EXHIBIT 10.1
HOME STATE HOLDINGS, INC.
SECURITIES PURCHASE AGREEMENT
Dated as of October 4, 1996
Series A Voting Preferred Stock
and
Class A Warrants
TABLE OF CONTENTS
Page
SECTION 1. SALE AND PURCHASE.....................................................................................1
1.1. Issuance of Shares..................................................................................1
1.2. Issuance of Warrants................................................................................1
1.3. The Closing.........................................................................................2
1.4. Use of Proceeds.....................................................................................3
1.5. Definitions.........................................................................................3
SECTION 2. CONDITIONS TO CLOSING.................................................................................3
2.1. Certificate of Designations; Stockholders' Agreement, etc...........................................3
2.2. Certain Other Agreements............................................................................3
2.3. Accuracy of Representations and Warranties..........................................................4
2.4. Compliance with Agreements; Redemption Events.......................................................4
2.5. Certificates........................................................................................4
2.6. Proceedings.........................................................................................5
2.7. Legality; Governmental and Other Authorization......................................................5
2.8. No Change in Law, etc...............................................................................5
2.9. Opinion of Counsel..................................................................................6
2.10. Payment of Transaction Expenses.....................................................................6
2.11. Company Financial Condition; No Material Adverse Effect.............................................6
2.12. Other Documents and Opinions........................................................................6
2.13. Preferred Director..................................................................................6
2.14. Public Announcements................................................................................6
2.15. Letter to Accountants...............................................................................7
SECTION 3. COMPANY'S CONDITIONS TO CLOSING.......................................................................7
3.1. Accuracy of Representations and Warranties..........................................................7
3.2. Fairness Opinion....................................................................................7
SECTION 4. DEFINITIONS...........................................................................................7
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................................................23
5.1. Corporate Existence, Power and Authority...........................................................23
5.2. Capitalization.....................................................................................24
5.3. Subsidiaries.......................................................................................25
5.4. Business...........................................................................................25
5.5. No Defaults or Conflicts...........................................................................26
5.6. Disclosure Materials; Other Information............................................................27
5.7. Litigation.........................................................................................28
5.8. Taxes..............................................................................................29
5.9. Employee Benefit Plans.............................................................................29
5.10. Legal Compliance...................................................................................30
5.11. Environmental Compliance...........................................................................30
5.12. Status Under Certain Statutes......................................................................31
5.13. Use of Proceeds; No Foreign Assets Control Regulation Violation....................................31
5.14. Outstanding Securities.............................................................................32
5.15. Permits, Filings, Licenses and Approvals; Intellectual Property and Other Rights...................32
5.16. Properties.........................................................................................33
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5.17. Insurance Coverage.................................................................................33
5.18. Key Employees; Labor Matters.......................................................................34
5.19. Indebtedness.......................................................................................34
5.20. No Burdensome Agreements...........................................................................34
5.21. Solvency...........................................................................................34
5.22. Information True and Accurate......................................................................35
5.23. No Brokers or Finders..............................................................................35
5.24. Interested Party Transactions......................................................................36
5.25. Offering of Securities.............................................................................36
5.26. Disaster...........................................................................................36
5.27. Insurance Contracts; Reinsurance; Loss Reserves....................................................36
SECTION 6. REPRESENTATIONS OF THE PURCHASER.....................................................................37
6.1. Corporate Power and Authority. ...................................................................37
6.2. Investor Suitability...............................................................................38
SECTION 7. INFORMATION AS TO COMPANY ...........................................................................38
7.1. Financial and Business Information.................................................................38
7.2. Communication with Accountants.....................................................................41
7.3. Inspection.........................................................................................42
7.4. Notices............................................................................................42
SECTION 8. AFFIRMATIVE COVENANTS................................................................................43
8.1. Maintenance of Existence, Properties and Franchises; Compliance with Law: Taxes; Insurance.........43
8.2. Office for Payment Exchange and Registration; Location of Office; Notice of Change of Name or
Office.............................................................................................44
8.3. Fiscal Year........................................................................................45
8.4. Payment of Dividends by Subsidiaries...............................................................45
8.5. Directors..........................................................................................45
8.6. Environmental Matters..............................................................................45
8.7. Reservation of Shares..............................................................................47
8.8. Listing of Shares..................................................................................47
8.9. Exchange Act Registration..........................................................................47
8.10. Delivery of Information for Rule 144A Transactions.................................................47
8.11. Press Releases.....................................................................................48
8.12. Insurance Company Regulations......................................................................48
8.13. Reinsurance Arrangements...........................................................................48
SECTION 9. NEGATIVE COVENANTS...................................................................................50
9.1. Restricted Payments; Investments...................................................................50
9.2. Sale of Substantial Portion of Assets; Subsidiaries................................................50
9.3. Indebtedness.......................................................................................50
9.4. No Change in Business..............................................................................51
9.5. Consolidation, Merger and Sale.....................................................................51
9.6. Affiliate Loans and Guarantees.....................................................................52
9.7. Transactions with Affiliates.......................................................................52
9.8. Capital Expenditures...............................................................................52
9.9. No Restrictions on Dividends by Subsidiaries.......................................................53
9.10. Private Placement Status...........................................................................53
9.11. No Dilution or Impairment; No Changes in Capital Stock.............................................53
9.12. Maintenance of Public Market.......................................................................54
9.13. Issuances of Stock.................................................................................54
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9.14. Indebtedness Agreements............................................................................55
9.15. Amendments to Charter; By-Laws; Other Agreements...................................................55
SECTION 10. AMENDMENT; WAIVER; CONSENT..........................................................................55
SECTION 11. PURCHASE OPTION; FUTURE SALES.......................................................................56
11.1. Swiss Re Purchase Option...........................................................................56
11.2. Permitted Sales....................................................................................57
SECTION 12. PUT OPTION .........................................................................................58
SECTION 13. REMEDIES............................................................................................59
SECTION 14. RESTRICTIONS ON TRANSFER............................................................................60
SECTION 15. EXPENSES............................................................................................61
SECTION 16. HOME OFFICE PAYMENTS................................................................................63
SECTION 17. EXCHANGE OF SHARES; CANCELLATION OF SURRENDERED SECURITIES; REPLACEMENT.............................63
SECTION 18. NOTICES.............................................................................................64
SECTION 19. MISCELLANEOUS.......................................................................................65
19.1. Entire Agreement...................................................................................65
19.2. Survival...........................................................................................65
19.3. Counterparts.......................................................................................65
19.4. Headings...........................................................................................65
19.5. Binding Effect, Benefit and Assignment.............................................................65
19.6. Severability.......................................................................................66
19.7. Governing Law......................................................................................66
19.8. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.....................................................66
19.9. WAIVER OF JURY TRIAL...............................................................................67
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SECURITIES PURCHASE AGREEMENT dated as of October 4, 1996 (together
with all exhibits and schedules and as from time to time assigned, supplemented
or amended or as the terms thereof may be waived, the "Purchase Agreement") by
and among Home State Holdings, Inc., a Delaware corporation (the "Company",
which term shall also include successors and assigns), and each of the persons
listed on the signature page of this Purchase Agreement (each a "Purchaser", and
together the "Purchasers", which term or terms shall also include successors and
assigns).
W I T N E S S E T H:
In consideration of the mutual covenants and agreements set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
SECTION 1. SALE AND PURCHASE
1.1. Issuance of Shares.
The Company will authorize the issuance of 25,000 shares of Series A
Cumulative Voting Preferred Stock, $0.01 par value per share (the "Series A
Preferred Stock"). The shares of Series A Preferred Stock being acquired under
this Purchase Agreement are herein referred to as the "Preferred Shares,"
containing all the rights and privileges as more fully set forth in the
Certificate of Designations to the Certificate of Incorporation adopted by the
Board of the Company in the form attached hereto as Exhibit A (the "Certificate
of Designations").
1.2. Issuance of Warrants.
(a) The Company, prior to the Closing (as hereinafter defined),
will authorize the issuance of 2,100,000 Class A Warrants (the "Warrants"),
which at the Closing Date (as hereinafter defined) shall entitle the holders
thereof to purchase in the aggregate 2,100,000 shares of the Company's Common
Stock at an exercise price of $9.50 per share, such Warrants to be evidenced by
certificates substantially in the form attached hereto as Exhibit B-1; provided,
however that the certificate representing the Warrants purchased by Reliance
shall be in the form attached hereto as Exhibit B-2. The number of shares of the
Company's Common Stock deliverable upon exercise of the Warrants, and the
exercise price thereof, shall be subject to adjustment as provided in the
Warrants.
(b) The purchase price for shares of the Company's Common Stock
under the Warrants shall, at the option of a holder of a Preferred Share and
pursuant to the terms of the Warrants, be payable in cash and/or by application
of (i) all or any portion of the surrender value (as set forth in Section 8(a)
of the Certificate of Designations), at the date of exercise of the Warrants, of
any such Preferred Share and/or (ii) accrued and unpaid dividends on any
Preferred Shares at the time held by the holder.
1.3. The Closing.
(a) The Company agrees to sell to each Purchaser and, subject to
the terms and conditions hereof and in reliance upon the representations and
warranties of the Company contained herein or made pursuant hereto, each
Purchaser agrees to purchase from the Company, the number of Preferred Shares
and Warrants set forth opposite such Purchaser's name on Schedule A hereto for
the aggregate purchase price set forth opposite such Purchaser's name on
Schedule A hereto (the "Purchase Price"). No further payment shall be required
from the Purchasers for the Preferred Shares and the Warrants.
(b) The closing of the purchase and sale of the Preferred Shares
and the Warrants to be purchased by the Purchasers (the "Closing") will take
place at the offices of Xxxxxx, Xxxxx & Xxxxxxx LLP, 000 Xxxx Xxxxxx, Xxx Xxxx,
Xxx Xxxx at 10:00 A.M., New York City time, on October 4, 1996 or such other
time and date as shall be mutually agreed to by the Company and the Purchasers.
Such time and date are herein referred to as the "Closing Date".
(c) At the Closing (i) the Company will deliver to each Purchaser
(A) a certificate registered in such Purchaser's name (or in any such other name
as such Purchaser may request) evidencing the number of Preferred Shares set
forth opposite such Purchaser's name on Schedule A hereto and (B) a certificate
registered in such Purchaser's name (or in any such other name as such Purchaser
may request) evidencing the number of Warrants set forth opposite such
Purchaser's name on Schedule A hereto, and (ii) upon each Purchaser's receipt
thereof, each Purchaser will deliver to the Company by wire transfer of federal
or other immediately available funds an aggregate amount equal to its respective
Purchase Price.
(d) The Preferred Shares and the Warrants are being sold to the
Purchasers pursuant to this Purchase Agreement. The sale of Preferred Shares and
Warrants to each Purchaser under the Purchase Agreement is a separate sale. No
Purchaser is an indispensable party or must otherwise be joined in any action by
any and/or all of the Purchasers seeking enforcement against the Company of any
covenants or obligations hereunder.
1.4. Use of Proceeds.
The Company will use the proceeds from the sale of the Preferred Shares
and Warrants to increase the capital and surplus of the Company's Insurance
Subsidiaries and to pay for the costs incurred (including those referenced in
clauses (i) through (iv) of Section 14(a) hereof) in respect of this transaction
and for no other purpose.
1.5. Definitions.
Capitalized terms in this Purchase Agreement are used as defined in
Section 4 hereof unless otherwise defined herein.
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SECTION 2. CONDITIONS TO CLOSING
The Purchasers' obligation to purchase the Preferred Shares and
Warrants hereunder is subject to satisfaction of the following conditions at or
prior to the Closing (any of which may be waived by the Purchasers):
2.1. Certificate of Designations; Stockholders' Agreement, etc.
(a) The certificate of incorporation of the Company shall have
been duly amended by the filing of the Certificate of Designations.
(b) The Company, the Purchasers and certain other stockholders of
the Company shall have entered into a Stockholders' Agreement dated the date
hereof (as from time to time assigned, supplemented or amended or as the terms
thereof may be waived, the "Stockholders' Agreement") in the form attached
hereto as Exhibit C.
(c) The Company and the Purchasers shall have entered into a
Registration Rights Agreement dated the date hereof (as from time to time
assigned, supplemented or amended or as the terms thereof may be waived, the
"Registration Rights Agreement") in the form attached hereto as Exhibit D.
(d) The Board of the Company shall have amended the By-Laws of the
Company (after giving effect to such amendments, the "By-Laws"), effective upon
the Closing, which amendments shall be in the form attached hereto as Exhibit E.
2.2. Certain Other Agreements.
The Company shall have entered into the reinsurance agreements,
reinsurance binders and other agreements listed on Schedule B hereto with the
respective Purchasers listed on Schedule B, in form and substance acceptable to
each such Purchaser (the "Additional Agreements").
2.3. Accuracy of Representations and Warranties.
The representations and warranties of the Company herein or in any
Other Transaction Document, the Securities or in any certificate or document
delivered pursuant hereto or thereto shall be correct and complete on and as of
the Closing Date with the same effect as though made on and as of the Closing
Date (after giving effect to the transactions contemplated by this Purchase
Agreement).
2.4. Compliance with Agreements; Redemption Events.
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The Company shall have performed and complied with all agreements,
covenants and conditions contained in this Purchase Agreement, the Other
Transaction Documents, the Securities and any other document contemplated hereby
or thereby which are required to be performed or complied with by the Company on
or before the Closing Date. On the Closing Date (after giving effect to the
transactions contemplated hereby), there shall be no Redemption Event, and there
shall be no condition or event which, with notice or lapse of time or both,
would constitute a Redemption Event.
2.5. Certificates.
Each Purchaser shall have received from the Company the following:
(a) a certificate dated the Closing Date and signed by the
President (or Acting President if there is no President) and by the Assistant
Secretary of the Company, to the effect set forth on Exhibit F-1 hereto
certifying as to the fulfillment of the conditions contained in this Section 2;
(b) a certificate dated the Closing Date and signed by the
President (or Acting President if there is no President) and by the Assistant
Secretary of the Company, to the effect set forth on Exhibit F-2 hereto, having
attached thereto the following:
(i) certified copies of the resolutions duly adopted by the
Board of the Company authorizing the execution, delivery and
performance of this Purchase Agreement, the Other Transaction
Documents, the issuance and sale of the Securities, the
reservation and issuance of the Warrant Shares and the
consummation of all other transactions contemplated by this
Purchase Agreement, the Other Transaction Documents and the
Securities;
(ii) certified copies of the Certificate of Incorporation of
the Company and each of its Subsidiaries, all amendments thereto
and the By-laws of the Company and each of its Subsidiaries, each
as in effect at the Closing;
(iii) certificates of good standing of the Company and each of
its Subsidiaries from their respective states of incorporation or
organization; and
(iv) Certificates of Compliance of each of the Insurance
Subsidiaries from the Directors of Insurance or the equivalent
thereof, from their respective states of incorporation or
organization, as to the authorization of each such Insurance
Subsidiary to carry on the business of insurance and reinsurance.
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2.6. Proceedings.
All corporate and other proceedings in connection with the transactions
contemplated by this Purchase Agreement, the Other Transaction Documents and the
Securities, and all documents incident hereto and thereto, shall be in form and
substance satisfactory to the Purchasers and their counsel, and each Purchaser
shall have received all such originals or certified or other copies of such
documents as any such Purchaser or its counsel may reasonably request.
2.7. Legality; Governmental and Other Authorization.
The purchase of and payment for the Securities shall not be prohibited
by any law or governmental order, rule, ruling, regulation, release,
interpretation or opinion applicable to any Purchaser (without resort to any
so-called "basket clause" under insurance laws relating to permissible
investments for persons regulated by such laws) and shall not subject any
Purchaser to any penalty, tax, liability or other onerous condition. The
Consents set forth in items 3(a) and 3(b) of Schedule 5.5 hereto have been
obtained or made by the Company and shall be in full force and effect (and all
such Consents shall have been delivered to the Purchasers). The Note Holders
shall have amended the existing Registration Rights Agreement in a manner
reasonably satisfactory to each Purchaser. Upon the reasonable request of any
Purchaser, the Company shall have delivered to such Purchaser factual
certificates or other evidence, in form and substance satisfactory to any such
Purchaser and its counsel, establishing compliance with this condition.
2.8. No Change in Law, etc.
No legislation, order, rule, ruling or regulation shall have been
proposed, enacted or made by or on behalf of any Governmental Authority, and no
legislation shall have been introduced in either House of Congress, and no
investigation by any governmental authority shall have been commenced or
threatened, and no action, suit or proceeding shall have been commenced before,
and no decision shall have been rendered by, any court, other Governmental
Authority or arbitrator, which, in any such case, in any Purchaser's reasonable
judgment could adversely affect, restrain, prevent or change the transactions
contemplated by this Purchase Agreement, the Other Transaction Documents and the
Securities (including without limitation the issuance of the Securities) or
materially and adversely affect the assets, properties, liabilities, business,
affairs, results of operations, condition (financial or otherwise) or prospects
of the Company on a consolidated basis.
2.9. Opinion of Counsel.
The Purchasers shall have received opinions, dated the Closing Date and
addressed to each Purchaser, of (a) Xxxxxxx & Xxxxxx, counsel for the Company
and (b) Xxxxxx & Whitney, counsel to Messrs. Xxxxxxx and Xxxxxx and to Xxxxxxx
Partners L.P.. Such opinions shall be in form and substance satisfactory to each
Purchaser and shall be to the effect set forth on Exhibit G-1 and Exhibit G-2
hereto. The Company hereby instructs such counsel to prepare
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and deliver such opinions to the Purchasers pursuant to this Section 2.9 and
agrees that each Purchaser may rely on the opinions so delivered.
2.10. Payment of Transaction Expenses.
Without limiting the provisions of Section 14 hereof, the Company shall
have paid the fees and disbursements of Xxxxxx, Xxxxx & Xxxxxxx LLP, special
counsel to Swiss Re and Reliance, and the out-of-pocket expenses of each
Purchaser.
2.11. Company Financial Condition; No Material Adverse Effect.
Except as set forth in items 1, 2 and 3 of Schedule 5.6, since December
31, 1995, no event or events shall have occurred, and no condition or conditions
shall exist, which could have a Material Adverse Effect; provided that, for
purposes of the condition contained in this Section 2.11, any event or condition
requiring an increase of aggregate claim reserves so that incurred losses are
above an amount equal to 85% of net earned premium for the period from such date
through the Closing shall be deemed a Material Adverse Effect.
2.12. Other Documents and Opinions.
Each Purchaser shall have received such other documents and opinions,
in form and substance satisfactory to each such Purchaser and its counsel,
relating to matters incident to the transactions contemplated hereby, as such
Purchaser may reasonably request.
2.13. Preferred Director.
Pursuant to the Stockholders' Agreement, the Preferred Director shall
have been duly appointed to the Board of the Company as a Class III Director.
2.14. Public Announcements.
Each Purchaser shall have received from the Company, and shall have
approved of (in its reasonable discretion), any press release, media alert,
public announcement or other similar notice or public statement of the Company
related to this Purchase Agreement, any Other Transaction Document or the
Securities or any transaction contemplated hereby or thereby.
2.15. Letter to Accountants.
The Company shall have delivered to Coopers & Xxxxxxx the letter
described in Section 7.2 hereof and each Purchaser shall have received a copy
thereof.
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2.16. Resignation.
Each of Swiss Re and Reliance shall have received the resignation of a
director seated on the Board of the Company on the date hereof which resignation
shall be effective as provided in Section 8.16 hereof.
SECTION 3. COMPANY'S CONDITIONS TO CLOSING
The Company's obligations to issue and sell to each Purchaser the
Securities to be issued by it on the Closing Date are subject to satisfaction of
the following conditions at Closing:
3.1. Accuracy of Representations and Warranties.
The representations and warranties of each Purchaser in Section 6
hereof shall be correct and complete on and as of the Closing Date with the same
effect as though made on and as of the Closing Date.
3.2 Fairness Opinion.
The Company shall have received an opinion, dated the Closing Date and
addressed to the Company and each of the Purchasers, of The Chicago Corporation
to the effect that the sale of the Securities to the Purchasers is fair to the
Company and its stockholders from a financial point of view.
SECTION 4. DEFINITIONS
(a) For purposes of this Purchase Agreement, the following definitions
shall apply (such definitions to be equally applicable to both the singular and
plural forms of the terms defined):
"Additional Agreements" has the meaning set forth in Section 2.2
hereof.
"Additional Securities" has the meaning set forth in Section 11 hereof.
"Additional Stockholders" has the meaning set forth in the
Stockholders' Agreement.
"Affiliate", when used with respect to any Person, means (i) if such
Person is a corporation, any officer or director thereof (other than a director
nominated by the Swiss Re Holders or the Reliance Holders pursuant to the
Stockholders' Agreement) and any Person (other than the Purchasers) which is,
directly or indirectly, the beneficial owner (by itself or as part of any group)
of more than five percent (5%) of any class of any equity security (within the
meaning of the Exchange Act) of such Person, and, if such beneficial owner is a
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partnership, any general or limited partner thereof, or if such beneficial owner
is a corporation, any Person controlling, controlled by or under common control
with such beneficial owner, or any officer or director of such beneficial owner
or of any corporation occupying any such control relationship, (ii) if such
Person is a partnership, any general or limited partner thereof, and (iii) any
other Person which, directly or indirectly, controls or is controlled by or is
under common control with such Person. For purposes of this definition,
"control" (including the correlative terms "controlling", "controlled by" and
"under common control with"), with respect to any Person, shall mean possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise. Notwithstanding the foregoing, for
purposes of this definition, neither the execution of this Purchase Agreement
and the Other Transaction Documents (or the existence of any other agreement or
arrangement among the Company and any Purchaser), nor the holding of any of the
Securities or any securities issued pursuant to this Purchase Agreement or any
Other Transaction Document or under any of the agreements or instruments
relating to such securities issued pursuant to this Purchase Agreement (or the
exercise of any such rights, including without limitation electing a director to
the Board of the Company), shall cause any Purchaser (or such nominated director
or observer of any person related to such Person) to be deemed to be an
"Affiliate" of the Company or of any Subsidiary.
"Available Securities" has the meaning set forth in Section 11.2
hereof.
"Benefit Plan" means any Plan, existing on the Closing Date or
established prior thereto, to which contributions have at any time been made by
the Company or any Subsidiary, or any predecessor of any of the foregoing, or
under which any employee, former employee or director of the Company or any
Subsidiary or any beneficiary thereof is covered, is eligible for coverage or
has benefit rights.
"Board" means, with respect to any Person which is a corporation, a
business trust or other entity, the board of directors or other group, however
designated, which is charged with legal responsibility for the management of
such Person, or any committee of such board of directors or group, however
designated, which is authorized to exercise the power of such board or group in
respect of the matter in question.
"Business Day" means any day, other than a Saturday, Sunday or legal
holiday, on which banks in New York, New York and in the location of the office
of the Company provided for in Section 8.2 hereof are open for business.
"By-Laws" has the meaning set forth in Section 2.1(d) hereof.
"Capital Expenditures" means all expenditures for, or contracts for
expenditures with respect to, any fixed assets or improvements, or for
replacements, substitutions or additions thereto, including, but not limited to,
the direct or indirect acquisition of such assets by way of increased product or
service charges, offset items or otherwise, and including in any case the
8
principal portion of all expenditures under Capitalized Leases, all as
determined in accordance with GAAP (except as otherwise expressly provided
herein); provided that the term "Capital Expenditures" shall not include any of
the foregoing expenditures made with the proceeds from insurance policies to
replace or repair property or assets whose damage, destruction or impairment
gave rise to the right to receive such insurance proceeds.
"Capitalized Leases" means any lease to which the Company or any
Subsidiary is party as lessee, or by which it is bound, under which it leases
any property (real, personal or mixed) from any lessor other than the Company or
a Subsidiary, and which is required to be capitalized in accordance with GAAP.
"Certificate of Designations" has the meaning specified in Section 1.1
hereof.
"Certificate of Incorporation" means the Certificate of Incorporation
of the Company, as amended by the Certificate of Designations.
"Class III Director" means a director duly appointed or elected as a
Class III Director in accordance with the By-Laws and having a term which
expires at the 1999 annual meeting of the Stockholders of the Company.
"Xxxxxxx Act" means Section 7 of the Xxxxxxx Act (15 U.S.C. ss.18).
"Closing" has the meaning set forth in Section 1.3(b) hereof.
"Closing Date" has the meaning set forth in Section 1.3(b) hereof.
"Code" means the United States Internal Revenue Code of 1986, as
amended from time to time, and the regulations and interpretations thereunder.
"Commission" means the United States Securities and Exchange Commission
and any other similar or successor agency of the federal government
administering the Securities Act or the Exchange Act.
"Common Stock" of the Company or of a Subsidiary (as the case may be)
shall mean the Company's or the Subsidiary's (as the case may be) presently
authorized Common Stock, and any stock into which such Common Stock may
hereafter be changed or for which such Common Stock may be exchanged after
giving effect to the terms of such change or exchange (by way of reorganization,
recapitalization, merger, consolidation or otherwise) and shall also include any
Common Stock of the Company or of a Subsidiary (as the case may be) of any other
class hereafter authorized which is not preferred as to dividends or assets over
any other class of capital stock of the Company or a Subsidiary (as the case may
be) or which has ordinary voting power for the election of directors of the
Company or of a Subsidiary (as the case may be).
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"Company" means Home State Holdings, Inc., a Delaware corporation, and
its successors and assigns.
"Consents" has the meaning set forth in Section 5.5 hereof.
"Consolidated" or "consolidated", when used with reference to any
financial term in this Purchase Agreement, means the aggregate for the Company
and its Subsidiaries of the amounts signified by such term for all such Persons,
with intercompany items eliminated, and, with respect to net worth, after
eliminating the portion of net worth properly attributable to minority
interests, if any, in the capital of any such Person (other than in the capital
of the Company) and otherwise as determined in accordance with GAAP (except as
otherwise expressly provided herein).
"Debt Investments" means any Investment of the type described in
subsection (i) of the definition thereof.
"Default Director" has the meaning set forth in the Stockholders'
Agreement.
"Disclosure Material" has the meaning set forth in Section 5.6(a)
hereof.
"Environmental Claim" means any and all administrative or judicial
actions, suits, orders, claims, liens, notices, notices of violations,
investigations, complaints, requests for information, proceedings, or other
communication (written or oral), whether criminal or civil, (collectively,
"Claims") pursuant to or relating to any applicable Environmental Law or any
Environmental Permit by any person (including but not limited to any
Governmental Authority, private person and citizens' group) based upon,
alleging, asserting, or claiming any actual or potential (i) violation of or
liability under any Environmental Law, (ii) violation of any Environmental
Permit, or (iii) liability for investigatory costs, cleanup costs, removal
costs, remedial costs, response costs, natural resource damages, property
damage, personal injury, fines, or penalties arising out of, based on, resulting
from, or related to the presence, Release, or threatened Release into the
environment, of any Hazardous Materials at any location, including but not
limited to any off-Site location to which Hazardous Materials or materials
containing Hazardous Materials were sent for handling, storage, treatment, or
disposal.
"Environmental Laws" means all current and future, federal, state,
local, foreign, civil and criminal laws, statutes, ordinances, orders, codes,
Environmental Permits, rules, policies, and regulations and common law relating
to the protection of the environment and human health or relating to the
handling, use, generation, treatment, storage, transportation or disposal of
Hazardous Materials, including but not limited to the Resource Conservation and
Recovery Act of 1976, 42 U.S.C. SS.6901 et seq.; the Toxic Substances Control
Act, 15 U.S.C. SS.2601 et seq.; the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. SS.9601 et seq.; the Federal
Water Pollution Control Act, 33 U.S.C. SS.1251 et seq.; the Clean Air Act, 42
U.S.C. SS.7401 et seq.; the Hazardous Materials Transportation Act,
10
49 U.S.C. SS.1801 et seq.; the Occupational Safety and Health Act, 29 U.S.C.
SS.651; the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. SS.136y
et seq.; and the Oil Pollution Act of 1990, 33 U.S.C. SS.2701 et seq.; and all
the state analogues thereto, all as may be amended or superseded from time to
time.
"Environmental Lien" has the meaning set forth in Section 8.6 hereof.
"Environmental Permits" means all permits, licenses, approvals,
authorizations or consents required by any Governmental Authority under any
applicable Environmental Law and includes any and all orders, consent orders or
binding agreements issued or entered into by a Governmental Authority under any
applicable Environmental Law.
"Equity Investment" means any Investment of the type described in
subsections (iii) and (v) of the definition thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" means any Person who is, or at any time was, a member
of a controlled group (within the meaning of Section 412(n)(6) of the Code) that
includes, or at any time included, the Company or any Subsidiary, or any
predecessor of any of the foregoing.
"Exchange Act" means the United States Securities Exchange Act of 1934,
as amended from time to time, and the rules, regulations and interpretations
thereunder.
"Existing Purchase Agreement" means the Purchase Agreement dated
October 3, 1994 among the Company and the investors listed therein pursuant to
which the Company issued Subordinated Notes and Existing Warrants.
"Existing Registration Rights Agreement" means the Registration Rights
Agreement dated October 3, 1994 executed in connection with the Existing
Purchase Agreement, as amended contemporaneously herewith as contemplated by
Section 2.7 hereof.
"Existing Warrants" means the Stock Purchase Warrants issued pursuant
to or in connection with the Existing Purchase Agreement entitling the holders
thereof to acquire 265,000 shares of Common Stock.
"Full Cumulative Dividends" has the meaning set forth in the
Certificate of Designations.
"GAAP" means United States generally accepted accounting principles
consistently applied.
11
"Governmental Authority" means any federal, state, local or county
governmental agency, department, board, commission, instrumentality or authority
(including regulatory authority) of the United States or any foreign nation or
any self regulatory organization having jurisdiction over the Company (or any
Subsidiary) or any of their respective assets or businesses.
"Guaranty" means (i) any guaranty or endorsement of the payment or
performance of, or any contingent obligation in respect of, any Indebtedness or
other obligation of any other Person, (ii) any other promise or undertaking by a
Person which supports the extension or continuance of credit to an obligor
(directly or indirectly) and which promise or undertaking of such Person is
(a) to pay the Indebtedness of such obligor, (b) to purchase an obligation owed
by such obligor, (c) to purchase or lease assets (or to provide funds, goods or
services) under circumstances that would enable such obligor to discharge one or
more of its obligations, or (d) to maintain the capital, working capital,
solvency or general financial condition of such obligor, in each case whether or
not such arrangement is disclosed in the balance sheet of such other Person or
is referred to in a footnote thereto and (iii) any liability as a general
partner of a partnership in respect of Indebtedness or other obligations of such
partnership; provided, however, that the term "Guaranty" shall not include
(1) endorsements for collection or deposit in the ordinary course of business or
(2) obligations of the Company or any Subsidiary which would constitute
Guaranties solely by virtue of the continuing liability of a Person which has
sold assets subject to liabilities for the liabilities which were assumed by the
Person acquiring the assets, unless such liability is required to be carried on
the consolidated balance sheet of the Company. The amount of any Guaranty and
the amount of Indebtedness or of Investment resulting from such Guaranty shall
be the maximum amount of the guarantor's potential obligation in respect of such
Guaranty.
"Gulkin Transaction" means the transactions contemplated by the letter
of intent dated August 14, 1996 from the Company to National Premium Plan, Inc.
and Xxxxxxx X. Xxxxxx, including the acquisition by a newly organized Subsidiary
of the Company of the Common Stock of NPP, a licensed premium finance company
that has not yet commenced operations, for the purpose of expanding Tower Hill's
premium finance business.
"Hazardous Materials" means any petroleum, petroleum hydrocarbons,
petroleum waste or petroleum products, underground storage tanks, asbestos or
asbestos-containing materials, pesticides, lead and lead-containing materials,
urea formaldehyde insulation and polychlorinated biphenyls (PCBs), ionizing and
non-ionizing radiation (including radon and electromagnetic frequency
radiation); and any chemicals, materials, substances or wastes in any amount or
concentration which are now or hereafter become defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants" or words of similar import, under any Environmental Law.
"Indebtedness" of any Person means, without duplication, as of any date
as of which the amount thereof is to be determined:
12
(i) all obligations of such Person to repay money borrowed
(including without limitation all notes payable and drafts
accepted representing extensions of credit, all obligations
under letters of credit, all obligations evidenced by bonds,
debentures, notes or other similar instruments and all
obligations upon which interest charges are customarily paid);
(ii) all Capitalized Leases in respect of which such Person is liable
as lessee or as the guarantor of the lessee;
(iii) all monetary obligations which are secured by any Lien existing
on property owned by such Person whether or not the obligations
secured thereby have been incurred or assumed by such Person and
all monetary obligations with respect to which a financing
statement under the Uniform Commercial Code or any similar
statute has been filed or recorded;
(iv) all conditional sales contracts and similar title retention debt
instruments under which such Person is obligated to make
payments;
(v) with respect to the Company and any Subsidiaries, all Preferred
Stock of the Company or any Subsidiary held by any person other
than the Company or a wholly owned Subsidiary;
(vi) all Guaranties by such Person; and
(vii) all contractual obligations (whether absolute or contingent) of
such Person to repurchase goods sold or distributed.
"Insurance License" has the meaning set forth in Section 5.15(b).
"Insurance Subsidiaries" means, collectively, Home State Insurance
Company, a New Jersey corporation, Quaker City Insurance Company, a Pennsylvania
corporation, New York Merchant Bakers Insurance Company, a New York corporation,
Pinnacle Insurance Company, a Georgia corporation, Home Mutual Insurance Company
of Binghamton, New York, a New York mutual property and casualty insurance
company, and Xxxxxxxxx Insurance Company, a Connecticut corporation (and any
successor or successors thereto), and any other Subsidiary of the Company which
now, or at any time hereafter, (i) is organized as an insurance or reinsurance
company under the laws of any jurisdiction or (ii) is engaged in the business of
writing insurance or reinsuring risks.
"Investment" means, with respect to any Person:
13
(i) any loan, advance or extension of credit to, any contributions
to the capital of, and the purchase of bonds, notes, debentures
or other debt securities of, any other Person;
(ii) any Guaranty by such Person;
(iii) any interest in any capital stock or other securities of any
other Person;
(iv) any transfer or sale of property of such Person to any other
Person other than upon full payment, in cash, of not less than
the agreed sale price or the fair value of such property,
whichever is higher;
(v) any acquisition by such Person of all or an integral part of the
business of any other Person or the assets comprising such
business or such part thereof; and
(vi) any commitment or option to make an Investment if, in the case
of an option, the consideration therefor exceeds $10,000.
Any of the foregoing under clauses (i) through (vi) shall be considered
an Investment whether such Investment is acquired by purchase, exchange, merger
or any other method.
"Investors" has the meaning set forth in Section 11.2 hereof.
"Junior Preferred Stock" means any Preferred Stock to which the
Preferred Shares rank prior, in each case, as to dividends, upon liquidation,
dissolution or winding up. All Preferred Stock of the Company other than the
Preferred Shares shall be Junior Preferred Stock.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), or preference, priority or
other security interest of any kind or nature whatsoever (including without
limitation any conditional sale or other title retention agreement, any
financing lease having substantially the same effect as any of the foregoing,
any assignment or other conveyance of any right to receive income and any
assignment of receivables with recourse against the assignor), any filing of a
financing statement as debtor under the Uniform Commercial Code or any similar
statute and any agreement to give or make any of the foregoing.
"Material Adverse Effect" means any event, matter, condition or
circumstance which (i) has or could reasonably be expected to have a material
adverse effect on the assets, properties, liabilities, business, affairs,
results of operations, condition (financial or otherwise) or prospects of
(x) any Subsidiary of the Company which, as of the date any determination is
made as to the existence of a Material Adverse Effect, contributed twenty-five
percent (25%) of the Company's consolidated revenues for the prior fiscal year
or (y) the Company on a consolidated basis, (ii) has or could reasonably be
expected to have an effect which is prejudicial in any
14
material respect to a holder of Securities, (iii) has or could reasonably be
expected to have a material adverse effect on the ability of the Company to
perform its obligations under this Purchase Agreement, the Other Transaction
Documents or the Securities or (iv) which results in or requires the making of a
Restricted Payment (whether or not permitted hereunder and whether or not
expressly consented to by the Purchasers) in excess of $100,000 in any year or
$750,000 cumulatively from the date of this Purchase Agreement to the date of
such event, matter, condition or circumstance.
"Note Holders" means the holders of Subordinated Notes.
"NPP" means NPP Funding Company, a New York corporation.
"Operating Lease" means, for any Person, any lease of any property of
any kind by that Person as lessee which is not a Capitalized Lease.
"Option" has the meaning set forth in Section 11.2 hereof.
"Option Period" has the meaning set forth in Section 11 hereof.
"Other Transaction Documents" means, collectively, the Certificate of
Designations, the Stockholders' Agreement, the Registration Rights Agreement and
the Additional Agreements (each as amended, modified or supplemented from time
to time) and any other documents, agreements, instruments or certificates
contemplated hereby or thereby.
"Outstanding" or "outstanding" means, when used with reference to the
Preferred Shares, the Warrants or the Warrant Shares (as the case may be) as of
a particular time, all such Securities theretofore duly issued except
(i) Securities theretofore reported as lost, stolen, mutilated or destroyed or
surrendered for transfer, exchange or replacement, in respect of which new or
replacement Securities have been issued by the Company, (ii) Warrants
theretofore fully exercised, and (iii) Preferred Shares theretofore surrendered
to and canceled by the Company, whether upon exercise of a Warrant in whole or
in part or otherwise; provided, however, that for the purpose of determining
whether holders of the requisite amount of Preferred Shares, Warrants or Warrant
Shares (as the case may be) have made or concurred in any declaration, waiver,
consent, approval, notice, annulment of acceleration or other communication
under this Purchase Agreement, any Other Transaction Document or under any
Securities, Securities registered in the name of, as well as Securities owned
beneficially by, the Company or any Subsidiary shall not be deemed to be
outstanding.
"Permitted Acquisition" means an acquisition, other than an acquisition
of stock or assets occurring between two (2) or more Insurance Subsidiaries, by
the Company or any Subsidiary, of equity securities or all or substantially all
of the assets of a Person which meet the following criteria:
15
(i) such Person is in the same general line of business as the
Company and the Subsidiaries (or the assets to be acquired are
utilized in such line of business);
(ii) the acquisition has been approved by the Board of the Company
(or of a Subsidiary, as the case may be) and the Board of such
Person;
(iii) no Redemption Event is existing at the time of such acquisition
or is caused thereby;
(iv) all Consents necessary in connection with such acquisition shall
have been obtained;
(v) all such equity securities or assets are to be acquired free and
clear of all liens, other than Permitted Liens and any such
equity securities are free of any restrictions on transfer under
federal or state securities laws;
(vi) the Company (or Subsidiary, as the case may be) is the surviving
entity;
(vii) each Purchaser shall have received prompt notice from the
Company of the proposed acquisition together with a copy of any
letter of intent or term sheet in respect of such proposed
acquisition, and all the terms of such proposed acquisition as
set forth in such letter of intent or term sheet shall have been
approved in a writing delivered by each Purchaser and its
counsel to the Company. The Company also shall promptly furnish
(as available) to each Purchaser copies of all documents,
instruments and agreements to be entered into in connection with
such proposed acquisition, and such documents, instruments and
agreements shall have been reviewed and finally approved by each
Purchaser not later than ten (10) Business Days prior to the
closing of such acquisition.
"Permitted Investment" means (i) any short-term Debt Investment
(maturing not more than three (3) years from the date of issue) (A) rated A-2 or
above by S&P or P-2 or above by Xxxxx'x or (B) issued or directly and fully
guaranteed or insured by the United States Government or any agency or
instrumentality thereof; (ii) any Equity Investment (subject to the proviso
below); (iii) any long-term Debt Investment (having a maturity of more than
three (3) years after the date of issue) rated BBB or above by S&P or Baa2 or
above by Xxxxx'x; and (iv) Investments in commercial real estate (subject to the
proviso below); provided, however, that all such Investments shall be in
accordance with all applicable laws, and provided further that (x) total Equity
Investments (other than Equity Investments in the Company, Quaker City or any
wholly owned Subsidiary) by each of the Company and each Subsidiary shall not
exceed ten percent (10%) of their respective total Investments, and (y) total
Investments in commercial real estate by each of the Company and each Subsidiary
shall not exceed five percent (5%) of their respective total Investments.
16
"Permitted Liens" shall mean:
(i) Liens existing as of the date of this Agreement and identified
on Schedule 5.19, securing Indebtedness of the Company or any
Subsidiary outstanding on such date;
(ii) Liens for taxes, assessments or other governmental charges or
claims that are not yet delinquent or that are being contested
in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided, that any reserve or other
appropriate provision as shall be required in conformity with
GAAP shall have been made therefor;
(iii) Liens imposed by law such as carriers', warehousemen's,
mechanics', landlords', materialmen's, repairmen's or other
similar Liens arising in the ordinary course of business,
provided that the underlying obligations relating to such Liens
are not delinquent or remain payable without penalty or are
being contested in good faith and by appropriate proceedings;
(iv) Liens on the property of the Company or any Subsidiary incurred,
or pledges, or deposits, required, in connection with workmen's
compensation, unemployment insurance and other social security
legislation;
(v) Easements, rights-of-way, restrictions and other encumbrances
incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in
any case materially detract from the value of the property
subject thereto or interfere with the ordinary conduct of the
businesses of the Company or any Subsidiary; and
(vi) Purchase money Liens on any office equipment hereafter acquired
or the assumption of any Lien on office equipment existing at
the time of a Permitted Acquisition, or a Lien incurred in
connection with any conditional sale or other title retention
agreement or a Capitalized Lease affecting office equipment,
provided that:
(a) Any property subject to any of the foregoing is acquired by
the Company or a Subsidiary in the ordinary course of
business or pursuant to a Permitted Acquisition and the Lien
on any such property is created contemporaneously with its
acquisition or was, in connection with a Permitted
Acquisition, created previously by the Person from whom such
property was acquired by the Company or the Subsidiary;
17
(b) The obligation secured by any Lien so created, assumed, or
existing shall not exceed one hundred percent (100%) of the
lesser of cost or fair market value of the property acquired
as of the time of such Person acquiring the same; and
(c) Each such Lien shall attach only to the property so acquired
and fixed improvements thereon.
"Permitted Sale" has the meaning set forth in Section 11.2 hereof.
"Person" or "person" means an individual, corporation, company,
partnership, firm, association, joint venture, trust, unincorporated
organization, government, governmental body, agency, political subdivision or
other entity.
"Plan" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance, severance,
separation or other employee benefit plan, practice, policy or arrangement of
any kind, whether written or oral, or whether for the benefit of a single
individual or more than one individual including, but not limited to, any
"employee benefit plan" within the meaning of Section 3(3) of ERISA.
"Preferred Director" has the meaning set forth in the Stockholders'
Agreement.
"Preferred Share" or "Preferred Shares" has the meaning set forth in
Section 1.1 hereof. In the event that any Preferred Shares are sold either in a
public offering pursuant to an effective registration statement under Section 6
of the Securities Act or pursuant to a Rule 144 Transaction, such Preferred
Shares shall thereupon be deemed shares of Series A Preferred Stock and not
subject to the terms and conditions of this Purchase Agreement.
"Preferred Stock" means any class of the capital stock of a corporation
(whether or not convertible into any other class of capital stock of such
corporation) which has any right, whether absolute or contingent, to receive
dividends or other distributions of the assets of such corporation (including
without limitation amounts payable in the event of the voluntary or involuntary
liquidation, dissolution or winding-up of the Company), which right is superior
to the rights of another class of the capital stock of such corporation.
"Preferred Stock" of the Company includes, without limitation, the Series A
Preferred Stock of the Company.
"Purchase Agreement" has the meaning set forth in the first paragraph
hereof.
18
"Purchaser" and "Purchasers" have the meaning set forth in the first
paragraph hereof.
"Purchase Price" has the meaning set forth in Section 1.3(a) hereof.
"Quaker City" means Quaker City Holdings, Inc., a Delaware corporation.
"Qualified Holder" has the meaning set forth in Section 7.1(b) hereof.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, or disposing of a
Hazardous Material into the environment.
"Reliance" means Reliance Insurance Company, a Pennsylvania
corporation.
"Reliance Holder" means, so long as such person is holding Preferred
Shares, Warrants and/or Warrant Shares, Reliance and any transferee
obtaining such Preferred Shares, Warrants and/or Warrant Shares from a Reliance
Holder as permitted hereunder.
"Reliance Reinsurance Agreement" has the meaning set forth on Schedule
B hereto.
"Reliance Services Agreement" has the meaning set forth on Schedule B
hereto.
"Redemption Default" has the meaning set forth in the Stockholders'
Agreement.
"Redemption Event" has the meaning set forth in the Certificate of
Designations.
"Restricted Payment" means:
(i) every dividend or other distribution declared paid, made or set
apart by the Company or any Subsidiary on or in respect of any
class of its capital stock (except with respect to the Series A
Preferred Stock), provided that if and so long as (I) Full
Cumulative Dividends (as defined in the Certificate of
Designations) have been paid in full, (II) all other amounts due
with respect to the Preferred Shares have been paid, (III) no
holder of Series A Preferred Stock has exercised such holder's
redemption rights under Section 6(b) of the Certificate of
Designations and the date of redemption established pursuant to
Section 6(d) of the Certificate of Designations shall not yet
have occurred, and (IV) the Company has not called for
redemption any of the Series A Preferred Stock pursuant to
Section 6(a) or Section 7 of the Certificate of Designations, as
the case may be, and the date of redemption established pursuant
to Section 6(a)
19
or Section 7(c) of the Certificate of Designations, as the case
may be, shall not yet have occurred, then the following shall
not constitute "Restricted Payments": (x) cash dividends, with
respect to a fiscal year of the Company, up to the lesser of
$0.05 per share of Common Stock (adjusted for stock splits,
stock dividends or the like) or five percent (5%) of the
Company's consolidated net after-tax earnings for such fiscal
year and (y) (notwithstanding the limitation in the preceding
clause (x)) cash dividends permitted to be made pursuant to
Section 8.4 hereof solely for the purpose of providing to the
Company funds sufficient to enable the Company to pay on a
timely basis all amounts due with respect to the Securities and
any other amounts due to the Purchasers under this Purchase
Agreement and the Other Transaction Documents;
(ii) every payment in connection with the redemption, purchase,
retirement or other acquisition by or on behalf of the Company
or any Subsidiary of any shares of the Company's or a
Subsidiary's capital stock (other than with respect to the
Series A Preferred Stock), whether or not owned by the Company
or any Subsidiary; except for (A) payments made with respect to
the capital stock of the Company's wholly owned Subsidiaries
(provided that any such payments shall not exceed an aggregate
of more than $50,000 in any fiscal year); and (B) payments with
respect to the redemption or purchase of Common Stock of the
Company or rights therein issued pursuant to
Section 6.3(d)(iii) of the Home State Holdings, Inc. 1993 Stock
Option Plan as in effect on the date hereof;
(iii) any prepayments (in part or in full) or unscheduled repayments
made on Indebtedness of the Company or of a Subsidiary
including, without limitation, any prepayments (in part or in
full) or unscheduled repayments made with respect to the
Subordinated Notes, but excluding (A) prepayments and
unscheduled repayments made on lines of credit or other
revolving credit facilities, whether or not committed, of the
Company or any Subsidiary in the ordinary course of business and
(B) other prepayments and unscheduled repayments of Indebtedness
in the ordinary course of business that shall not exceed an
aggregate of $250,000 in any fiscal year of the Company;
(iv) every payment (other than a payment to any Affiliate permitted
under Section 9.7) to or on behalf of any Affiliate of the
Company or any Affiliate of any Subsidiary on account of or with
respect to any lease arrangements;
(v) every payment by or on behalf of the Company or any Subsidiary
(whether as repayment or prepayment of principal or as interest
20
or otherwise) on or with respect to (A) any obligation to repay
money borrowed and owing to any Affiliate of the Company or of
any Subsidiary (other than a holder of a Subordinated Note), or
(B) any obligation, to any Person, of any Affiliate of the
Company or of any Subsidiary or to any other holder of shares of
the Company's capital stock (defined to include warrants and
other rights and options to acquire shares of capital stock
whether upon exercise, conversion, exchange or otherwise), which
obligation is assumed, or is the subject of a Guaranty, by the
Company or a Subsidiary; and
(vi) every payment by the Company or a Subsidiary to a Subsidiary
excluding, however (A) payments to a Subsidiary pursuant to a
transaction that is permitted under Section 9.7, and
(B) payments of a dividend or other distribution to a Subsidiary
that is not a "Restricted Payment" pursuant to clause (i) above;
provided, however, the term "Restricted Payments" shall not
include (A) intercompany transfers (whether by means of investment,
payments, loans, advances, capital distributions or dividend payments)
by and between the Company and any Subsidiary or between Subsidiaries,
and (B) any dividend payments or distributions to the Purchasers (or
holders of any of the Securities) under the Purchase Agreement, any
Other Transaction Document or the Securities.
"Rule 144" means (i) Rule 144 under the Securities Act as such Rule is
in effect from time to time, and (ii) any successor rule, regulation or law, as
in effect from time to time.
"Rule 144A" means (i) Rule 144A under the Securities Act as such Rule
is in effect from time to time and (ii) any successor rule, regulation or law,
as in effect from time to time.
"Rule 144 Transaction" means a transfer of Securities (A) complying
with Rule 144 under the Securities Act as such Rule is in effect on the date of
such transfer (but not including a sale other than pursuant to a "brokers
transaction" as defined in clauses (1) and (2) of paragraph (g) of such Rule as
in effect on the date hereof) and (B) occurring at a time when Securities are
registered pursuant to Section 12 of the Exchange Act (or any successor to such
Section).
"SAP" means, with respect to a reinsurance or insurance company, the
accounting procedures and practices prescribed or permitted from time to time by
the National Association of Insurance Commissioners and adopted or promulgated
by the insurance regulatory authority in the state in which such reinsurance or
insurance company is domiciled and employed in a consistent manner throughout
the periods involved.
21
"Second Round Investors" has the meaning set forth in Section 11.2
hereof.
"Second Round Securities" has the meaning set forth in Section 11.2
hereof.
"Securities" means, collectively, the Preferred Shares, the Warrants
and the Warrant Shares and any Additional Securities purchased by Swiss Re
pursuant to Section 11.1 hereof.
"Securities Act" means the United States Securities Act of 1933, as
amended from time to time, and the rules, regulations and interpretations
thereunder.
"SEC Documents" has the meaning set forth in Section 5.6(d) hereof.
"Xxxxxxx Act" means Sections 1 and 2 of the Xxxxxxx Act (15 U.S.C. ss.1
and 2).
"Site" means any of the real properties currently or previously owned,
leased or operated by the Company, any Subsidiary, any predecessors of the
Company or any Subsidiary, or any entities previously owned by the Company or
any Subsidiary, including all soil, subsoil, surface waters and groundwater
thereat.
"Sterling Bid Agreement" has the meaning set forth on Schedule B
hereto.
"Stockholders' Agreement" has the meaning set forth in Section 2.1(b)
hereof.
"Stock Option Plan" means any option, warrants, rights, incentive or
other plan approved by the Board of Directors of the Company (as of the date
hereof) pursuant to which the Company or the Subsidiaries may grant, issue or
award options, warrants or other rights to acquire Common Stock of the Company
or appreciation or similar rights with respect thereto; provided that the
aggregate number of shares of such Common Stock issued, issuable or subject to
all such Stock Option Plans or represented by appreciation or similar rights
shall not exceed ten percent (10%) of the issued and outstanding Common Stock of
the Company as of the date hereof.
"Subordinated Notes" means the 11.50% Subordinated Notes due October 3,
2004 issued by the Company pursuant to the Existing Purchase Agreement.
"Subsidiary", with respect to any Person, means any corporation,
association or other entity controlled by such Person. For purposes of this
definition, "control" with respect to any Person, shall mean possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise. The term "Subsidiary" or "Subsidiaries"
when used herein without reference to any particular Person, means a Subsidiary
or Subsidiaries of the Company which may now or hereafter exist.
22
"Swiss Re" means Swiss Reinsurance America Corporation, a New York
corporation.
"Swiss Re Holder" means, so long as such person is holding Preferred
Shares, Warrants and/or Warrant Shares, Swiss Re and any transferee obtaining
such Preferred Shares, Warrants and/or Warrant Shares from a Swiss Re Holder as
permitted hereunder.
"Swiss Re Reinsurance Binder" has the meaning set forth on Schedule B
hereto.
"Swiss Re Letter Agreement" has the meaning set forth on Schedule B
hereto.
"Swiss Re Services Agreement" has the meaning set forth on Schedule B
hereto.
"Tower Hill" means Tower Hill, Inc., a Delaware corporation.
"Tower Hill Receivables Financing" means the securitization of premium
finance receivables on commercially reasonable terms of Tower Hill, NPP or a new
Subsidiary to be established pursuant to the Gulkin Transaction in the manner
contemplated in that certain letter of Xxxxxxx Xxxxx, Vice President, Chase
Securities, Inc., to Xxxxxx Xxxxxx, Managing Director, Lutine Corporation, dated
September 3, 1996, and which securitization shall not require expenditure by the
Company of an aggregate amount in excess of two percent (2%) of the total
financing commitment, provided that such amount (excluding legal, accounting and
other professional fees of up to $350,000 in the aggregate) shall in no event
exceed $1,000,000.
"Warrants" has the meaning set forth in Section 1.2(a) hereof.
"Warrant Shares" means the shares of the Company's Common Stock
obtained or obtainable upon exercise of the Warrants and shall also include any
capital stock or other securities into which Warrant Shares are changed or for
which such Warrant Shares may be exchanged after giving effect to the terms of
such change or exchange (by way of reorganization, recapitalization, merger,
consolidation or otherwise) and any capital stock or other securities resulting
from or comprising a reclassification, combination or subdivision of, or a stock
dividend on, any Warrant Shares. In the event that any Warrant Shares are sold
either in a public offering pursuant to a registration statement under Section 6
of the Securities Act or pursuant to a Rule 144 Transaction, then the
transferees of such Warrant Shares shall not be entitled to any benefits under
this Purchase Agreement with respect to such Warrant Shares.
(b) For all purposes of this Purchase Agreement, except as otherwise
expressly provided or unless the context otherwise requires:
(i) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Purchase Agreement as a whole and
not to any particular Section or other subdivision;
23
(ii) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP (except as
otherwise expressly provided herein);
(iii) all computations provided for herein shall be made in accordance
with GAAP (except as otherwise expressly provided herein);
(iv) any uses of the masculine, feminine or neuter gender shall also
be deemed to include any other gender, as appropriate;
(v) all references herein to actions by the Company or any
Subsidiary, such as "create", "sell", "transfer", "dispose of",
etc., means such action, whether voluntary or involuntary, by
operation of law or otherwise;
(vi) the exhibits and schedules to this Purchase Agreement shall be
deemed a part of this Purchase Agreement;
(vii) each of the representations and warranties of the Company
contained in Section 5 hereof is separate and is not limited,
qualified or modified by the existence, wording or satisfaction
of any other representation or warranties of the Company in
Section 5 or otherwise;
(viii) each of the covenants of the Company contained in Sections 7, 8
and 9 hereof or otherwise contained in the Other Transaction
Documents or the Securities is separate and is not limited or
satisfied by the existence, wording or satisfaction of any other
covenant of the Company in Sections 7, 8 or 9 or otherwise; and
(ix) all references herein (in covenants or otherwise) to any
action(s) which are to be taken (or which are prohibited from
being taken) by any Person, the Company or any Subsidiary shall
apply to such Person, the Company or such Subsidiary, as the
case may be, whether such action is taken directly or
indirectly.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Purchaser as follows as of
the date hereof and as of the Closing Date:
5.1. Corporate Existence, Power and Authority.
(a) The Company and each Subsidiary is a corporation or limited
liability company duly organized, validly existing and, except with respect to
the Subsidiaries as set forth
24
on Part B of Schedule 5.1, in good standing under the laws of its state or other
jurisdiction of incorporation. The Company and, except as set forth on Part A of
Schedule 5.1, each Subsidiary, is duly qualified, licensed and authorized to do
business and is in good standing in each jurisdiction in which it owns or leases
any material property or in which the conduct of its business requires it to be
so qualified or licensed.
(b) No proceeding has been commenced looking toward the
dissolution or merger of the Company or any Subsidiary. Except for the
amendments effected by the filing of the Certificate of Designations and except
as contemplated by Section 8.15 hereof and except as set forth in part B of
Schedule 5.1, no proceeding has been commenced looking toward the amendment of
the respective certificate or articles of incorporation of the Company or any
Subsidiary (as the case may be). Neither the Company nor any Subsidiary is in
violation in any respect of its certificate or articles of incorporation or
by-laws.
(c) The Company and each Subsidiary has all requisite power,
authority (corporate and other) and legal right to own or to hold under lease
and to operate the properties it owns or holds and to conduct its business as
now being conducted.
(d) The Company and each Subsidiary has all requisite power,
authority (corporate and other) and legal right to execute, deliver, enter into,
consummate and perform the transactions contemplated by this Purchase Agreement,
each Other Transaction Document to which it is a party and the Securities to be
or being issued by it (including without limitation the issuance by the Company
of the Preferred Shares, the Warrants and the Warrant Shares as contemplated
herein and therein). The execution, delivery and performance by the Company and
each Subsidiary of this Purchase Agreement, each Other Transaction Document to
which it is a party and the Securities to be or being issued by it (including
without limitation the issuance by the Company of the Preferred Shares, the
Warrants and the Warrant Shares as contemplated herein and therein) have been
duly authorized by all required corporate and other actions. The Company has
duly executed and delivered this Purchase Agreement and each Other Transaction
Document and, at Closing, will duly execute and deliver the Warrants and the
Preferred Shares. This Purchase Agreement and each Other Transaction Document
constitute the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms. The Preferred
Shares and the Warrants at closing will constitute, and the Warrant Shares when
issued in accordance with the terms of the Warrants, will constitute, the legal,
valid and binding obligations of the Company, enforceable in accordance with
their respective terms.
5.2. Capitalization.
(a) The authorized capital stock of the Company consists of:
(i) 10,000,000 shares of Common Stock, par value $0.01 per share;
and, (ii) after giving effect of the Certificate of Designations, 25,000 shares
of Series A Preferred Stock. Items (a) and (b) of Schedule 5.2 sets forth
(x) the number of shares of Common Stock issued and outstanding on the Closing
Date
25
and certain owners thereof, and (y) the shares of Series A Preferred Stock of
the Company that will be issued and outstanding on the Closing Date and the
owners thereof, which ownership in each case is free and clear of all Liens,
options, restrictions, claims or third party rights of any kind (other than
those created by such owner). At Closing, all of such shares of capital stock
will be duly authorized and validly issued and will be outstanding and fully
paid and non-assessable. All of the shares of the Company's Common Stock
issuable upon exercise of the Warrants will, when issued, be duly authorized,
validly issued, fully paid and non-assessable. None of the shares of the
Company's capital stock or other securities which will be outstanding at
Closing, or which will be outstanding upon exercise of the Warrants, will be
subject to preemptive rights or provide the holders thereof with any preemptive
rights with respect to any issuance of capital stock. On the Closing Date, no
other shares of capital stock of the Company will be outstanding or held in the
Company's treasury.
(b) Except as set forth on item (c) of Schedule 5.2, the
only shares of the Company's Common Stock reserved for issuance by the Company
are shares to be issued upon the exercise of the Warrants.
(c) Except as set forth on item (d) of Schedule 5.2, there are no
outstanding options, warrants, subscriptions, rights, calls, convertible
securities or other agreements or plans or any provision of law under which the
Company may become obligated to issue, sell or transfer shares of its capital
stock or other securities.
(d) Except as set forth on item (e) of Schedule 5.2, and except as
provided in the Registration Rights Agreement, there are no outstanding
registration rights with respect to any capital stock of the Company or of any
Subsidiary.
(e) Except as provided in the Stockholders' Agreement, there are
no voting agreements, voting trusts, proxies or other agreements or
understandings with respect to the voting of any capital stock of the Company or
any Subsidiary.
(f) Except as set forth on item (f) of Schedule 5.2, and except as
provided by the terms of the Warrants, there are no anti-dilution protections or
other adjustment provisions in existence with respect to any outstanding capital
stock of the Company.
(g) The Certificate of Designations has been duly adopted by the
Company and is fully effective as an amendment to the Company's Certificate of
Incorporation. The Preferred Shares have all the rights, priorities and terms
set forth in the Certificate of Designations.
5.3. Subsidiaries.
(a) The Company's only Subsidiaries on the Closing Date will be
those set forth on Schedule 5.3 hereto. Such Subsidiaries are owned by the
Company as set forth on Schedule 5.3 hereto. Neither the Company nor any
Subsidiary has any Investments in any other
26
Person except that the Company owns 93.33% of the common stock of Quaker City
Holdings, Inc., a Delaware corporation. The remaining 6.67% of the common stock
of Quaker City Holdings, Inc. is owned by preferred agents.
(b) All outstanding capital stock of the Subsidiaries has been
duly authorized and validly issued and is fully paid and non-assessable and is
owned beneficially and of record by the Company free and clear of all Liens,
options or claims of any kind, provided, however, that Quaker City and Quaker
City Insurance Company, a Pennsylvania domestic property and casualty insurance
company, are not wholly owned Subsidiaries. There are no outstanding options,
warrants, subscriptions, rights, convertible securities or other agreements or
plans under which any Subsidiary may become obligated to issue, sell shares of
its capital stock or other securities.
(c) Except as set forth on Schedule 5.3, there are no restrictions
(whether by charter, agreement, instrument, statute (other than the governing
corporate law of the jurisdiction of incorporation), rule, regulation, judgment,
decree, order or otherwise) that may affect or limit the ability of any
Subsidiary to pay dividends to the Company of such Subsidiary's earnings (as
reported in financial statements prepared under GAAP).
5.4. Business.
The Company is a property and casualty insurance holding company
for the Insurance Subsidiaries and certain other Subsidiaries. The Company does
not currently engage in, and it has no intention of engaging in, any other
business. The Insurance Subsidiaries are primarily engaged in providing standard
and preferred personal and commercial auto insurance and the other Subsidiaries
are engaged in the business of providing premium finance, reinsurance brokerage
and insurance management services to the Insurance Subsidiaries and other
Persons engaged in the business of writing property and casualty insurance.
Neither the Insurance Subsidiaries nor any of the other Subsidiaries currently
engages in, or has any intention of engaging in, any other business.
5.5. No Defaults or Conflicts.
(a) Neither the Company nor any of its Subsidiaries is in material
violation of or material default in any respect under (and is not in default in
any respect regarding any Indebtedness) any indenture, agreement or instrument
to which it is a party or by which it or its properties may be bound. Neither
the Company nor any of its Subsidiaries is in default under any order, writ,
injunction, judgment or decree of any court or other Governmental Authority or
arbitrator(s) which default could have a Material Adverse Effect.
(b) There are no Redemption Events currently existing and there
are no conditions or events which, with notice or lapse of time or both, would
constitute a Redemption Event.
27
(c) The execution, delivery and performance by the Company and
each Subsidiary of this Purchase Agreement, each of the Other Transaction
Documents to which it is a party and of the Securities to be or being issued by
it, and any of the transactions contemplated hereby or thereby (including
without limitation the issuance of the Preferred Shares, the Warrants and the
Warrant Shares as contemplated herein and therein and the subsequent ownership
of the Securities by the Purchasers) does not and will not (i) violate or
conflict with, result in a breach of, or constitute a default under (with or
without the giving of notice or the passage of time or both) any provision of
(A) the respective articles or certificate of incorporation or by-laws of the
Company or any of its Subsidiaries or (B) any law, rule, regulation or order of
any Governmental Authority (including without limitation the Securities Act, the
Exchange Act, all applicable state securities laws, the Xxxxxxx Act and the
Xxxxxxx Act), or any order, judgment, writ, injunction, decree, award or other
action of any court or Governmental Authority or arbitrator(s), or (C) any
agreement, mortgage, indenture, franchise, license, permit or other instrument
applicable to the Company or any of its Subsidiaries or any of their respective
properties (including without limitation any Indebtedness), (ii) result in the
creation of any Lien upon any of the Company's or any Subsidiary's properties,
assets or revenues, (iii) except as set forth on Schedule 5.5 hereto, require
the consent, waiver or approval of, or license, permit, order or authorization
of, or the declaration, registration, qualification or filing with, any
Governmental Authority or other Person (collectively, "Consents"), including,
without limitation, any insurance regulatory authority, or (iv) except as set
forth on Schedule 5.5 hereto, cause anti-dilution clauses of any outstanding
securities to become operative or give rise to any preemptive rights.
5.6. Disclosure Materials; Other Information.
(a) The Company has previously furnished to each Purchaser the
following material (the "Disclosure Material"): (i) audited consolidated
financial statements of the Company and its Subsidiaries consisting of
consolidated balance sheets as at December 31, 1995 and December 31, 1994 and
the related consolidated statements of income, changes in shareholders' equity
and cash flows for the fiscal years ended December 31, 1995 and December 31,
1994 and the related notes thereto, all of which statements have been certified
by Coopers & Xxxxxxx L.L.P., independent certified public accountants;
(ii) unaudited consolidated financial statements of the Company consisting of
consolidated balance sheets as at March 31, 1996 and June 30, 1996 and the
related consolidated statements of income, shareholders' equity and cash flows
for the period then ended and the related notes thereto; (iii) the Company's
projections dated August 2, 1996 prepared for its 1996 fiscal year showing
revenues, expenditures and cash flow for the Company and its Subsidiaries,
together with projected consolidated statements of income, cash flow and balance
sheets for the 1996, 1997 and 1998 fiscal years; (iv) the Company's Form 10-K
for the year ended December 31, 1995, Form 10-Q for the fiscal quarters ended
March 31, 1996 and June 30, 1996 and all other reports, schedules, forms,
statements and other documents filed by the Company with the Commission since
December 31, 1995 (in each case, as amended since the time of filing); (v) true
and complete copies of all filings made by the Company (or any Subsidiary) under
applicable insurance holding company statutes; and (vi) true, complete and
correct copies of all annual and quarterly statutory statements filed by the
28
Insurance Subsidiaries since December 31, 1995 and all examination reports of
such authorities relating to the Company or any Subsidiary and formal responses
thereto of the Company and its Subsidiaries. The audited and unaudited financial
statements referred to in the preceding clauses (i) and (ii) above, the filings
described in clause (v) and the statutory statements referred to in clause
(vi) above (including in each case the related notes and schedules) fairly
present the financial condition of the Company and its Subsidiaries as of the
respective dates thereof and the results of the operations of the Company and
its Subsidiaries for such periods and have been prepared in accordance with GAAP
or SAP, as the case may be, except that any such unaudited statements may omit
notes and may be subject to normal year-end adjustments.
(b) Since December 31, 1995, (i) the business of the Company and
its Subsidiaries has been conducted in the ordinary course and (ii) except as
set forth in items 1, 2 and 3 of Schedule 5.6, there has occurred no event that
could have a Material Adverse Effect. As of the Closing Date, except as set
forth in items 5 and 6 of Schedule 5.6 hereto, there are no liabilities or
obligations of the Company or any Subsidiary which would be required to be
provided for in a balance sheet of the Company as of either such date prepared
in accordance with GAAP or SAP, as the case may be, other than liabilities
provided for in the financial statements referred to in clause (ii) of Section
5.6(a) hereof. Since December 31, 1995, no amount or property has directly or
indirectly been declared, ordered, paid, made or set aside for any Restricted
Payment nor has any such action been agreed to.
(c) Neither the Company nor any Subsidiary is aware of any
obligations or liabilities, contingent or otherwise (including without
limitation any tax liabilities due or to become due), of the Company or of the
Subsidiaries that have not been fully disclosed and adequately provided for in
the financial statements referred to in Section 5.6(a) above or otherwise
disclosed in items 4, 5 and 6 of Schedule 5.6 hereto, other than liabilities
arising in the ordinary course of business subsequent to December 31, 1995, none
of which would have a Material Adverse Effect.
(d) The Company has filed all required reports, schedules, forms,
statements and other documents with the Commission since December 31, 1992 (such
reports, schedules, forms, statements and other documents, together with all
registration statements filed by the Company or its Subsidiaries with the
Commission since December 31, 1992, in each case, as such documents have been
amended since the time of their filing) (all such documents referred to herein
as the "SEC Documents"). As of their respective filing dates (or, if amended, as
of the date of the filing of such amendment), the SEC Documents complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the Commission
promulgated thereunder applicable to such SEC Documents. None of the SEC
Documents as of such dates contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
29
(e) The financial projections included in the Disclosure Material
conform with the internal operating forecasts of the Company and its
Subsidiaries, are mathematically accurate, were based on reasonable assumptions
when made and have been prepared in good faith.
(f) Nothing has come to the attention of the Company or any
Subsidiary that would cause it to believe that any of the Disclosure Material
contained or contains a false or misleading statement of a material fact or
omits to state any material fact necessary in order to make the statements made
in such material, in light of the circumstances under which they were made, not
misleading.
(g) Since December 31, 1995, there has been no Material Adverse
Effect, and, except as set forth in items 1, 2 and 3 of Schedule 5.6, there is
no fact known to the Company or any Subsidiary, and there are no existing
circumstances, which could reasonably be expected to have a Material Adverse
Effect.
5.7. Litigation.
Except as set forth in Schedule 5.7, there is no action, suit,
arbitration, proceeding, investigation or claim pending or, to the knowledge of
the Company or its Subsidiaries, threatened, in law, equity or otherwise before
any court, administrative agency, Governmental Authority or arbitrator which
either (i) questions the validity of this Purchase Agreement, any of the Other
Transaction Documents or the Securities or any action taken or to be taken
pursuant hereto or thereto, (ii) could have a Material Adverse Effect, or
(iii) would be required to be, but has not previously been, described in any
filing by the Company with the Commission. The Company has no knowledge of any
unasserted claim that, if asserted, could have a Material Adverse Effect.
5.8. Taxes.
The Company and each Subsidiary has duly and timely filed all
federal, state, local, foreign and other tax returns, statements, forms and
reports, and any other returns (including information returns), statements,
forms and reports with all Governmental Authorities required to be filed by it
and all such returns are complete and correct. The Company and each Subsidiary
has paid or caused to be paid all taxes, fees, assessments and other
governmental charges or levies (including interest and penalties) that are due
and payable (whether or not shown on any such return), except those which are
being contested by it in good faith by appropriate proceedings and in respect of
which adequate reserves are being maintained on its books in accordance with
GAAP or SAP, as the case may be. The Company and each Subsidiary has withheld
and paid all taxes required to have been withheld and paid, including taxes in
connection with amounts paid or owing to any employee, creditor, independent
contractor or other third party. Neither the Company nor any Subsidiary has any
material liabilities for taxes other than those incurred in the ordinary course
of business and in respect of which adequate reserves are being maintained by it
in accordance with GAAP or SAP, as the case may be. There are no applicable
taxes, fees or other governmental charges payable by the Company or any
30
Subsidiary in connection with the execution and delivery of this Purchase
Agreement or the Other Transaction Documents or in connection with any of the
transactions contemplated hereby or thereby (including without limitation the
issuance of the Preferred Shares, the Warrants and the Warrant Shares as
contemplated herein and therein).
5.9. Employee Benefit Plans.
All Benefit Plans are listed on Schedule 5.9, and to the extent
requested by any Purchasers, copies of all such written plans and policies,
written descriptions of all such oral plans and policies, and all other
documentation relating to such plans and policies have been delivered to such
Purchasers. Except as disclosed on Schedule 5.9, (a) each Benefit Plan and the
administration thereof complies, and has at all times complied, in all material
respects with its terms and the requirements of all applicable laws, including
ERISA and the Code, and each Benefit Plan intended to qualify under Section
401(a) of the Code has at all times since its adoption been so qualified, and
each trust which forms a part of any such plan has at all times since its
adoption been tax-exempt under Section 501(a) of the Code; (b) no Benefit Plan
has incurred any "accumulated funding deficiency" within the meaning of Section
302 of ERISA or Section 412 of the Code; (c) no liability has been incurred or
is reasonably expected to be incurred under Title IV of ERISA by any party with
respect to any Benefit Plan, or any other Plan presently or heretofore
maintained or contributed to by any ERISA Affiliate (other than PBGC premium
payments); (d) neither the Company nor any ERISA Affiliate has incurred any
liability for any tax imposed under Section 4971, 4972, 4974, 4975, 4976, 4977,
4978, 4978B, 4979, 4979A, 4980 and 4980B of the Code or civil liability under
Section 502(i) or (l) of ERISA; (e) the "amount of unfunded benefit liabilities"
within the meaning of Section 4001(a)(18) of ERISA does not exceed zero with
respect to any Benefit Plan subject to Title IV of ERISA; (f) no Benefit Plan is
a multiemployer plan within the meaning of Section 3(37) of ERISA; (g) no
Benefit Plan provides health or death benefit coverage beyond the termination of
an employee's employment, except as required by Part 6 of Title I of ERISA or
Section 4980B of the Code or other applicable state law, or pursuant to an
Employee Pension benefit plan as defined by Section 3(2) of ERISA, (h) no
"reportable event" (within the meaning of Section 4043 of ERISA) has occurred
with respect to any Benefit Plan or any Plan maintained by an ERISA Affiliate
since the effective date of said Section 4043; (i) no benefit under any Benefit
Plan, including without limitation any severance or parachute payment plan,
practice, policy or agreement, will be established or become accelerated, vested
or payable by reason of any transaction contemplated under this Purchase
Agreement or any Other Transaction Document; (j) no suit, actions or other
litigation (excluding claims for benefits incurred in the ordinary course of
plan activities) have been brought against or with respect to any Benefit Plan;
and (k) all contributions to Benefit Plans that were required to be made under
such Benefit Plans have been made as of the Closing Date, and all benefits
accrued but not payable under any Benefit Plan will have been accrued or
otherwise adequately reserved in accordance with GAAP or SAP, as the case may
be, as of such date and the Company will have performed by the Closing Date all
obligations required to be performed as of such date under all Benefit Plans.
The transactions contemplated by this Agreement will not trigger or cause to be
made or provided in any way (either directly or
31
indirectly) any payments, or result in the acceleration or other increase in any
vesting of rights or other benefits of any kind whatsoever, under (i) any
Benefit Plan (including but not limited to the Home State Holdings Inc. 1993
Stock Incentive Plan), and (ii) any employment, consulting, severance or similar
agreements or arrangements, whether formal or informal, whether written or oral.
5.10. Legal Compliance.
(a) The Company and each Subsidiary has complied with all
applicable constitutions, statutes, laws, rules, regulations, orders, licenses,
judgments, writs, injunctions, decrees, rulings, charges or demands, except to
the extent that the failure to so comply could not have a Material Adverse
Effect.
(b) There are no adverse orders, judgments, writs, injunctions,
decrees, rulings, charges or demands of any court or administrative body,
domestic or foreign, or of any other governmental Authority, outstanding against
the Company or any Subsidiary.
5.11. Environmental Compliance.
(a) The Company and each Subsidiary has obtained and holds all
necessary Environmental Permits.
(b) The Company and each Subsidiary is in compliance in all
respects with all terms, conditions and provisions of all applicable
(i) Environmental Permits, and (ii) Environmental Laws.
(c) There are no past, pending, or to the knowledge of the
Company or any Subsidiary, threatened Environmental Claims against the Company
or any Subsidiary, and neither the Company nor any Subsidiary is aware of any
facts or circumstances which could reasonably be expected to form the basis for
any Environmental Claim against the Company.
(d) No Releases of Hazardous Materials have occurred at, from,
in, to, on, or under any Site and no Hazardous Materials are present in, on,
about or migrating to or from any Site that could give rise to an Environmental
Claim against the Company or any Subsidiary.
(e) Neither the Company, any Subsidiary, any predecessor of the
Company or any Subsidiary, nor any entity previously owned by the Company or any
Subsidiary, has transported or arranged for the treatment, storage, handling,
disposal, or transportation of any Hazardous Material to any off-Site location
which could result in an Environmental Claim against the Company or any
Subsidiary.
(f) There are no Liens relating to an Environmental Claim on the
assets or property of the Company or any Subsidiary arising under or pursuant to
any Environmental Law
32
on any Site and, to the Company's or any Subsidiary's knowledge, there are no
facts, circumstances, or conditions that could reasonably be expected to
restrict, encumber, or result in the imposition of special conditions under any
Environmental Law with respect to the ownership, occupancy, development, use, or
transferability of any Site.
(g) There are no (i) underground storage tanks, active or
abandoned, (ii) polychlorinated biphenyl containing equipment, or (iii) asbestos
containing material at any Site, which could result in an Environmental Claim
against the Company or any Subsidiary.
(h) There have been no environmental investigations, studies,
audits, tests, reviews or other analyses conducted by, on behalf of, or which
are in the possession of the Company or any Subsidiary with respect to any Site.
5.12. Status Under Certain Statutes.
Neither the Company nor any Subsidiary is: (i) a "public utility
company", or a "holding company", or an "affiliate" or a "subsidiary company" of
a "holding company", or an "affiliate" of such a "subsidiary company", as such
terms are defined in the United States Public Utility Holding Company Act of
1935, as amended; (ii) a "public utility" as defined in the Federal Power Act,
as amended; or, (iii) an "investment company" or an "affiliated person" thereof
or an "affiliated person" of any such "affiliated person", as such terms are
defined in the United States Investment Company Act of 1940, as amended.
5.13. Use of Proceeds; No Foreign Assets Control Regulation
Violation.
(a) The Company will use the net proceeds realized from the sale
of the Preferred Shares and the Warrants to increase the capital and surplus of
the Insurance Subsidiaries and for no other purpose. No portion of such proceeds
will be used for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying, within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System, as amended from time to time, any
"margin stock" as defined in said Regulation U, or any "margin stock" as defined
in Regulation G of the Board of Governors of the Federal Reserve System, as
amended from time to time, or for the purpose of purchasing, carrying or trading
in securities within the meaning of Regulation T of the Board of Governors of
the Federal Reserve System, as amended from time to time, or for the purpose of
reducing or retiring any indebtedness which both (i) was originally incurred to
purchase any such margin stock or other securities and (ii) was directly or
indirectly secured by such margin stock or other securities. None of the assets
of the Company or any Subsidiary includes any such "margin stock", and neither
the Company nor any Subsidiary has any present intention of acquiring any such
"margin stock."
(b) The transactions contemplated by this Purchase Agreement will
not result in a violation of the Trading with the Enemy Act, as amended, or any
of the foreign assets control regulations of the United States Treasury
Department, 31 CFR, Subtitle B, Chapter V, as
33
amended, or any ruling issued thereunder or any enabling legislation or
executive order granting authority therefor or relating thereto, and the
proceeds of the sale of the Preferred Shares and the Warrants will not be used
by the Company in a manner which would violate any such regulations.
5.14. Outstanding Securities.
All securities (as defined in Section 2(1) of the Securities Act) of
the Company and each Subsidiary have been offered, issued, sold and delivered in
compliance with, or pursuant to exemptions from, all applicable federal and
state laws, and the rules and regulations of federal and state regulatory bodies
governing the offering, issuance, sale and delivery of securities.
5.15. Permits, Filings, Licenses and Approvals; Intellectual Property
and Other Rights.
(a) The Company and, except as set forth in Schedule 5.15 each
Subsidiary, owns or possesses and holds free from burdensome restrictions all
franchises, licenses, (including without limitation licenses under all relevant
insurance laws and regulations), permits, consents, approvals and other
authorizations (governmental or otherwise), patents, patent rights, trademarks,
trademark rights, tradenames, tradename rights and copyrights (each of which is
listed on Schedule 5.15 hereto), and all rights and privileges with respect to
any of the foregoing, as are necessary for the conduct of its business as now
being conducted and as proposed to be conducted. Except as set forth in Schedule
5.15, neither the Company nor any Subsidiary is in default in any material
respect under any of such franchises, licenses, permits, consents, approvals or
other authority. The rights of (and use by) the Company and each Subsidiary with
respect to such or any other patents, patent rights, trademarks, trademark
rights, tradenames, tradename rights or copyrights do not conflict with or
infringe any rights of others and no such claim of conflict or infringement has
been asserted by any Person.
(b) The Company and each of the Company's Insurance Subsidiaries
have made all required filings under applicable insurance holding company
statutes. Except as set forth in Schedule 5.15, each of the Company and its
Subsidiaries has all necessary authorizations, approvals, orders, consents,
certificates, permits, registrations or qualifications of and from any insurance
regulatory authorities ("Insurance Licenses") to conduct their businesses as
currently conducted and all such Insurance Licenses are valid and in full force
and effect. Schedule 5.15 hereto lists each order and written understanding or
agreement of or with the applicable authorities currently in effect and
applicable to the Company of any of its Subsidiaries. Neither the Company nor
any of its Subsidiaries has received any notifications (which notification has
not been withdrawn or otherwise resolved prior to the date of this Purchase
Agreement) from any insurance regulatory authority to the effect that any
additional Insurance License from such insurance regulatory authority is needed
to be obtained by any of the Company or any of its Subsidiaries. Each Insurance
34
Subsidiary is in compliance with the requirements of the insurance laws and
regulations of any jurisdictions which are applicable to such Insurance
Subsidiary, and has filed all notices, reports, demands or other information
required to be filed thereunder.
5.16. Properties.
(a) The Company does not own, and no Subsidiary owns, any real
property. The Company and each Subsidiary has good and marketable title to its
assets and other properties (including tangible and intangible personal
property) free and clear of all Liens other than Permitted Liens. Certain real
property used by the Company or its Subsidiaries in the conduct of their
respective businesses is held under lease, as identified on Schedule 5.16
hereto.
(b) The Company and each Subsidiary has the right to and does
enjoy peaceful and undisturbed possession under all leases pursuant to which it
leases property. Neither the Company nor any Subsidiary is aware of any pending
or threatened claim or action by any lessor of any such property to terminate
any such lease. All such leases are valid and in full force and effect, and none
of such leases is in default.
(c) None of the properties owned or leased by the Company or any
of its Subsidiaries is subject to any Liens which could result in a Material
Adverse Effect.
5.17. Insurance Coverage.
There is in full force and effect one or more policies of insurance
issued by financially sound and reputable insurance companies with an A.M. Best
rating of A- (Class IX) or better, insuring (i) the Company and its
Subsidiaries, their properties and business and (ii) the directors and executive
officers of the Company and its Subsidiaries, against such losses and risks, and
in such amounts, as are customary in the case of corporations of established
reputation engaged in the same or similar businesses of similar size and
similarly situated. All insurance policies and programs maintained by or on
behalf of the Company and the Subsidiaries are separately identified and
disclosed on Schedule 5.17 hereto. The Company and its Subsidiaries have not
been refused any insurance coverage, and existing insurance coverage of
directors and executive officers of the Company and its Subsidiaries sought or
applied for, and the Company and its Subsidiaries have no reason to believe that
they will be unable to renew their existing insurance coverage upon terms at
least as favorable as those presently in effect.
5.18. Key Employees; Labor Matters.
The Company and each Subsidiary has good relationships with its
employees and has not experienced and does not expect to experience any
substantial labor problems. Neither the Company nor any Subsidiary has any
knowledge as to any intentions of any key employee or any group of employees to
leave the employ of the Company or of any Subsidiary. No employee of the Company
or any Subsidiary is represented by a labor union or organization, no labor
union or organization has been certified or recognized as a representative of
any such employee, there
35
are no pending or, to the knowledge of the Company, threatened representation
campaigns concerning union representation involving any employee or efforts of
any labor union or organization (or representatives thereof) to organize any
employees.
5.19. Indebtedness.
Item 1 of Schedule 5.19 hereto sets forth (i) the amount of all
Indebtedness of the Company or any Subsidiary, individually (as to each
outstanding obligation) in excess of $225,000, outstanding on the Closing Date,
(ii) any Lien with respect to such Indebtedness and (iii) a description of each
instrument or agreement governing such Indebtedness. No default exists with
respect to or under any such Indebtedness or any instrument or agreement
relating thereto and no event or circumstance exists with respect thereto which
(with notice or the lapse of time or both) could give rise to such a default.
5.20. No Burdensome Agreements.
To the best of the knowledge of the Company and its Subsidiaries,
neither the Company nor any Subsidiary is a party to, or bound by (nor is any of
its properties affected by), any (x) commitment, contract or agreement, any term
of which has, or in the future could reasonably be expected to have, a Material
Adverse Effect (except as set forth on Schedule 5.20), or (y) any contract or
agreement with any Affiliate of the Company or of any Subsidiary, the terms of
which are less favorable to the Company or such Subsidiary than those which
might have been obtained, at the time such contract or agreement was entered
into, from a Person who was not such an Affiliate.
5.21. Solvency.
(a) The Company and each of its Subsidiaries is and, immediately
after giving effect to the issuance and sale of the Preferred Shares and the
Warrants and the consummation of the other transactions contemplated hereby,
will be, Solvent.
(b) For purposes of this Section 5.21, the term "Solvent"
means that:
(i) the Company's assets, at a fair valuation, exceed its
total liabilities (including contingent, subordinated, unmatured
and unliquidated liabilities) and the minimum statutory capital
and surplus requirement on a consolidated basis;
(ii) each Subsidiary's assets, at a fair valuation, exceed
its total liabilities (including contingent, subordinated,
unmatured and unliquidated liabilities) and the minimum statutory
capital and surplus requirements;
(iii) the Company believes, based on current projections,
which are based on underlying assumptions which provide a
reasonable basis for the projections and which reflect the
Company's judgment based on present
36
circumstances of the most likely set of conditions and most
likely course of action for the period projected, that it and
each of its Subsidiaries has sufficient cash flow to enable each
of them to pay their respective debts as they mature; and
(iv) neither the Company nor any Subsidiary has an
unreasonably small capital with which to engage in their
respective anticipated businesses.
(c) The "fair valuation" of the assets of the Company shall, for
purposes of this Section 5.21, be determined on the basis of the amount which
may be realized within a reasonable time, either through collection or sale of
such assets at the regular market value, and the "regular market value" shall be
the amount which could be obtained for such property within such period by a
capable and diligent businessperson from an interested buyer who is willing to
purchase under ordinary selling conditions.
5.22. Information True and Accurate.
None of the representations or warranties made by the Company or any
Subsidiary in this Purchase Agreement (including all exhibits and schedules
hereto) or in any Other Transaction Document or in any of the Securities, as of
the date of such representations and warranties and as of the Closing Date, and
none of the statements contained in each exhibit, schedule or report or any
other information furnished by or on behalf of the Company or any Subsidiary to
the Purchasers in connection with this Purchase Agreement or any Other
Transaction Document as of the respective dates of such materials and as of the
Closing Date, contains any untrue statement of a material fact or omits any
material fact required to be stated therein or necessary to make the statements
made therein, in the light of the circumstances under which they are made, not
misleading.
5.23. No Brokers or Finders.
Except for the fee of $100,000 (plus an amount equal to 1% of the
proceeds received by the Company from Swiss Re in the event that Swiss Re
exercises the option granted to it under Section 11.1) payable to Isis
Consulting, Inc. ("Isis") by the Company pursuant to a letter agreement dated as
of August 15, 1996 between the Company and Isis and as to which the Purchasers
have no liability, none of the Company or its Subsidiaries has contracted for or
otherwise arranged for the services of any Person who has, or as a result of the
transactions contemplated herein will have, any right or valid claim against the
Company or any of its Subsidiaries or any Purchaser for any commission, fee or
other compensation as a finder or broker, or in any similar capacity.
5.24. Interested Party Transactions.
Except as disclosed on Schedule 5.24, no executive officer or director
of the Company, or shareholder who is known to the Company to own of record or
37
beneficially more than five percent (5%) of the Company's Common Stock, or
immediate family member of any of the foregoing, has or has had, or will have
either directly or indirectly, a material interest in any transaction, series of
similar transactions or currently proposed transaction or series of similar
transactions, to which the Company or any of its Subsidiaries is, was or is to
be a party, in which the amount involved exceeds $50,000.
5.25. Offering of Securities.
Neither the Company, nor any agent or other Person acting on its behalf
has, directly or indirectly, (i) offered any of the Securities or any other
security of the Company or any Subsidiary (A) by any form of general
solicitation or general advertising (within the meaning of Regulation D under
the Securities Act) or (B) for sale to or solicited offers to buy any thereof
from, or otherwise approached or negotiated with respect thereto with, any
person other than the Purchasers and other institutional investors each of which
the Company reasonably believed was an "accredited investor" within the meaning
of Regulation D under the Securities Act or (ii) done or caused to be done (or
has omitted to do or to cause to be done) any act which act (or which omission)
would result in bringing the issuance or sale of the Securities within the
provisions of Section 5 of the Securities Act or the filing, notification or
reporting provisions of any state securities laws.
5.26. Disaster.
Neither the business nor the properties of the Company or its
Subsidiaries is currently affected (or has been affected at any time since
December 31, 1995, by any fire, explosion, accident, strike, lockout or other
dispute, drought, storm, hail, earthquake, embargo, act of God or of the public
enemy or other casualty (whether or not covered by insurance), of a kind which
(individually or in the aggregate) has or could have a Material Adverse Effect.
5.27. Insurance Contracts; Reinsurance; Loss Reserves.
(a) All insurance contracts written or issued by the Company or
any of its Subsidiaries as now in force are in all respects, to the extent
required under applicable law, on forms approved by applicable insurance
regulatory authorities (and have not been objected to by such authorities within
the period provided for objection), and such forms comply in all material
respects with the insurance statutes, regulations and rules applicable thereto.
True, complete and correct copies of such forms have been furnished or made
available to each Purchaser and there are no other forms of insurance contracts
used in connection with the Company's and its Subsidiaries' business. Premium
rates established by the Company or its Subsidiaries which are required to be
filed with or approved by insurance regulatory authorities have been so filed or
approved, the premiums charged conform thereto in all material respects, and
such premiums comply in all material respects with the insurance statutes,
regulations and rules applicable thereto.
38
(b) All reinsurance and coinsurance treaties or agreements,
including retrocessional agreements, to which the Company or any Subsidiary is a
party or under which the Company or any Subsidiary has any existing rights,
obligations or liabilities are in full force and effect. Neither the Company nor
any Subsidiary, nor, to the Company's or any Subsidiary's knowledge, any other
party to a reinsurance or coinsurance treaty or agreement to which the Company
or any Subsidiary is a party, is in default in any material respect as to any
provision thereof, and no such agreement contains any provision providing that
the other party thereto may terminate such agreement by reason of the
transactions contemplated by this Purchase Agreement or the Other Transaction
Documents. To the knowledge of the Company or any Subsidiary, the financial
condition of no other party to any such agreement is impaired with the result
that a default thereunder may reasonably be anticipated, whether or not such
default may be cured by the operation of any offset clause in such agreement.
(c) The reserves for loss and loss adjustment expense liabilities
set forth in any annual statement of the Company or any Subsidiary, in any
quarterly statement and in any subsequent annual and quarterly statement of the
Company or any Subsidiary after the date hereof were and in the future will be,
determined in accordance with GAAP or SAP, as the case may be, and meets and in
the future will meet all requirements of all applicable insurance statutes, laws
and regulations. The reserves for loss and loss adjustment expense liabilities
reflected in any annual statement, in any quarterly statements and in any
subsequent annual and quarterly statement of the Company or any Subsidiary after
the date hereof and established on the books of the Company or any Subsidiary
for all future insurance and reinsurance losses, claims and expenses make or
will make a reasonable provision for all unpaid loss and loss adjustment expense
obligations of the Company and its Subsidiaries, including incurred but not
reported reserves for loss and loss adjustment expense, under the terms of its
policies and agreements. The Company and each of its Subsidiaries owns assets
which qualify as admitted assets under the applicable insurance laws in an
amount at least equal to the sum of all of their respective required insurance
reserves and minimum statutory capital and surplus as required by such state
laws.
SECTION 6. REPRESENTATIONS OF THE PURCHASERS
Each Purchaser hereby makes the representations and warranties to the
Company contained in this Section 6.
6.1. Corporate Power and Authority.
Each Purchaser has all requisite power, authority and legal right to
execute, deliver, enter into, consummate and perform this Purchase Agreement and
each Other Transaction Document to which it is a party. The execution, delivery
and performance of this Purchase Agreement and each Other Transaction Document
(to the extent to which it is a party thereto) by each Purchaser have been duly
authorized by all required corporate actions. Each Purchaser has duly executed
and delivered this Purchase Agreement and each Other Transaction Document to
which it is a party, and this Purchase Agreement and each Other Transaction
39
Document (to the extent to which it is a party thereto) constitutes the legal,
valid and binding obligation of each Purchaser enforceable against each such
Purchaser in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to the rights of
creditors generally.
6.2. Investor Suitability.
Each Purchaser is purchasing the Preferred Shares and Warrants to be
purchased by it for its own account, for investment purposes and not with a
present view to any distribution thereof in violation of any applicable
securities laws. It is understood that the disposition of each Purchaser's
property shall at all times be within each Purchaser's control. If the
Purchasers should in the future decide to dispose of any of their Preferred
Shares, Warrants or Warrant Shares, it is understood that they may do so but
only in compliance with the Securities Act and applicable securities laws. Each
Purchaser is as of the date hereof and will be as of the Closing Date an
"accredited investor" as defined in Rule 501(a) under the Securities Act.
SECTION 7. COVENANTS OF THE COMPANY REGARDING CERTAIN INFORMATION
7.1. Financial and Business Information.
(a) The Company will maintain, and cause each Subsidiary to
maintain, a system of accounting established and administered in accordance with
sound business practices to permit preparation of financial statements in
accordance with GAAP or SAP, as the case may be.
(b) The Company will deliver the following to each holder of any
Securities, so long as such holder (i) is a holder of at least $500,000 in
aggregate stated value of Preferred Shares or (ii) is a holder which holds (or
has the right to obtain through the exercise of Warrants) at least 50,000 shares
of Common Stock (each holder qualifying under clauses (i) or (ii), a "Qualified
Holder"):
(i) Monthly Financials. As soon as available and in any event
within thirty (30) days after the end of each month, (x) updates of
claim activities for the preceding month, (y) a consolidated and
consolidating balance sheet of the Company as at the end of such month
(if prepared) and (z) the related consolidated and consolidating
statements of income and cash flow for such month and for the period
from the beginning of the then current fiscal year to the end of such
month (if prepared), in each case to be in reasonable detail, certified
by the Chief Financial Officer or the President (or the Acting
President if there is no President) of the Company and setting forth in
comparative form (except for the consolidating information) the
corresponding figures for the comparable
40
period one year prior thereto (subject to normal year end adjustments)
and the comparable figures included in the budget for such month (as
delivered or modified pursuant to clause (iv) below);
(ii) Quarterly Financials. As soon as practicable, and in any
event within forty-five (45) days after the close of each of the fiscal
quarters of the Company, (x) a consolidated and consolidating balance
sheet of the Company and its Subsidiaries as of the end of such fiscal
quarter and (y) consolidated and consolidating statements of income,
stockholders' equity and cash flows of the Company and its Subsidiaries
for the portion of the fiscal year ended with the end of such quarter,
in each case in reasonable detail, certified by the Chief Financial
Officer or the President (or the Acting President if there is no
President) of the Company and setting forth in comparative form the
corresponding figures for the comparable period one year prior thereto
(subject to normal year-end adjustments) and the comparable figures
included in the budget for such quarter (as delivered or modified
pursuant to clause (iv) below), together with a management analysis of
any material differences between such results and the corresponding
figures for such prior period and between such results and such
budgeted figures;
(iii) Annual Financials. As soon as practicable but not later
than five (5) Business Days after their issuance, and in any event
within ninety (90) days after the close of each fiscal year of the
Company, (x) a consolidated and consolidating balance sheet of the
Company and its Subsidiaries as of the end of such fiscal year and (y)
consolidated and consolidating statements of income, stockholders'
equity and cash flows of the Company and its Subsidiaries for such
fiscal year, in each case setting forth in comparative form the
corresponding figures for the preceding fiscal year, all such balance
sheets and statements to be in reasonable detail and certified without
qualification by (and accompanied by an opinion of) Coopers & Xxxxxxx
L.L.P. or other independent public accountants of recognized national
standing selected by the Company and reasonably satisfactory to each
Purchaser and such statements shall be accompanied by a management
analysis of any material differences between the results for such
fiscal year and the corresponding figures for the preceding fiscal year
and between the budgeted figures (as delivered or modified pursuant to
clause (iv) below) and the results for such year;
(iv) Budgets. As soon as practicable, and in any event no
later than forty-five (45) days prior to the beginning of each fiscal
year of the Company (other than fiscal year 1997 with respect to which
such budget will be delivered thirty (30) days prior to the beginning
of such fiscal year), a budget for such fiscal year prepared on a
monthly basis regarding the Company's operations and capital
expenditures on a consolidated basis as well as the operations and
capital expenditures of each of the Subsidiaries (and separately
including a projected
41
consolidated income statement, cash flow and balance sheet), together
with an analysis of such budget prepared in reasonable detail by the
Chief Financial Officer or the President (or the Acting President if
there is no President) of the Company; and, within fifteen (15) days
following their preparation, (1) any operating budget of the Company
otherwise prepared and submitted to its Board and (2) any revisions or
amendments made by the Company (and submitted to its Board) to any
budget delivered under this clause (iv);
(v) Reports. As soon as practicable, copies of any annual,
special or interim audit reports or management or comment letters with
respect to the Company or any of its Subsidiaries or their operations
submitted to the Company by independent public accountants;
(vi) Public Filings. As soon as practicable, copies of (x) all
financial statements, proxy materials or reports sent to the Company's
or any Subsidiary's stockholders, (y) any public or press releases and
(z) all reports, forms, registration statements or other documents
filed with the Commission pursuant to the Securities Act or the
Exchange Act;
(vii) Board Materials. As soon as practicable and without
duplication of any of the above items, all materials furnished, from
time to time, to directors of the Company and any Subsidiary, as the
case may be (including without limitation all communications and
information furnished to such directors), and copies of minutes of
meetings of the Board (and of any executive committees thereof) of the
Company and any Subsidiary, except to the extent that such materials
have been provided to any person appointed or designated by the
Qualified Holder as a director of the Company (or as an observer on the
Board of the Company) pursuant to the Stockholders' Agreement; provided
that the Qualified Holder will not use any of such documents, reports
or other information for any reason or purpose other than to review the
affairs and financial condition of the Company in connection with such
Qualified Holder's Investment in the Company and the compliance by the
Company with the terms and provisions of this Purchase Agreement, the
Other Transaction Documents and the Securities and will hold in
confidence, unless required to disclose by judicial, regulatory or
administrative process or by other requirements of law, all documents,
reports or other information obtained from the Company, except to the
extent that such documents, reports and other information have been
(i) previously known on a nonconfidential basis by such Qualified
Holder, (ii) in the public domain through no fault of such Qualified
Holder or (iii) subsequent lawfully acquired by such Qualified Holder
from sources other than the Company who, to the knowledge of such
Qualified Holder, had such documents, reports and other information
without any breach of any obligation of confidentiality; provided that
any such Qualified Holder may disclose such documents, reports
and other
42
information to officers, directors, employees, accountants, counsel,
consultants, advisors and agents of such Qualified Holder in connection
with such Qualified Holder's review of such documents, reports or other
information so long as such Persons are informed by such Qualified
Holder to treat such information confidentially and not to use any of
such documents, reports or other information for any reason or purpose
other than in connection with such Qualified Holder's review.
(viii) Regulatory Filings. As soon as practicable, copies of
all (x) filings made by the Company or any Subsidiary under insurance
holding company statutes and (y) annual and quarterly statutory
statements filed by the Insurance Subsidiaries and all examination
reports of such authorities relating to the Company or any Subsidiary
and formal responses thereto of the Company and its Subsidiaries.
(ix) Other Materials. As soon as practicable and without
duplication of any of the above items, all materials furnished, from
time to time, by or on behalf of the Company to any other holders of
Indebtedness or of capital stock of the Company (including without
limitation any compliance certificates furnished in respect of such
Indebtedness); and
(x) Requested Information. As soon as practicable, such other
information, as may reasonably be requested by a Qualified Holder,
regarding the assets, properties, liabilities, business, affairs,
results of operations, conditions (financial or otherwise) or prospects
of the Company or any Subsidiary.
All such financial statements shall be prepared in accordance with GAAP or SAP,
as the case may be (except for any change in accounting principles specified in
the accompanying certificate and except that any interim financial statements
may omit notes and may be subject to normal year-end adjustments) and shall be
true and correct in all material respects as of the dated and for the periods
stated therein.
(c) Without limiting the foregoing provisions of this Section
7.1, the Company agrees that, if expressly requested in writing by any holder of
any Securities, it will not deliver to such holder (until otherwise instructed
by such holder) (x) any information or materials regarding the Company or any
Subsidiary (whether described in this Section 7.1 or otherwise) that is
non-public and (y) any information (whether or not included in clause (x)) which
such holder specifies it does not want to receive.
7.2. Communication with Accountants.
The Company (on behalf of itself and each of its Subsidiaries) hereby
authorizes each holder of any Securities to communicate, from time to time,
directly with the independent certified public accountants for the Company or
any Subsidiary and authorizes such accountants
43
to disclose to such holders any and all financial statements and any other
information of any kind that they may have with respect to the assets,
properties, liabilities, business, affairs, results of operations, condition
(financial or otherwise) or prospects of the Company or any Subsidiary;
provided, that such accountants may require that the Company be informed of any
such disclosures. The Company shall deliver a letter addressed to such
accountants instructing them to comply with the provisions of this Section 7.2.
7.3. Inspection.
The Company will permit each Qualified Holder and any authorized
representative of such Qualified Holder to visit and inspect any of the
properties of the Company and its Subsidiaries, to examine their respective
books and records and to discuss with their officers their books and records and
the assets, properties, liabilities, business, affairs, results of operations,
condition (financial or otherwise) or prospects of the Company or any
Subsidiary, all at such reasonable times (upon 24 hours' notice) and as often as
may be reasonably requested.
7.4. Notices.
The Company will give notice to all holders of Securities promptly
after it learns (other than by notice from all of such holders) of the existence
of any of the following:
(a) any default or any event which could constitute a default
under any Indebtedness (or under any indenture, mortgage or other agreement
relating to any Indebtedness), which Indebtedness in an aggregate principal
amount exceeds $100,000 (or the equivalent thereof in other currencies), in
respect of which the Company or any Subsidiary is liable;
(b) any Redemption Event, or any condition or event which, with
notice or lapse of time or both, would constitute a Redemption Event;
(c) any default by the Company or any of its Subsidiaries under
any material agreement to which it is or such Subsidiary is a party;
(d) any action or proceeding which has been commenced or
threatened against the Company or any of its Subsidiaries and which, if
adversely determined, could have a Material Adverse Effect;
(e) any dispute which may exist between the Company or any of its
Subsidiaries and any Governmental Authority which, individually or in the
aggregate, has or could have a Material Adverse Effect;
(f) with respect to any Benefit Plans or any Plan maintained at
any time by, or contributed to by, an ERISA Affiliate: (i) any "reportable
event" (as such term is defined in Section 4043(b) of ERISA) has occurred;
(ii) any "accumulated funding deficiency" (within the meaning of Section 412(a)
of the Code) has been incurred, or application may be or has been
44
made to the Secretary of the Treasury for a waiver or modification of the
minimum funding standard (including any required installment payments) or an
extension of any amortization period under Section 412 of the Code; (iii) any
Plan has been terminated, reorganized, petitioned or declared insolvent under
Title IV of ERISA; (iv) any plan has an unfunded current liability giving rise
to a lien under ERISA or the Code; (v) any proceeding has been instituted
pursuant to Section 515 of ERISA to collect a delinquent contribution; or
(vi) any liability (including any contingent or secondary liability) will or may
be incurred to or on account of the termination or withdrawal under Section
4062, 4063, 4064 or 4975 of the Code or Section 409 or 502(i) of ERISA; or
(vii) any "prohibited transaction" (as such term is defined in Section 406 of
ERISA and Section 4975 of the Code) in connection with an "employee pension
benefit plan" to which an exemption under Section 408 of ERISA or Section
4975(d) of the Code is not applicable, which in the case of clause
(i), (ii), (iii), (iv), (v), (vi) or (vii) may, either individually or in the
aggregate, result in a liability which could have a Material Adverse Effect; and
(g) any Release of a Hazardous Material at, to, on, in, from or
under any real property owned, operated or leased by the Company which could
have a Material Adverse Effect.
Such notice (i) with respect to clauses (a) and (b) above shall specify the
nature and period of existence of any such default and what the Company proposes
to do with respect thereto and (ii) with respect to (c),(d), (e), (f) and (g)
shall specify the nature of any such matter referred to in such clause, what
action the Company or any Subsidiary proposes to take with respect thereto and
what action any other relevant Person is taking or proposes to take with respect
thereto.
SECTION 8. AFFIRMATIVE COVENANTS
The Company covenants and agrees as follows:
8.1. Maintenance of Existence, Properties and Franchises; Compliance
with Law: Taxes; Insurance.
The Company will, and will cause each Subsidiary to:
(a) maintain their respective existences, rights and other
franchises in full force and effect;
(b) maintain their respective tangible assets in good repair,
working order and condition so far as is necessary or advantageous to the proper
carrying on of their respective businesses;
(c) comply in all respects with all applicable laws, rules,
regulations, orders, rules, rulings, certificates, licenses, regulations,
demands, judgments, writs, injunctions and decrees, and maintain all permits,
licenses, filings and other authorizations (including without
45
limitation all authorizations of state departments of insurance or other
insurance regulatory agencies); provided, that such compliance and/or
maintenance shall not be necessary so long as (i) the applicability or validity
of any such constitution, statute, law, order, rule, ruling, certificate,
license, regulation, demand, judgment, writ, injunction, ruling, charge or
decree shall be contested in good faith by appropriate proceedings and (ii) the
failure to so comply (or maintain, as the case may be) will not have a Material
Adverse Effect;
(d) pay promptly when due all taxes, fees, assessments and other
governmental charges imposed upon their respective properties, assets or income
and all claims or indebtedness (including without limitation materialmen's,
vendors', workmen's and like claims) which might become a lien upon such
properties or assets; provided, that payment of any such tax, fee, assessment,
charge, claim or indebtedness shall not be necessary so long as (i) the
applicability or validity thereof shall be contested in good faith by
appropriate proceedings and a reserve, if appropriate, shall have been
established with respect thereto and (ii) the failure to make such payment will
not have a Material Adverse Effect;
(e) keep in full force and effect one or more policies of
insurance issued by financially sound and reputable insurance companies (with an
A.M. Best rating of A- (Class IX) or better) (i) insuring the Company and its
Subsidiaries and their respective properties and businesses and (ii) insuring
the directors and executive officers of the Company and its Subsidiaries
(including, without limitation, the Default Directors and the Preferred
Director) against losses and risks, and in such amounts as are customary in the
case of corporations of established reputation engaged in the same or similar
businesses of similar size and similarly situated; and
(f) comply with all other obligations that it incurs pursuant to
any contract or agreement, whether oral or written, express or implied, as such
obligations become due; provided, that such compliance shall not be necessary so
long as (i) such obligations shall be contested in good faith by appropriate
proceedings, and (ii) to the extent that any breach of such contract or
agreement would not have a Material Adverse Effect.
(g) act to promptly make the filings referenced, or otherwise
rectify the matters set forth, in Item 1 of Schedule 5.15.
8.2. Office for Payment Exchange and Registration; Location of Office;
Notice of Change of Office.
(a) So long as any of the Securities are outstanding, the Company
will maintain an office or agency where Securities may be presented for payment,
exchange, exercise, conversion or registration of transfer as provided in this
Purchase Agreement. Such office or agency initially shall be the office of the
Company as set forth in Section 17 hereof, subject to paragraph (b) of this
Section 8.2.
46
(b) The Company shall give each holder of Securities at least
twenty (20) days' prior written notice of any change in (i) the name of the
Company as then in effect, or (ii) the location of the office of the Company
required to be maintained under this Section 8.2.
8.3. Fiscal Year.
The fiscal year of the Company and its Subsidiaries for tax, accounting
and any other purposes shall end on December 31 of each calendar year.
8.4. Payment of Dividends by Subsidiaries.
Subject to any required consent or approval from any applicable
Governmental Authority, the Company will cause its Subsidiaries to pay dividends
or make other distributions or advances to the Company, to the extent of funds
legally available therefor, in sufficient amounts and at sufficient times to
enable the Company to have sufficient earnings and funds to pay on a timely
basis all amounts due with respect to the Securities and any other amounts due
under this Purchase Agreement and the Other Transaction Documents.
8.5. Directors.
The Company shall take all actions (within its power) necessary to
ensure that the Preferred Director and/or the Default Directors (as the case may
be and as defined in the Stockholders' Agreement) are duly elected by the
stockholders as members of the Board of the Company, all in the manner provided
in the Stockholders' Agreement. Promptly after the Closing, the Company shall
take all actions necessary to ensure that effective upon their election or
appointment to the Board of Directors of the Company, the Preferred Director and
the Default Directors, as the case may be, are insured directors under the
directors and officers insurance policies maintained by the Company and its
Subsidiaries for directors and officers (as required by Section 8.1(e) hereof).
8.6. Environmental Matters.
(a) The Company and each Subsidiary shall keep any property either
owned, leased or operated by the Company or any Subsidiary free and clear of any
Liens imposed for failure by the Company, any Subsidiary or any Person under the
control or subject to the direction of the Company or any Subsidiary to comply
with any environmental laws, regulations or ordinances (each, an "Environmental
Lien"), and the Company and each Subsidiary, as the case may be, shall keep all
such property in compliance with all Environmental Laws and Environmental
Permits and free of Hazardous Materials (except as used in the ordinary course
of the Company's or any Subsidiary's operations in compliance with Environmental
Laws); provided, however, that the Company and each Subsidiary shall have the
right at its cost and expense, and acting in good faith, to contest, object or
appeal by appropriate legal proceeding the validity of any Environmental Lien.
The contest, objection or appeal with respect to the validity of an
47
Environmental Lien shall suspend the Company's obligation to eliminate such
Environmental Lien under this paragraph pending a final determination by
appropriate administrative or judicial authority of the legality, enforceability
or status of such Environmental Lien; provided that the following conditions are
satisfied: (i) contemporaneously with the commencement of such proceedings, the
Company shall give written notice thereof to each holder of Securities; and
(ii) if under applicable law any real property or improvements thereon are
subject to sale or forfeiture for failure to satisfy the Environmental Lien
prior to a final determination of the legal proceedings, the Company or such
Subsidiary must successfully move to stay such sale, forfeiture or foreclosure
pending final determination of the Company's (or Subsidiary's) action.
(b) The Company will, by administrative or judicial process or
other appropriate manner enforce the obligations of any other Person who is
potentially liable for damages, contribution or other relief in connection with
asbestos abatement, Hazardous Material investigation or remediation at any Site
or any off-Site location which abatement, investigation or remediation may
result in any obligation or liability on the part of the Company or any
Subsidiary.
(c) The Company will defend, indemnify and hold harmless each
current, former and future holder of Securities and its Affiliates from and
against any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits and claims, joint or several, and any costs, disbursements and
expenses (including reasonable attorneys' fees and expenses and reasonable costs
of investigation) of whatever kind or nature, known or unknown, contingent or
otherwise, arising out of or in any way related to its ownership or interest in
the Securities and to (i) the presence, disposal, release, removal, discharge,
storage or transportation of any Hazardous Material upon, into, from or
affecting any Site; (ii) any judicial or administrative action, suit or
proceeding, actual or threatened, relating to Hazardous Material upon, in, from
or affecting any Site; (iii) any violation of any Environmental Law or
Environmental Permit by the Company or any Subsidiary or any of their agents,
tenants, subtenants or invitees; (iv) the imposition of any Environmental Lien
for the recovery of costs expended in the investigation, study or remediation of
any liability arising under Environmental Law of (or asserted against) the
Company or any Subsidiary; or (v) any Hazardous Materials that were generated by
the Company or any Subsidiary that were shipped off-Site for treatment, storage,
handling or disposal. This Section 8.6(c) and Section 8.6(d) below shall survive
any payment, conversion or transfer of any Securities and any termination of
this Purchase Agreement.
(d) To the extent that the Company or any Subsidiary is strictly
liable without regard to fault under any Environmental Law, the Company's
obligation to the holders of Securities under any of the indemnification
provisions of this Purchase Agreement shall likewise be strict without regard to
fault with respect to the violation of any Environmental Law, which results in
any liability to any of the indemnified persons referred to in Section 8.6(c)
above.
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8.7. Reservation of Shares.
The Company agrees that there shall have been reserved, and the Company
shall at all times keep reserved, free from preemptive rights, out of its
authorized Common Stock, a number of shares of Common Stock sufficient to
provide for the exercise of the rights of purchase represented by the Warrants.
8.8. Listing of Shares.
(a) The Company will take all such actions as may be necessary,
from time to time, to (i) maintain the listing of its Common Stock on The
National Association of Securities Dealers, Inc. Automated Quotation System (the
"Nasdaq System") or on a comparable system or national securities exchange, and
(ii) list the Warrant Shares on the Nasdaq System (or on a comparable system or
exchange, as the case may be), as provided in the Registration Rights Agreement.
8.9. Exchange Act Registration.
(a) The Company will maintain effective a registration statement
(containing such information and documents as the Commission shall specify and
otherwise complying with the Exchange Act), under Section 12(b) or Section
12(g), whichever is applicable, of the Exchange Act, with respect to the
Company's Common Stock, and the Company will file on time such information,
documents and reports as the Commission may require or prescribe for companies
whose stock has been registered pursuant to such Section 12(b) or Section 12(g),
whichever is applicable.
(b) The Company will, upon the request of any holder of
Securities, make whatever other filings with the Commission, or otherwise make
generally available to the public such financial and other information, as any
such holder may deem reasonably necessary or desirable in order to enable such
holder to be permitted (i) to sell Warrant Shares pursuant to the provisions of
Rule 144 and (ii) if the Company has filed a registration statement with respect
to any Preferred Stock of the Company under Section 6 of the Securities Act or
Section 12(b) or Section 12(g) of the Exchange Act, to sell Shares pursuant to
the provisions of Rule 144.
8.10. Delivery of Information for Rule 144A Transactions.
If a holder of Securities proposes to transfer any such Securities
pursuant to Rule 144A, the Company agrees to provide (upon the request of such
holder or the prospective transferee) to such holder and (if requested) to the
prospective transferee any financial or other information concerning the Company
and its Subsidiaries which is required to be delivered by such holder to any
transferee of such Securities pursuant to Rule 144A.
8.11. Press Releases.
49
The Company shall submit any proposed press release, media alert,
public announcement or other similar notice related to this Purchase Agreement,
any Other Transaction Document or the Securities, or any transaction
contemplated hereby or thereby, to each Purchaser for their respective approval
(which approval shall not be unreasonably withheld) not less than three (3)
Business Days prior to sending any such release, alert, announcement or notice.
Each Purchaser shall provide the Company with comments with respect thereto,
which comments shall be duly considered (and not unreasonably rejected) by the
Company and its counsel.
8.12. Insurance Company Regulations.
The Company shall not, and shall not permit any of its Subsidiaries to,
conduct any business in any jurisdiction where the conduct of such business
would cause the holder of any Securities, solely by their acquisition or
ownership of the Securities, to become subject to the jurisdiction of any
insurance regulatory agency, or to become members of any insurance holding
company system, as that term is defined under the holding company provisions of
the insurance laws of such jurisdiction; provided that the parties hereto (other
than Reliance) acknowledge that, so long as any of the Insurance Subsidiaries is
subject to regulation as an insurance company, a Purchaser may be required to
obtain Consents from applicable Governmental Authorities in connection with the
exercise or conversion of the Warrants.
8.13. Financial Status.
The ratio between (i) net written premiums of the Company and its
Subsidiaries on a consolidated basis for any fiscal year and (ii) the statutory
surplus of the Company and its Subsidiaries on a consolidated basis, as
determined in accordance with SAP consistently applied, as of the end of such
fiscal year shall be less than 2.5:1.0; provided, however, for all periods
subsequent to December 31, 1996, such ratio shall be no greater than 2.0:1.0.
8.14. Insurance Filings.
(a) If at any time after the date hereof, any Purchaser shall be
required to make any filing with, or obtain the Consent of, any Governmental
Authority (including without limitation any insurance regulatory authorities of
the states in which the Insurance Subsidiaries are organized and/or doing
business) as a result of its ownership (either directly or indirectly through
purchase, conversion, exercise or otherwise) of any Securities, the Company
shall cooperate with (and cause its Subsidiaries to cooperate with) such
Purchaser and its counsel in connection with any such filing or Consent
(including without limitation any "Form A" filing), and the Company will take or
cause to be taken all actions, and will do or cause to be done all things
necessary under applicable laws and regulations to assist any such Purchaser in
effectuating any such filing or obtaining any such Consent. In connection with
any such filing or Consent, the Company shall cause its counsel to prepare and
deliver to each Purchaser an opinion in substantially the form delivered
hereunder.
(b) The Company will pay all (i) costs and expenses incurred by
each Purchaser in connection with preparing and producing any such filing, or
50
obtaining any such Consent, and (ii) the out-of-pocket expenses incurred by each
Purchaser in connection with any such filing or Consent, including the fees and
disbursements of counsel to any such Purchaser.
(c) The Company shall promptly notify each Purchaser of any event
(including without limitation any redemption, repurchase or conversion of
outstanding capital stock) or circumstance which could give rise to an
obligation of the type described in clause (a) hereof.
8.15. Charter Amendment.
(a) The Company agrees that at the next annual stockholders
meeting of the Company it will recommend to its stockholders, in the proxy to be
distributed in connection with the convening of such stockholders meeting, that
the Company's Certificate of Incorporation be amended to provide that (i) class
voting be permitted for shares of capital stock of the Company, (ii) directors
be subject to removal with or without cause, (iii) the following proviso
contained in Section 4.8(b)(vi) of ARTICLE FOUR be deleted in its entirety:
"; provided, however, that such series, if a voting series,
shall be entitled to no more than one vote per share and shall
not be entitled to vote as a class on any matter except so
specifically required by law;"
(iv) the second sentence of Section 4.2 of ARTICLE FOUR be deleted in its
entirety; (v) the word "shall" contained in the last sentence of Section 6.1(a)
of ARTICLE SIX be deleted and replaced with the word "may"; (vi) the Certificate
of Designations be amended and restated in its entirety to read as set forth on
Exhibit H hereto; and (vii) the number of members of the Board of Directors be
set at not less than eight (8) and no more than ten (10).
(b) In the event that the stockholders fail to approve such
proposed amendment, the Company shall recommend such amendment at the next
succeeding annual meeting of stockholders. The Company shall provide drafts of
its proxy materials to counsel for the Purchasers and shall afford Purchasers'
counsel reasonable opportunity to comment thereon. The Company shall give due
consideration to any comments which the Purchasers or their counsel may have.
8.16. Default Directors.
(a) The Company agrees that, upon the occurrence of a Redemption
Default, it shall take all actions within its power, including without
limitation seeking the resignation of directors, and use its best efforts to
facilitate the election of each Default Director as provided in the
Stockholders' Agreement.
(b) Upon the occurrence of a Redemption Default, each of Swiss Re
51
and Reliance shall have the right to deliver to the Company the resignations
delivered to Swiss Re and Reliance, respectively, pursuant to Section 2.16
hereof, and upon such delivery by Swiss Re or Reliance, as the case may be, the
Company shall accept such resignation forthwith and the director named in such
resignation shall be deemed to have resigned. Upon the creation of any such
vacancy or vacancies, the Company shall use its best efforts to have such
vacancy or vacancies filled (pursuant to the Stockholders' Agreement) by the
Default Director designated by the person delivering such resignation.
SECTION 9. NEGATIVE COVENANTS
The Company covenants and agrees as follows:
9.1. Restricted Payments; Investments.
Neither the Company nor any Subsidiary will, except in furtherance of
its right to effect intercompany transfers pursuant to Section 9.2 hereof,
declare or make or permit to be declared or made any Restricted Payment or any
Investment; provided, however, that the Company and the Subsidiaries may make
(a) the Investment required in respect of The Tower Hill Receivables Financing
(as limited in the definition thereof), (b) pursuant to the Gulkin Transaction,
Investments and Restricted Payments up to, but not in excess of, $2,100,000 in
the aggregate, (c) Restricted Payments to redeem or purchase the minority
interests in Quaker City, provided that any such Restricted Payments shall not
exceed an aggregate of $1,400,000, and (d) Permitted Acquisitions collectively
aggregating in any fiscal year subsequent to fiscal year 1996 an amount not to
exceed $2,000,000.
9.2. Sale of Substantial Portion of Assets; Subsidiaries.
(a) Neither the Company nor any Subsidiary will sell, transfer,
lease, exchange, convey or otherwise dispose of all or substantially all of the
consolidated assets of the Company in a single transaction or series of related
transactions to any Person (other than to the Company, Quaker City or any
wholly-owned Subsidiary of the Company or Quaker City).
(b) Neither the Company nor any Subsidiary will sell, transfer or
otherwise dispose of any capital stock of any Subsidiary, except to the Company,
Quaker City or any wholly-owned Subsidiary of the Company or Quaker City.
9.3. Indebtedness.
(a) Neither the Company nor any Subsidiary will create, incur,
assume or be or remain liable on any Indebtedness other than:
(i) Indebtedness represented by or incurred under the
Securities;
52
(ii) Indebtedness by the Company incurred to make all
payments required under the Purchase Agreement, the Other
Transaction Documents and the Securities; provided, that the terms
and provisions of such Indebtedness do not restrict the Company's or
any Subsidiary's ability to perform its respective obligations under
the Purchase Agreement, the Other Transaction Documents and the
Securities;
(iii) Indebtedness of the Company and its Subsidiaries
(A) set forth on Schedule 5.19 hereto and (B) incurred pursuant to
the Gulkin Transaction and the Tower Hill Receivables Financing, but
only to the extent set forth in Section 9.1 hereof, or extensions,
renewals and refinancings of such Indebtedness; provided, that the
principal amount of such Indebtedness being extended, renewed or
refinanced does not increase (other than borrowings and reborrowings
under lines of credit or other revolving credit facilities, whether
or not committed, of the Company or any Subsidiary in the ordinary
course of business);
(iv) Accounts payable to trade creditors for goods and
services and current operating liabilities (not the result of the
borrowing of money) incurred in the ordinary course of a
Subsidiary's business in accordance with customary terms and paid
within the specified time, unless contested in good faith by
appropriate proceedings and reserved for in accordance with GAAP;
(v) Indebtedness of the Subsidiaries under Capitalized Leases
in an aggregate principal amount not to exceed $250,000 at any time
outstanding; and
(vi) Indebtedness from time to time outstanding of the
Company, Quaker City or any wholly-owned Subsidiary of the Company
or Quaker City to the Company, Quaker City or any wholly-owned
Subsidiary of the Company or Quaker City.
9.4. No Change in Business.
The Company and each Subsidiary will preserve and keep in full force
and effect its existence and the rights and franchises material to its business.
The Company shall not (i) fail to preserve and keep (and cause each Subsidiary
to preserve and keep) in full force and effect its existence and the rights and
franchises material to the business of the Corporation and the Subsidiaries
taken as a whole, or the Corporation or any Subsidiary individually,
(ii) materially change the nature or character of its business activities as a
holding company for companies organized as insurance companies that primarily
and predominantly engage in writing insurance or reinsuring risks underwritten
by insurance companies ("Insurance Companies") and companies in the business of
providing premium finance, reinsurance brokerage and insurance management
53
services to Insurance Companies, (iii) permit any Subsidiary which is an
Insurance Company to change materially the nature of its business from that of
an Insurance Company, or (iv) permit any Subsidiary which is not an Insurance
Company to engage in any business other than the business of providing premium
finance, reinsurance brokerage and insurance management services to Insurance
Companies.
9.5. Consolidation, Merger and Sale.
Except in connection with the Gulkin Transaction (including the
limitation on the aggregate expenditure which may be associated therewith
pursuant to Section 9.1) neither the Company nor any Subsidiary may permit or
agree to the sale, lease, transfer, exchange, conveyance or other disposition
(whether through voluntary liquidation, dissolution, winding-up or otherwise) of
all or substantially all of the consolidated assets of the Company and its
Subsidiaries in a single transaction or series of related transactions to any
Person (other than the Company, Quaker City or a wholly owned Subsidiary of the
Company or Quaker City), or the consolidation or merger of the Company or any
Subsidiary with or into any other Person (other than with or into the Company,
Quaker City or a wholly owned Subsidiary of the Company or Quaker City) or the
sale, transfer or other disposition of any capital stock of any Subsidiary
(other than to the Company or another wholly owned Subsidiary of the Company or
Quaker City).
9.6. Affiliate Loans and Guarantees.
Neither the Company nor any Subsidiary may incur or permit to exist any
of the following:
(a) any obligation of the Company or of any Subsidiary to repay
borrowed money owing to (i) any Affiliate of the Company, (ii) any Affiliate of
any Subsidiary or (iii) any other holder of shares of the capital stock of the
Company or of a Subsidiary; or
(b) any obligation, to any Person, which obligation is assumed or
guaranteed by the Company or a Subsidiary and which is an obligation of (i) any
Affiliate of the Company, (ii) any Affiliate of any Subsidiary or (iii) any
other holder of shares of the capital stock of the Company or of a Subsidiary
(excluding, in the case of this clause (b), any obligation of the Company or of
a wholly-owned Subsidiary which is not owed to an Affiliate of the Company or to
an Affiliate of a Subsidiary or to any other holder of shares of the capital
stock of the Company or of a Subsidiary).
This Section 9.6 shall not apply to (1) any obligations of the Company under
this Purchase Agreement or with respect to the Securities (or under any other
agreement or arrangement between the Company and any Purchaser, including
without limitation under the Additional Agreements), (2) any Indebtedness
identified on Schedule 9.6 hereto, (3) payments made to any officer or employee
in the ordinary course of business of the Company as part of the compensation or
benefits provided to such officer or employee pursuant to arrangements approved
or ratified by the Board of the Company or as advances for bona fide, reasonable
business expenses to be incurred on behalf of the Company or a Subsidiary, (4)
payments made pursuant to the agreements with Affiliates maintained by the
Company permitted under Section 9.7 hereof, in each case as in effect on the
54
Closing Date, and (5) obligations of the Company, Quaker City or any of the
wholly-owned Subsidiaries of the Company or Quaker City, the payment of which
would not constitute a Restricted Payment.
9.7. Transactions with Affiliates.
Except for the Gulkin Transaction (which shall be limited as provided
in Section 9.1), the Tower Hill Receivables Financing (as defined), the
transactions among only the Company, Quaker City or wholly-owned Subsidiaries of
the Company or Quaker City and the transactions described in the proviso to
Section 9.1 but subject to the limitations on Restricted Payments incorporated
into such proviso to Section 9.1, the Company will not, and will not permit any
Subsidiary to, directly or indirectly, enter into any transaction or agreement
(including without limitation the purchase, sale, distribution, lease or
exchange of any property or the rendering of any service) with any Affiliate of
the Company or of any Subsidiary unless such transaction or agreement (a) is
approved by the Board of the Company, and (b) is on terms that are no less
favorable to the Company or such Subsidiary, as the case may be, than those
which might be obtained at the time of such transaction from a Person who is not
such an Affiliate.
9.8. Capital Expenditures.
Without the prior approval of a majority of the Board of the Company,
the Company and its Subsidiaries will not in the aggregate make Capital
Expenditures (including expenditures under Capitalized Leases) in excess of
$250,000 in any twelve month period or any single Capital Expenditure in excess
of $50,000.
9.9. No Restrictions on Dividends by Subsidiaries.
Except as set forth on Schedule 5.3, neither the Company nor any
Subsidiary will create (or permit to exist) any consensual restrictions (whether
by agreement or otherwise) that may affect or limit the ability of any
Subsidiary to pay dividends or to make other distributions of any or all of its
assets to the Company or to any Subsidiary; provided, however, the foregoing
shall not be deemed to characterize dividend payments or other distributions as
other than Restricted Payments, subject to all the limitations set forth in
Section 9.1 of this Purchase Agreement.
9.10. Private Placement Status.
Neither the Company nor any agent nor other Person acting on the
Company's behalf will do or cause to be done (or will omit to do or to cause to
be done) any act which (or which omission) would result in bringing the issuance
or sale of the Preferred Shares, Warrant Shares or Warrants within the
provisions of Section 5 of the Securities Act or the filing, notification or
reporting requirements of any state securities law (other than in accordance
with a registration and qualification of Warrant Shares under the Registration
Rights Agreement).
55
9.11. No Dilution or Impairment; No Changes in Capital Stock.
The Company will not, by amendment of its Certificate of Incorporation
or through any consolidation, merger, reorganization, transfer of assets,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this Purchase
Agreement, the Other Transaction Documents or the Securities. The Company will
at all times in good faith assist in the carrying out of all such terms, and in
the taking of all such action, as may be necessary or appropriate in order to
protect the rights of the holders of the Securities (as such rights are set
forth in this Purchase Agreement and the Other Transaction Documents and the
Securities) against dilution or other impairment. Without limiting the
generality of the foregoing, the Company (a) will not permit the par value or
the determined or stated value of any shares of Common Stock of the Company
receivable upon the exercise of the Warrants to be increased, (b) will take all
such action as may be necessary or appropriate in order that the Company may at
all times validly and legally issue duly authorized, fully paid and
nonassessable shares of the Company's Common Stock free from all taxes, Liens
and charges with respect to the issuance thereof, upon the exercise of the
Warrants from time to time outstanding, (c) will not take any action which
results in any adjustment of the current exercise price under the Warrants if
the total number of shares of the Company's Common Stock (or other securities)
issuable after the action upon the exercise of all of the then outstanding
Warrants would exceed the total number of shares of Common Stock (or other
securities) then authorized by the Company's certificate of incorporation and
available for the purpose of issuance upon such exercise, (d) will not amend its
certificate of incorporation to change any terms of its Common Stock, (e) except
pursuant to a Stock Option Plan, will not have any authorized Preferred Stock
other than Junior Preferred Stock and will not issue any Preferred Stock other
than in accordance with Sections 9.13 and 9.15 hereof, and (f) will not create
or establish (or make any grants or awards under) any phantom stock, stock
appreciation rights or other equity equivalent plan whereby the Company or any
Subsidiary agrees to pay any Person a percentage of, or an amount otherwise
determined by reference to, the earnings of the Company or any Subsidiary, the
value of their stock or the proceeds from a sale of their stock or upon their
liquidation.
9.12. Maintenance of Public Market.
The Company will not proceed with a program of acquisition of its
Common Stock, initiate a corporate reorganization or recapitalization or
undertake a consolidation or merger or authorize, consent to or take any other
action which would have the effect of:
(a) removing the Company from registration with the Commission
under the Exchange Act;
(b) requiring the Company to make a filing under Section 13(e) of
the Exchange Act;
56
(c) reducing substantially or eliminating the primary public
market for shares of Common Stock of the Company;
(d) causing a delisting of the Company's Common Stock from the
Nasdaq System (unless such stock is delisted as a result of being listed on a
national securities exchange); or
(e) if any shares of the Company's Common Stock are at any time
listed on a national exchange, causing a delisting of such stock from such
exchange.
9.13. Issuances of Stock.
(a) Except in furtherance of its right pursuant to Section
9.2(b), neither the Company nor any Subsidiary shall (i) create, authorize,
issue or sell any Preferred Stock (except the Company may effect Permitted Sales
of Series A Preferred Stock pursuant to Section 11.2 hereof, sales of Preferred
Shares to Swiss Re pursuant to Section 11.1 hereof, sales of Preferred Shares
pursuant to this Purchase Agreement or sales of Junior Preferred Stock), or
(ii) create, authorize, issue or sell any options, warrants, subscription
rights, convertible securities or similar rights which have an exercise,
conversion, or subscription price per share lower than the then current exercise
price per share under the Warrants (before giving effect to such options,
warrants, subscription rights, convertible securities or similar rights).
(b) Except in furtherance of its right pursuant to Section
9.2(b), neither the Company nor any Subsidiary shall issue or otherwise transfer
(excluding transfers recorded on the stock books of the Company to reflect stock
transfers by a shareholder of the Company, which shareholder is not the Company
or any Subsidiary), for whatever reason, (i) any capital stock of any
Subsidiary, (ii) any option, warrant or other right to acquire, purchase or
receive capital stock of any Subsidiary or (iii) other securities convertible
into capital stock of any Subsidiary, whether or not such option, warrant or
rights are immediately exercisable or such other securities are immediately
convertible.
(c) Neither the Company nor any Subsidiary shall (i) establish
any new Plan which by its terms contemplates the creation, issuance or granting
of any option, warrant or other right to acquire, purchase or receive capital
stock of the Company or (ii) amend any Plan so as to increase the number of
options, warrants or other rights to acquire, purchase or receive capital stock
of the Company currently available under such Plan.
9.14. Indebtedness Agreements.
The Company will not amend or modify any existing agreement, respecting
any Indebtedness, which amendment or modification restricts or prohibits (or was
intended primarily to restrict or prohibit) the Company from making any payments
57
under, or otherwise performing the Company's obligations under, this Purchase
Agreement, the Other Transaction Documents and the Securities.
9.15. Amendments to Charter; By-Laws; Other Agreements.
The Company shall not (i) create, authorize, issue or sell (A) any
class or series of capital stock ranking prior to or pari passu with the
Preferred Shares as to dividends, registration rights or upon liquidation,
dissolution or winding up or (B) any rights, options or other securities
convertible, exercisable or exchangeable for or into, or having rights to
purchase, any shares of capital stock described in Clause A hereof or (C) any
class or series of capital stock with voting rights (other than the Series A
Preferred Stock and the Common Stock currently authorized), (ii) except as
contemplated by Section 8.15, amend the Certificate of Incorporation or By-Laws
or in any manner, alter or change the powers, rights, privileges or preferences
of the Securities, if such amendment or action would affect adversely the
powers, rights, privileges or preferences of the holders of the Securities,
(iii) increase the number of Preferred Shares authorized for issuance, (iv)
change the size of the Board of the Company except as permitted under the
Stockholders' Agreement and except as contemplated by Section 8.15, (v) at any
time after the Closing Date, issue any Preferred Shares except pursuant to
Sections 11 and 17 hereof, or (vi) consent to or request any amendment,
modification, supplement or waiver of any of the provisions of any agreement or
instrument evidencing the rights of shareholders of the Company or the terms of
(including the purchase and sale of) any form of capital stock of the Company.
SECTION 10. AMENDMENT OF AGREEMENT
This Purchase Agreement may be amended or modified only by an
instrument in writing executed by the Company and by each of the other parties
hereto.
SECTION 11. PURCHASE OPTION; FUTURE SALES
11.1. Swiss Re Purchase Option.
(a) During the period following the Closing Date to and including
March 31, 1997 (the "Option Period"), the Company shall afford Swiss Re the
opportunity, and Swiss Re shall have the right and option exercisable in its
sole discretion, to the exclusion of any other Person (including without
limitation any other Purchaser or holder of Securities of the Company), to
purchase up to the number of additional Preferred Shares and Warrants set forth
on Schedule C hereof (the "Additional Securities") at the aggregate purchase
price (as adjusted if less than all of the Additional Securities are to be
purchased) set forth on such Schedule C. If such option is exercised pursuant to
clause (b) hereof, the Additional Securities issued by the Company shall be
issued under this Agreement (and such Additional Securities shall be deemed to
be Securities hereunder) with documentation and agreements substantially the
same as were delivered in connection with the purchase of the Securities
58
hereunder, including the documents referred to in Section 11.1(c) hereof, and
such Additional Securities shall have the same terms as (subject to required
adjustments to the Warrant terms as set forth in the provisos below) the
Preferred Shares and Warrants purchased pursuant to this Purchase Agreement and
the Other Transaction Documents (including without limitation price per share,
stated value, preferences and priorities, registration rights and covenants);
provided, however, that the exercise price of any Warrants purchased pursuant to
this Section 11.1(a) shall be the price equal to the exercise price of the then
outstanding Warrants on the date of the closing of the sale of the Additional
Securities as adjusted pursuant to the terms of such Warrants; and provided,
further, that the number of shares of Common Stock available upon the exercise
of such Warrants purchased pursuant to this Section 11.1(a) shall be 700,000.
(b) Swiss Re may exercise its option to purchase Additional
Securities under Section 11(a) hereof by giving written notice thereof to the
Company at any time during the Option Period. Such notice shall specify (i) the
number and type of Additional Securities to be purchased, and (ii) the proposed
date of such purchase, which shall be no later than sixty (60) days following
such exercise. Swiss Re shall be entitled to conduct the customary due diligence
inquiries with respect to the purchase of Additional Securities and the Company
agrees to cooperate with and facilitate such due diligence inquiries. Swiss Re
shall have the right (upon notice to the Company) at any time prior to the
proposed date of such purchase set forth in such notice to rescind its exercise
of the option as a result of its review of the results of its due diligence
inquiries, and upon delivery of such rescission notice Swiss Re shall have no
obligation to purchase any Additional Securities. The parties shall use their
respective best efforts to consummate the sale of Additional Securities to Swiss
Re within sixty (60) days following receipt of notice from Swiss Re on terms
provided in this Section 11.1; provided however that to the extent any Consents
are required in connection with any such purchase of Additional Securities,
Swiss Re shall be entitled to extend the proposed date of purchase.
(c) At the closing of the purchase by Swiss Re of the Additional
Securities, the Company shall deliver the following to Swiss Re:
(i) certificates evidencing the Additional Securities; (ii) an opinion of
counsel to the Purchaser substantially in the form delivered with respect to the
purchase of the Securities hereunder; (iii) a bring-down certificate with
respect to the representations and warranties made hereunder dated as of the
date of such sale and purchase; and (iv) such other documentation as is
reasonably requested by Swiss Re and its counsel.
(d) The exercise or failure by Swiss Re to exercise any rights
provided by this Section 11 shall in no way prejudice the rights of Swiss Re or
any other holder of Securities under the Purchase Agreement, any Other
Transaction Document or the Securities.
(e) In connection with any proposed purchase of Additional
Securities by Swiss Re pursuant to this Section 11.1, the Company shall take
(and shall cause each of its Subsidiaries to take) all necessary steps to
(i) obtain a license for Quaker City to write insurance in New Jersey and
(ii) effect the requisite flex rate filings, it being understood and agreed by
the
59
Company that the failure to obtain a license for Quaker City to write insurance
in New Jersey or the failure to effect the flex rate filings (with approval of
such rates being obtained) shall be bases on which Swiss Re may elect to rescind
its exercise of the option to purchase Additional Securities.
11.2. Permitted Sales.
(a) Subject to Section 11.2(c) hereof, in the event that
(i) Swiss Re fails to exercise the option provided under Section 11.1 hereof
(the "Option") during the Option Period or (ii) Swiss Re notifies the Company in
writing that it will not exercise such option during the Option Period, then the
Company shall have the right, for a period of sixty (60) days following the
earlier of the last day of the Option Period or the date when such notice is
given (if any), to sell, on terms no more favorable than those available to
Swiss Re, to one or more institutional investors (the "Investors") shares of
Series A Preferred Stock and Warrants which were subject to the Option, but
which were not purchased by Swiss Re during the Option Period (or as to which
Swiss Re has notified the Company that it will not purchase) (such shares and
Warrants, the "Available Securities").
(b) Subject to Section 11.2(c) hereof, on and after October 4,
1996 until March 31, 1997, the Company shall have the right to sell, in addition
to the Available Securities pursuant to Section 11.2(a) hereof, up to 10,000
shares of Series A Preferred Stock and warrants, (the "Second Round Securities")
to one or more institutional investors (the "Second Round Investors"). The
number of warrants which the Company may sell as Second Round Securities shall
be limited to the lesser of 1,400,000 or such number of shares as shall on a
fully diluted basis represent a percentage of the outstanding Common Stock of
the Company equal to the product of 100 and a fraction, the denominator of which
shall be the sum of (i) the estimated total stockholders' equity of the Company
as of the end of the most recent fiscal quarter of the Company preceding the
additional purchase by such Second Round Investors plus (ii) $10,000,000 plus
(iii) the amount of any other equity investment contemporaneous with Swiss Re's
additional investment, and the numerator of which shall be 10,000,000. The
exercise price of any warrants sold by the Company as Additional Securities
shall be the exercise price of the then outstanding Warrants (as adjusted
pursuant to the terms of such Warrants).
(c) Any sale of Available Securities or of Second Round
Securities shall be subject to the following conditions: (i) the closing of a
sale pursuant to Section 11.2(a) shall occur during the sixty (60) day period
set forth therein; (ii) the closing of a sale pursuant to Section 11.2(b) shall
occur during the six (6) month period set forth therein; (iii) the Company shall
notify Swiss Re and Reliance of any proposed Permitted Sale (defined below) at
least ten (10) days prior to the closing thereof, such notice to identify the
Investors or the Second Round Investors, to specify the number of Available
Securities or Second Round Securities to be sold, to specify the purchase price
therefor, to specify the other material terms of such Permitted Sale and to
represent and warrant that such sale will constitute a Permitted Sale hereunder
upon consummation thereof; (iv) the terms of any such sale shall be no more
favorable to the Investors or the Second Round Investors than the terms offered
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to Swiss Re and Reliance under this Purchase Agreement; (v) the Available
Securities and the Second Round Securities shall be issued with documentation
and agreements substantially the same as were delivered in connection with the
purchase of Securities hereunder; and (vi) each Investor and Second Round
Investor shall become party to the Stockholders' Agreement (but shall not be
entitled to designate a Preferred Director or Default Directors) as "Additional
Stockholders". The term "Permitted Sale" means any sale of Available Securities
or Second Round Securities effected in compliance with this Section 11.2.
SECTION 12. REMEDIES
(a) The Company agrees to indemnify and hold each Purchaser and
its Affiliates harmless from and against and will pay to each Purchaser the full
amount of any loss, damage, liability or expense (including amounts paid in
settlement and attorneys' fees and expenses) to such Purchaser resulting either
directly or indirectly from any breach of the representations or warranties, or
failure to perform any of the covenants or agreements of the Company or any
Subsidiary contained in this Purchase Agreement, the Other Transaction Documents
or any Securities.
(b) In the case of a breach of any representation or warranty, or
failure to perform any of the agreements or covenants of the Company or any
Subsidiary contained in this Purchase Agreement, the Other Transaction Documents
or any Securities, the holder of any Securities then outstanding may proceed to
protect and enforce the rights of such holder by an action at law, suit in
equity or other appropriate proceeding, whether for the specific performance of
any agreement or covenant contained herein or therein or in such Security or for
an injunction against a violation of any of the terms hereof or thereof or of
such Security, or in aid of the exercise of any power granted hereby or thereby
or by such Security or by law or for any other remedy (including without
limitation damages).
(c) All amounts payable by the Company in connection with the
Securities shall be paid without counterclaim, set off, deduction or defense and
without abatement, suspension, deferment, diminution or reduction.
(d) No course of dealing and no delay on the part of any holder
of any Securities or any party to this Purchase Agreement in exercising any
rights or remedies shall operate as a waiver thereof or otherwise prejudice such
holder's or party's rights. No right or remedy conferred hereby or by the Other
Transaction Documents by any Securities shall be exclusive of any other right or
remedy referred to herein or therein in such Security or available at law, in
equity, by statute or otherwise.
(e) Holders of Securities shall, in addition to other remedies
provided by law, have the right and remedy to have the provisions of this
Purchase Agreement, the Other Transaction Documents or such Securities
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specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed that any breach or threatened breach of the provisions
of this Purchase Agreement, the Other Transaction Documents or any Securities
will cause irreparable injury to holders of Securities and that money damages
will not provide an adequate remedy. Nothing contained herein shall be construed
as prohibiting a holder of Securities from pursuing any other remedies available
to such holder for such breach or threatened breach, including without
limitation the recovery of damages from the Company.
SECTION 13. RESTRICTIONS ON TRANSFER
(a) Each holder of a Preferred Share, Warrant or Warrant Share,
by acceptance thereof, agrees that it will not sell or otherwise dispose of any
Securities unless (i) such Securities have been registered under the Securities
Act and, to the extent required, under any applicable state securities laws,
(ii) such Securities are sold in accordance with the applicable requirements and
limitations of Rule 144 or Rule 144A and any applicable state securities laws,
(iii) if the Company has so requested, the Company has been furnished with an
opinion, in form and substance reasonably satisfactory to the Company, from
counsel to such holder (which counsel may be inside counsel of such holder) to
the effect that registration under the Securities Act is not required for the
transfer as proposed (provided that such opinion may be conditioned upon the
transferee's assuming the obligations of a holder of Securities under this
Section) or (iv) the Company has been furnished with a letter from the Division
of Corporate Finance of the Commission to the effect that such Division would
not recommend any action to the Commission if such proposed transfer were
effected without a registration statement effective under the Securities Act.
The Company agrees that within five (5) Business Days after receipt of any
opinion referred to in (iii) above, it will notify the holder supplying such
opinion whether such opinion is satisfactory to the Company's counsel.
(b) The Company may endorse on all Preferred Share, Warrant and
Warrant Share certificates a legend stating or referring to the transfer
restrictions contained in paragraph (a) above; provided, that no such legend
shall be endorsed on any Preferred Share, Warrant or Warrant Share certificates
which, when issued, are no longer subject to the restrictions of this Section
13; provided, further, that if a transfer is made pursuant to clause (i), (ii)
(other than pursuant to Rule 144A) or (iv) of paragraph (a) of this Section 13
or if an opinion of counsel provided pursuant to clause (iii) of paragraph (a)
concludes that the legend is no longer necessary, the Company will deliver upon
transfer Preferred Share, Warrant or Warrant Share certificates without such
legends.
SECTION 14. EXPENSES
(a) Whether or not the transactions herein contemplated are
consummated, the Company will pay (i) the costs and expenses incurred by each
Purchaser in connection with the preparation, production and negotiation of this
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Purchase Agreement, the Other Transaction Documents and the issuance of the
Securities and the furnishing of all opinions by counsel for the Company,
(ii) the out-of-pocket expenses incurred by each Purchaser in connection with
the negotiation, execution and delivery of this Purchase Agreement, the Other
Transaction Documents and the Securities and the transactions contemplated
hereby and thereby, including the fees and disbursements of Xxxxxx, Xxxxx &
Xxxxxxx LLP (which fees are not contemplated to exceed $125,000), (iii) the fees
and disbursements of counsel to each Purchaser in connection with any amendments
to or modifications or waivers of or consents involving any provisions of this
Purchase Agreement, the Other Transaction Documents or the Securities, or in
connection with any other agreements between any Purchaser and the Company,
(iv) the fees and expenses of any investment banker, broker or finder involved
with this Purchase Agreement or any of the transactions contemplated hereby, (v)
the fees and expenses (including attorneys' fees and expenses) of any holder of
Securities in enforcing its rights against the Company if the Company defaults
in its obligations hereunder, under the Amendment or the Other Transaction
Documents, (vi) the expenses incurred by any holder in connection with its
exercise of any rights of inspection under Section 7.3 hereof, and (vii) the
cost of delivering to each Purchaser's home office or depository (or to such
other location or person as any Purchaser may otherwise instruct the Company in
writing), insured to each such Purchaser's reasonable satisfaction, the
Securities purchased by each Purchaser on the Closing Date.
(b) In addition to all other sums due hereunder or provided for
in this Purchase Agreement, the Company shall pay to the Purchasers or their
agents, respectively, an amount sufficient to indemnify such persons (net of any
taxes on any indemnity payments) against all reasonable costs and expenses
(including reasonable attorneys, fees and expenses and reasonable costs of
investigation) and damages and liabilities incurred by any such Purchasers or
agents (each an "Indemnitee") pursuant to any investigation or proceeding
against any or all of the Company, any Purchaser, or their agents, arising out
of or in connection with this Purchase Agreement, the Other Transaction
Documents, the Preferred Shares, the Warrant Shares or the Warrants (or any
transaction contemplated hereby or thereby or any other document or instrument
executed herewith or therewith or pursuant hereto or thereto), whether or not
the transactions contemplated by this Purchase Agreement are consummated, which
investigation or proceeding requires the participation of any such Indemnitee or
is commenced or filed against any such Indemnitee or its agents because of this
Purchase Agreement, the Other Transaction Documents, the Preferred Shares, the
Warrant Shares or the Warrants or any of the transactions contemplated hereby or
thereby (or any other document or instrument executed herewith or therewith or
pursuant hereto or thereto), other than any investigation or proceeding in which
it is finally judicially determined that there was gross negligence or willful
misconduct on the part of such Indemnitee or its agents which did not follow
from, or was not taken by them in reliance upon, any of the Company's
representations, warranties, covenants or agreements in this Purchase Agreement,
the Preferred Shares or the Warrant Shares or the Warrants or in any other
documents or instruments contemplated hereby or thereby or executed herewith or
therewith or pursuant hereto or thereto. The Company shall assume the defense,
and shall have its counsel (which counsel, however, shall be acceptable to the
Indemnitees) represent any such Indemnitee and such agents in connection with,
63
investigating, defending or preparing to defend any such action, suit, claim or
proceeding (including any inquiry or investigation); provided, however, that any
such Indemnitee shall have the right (without releasing the Company from any of
its obligations hereunder) to employ its own counsel and either to direct its
own defense or to participate in the Company's defense, but the fees and
expenses of such counsel shall be at the expense of such person unless (i) the
employment of such counsel shall have been authorized in writing by the Company
in connection with such defense or (ii) the Company shall not have instructed
its counsel to take charge of such defense or (iii) any such Indemnitee shall
have reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to the Company or
another Indemnitee, then in any of such events referred to in clauses (i), (ii)
or (iii) such counsel fees and expenses (but only for one counsel for such
Indemnitee or Indemnitees) shall be borne by the Company. Any settlement of any
such action, suit, claim or proceeding shall require the consent of both the
Company and such indemnified person (neither of which shall unreasonably
withhold its consent).
(c) The Company agrees to pay, or to cause to be paid, all
transfer, recording, stock transfer, documentary, stamp and other similar taxes
and fees levied under the laws of the United States of America or any state or
local taxing authority thereof or therein in connection with the issuance, sale
or subsequent transfer of the Securities (other than taxes in connection with a
transfer by a holder of Securities which taxes are imposed on or measured by the
net income of a holder of Securities) and the execution and delivery of this
Purchase Agreement, any Other Transaction Documents and any other documents or
instruments contemplated hereby or thereby and any modification of any of the
Securities, this Purchase Agreement, and Other Transaction Documents or any such
other documents or instruments and will hold each Purchaser harmless without
limitation as to time against any and all liabilities with respect to all such
taxes. The Company shall file all necessary documentation and returns with
respect to such taxes.
(d) The obligations of the Company under this Section 14 shall
survive the Closing and any termination of this Purchase Agreement.
SECTION 15. HOME OFFICE PAYMENTS
As long as any Purchaser or any institutional holder which is a direct
or indirect transferee (as a result of one or more transfers) from such
Purchaser shall be the holder of any Preferred Share, Warrant or Warrant Share,
the Company will make all dividend payments, redemption payments, liquidation
payments and other distributions (i) by check payable to the order of the holder
of any Security duly mailed or delivered to such Purchaser at its address
specified on Schedule A hereto or at such other address as such Purchaser or
such other holder may designate in writing pursuant to Section 17 hereof, or
(ii) if requested by such Purchaser or such other holder, by wire transfer to
such Purchaser's or such other holder's (or its nominee's) account at any bank
or trust company in the United States of America, notwithstanding any contrary
provision herein or in the Company's Certificate of Incorporation or By-Laws
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with respect to the place of payment. IF ANY PURCHASER HAS PROVIDED AN ADDRESS
ON SCHEDULE A HERETO FOR PAYMENTS BY WIRE TRANSFER, THEN SUCH PURCHASER SHALL BE
DEEMED TO HAVE REQUESTED WIRE TRANSFER PAYMENTS UNDER THE PRECEDING CLAUSE (ii)
OF THIS SECTION 15. All such payments shall be made in U.S. dollars and in
federal or other immediately available funds.
SECTION 16. EXCHANGE OF SHARES; CANCELLATION OF SURRENDERED SECURITIES;
REPLACEMENT
(a) Subject to Section 13 hereof, at any time at the request of
any holder of Preferred Shares, Warrant Shares or Warrants to the Company at its
office provided in Section 8.2 hereof, the Company shall, at its expense (except
for any transfer tax arising out of the exchange) issue and deliver (insured to
such holder's reasonable satisfaction) to or upon the order of the holder in
exchange therefor a new Preferred Share, Warrant Share or Warrant certificate or
certificates of like tenor, in such amount or amounts as such holder may
request, representing in the aggregate the number of Preferred Shares, Warrant
Shares or Warrants represented by such surrendered certificate or certificates,
and registered in the name of such holder or as such holder may direct.
(b) Any Warrant certificate which is exercised for Warrant
Shares, in whole or in part, shall be canceled by the Company, and no new
Warrant certificates shall be issued in lieu of any Warrants which have been
exercised for Warrant Shares. The Company shall issue a new Warrant certificate
with respect to any Warrants which were not exercised for Warrant Shares and
were represented by a certificate which was exercised in part.
(c) Any Preferred Share certificate which is surrendered as
payment, in whole or in part, of the exercise price for any Warrants, shall be
canceled by the Company and no new Preferred Share certificates shall be issued
in lieu of any Preferred Shares which have been so surrendered. The Company
shall issue a new Preferred Share certificate with respect to any Preferred
Shares which were not so surrendered in payment of the exercise price under any
Warrant, but were represented by a Preferred Share certificate which was
surrendered in part.
(d) Upon receipt of evidence satisfactory to the Company of
the loss, theft, destruction or mutilation of any Preferred Share or Warrant
Share or Warrant certificate and, in the case of any such loss, theft or
destruction, upon delivery of an indemnity agreement reasonably satisfactory to
the Company (if requested by the Company and unsecured in the case of the
Purchasers or an institutional holder), or in the case of any such mutilation,
upon surrender of such Preferred Share, Warrant Share or Warrant certificate
(which surrendered Preferred Share, Warrant Share or Warrant certificate shall
be canceled by the Company), the Company will issue a new Preferred Share,
Warrant Share or Warrant certificate of like tenor in lieu of such lost, stolen,
destroyed or mutilated Preferred Share, Warrant Share or Warrant certificate as
if the lost, stolen, destroyed or mutilated Preferred Share, Warrant Share or
Warrant certificate were then surrendered for exchange.
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SECTION 17. NOTICES
Unless otherwise expressly specified or permitted by the terms hereof,
all notices, requests, demands, consents and other communications hereunder or
with respect to any Security shall be in writing and shall be delivered
personally, sent by reputable overnight express courier service (charges
prepaid) or certified mail, return receipt requested, postage prepaid and shall
be deemed to have been given when so delivered, sent or deposited in the U.S.
Mail (i) to any Purchaser, at such Purchaser's address as set forth in Schedule
A hereto or at such other address as such Purchaser may otherwise indicate in a
written notice delivered to, (ii) to any other holder of a Security, at such
address as the registered holder thereof may otherwise indicate in a written
notice delivered to the Company in writing, or (iii) to the Company, at Three
South Revmont Drive, Shrewsbury, New Jersey 07702, Attention: Chief Financial
Officer, or at such other address as the Company may otherwise indicate in a
written notice delivered to the Purchaser and to the other holders of
Securities.
Addresses may be changed upon notice of such change given as provided
in this Section 17.
SECTION 18. MISCELLANEOUS
18.1. Entire Agreement.
This Purchase Agreement, the Other Transaction Documents and, upon the
Closing, the Securities issued hereunder, together with any further agreements
entered into by any Purchaser and the Company at the closing hereunder (or at
any subsequent closing pursuant to Section 11 hereof), contain the entire
agreement among the Purchasers and the Company, and supersede any prior oral or
written agreements, commitments, terms or understandings, regarding the subject
matter hereof.
18.2. Survival.
All agreements, representations and warranties, covenants, and
obligations of the Company and any Subsidiary contained in this Purchase
Agreement, the Other Transaction Documents, the Securities or any document or
certificate delivered pursuant hereto or thereto shall survive, and shall
continue in effect following, the execution and delivery of this Purchase
Agreement, the Other Transaction Documents, the closings hereunder and
thereunder, any investigation at any time made by or on behalf of the Purchasers
or by any other Person, the issuance, sale and delivery of the Securities, any
disposition thereof and any payment, exercise conversion or cancellation of the
Securities; provided, that Sections 8.3, 8.4, 9.1, 9.2, 9.5, 9.7, 9.8, and 9.9
shall terminate when no Preferred Shares or Warrants are outstanding. All
66
statements contained in any certificate or other document delivered by or on
behalf of the Company pursuant hereto shall constitute representations and
warranties by the Company hereunder.
18.3. Counterparts.
This Purchase Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all of which such counterparts shall together constitute one and
the same instrument, and all signatures need not appear on any one counterpart.
18.4. Headings.
The headings and captions in this Purchase Agreement and the table of
contents are for convenience of reference only and shall not define, limit or
otherwise affect any of the terms or provisions hereof.
18.5. Binding Effect, Benefit and Assignment.
(a) The terms of this Purchase Agreement shall be binding upon,
and inure to the benefit of, the parties and their respective successors and
permitted assigns whether so expressed or not.
(b) The Company may not assign any of its obligations, duties or
rights under this Purchase Agreement, except with each Purchaser's consent.
(c) In addition to any assignment by operation of law, each
Purchaser may assign, in whole or in part, any or all of its rights (and/or
obligations) under this Purchase Agreement or under the Securities to any
permitted transferee of any or all of its Securities, and (unless such
assignment expressly provides otherwise) any such assignment shall not diminish
the rights each Purchaser would otherwise have under this Purchase Agreement or
with respect to any remaining Securities held by such Purchaser or with respect
to any indemnity or reimbursement rights (or with respect to any other
provisions which expressly provide that they survive any termination of this
Purchase Agreement).
18.6. Severability
Any provision hereof, of any Other Transaction Documents or of the
Securities 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 provisions hereof or
thereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other jurisdiction.
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18.7. Governing Law
This Purchase Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York (other than any conflict of
laws rule which might result in the application of the laws of any other
jurisdiction).
18.8. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
THE COMPANY HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL
COURT LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK AND IRREVOCABLY
AGREES THAT, SUBJECT TO THE ELECTION OF ANY PURCHASER OR ANY OTHER HOLDER OF
SECURITIES, ALL ACTIONS OR PROCEEDINGS RELATING TO THIS PURCHASE AGREEMENT, THE
OTHER TRANSACTION DOCUMENTS OR THE SECURITIES MAY BE LITIGATED IN SUCH COURTS.
THE COMPANY ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY
AND UNCONDITIONALLY, NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENCE, AND IRREVOCABLY AGREES TO BE BOUND
BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS PURCHASE AGREEMENT, THE
OTHER TRANSACTION DOCUMENTS, AND THE SECURITIES. A COPY OF ANY SUCH PROCESS SO
SERVED SHALL BE MAILED BY REGISTERED MAIL TO THE COMPANY AT THE ADDRESS OF THE
COMPANY PROVIDED IN SECTION 17 HEREOF, EXCEPT THAT UNLESS OTHERWISE PROVIDED BY
APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF
SERVICE OF PROCESS. AS AN ALTERNATIVE TO SERVICE OF PROCESS ON SUCH AGENT
(WHETHER OR NOT ANY SUCH AGENT HAS BEEN APPOINTED), THE COMPANY HEREBY AGREES
THAT SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE AND SERVICE OF
PROCESS. NOTHING HEREIN SHALL AFFECT RIGHT TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE PURCHASERS OR ANY OTHER HOLDER
OF SECURITIES TO BRING PROCEEDINGS OR OBTAIN OR ENFORCE JUDGMENTS AGAINST THE
COMPANY IN THE COURTS OF ANY OTHER JURISDICTION.
18.9. WAIVER OF JURY TRIAL. THE COMPANY HEREBY WAIVES ITS RIGHT TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
PURCHASE AGREEMENT, ANY OTHER TRANSACTION DOCUMENTS OR THE SECURITIES OR ARISING
OUT OF ANY DEALINGS BETWEEN THE COMPANY AND THE PURCHASERS RELATING TO SUBJECT
MATTER OF THIS TRANSACTION. THE COMPANY ALSO WAIVES ANY BOND OR SURETY OR
SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF ANY
PURCHASER. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY
AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT
MATTER OF THIS TRANSACTION,
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INCLUDING WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THE COMPANY FURTHER
WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL,
AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO (OR ASSIGNMENTS
OF) THIS PURCHASE AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR THE SECURITIES.
IN THE EVENT OF LITIGATION, THIS PURCHASE AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL (WITHOUT A JURY) BY COURT.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
69
IN WITNESS WHEREOF, the parties hereto have caused this Purchase
Agreement to be duly executed as of the date first above written.
HOME STATE HOLDINGS, INC.
By: /s/ Xxxx Xxxxxx
------------------------------
Name: Xxxx Xxxxxx
Title: Acting President
[Signature Page to Securities Purchase Agreement]
Accepted and agreed to as
of the date first above
written by the undersigned
Purchaser:
SWISS REINSURANCE
AMERICA CORPORATION
By: /s/ Xxxxxx X. Xxxxxxx
-----------------------------
Name: Xxxxxx X. Xxxxxxx
Title: Senior Vice President
and General Counsel
RELIANCE INSURANCE COMPANY
By: /s/ Xxxxxx X. Xxxxxxxxx
-----------------------------
Name: Xxxxxx X. Xxxxxxxxx
Title: Vice President
The undersigned acknowledges and agrees that any breach or threatened
breach of the undersigned's obligations under this letter agreement will cause
irreparable injury to you for which money damages will not provide an adequate
remedy. Therefore, you shall be entitled to seek specific enforcement of any
such obligations before any court having equity jurisdiction. The parties hereto
acknowledge and agree that such remedy of specific performance shall be your
sole remedy against the undersigned for a breach of his obligations hereunder.
The undersigned agrees to waive any requirement that you post a bond in
connection with the granting of any such remedy of specific enforcement.
This letter agreement shall be governed by, and construed in accordance
with, the laws of the State of New York (other than any conflict of laws rule
which might result in the application of the laws of any other jurisdiction).
Please indicate your acceptance and agreement to the foregoing in the
space provided below.
/s/ Xxxxxx Xxxxxx
-----------------------------------
Xxxxxx Xxxxxx
SWISS REINSURANCE AMERICA CORPORATION
By /s/ Xxxxxx X. Xxxxxxx
----------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: Senior Vice President
and General Counsel
RELIANCE INSURANCE COMPANY
By /s/ Xxxxxx X. Xxxxxxxxx
----------------------------------
Name: Xxxxxx X. Xxxxxxxxx
Title: Vice President
SCHEDULE A
PURCHASERS
Number
of Preferred Number of Aggregate
Name and Address of Purchaser Shares Warrants Purchase Price
----------------------------- ------------ --------- --------------
1. Swiss Reinsurance
America Corporation 5,000 700,000 $5,000,000
(a) address for communications:
Swiss Reinsurance American Corporation
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: General Counsel
(b) address for payments by wire
transfer:
The Bank of New York
Bk of NYC\CTR\BBK
IOC 565 - Inst'l Custody
ABA No.: 021 000 018
Account: Swiss Reinsurance America Corporation
Account No.: 351850
(providing sufficient information with such
wire transfer to identify the source and
application of such funds)
2. Reliance Insurance Company 5,000 700,000 $5,000,000
(a) address for communications:
Reliance Insurance Company
c/o Reliance Group Holdings, Inc.
Park Avenue Plaza
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Treasurer
72
with copy to
Reliance Group Holdings, Inc.
Park Avenue Plaza
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: General Counsel
and
Reliance Reinsurance Corp.
0 Xxxx Xxxxxx Xxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attn: President
(b) address for payments wire transfer:
Bank of New York
IOC 566
ABA No.: 021 000 018
Account: Reliance Insurance Company
Account No.: 301564
(providing sufficient information with such
wire transfer to identify the source and
application of such funds)
73
SCHEDULE B
CERTAIN AGREEMENTS
1. Swiss Reinsurance America Corporation
The Company, on or prior to the Closing, shall have entered into the
following agreements with Swiss Re, each of which shall be in form and
substance satisfactory to Swiss Re:
Reinsurance Binders (as from time to time assigned,
supplemented or amended or as the terms thereof may be waived,
the "Swiss Re Reinsurance Binders");
Services Agreement (as from time to time assigned,
supplemented or amended or as the terms thereof may be waived,
the "Swiss Re Services Agreement"); and
Letter Agreement dated the date hereof pursuant to which Swiss
Re Reinsurance Binders may be renewed, as from time to time
obligating Home State, subject to specified terms and
conditions, to renew the reinsurance arrangements entered into
among Swiss Re, the Company and the Insurance Subsidiaries
relating to the 1997 coverage year, as more fully described in
the Reinsurance Binders (the "Swiss Re Letter Agreement").
2. Reliance Insurance Company
The Company, on or prior to the Closing, shall have entered into the
following agreements with Reliance, each of which shall be in form and
substance satisfactory to Reliance:
Reinsurance Agreement (as from time to time assigned,
supplemented or amended or as the terms thereof may be waived,
the "Reliance Reinsurance Agreement"); and
Services Agreement (as from time to time assigned,
supplemented or amended or as the terms thereof may be waived,
the "Reliance Services Agreement"); and
Bid Agreement (pursuant to which the Company will seek bids
from Sterling Administrative Services, Inc., a Pennsylvania
corporation and a wholly owned subsidiary of Reliance,
relating to administration services as from time to time
assigned, supplemented or amended or as the terms thereof may
be waived, the "Sterling Bid Agreement").
74
SCHEDULE C
ADDITIONAL SECURITIES
Number
of Preferred Number of Aggregate
Name and Address of Purchaser Shares Warrants Purchase Price
----------------------------- ------------ --------- --------------
1. Swiss Reinsurance
America Corporation 5,000 700,000 $5,000,000
(a) address for communications:
Swiss Reinsurance American Corporation
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: General Counsel
(b) address for payments by wire
transfer:
The Bank of New York
Bk of NYC\CTR\BBK
IOC 565 - Inst'l Custody
ABA No.: 021 000 018
Account: Swiss Reinsurance America Corporation
Account No.: 351850
(providing sufficient information with such
wire transfer to identify the source and
application of such funds)
75
EXHIBIT A
[CERTIFICATE OF DESIGNATIONS]
76
EXHIBIT B-1
[FORM OF WARRANT]
77
EXHIBIT B-2
[FORM OF RELIANCE WARRANT]
78
EXHIBIT C
[FORM OF STOCKHOLDERS' AGREEMENT]
79
EXHIBIT D
[FORM OF REGISTRATION RIGHTS AGREEMENT]
80
EXHIBIT E
[FORM OF AMENDED BY-LAWS]
81
EXHIBIT F-1
[FORM OF COMPANY OFFICER'S CERTIFICATE]
82
EXHIBIT F-2
[FORM OF COMPANY SECRETARY'S CERTIFICATE]
83
EXHIBIT G-1
[FORM OF XXXXXXX & XXXXXX OPINION]
84
EXHIBIT G-2
[FORM OF XXXXXX & WHITNEY OPINION]
85
EXHIBIT H
[FORM OF AMENDED AND RESTATED CERTIFICATE OF DESIGNATIONS]
86
[DISCLOSURE SCHEDULES]
87
