On April 3, 2012, Flagstone (Gibraltar) Limited (the “Seller”), an indirect subsidiary of Flagstone Reinsurance Holdings, S.A. (“Flagstone”), entered into a Share Purchase Agreement (the “SPA”) with ANV Risk BV (the “Purchaser”) providing for the sale of 100% of the share capital in Flagstone Holdings (UK) Limited (“Flagstone (UK)”), including all its subsidiaries.
The closing of the transaction is subject to the receipt of all regulatory approvals, the receipt of approval by Lloyd’s of London (“Lloyd’s”) and its Franchise Board, the finalization of internal corporate restructurings involving both Flagstone (UK) (and its subsidiaries) and the Purchaser, and other customary conditions. The restructurings are required as a condition for the financing being provided to the Purchaser by Ontario Teachers’ Pension Plan Board (“Ontario Teachers”). Prior to closing, the purchase price to be paid by the Purchaser to the Seller (the “Purchase Price”) will be determined under the terms of the SPA. The Purchase Price will equal the sum of (x) the lesser of (i) an amount equal to the excess of Flagstone (UK)’s consolidated assets (excluding intangibles, goodwill and any deferred corporate tax assets) over Flagstone (UK)’s liabilities (excluding any current or deferred corporate tax liabilities of Flagstone Corporate Name Limited (“FCNL”) relating to the 2009 Lloyd’s year of account), in each case, as shown on Flagstone (UK)’s March 31, 2012 balance sheet, and (ii) £10.5 million, and (y) £25.5 million.
Ontario Teachers has agreed to pay the Purchase Price (capped at £36 million) into escrow five days prior to closing to secure the payment obligations of the Purchaser under the SPA. Further, Ontario Teachers has, subject to specified conditions, irrevocably undertaken to provide or cause to be provided an amount equal to the Purchaser’s funding obligation to Lloyd’s (not to exceed £101.52 million).
At closing the Purchaser also will post funds to satisfy the requirement that FCNL provide capital in respect of its participation as an underwriting member at Lloyd’s. It is expected that such funds will be approximately £101 million. As a result, Flagstone will release approximately £101 million of underwriting capital currently supporting FCNL.
The Seller has agreed to indemnify the Purchaser for breaches of warranties and covenants, subject to specified thresholds and other terms. Claims for such breaches must be asserted within eighteen months following closing or, with respect to any alleged breach of a tax warranty, by the fifth anniversary following closing.