of, and at the risk of, Seller), exclusive of the Company Insurance Contracts, and (b) any renewal obligation of the Company, if any. SECTION 7.6. DELIVERY OF CERTIFICATES FOR THE SHARES. Seller shall have delivered to Purchaser, against receipt of the Purchase Price, the certificates evidencing ownership of the Shares by Seller, endorsed in blank or accompanied by separate stock powers duly executed in blank. SECTION 7.7. CLOSING UNDER THE ACQUISITION AGREEMENT CONSUMMATED. The closing under the Acquisition Agreement shall have been consummated. ARTICLE VIII CONDITIONS PRECEDENT TO OBLIGATION OF SELLER TO CLOSE The obligation of Seller to effect the Closing are subject to the satisfaction (or waiver by Seller) at or prior to the Closing of the following conditions precedent. SECTION 8.1. PROCEEDINGS SATISFACTORY; CERTIFICATES. All actions, proceedings, instruments, opinions and documents reasonably required to consummate the transactions provided for in this Agreement shall have been performed or obtained. Purchaser shall have delivered to Seller on the Closing Date such documents and other evidence as Seller may reasonably request in order to establish the consummation of the transactions provided for in this Agreement, the taking of all corporate and other proceedings in connection herewith and the compliance by Purchaser with the conditions set forth in this Article VIII. In addition, Seller shall have received certificates, executed by a senior officer of Purchaser to the effect that the conditions of Section 8.2 an hereof have been satisfied. SECTION 8.2. COMPLIANCE WITH COVENANTS. Purchaser shall have complied in all material respects with and performed to the reasonable satisfaction of Seller, all covenants and agreements required to be performed by Purchaser herein on or before the Closing Date. SECTION 8.3. REGULATORY APPROVALS. The Oklahoma Department of Insurance shall have issued its written order of approval pursuant to the Oklahoma Insurance Law for (a) the acquisition of control of the Company by Purchaser and (b) the RIC (Landmark) Quota Share Reinsurance Agreement. The Colorado Department of Insurance shall have issued its written order of approval pursuant to the Colorado Insurance Law for (a) the termination of the 1993 Reinsurance Agreement and (b) the 28 RIC (Landmark) Quota Share Reinsurance Agreement. Purchaser shall have obtained all reasonably necessary and appropriate approvals of all Governmental Entities required to permit Purchaser to purchase the Shares, and acquire control of the Company. No such order, approval or authorization shall contain a condition, limitation or requirement binding on Seller which in the reasonable opinion of Seller is unacceptable. SECTION 8.4. NO PROCEEDINGS PENDING. No injunction or restraining order shall prohibit or limit the right of Seller to consummate the transactions provided for in this Agreement. No request of or investigation by any Governmental Entity, administrative agency or other authority of any kind for deferral of the Closing Date shall be pending or threatened. SECTION 8.5. CLOSING UNDER THE ACQUISITION AGREEMENT CONSUMMATED. The closing under the Acquisition Agreement shall have been consummated. ARTICLE IX INDEMNIFICATION SECTION 9.1. SELLER INDEMNITY. (a) Other than in respect of Taxes (which shall be governed solely by Article X hereof) and subject to the provisions and limitations of this Article IX, Seller agrees to indemnify, defend and hold Purchaser and its Affiliates, directors, officers and employees upon demand harmless following the Closing Date from and against any Damage, Claim, cost, loss, interest, penalty, deficiency, or expense, including, without limitation, reasonable attorneys', accountants' and other investigatory fees and out-of-pocket expenses, actually expended or incurred by Purchaser or any of its Affiliates (which costs shall not include any expenses associated with salaries or overhead related to employees of Purchaser) or the Company ("Damages"), arising out of or resulting from: (i) any breach of representation or warranty (including any misrepresentations in, or omission from, any certificate or other document furnished or to be furnished by Seller to Purchaser hereunder), or nonfulfillment of any covenant or agreement on the part of Seller or the Company under this Agreement); (ii) any negligent act, error or omission of Seller or the Company prior to the Closing relating to the Business; (iii) any Claim arising out of or resulting from the conduct of the Business by the Company prior to the Closing Date, any premium, charge or assessment imposed upon or against the Company by any regulatory agency or authority or insurance guaranty fund in respect of any period of time prior to the Closing Date, or any other event or condition which occurred or existed prior to the Closing, whether or not such Liability or expense was in existence or was accrued or contingent or known or unknown at the time of the Closing; (iv) any and all such claims, losses, judgments, awards, damages, settlements, costs, interest, penalties, deficiencies and expenses which are brought, levied or held against Purchaser, the Company and any of their Affiliates resulting from or relating to the employment of any person by, or the provision of services by any person to, the Company, including by way of illustration and not by way of limitation, claims based upon discrimination on the basis of race, gender, color, religion, national origin, age, disability, or other protected classification, the failure to pay any wages, compensation or other benefits payable or due to any such person, the 29 failure to deduct or collect any and all employment taxes and withholdings, the failure to recognize veteran's rights or the harassment of any person, occurring on or before the Closing Date; (v) any claims, losses, judgments, awards, damages, settlements, costs, interest, penalties, deficiencies and expenses which are brought, levied or held against the Company resulting from or relating to any "employee benefit plan," within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended, and any other employee benefit, fringe benefit, deferred or incentive compensation plan, fund, program, policy, arrangement or practice (each a "Plan") which has ever been maintained, sponsored or contributed to, or to which contributions were ever required to be made by, Seller, the Company or any person treated as a single employer with Seller or the Company under Section 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as amended, with respect to any act or omission occurring at any time (other than any claim relating to, resulting from or arising out of any Plan of Purchaser or any of its Affiliates and involving any act or omission after the Closing Date); and (vi) all third-party actions, suits, proceedings, demands, assessments, judgments, costs and expenses incident to any of the foregoing (any and all of which are hereafter referred to as a "Claim"). SECTION 9.2. PURCHASER INDEMNITY. (a) Subject to the provisions and limitations of this Article IX, Purchaser agrees to indemnify, defend and hold Seller and its Affiliates, directors, officers and employees upon demand harmless for a two year period following the Closing Date from and against any Damage, Claim, cost, loss, interest, penalty, deficiency, or expense, including, without limitation, reasonable attorneys', accountants' and other investigatory fees and out-of-pocket expenses, actually expended or incurred by Seller (which costs shall not include any expenses associated with salaries or overhead related to employees of Seller or its Affiliates) or the Company, arising out of or resulting from any breach of representation or warranty (including any misrepresentations in, or omission from, any certificate or other document furnished or to be furnished by Purchaser to Seller hereunder), or nonfulfillment of any covenant or agreement on the part of Purchaser under this Agreement); provided, further, however, that Purchaser shall not be obligated to indemnify Seller for any breach of representation, warranty or covenant if notice of the inaccuracy or breach thereof (without intentional failure to disclose any material facts or circumstances pertaining thereto) giving rise to such right of indemnity shall not have been given to Purchaser prior to the third anniversary of the Closing Date. (b) The party seeking indemnification under Section 9.1(a)(the "Indemnified Party") shall give to the party against whom indemnity is sought (the "Indemnifying Party") written notice as promptly as practicable by certified or registered mail of any Claim with respect to which the Indemnified Party seeks indemnification. The Indemnifying Party shall have twenty (20) Business Days from the date of receipt of such notice in which to assume the entire control of the Defense, compromise or settlement (any and all of which are hereinafter referred to as "Defense") of such Claim through its own attorneys and at its own expense. If the Indemnifying Party shall assume such Defense, it shall notify the Indemnified Party in writing of such assumption within 30 twenty (20) Business Days of receipt of such notice and thereafter promptly advise the Indemnified Party of its activities and efforts in connection therewith and of the ultimate resolution of such Claim. The Indemnifying Party shall have the right to settle, compromise or adjust any such Claim, provided that (i) any such settlement, compromise or adjustment may not bind the Indemnified Party or their Affiliates (including the Company if Purchaser is the Indemnified Party) without the Indemnified Party's express written consent, (ii) if Purchaser is the Indemnified Party, the Indemnified Party's rights in and to any of the assets of the Company or the Shares are not infringed thereby, and (iii) if Purchaser is the Indemnified Party, the Indemnifying Party alone is obligated to satisfy and discharge all liabilities and obligations relating to such settlement, compromise or adjustment. The Indemnified Party shall not unreasonably withhold its consent to the settlement of any Claim. In connection with any Defense, the Indemnified Party shall be entitled, at its own cost and expense, to have its counsel monitor the progress and status thereof and, in such event, the Indemnifying Party and its counsel agree to afford all reasonable cooperation to the Indemnified Party and its counsel in order to permit counsel of the Indemnified Party to monitor effectively the progress and status from time to time of any such Claim. If the Indemnifying Party fails to notify the Indemnified Party that it has assumed the Defense or does not in fact assume the Defense, the Indemnified Party may, but shall not be required to, pay, compromise or settle such Claim, or take such action to settle such Claim, provided that the Indemnified Party shall notify the Indemnifying Party of such action. In such event, the Indemnified Party shall be fully entitled to indemnification hereunder. Notwithstanding anything herein to the contrary, in no event shall any rights of indemnity hereunder in any way limit the application of the RIC (Landmark) Quota Share Reinsurance Agreement. SECTION 9.3. VALUATION OF CLAIM. After the Indemnified Party has determined the dollar amount of the Claim in respect of any Claim, the Indemnified Party shall provide written notice to the Indemnifying Party of the amount of such Claim, which notice shall include in reasonable detail information explaining calculation of the amount of such Claim. Any such notice may be given with respect to a previously unascertained amount attributable to a Claim which was the subject of a prior notice. Unless, within thirty (30) days after the receipt of any such notice by the Indemnifying Party, the Indemnified Party receives written notice that the Indemnifying Party does not concur with the Indemnified Party's determination of the amount of the Claim, the amount of such Claim provided in such written notice shall conclusively be deemed to have been accepted by the Indemnifying Party and to be the agreed amount which the Indemnified Party (and, if Purchaser is the Indemnified Party, the Company) are entitled to receive by way of indemnification from the Indemnifying Party (the "Indemnification Loss"). If the Indemnified Party within such thirty (30) Business Day period receives written notice that the Indemnifying Party disagrees with the amount of the Claim, the parties shall endeavor forthwith, and within thirty (30) days after receipt of such notice of disagreement by the Indemnified Party, to negotiate in good faith to resolve the issue or issues which form the basis of their disagreement. If no resolution with respect to such disagreement has been reached by the parties within such thirty (30) day period, either the Indemnified Party (if Purchaser is the Indemnified Party, on behalf of itself or the Company) or the Indemnifying Party may commence litigation with respect to such disagreement in a court of competent jurisdiction in the United States of America. 31 SECTION 9.4. PAYMENT OF INDEMNIFICATION LOSS. Any Indemnification Loss payable by the Indemnifying Party hereunder shall be promptly remitted by the Indemnifying Party to a bank account of the Indemnified Party (or, if Purchaser is the Indemnified Party, the Company), as designated in writing by the Indemnified Party, within thirty (30) Business Days after the final non-appealable determination of the amount of the Indemnification Loss. SECTION 9.5. PURCHASE PRICE ADJUSTMENT. Purchaser and Seller agree to treat, to the maximum extent permitted by Applicable Law, any payments under this Article IX or Article X as an adjustment to the Final Purchase Price for all Tax purposes. SECTION 9.6. NO DUPLICATION. Any liability for indemnification hereunder shall be determined without duplication of recovery by reason of (i) the state of facts giving rise to such liability constituting a breach of more than one representation, warranty, covenant or agreement or (ii) the liability of the Indemnifying Party or any Affiliate thereof under a Landmark Ancillary Agreement, the Acquisition Agreement or an Ancillary Agreement (as such term is defined in the Acquisition Agreement). ARTICLE X TAX MATTERS SECTION 10.1. TRANSFER TAXES. All Transfer Taxes, if any, arising out of or in connection with the transactions contemplated by this Agreement shall be borne equally by Seller and Purchaser. The parties shall cause all appropriate stock Transfer Tax stamps to be affixed to the certificate or certificates representing the Shares so sold and delivered. Seller and Purchaser shall reasonably cooperate in the preparation, execution and filing of, all Tax Returns, applications or other documents regarding any Transfer Taxes that become payable pursuant to this Agreement. SECTION 10.2. TAX MATTERS. Except as provided in Section 10.1 hereof: (a) Parent or Seller shall file or cause to be filed when due all Tax Returns that are required to be filed for any Pre-Closing Period by or with respect to the Company and Parent or Seller shall remit (or cause to be remitted) any Taxes due in respect of such Tax Returns. All such Tax Returns will be prepared in a manner consistent with the past practice of Seller and the Company. (b) Purchaser shall file or cause to be filed when due all Tax Returns that are required to be filed for any Post-Closing Period or any Straddle Period by or with respect to the Company and, subject to Sections 10.2(d) and 10.3 hereof, Purchaser shall remit (or cause to be remitted) any Taxes due in respect of such Tax Returns. (c) Purchaser shall cause the Company to prepare in a manner consistent with past practice of the Company and to deliver to Parent or Seller, all relevant Tax information relating to the Company reasonably required to permit Parent or Seller to file or cause to be filed when due all Tax Returns required to be filed or caused to be filed by Parent or Seller pursuant to Section 10.2(a) of this Agreement. 32 (d) In the case of any Tax Return for any Straddle Period, Purchaser shall provide Seller with copies of the completed Tax Return for such taxable period and a schedule apportioning the Tax shown on such Tax Return as between Seller and Purchaser and specifying the amount due to or from Seller (all computed in accordance with Section 10.3 hereof), together with such related work papers and other documents as Seller shall reasonably request, no later than forty-five (45) days before the due date for the filing of such Tax Return. Seller and its authorized representatives shall have the right to review the Tax Return and schedule received from Purchaser pursuant to the terms of this Section 10.2(d). Seller and Purchaser agree to consult each other and resolve in good faith any issues arising under the terms of this Section 10.2(d) as a result of the review of any such Tax Returns and schedule received from Purchaser. If the parties agree upon the contents of the Tax Return and the schedule, then the Tax Return shall be filed as so agreed and the amount of Tax, if any, due from Seller shall be paid by Seller to Purchaser no later than two (2) days prior to the date of filing of such Tax Return or the amount of Tax due, if any, from Purchaser to Seller shall be paid by Purchaser to Seller no later than three (3) days after the date of filing of such Tax Return. If the parties are unable to resolve any dispute as to any Tax Return or accompanying schedule within thirty (30) days after the provision of such Tax Return or schedule to the Seller, the parties shall refer the dispute to an independent mutually agreed upon nationally recognized accounting firm (the "Independent Firm") to act as an arbitrator to resolve the disagreement prior to the due date of the filing of such Tax Return. The Independent Firm's determination shall be final and binding upon the parties, and all fees and expenses relating to the engagement of the Independent Firm shall be shared equally by Seller and Purchaser. (e) Seller or Parent shall cause any Tax sharing agreement or similar arrangement with respect to Taxes involving the Company, on the one hand, and Seller, Parent or any Affiliates of either, on the other hand, to be terminated effective as of the Closing Date, so that to the extent any such agreement or arrangement relates to the Company after the Closing Date, none of the Company, Seller, Parent nor the Affiliates of any of them shall have any obligation thereunder to the other, whether to make payment or otherwise, under any such agreement or arrangement for any past, present or future period. (f) Except as otherwise expressly contemplated by this Agreement, from the date hereof to and including the Closing Date, neither Parent nor Seller without the prior written consent of Purchaser (which consent shall not be unreasonably withheld, conditioned or delayed) will permit the Company to directly or indirectly (i) make, change or revoke, or permit to be made, changed or revoked, any material election or method of accounting, with respect to Taxes affecting the Company for Post-Closing Tax Periods, or (ii) enter into, or permit to be entered into, any closing or other agreement or settlement with respect to Taxes of the Company affecting or relating to Post-Closing Tax Periods. SECTION 10.3. COMPUTATION OF TAX LIABILITIES. To the extent permitted or required by Applicable Law or administrative practice, (i) the taxable period of the Company that began on January 1 of the calendar year which includes the Closing Date 33 shall be treated as closing as of the close of business on the Closing Date, notwithstanding the foregoing, (ii) all transactions not in the ordinary course of business and properly allocable thereunder to the portion of the day after the Closing shall be reported on Purchaser's consolidated United States federal income Tax Return to the extent permitted by Treasury Regulation section 1.1502-76(b)(1)(ii)(B) and shall be similarly reported on other Tax Returns of Purchaser or its Affiliates to the extent permitted by Applicable Law, and (iii) no election shall be made under Treasury Regulation Section 1.1502-76(b)(2)(ii) (relating to ratable allocation of a year's items). For purposes of this Agreement, where it is necessary to apportion between Seller and Purchaser the Tax liability of an entity for a Straddle Period (which is not treated under the immediately preceding sentence as closing on the Closing Date), such liability shall be apportioned between the period deemed to end at the close of the Closing Date, and the period deemed to begin at the beginning of the day following the Closing Date on the basis of an interim closing of the books, except that Taxes (such as real property Taxes) imposed on a periodic basis shall be allocated on a daily basis. In determining Seller's liability for Taxes pursuant to this Agreement, Seller shall be credited with the amount of estimated or actual Taxes paid by or on behalf of the Company prior to the Closing. To the extent that Seller's liability for Taxes of the Company for a Straddle Period is less than the amount of estimated or actual Taxes previously paid by or on behalf of the Company with respect to such Straddle Period, Purchaser shall pay Seller the difference within three (3) days of the filing of the Tax Return relating to such Tax. Purchaser shall pay Seller the value of any Tax Credit used by Purchaser to offset premium Taxes on premiums written in any Post-Closing tax period to the extent that such credits are attributable to payments made by or on behalf of Company prior to or on the Closing Date within three (3) days of the filing of the Tax Return relating to such Tax. Parent, Seller and the Purchaser further agree to file all Tax Returns (including, without limitation, all State income Tax Returns), handle the contest of any audit and otherwise act for all Tax purposes consistent with the provisions of this Section 10.3. SECTION 10.4. SELLER'S INDEMNITY FOR TAXES. Notwithstanding anything contained in this Agreement to the contrary: (a) Seller shall pay and shall indemnify and hold harmless the Purchaser, the Company and their respective Affiliates, successors and permitted assigns from: (i) all liability for Taxes of the Company for all Pre-Closing Tax Periods and the Seller's portion of the Straddle Period (as determined pursuant to Section 10.2(d) hereof), including any liability of the Parent Group for additional Taxes arising solely as a result of the Section 338 Elections if elected, as set forth below; (ii) all liability resulting by reason of the several liability of the Company pursuant to Treasury Regulations Section 1.1502-6 or any similar provision of Applicable Law or by reason of the Company ever having been a member of any consolidated, combined or unitary group on or prior to the Closing Date; and (iii) all Damages (as such term is defined in Section 9.1) attributable to any misrepresentation or breach or non-performance of warranty or agreement made by the Seller or the Parent in Section 3.11 or this Article X. (b) The representations and warranties of Seller and the agreements of the parties contained in this Article X shall survive the Closing and shall continue in full 34 force and effect until thirty (30) days after the expiration of the statute of limitations of the Tax to which the representation, warranty or agreement relates. There shall be no limit on the aggregate amount for which Seller shall be liable under Section 10.4(a) hereof and no deductible shall apply. SECTION 10.5. ASSISTANCE AND COOPERATION. After the Closing Date, both Seller and Purchaser shall (and shall cause their respective Affiliates to) in good faith cooperate with and assist the other in connection with the preparation of any Tax Returns (including any amended Tax Returns), the determination of the requesting party's own liability for Taxes, any audit or other examination by any Taxing Authority, or any judicial or administrative proceedings relating to liability for Taxes. The party requesting assistance hereunder shall (i) make such request in writing and (ii) reimburse the other party for the reasonable out-of-pocket expenses incurred in providing such assistance. In addition, neither party shall dispose of any Tax workpapers, books or records relating to the Company during the six-year period following the Closing Date, and thereafter shall give the other party written notice before disposing of such items and a reasonable opportunity to copy or take possession of the same prior to their disposition. Each party shall be free to dispose of such items after the expiration of the six-year period, unless such other party provides notice within thirty (30) days of the expiration of the six-year period that such other party intends to copy or take possession of such items. Any information obtained pursuant to this Section 10.5 shall be held in strict confidence and shall be used solely in connection with the reason for which it was requested. SECTION 10.6. REFUNDS. Any Tax refund (including any interest in respect thereof but net of any Tax imposed thereon) received by Purchaser or its Affiliates, and any amounts credited against Tax to which Purchaser or any of its Affiliates becomes entitled (including by way of any amended Tax Returns), that relate to any taxable period, or portion thereof, ending on or before the Closing Date shall be for the account of Seller, and Purchaser shall pay over to Seller any such refund or the amount of any such credit within five (5) days after receipt or entitlement thereto. Purchaser shall pay Seller interest at the rate prescribed under section 6621(a)(1) of the Code, compounded daily, on any amount not paid when due pursuant to the preceding sentence. SECTION 10.7. CONTESTS. Notwithstanding anything to the contrary contained in this Agreement: (a) After the Closing Date, Purchaser shall notify Seller in writing within ten (10) days of the date a claim is made or threatened in writing by any Taxing Authority that, if successful, may reasonably be expected to result in an indemnity payment by Seller under Section 10.4 (a "Tax Claim"). Such notice shall contain factual information describing in reasonable detail the nature and basis of such claim and the amount thereof, to the extent known, and shall include copies of any notice or other document received from any Taxing Authority in respect of any such asserted Tax liability. Failure by Purchaser to give such notice to the Seller shall not relieve the Seller of any liability that it may have on account of its indemnification obligation under this Article X, except to the extent that the Seller is materially and adversely prejudiced thereby in the defense of such Tax Claim; provided, however, that irrespective of whether 35 the Seller is materially or adversely prejudiced, Seller may reduce any liability Seller may have on account of its indemnification obligation under this Article X by the amount of its actual, out-of-pocket monetary damages that are caused by the Purchaser's failure to timely give the notice required pursuant to this Section 10.7(a). (b) Seller will have the right, at its option, upon timely notice to Purchaser, to assume at its own expense control of any audit or other defense of any Tax Claim (other than a Tax Claim relating solely to Taxes of the Company for a Straddle Period, which as described below, the parties shall jointly control) with its own counsel, provided that Seller's notice acknowledges Seller's indemnification liability for such claim. Seller's right to control a Tax Claim will be limited to issues in respect of which amounts in dispute would be paid by Seller or for which Seller would be liable pursuant to Section 10.4. Costs of defending or contesting such Tax Claims are to be borne by Seller unless the Tax Claim relates to a Straddle Period, in which event such costs shall be fairly apportioned as described below. Purchaser and the Company at their own expense each shall cooperate with Seller in contesting any Tax Claim, which cooperation shall include the retention and, upon Seller's request, the provision of records and information that are reasonably relevant to such Tax Claim and making employees available on a mutually convenient basis to provide additional information or explanation of any material provided hereunder. Notwithstanding the foregoing, Seller shall neither consent nor agree to the settlement of any Tax Claim with respect to any liability for Taxes that may affect the liability for any state, federal or foreign income tax of the Company or any affiliated group (as defined in section 1504(a) of the Code) of which the Company is a member for any Post-Closing Tax Period without the prior written consent of Purchaser, which consent shall not be unreasonably withheld, conditioned or delayed, and neither Seller, nor any Affiliate of Seller, shall file an amended Tax Return that may increase the liability for Taxes of the Company for any Post-Closing Tax Period without the prior written consent of Purchaser, which consent shall not be unreasonably withheld, conditioned or delayed. Purchaser and Seller shall jointly control all proceedings taken in connection with any Tax Claims relating solely to a Straddle Period of the Company and each party shall bear its own out-of-pocket costs and expenses of the contest and all joint costs and expenses of the contest shall be borne in the same ratio as the applicable proposed Tax would be allocated. SECTION 10.8. POST-CLOSING ACTIONS WHICH AFFECT SELLER'S LIABILITY FOR TAXES. (a) Purchaser shall not allow or cause the Company to take, or fail to take, any action or omit to take any action after the Closing Date as to which Seller has notified Purchaser in writing on or before the Closing Date if the taking of such action or the failure to take such action will increase the Taxes of the Company for any Pre-Closing Tax Period provided that the taking of such action or the failure to take such action does not materially affect the conduct of the Company's Business after the Closing Date. (b) None of Purchaser or any Affiliate of Purchaser shall (or shall cause or permit the Company to) amend, refile or otherwise modify any Tax Return 36 relating in whole or in part to the Company with respect to any Pre-Closing Tax Period without the prior written consent of Seller, which consent may be withheld in the sole discretion of Seller. (c) None of Purchaser or any Affiliate of Purchaser shall (or shall cause or permit the Company to) carryback for federal, state, local or foreign Tax purposes to any Pre-Closing Tax Period or to the portion of any Straddle Period ending before the Closing Date of the Company, Seller, or any Affiliate of Seller, any operating losses, net operating losses, capital losses, tax credits or similar items arising in, resulting from, or generated in connection with a taxable year of Purchaser or any Affiliate of Purchaser, or portion thereof, ending on or after the Closing Date. SECTION 10.9. SECTION 338(h)(10) ELECTION. (a) Within ninety (90) days of the Closing Date, Purchaser shall furnish Seller with Purchaser's proposed allocation of the Purchase Price among the Shares and the other transactions, rights and obligations contemplated pursuant to this Agreement and the Landmark Ancillary Agreements, the determination of the ADSP (as defined in applicable Treasury Regulations under Section 338 of the Code) and the allocation of ADSP among the assets of the Company and other relevant items (the "Proposed Allocation"). Purchaser and Seller each agree to consult in good faith with regard to the proposed determination and the Proposed Allocation, provided that Seller shall accept Purchaser's final determination of the ADSP and the Proposed Allocation to the extent that they are reasonable and consistent with Applicable Law (which, when accepted, shall become the "Final Allocation"). Within thirty (30) days after the determination of the Final Allocation, Seller shall deliver to Purchaser a schedule setting forth in reasonable detail the additional amount of cash ("Seller's Tax Cost") that Seller reasonably estimates is necessary to ensure that the net proceeds derived by Seller from the sale of the Shares if the Purchaser elects to make the elections provided for under Section 338(h)(10) of the Code and any similar elections required to be, or treated as, made under any applicable state or local Tax laws as a result of the federal election (collectively, the "Section 338 Elections") is not less than the amount of net proceeds Seller would have derived from the sale of the Shares in the absence of the Section 338 Elections. The Seller's Tax Cost shall be computed (1) on an after-Tax basis including, without limitation any additional Taxes imposed on the receipt of any additional amounts or attributable to the allocation of ADSP to anything other than the Shares, and (2) on the basis such that the after-Tax proceeds to Seller of the receipt of the Final Purchase Price plus the Seller's Tax Cost equals the amount of after-Tax proceeds the Seller would have received from the sale of the Company shares in exchange for the Final Purchase Price if the Section 338 Elections were not made and the entire final Purchase Price were allocable solely to the Shares. Purchaser and Seller each agree to consult in good faith with regard to the determination and calculation of Seller's Tax Cost, provided that Purchaser shall accept Seller's final determination of Seller's Tax Cost to the extent that it is reasonable and consistent with Applicable Law (which, when accepted, shall become the "Final Seller's Tax Cost"). 37 (b) Within fifteen (15) days after the receipt by Purchaser of the schedule of Final Seller's Tax Cost, Purchaser shall notify Seller of Purchaser's decision as to whether to make the Section 338 Elections. If Purchaser decides to make the Section 338 Elections, Seller agrees to (or to cause Parent to, if applicable) join with Purchaser in making timely and irrevocable Section 338 Elections, provided Seller receives the payment of Final Seller's Tax Cost as provided in Section 10.9(c) hereof. If Purchaser decides to make the Section 338 Elections, Purchaser shall be solely responsible for preparing drafts of all forms, attachments and schedules necessary to effectuate the Section 338 Elections, including, without limitation, IRS Form 8023 or applicable successor form, and any similar forms or applicable successor forms under applicable state or local income tax laws (the "Section 338 Forms"), and Purchaser shall furnish a copy of the draft Section 338 Forms to Seller for Seller's review and comment, which Seller agrees to do promptly. Seller shall, and if required, Seller shall cause Parent to, cooperate in good faith with Purchaser's preparation of the Section 338 Forms, and Seller agrees to promptly provide (or cause Parent to promptly provide) to Purchaser true, correct and complete information regarding Seller (or Parent or Parent Group, if applicable) reasonably requested by Purchaser and necessary to complete the Section 338 Forms. (c) Thereafter, Purchaser shall deliver to Seller for execution by Seller (or Parent, if applicable) the final Section 338 Forms. Within five (5) days of delivering the final Section 338 Forms to Seller, Purchaser shall pay to Seller (by wire transfer in U.S. Dollars of immediately available funds to the bank account specified by Seller to Purchaser) an amount equal to Final Seller's Tax Cost, and Seller (or Parent, if applicable) agrees to and shall simultaneously execute and deliver to Purchaser the final Section 338 Forms. (d) If Purchaser has paid to Seller Seller's Final Tax Cost, then Seller agrees that Seller (i) shall, or shall cause Parent to, report the acquisition of the Company by Purchaser in a manner consistent with the making of the Section 338 Elections (ii) shall not, and shall cause Parent and each member of Parent Group not to, take a position in any Tax Return or audit or any proceeding before any Taxing Authority or otherwise inconsistent with the Section 338 Elections, including the determination of the ADSP and the Final Allocation shown thereon, unless and to the extent required to do so pursuant to a determination (as defined in Section 1313(a) of the Code or any similar state or local law). (e) Purchaser shall bear the costs and expenses of preparing the Section 338 Forms and the Proposed and Final Allocations. ARTICLE XI TERMINATION SECTION 11.1. TERMINATION. This Agreement may be terminated, and the transactions contemplated hereby abandoned, prior to Closing: 38 (a) by mutual written consent of Purchaser and Seller; (b) by Purchaser or Seller at any time if the Closing shall not have occurred by February 15, 2004; (c) by Purchaser if there has been any material failure on the part of Seller to comply with or perform any of its agreements, covenants or obligations hereunder, and such noncompliance or nonperformance shall not have been (1) cured or eliminated by Seller within ten (10) Business Days following receipt of written notice thereof from Purchaser or (2) waived by on or before the Closing Date; (d) by Seller if there has been any material failure on the part of Purchaser to comply with or perform any of its agreements, covenants or obligations hereunder and such non-compliance or nonperformance shall not have been (1) cured or eliminated by Purchaser within ten (10) Business Days from receipt by Purchaser of written notice thereof from Seller or (2) waived by Seller on or before the Closing Date; or. (e) by Purchaser or Seller if the Oklahoma Department of Insurance shall have disapproved either the (i) Purchaser's acquisition of the Shares or (ii) the RIC (Landmark) Quota Share Reinsurance Agreement, and all rights of appeal with respect to such disapproval shall have been exhausted. (f) The power of termination provided for in this Section 11.1 will be effective only after written notice of the party's election to terminate (signed on behalf of the party for which it is given by a senior officer) shall have been given to the other parties. SECTION 11.2. EFFECT OF TERMINATION. In the event of a termination pursuant to Section 11.1, this Agreement shall become void and of no effect, except that (i) the covenant with respect to confidentiality contained in Section 12.7 shall survive forever and further (ii) in the event of such a termination because of any breach, the breaching party shall be liable to the other parties for all actual damages arising directly from or relating to such breach. ARTICLE XII MISCELLANEOUS PROVISIONS SECTION 12.1. EXPENSES. Except as otherwise provided in this Agreement, each party shall pay its own expenses, including but not limited to all legal and accounting fees, incurred by it in connection with this Agreement, and each party shall bear its own taxes incurred as a result of the transactions contemplated hereby. SECTION 12.2. SCHEDULES; THIS AGREEMENT. The Exhibits and Schedules attached hereto are incorporated herein and made a part hereof for all purposes. As used herein, the term "Agreement" means the body of this Agreement and such Exhibits and Schedules, and the expression "herein," "hereof," and "hereunder" and other words of 39 similar import refer to this Agreement and such Exhibits and Schedules as a whole and not to any particular part or subdivision thereof. SECTION 12.3. MODIFICATION. Purchaser and Seller may, by mutual consent of their duly and properly authorized representatives, amend, modify or supplement this Agreement in such manner as may be agreed upon by them in writing at any time. SECTION 12.4. WAIVERS. Each of Purchaser and Seller may, pursuant to action by its duly and properly authorized representative and by an instrument in writing, extend the time for or waive the performance of any of the obligations of the other or waive compliance by the other with any of the covenants or conditions contained herein. SECTION 12.5. SURVIVAL OF OBLIGATIONS. The respective warranties, representations, covenants and agreements of the parties to this Agreement shall survive consummation of the transactions contemplated by this Agreement and shall continue in full force and effect after the Closing Date for the periods described in Section 9.1, in which Purchaser may be indemnified by Seller for Damages related to the transactions herein described. SECTION 12.6. OTHER INSTRUMENTS TO BE EXECUTED. From and after the Closing Date, assuming consummation of the transactions provided for in this Agreement on such date, each party shall, and shall cause to, from time to time, at the reasonable request of the other and without further consideration (but at the expense of the requesting party) do, execute, acknowledge and deliver all such further reasonable acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be reasonably required by such party more effectively to transfer, assign and set over, or to confirm the sale of, the Shares on the Closing Date to Purchaser or to provide for efficient and effective administration of the RIC (Landmark) Quota Share Reinsurance Agreement. SECTION 12.7. PUBLIC STATEMENTS; CONFIDENTIALITY. Neither Seller or Purchaser shall issue (nor shall Seller, prior to the Closing Date, permit the Company to issue) any press release or other public statement concerning the transactions contemplated by this Agreement without first providing the other with a written copy of the text of such release or statement and obtaining the consent of the other respecting such release or statement (which consent shall not be unreasonably withheld). Purchaser and Seller shall keep this Agreement, the terms hereof, and all documents and information relating hereto, or furnished pursuant to or in connection with this Agreement or the transactions contemplated hereby, confidential, except as may be expressly agreed to by the parties or required by Applicable Law or, in the case of Purchaser, as may be necessary in the ordinary conduct of the Business by the Company after the Closing Date. In the event of termination of this Agreement prior to the Closing Date pursuant to Article XI, at Seller's request Purchaser shall return to Seller or its Representative any confidential material in its possession relating to the Company or destroy such confidential material and provide a certification to Seller relating to its compliance with the provisions of this sentence. 40 The parties acknowledge that any disclosure or violation of this Section 12.7 will result in injury to the other party. Accordingly, the parties hereto agree that, in the event of disclosure by either of the parties or their representatives, the other party shall be entitled to seek an injunction preventing such breach in addition to any other rights or remedies available at equity or law. Notwithstanding anything to the contrary contained in this Agreement, the Landmark Ancillary Documents or the Confidentiality Agreement, the parties (and each employee, representative, or other agent of the parties) may, subject to the consultation obligations with respect to public announcements contained in the preceding sentence, disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transaction and all materials (including opinions and analyses) provided to each of them and relating to the tax structure and tax treatment of the transaction, beginning on the earliest of (i) the date of the public announcement of discussions relating to the transaction, (ii) the date of public announcement of the transaction, or (iii) the date of the execution of this agreement (with or without conditions) to enter into the transaction, provided, however, that neither party (nor any employee, representative or other agent thereof) may disclose any information that is not necessary to understanding the tax treatment and tax structure of the transaction (including the identity of the parties and any information that could lead another to determine the identity of the parties), or any other information to the extent that such disclosure could result in a violation of any federal or state securities law. SECTION 12.8. PARTIES BOUND. This Agreement shall apply to, inure to the benefit of and be binding upon and enforceable against the parties hereto and their respective successors and permitted assigns. SECTION 12.9. GOVERNING LAW. This Agreement, and the rights and obligations of the parties hereto, shall be governed by and construed in accordance with the laws of the State of Delaware. To the extent that any insurance laws or regulations are applicable to matters under this Agreement, such matters shall be governed by the insurance laws or regulations of the applicable jurisdiction involved. SECTION 12.10. NOTICES. Any notice, demand, approval, consent, request, waiver or other communication which may be or is required to be given pursuant to this Agreement which may be or is required to be given shall be in writing and shall be deemed given on the day actually received and shall be addressed to a party at the address set forth after its respective name below, or at such different address as such party shall have theretofore advised the other party in writing, with copies sent to the Persons indicated: If to Seller: Attention: Laura S. Lawrence, Esq. General Counsel Royal, Inc. 9300 Arrowpoint Blvd. Charlotte, North Carolina 28273 41 Telephone No.: (704) 522-2851 Facsimile No.: (704) 522-3213 With a copy (which shall not constitute notice) to: Robert J. Sullivan, Esq. Skadden, Arps, Slate, Meagher & Flom LLP Four Times Square New York, New York 10036-6522 Facsimile No.: (212) 735-2000 If to Purchaser: Attention: Robert M. Hart, Esq. Alleghany Corporation 375 Park Avenue Suite 3201 New York, New York 10152 Telephone No.: (212) 752-1356 Facsimile No.: (212) 759-8149 With a copy (which shall not constitute notice) to: Aileen C. Meehan, Esq. Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Telephone No.: (212) 259-8000 Telecopy No.: (212) 259-6333 SECTION 12.11. NUMBER AND GENDER OF WORDS. Whenever herein the singular is used, the same shall include the plural, where appropriate, and whenever herein the plural is used, the same shall include the singular, where appropriate, and words of any gender shall include each other gender, where appropriate. SECTION 12.12. INVALID PROVISIONS. In the event any provision of this Agreement is deemed to be in violation of law, such provision shall not be deemed to impair the validity of any other provision hereof. SECTION 12.13. HEADINGS. The headings contained in this Agreement are for convenience of reference only and shall not affect the interpretation or meaning of this Agreement. SECTION 12.14. THIRD PARTY BENEFICIARIES. Except as otherwise provided herein, nothing herein, express or implied, is intended, or shall be construed, to confer upon or give to any Person other than the signatories hereto and their successors, any rights or remedies under or by reason of this Agreement. 42 SECTION 12.15. OTHER REMEDIES. Regardless of whether any party hereto shall otherwise have pursued or be pursuing any other rights or remedies, such party may proceed to protect and enforce its rights under this Agreement by exercising such remedies as are available to such holder under Applicable Law, either by suit in equity or by action at law, or both, whether for specific performance of any agreement contained in this Agreement or in aid of the exercise of any power granted in this Agreement. SECTION 12.16. ENTIRETY OF AGREEMENT. This Agreement (including Annexes, Exhibits, Schedules, certificates, lists referred to herein, and any documents executed by the parties simultaneously herewith or pursuant hereto) and the Landmark Ancillary Agreements contains the entire agreement between the parties and supersedes all prior agreements, arrangements or understandings between the parties relating to the subject matter hereto. No representation, inducement, promise or agreement, oral or otherwise, which is not embodied or referred to herein is or shall be of any force or effect. SECTION 12.17. MULTIPLE COUNTERPARTS; EFFECTIVENESS. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original for all purposes and all of which shall be deemed, collectively, one and the same Agreement. This Agreement shall become effective when executed and delivered by the parties hereto. SECTION 12.18. ASSIGNMENT. This Agreement shall not be assignable by any party without the prior written consent of the other parties and any attempt to assign this Agreement without such consent shall be void; provided, however, that Purchaser may assign all or any portion of this Agreement to any Affiliate of Purchaser if such Affiliate assumes Purchaser's obligations hereunder. Any permitted assignment by Purchaser shall not release Purchaser from its obligations and responsibilities hereunder. 43 IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase Agreement as of the date first above written. ALLEGHANY INSURANCE HOLDINGS LLC By: /s/ Weston M. Hicks --------------------------------------- Name: Weston M. Hicks Title: Chief Executive Officer GUARANTY NATIONAL INSURANCE COMPANY By: /s/ Laura S. Lawrence --------------------------------------- Name: Laura S. Lawrence Title: Senior Vice President, General Counsel and Chief Administration Officer EX-10.43 45 y88779exv10w43.txt CONTENTS TO STOCK PURCHASE AGREEMENT Exhibit 10.43 List of Contents of Exhibits and Schedules to the Guaranty National Insurance Company Stock Purchase Agreement Exhibits Description -------- ----------- Exhibit A RIC (Landmark) Quota Share Reinsurance Agreement Exhibit B RIC (Landmark) Administrative Services Agreement Exhibit C Assumption of Liabilities Agreement Schedules Description --------- ----------- Seller Disclosure Schedules Schedule 1.1(a) Seller Persons with Knowledge Schedule 3.3 Non-Contravention Schedule 3.9 Governmental Approvals Schedule 3.11 Tax Schedule 3.12 Governmental Proceedings or Investigations Schedule 3.13 Litigation Schedule 3.14(a) Statutory Deposits Schedule 3.14(b) Company Bank Accounts and Safe Deposit Boxes Schedule 3.15(a) Material Agreement Schedule 3.15(b) Exceptions to Material Agreements Schedule 3.17(c)(i) Surplus Lines Eligibility States Schedule 3.17(c)(ii) Suspension or Termination of Surplus Lines Eligibility Schedule 3.18 Reinsurance Ceded Schedule 3.19 Exceptions to Absence of Certain Changes Schedule 3.20 Intercompany Accounts Purchaser Disclosure Schedules Schedule 1.1(b) Purchaser Persons with Knowledge Schedule 4.4 Governmental Approvals Schedule 4.5 Litigation Schedule 4.6(a) Non-Contravention EX-10.44 46 y88779exv10w44.txt STOCK PURCHASE AGREEMENT Exhibit 10.44 STOCK PURCHASE AGREEMENT between SWISS RE AMERICA HOLDING CORPORATION and RSUI GROUP, INC. Dated as of June 12, 2003 TABLE OF CONTENTS ARTICLE I DEFINITIONS............................................................................................. 2 1.1. "Accounting Firm"................................................................................... 2 1.2. "Affiliate" or "Affiliated"......................................................................... 2 1.3. "Affiliate Novation Agreements"..................................................................... 2 1.4. "Affiliate Reinsurance Agreements".................................................................. 2 1.5. "Agreement"......................................................................................... 2 1.6. "Alleghany"......................................................................................... 2 1.7. "Applicable Law".................................................................................... 2 1.8. "Assignment"........................................................................................ 2 1.9. "Bankruptcy Exception".............................................................................. 2 1.10. "Canada Transfer and Assumption Agreement".......................................................... 3 1.11. "Carryover Item".................................................................................... 3 1.12. "Carryover Schedule"................................................................................ 3 1.13. "Closing" and "Closing Date"........................................................................ 3 1.14. "Closing Date Balance Sheets"....................................................................... 3 1.15. "Closing Date Shareholder's Equity"................................................................. 3 1.16. "Closing Date Statements of Assets"................................................................. 3 1.17. "COBRA"............................................................................................. 3 1.18. "Code".............................................................................................. 3 1.19. "Combined Balance Sheets"........................................................................... 3 1.20. "Confidential Compilations"......................................................................... 3 1.21. "Confidential Data"................................................................................. 3 1.22. "Confidential Information".......................................................................... 3 1.23. "Documents"......................................................................................... 4 1.24. "Employee Benefit Plan"............................................................................. 4 1.25. "ERISA"............................................................................................. 4 1.26. "ERISA Affiliate"................................................................................... 4 1.27. "Exhibit"........................................................................................... 4 1.28. "GAAP".............................................................................................. 4 1.29. "Governmental Entity"............................................................................... 4 1.30. "Income Tax"........................................................................................ 4 1.31. "Income Tax Return"................................................................................. 4 1.32. "Indemnification Event"............................................................................. 4 1.33. "Indemnitor"........................................................................................ 4 1.34. "Insurance Permit".................................................................................. 4 1.35. "Liens or Restrictions"............................................................................. 5 1.36. "Material Adverse Effect"........................................................................... 5 1.37. "Multiemployer Plan"................................................................................ 5 1.38. "Multiple Line Quota Share Retrocession Agreement".................................................. 5 1.39. "Multiple Line Quota Share Reinsurance Agreement"................................................... 5 1.40. "NAS"............................................................................................... 5 1.41. "Novation Agreements"............................................................................... 5 1.42. "PBGC".............................................................................................. 5 1.43. "Permit"............................................................................................ 5
-i- 1.44. "Person"............................................................................................ 5 1.45. "Policyholder Contracts"............................................................................ 5 1.46. "Pre-Closing Tax Period"............................................................................ 5 1.47. "Property".......................................................................................... 6 1.48. "Purchase Price".................................................................................... 6 1.49. "Purchaser"......................................................................................... 6 1.50. "Reinsurance Agreements"............................................................................ 6 1.51. "Revised Service Agreement"......................................................................... 6 1.52. "SAP"............................................................................................... 6 1.53. "Schedule".......................................................................................... 6 1.54. "Seller"............................................................................................ 6 1.55. "Seller's Knowledge"................................................................................ 6 1.56. "Service Agreements"................................................................................ 6 1.57. "SRA"............................................................................................... 6 1.58. "SRC"............................................................................................... 6 1.59. "Statutory Financial Statements".................................................................... 6 1.60. "Stock"............................................................................................. 7 1.61. "Straddle Period"................................................................................... 7 1.62. "Subsidiary"........................................................................................ 7 1.63. "Tax" or "Taxes".................................................................................... 7 1.64. "Taxing Authority".................................................................................. 7 1.65. "Tax Claim"......................................................................................... 7 1.66. "Tax Return"........................................................................................ 7 1.67. "Transfer and Assumption Agreement"................................................................. 7 1.68. "Transfer Taxes".................................................................................... 7 1.69. "URC"............................................................................................... 7 1.70. "URC Agreements".................................................................................... 7 1.71. "URC/URG Merger".................................................................................... 7 1.72. "URC/URG Merger Agreement".......................................................................... 7 1.73. "URG"............................................................................................... 8 1.74. "URG Stock Purchase Agreement"...................................................................... 8 ARTICLE II PURCHASE OF STOCK...................................................................................... 8 2.1. Purchase and Sale................................................................................... 8 2.2. The Purchase Price.................................................................................. 8 2.3. Closing............................................................................................. 8 2.4. Merger of URG into URC.............................................................................. 9 ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER.............................................................. 9 3.1. Organization and Corporate Power.................................................................... 9 3.2. Authorization of Agreement.......................................................................... 9 3.3. Capital Stock of URG and URC....................................................................... 10 3.4. Interests in Securities of URG and URC............................................................. 10 3.5. Financial Statements............................................................................... 10 3.6. Subsidiaries....................................................................................... 10 3.7. Tax Returns and Reports............................................................................ 10
-ii- 3.8. Required Filings................................................................................... 11 3.9. No Breach of Statute or Contract; Governmental Authorizations...................................... 11 3.10. No Litigation or Adverse Events.................................................................... 12 3.11. Bank Accounts...................................................................................... 12 3.12. Assets and Property................................................................................ 12 3.13. Liabilities........................................................................................ 12 3.14. Contracts.......................................................................................... 12 3.15. Compliance Requirements............................................................................ 13 3.16. Employees and Agents............................................................................... 13 3.17. Powers of Attorney................................................................................. 13 3.18. Accuracy of Documents.............................................................................. 13 3.19. Brokers and Finders................................................................................ 13 3.20. Statutory Deposits................................................................................. 13 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER........................................................... 13 4.1. Organization and Corporate Power................................................................... 13 4.2. Authorization of Agreement......................................................................... 14 4.3. No Breach of Statute or Contract; Governmental Authorizations...................................... 14 4.4. Investment Intent.................................................................................. 14 4.5. No Litigation...................................................................................... 14 4.6. Brokers and Finders................................................................................ 15 4.7. No Harmful Acts or Omissions....................................................................... 15 ARTICLE V CONDUCT AND TRANSACTIONS PRIOR TO CLOSING; COVENANTS; INDEMNITIES...................................... 15 5.1. Investigations; Operation of the Businesses of URG and URC......................................... 15 5.2. Pending or Threatened Litigation or Action......................................................... 17 5.3. Tax Audits; Tax Returns and Payments............................................................... 17 5.4. Indemnifications, Assumptions of Liability and Related Matters..................................... 20 5.5 Closing Date Balance Sheets and Closing Date Statements of Assets.................................. 24 5.6. Transfer Taxes..................................................................................... 25 5.7. Conduct of Business by Purchaser................................................................... 25 5.8. Change of Name..................................................................................... 25 5.9. Disclosure of Confidential Information............................................................. 25 5.10. Execution of the Revised Service Agreement......................................................... 25 5.11. Policyholder Contracts and Reinsurance Agreements.................................................. 25 5.12. URC/URG Merger..................................................................................... 26 ARTICLE VI CONDITIONS TO CLOSING; ABANDONMENT OF THE TRANSACTION................................................. 26 6.1. Conditions to the Obligations of Purchaser......................................................... 26 6.2. Conditions to the Obligations of Seller............................................................ 29 6.3. Termination of Agreement and Abandonment of Transactions........................................... 30
-iii- ARTICLE VII TERMINATION OF OBLIGATIONS AND WAIVER OF CONDITIONS; PAYMENT OF EXPENSES............................. 31 ARTICLE VIII GENERAL............................................................................................. 31 8.1. Amendment and Waiver............................................................................... 31 8.2. Integrated Contract................................................................................ 31 8.3. Publicity.......................................................................................... 32 8.4. Governing Law...................................................................................... 32 8.5. Notices............................................................................................ 32 8.6. No Assignment...................................................................................... 33 8.7. Headings........................................................................................... 33 8.8. Counterparts....................................................................................... 33 8.9. Severability....................................................................................... 33 8.10. Third Parties...................................................................................... 33 8.11. Further Assurances................................................................................. 33
-iv- Schedule 1.3 - List of Affiliate Reinsurance Agreements Schedule 1.4 - Novation Agreements Schedule 3.1(b) - Insurance Permits and Jurisdictions Schedule 3.1(c) - Officers and Directors/Articles and Bylaws Schedule 3.7 - Tax Returns and Reports Schedule 3.11 - Bank Accounts Schedule 3.12 - Assets and Property Schedule 3.13 - Liabilities Schedule 3.14 - Contracts Schedule 3.15 - Compliance Requirements Schedule 3.17 - Powers of Attorney Schedule 3.20 - State Insurance Department Deposits Exhibit A - Assignment between SRA and URC Exhibit B-1 - Novation Agreement among SRA, URC and Commercial Underwriters Insurance Company Exhibit B-2 - Novation Agreement among SRA, URC and Newmarket Underwriters Insurance Company Exhibit B-3 - Novation Agreement among SRA, URC and Underwriters Insurance Company Exhibit C - Revised Service Agreement between SRA and URC Exhibit D-1 - Service Agreement between Seller and URC Exhibit D-2 - Service Agreement between SRA and URC Exhibit E - Transfer and Assumption Agreement between SRA and URC Exhibit F - Canada Transfer and Assumption Agreement between SRC and URC Exhibit G - Multiple Line Quota Share Reinsurance Agreement and Addendum No. 1 between URC and North American Specialty Insurance Company Exhibit H - Multiple Line Quota Share Retrocession Agreement No. 13009 between URC and SRA Exhibit I - URC/URG Merger Agreement
-v- STOCK PURCHASE AGREEMENT This Stock Purchase Agreement, dated as of June 12, 2003, is by and between Swiss Re America Holding Corporation, a Delaware corporation, having its principal place of business at 175 King Street, Armonk, New York 10504 ("Seller"), and RSUI Group, Inc., a Delaware corporation, having its principal place of business at 375 Park Avenue, New York, New York 10152 ("Purchaser"). RECITALS: WHEREAS, on March 11, 2003, pursuant to a Letter of Intent, the Alleghany Corporation, a Delaware corporation ("Alleghany"), confirmed its interest in purchasing, under certain conditions, all of the outstanding capital stock of Underwriters Re Group, Inc., a Delaware corporation ("URG"). The Purchaser is a wholly owned subsidiary Alleghany; WHEREAS, Underwriters Reinsurance Company, a New Hampshire corporation ("URC"), is a wholly owned subsidiary of URG; WHEREAS, effective July 1, 2000, pursuant to the Multiple Line Quota Share Retrocession Agreement, URC ceded to SRA all of URC's ultimate net liability under all Reinsurance Agreements in force as of July 1, 2000; WHEREAS, effective January 1, 2001, pursuant to the Transfer and Assumption Agreement, SRA assumed all of URC's business and liabilities, including, without limitation, all of the past, present and future liabilities and obligations of URC, both disclosed and undisclosed, under the Reinsurance Agreements; WHEREAS, effective January 1, 2001, URC and SRA entered into the Assignment pursuant to which URC conveyed, assigned, transferred and delivered to SRA all of the rights and interests of URC arising under any retrocession agreements related to the Reinsurance Agreements transferred from URC to SRA pursuant to the Transfer and Assumption Agreement; WHEREAS, effective January 1, 2001, pursuant to the Affiliate Novation Agreements, SRA was substituted for URC as the reinsurer under each of the Affiliate Reinsurance Agreements; WHEREAS, as of May 31, 2003, pursuant to the Novation Agreements, SRA was substituted for URC as the reinsurer under approximately 99% of the Policyholder Contracts and Reinsurance Agreements (other than the Affiliate Reinsurance Agreements); WHEREAS, effective January 1, 2001, URC and North American Specialty Insurance Company ("NAS") entered into the Multiple Line Quota Share Reinsurance Agreement as amended by Addendum No. 1 thereto, pursuant to which NAS accepted from URC a 100% quota share participation of URC's ultimate net liability for all Policyholder Contracts; WHEREAS, effective January 1, 2002, pursuant to the Canada Transfer and Assumption Agreement, Swiss Reinsurance Company Canada ("SRC") assumed all of URC's business and liabilities including without limitation, all past, present and future liabilities of URC, both disclosed and undisclosed, under all Reinsurance Agreements written by URC in Canada; WHEREAS, neither URG nor URC will have any liabilities or obligations whatsoever based on or arising out of any act, omission or event occurring prior to the Closing that are not fully indemnified by Seller pursuant to this Agreement; and WHEREAS, Purchaser desires to purchase and Seller desires to sell the Stock upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing premises and the mutual agreements contained herein, intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I DEFINITIONS As used herein, the terms below shall have the following meanings, except as otherwise expressly provided or unless the context otherwise requires: 1.1. "Accounting Firm" shall have the meaning set forth in Section 5.3(e). 1.2. "Affiliate" or "Affiliated" shall mean with respect to any Person, any Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. A Person will be deemed to control a Person if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. 1.3. "Affiliate Novation Agreements" shall refer to the Novation Agreements made effective as of January 1, 2001 between SRA, URC and each of URC's Affiliates, pursuant to which SRA was substituted in place of URC as the reinsurer under the Affiliate Reinsurance Agreements, copies of which are attached hereto as Exhibits B-1, B-2 and B-3. 1.4. "Affiliate Reinsurance Agreements" shall mean all of the Reinsurance Agreements between URC and any of its Affiliates as set forth on Schedule 1.3 attached hereto. 1.5. "Agreement" shall refer to this Stock Purchase Agreement together with all Exhibits and Schedules hereto, as the same may be amended from time to time. 1.6. "Alleghany" shall have the meaning set forth in the first recital of this Agreement. 1.7. "Applicable Law" shall mean any applicable order, law, statute, regulation, rule, ordinance, writ, injunction, directive, judgment, decree, principal of common law, constitution or treaty enacted, promulgated, issued, enforced or entered by any Governmental Entity. 1.8. "Assignment" shall refer to the Assignment dated January 1, 2001 by and between URC and SRA, a copy of which is attached hereto as Exhibit A. 1.9. "Bankruptcy Exception" shall refer, in respect of any agreement, contract or commitment, to any limitation thereon imposed by any bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar law affecting creditors' rights and remedies -2- generally and, with respect to the enforceability thereof, by general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). 1.10. "Canada Transfer and Assumption Agreement" shall refer to the Transfer and Assumption Agreement made effective as of January 1, 2002 by and between SRC and URC, a copy of which is attached hereto as Exhibit F. 1.11. "Carryover Item" shall have the meaning set forth in Section 5.3(d) hereof. 1.12. "Carryover Schedule" shall have the meaning set forth in Section 5.3(d) hereof. 1.13. "Closing" and "Closing Date" shall have the respective meanings set forth in Section 2.3. 1.14. "Closing Date Balance Sheets" shall mean (i) a balance sheet of URG as at the Closing Date setting forth all assets of URG from the Closing Date Statement of Assets and setting forth all liabilities of URG determined in accordance with GAAP (including deferred Tax liabilities determined pursuant to Section 5.5 hereof, but excluding any liability for current Taxes for which the Seller would be liable under Section 5.3(e) hereof) and (ii) a balance sheet of URC as at the Closing Date setting forth all assets of URC from the Closing Date Statement of Assets and setting forth all liabilities of URC determined in accordance with GAAP. 1.15. "Closing Date Shareholder's Equity" shall mean (i) total assets (valued in accordance with the provisions of Section 5.5) less total liabilities (determined in accordance with GAAP) of URC, and (ii) total assets (valued in accordance with the provisions of Section 5.5) less total liabilities (determined in accordance with GAAP) of URG, each as set forth on the Closing Date Balance Sheets. 1.16. "Closing Date Statements of Assets" shall refer to the statement of assets of each of URG and URC as of the Closing Date prepared in accordance with the provisions of Section 5.5. 1.17. "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended. 1.18. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder. 1.19. "Combined Balance Sheets" shall have the meaning set forth in Section 3.5. 1.20. "Confidential Compilations" shall mean any Documents or compilations prepared by or for Purchaser which contain, reflect or are based upon Confidential Data. 1.21. "Confidential Data" shall mean all non-public Documents and information concerning Seller, URG or URC furnished to Purchaser in connection with this Agreement. 1.22. "Confidential Information" shall mean any confidential information of URG or URC which is in the possession of Seller or any of its Affiliates or its or their respective officers -3- and directors on the date hereof or on the Closing Date other than confidential information which becomes available to the public (other than as a result of the disclosure of such information by Seller or any of its Affiliates or its or their respective officers and directors in contravention of the covenant set forth in Section 5.9). 1.23. "Documents" shall refer to any books, records, files, papers, tapes, microfilms and any other documents. 1.24. "Employee Benefit Plan" shall mean any "employee benefit plan" (as such term is defined in section 3(3) of ERISA), and any other retirement, pension, profit-sharing, thrift, savings, target benefit, employee stock ownership, cash or deferred, deferred or incentive compensation, bonus, stay bonus, stock option, employee stock purchase, phantom stock, stock appreciation, change in control, medical, dental, vision, psychiatric counseling, vacation, sick pay, disability, salary continuation, severance, death benefit, dependent care assistance or fringe benefit plan, program or arrangement, or any cafeteria plan under Section 125 of the Code, in which any current or former officer or employee of URG or URC has participated, or as to which URG or URC has any present or contingent liability. 1.25. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder. 1.26. "ERISA Affiliate" shall refer to any entity required to be aggregated with URG or URC as a single employer under Section 414(b), (c), (m) or (o) of the Code. 1.27. "Exhibit" shall refer to each of several written Exhibits to this Agreement. 1.28. "GAAP" shall mean U.S. generally accepted accounting principles. 1.29. "Governmental Entity" shall mean any federal, state, local or foreign government, political subdivision, legislature, court, agency, department, bureau, commission or other governmental or regulatory authority, body or instrumentality, including any insurance or securities regulatory authority. 1.30. "Income Tax" shall mean any federal, state, local or applicable foreign Tax (including any alternative minimum accumulated earnings or personal holding company Tax) imposed on, or measured by net income, including any interest, penalty or addition thereto, whether disputed or not. 1.31. "Income Tax Return" shall mean any Tax Return relating to Income Taxes. 1.32. "Indemnification Event" shall refer to any action, proceeding or claim for which a Person is entitled to indemnification under this Agreement. 1.33. "Indemnitor" shall refer to the indemnifying Person with respect to the occurrence of an Indemnification Event. 1.34. "Insurance Permit" shall mean any Permit in any jurisdiction to issue, underwrite, assume, place, sell or otherwise transact the business of insurance or reinsurance. -4- 1.35. "Liens or Restrictions" shall refer to any lien, pledge, mortgage, security interest, charge, adverse claim or other encumbrance of any kind. 1.36. "Material Adverse Effect" shall mean any material adverse effect on the business, operations, financial condition or results of operations of URG or URC which is not fully indemnified by Seller after the Closing pursuant to this Agreement, other than effects caused by (i) the identity of Purchaser as the buyer of the Stock, (ii) the announcement of Purchaser as the buyer of the Stock, and (iii) acts of Purchaser prior to the Closing. 1.37. "Multiemployer Plan" shall have the meaning ascribed to such term by Section 4001(a)(3) of ERISA. 1.38. "Multiple Line Quota Share Retrocession Agreement" shall refer to the Multi-Line Quota Share Retrocession Agreement made effective as of July 1, 2000 between URC and SRA, a copy of which is attached hereto as Exhibit H. 1.39. "Multiple Line Quota Share Reinsurance Agreement" shall refer to the Multiple Line Quota Share Reinsurance Agreement made effective as of January 1, 2001 between URC and NAS, a copy of which is attached hereto as Exhibit G. 1.40. "NAS" shall have the meaning set forth in the seventh recital of this Agreement. 1.41. "Novation Agreements" shall refer to the Novation Agreements, Commutation Agreements and deemed novations as described in Schedule 1.41 attached hereto among SRA, URC and third parties to the Policyholder Contracts and Reinsurance Agreements, pursuant to which SRA was substituted in place of URC as the reinsurer under the Policyholder Contracts and Reinsurance Agreements, including without limitation the Affiliate Novation Agreements. 1.42. "PBGC" shall mean the Pension Benefit Guaranty Corporation. 1.43. "Permit" shall refer to any federal, state, local or other governmental consent, license, permit, grant or authorization which is held by URC in a particular jurisdiction immediately prior to the Closing Date. 1.44. "Person" shall mean any individual, corporation, partnership, limited liability company, joint venture, association, joint stock company, trust, unincorporated organization or Governmental Entity or agency thereof. 1.45. "Policyholder Contracts" shall mean all binders, policies, contracts, certificates and other obligations or agreements of insurance issued by URC prior to the Closing Date and endorsements thereon and changes in coverage thereunder issued by or on behalf of URC at any time. 1.46. "Pre-Closing Tax Period" shall mean: (a) in the case of any federal Income Tax, each taxable period that begins after May 10, 2000 and that ends on or before the Closing Date; and (b) in the case of all other Taxes, (i) any taxable period that begins after April 30, 2000 and that ends on or before the Closing Date, and (ii) with respect to any taxable period that includes but does -5- not end on April 30, 2000, the portion of such period that follows April 30, 2000 (determined in a manner consistent with the URG Stock Purchase Agreement including, without limitation, Section 5.9 and 8.2 thereof). 1.47. "Property" shall mean any real, personal or mixed property, whether tangible or intangible. 1.48. "Purchase Price" shall have the meaning set forth in Section 2.2. 1.49. "Purchaser" shall have the meaning set forth in the first paragraph of this Agreement. 1.50. "Reinsurance Agreements" shall mean all binders, policies, contracts, certificates and other obligations or agreements of reinsurance issued by URC prior to the Closing Date and endorsements thereon and changes in coverage thereunder issued by or on behalf of URC at any time, including without limitation the Affiliate Reinsurance Agreements. 1.51. "Revised Service Agreement" shall refer to the revised service agreement to be entered into prior to the Closing Date by and between SRA and URC, in the form attached hereto as Exhibit C. 1.52. "SAP" shall mean the statutory accounting practices prescribed or permitted by the applicable insurance regulatory authorities in the State of New Hampshire. 1.53. "Schedule" shall refer to each of several written Schedules to this Agreement. 1.54. "Seller" shall have the meaning set forth in the first paragraph of this Agreement. 1.55. "Seller's Knowledge" shall refer to the actual knowledge, after reasonable inquiry, of (i) individuals who, at the time of execution of this Agreement, perform such functions or hold such positions with Seller, URG or URC (prior to the Closing) as would reasonably be expected to require them to be aware of the information in question and (ii) officers of Seller holding the position of Vice President or higher or directors of Seller. 1.56. "Service Agreements" shall refer to the Service Agreements made as of May 10, 2000 by and between Seller and URC, and SRA and URC, copies of which are attached hereto as Exhibits D-1 and D-2. 1.57. "SRA" shall refer to Swiss Reinsurance America Corporation, a New York corporation and wholly owned subsidiary of Seller, having its principal place of business at 175 King Street, Armonk, New York 10504. 1.58. "SRC" shall have the meaning set forth in the eighth recital of this Agreement. 1.59. "Statutory Financial Statements" shall mean the Annual Statements and the Quarterly Statements of the Condition and Affairs of URC filed with state insurance departments, in each case including all exhibits, interrogatories, notes and schedules thereto and any actuarial opinion, affirmation or certification filed in connection therewith. -6- 1.60. "Stock" shall mean all of the issued and outstanding shares of capital stock of URG which consists of 15,967,858 shares of common stock with a par value of $.01 per share. 1.61. "Straddle Period" shall refer to a taxable period (or portion thereof) that begins before and ends after the Closing Date. 1.62. "Subsidiary" shall mean, with respect to any Person, any corporation, partnership, limited liability company, joint venture or other entity in which such Person (i) owns, directly or indirectly, 50% or more of the outstanding voting securities, equity interests, profits interest or capital interest, (ii) is entitled to elect at least a majority of the board of directors or similar governing body, or (iii) in the case of a limited partnership or limited liability company, is a general partner or managing member, respectively. 1.63. "Tax" or "Taxes" shall mean all federal, state, county, local, municipal, foreign and other taxes, assessments, duties or similar charges of any kind whatsoever, including all corporate franchise, income, gross receipts, gains, occupation, windfall profits, sales, use, ad valorem, value-added, profits, license, withholding, payroll, employment, excise, insurance premium, real property, personal property, customs, net worth, capital gains, transfer, stamp, documentary, social security, disability, environmental, alternative minimum, estimated, recapture and other taxes, levies, fees, imposts, and charges of any kind, and including all interest, penalties and additions imposed with respect thereto, whether disputed or not, any obligations to indemnify or otherwise assume or succeed to the tax liability of any person, and any liability in respect of any tax as a result of being a member of any affiliated, combined, consolidated, unitary or similar group. 1.64. "Taxing Authority" shall refer to any Governmental Entity responsible for the administration or collection of Taxes. 1.65. "Tax Claim" shall have the meaning set forth in Section 5.3(f). 1.66. "Tax Return" shall refer to any and all returns, declarations, reports, elections, estimates, claims for refund, information returns or statements, or other forms, documents or statements relating to Taxes (including estimated Taxes), including any schedule or attachment thereto and any amendment or supplement thereof. 1.67. "Transfer and Assumption Agreement" shall refer to the Transfer and Assumption Agreement made effective as of January 1, 2001 between SRA and URC, a copy of which is attached hereto as Exhibit E. 1.68. "Transfer Taxes" shall have the meaning set forth in Section 5.6. 1.69. "URC" shall have the meaning set forth in the second recital of this Agreement. 1.70. "URC Agreements" shall have the meaning set forth in Section 3.14. 1.71. "URC/URG Merger" shall have the meaning set forth in Section 2.4. 1.72. "URC/URG Merger Agreement" shall refer to the agreement for the merger of URG with and into URC, in the form attached hereto as Exhibit I, or as otherwise required to be revised by applicable regulatory authorities. -7- 1.73. "URG" shall have the meaning set forth in the first recital of this Agreement. 1.74. "URG Stock Purchase Agreement" shall refer to the Stock Purchase Agreement entered into as of December 30, 1999 by and between Seller and Alleghany, as supplemented by the Closing Agreement between Seller and Alleghany dated as of May 10, 2000. ARTICLE II PURCHASE OF STOCK 2.1. Purchase and Sale. Upon the terms and subject to the conditions of this Agreement, at the Closing, Purchaser shall purchase from Seller, and Seller shall sell to Purchaser, all of the Stock. 2.2. The Purchase Price. The price Purchaser shall pay for the Stock shall be an amount equal to the sum of the following: (a) Six Million, Five Hundred Thousand Dollars ($6,500,000), (b) plus the Closing Date Shareholder's Equity, as determined in accordance with Section 5.5 hereof, and (c) less One Hundred Eighteen Thousand Seven Hundred Fifty Dollars ($118,750) for each state in which URC does not possess as of the date of the Closing an in force Insurance Permit in the form and covering the lines set forth on Schedule 3.1(b) except for California and New York, and less Four Hundred Thousand Dollars ($400,000) for each of New York and California in the event that URC does not possess as of the Closing an in force Insurance Permit in either such state in the form and covering the lines set forth on Schedule 1.3(b). (regardless of any disclosure as to pending or threatened proceedings relating to such Insurance Permits), subject to Section 6.1(d) hereof (the "Purchase Price"). (d) Not withstanding the provision of sub-paragraph (c), no adjustment will be made to the Purchase Price in the event an Insurance Permit is limited or restricted solely as a result of either: (i) the approval of the acquisition of control of URC by Purchaser or (ii) the URC/URG merger. 2.3. Closing. The purchase and sale of the Stock pursuant to this Agreement (the "Closing") shall take place at the offices of Dewey Ballantine LLP, 1301 Avenue of the Americas, New York, New York at 10:00 a.m. New York time on the third business day following the satisfaction or waiver of all conditions to the obligations of the parties to consummate the transaction contemplated hereby (other than conditions with respect to actions the parties will take at the Closing itself, "Closing Date"), or such other time or date as the parties hereto agree in writing. At the Closing: (a) Seller shall deliver to Purchaser a certificate or certificates representing the Stock duly endorsed to Purchaser or accompanied by duly executed stock powers so as to transfer -8- and assign to Purchaser good and valid title to the Stock free and clear of all Liens or Restrictions and to constitute Purchaser the sole beneficial and record stockholder of URC; and (b) Purchaser shall pay to Seller the Purchase Price by wire transfer of immediately available funds to an account designated in writing by Seller on or before the Closing. 2.4. Merger of URG into URC. After the Closing, Purchaser intends to cause URG to be merged with and into URC (the "URC/URG Merger") pursuant to the URC/URG Merger Agreement, at which time the separate existence of URG shall cease. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to Purchaser as follows: 3.1. Organization and Corporate Power. (a) Each of Seller, URG and URC is a corporation duly organized, validly existing and in good standing under the laws of its respective state of incorporation, and each of Seller, URG and URC has all requisite power and authority to own, lease and operate its assets and Properties (including, without limitation, the Stock) and to conduct its business as currently being conducted. URC is duly qualified and licensed to conduct business in, and is in good standing as an insurance corporation in, each jurisdiction set forth in Schedule 3.1(b), except as noted thereon. (b) Schedule 3.1(b) is an accurate and complete list of each Insurance Permit held by URC and sets forth the date of issuance and the scheduled expiration date of each such Insurance Permit. Application has been made for renewal of each Insurance Permit scheduled to expire prior to the Closing Date. All filings and payment of all annual fees and taxes required for such renewal or for the continued good standing of Insurance Permits have been made. True and correct copies of all of such Insurance Permits or other evidence of such licensure are attached to Schedule 3.1(b). Except as limited by state statute generally applicable to all companies of a similar type as URC or as set forth in such Schedule, URC's authority to write the lines and classes of insurance or reinsurance set forth on such Schedule is unrestricted and URC is not a party to any agreement or arrangement with any regulatory official or agency limiting or restricting URC's authority as described in Schedule 3.1 (b). Except as set forth in Schedule 3.1(b), each such Insurance Permit is currently in good standing, and, other than as set forth in Schedule 3.1(b), no application for an Insurance Permit filed within the last 12 months and no Insurance Permit has been withdrawn, modified, restricted or conditioned in any respect by a state insurance regulatory authority. (c) Schedule 3.1(c) identifies each director and executive officer of URG and URC as currently in effect. Attached to Schedule 3.1(c) are true and correct copies of each of URG and URC's Articles of Incorporation and By-laws, including all amendments thereto through, and as in effect on, the date hereof. 3.2. Authorization of Agreement. Seller has the corporate power to execute and deliver this Agreement and perform its obligations hereunder, and the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by this Agreement have been duly authorized and approved by all necessary corporate action on the part of -9- Seller. This Agreement has been duly executed and delivered by Seller and is the valid and binding obligation of Seller enforceable against it in accordance with its terms, subject to the Bankruptcy Exception. 3.3. Capital Stock of URG and URC. The authorized capital stock of URG consists of 20,000,000 shares of common stock, par value $.01 per share, of which 15,967,858 shares are issued and outstanding. The authorized capital stock of URC consists of 320,000 shares of common stock with a par value of $15.00 per share, of which 320,000 shares are issued and outstanding. All issued and outstanding shares of Stock and all of the issued and outstanding shares of capital stock of URC are duly authorized, validly issued and fully paid and non-assessable. Seller is the lawful owner, beneficially and of record, of all of the Stock and has good and valid title to the Stock, free and clear of all Liens or Restrictions. URG is the lawful owner, beneficially and of record of all of the issued and outstanding shares of capital stock of URC and has good and valid title to such shares, free and clear of all Liens or Restrictions. 3.4. Interests in Securities of URG and URC. There are no issued or outstanding options, convertible securities, warrants or other rights to subscribe for or purchase from Seller, URG or URC, and there are no plans, contracts or commitments for the granting by Seller, URG or URC of rights to acquire: (i) any capital stock or other ownership interests in URG or URC including the Stock; or (ii) any securities convertible into or exchangeable for any such capital stock or ownership interests in URG or URC. 3.5. Financial Statements. Seller has delivered to Purchaser true and complete copies of the Statutory Financial Statements of URC for the years ended December 31, 2000, 2001 and 2002 and for the quarterly period ended March 31, 2003. Such Statutory Financial Statements fairly represent the financial position of URC as of the periods to which such financial statements relate in accordance with SAP. Seller has delivered to Purchaser true and complete copies of combined unaudited balance sheets of URG as of December 31, 2000, 2001 and 2002 and for the quarterly period ended March 31, 2003, all prepared in accordance with GAAP and as included in the audited financial statements of Seller (the "Combined Balance Sheets"). Except as disclosed therein, such Statutory Financial Statements and the Combined Balance Sheets fairly represent the financial position and the results of operations of URG and URC as of the date and for the periods to which such financial statements relate. Except as contemplated by this Agreement, since December 31, 2002, there has not been any change in the business, financial condition or results of operations of URG or URC that has had, or could reasonably be expected to have, a Material Adverse Effect. 3.6. Subsidiaries. Except for URG's ownership of URC, neither URG nor URC owns, and neither URG nor URC shall own at Closing, either of record or beneficially, any direct or indirect equity interest or any right (contingent or otherwise) to acquire the same in any other Person. 3.7. Tax Returns and Reports. (a) Seller is the common parent of an affiliated group of corporations (within the meaning of section 1504(a) of the Code) eligible to file consolidated federal Income Tax Returns, of which URG and URC are members. For each taxable period beginning after May 10, 2000, Seller has included (or, with respect to the taxable year including the Closing Date, will include) the income, assets and operations of URG and URC in its consolidated federal Income Tax Return. -10- (b) Except as otherwise stated or disclosed in Schedule 3.7, for all Pre-Closing Tax Periods and for the portion of any Straddle Period ending on the Closing Date: each of URG and URC has timely filed (or joined in the timely filing of) when due (taking into account all properly requested extensions) all material Tax Returns required by Applicable Law to be filed by or with respect to URG or URC; all such Tax Returns were true, correct and complete in all material respects; all Taxes shown to be due on such Tax Returns and all Taxes of URG or URC (or for which URG or URC could be held liable, including pursuant to Treasury Regulation Section 1.1502-6 or any analogous provision of state, local or applicable foreign law) that are due and owing, whether or not shown on any Tax Return, have been timely paid (except for Taxes that are being contested in good faith by appropriate proceedings); no closing agreement pursuant to Section 7121 of the Code (or any predecessor provision or similar provision of any state, local or foreign law) has been entered into by or with respect to URG or URC; and neither URG nor URC has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code. 3.8. Required Filings. For all periods ending after May 10, 2000, all material statements, reports, forms or other information required to be filed with respect to URG or URC have been or will be timely filed, except where such failure to so file would not have a Material Adverse Effect, and all such reports were true and correct in all material respects when filed. 3.9. No Breach of Statute or Contract; Governmental Authorizations. (a) Neither the execution and delivery by Seller of this Agreement nor performance by Seller of its obligations hereunder will conflict with, or result in a breach of, any of the terms, conditions or provisions of: (i) the Articles of Incorporation or By-laws of Seller, URG or URC; (ii) subject to receipt of approvals referred to in Section 3.9(b), any judgment, order, injunction, decree or ruling of any court or governmental authority, domestic or foreign, or any law, statute or regulation, to which Seller, URG or URC is subject; or (iii) any agreement, contract or commitment to which Seller, URG or URC is a party or is subject, except, in the case of clauses (ii) and (iii) only, for such conflicts or breaches that would not have a Material Adverse Effect, would not materially impair the ability of Seller to execute, deliver and perform its obligations under this Agreement, or would not impair the validity of any Insurance Permit. (b) To Seller's Knowledge, there are no governmental approvals required to permit the consummation of the transactions contemplated by this Agreement, except for the approvals: (i) with respect to the change of control of URC by the insurance commissioner of the State of New Hampshire, (ii) of the proposed dividend of URC by the insurance commissioner of the State of New Hampshire, (iii) by the Secretaries of State of New Hampshire and Delaware and the insurance commissioners of the State of New Hampshire and California of the URC/URG Merger, and (iv) the insurance department of any other jurisdiction asserting regulatory authority over the transactions contemplated by this Agreement which are required by applicable law, regulation or rule to be obtained by Purchaser. Notice of the change in control of URC may be required by applicable law, regulation or rule of other jurisdictions in which URC has an Insurance Permit, it being agreed that such notices will be given by Purchaser. (c) To Seller's Knowledge, each of URG and URC is in compliance with all applicable laws, statutes, ordinances, orders, rules and regulations promulgated, and judgments entered, by any federal, foreign or local court or governmental authority relating to the operation, conduct or ownership of the property or business of URG and URC, the failure to comply with which -11- would have a Material Adverse Effect or would result in the material impairment of any Insurance Permit. (d) None of Seller, URG or URC has received any notice of, nor to Seller's Knowledge is there, any violation of any applicable law, statute, ordinance, order, rule or regulation promulgated, or judgment entered, by any federal, foreign, state or local court or governmental authority relating to the operation, conduct or ownership of the business of URG or URC, the failure to comply with which would have a Material Adverse Effect or would result in the impairment of any Insurance Permit. (e) Except as disclosed on Schedule 3.1(b), no proceeding is pending nor, to Seller's Knowledge, is any proceeding threatened in which any Person is seeking to revoke or deny the renewal of any Insurance Permit. 3.10. No Litigation or Adverse Events. Other than (i) applications filed with state insurance departments by Purchaser, (ii) applications requesting approval of the change in control of URC pursuant to this Agreement and (iii) claims brought under Policyholder Contracts and Reinsurance Agreements, there are no actions, suits or administrative, arbitration or other proceedings or governmental investigations (including counterclaims) pending or, to Seller's Knowledge, threatened in writing against URG or URC which, if decided adversely to URG or URC, respectively, would have a Material Adverse Effect. None of Seller, URG or URC has received any written notice of, nor to Seller's Knowledge is there, any claim or assertion of liability on the part of URG or URC, the success of which would have a Material Adverse Effect. 3.11. Bank Accounts. Schedule 3.11 sets forth a list of all bank accounts maintained by URG or URC together with the addresses of the banks at which such accounts are maintained and the contact persons for URG or URC thereat. 3.12. Assets and Property. Each of URG and URC's assets and property consist only of (i) cash and cash equivalents, (ii) fixed income securities traded in a recognized public market and (iii) bonds on deposit with certain states as required to obtain licenses in those states. Schedule 3.12 sets forth a description of the items constituting each of URG and URC's assets and property, including the values thereof, valued as of March 31, 2003 in accordance with the valuation methods to be used in the preparation of the Closing Date Statements of Assets, as set forth in Section 5.5 of this Agreement. 3.13. Liabilities. To Seller's Knowledge, URC has no liabilities, losses or known claims relating to any Policyholder Contracts or Reinsurance Agreements previously issued by URC, and neither of URG nor URC has any other liabilities, losses or claims (contract or otherwise) other than those set forth in the Statutory Financial Statements of URC for the period ended December 31, 2002 and for the quarterly period ended March 31, 2003, or as set forth in Schedule 3.13; and at the Closing, neither URG nor URC will have any liabilities or obligations other than those set forth in Schedule 3.13. To Seller's Knowledge, none of URC's net or gross liabilities under the Policyholder Contracts or Reinsurance Agreements will be required, under SAP or GAAP, or by any regulatory authority, to be included in the balance sheets of URC after the Closing. 3.14. Contracts. To Seller's Knowledge, the agreements set forth in Schedule 3.14 (collectively, the "URC Agreements") constitute all of the contracts and commitments by which either of URG or URC is -12- (or, when entered into, will be) bound or to which either of URG or URC is (or, when entered into, will be) subject, and there are no other contracts or commitments to which either of URG or URC is now a party or by which either of URG or URC or their assets may be bound or to which either of URG or URC or their assets may be subject, other than the agreements set forth in Schedule 3.14, contracts and commitments that will be terminated on or prior to the Closing and this Agreement. To Seller's Knowledge, pursuant to the Novation Agreements, SRA was substituted for URC as the reinsurer under approximately 99% of the Policyholder Contracts and Reinsurance Agreements (other than the Affiliate Reinsurance Agreements, under all of which SRA was substituted for URC as the reinsurer pursuant to the Affiliate Novation Agreements). The URC Agreements are (or, when entered into, will be) and after the Closing will be valid and binding obligations of each of the parties thereto, enforceable against each of them in accordance with their terms, subject to the Bankruptcy Exception. 3.15. Compliance Requirements. Seller has received the written confirmation of permission from the insurance commissioner of the State of New Hampshire approving the transfer to SRA of 100% of the past, present and future liabilities and obligations of URC, both disclosed and undisclosed, a copy of which is attached hereto as Schedule 3.15. 3.16. Employees and Agents. Neither URG nor URC will have on the Closing Date any employees, independent insurance agents, brokers or producers, except for agents appointed solely to maintain Insurance Permits. Seller acknowledges that Purchaser is assuming no liability or responsibility with respect to benefits payable or any other obligation owed under any Employee Benefit Plan of Seller or any of its Affiliates, or for any insurance agent arrangements which exist or may have existed (including any commissions or fees owed in connection therewith). 3.17. Powers of Attorney. To Seller's Knowledge, Schedule 3.17 sets forth a list of all powers of attorney granted by URG or URC that have not expired or been revoked prior to the date hereof. 3.18. Accuracy of Documents. All minute books and stock records of URG and URC and all other Documents delivered by Seller, URG or URC to Purchaser in connection with the transactions contemplated hereby are complete and accurate in all material respects. 3.19. Brokers and Finders. No broker, finder or investment banker is entitled to any fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of Seller, URG or URC. 3.20. Statutory Deposits. URC has on deposit with state insurance departments an aggregate of approximately $13.0 million. Schedule 3.20 sets forth a list of such deposits in each state. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser represents and warrants to Seller as follows: 4.1. Organization and Corporate Power. Purchaser is a corporation duly incorporated and organized, validly existing and in good standing under the laws of Delaware and -13- has all requisite power and authority to execute and deliver this Agreement and perform its obligations under this Agreement. 4.2. Authorization of Agreement. Purchaser has the corporate power to execute and deliver this Agreement and to perform its obligations hereunder, and the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by this Agreement have been duly authorized and approved by all necessary corporate action on the part of Purchaser. This Agreement has been duly executed and delivered by Purchaser and is the valid and binding obligation of Purchaser enforceable against it in accordance with its terms, subject to the Bankruptcy Exception. 4.3. No Breach of Statute or Contract; Governmental Authorizations. (a) Neither the execution and delivery by Purchaser of this Agreement nor performance by Purchaser of its obligations hereunder will conflict with, or result in a breach of, any of the terms, conditions or provisions of: (i) the Restated Certificate of Incorporation or By-laws of Purchaser; (ii) any judgment, order, injunction, decree or ruling of any court or governmental authority, domestic or foreign, or any law, statute or regulation, to which Purchaser is subject; or (iii) any agreement, contract or commitment to which Purchaser is a party or is subject, the breach of which judgment, order, injunction, decree, ruling, law, statute, regulation, agreement, contract or commitment would materially impair the ability of Purchaser to execute, deliver or perform its obligations under this Agreement. (b) To Purchaser's knowledge after reasonable inquiry, except for approvals: (i) with respect to the change of control of URC by the insurance commissioner of the State of New Hampshire, (ii) of the proposed dividend of URC by the insurance commissioner of the State of New Hampshire, (iii) by the Secretaries of State of New Hampshire and Delaware and the insurance commissioners of the State of New Hampshire and California of the URC/URG Merger, (iv) of the insurance department of any other jurisdiction asserting regulatory authority over the transactions contemplated by this Agreement which are required by applicable law, regulation or rule to be obtained by Seller, there are no governmental approvals required to permit the consummation of the transactions contemplated by this Agreement. Notice of the change in control of URC may be required by applicable law, regulation or rule of other jurisdictions in which URC has an Insurance Permit, it being agreed that such notices will be given by Purchaser. 4.4. Investment Intent. Purchaser (i) is acquiring the Stock solely for its own account, for investment purposes only and not with a view to the resale, distribution or other disposition thereof or any part thereof or any interest therein, and (ii) has such knowledge of and experience in financial and business matters as to be capable of evaluating the merits and risks of its prospective investment in URG and URC as contemplated by this Agreement. Purchaser acknowledges that the Stock will not be registered under the Securities Act of 1933, as amended, or under any state securities law and, therefore, may not be sold by Purchaser except pursuant to an effective registration statement under such Securities Act or an exemption from registration thereunder and pursuant to registration or qualification under any applicable state securities law or exemption therefrom. 4.5. No Litigation. There are no actions, suits or administrative, arbitration or other proceedings or governmental investigations (including counterclaims) pending or, to -14- Purchaser's knowledge, threatened in writing to restrain, prohibit or otherwise challenge the performance by Purchaser of the transactions contemplated by this Agreement. 4.6. Brokers and Finders. No broker, finder or investment banker is entitled to any fee or commission in connection with the transactions contemplated hereby based upon arrangements by or on behalf of Purchaser. 4.7. No Harmful Acts or Omissions. To Purchaser's knowledge, Purchaser has taken no action and neither acted nor failed to act where Purchaser had an obligation to so act in a manner that could reasonably be expected to result in the revocation, impairment or suspension of any License prior to the consummation of the transactions contemplated by this Agreement. ARTICLE V CONDUCT AND TRANSACTIONS PRIOR TO CLOSING; COVENANTS; INDEMNITIES 5.1. Investigations; Operation of the Businesses of URG and URC. Between the date of this Agreement and the Closing: (i) Upon receipt of reasonable notice, Seller will give, or cause to be given, to Purchaser or Purchaser's representatives and agents reasonable access to the books, records and officers of URG and URC and, to the extent that the same pertain to URG or URC, the books and records of Seller, and Seller will cause the officers and employees of Seller, URG and URC to furnish to Purchaser such financial data and other information with respect to the assets and the conduct of the business of URG or URC as Purchaser shall from time to time reasonably request; provided, however, that any such investigation shall be conducted during normal business hours and in such manner so as not to interfere unreasonably with the operation of the business of Seller, URG or URC. Seller shall deliver to Purchaser prior to the Closing Date true and complete copies of all Insurance Permits, certified by the corporate secretary of URC. (ii) Purchaser will hold in strict confidence, and will cause its employees, representatives, consultants, advisors and Affiliates to hold in strict confidence, unless compelled to disclose by judicial or administrative process or, in the opinion of its counsel, by other requirements of law, all Confidential Data and Confidential Compilations, and Purchaser will not otherwise use such Confidential Data or Confidential Compilations for its own benefit or for the benefit of other Persons, except to the extent that such Confidential Data or Confidential Compilations: (i) are or become known in the public domain through no fault of Purchaser; or (ii) are later lawfully acquired by Purchaser from other sources unless Purchaser knew such Confidential Data or Confidential Compilations were obtained by such other source in violation of an agreement of confidentiality; provided, however, if the transactions contemplated by this Agreement are consummated, then such Confidential Data and Confidential Compilations may be used as the Purchaser sees fit, but only to the extent that such Confidential Data and Confidential Compilations relate to URG or URC. Purchaser will not release or disclose such Confidential Data or Confidential Compilations to any other Person, except its auditors, attorneys, commercial bank lenders, financial advisors and other consultants and advisors in connection with this Agreement (it being understood that such Persons shall be informed by Purchaser of the confidential nature of such Confidential Data -15- and Confidential Compilations and shall agree, for the benefit of Seller, to treat such Confidential Data and Confidential Compilations confidentially); provided, however, if the transactions contemplated by this Agreement are consummated, then such Confidential Data and Confidential Compilations may be released or disclosed, but only to the extent that such Confidential Data or Confidential Compilations relate to URG or URC. If the transactions contemplated by this Agreement are not consummated or this Agreement is terminated, such confidence shall be maintained to the extent required above, and all such information shall not be used to the detriment of, or in relation to any investment in, URG or URC, and Purchaser shall return to Seller all Confidential Data obtained by Purchaser or its advisors, representatives or Affiliates from Seller, URG or URC. Purchaser shall use its best efforts to destroy or cause to be destroyed all Confidential Compilations. Notwithstanding any other provision of this Agreement, the covenants of Purchaser set forth in Section 5.1(a)(ii) shall survive the cancellation, abandonment or termination of this Agreement. It is acknowledged and agreed that unauthorized use of any Confidential Data or Confidential Compilations described in Section 5.1(a)(ii) would cause irreparable injury constituting the proper subject of injunctive relief and specific performance, in addition to providing Seller an action for damages. (b) Seller and Purchaser each agree that it will promptly make or cause to be made any filing or submission required to be made by it or on its behalf or on behalf of URC with the insurance commissioners of the State of New Hampshire and the State of California, and with the insurance department or similar regulatory authority of any other jurisdiction asserting regulatory authority over the transactions contemplated by this Agreement. (c) Seller shall provide such assistance as Purchaser may reasonably request in the preparation of Statutory Financial Statements of URC for the quarterly period ended June 30, 2003. (d) Seller and Purchaser shall cooperate in using all reasonable efforts to cause the conditions to the Closing hereunder to be satisfied as soon as practicable including, without limitation, obtaining the consents, approvals and authorizations necessary for the Closing. For purposes of this Agreement, the covenant of the parties to use their "reasonable best efforts" shall not require any party to incur any unreasonable expenses. (e) Except as otherwise provided for by the terms of this Agreement, without the prior written consent of Purchaser, Seller will not permit URG or URC to: (i) issue or sell, or commit to issue or sell, any shares of its capital stock; (ii) grant or commit to grant any options, warrants or rights to subscribe for, purchase, or otherwise acquire any shares of its capital stock; (iii) issue or commit to issue any securities convertible into or exchangeable for shares of its capital stock; (iv) either declare, set aside, pay or commit to pay any dividend or other distribution with respect to its capital stock or transfer any asset for any other purpose; (v) directly or indirectly redeem, purchase or otherwise acquire or dispose of, or commit to acquire or dispose of, any shares of its capital stock; (vi) effect a split, modification or reclassification of its capital stock or a recapitalization of URG or URC; (vii) change the Articles of Incorporation or By-laws of URG or URC; (viii) make, or agree to make, any borrowings or any guarantee, or agree to guarantee, the borrowings of any other Person; (ix) write any new insurance business or engage in any business except as may be specifically contemplated in this Agreement; (x) take any action that would cause URG or URC to incur any liability whatsoever not fully indemnified hereby or that would have the effect of impairing the value of the assets or the validity of any Insurance Permit; (xi) hire any employees; or (xii) except as set -16- forth herein, take any action not in the ordinary course of URG or URC's business or which would be inconsistent with delivering to Purchaser a corporation as otherwise contemplated in this Agreement. Further, after preparation and delivery of the Closing Date Statements of Assets and the Closing Date Balance Sheets, without the prior written consent of Purchaser which shall not be unreasonably withheld, Seller shall not, nor shall Seller permit URG or URC to, take any action which would cause or require any changes to the information set forth in the Closing Date Statements of Assets or the Closing Date Balance Sheets, or which would cause the sale or disposition of any assets reflected in the Closing Date Statements of Assets. (f) Seller agrees to cooperate with Purchaser and to cause URC to cooperate with Purchaser in obtaining licenses for URC as a property and casualty insurance company in those jurisdictions where URC is currently licensed only as a reinsurer. Seller's cooperation shall be limited to filing forms and applications prepared by Purchaser on behalf of URC. 5.2. Pending or Threatened Litigation or Action. Between the date of this Agreement and the Closing Date, Seller and Purchaser shall each inform the other, promptly upon Seller's or Purchaser's obtaining knowledge thereof, of any pending or threatened litigation or action by any regulatory authority which could reasonably be anticipated (i) to prohibit or restrain or impair the consummation of the transactions contemplated by this Agreement or the performance by Seller or Purchaser of their respective obligations under this Agreement, (ii) to have a Material Adverse Effect or (iii) to have the effect of impairing the value of the assets to be transferred at the Closing or the validity of any Insurance Permit. 5.3. Tax Audits; Tax Returns and Payments. (a) Seller shall, or shall cause URG and URC to, prepare and timely file (or join in the filing of) when due (with extensions) all Tax Returns of or including the income, assets or operations of URG and URC that are required to be filed for all taxable periods ending on or before the Closing Date and shall timely (with extensions) pay, or cause to be paid, all Taxes shown as due on such Tax Returns. All such Tax Returns and information statements will be prepared and filed by Seller or URG or URC in a manner reasonably consistent with the prior practice of Seller, URG or URC, as applicable. None of Seller, URG or URC shall: (i) make any election on any such Tax Return that would be binding for any taxable period (or portion thereof) beginning after the Closing Date without the consent of the Purchaser; (ii) enter into, or permit to be entered into, any closing or other agreement with respect to Taxes of URG or URC affecting or relating to any taxable period (or portion thereof) beginning after the Closing Date without the consent of the Purchaser which shall not be unreasonably withheld; (iii) make or change any election, change an annual accounting period, adopt or change any accounting method, file any amended Tax Return, settle any claim or assessment with respect to Taxes, consent to any extension or waiver of the limitation period applicable to any Tax Claim or assessment relating to URG or URC, or take any similar action relating to the filing of any Tax Return or the payment of any Tax if such election, adoption, change, amendment, agreement, settlement, surrender, consent or other action would have the effect of increasing the Tax liability of URG or URC for any taxable period (or portion thereof) beginning after the Closing Date (other than decreasing any net operating loss or similar Tax attribute of URG or URC existing on the Closing Date as a result of the ordinary course of business of the Seller and URG or URC, as applicable). Purchaser shall, or shall cause URG and URC to, prepare and timely file all Tax Returns of or including the income, assets or operations of URG or URC that are required to be filed with respect to all taxable periods ending after the Closing Date, and shall timely pay or cause to be paid, all Taxes shown due on such Tax Returns. -17- (b) Each of the Seller and the Purchaser will provide the other (and the other's attorneys, accountants and agents) with, and the Purchaser, after the Closing Date, shall cause each of URG and URC, as applicable, to provide the Seller (and the Seller's attorneys, accountants and agents) with, the right, at reasonable times and upon reasonable notice, to have access to, and to copy and use, any records or information then in existence and that are reasonably available to the party to which the request is being made, and to that party's personnel, that may be relevant for the preparation of any Tax Returns, the existence or amount of any item listed on the Carryover Schedule (as defined below), any audit or other examination by any Taxing Authority, the filing of any claim for a refund of Tax or for the allowance of any Tax credit, the determination of the requester's adjusted Tax basis in any asset, or the preparation for, or the conduct of, any judicial or administrative proceedings relating to liability for Taxes. Each of the Seller and Purchaser shall reimburse the other for all reasonable out-of-pocket expenses incurred in providing such assistance. Any information obtained pursuant to this Section 5.3(b) shall be held in strict confidence and shall be used solely in connection with the reason for which it was requested. (c) Seller shall cause any Tax sharing agreement or similar arrangement with respect to Taxes involving URG or URC, or to which URG or URC may be subject, to be terminated effective as of the Closing Date. To the extent any such agreement or arrangement obligates URG or URC to make any payments with respect to Taxes after the Closing Date, none of URG, URC or Purchaser shall have any obligation under any such agreement or arrangement for any past, present or future period. (d) On or before the July 30th of the year following the taxable year that includes the Closing Date, Seller, at its sole cost and expense, shall prepare a schedule (the "Carryover Schedule") identifying, in each case as of the close of the taxable year of the Seller in which the Closing Date occurs and separately calculated for regular tax purposes: (A) each net operating loss, net capital loss, general business credit, charitable contributions carryover, foreign tax credit, minimum tax credit, overall foreign loss and separate limitation foreign loss of each of URG and URC, for the taxable period (or portion thereof) beginning after the Closing Date (each, a "Carryover Item"); and (B) the taxable year in which each such Carryover Item arose. Seller shall determine the existence and amount of each Carryover Item consistently with the existence and amount of such item as reported by Seller on its consolidated federal Income Tax Return for the taxable year of Seller that includes the Closing Date. Seller agrees that within thirty (30) days of any "determination" within the meaning of Section 1313(a) of the Code that results in a change in any Carryover Item on the most recent Carryover Schedule furnished to the Purchaser, Seller shall provide to the Purchaser written notification of such determination, as well as an amended Carryover Schedule reflecting the results of such determination. (e) In the case of any Tax Return filed by Purchaser, URG or URC for any Straddle Period of URG or URC, Purchaser shall provide Seller with copies of the completed Tax Return for such Straddle Period, along with a statement allocating the aggregate Tax liability shown on such Tax Return between the Purchaser and Seller pursuant to the principles of Section 5.4(b), together with such related work papers and other documents as Seller shall reasonably request, no later than sixty (60) days before the due date for the filing of such Tax Return. Seller and its authorized representatives shall have the right to review the Tax Returns, statements and related documents received from Purchaser pursuant to the terms of this Section 5.3(e) and, if no issues arise as a result of such review, Seller shall pay its allocable share of the aggregate Tax liability shown on such statements within three (3) days of the due date of such Tax Return (or the due date for the payment of Tax with respect to such Tax Return, if earlier). Seller and the Purchaser agree to consult -18- each other and resolve in good faith any issues arising under the terms of this Section 5.3(e) as a result of the review of any such Tax Returns or statement received from Purchaser. If the parties are unable to resolve any dispute within thirty (30) business days after the receipt of any such Tax Returns or statement, the parties shall refer the dispute to a nationally-recognized, mutually agreed-upon accounting firm (the "Accounting Firm") for resolution. The parties shall instruct, and shall use their best efforts to ensure, that the Accounting Firm's determination shall be made and communicated in writing no later than ten (10) days prior to the due date of such Tax Return (or due date for the payment with respect to such Tax Return, if earlier). Seller will pay to Purchaser at least three (3) days prior to the due date for such Tax Return (or the due date for the payment of Taxes with respect to such Tax Return, if earlier) the amount of Taxes determined by the Accounting Firm to be allocable to Seller on the statement. The Accounting Firm's determination shall be final and binding upon the parties, and all fees and expenses relating to the engagement of the Accounting Firm shall be shared equally by Seller and the Purchaser. Seller and Purchaser agree to file all Tax Returns (or amended Tax Returns, as applicable), consistent with the final determination made by the Accounting Firm. (f) If a claim is made or threatened in writing by any Taxing Authority that, if successful, may result in a payment under Section 5.4(a) hereof (a "Tax Claim"), the Purchaser shall promptly notify the Seller in writing stating the nature and basis of such claim, and the amount thereof, to the extent known. Failure to give such notice shall not relieve the Seller from any liability that it may have on account of its obligations pursuant to this Agreement, or otherwise unless and to the extent that the Seller is materially and adversely prejudiced thereby. The Seller will have the right, upon notification to the Purchaser, within thirty (30) days of the receipt of notice of the Tax Claim, to assume at its own expense control of any audit or other defense of any Tax Claim with its own counsel. If the Seller elects not to control any audit or other defense of a Tax Claim, the Purchaser may, in its sole discretion, settle such Tax Claim. The Seller's right to control a Tax Claim will be limited to issues in respect of which amounts in dispute would be paid by the Seller or for which the Seller would be liable pursuant to Section 5.4(a) hereof, which determination shall be made by the Purchaser in its reasonable discretion and in good faith. The Purchaser shall cooperate in good faith with Seller in contesting any Tax Claim. All reasonable out-of-pocket expenses of the Purchaser related to such cooperation shall be borne by Seller. Notwithstanding the foregoing: (i) the Seller shall not have the right to control any issue involved in a Tax Claim unless the Seller first acknowledges in writing its obligation to fully pay the Taxes asserted in connection with such issue; (ii) no settlement or disposition of any Tax Claim shall be made by the Seller without the Purchaser's prior written consent (which consent shall not be unreasonably withheld); and (iii) the Purchaser and Seller shall jointly control all proceedings involving any claims for Taxes assessed in respect of a Straddle Period and each party shall bear its own out-of-pocket costs and expenses relating thereto. (g) The Seller, the Purchaser, URG and URC agree that for all Income Tax purposes, the taxable period of each of URG and URC shall be terminated as of the close of business on the Closing Date in accordance with Treasury Regulations Section 1.1502-76(b)(1) (other than transactions properly allocable thereunder to the portion of the day after the Closing shall occur) and items of income, gain, loss, deduction or credit shall be apportioned based upon a closing of the books for Tax purposes in accordance with Treasury Regulation Section 1.1502-76(b). No elections shall be made under either Treasury Regulation 1.1502-76(b)(2)(ii) (relating to ratable allocation of a year's items) or Treasury Regulation 1.1502-76(b)(2)(iii) (to ratably allocate the items for the month which includes the Closing Date). The Seller, the Purchaser, URG and URC further agree to file all Tax Returns, handle the contest of any audit and otherwise act for all Tax purposes consistent with the provisions of this Section 5.3(g). -19- (h) Seller shall be entitled to any Tax refund (or reduction in Tax liability) for Taxes assessed in respect of a Pre-Closing Tax Period or the portion of a Straddle Period ending on or before the Closing Date, net of any tax payable by Purchaser in respect of the receipt of such refund. Purchaser, URG, URC or any affiliate or successor shall notify Seller promptly in writing of any Tax refunds (or reduction in Tax liability referenced in the proceeding sentence). Purchaser, URG and URC or any Affiliate or successor of any of them shall promptly pay to Seller the amount of such net refund upon their receipt of such refund in cash or through the reduction of another Tax liability after the Closing Date. At Seller's option, Purchaser shall apply such net refund to reduce any outstanding amounts Seller is required to pay under Section 5.4(a). (i) Within 30 days of a request therefor by the Purchaser, the Seller shall provide to the Purchaser any information reasonably requested by the Purchaser and necessary for the Purchaser to apply for the automatic waiver described in Rev. Proc. 2002-32, 2002-20 I.R.B. 959, or any similar procedure under Applicable Law. 5.4. Indemnifications, Assumptions of Liability and Related Matters. (a) Subject to the provisions of Sections 5.3(f) and (g) hereof, Seller shall pay and shall indemnify and hold harmless Purchaser, URG and URC and each of their respective Affiliates, directors, officers, employees and agents (the "Purchaser Indemnified Persons") from: (i) all liabilities of URG and URC for Taxes assessed in respect of, and all costs and expenses of Tax audits or the preparation of Tax Returns for, all Pre-Closing Tax Periods and the portion of any Straddle Period ending on the Closing Date; (ii) all liabilities resulting by reason of the several liability of URG and URC pursuant to Treasury Regulation Section 1.1502-6 or any similar provision of Applicable Law due to URG or URC having been a member of an affiliated, consolidated, combined or unitary group during any Pre-Closing Tax Period or any portion of a Straddle Period ending on the Closing Date; (iii) all liabilities of URG and URC in respect of Taxes of any other person or entity pursuant to any agreement or contract, whether written or unwritten, entered into during a Pre-Closing Tax Period or the portion of any Straddle Period ending with the Closing Date, or as transferee or successor, or otherwise. (b) In the case of any Straddle Period, Seller shall be solely responsible for all Taxes of URG and URC (and that portion of URG's and URC's reasonable out-of-pocket costs for the preparation of each such Tax Return) attributable to the portion of the period ending on, and that includes, the Closing Date and Purchaser shall be solely responsible and shall indemnify Seller for all Taxes imposed on the income or operations of URG and URC and attributable to the taxable period, or portion thereof, that begins after the Closing Date. For purposes of this Agreement, the portion of any Tax that is attributable to the portion of a Straddle Period up to and including the Closing Date shall be (A) in the case of a Tax that is not Income Tax, the total amount of such Tax for the period in question multiplied by a fraction, the numerator of which is the number of days in the Straddle Period through and including the Closing Date, and the denominator of which is the total number of days in such Straddle Period, and (B) in the case of any Tax that is based on any of gross income, premiums, sales or gross receipts, the Tax that would be due with respect to the portion of the Straddle Period through and including the Closing Date, if such portion of the Straddle Period were a separate taxable period, except that exemptions, allowances, deductions, credits or graduated rates that are calculated or applied on an annual basis (such as the deduction for depreciation or capital allowances) shall be apportioned on the basis of the gross income, premiums, sales or gross receipts for each such period, or if not based upon such gross income, premiums, sales or gross receipts, then on a per diem basis. -20- (c) Subject to the provisions of Sections 5.4(f) and (g) hereof, from and after the Closing Date, Seller shall indemnify and hold harmless Purchaser, URG and URC from and against any and all losses, claims, damages, liabilities, guaranty fund assessment or similar obligation, costs, expenses (together with reasonable attorneys' fees and all costs and expenses of enforcing such right of indemnification against Seller), and penalties, if any, arising out of or based upon the employment of any individual or entity or with respect to any Employee Benefit Plan which at or prior to the Closing Date was maintained by, contributed to, or with respect to which there was any obligation or potential obligation including the obligation to contribute by, URG or URC or any ERISA Affiliate including without limitation any liability: (i) to the PBGC under Title IV of ERISA; (ii) with respect to a Multiemployer Plan under Title IV of ERISA; (iii) with respect to any notice and benefit continuation requirements of COBRA; (iv) with respect to any noncompliance with ERISA or any other applicable laws; and (v) with respect to any suit, proceeding or claim which is brought against URG or URC, its officers or directors, any Employee Benefit Plan or any fiduciary or former fiduciary of any such Employee Benefit Plan; provided, however, that Seller's obligation to indemnify Purchaser, and URG or URC pursuant to the provisions of this Section 5.4(c) shall not apply to any loss, claim, damage, liability, cost or expense which relates to any employee whose employment with URG or URC commences on or after the Closing Date and which (A) is based upon or arose out of an act taken by or omission by URG, URC or Purchaser with respect to an event occurring after the Closing Date which event has no connection, directly or indirectly, with any Employee Benefit Plan or employment arrangement for which URG or URC had (prior to the Closing Date), or a pre-Closing ERISA Affiliate had, an obligation or potential obligation or otherwise maintained prior to the Closing Date; or (B) is based upon or arose out of any Employee Benefit Plan which was not maintained by URG or URC or an ERISA Affiliate prior to the Closing Date, nor did URG or URC or ERISA Affiliate have any obligations or potential obligations thereto, and which following the Closing Date is maintained by Purchaser, any of their Affiliates, URG or URC. Purchaser shall indemnify and hold harmless Seller to the same extent as Seller's indemnity of Purchaser set forth in this Section 5.4(c) with respect to the matters described in clauses (A) and (B) of this proviso. (d) Subject to the provisions of Sections 5.4(f) and (g) of this Agreement, from and after the Closing Date, Seller shall indemnify and hold harmless Purchaser, URG and URC and their respective directors, officers and employees from and against any and all losses, claims, damages, liabilities, guaranty fund assessments or similar obligations, costs, expenses (including reasonable attorneys' fees and all costs and expenses of enforcing such right of indemnification against Seller) and penalties, if any, arising out of, based upon or with respect to: (i) any Policyholder Contract or Reinsurance Agreement; (ii) the breach of, or failure by Seller or any of its Affiliates to perform or comply with, any of the covenants, agreements or undertakings to be performed or complied with by any of them under the URC Agreements; (iii) the breach of, or failure by Seller to perform or comply with, any of the covenants, agreements or undertakings to be performed or complied with by Seller under this Agreement; (iv) any inaccuracy of any representation or warranty of Seller in this Agreement; or (v) any liability of URG or URC (whether known or unknown at the time of execution of this Agreement) based on or arising out of any act, omission or event occurring prior to the Closing. (e) Subject to the provisions of Sections 5.4(f) and (g) hereof, from and after the Closing Date, Purchaser, URG and URC shall indemnify and hold harmless Seller and its directors, officers and employees from and against any and all losses, claims, damages, liabilities, guaranty fund assessments or similar obligations, costs, expenses (including reasonable attorneys' fees and all costs and expenses of enforcing such right of indemnification against Purchaser, URG or URC) and -21- penalties, if any, arising out of, based upon or with respect to: (i) the breach of, or failure by Purchaser to perform or comply with, any of the covenants, agreements or undertakings to be performed or complied with by Purchaser under this Agreement; (ii) any inaccuracy of any representation or warranty of Purchaser in this Agreement; (iii) any liability of URG or URC (other than any liability for which Seller is obligated to indemnify Purchaser, URG or URC under this Section 5.4) based on or arising out of any act, omission or event occurring after the Closing; and (iv) all liability of URG or URC for Taxes assessed in respect of all taxable periods beginning after the Closing Date. (f) For the purposes of administering the indemnification provisions of this Section 5.4 (except for any Tax Claim subject to Section 5.3(f) hereof), the following procedures shall apply from and after the Closing Date: (i) An indemnified party shall notify the Indemnitor of any Indemnification Event in writing within 30 days following the receipt of notice by the indemnified party of the commencement of any action or proceeding or within 60 days of: (A) the awareness of such indemnified party of the assertion of any claim against such indemnified party; or (B) the discovery by such indemnified party of any loss giving rise to indemnity pursuant to this Section 5.4 (any 30 or 60 day notification requirement shall begin to run, in the case of an action which is amended so as to give rise to an Indemnification Event, from the first day that the indemnified party is given notice that such action is amended to include any claim which is an Indemnification Event under this Agreement). Such notification shall indicate whether such indemnified party is requesting indemnification with respect to such Indemnification Event and the amount of indemnification initially anticipated. The failure to notify the Indemnitor of any Indemnification Event shall not relieve the Indemnitor of its indemnity obligation, unless and to the extent that the Indemnitor is materially and actually prejudiced thereby. (ii) After notification is given as required by Section 5.4(e)(i) of this Agreement, the Indemnitor shall be entitled (but is not obligated) to assume the defense or settlement of any such action or proceeding, or to participate in any negotiations or proceedings to settle or otherwise eliminate any claim. If the Indemnitor fails to confirm in writing within 10 business days of the notification referred to above that Indemnitor will assume the defense, the indemnified party may engage counsel to defend, settle or otherwise dispose of such action or proceeding, and in such event the indemnified party shall pursue the defense or settlement of any such action or proceeding in good faith and the Indemnitor shall remain liable and responsible for all losses in connection therewith, including the indemnified party's costs, attorneys' fees and expenses, all as and when incurred by such indemnified party. (iii) In cases where the Indemnitor has assumed the defense or settlement with respect to an Indemnification Event, the Indemnitor shall be entitled to assume such defense or settlement with counsel of its own choosing, provided that (except with respect to Tax audits subject to the provisions of Section 5.3(f) of this Agreement): (A) the indemnified party (and its counsel) shall be entitled to continue to participate at its own cost in any such action or proceeding or in any negotiations or proceedings to settle or otherwise eliminate any claim for which indemnification is being sought; and (B) the Indemnitor shall not be entitled to settle, compromise, decline to appeal, or otherwise dispose of any such action, proceeding or claim without the consent or agreement of the indemnified party (which -22- consent will not be unreasonably withheld or delayed). However, if consent by the indemnified party to settle, compromise, decline to appeal, or otherwise dispose of any such action, proceeding or claim is unreasonably withheld, the Indemnitor's liability shall be limited to the amount for which the Indemnitor agreed with the claimant to settle and the Indemnitor shall be responsible for its costs, attorneys' fees and expenses to the date such settlement or compromise was rejected by the indemnified party. The non-consenting indemnified party shall be responsible for all losses exceeding such compromise or settlement amount and its own costs, attorneys' fees and expenses incurred from and after the date upon which the settlement was rejected by the indemnified party through the date upon which such action, proceeding or claim is settled or otherwise disposed of or eliminated. Notwithstanding any provision to the contrary, neither party shall, without the consent of the other party, settle any action, proceeding or claim on terms which provide for (x) criminal sanction or fine against the other party, (y) injunctive or other non-monetary relief against the other party or (z) a material adverse impact on the continuing operations of the other party as determined reasonably by such affected other party. (iv) In any case where an Indemnitor shall have assumed the defense or settlement of any action, proceeding or claim and the indemnified party is entitled to continue to participate in such action, proceeding or claim, and shall have elected to do so, it shall do so at its own expense. In no event shall an Indemnitor be liable to any indemnified party for the cost of employing or using in-house legal counsel regardless of whether such Indemnitor has, or has not, assumed the defense or settlement of such action, proceeding or claim. (v) In the event indemnification is requested, the Indemnitor, its representatives and agents shall have reasonable access to the books, records and other Documents of the indemnified party or parties seeking such indemnification to the extent reasonably requested by the Indemnitor in connection with the Indemnitor's defense or settlement of any action, proceeding or claim; provided, however, that such access shall be provided during normal business hours and in such manner as not to interfere unreasonably with the operation of the business of the indemnified party or parties and shall only take place in the presence of a representative of the indemnified party or parties unless otherwise so agreed; and provided, further, that the indemnified party shall not be required to disclose any information with respect to itself or any of its Affiliates (or former Affiliates), other than URG or URC, and shall not be required to participate in the defense of any action, proceeding or claim to be indemnified under this Agreement (except as otherwise expressly set forth in this Agreement), unless such disclosure or participation is required or reasonably necessary in the defense of any action, proceeding or claim to be indemnified under this Agreement in which case the reasonable costs of such participation shall be fully reimbursed by the indemnified party. (vi) From the date of this Agreement each party agrees that, except as provided below, it shall retain all Documents with respect to all material matters pertaining to URG or URC (except to the extent that such Documents in the possession of Seller at the Closing and relating to URG or URC may be transferred at the Closing to the possession of Purchaser, URG or URC). Before disposing of or otherwise destroying any such Documents, the possessor thereof shall give reasonable notice to such effect and deliver to the other party, at the other party's expense and upon its request, a copy of any such Documents. In addition, each party to this Agreement agrees to use its best efforts to cause its employees (and in the case of Purchaser, the employees of URG or URC) to cooperate with and assist the other -23- party in connection with any claim, action or proceeding for which indemnity is sought under this Agreement or with respect to which either party has elected to participate in the defense. (vii) Following payment by an indemnified party of any amount for which it is entitled to indemnity, the indemnified party may demand in writing that the Indemnitor reimburse the indemnified party for such payment. Such written demand shall set forth the basis and amount of such payment in reasonable detail and include a copy of any supporting invoice, demand(s) against which payment(s) were made and all supporting documentation received or prepared by the indemnified party. If reimbursement is not made by the Indemnitor within 30 calendar days of receipt by the Indemnitor of such demand, interest shall thereafter accrue and be payable on the amount to which the indemnified party is entitled at a rate equal to 6% per annum until paid; provided however, if the Indemnitor disputes the amount demanded or the basis for indemnification or disputes that the party seeking indemnification is entitled thereto, and a final determination is made in favor of the indemnified party, the Indemnitor shall pay, in addition to the amount of indemnified losses, interest at the rate of 6% per annum on such losses from and after the 30th day after receipt by the Indemnitor of the indemnified party's demand for indemnification and including the 30th day after the date of such final determination and from and after the 31st day after such final determination at a rate equal to 10% per annum. If an amount paid by the Indemnitor pursuant to this Section 5.4 is determined not to have been due from the Indemnitor, the indemnified party shall return the amount so paid together with interest at a rate of 6% per annum from the date payment was made by the Indemnitor until the 30th day after such final determination, and at a rate of 10% per annum thereafter, until the date such payment is received by the Indemnitor. (g) All representations, warranties and covenants, including without limitation any indemnity obligations, of the parties hereto which are contained in this Agreement, together with the certificates delivered pursuant hereto, shall survive the Closing and remain operative and in full force and effect, regardless of any investigation heretofore or hereafter made by or on behalf of the parties hereto, except that the representations and warranties set forth in Section 3.7 and corresponding indemnity obligations shall survive the Closing and remain in full force and effect only for the applicable statutes of limitation. 5.5 Closing Date Balance Sheets and Closing Date Statements of Assets. Seller and Purchaser shall cooperate in the preparation of the Closing Date Statements of Assets. The Closing Date Statements of Assets shall be prepared as of the Closing Date no later than the ninth business day prior to the Closing Date and shall set forth the value of all tangible assets of each of URG and URC, other than (i) any refunds of Taxes that Purchaser would be required to remit to Seller pursuant to Section 5.3(h) hereof, and (ii) any deferred tax asset (including, but not limited to, any deferred tax asset arising by reason of any Carryover Item or by reason of any asset having a value (as determined hereunder) less than its adjusted Tax basis), of each of URG and URC. Assets included on the Closing Date Statements of Assets shall be valued as follows: (i) cash and cash equivalents shall be valued at face value; and (ii) investment securities traded in a recognized public market shall be valued at their closing price (or, if there is no closing price, then the average bid and asked prices) on the tenth business day prior to the Closing Date as published in Kenny Information Services or, if not so published, then as stated in The Wall Street Journal. The Closing Date Statements of Assets shall be delivered to the parties hereto no later than the eighth business day prior to the Closing Date. Thereafter, Seller shall prepare and deliver to Purchaser no later than five business days prior to the Closing Date the Closing Date Balance Sheets reflecting the Closing Date -24- Shareholder's Equity. Deferred Tax liabilities on the Closing Date Balance Sheets shall be calculated solely by multiplying the sum of the amounts by which the value (as determined hereunder) of each asset of URG and URC (other than a Carryover Item) exceeds its respective adjusted Tax basis (reduced, but not below zero, by the amount by which the value of any asset (other than a Carryover Item) of URG or URC is less than its adjusted Tax basis) by the then-highest marginal Federal and California Income Tax rate applicable to corporations. The Closing Date Balance Sheets shall be in a form reasonably satisfactory to Purchaser, with the substance thereof reflecting the values as provided in the foregoing sentences. 5.6. Transfer Taxes. Seller shall, at its expense, cause all appropriate stock transfer Tax stamps to be affixed to the certificate or certificates representing the Stock. The Seller, URG, URC and the Purchaser shall cooperate in the preparation, execution and filing of all returns, applications or other documents regarding any transfer gains or other similar transfer Taxes that become payable in connection with the sale of the Stock (other than the stock transfer taxes mentioned above) pursuant to this Agreement (collectively, "Transfer Taxes"). The Seller shall pay all Transfer Taxes, if any, shown as due on such returns. 5.7. Conduct of Business by Purchaser. Purchaser covenants that it shall not, and it shall not permit URG or URC to, take any action that would cause URG or URC to incur any liability whatsoever until the day following the Closing Date including, without limitation, the commencement of operations by URG or URC, the hiring of employees or insurance agents for URG or URC, the writing of any insurance business by URG or URC or engaging in any business by URG or URC, amending or modifying any governing document of URG or URC or the taking of any other action whatsoever which obligates URG or URC to act or omit to act. 5.8. Change of Name. As promptly as practicable after the Closing, each of URG and URC shall change its name so that each of URG and URC does not have the word "Underwriters" in its name, and URC shall cease using the word "Underwriters" in any of its business dealings. Seller shall retain all rights of URG and URC to use the names Underwriters Re Group, Inc. and Underwriters Reinsurance Company. 5.9. Disclosure of Confidential Information. Seller shall not, and shall cause its Affiliates and its and their respective officers and directors not to, disclose any Confidential Information after the date hereof to any third party, unless compelled to disclose by judicial or administrative process or, in the opinion of its counsel, by other requirements of law. It is acknowledged and agreed that unauthorized use of any Confidential Information would cause irreparable injury constituting the proper subject of injunctive relief and specific performance, in addition to providing Purchaser an action for damages. 5.10. Execution of the Revised Service Agreement. Prior to the Closing Date, Seller shall cause URC, SRA and Seller to terminate the Service Agreements and to enter into the Revised Service Agreement. 5.11. Policyholder Contracts and Reinsurance Agreements. After the Closing Date, Seller shall not, and shall not permit any of its Affiliates to, cause to be issued any Policyholder Contracts or Reinsurance Agreements (other than endorsements thereon or changes in coverage thereunder) on behalf of the URC. -25- 5.12. URC/URG Merger. Seller shall use its reasonable efforts for the URC/URG merger to be approved prior to the Closing Date. ARTICLE VI CONDITIONS TO CLOSING; ABANDONMENT OF THE TRANSACTION 6.1. Conditions to the Obligations of Purchaser. Except to the extent waived by Purchaser in writing, the obligations of Purchaser to consummate the transactions contemplated herein and to purchase the Stock shall be subject to the satisfaction of each of the following conditions: (a) The representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects at and as of the Closing, as if and to the same effect as though made at and as of the Closing Date. Seller shall have performed all of its obligations and complied in all material respects with all covenants and conditions required by this Agreement to be performed or complied with by it at or prior to the Closing. Seller shall have delivered to Purchaser a certificate, in form and substance satisfactory to Purchaser, dated the date of the Closing and signed on its behalf by its Chairman, a Vice Chairman, its President or a Vice President in his or her respective representative capacity, and not individually, to all such effects and certifying to the satisfaction of the conditions to be performed by Seller, URG and URC (prior to the Closing) set forth in this Section 6.1. (b) No action or proceeding shall have been instituted and remain pending before a court or other governmental body (foreign or domestic) to restrain, prohibit or otherwise challenge the transactions contemplated by this Agreement, the sale of the Stock to Purchaser or the performance of the material obligations of the parties to this Agreement; nor shall any governmental agency or body have notified either party to this Agreement or URG or URC that the consummation of the transactions contemplated by this Agreement would constitute a violation of the laws of the United States or the laws of the jurisdiction to which Purchaser, URG or URC is subject and that it intends to commence proceedings to restrain consummation of such transactions, to force divestiture if such transactions are consummated or to materially modify the terms or the results of such transactions unless such agency or body shall have withdrawn such notice prior to the Closing Date. (c) All authorizations, consents and approvals: (i) with respect to the change of control of URC, and confirmation that none of URC's net liabilities incurred prior to the closing of the transaction will be required to be included in the Statutory Financial Statements of URC after closing, by the insurance commissioner of the State of New Hampshire, (ii) of the proposed dividend of URC by the insurance commissioner of the State of New Hampshire, (iii) by the Secretaries of State of New Hampshire and Delaware and the insurance commissioners of the State of New Hampshire and California of the URC/URG merger, and (iv) of the insurance department of any other jurisdiction asserting regulatory authority over the transactions contemplated by this Agreement which are required by applicable law, regulation or rule to be obtained in order to permit the consummation by Seller of the transactions contemplated by this Agreement shall have been obtained. -26- (d) As of the Closing Date, URC shall possess the Insurance Permits in the form and covering the lines set forth in Schedule 3.1(b) in at least forty-five states, which number shall include California and New York which Insurance Permits shall be in full force and effect, in good standing and not subject to restrictions or limitations that did not exist as of the date of this Agreement. In the event that URC does not possess all of the Insurance Permits set forth in Schedule 3.1(b) in full force and effect, in good standing and not subject to any restrictions or limitations that did not exist as of this Agreement including without limitation in the event that Purchaser, in its sole discretion, waives the condition set forth in the first sentence of this Section 6.1(d), the Purchase Price shall then be decreased by $118,750 for each state in which URC does not possess such an Insurance Permit as of the Closing Date; provided, however, that the Purchase Price shall be decreased (i) by $400,000 in the event that URC does not possess such an Insurance Permit in the State of California as of the Closing Date, and (ii) by $400,000 in the event that URC does not possess such an Insurance Permit in the State of New York as of the Closing Date. (e) Not withstanding the provision of sub-paragraph (d), no adjustment will be made to the Purchase Price in the event an Insurance Permit is limited or restricted solely as a result of either: (i) the approval of the acquisition of control of URC by Purchaser or (ii) the URC/URG merger. (f) SRA and URC shall have entered into the Revised Service Agreement in the form attached hereto as Exhibit C. (g) Purchaser shall have received from Seller's or SRA's in-house counsel, one or more opinions, dated the date of the Closing, in form and substance reasonably satisfactory to Purchaser's counsel, which opinions shall address the corporate laws of the State of Delaware and the corporate and insurance laws of the State of New Hampshire and taken together shall be to the effect that: (i) Each of Seller, URG and URC is a corporation duly incorporated, validly existing and in good standing under the laws of its respective state of incorporation; (ii) Each of URG and URC is not required to be qualified as a foreign corporation in any jurisdiction; (iii) the authorized capital stock of URG consists of the Stock, all of which has been duly authorized and validly issued and is fully paid and non-assessable; (iv) the authorized capital stock of URC consists of 320,000 shares of common stock with a par value of $15.00 per share, of which 320,000 shares are issued and outstanding, all of which has been duly authorized, validly issued and fully paid and non-assessable, and is owned of record and, to the knowledge of such counsel after due inquiry, beneficially by URG, free and clear of all liens, claims and encumbrances; (v) all of the Stock is owned of record and, to the knowledge of such counsel after due inquiry, beneficially by Seller, and upon the transfer of the Stock to Purchaser pursuant to the terms hereof, Purchaser will be vested with good and valid title thereto, free and clear of all liens, claims and encumbrances, assuming that Purchaser acquires the Stock without notice of any adverse claim; -27- (vi) all corporate actions by Seller required to authorize the execution, delivery and performance of this Agreement by Seller has been taken, and Seller has the corporate power to perform its obligations hereunder and thereunder; (vii) this Agreement has been duly executed and delivered by Seller and constitutes the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms subject to the Bankruptcy Exception; (viii) the written confirmation of permission from the insurance commissioner of the State of New Hampshire approving the transfer to SRA of 100% of the past, present and future liabilities and obligations of URC, both disclosed and undisclosed, has been obtained; (ix) all of the obligations of URC under the Affiliate Reinsurance Agreements have been legally novated pursuant to the Affiliate Novation Agreements, which Affiliate Novation Agreements will continue in full force and effect after the Closing; (x) to the knowledge of such counsel after due inquiry, approximately 99% of the obligations of URC under the Policyholder Contracts and Reinsurance Agreements (other than the Affiliate Reinsurance Agreements) have been legally novated pursuant to the Novation Agreements, which Novation Agreements will continue in full force and effect after the Closing; (xi) other than applications filed with the insurance commissioners of the States of New Hampshire requesting approval for change in control of URC, approval of the dividends of URC, approval of the Revised Service Agreement, approval of URC/URG Merger and confirmation that none of URC's net liabilities incurred prior to the closing of the transaction will be required to be included in the Statutory Financial Statements of URC after closing and California requesting approval of the URC/URG merger, and the Secretaries of State of New Hampshire and Delaware requesting approval of the URC/URG merger, all of which applications have been approved and/or granted, there are no actions, suits or administrative, arbitration or other proceedings pending or, to the knowledge of such counsel, threatened in writing, against or affecting Seller, URG or URC at law or in equity, or before or by any federal, state, or other government department, commission, board, bureau, agency or instrumentality; (xii) to the best knowledge of counsel, all authorizations, consents and approvals of all governmental agencies and authorities of the United States, of any state or any local jurisdiction required in order to permit consummation by Seller of the transactions contemplated by this Agreement have been obtained, except for those authorizations, consents and approvals which, if not complied with or obtained, would not have a Material Adverse Effect; and (xiii) such counsel is not aware of any facts (other than the change in control of URC or the URC/URG Merger) that could result in any of the Insurance Permits listed on Schedule 3.1(b) not being in full force and effect. In rendering such opinion, such counsel may rely, to the extent such counsel deems such reliance necessary or appropriate: (i) upon opinions of local counsel as to matters of law other than that of the federal laws of the United States (provided such local counsel's opinions are received from counsel -28- reasonably satisfactory to Purchaser and its counsel and are addressed to Purchaser) and (ii) as to matters of fact, upon certificates of state officials and of any officer or officers of Seller or any of its Subsidiaries (including URG and URC) provided in all such cases that the extent of any such reliance is specified in such opinion. (h) Purchaser shall have received copies of all Insurance Permits identified on Schedule 3.1(b), certified by Seller as being in full force and effect. (i) At the Closing, Seller shall deliver to Purchaser resignations of all officers and directors of each of URG and URC, effective upon the Closing. (j) Purchaser shall have received fully executed originals of the URC Agreements or copies thereof certified by Seller. (k) Seller shall have reduced the statutory surplus of URC to approximately $13.0 million, which is the minimum amount required by state insurance departments for the conduct of URC's business. Seller shall have reduced GAAP shareholder equity of URG to approximately $50,000 plus URG's equity in URC. 6.2. Conditions to the Obligations of Seller. Except to the extent waived by Seller in writing, the obligations of Seller to consummate the transactions contemplated herein and to sell the Stock shall be subject to the satisfaction of each of the following conditions: (a) The representations and warranties of Purchaser contained in this Agreement shall be true and correct in all material respects at and as of the Closing, as if and to the same effect as though made at and as of the Closing Date. Purchaser shall have performed all of its obligations and complied in all material respects with all covenants and conditions required by this Agreement to be performed or complied with by it at or prior to the Closing. Purchaser shall have delivered to Seller certificates of Purchaser, in form and substance satisfactory to Seller, dated the date of the Closing and signed on behalf of Purchaser by its President or a Vice President in his or her respective representative capacity, and not individually, to all such effects and certifying to the satisfaction of the conditions to be performed by Purchaser set forth in this Section 6.2. (b) No action or proceeding shall have been instituted and remain pending before a court or other governmental body (domestic or foreign) to restrain, prohibit or otherwise challenge the transactions contemplated by this Agreement, the sale of the Stock by Seller or the performance of the material obligations of the parties to this Agreement; nor shall any governmental agency or body have notified either party to this Agreement or URG or URC that the consummation of the transactions contemplated by this Agreement would constitute a violation of the laws of the United States or the laws of the jurisdiction to which Seller is subject and that it intends to commence proceedings to restrain the consummation of such transactions, to force divestiture if such transactions are consummated, or to materially modify the terms or the results of such transactions, unless such agency or body shall have withdrawn such notice prior to the Closing Date. (c) All authorizations, consents and approvals: (i) with respect to the change of control of URC, and confirmation that none of URC's net liabilities incurred prior to the closing of the transaction will be required to be included in the Statutory Financial Statements of URC after closing by the insurance commissioner of the State of New Hampshire, (ii) of the proposed dividend of URC by the insurance commissioner of the State of New Hampshire, (iii) by the -29- Secretaries of State of New Hampshire and Delaware and the insurance commissioners of the State of New Hampshire and California of the URC/URG merger, and (iv) of the insurance department of any other jurisdiction asserting regulatory authority over the transactions contemplated by this Agreement which are required by applicable law, regulation or rule to be obtained in order to permit the consummation by Purchaser of the transactions contemplated by this Agreement shall have been obtained. (d) Seller shall have received from counsel(s) to Purchaser, one or more opinions, dated the date of the Closing, in form and substance reasonably satisfactory to Seller's counsel, which opinions shall address the corporate laws of Delaware and the corporate and insurance laws of the State of New Hampshire and taken together shall be to the effect that: (i) Purchaser is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware; (ii) this Agreement has been duly executed and delivered by Purchaser and constitutes the valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms subject to the Bankruptcy Exception; and (iii) all corporate action by Purchaser required to authorize the execution, delivery and performance of this Agreement by Purchaser has been taken, and Purchaser has the corporate power to perform its obligations under this Agreement. In rendering such opinions such counsel may rely, to the extent such counsel deems such reliance necessary or appropriate: (i) upon opinions of local counsel as to matters of law other than that of the federal laws of the United States (provided such local counsel's opinions are received from counsel reasonably satisfactory to Seller and its counsel and are addressed to Seller); and (ii) as to matters of fact, upon certificates of state officials and of any officer or officers of Purchaser provided in all such cases the extent of any such reliance is specified in such opinion. (e) At the Closing, Purchaser shall elect successor directors for resigning directors of each of URG and URC, and such successor directors shall elect successor officers of each of URG and URC, respectively. 6.3. Termination of Agreement and Abandonment of Transactions. Notwithstanding anything in this Agreement to the contrary, this Agreement and the transactions contemplated hereby may be terminated in any of the following ways at any time before the Closing and in no other manner: (a) By mutual written consent of Seller and Purchaser executed on behalf of each by its respective president, vice president, or chief financial officer; (b) By Purchaser, if the conditions set forth in Section 6.1 shall not have been met on or before July 31, 2003; or (c) By Seller, if the conditions set forth in Section 6.2 shall not have been met on or before July 31, 2003. -30- In the event of termination of this Agreement pursuant hereto, no party hereto shall have any liability or obligation to any other party hereto in respect of this Agreement, except that the provisions of Section 5.1(a)(ii) and Article VII shall survive any such termination, and except that nothing herein shall relieve any party from liability for any breach of any of its covenants or agreements or willful breach of its representations and warranties contained in this Agreement prior to termination of this Agreement or any obligations hereunder. ARTICLE VII TERMINATION OF OBLIGATIONS AND WAIVER OF CONDITIONS; PAYMENT OF EXPENSES In the event that this Agreement shall be terminated pursuant to Section 6.3(a) of this Agreement, all further obligations of the parties under this Agreement shall terminate without further liability of either party to the other and each party will pay all of its own costs and expenses incident to the negotiation and preparation of this Agreement and to its performance of, and compliance with, all agreements and conditions contained in this Agreement on its part to be performed or complied with, including the fees, expenses and disbursements of counsel, provided that the obligations of the parties under Section 8.3 and the obligations of Purchaser under Section 5.1(a)(ii) shall survive any such termination. Termination of this Agreement pursuant to Section 6.3(b) or Section 6.3(c) shall be without prejudice to the rights and remedies available to each of the parties under applicable law, including the right to recover all expenses, costs and other damages, but no party shall be entitled to incidental or consequential damages including loss of anticipated profits. If any of the conditions specified in Section 6.1 have not been satisfied, Purchaser may, nevertheless, at its election waive such conditions in writing and proceed with the transactions contemplated by this Agreement. If any of the conditions specified in Section 6.2 have not been satisfied, Seller may, nevertheless, at its election waive such conditions in writing and proceed with the transactions contemplated by this Agreement. In the event that the transactions contemplated by this Agreement are consummated, each party will pay all of its own costs and expenses in connection therewith. ARTICLE VIII GENERAL 8.1. Amendment and Waiver. This Agreement may not be amended, modified or supplemented except upon execution and delivery of a written agreement executed by the parties hereto. Any of the terms, covenants, representations, warranties or conditions hereof may be waived in writing at any time by or on behalf of the party which is entitled to the benefits thereof. Any waiver of any of the provisions of this Agreement by either party hereto shall be binding only if set forth in an instrument in writing signed on behalf of such party. No failure to enforce any provision of this Agreement shall be deemed to or shall constitute a waiver of such provision, and no waiver of any of the provisions of this Agreement shall be deemed to or shall constitute a waiver of any other provision hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 8.2. Integrated Contract. This Agreement and the Schedules and Exhibits to this Agreement (which constitute part of this Agreement) and the other documents and writings referred to herein or delivered pursuant hereto contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof and thereof. This -31- Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. This Agreement does not constitute an amendment or waiver of any rights or obligations under the URG Stock Purchase Agreement of the parties thereto, and there shall be no set-off rights against payments due under this Agreement with respect of any payments due under the URG Stock Purchase Agreement and vice versa. 8.3. Publicity. The parties will consult with each other and will mutually agree upon any publication or press release of any nature with respect to this Agreement or the transactions contemplated hereby (such agreement not to be unreasonably withheld) and shall not issue any such publication or press release prior to such consultation and agreement, except as may be required by applicable law or by obligations pursuant to any listing agreement with any securities exchange or any securities exchange regulation, in which case the party proposing to issue such publication or press release shall use reasonable efforts to consult in good faith with the other party before issuing any such publication or press release. 8.4. Governing Law. This Agreement and the legal relations between the parties shall be governed by and construed in accordance with the laws of the State of New York, without regard to the principles regarding the choice of law. 8.5. Notices. All notices, requests, claims, demands and other communications required or permitted under this Agreement shall be in writing and sufficiently given, upon receipt or three days after deposit in the United States mail (registered or certified, postage prepaid, return receipt requested) or by telex, facsimile or other written form of electronic communication, to the respective parties as follows: If to Seller, to: Swiss Re America Holding Corporation 175 King Street Armonk, New York 10504 Attn: Mr. Robert M. Solitro Facsimile: (914) 828-7090 with a copy to: Swiss Re Underwriters Agency Inc. 26050 Mureau Road Calabasas, California 91302 Attn: Stuart M. de Haaff, Esq. Facsimile: (818) 878-0319 If to Purchaser, to: RSUI Group, Inc. 375 Park Avenue New York, New York 10152 Attn: Mr. James P. Slattery Facsimile: (212) 759-3295 -32- with a copy to: Dewey Ballantine LLP 1301 Avenue of the Americas New York, New York 10019 Attn: Linda E. Ransom, Esq. Facsimile: (212) 259-6333 or to such other address or person as either party hereto may, from time to time, designate in a written notice given in like manner (except that a notice of change of address shall not be deemed to have been given until received by the addressee). 8.6. No Assignment. This Agreement may not be assigned by either party hereto without the prior written consent of the other party hereto; provided, however, that Purchaser may assign its right and obligation hereunder to acquire the Stock and to pay the Purchase Price to a wholly owned subsidiary of Purchaser without the prior written consent of Seller. 8.7. Headings. The headings contained in this Agreement are for reference only and shall not affect in any way the meaning or interpretation of this Agreement. 8.8. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and each of which shall be deemed an original. 8.9. Severability. Any provision of this Agreement which is invalid, illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining provisions hereof in such jurisdiction or rendering that or any other provision of this Agreement invalid, illegal or unenforceable in any other jurisdiction. 8.10. Third Parties. Nothing herein expressed or implied is intended or shall be construed to confer upon or give to any Person, other than the parties hereto, any rights or remedies under or by reason of this Agreement, except as provided in Section 5.4 hereof. 8.11. Further Assurances. Seller and Purchaser will, whenever and as often as reasonably requested to do so by the other party or its successors, do any and all such other and further acts, and execute, acknowledge and deliver any and all such other and further assignments, transfers and instruments of further assurances, approvals and consents as are necessary or proper in order to complete, ensure and perfect the transactions contemplated by this Agreement. -33- IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed on its behalf by its officers or representatives thereunto duly authorized, all as of the day and year first above written. (Purchaser) RSUI GROUP, INC. By: /s/ James P. Slattery ------------------------------ Title: President (Seller) SWISS RE AMERICA HOLDING CORPORATION By: /s/ Robert M. Solitro ------------------------------ Title: Member of Senior Management -34- EX-10.45 47 y88779exv10w45.txt CONTENTS TO STOCK PURCHASE AGREEMENT Exhibit 10.45 List of Contents of Exhibits and Schedules to the RSUI Group, Inc. Stock Purchase Agreement Exhibits Description -------- ----------- Exhibit A Assignment between SRA and URC Exhibit B-1 Novation Agreement among SRA, URC and Commercial Underwriters Insurance Company Exhibit B-2 Novation Agreement among SRA, URC and Newmarket Underwriters Insurance Company Exhibit B-3 Novation Agreement among SRA, URC and Underwriters Insurance Company Exhibit C Revised Service Agreement between SRA and URC Exhibit D-1 Service Agreement between Seller and URC Exhibit D-2 Service Agreement between SRA and URC Exhibit E Transfer and Assumption Agreement between SRA and URC Exhibit F Canada Transfer and Assumption Agreement between SRC and URC Exhibit G Multiple Line Quota Share Reinsurance Agreement and Addendum No. 1 between URC and North American Specialty Insurance Company Exhibit H Multiple Line Quota Share Retrocession Agreement No. 13009 between URC and SRA Exhibit I URC/URG Merger Agreement Schedules Description --------- ------------ Schedule 1.3 List of Affiliate Reinsurance Agreements Schedule 1.4 Novation Agreements Schedule 3.1(b) Insurance Permits and Jurisdictions Schedule 3.1(c) Officers and Directors/Articles and Bylaws Schedule 3.7 Tax Returns and Reports Schedule 3.11 Bank Accounts Schedule 3.12 Assets and Property Schedule 3.13 Liabilities Schedule 3.14 Contracts Schedule 3.15 Compliance Requirements Schedule 3.17 Powers of Attorney Schedule 3.20 State Insurance Department Deposits EX-10.46 48 y88779exv10w46.txt FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT Exhibit 10.46 FIRST AMENDMENT TO 364-DAY REVOLVING CREDIT AGREEMENT THIS FIRST AMENDMENT, dated as of June 13, 2003 (this "Amendment"), amends and modifies a certain 364-Day Revolving Credit Agreement, dated as of June 14, 2002 (the "Credit Agreement"), among ALLEGHANY CORPORATION (the "Borrower"), the Banks named therein and U.S. BANK NATIONAL ASSOCIATION, as Agent for the Banks (in such capacity, the "Agent"). Terms not otherwise expressly defined herein shall have the meanings set forth in the Credit Agreement. FOR VALUE RECEIVED, the Borrower, the Banks which are signatories hereto and the Agent agree as follows: ARTICLE I - AMENDMENT TO THE CREDIT AGREEMENT Upon effectiveness of this Amendment as provided below, the Credit Agreement shall be deemed to be amended as follows. 1.1 Revolving Commitment Ending Date. Section 2.12 is amended by deleting "June 13, 2003" and inserting "September 30, 2003" in place thereof. 1.2 Construction. All references in the Credit Agreement to "this Agreement", "herein" and similar references shall be deemed to refer to the Credit Agreement as amended by this Amendment and as may be further amended, restated, supplemented or otherwise modified from time to time. ARTICLE II - REPRESENTATIONS AND WARRANTIES To induce the Banks and the Agent to enter into this Amendment and to make and maintain the Loans under the Credit Agreement as amended hereby, the Borrower hereby warrants and represents to the Banks and the Agent that it is duly authorized to execute and deliver this Amendment, and to perform its obligations under the Credit Agreement as amended hereby, and that this Amendment constitutes the legal, valid and binding obligations of the Borrower, enforceable in accordance with its terms. ARTICLE III - CONDITIONS PRECEDENT This Amendment shall become effective on the date first set forth above, provided, however, that the effectiveness of this Amendment is subject to the satisfaction of each of the following conditions precedent: 3.1 Warranties. The representations and warranties in Article IV of the Credit Agreement shall be true and correct as though made on the date hereof (other than those which speak as of a specific date, which shall be true and correct as of such date). The execution by the Borrower of this Amendment shall be deemed a representation that the Borrower has complied with the foregoing condition. 3.2 Defaults. Before and after giving effect to this Amendment, no Default and no Event of Default shall have occurred and be continuing under the Credit Agreement. The execution by the Borrower of this Amendment shall be deemed a representation that the Borrower has complied with the foregoing condition. ARTICLE IV - GENERAL 4.1 Expenses. The Borrower agrees to reimburse the Agent upon demand for all reasonable expenses (including reasonable attorneys' fees and legal expenses) incurred by the Agent in connection with the preparation, negotiation and execution of this Amendment and any other document required to be furnished herewith, and in enforcing the obligations of the Borrower hereunder, and to pay and save the Agent harmless from all liability for, any stamp or other taxes which may be payable with respect to the execution or delivery of this Amendment, which obligations of the Borrower shall survive any termination of the Credit Agreement. 4.2 Counterparts. This Amendment may be executed in as many counterparts as may be deemed necessary or convenient, and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same instrument. 4.3 Severability. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction. 4.4 Law. This Amendment shall be governed by the internal laws of the State of Minnesota, without giving effect to conflict of laws principles thereof, but giving effect to federal laws of the United States applicable to national banks. 4.5 Successors; Enforceability. This Amendment shall be binding upon the Borrower, the Banks and the Agent and their respective successors and assigns, and shall inure to the benefit of the Borrower, the Banks and the Agent and the successors and assigns of the Banks and the Agent. Except as hereby amended, the Credit Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. (signature page follows) 2 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the date first written above. ALLEGHANY CORPORATION By: /s/ Peter R. Sismondo --------------------------------- Title: Vice President U.S. BANK NATIONAL ASSOCIATION, as Agent and as a Bank By: /s/ Sam S. Pepper --------------------------------- Sam S. Pepper Its: Vice President LaSALLE BANK NATIONAL ASSOCIATION, as a Bank By: /s/ Henry J. Munez --------------------------------- Title: First Vice President M&I MARSHALL & ILSLEY BANK, as a Bank By: /s/ Jeffrey T. Ticknor --------------------------------- Title: Senior Vice President and By: /s/ John T. Ronzia ---------------------------------- Title: Vice President THE BANK OF NOVA SCOTIA, as a Bank By: /s/ J.W. Campbell --------------------------------- Title: Managing Director BANK HAPOALIM B.M., as a Bank By: --------------------------------- Title: 3 EX-10.47 49 y88779exv10w47.txt SECOND AMENDMENT TO REVOLVING CREDIT AGREEMENT Exhibit 10.47 SECOND AMENDMENT TO 364-DAY REVOLVING CREDIT AGREEMENT THIS FIRST AMENDMENT, dated as of June 20, 2003 (this "Amendment"), amends and modifies a certain 364-Day Revolving Credit Agreement, dated as of June 14, 2002, as amended by an Amendment dated as of June 13, 2003 (as so amended, the "Credit Agreement"), among ALLEGHANY CORPORATION (the "Borrower"), the Banks named therein and U.S. BANK NATIONAL ASSOCIATION, as Agent for the Banks (in such capacity, the "Agent"). Terms not otherwise expressly defined herein shall have the meanings set forth in the Credit Agreement. FOR VALUE RECEIVED, the Borrower, the Banks which are signatories hereto and the Agent agree as follows: ARTICLE I - AMENDMENT TO THE CREDIT AGREEMENT Upon effectiveness of this Amendment as provided below, the Credit Agreement shall be deemed to be amended as follows. 1.1 Event of Default. Section 7.1(l) is deleted. 1.2 Construction. All references in the Credit Agreement to "this Agreement", "herein" and similar references shall be deemed to refer to the Credit Agreement as amended by this Amendment and as may be further amended, restated, supplemented or otherwise modified from time to time. ARTICLE II - REPRESENTATIONS AND WARRANTIES To induce the Banks and the Agent to enter into this Amendment and to make and maintain the Loans under the Credit Agreement as amended hereby, the Borrower hereby warrants and represents to the Banks and the Agent that it is duly authorized to execute and deliver this Amendment, and to perform its obligations under the Credit Agreement as amended hereby, and that this Amendment constitutes the legal, valid and binding obligations of the Borrower, enforceable in accordance with its terms. ARTICLE III - CONDITIONS PRECEDENT This Amendment shall become effective on the date first set forth above, provided, however, that the effectiveness of this Amendment is subject to the satisfaction of each of the following conditions precedent: 3.1 Warranties. The representations and warranties in Article IV of the Credit Agreement shall be true and correct as though made on the date hereof (other than those which speak as of a specific date, which shall be true and correct as of such date). The execution by the Borrower of this Amendment shall be deemed a representation that the Borrower has complied with the foregoing condition. 3.2 Defaults. Before and after giving effect to this Amendment, no Default and no Event of Default shall have occurred and be continuing under the Credit Agreement. The execution by the Borrower of this Amendment shall be deemed a representation that the Borrower has complied with the foregoing condition. ARTICLE IV - GENERAL 4.1 Expenses. The Borrower agrees to reimburse the Agent upon demand for all reasonable expenses (including reasonable attorneys' fees and legal expenses) incurred by the Agent in connection with the preparation, negotiation and execution of this Amendment and any other document required to be furnished herewith, and in enforcing the obligations of the Borrower hereunder, and to pay and save the Agent harmless from all liability for, any stamp or other taxes which may be payable with respect to the execution or delivery of this Amendment, which obligations of the Borrower shall survive any termination of the Credit Agreement. 4.2 Counterparts. This Amendment may be executed in as many counterparts as may be deemed necessary or convenient, and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same instrument. 4.3 Severability. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction. 4.4 Law. This Amendment shall be governed by the internal laws of the State of Minnesota, without giving effect to conflict of laws principles thereof, but giving effect to federal laws of the United States applicable to national banks. 4.5 Successors; Enforceability. This Amendment shall be binding upon the Borrower, the Banks and the Agent and their respective successors and assigns, and shall inure to the benefit of the Borrower, the Banks and the Agent and the successors and assigns of the Banks and the Agent. Except as hereby amended, the Credit Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. (signature page follows) 2 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the date first written above. ALLEGHANY CORPORATION By: /s/ Peter R. Sismondo --------------------------------- Title: Vice President U.S. BANK NATIONAL ASSOCIATION, as Agent and as a Bank By: /s/ Sam S. Pepper --------------------------------- Sam S. Pepper Its: Vice President LaSALLE BANK NATIONAL ASSOCIATION, as a Bank By: /s/ Henry J. Munez --------------------------------- Title: First Vice President M&I MARSHALL & ILSLEY BANK, as a Bank By: /s/ Jeffrey T. Ticknor --------------------------------- Title: Senior Vice President and By: /s/ John T. Ronzia --------------------------------- Title: Vice President THE BANK OF NOVA SCOTIA, as a Bank By: /s/ J.W. Campbell --------------------------------- Title: Managing Director BANK HAPOALIM B.M., as a Bank By: --------------------------------- Title: and By: --------------------------------- Title: 3 EX-10.48 50 y88779exv10w48.txt FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT Exhibit 10.48 FIRST AMENDMENT TO THREE-YEAR REVOLVING CREDIT AGREEMENT THIS FIRST AMENDMENT, dated as of June 20, 2003 (this "Amendment"), amends and modifies a certain Three-Year Revolving Credit Agreement, dated as of June 14, 2002 (the "Credit Agreement"), among ALLEGHANY CORPORATION (the "Borrower"), the Banks named therein and U.S. BANK NATIONAL ASSOCIATION, as Agent for the Banks (in such capacity, the "Agent"). Terms not otherwise expressly defined herein shall have the meanings set forth in the Credit Agreement. FOR VALUE RECEIVED, the Borrower, the Banks which are signatories hereto and the Agent agree as follows: ARTICLE I - AMENDMENT TO THE CREDIT AGREEMENT Upon effectiveness of this Amendment as provided below, the Credit Agreement shall be deemed to be amended as follows. 1.1 Event of Default. Section 7.1(l) is deleted. 1.2 Construction. All references in the Credit Agreement to "this Agreement", "herein" and similar references shall be deemed to refer to the Credit Agreement as amended by this Amendment and as may be further amended, restated, supplemented or otherwise modified from time to time. ARTICLE II - REPRESENTATIONS AND WARRANTIES To induce the Banks and the Agent to enter into this Amendment and to make and maintain the Loans under the Credit Agreement as amended hereby, the Borrower hereby warrants and represents to the Banks and the Agent that it is duly authorized to execute and deliver this Amendment, and to perform its obligations under the Credit Agreement as amended hereby, and that this Amendment constitutes the legal, valid and binding obligations of the Borrower, enforceable in accordance with its terms. ARTICLE III - CONDITIONS PRECEDENT This Amendment shall become effective on the date first set forth above, provided, however, that the effectiveness of this Amendment is subject to the satisfaction of each of the following conditions precedent: 3.1 Warranties. The representations and warranties in Article IV of the Credit Agreement shall be true and correct as though made on the date hereof (other than those which speak as of a specific date, which shall be true and correct as of such date). The execution by the Borrower of this Amendment shall be deemed a representation that the Borrower has complied with the foregoing condition. 3.2 Defaults. Before and after giving effect to this Amendment, no Default and no Event of Default shall have occurred and be continuing under the Credit Agreement. The execution by the Borrower of this Amendment shall be deemed a representation that the Borrower has complied with the foregoing condition. ARTICLE IV - GENERAL 4.1 Expenses. The Borrower agrees to reimburse the Agent upon demand for all reasonable expenses (including reasonable attorneys' fees and legal expenses) incurred by the Agent in connection with the preparation, negotiation and execution of this Amendment and any other document required to be furnished herewith, and in enforcing the obligations of the Borrower hereunder, and to pay and save the Agent harmless from all liability for, any stamp or other taxes which may be payable with respect to the execution or delivery of this Amendment, which obligations of the Borrower shall survive any termination of the Credit Agreement. 4.2 Counterparts. This Amendment may be executed in as many counterparts as may be deemed necessary or convenient, and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same instrument. 4.3 Severability. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction. 4.4 Law. This Amendment shall be governed by the internal laws of the State of Minnesota, without giving effect to conflict of laws principles thereof, but giving effect to federal laws of the United States applicable to national banks. 4.5 Successors; Enforceability. This Amendment shall be binding upon the Borrower, the Banks and the Agent and their respective successors and assigns, and shall inure to the benefit of the Borrower, the Banks and the Agent and the successors and assigns of the Banks and the Agent. Except as hereby amended, the Credit Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. (signature page follows) IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the date first written above. ALLEGHANY CORPORATION By: /s/ Peter R. Sismondo ------------------------------------------ Title: Vice President U.S. BANK NATIONAL ASSOCIATION, as Agent and as a Bank By: /s/ Sam S. Pepper ------------------------------------------ Sam S. Pepper Its: Vice President LaSALLE BANK NATIONAL ASSOCIATION, as a Bank By: /s/ Henry J. Munez ------------------------------------------ Title: First Vice President M&I MARSHALL & ILSLEY BANK, as a Bank By: /s/ Jeffrey T. Ticknor ------------------------------------------ Title: Senior Vice President and By: /s/ John T. Ronzia ------------------------------------------ Title: Vice President THE BANK OF NOVA SCOTIA, as a Bank By: /s/ J.W. Campbell ------------------------------------------ Title: Managing Director BANK HAPOALIM B.M., as a Bank By: ------------------------------------------ Title: and By: ------------------------------------------ Title: EX-31.1 51 y88779exv31w1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER Exhibit 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John J. Burns, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Alleghany Corporation (the "Registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and we have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: August 13, 2003 /s/ John J. Burns, Jr. --------------------------------------- John. J. Burns, Jr. President and chief executive officer 2 EX-31.2 52 y88779exv31w2.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, David B. Cuming, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Alleghany Corporation (the "Registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and we have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: August 13, 2003 /s/ David B. Cuming -------------------------------------------------- David B. Cuming Senior Vice President and chief financial officer EX-32.1 53 y88779exv32w1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 32.1 ALLEGHANY CORPORATION CERTIFICATION In connection with the periodic report of Alleghany Corporation (the "Company") on Form 10-Q for the period ended June 30, 2003, as filed with the Securities and Exchange Commission (the "Report"), I, John J. Burns, Jr., President and chief executive officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that: (1) the Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated. This Certification, which accompanies the Report, has not been, and shall not be deemed, "filed" with the Securities and Exchange Commission. Date: August 13, 2003 By: /s/ John J. Burns, Jr. -------------------------------------- John J. Burns, Jr. President and chief executive officer EX-32.2 54 y88779exv32w2.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 32.2 ALLEGHANY CORPORATION CERTIFICATION In connection with the periodic report of Alleghany Corporation (the "Company") on Form 10-Q for the period ended June 30, 2003, as filed with the Securities and Exchange Commission (the "Report"), I, David B. Cuming, Senior Vice President and chief financial officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that: (1) the Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated. This Certification, which accompanies the Report, has not been, and shall not be deemed, "filed" with the Securities and Exchange Commission. Date: August 13, 2003 By: David B. Cuming ------------------------------------- David B. Cuming. Senior Vice President and chief financial officer -----END PRIVACY-ENHANCED MESSAGE-----