Execution Copy
Exhibit 10.1
FIRST AMENDED AND RESTATED
CATASTROPHE EQUITY SECURITIES ISSUANCE OPTION AND
REINSURANCE OPTION AGREEMENT
This First Amended and Restated Catastrophe Equity Securities Issuance
Option and Reinsurance Option Agreement (this "Agreement") is entered into as of
May 7, 2002 between Xxxxxx Xxxx Educators Corporation, a Delaware corporation
("HM") and the option writers listed in Exhibit A attached hereto (referred to
herein as "Option Writer" and "Reinsurance Option Writer").
RECITALS
WHEREAS, HM is an insurance holding company with certain subsidiaries which
insure life and property/casualty risks;
WHEREAS, Reinsurance Option Writer is a reinsurance company in the business
of reinsuring certain property/casualty insurance risks;
WHEREAS, HM, Option Writer and Reinsurance Option Writer have previously
entered into an agreement under which, during a specified time period, HM will
have (i) the option (the "Securities Issuance Option", as defined in Section
1.35) to require Option Writer to purchase shares of HM preferred stock (the
"Preferred Shares", as defined in Section 1.26), or (ii) the right (the "Quota
Share Reinsurance Right", as defined in Section 1.29) to require Reinsurance
Option Writer to participate in a ten percent (10%) quota share reinsurance
treaty on the terms set forth in the attached Schedule 1.29, in each case in the
event that HM incurs a Qualifying Catastrophic Event (as defined in Section
1.28); and
WHEREAS, HM, Option Writer and Reinsurance Option Writer desire to amend
and restate their agreement with respect to the Securities Issuance Option and
the Quota Share Reinsurance Right on the terms and conditions set forth below;
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, HM and Option Writer agree as follows:
AGREEMENT
1. Definitions. Terms used in this Agreement shall have the respective
meanings ascribed to them below.
1.1 "Agreement Year" means the period beginning at 12:00 A.M. Central
Time on the Effective Date and ending at 12:00 A.M. Central Time on the one year
anniversary of the Effective Date, and each subsequent one (1) year period,
during the Exposure Period.
1.2 "Annual Reports" has the meaning assigned thereto in Section 3.9.
1.3 "Annual Statement" means the annual statement required by statute
to be prepared by an insurance company and submitted to the department of
insurance in its state of domicile.
1.4 "Attachment Point" means (i) with respect to a single Event,
US$75,000,000 and (ii) with respect to multiple Events, US$210,000,000;
provided, however, at the beginning of each Agreement Year, starting on the one
year anniversary of the Effective Date, the Attachment Point shall be increased
by a dollar amount equal to the result obtained by multiplying (x) the
percentage increase, if any, in excess of five percent (5%), in the number of
property units insured by the HM Insurance Subsidiaries in the calendar year
immediately preceding the relevant Agreement Year, compared to the calendar year
second preceding the relevant Agreement Year times (y) the Attachment Point then
in effect. The number of property units insured by the HM Insurance Subsidiaries
in calendar year 2001 was 283,411.
1.5 "Business Day" means any day other than a Saturday, Sunday or a
day on which banking institutions in New York, New York or Zurich, Switzerland
are not required to be open.
1.6 "Certificate of Designations" means the Certificate of
Designations for the Preferred Shares, substantially in the form attached as
Schedule 1.6, to be adopted by the Board of Directors of HM and filed with the
Secretary of State of Delaware in accordance with Section 151 of the Delaware
General Corporation Law of 1953, as amended.
1.7 "Change of Control" means, with respect to HM, (i) the
acquisition of ownership by any Person or "group" within the meaning of Sections
13(d) and 13(g) of the Exchange Act required to file a Schedule 13D under the
Exchange Act (other than a Person or "group" owning greater than 20% and less
than 50% of the voting power of the capital stock of HM that otherwise meets the
requirements of a Person or "group" eligible to file a Schedule 13G in lieu of a
Schedule 13D) of greater than 30% of the voting power of the capital stock of HM
(whether by sale or other transfer of capital stock, merger, consolidation or
other reorganization or means, including a reorganization under bankruptcy or
insolvency laws) or (ii) the consummation of a sale, transfer or other
disposition of greater than 30% of the assets of HM (determined on a combined
and consolidated fair market value basis) in one or a series of related
transactions to any Person that is not an affiliate of HM.
1.8 "Effective Date" means May 8, 2002.
1.9 "Event" means a "loss occurrence" as defined in the Property
Catastrophe Reinsurance agreements, a copy of which definition is attached as
Schedule 1.9; provided, however, that such definition shall not be materially
changed or amended without the prior written consent of Option Writer, which
consent shall not be unreasonably withheld.
1.10 "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and all rules and regulations promulgated thereunder.
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1.11 "Exercise Date" means the date of purchase and sale of Preferred
Shares pursuant to an exercise of the Securities Issuance Option which date
shall be specified in the Notice of Exercise and shall, subject to the proviso
set forth below, be the later of forty-five (45) days following delivery of a
Notice of Exercise or ten (10) Business Days following receipt of all necessary
insurance regulatory approvals (including without limitation, any Form A
approvals required for the issuance and sale of the Preferred Shares), provided
that the Exercise Date shall not be later than the one hundred eightieth (180th)
day after the date of delivery of the Notice of Exercise, or such later date, if
any, resulting from alternative dispute resolution under Section 8, which date
shall be ten (10) Business Days after the rendering of a final decision pursuant
to Section 8.
1.12 "Exercise Term" means (a) with respect to a single Event, the one
(1) year period commencing upon the occurrence of a Qualifying Catastrophic
Event and ending at 12:00 A.M. Central Time on the first anniversary of such
occurrence during which HM has the right to exercise the Option, or (b) with
respect to multiple Events, the period commencing upon the occurrence of a
Qualifying Catastrophic Event and ending at 12:00 A.M. Central Time on the
anniversary of the Effective Date next following the end of the Agreement Year
during which such Qualifying Catastrophic Event occurs during which HM has the
right to exercise the Option.
1.13 "Exposure Period" means the period beginning at 12:00 A.M.
Central Time on the Effective Date and ending at 12:00 A.M. Central Time on the
three year anniversary of the Effective Date.
1.14 "GAAP" means United States generally accepted accounting
principles, consistently applied.
1.15 "HM" means Xxxxxx Xxxx Educators Corporation, a Delaware
corporation.
1.16 "HM Common Stock" means the common stock of HM, par value
US$0.001 per share.
1.17 "HM Insurance Subsidiaries" means Xxxxxx Xxxx Insurance Company,
an insurance company formed under the laws of Illinois; Xxxxxx Xxxx Property &
Casualty Insurance Company f/k/a Allegiance Insurance Company, an insurance
company formed under the laws of California; Teachers Insurance Company, an
insurance company formed under the laws of Illinois; Xxxxxx Xxxx Life Insurance
Company, an insurance company formed under the laws of Illinois; Allegiance Life
Insurance Company, an insurance company formed under the laws of Illinois;
Educators Life Insurance Company of America, an insurance company formed under
the laws of Arizona; Xxxxxx Xxxx Lloyds, a Lloyds plan formed under the laws of
Texas; and such other insurance company subsidiaries of HM as may be agreed in
writing between HM and Option Writer.
1.18 "Notice of Exercise" means the written notice of HM's intent to
exercise the Securities Issuance Option as described in Section 2.3.
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1.19 "Notice of Objection" means Option Writer's written notice of
objection to a Notice of Exercise, as described in Section 2.3.
1.20 "Option" means the right described in Section 2.1.
1.21 "Option Fee" means the amounts to be paid by HM to Option Writer
as consideration for the Option, on the dates set forth in Section 2.1, in each
case equal to 1.25% of (i) US$75,000,000, less (ii) the Original Value of all
Preferred Shares purchased pursuant to exercise of the Securities Issuance
Option; provided, however, that if at the time the Option Fee is due, HM's S&P
Rating is below A+, the percentage used to calculate the Option Fee shall be
adjusted as follows:
HM S&P Rating Percentage Used to Calculate
A 1.3%
A- 1.45%
BBB+ 1.75%
BBB 2.25%.
1.22 "Original Value" means the Preferred Share Purchase Price for
each Preferred Share, as proportionally adjusted for all stock splits, stock
dividends, and any other subdivisions, combinations, reclassifications, or
recapitalizations affecting the Preferred Shares.
1.23 "Option Writer" and "Reinsurance Option Writer" shall mean the
respective entities listed on Exhibit A.
1.24 "Person" shall mean any individual, partnership, joint venture,
corporation, limited liability company, association, joint stock company, trust
or unincorporated organization or association, or a government or any department
or agency or political subdivision thereof.
1.25 "Preferred Share Purchase Price" means US$1,000 per Preferred
Share payable by Option Writer to HM as set forth in Section 2.3.
1.26 "Preferred Shares" means the Series A Cumulative Convertible
Preferred Stock of HM described in the Certificate of Designations, par value
US$0.001 per share.
1.27 "Property Catastrophe Reinsurance" means the property catastrophe
reinsurance maintained by the HM Insurance Subsidiaries as described in Section
5.8.
1.28 "Qualifying Catastrophic Event" means (a) with respect to a
single Event, any single Event taking place during an Agreement Year from which
HM incurs an Ultimate Loss in an amount greater than the Attachment Point, or
(b) with respect to multiple Events taking place during an Agreement Year,
multiple Events from which HM incurs an Ultimate Loss in the aggregate from such
Events in an amount greater than the Attachment Point. A
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single Event that takes place during the Exposure Period but which has not
developed into a Qualifying Catastrophic Event prior to the first anniversary of
such Event shall not constitute a Qualifying Catastrophic Event for purposes of
this Agreement. A single Event that takes place during the Exposure Period and
which develops into a Qualifying Catastrophic Event prior to the first
anniversary of such Event, but after expiration of the Exposure Period, shall
constitute a Qualifying Catastrophic Event for purposes of this Agreement.
Multiple Events that have taken place during any Agreement Year within the
Exposure Period but which have not developed into a Qualifying Catastrophic
Event prior to the end of six (6) months after the end of such Agreement Year
shall not constitute a Qualifying Catastrophic Event for purposes of this
Agreement. Multiple Events that have taken place during any Agreement Year
within the Exposure Period and which develop into a Qualifying Catastrophic
Event prior to the end of six (6) months after the end of such Agreement Year
shall constitute a Qualifying Catastrophic Event for purposes of this Agreement.
1.29 "Quota Share Reinsurance Right" means HM's right, but not
obligation, to bind Reinsurance Option Writer to participate in a ten percent
(10%) quota share reinsurance treaty (the "Treaty") on the terms set forth in
the attached Schedule 1.29.
1.30 "Registration Rights Agreement" means the Registration Rights
Agreement between HM and Option Writer in the form attached hereto as Schedule
1.30.
1.31 "S&P Rating" means the financial strength rating (or, with
respect to Option Writer, the counterparty rating), as published from time to
time, by the Standard & Poor's Division of The XxXxxx-Xxxx Companies or any
successor.
1.32 "SAP" means statutory accounting principles, consistently
applied.
1.33 "SEC" means the United States Securities and Exchange Commission.
1.34 "Securities Act" means the Securities Act of 1933, as amended,
and all rules and regulations promulgated thereunder.
1.35 "Securities Issuance Option" means HM's option to obligate Option
Writer to purchase Preferred Shares with an Original Value of up to
US$75,000,000, subject to the terms and conditions set forth in this Agreement.
1.36 "Transaction Agreements" means this Agreement, its schedules and
exhibits, the Registration Rights Agreement, the Treaty and the Certificate of
Designations.
1.37 "Ultimate Loss" means the actual direct losses (including the
paid loss, all reserves for unpaid losses, and coinsurance paid by the HM
Insurance Subsidiaries) incurred by the HM Insurance Subsidiaries from an Event
or multiple Events during the applicable Agreement Year, without accounting for
the Property Catastrophe Reinsurance in place at the time such Event or Events
took place, but after accounting for all other reinsurance. A loss shall not be
included in the calculation of Ultimate Loss for more than one Qualifying
Catastrophic Event.
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2. Securities Issuance Option and Quota Share Reinsurance Right.
2.1 Option Fee. To acquire the right (the "Option") to exercise (a)
the Securities Issuance Option during the Exercise Term with respect to a
Qualifying Catastrophic Event or (b) the Quota Share Reinsurance Right, all on
the terms contained herein, HM shall pay to Option Writer an Option Fee (the
"Option Fee") for each Agreement Year. The first Option Fee payment shall be
delivered on the Effective Date for the year commencing on the Effective Date),
and subsequent Option Fee payments shall be delivered on each anniversary of the
Effective Date (or the next following Business Day) within the Exposure Period.
In consideration of the payment of the Option Fee, Option Writer hereby grants
to HM the right to exercise the Option on the terms set forth in this Agreement.
2.2 Exercise Rights. HM shall have the right to exercise the
Securities Issuance Option subject to the following limitations:
a. The first exercise of the Securities Issuance Option must be
made with respect to a number of Preferred Shares having a minimum aggregate
Original Value of US$25,000,000, and may only be made in integral multiples of
US$1,000,000 above such minimum amount; provided, however, HM shall be entitled
to exercise the Securities Issuance Option in an amount in excess of
US$37,500,000 only if gross losses resulting from a single Event are greater
than US$105,000,000.
b. The second or any subsequent exercise of the Securities
Issuance Option must be made with respect to a number of Preferred Shares having
a minimum aggregate Original Value of US$5,000,000, and may only be made in
integral multiples of US$1,000,000 above such minimum amount.
c. In no event shall the Preferred Shares issued pursuant to all
exercises of the Securities Issuance Option have an aggregate Original Value in
excess of US$75,000,000.
d. In no event shall HM exercise the Securities Issuance Option
more than one time (i) per Qualifying Catastrophic Event resulting from any
single Event, (ii) per Qualifying Catastrophic Event resulting from multiple
Events occurring during any one (1) Agreement Year or (iii) with respect to any
one Agreement Year (regardless of the number of Qualifying Catastrophic Events
occurring during such Agreement Year).
2.3 Method of Exercise. In the event that HM desires to exercise the
Securities Issuance Option with respect to a Qualifying Catastrophic Event, HM
shall provide written notice to Option Writer during the Exercise Term of its
intent to exercise the Securities Issuance Option (a "Notice of Exercise"),
together with such information as may be necessary to evidence the satisfaction
by HM of, or the ability of HM to satisfy prior to delivery of Preferred Shares,
the conditions to exercise set forth in Article 5. The Notice of Exercise shall
specify the number of Preferred Shares to be issued pursuant to the exercise of
the Securities Issuance Option, the aggregate Preferred Share Purchase Price
payable for such Preferred Shares based on
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Original Value and the proposed Exercise Date and, with respect to the
applicable Qualifying Catastrophic Event, the amount of the Ultimate Loss
relating to such Qualifying Catastrophic Event, including the amount of (i) paid
losses, (ii) losses reported but not yet paid and (iii) losses incurred but not
yet then reported, including assumptions underlying the calculation of item
(iii). Option Writer shall have until the end of the forty-five (45) day period
following delivery of the Notice of Exercise in accordance with Section 10.2 to
investigate whether the conditions to exercise of the Securities Issuance Option
have been satisfied and shall, by the end of such 45 day period, either issue a
Notice of Objection (hereinafter defined) or state its intent not to issue a
Notice of Objection based on its investigation theretofore conducted; provided,
however, that if the Exercise Date is extended for more than an additional
forty-five (45) days (beyond the initial forty-five (45) day notice period) for
any reason, Option Writer shall have a period of ten (10) business days to
update its investigation, which ten (10) business day period shall commence on
the date that is the later of (a) the date that HM certifies to Option Writer
that all conditions to exercise of the Securities Issuance Option set forth in
Article 5 hereof shall have been satisfied or (b) the 45th day immediately
preceding the actual Exercise Date. In connection with such investigation, HM
shall provide Option Writer, or its designated agent, reasonable access to its
loss records relating to the Qualifying Catastrophic Event in question
(including, without limitation, policy files, claim files and loss and loss
reserve files or information), during normal business hours, in order to allow
Option Writer to undertake such investigation. In the event that Option Writer
determines that the conditions to exercise of the Securities Issuance Option set
forth in Article 5 have been satisfied, or such is determined pursuant to
Article 8, Option Writer shall deliver, on the Exercise Date (or the next
following Business Day if the Exercise Date is not a Business Day), by wire
transfer of immediately available funds, in U.S. dollars, the aggregate
Preferred Share Purchase Price specified in the Notice of Exercise, against the
delivery by HM of the corresponding number of Preferred Shares. In the event
that Option Writer determines that the conditions for exercise of the Securities
Issuance Option have not been met, Option Writer shall deliver a written notice
of objection to exercise of the Securities Issuance Option (the "Notice of
Objection") to HM within such forty-five (45) day period or the ten (10)
business day update period described above, as applicable. Such Notice of
Objection shall specify in reasonable detail the reason(s) for Option Writer's
objection to the exercise of the Securities Issuance Option. If, within twenty
(20) days following delivery of the Notice of Objection to HM, HM and Option
Writer cannot reach an agreement regarding the exercise of the Securities
Issuance Option, their dispute shall be submitted to dispute resolution in
accordance with Article 8 below. If Option Writer has not delivered a Notice of
Objection to HM or a Notice of Objection has been resolved in HM's favor, Option
Writer and HM shall cooperate and shall use their commercially reasonable
efforts to cause the conditions listed in Section 5.5 which involve obligations
of Option Writer or HM, as applicable, to be satisfied as soon as reasonably
practicable, including without limitation making any Form A filings required
under applicable state insurance laws, rules and regulations.
2.4 Quota Share Exercise. If HM has satisfied all conditions to
exercise of the Securities Issuance Option other than those contained in
Sections 5.9 and 5.12, HM may elect, as an alternative to such exercise, on one
occasion and prior to the issuance of any Preferred Shares pursuant to Section
2.3, to exercise the Quota Share Reinsurance Right. In such a case, HM shall
provide written notice to Reinsurance Option Writer during the Exercise Term of
its intent to exercise the Quota Share Reinsurance Right, which shall contain
the same information as a
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Notice of Exercise other than information regarding Preferred Shares. Following
delivery of that notice in accordance with Section 10.2, the procedures for
Reinsurance Option Writer to object to that notice and for resolution of that
objection shall be consistent with those set forth above in Section 2.3. If
Reinsurance Option Writer has not objected to such an exercise or such an
objection has been resolved in HM's favor, Reinsurance Option Writer and HM
shall cooperate and shall use their commercially reasonable efforts to cause the
conditions listed in Section 5.5 which involve obligations of Reinsurance Option
Writer or HM, as applicable, to be satisfied as soon as reasonably practicable.
Any election by HM to exercise the Quota Share Reinsurance Right shall terminate
the obligation of Reinsurance Option Writer to purchase Preferred Shares
pursuant to this Agreement.
3. Representations and Warranties of HM. HM, on its behalf and on behalf
of each of the HM Insurance Subsidiaries, represents and warrants to Option
Writer and Reinsurance Option Writer (which representations and warranties shall
be deemed to be repeated by HM on each Exercise Date and which representations
and warranties shall be deemed to include any certification made by any officer
of HM pursuant to the terms of this Agreement) as follows:
3.1 Existence and Qualifications of HM. Each of HM and the HM
Insurance Subsidiaries is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization and each of HM and the HM
Insurance Subsidiaries has the full corporate power and authority to conduct its
business as currently being conducted and to execute and deliver the Transaction
Agreements to which it is a party, and to perform its obligations under, and to
consummate the transactions contemplated by, the Transaction Agreements to which
it is a party, including, without limitation, the delivery of the Preferred
Shares pursuant to the exercise of the Securities Issuance Option.
3.2 No Violation or Conflict. The execution and delivery of the
Transaction Agreements to which it is a party by HM, and the performance of HM
under such Transaction Agreements, will not be in violation or conflict with any
applicable law, any provision of HM's or HM's Insurance Subsidiaries'
organizational documents or any order or judgment of any court or other
government agency applicable to HM or any of its assets or subsidiary or
affiliated companies, to the extent that any such order or judgment would have a
material adverse effect on the rights and privileges of Option Writer under this
Agreement, or any contractual restriction binding upon or affecting HM or any of
its assets or subsidiary or affiliated companies. HM and the HM Subsidiaries, as
applicable, have complied, in all material respects, with all representations,
warranties, covenants and agreements contained in any Transaction Agreements.
3.3 Consents. All governmental and other consents that are required
to have been obtained by HM with respect to the execution and delivery of this
Agreement have been obtained and are in full force and effect and all conditions
of any such consents have been complied with.
3.4 Binding Obligations. The execution of the Transaction Agreements
to which it is a party has been duly authorized by all necessary corporate
action of HM, and such Transaction Agreements (a) have been duly executed and
delivered by HM, (b) constitute legal,
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valid and binding obligations of HM and (c) are enforceable against HM in
accordance with their terms (subject to applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting creditors' rights generally and
subject, as to enforceability, to equitable principles of general application).
3.5 Absence of Litigation. There is not pending or, to its knowledge,
threatened against HM or any of its subsidiaries or affiliates, any action, suit
or proceeding before any court, tribunal, governmental body, agency or official
or any arbitrator or mediator that would reasonably be expected to materially
and adversely affect the legality, validity and enforceability of the
Transaction Agreements against HM or materially adversely affect the financial
condition of HM or any of the HM Insurance Subsidiaries.
3.6 Preferred Shares. HM has, or will have as of the applicable
Exercise Date, 75,000 authorized Preferred Shares, and such Preferred Shares,
when issued pursuant to the exercise of the Securities Issuance Option, shall,
upon delivery of payment therefor, be validly issued, fully paid and
non-assessable. Upon issuance pursuant to this Agreement, the Preferred Shares
shall be free and clear of any lien, encumbrance or other restriction (other
than as set forth in the Transaction Agreements), and upon delivery of and
payment for the Preferred Shares as provided in this Agreement, Option Writer
will acquire good title to the Preferred Shares purchased under this Agreement,
free and clear of any lien, encumbrance or other restriction (other than as set
forth in the Transaction Agreements).
3.7 HM Common Stock. The shares of HM Common Stock into which the
Preferred Shares may be converted, as set forth in the Certificate of
Designations, shall, upon issuance pursuant to such conversion, be validly
issued, fully paid and non-assessable. Such shares of HM Common Stock shall be
free and clear of any lien, encumbrance or other restriction (other than as set
forth in the Transaction Agreements), and upon conversion as provided in the
Certificate of Designations, Option Writer will acquire good title to the
requisite number of shares of HM Common Stock, free and clear of any lien,
encumbrance or other restriction (other than as set forth in the Transaction
Agreements). Such shares of HM Common Stock shall be subject to the Registration
Rights Agreement.
3.8 Options or Other Rights. Except for this Agreement, there is no
outstanding right, subscription, warrant, call, unsatisfied preemptive right,
option or other agreement of any kind to purchase or otherwise to receive from
HM any authorized but unissued, unauthorized or treasury shares of the Preferred
Shares.
3.9 Financial Statements. Option Writer has had access to true and
complete copies of (a) the Annual Statements of the HM Insurance Subsidiaries
containing audited balance sheets as of December 31, 2000 and 2001 and
statements of earnings for the years ended December 31, 2000 and 2001, and (b)
the Annual Report on Form 10-K and Annual Report to Shareholders of HM for the
year ended December 31, 2001 (collectively, the "Annual Reports"). The Annual
Statements have been prepared in accordance with SAP and the Annual Reports have
been prepared in accordance with GAAP, and both the Annual Statements and the
Annual Reports present fairly in all material respects the financial position of
HM and/or the HM
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Insurance Subsidiaries, and the results of their respective operations, as of
the dates indicated and for the periods then ended.
3.10 Licenses and Permits. HM and the HM Insurance Subsidiaries have
all requisite licenses, permits and authority (collectively, "Licenses") that
are necessary for the conduct of their respective insurance and other
businesses, if any, such Licenses are in full force and effect and no proceeding
is pending or threatened to suspend, revoke or limit any License which is
material to the operations of any such insurance company.
3.11 Regulatory Filings. All previous regulatory filings by HM with
the SEC and applicable insurance regulatory authorities, at the time of filing,
(a) in the case of filings with the SEC, did not contain any material
misstatements or omissions, and (b) in the case of filings with applicable
insurance regulatory authorities, were appropriately responsive to, and in
compliance with, the insurance regulatory requirements in all material respects.
All previous regulatory filings by the HM Insurance Subsidiaries with applicable
insurance regulatory authorities were, at the time of filing, appropriately
responsive to, and in compliance with, the insurance regulatory requirements in
all material respects.
3.12 No Insolvency or Bankruptcy. Neither HM nor any HM Insurance
Subsidiary (a) is the subject of any voluntary or involuntary petition under any
bankruptcy, insolvency or similar law affecting creditors generally, (b) is the
subject of any liquidation, transformation or rehabilitation proceeding or (c)
has had a receiver or similar person or entity appointed for any of its
property.
3.13 1934 Act Compliance. HM's most recent Annual Report filed on Form
10-K and its Quarterly Reports filed on Form 10-Q and any Current Reports filed
on Form 8-K filed after the date of such Form 10-K, at the time they were filed
with the SEC and as of the Effective Date, complied and comply in all material
respects with the requirements of the Exchange Act and the rules and regulations
of the SEC under the Exchange Act and, at the Effective Date, do not include an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
4. Representations and Warranties of Option Writer. Each of Option Writer
and Reinsurance Option Writer, severally and not jointly, represents and
warrants to HM (which representations and warranties shall be deemed repeated by
Option Writer and/or Reinsurance Option Writer, to the extent applicable, on
each Exercise Date) as follows (it being understood that (i) when the
Reinsurance Option Writer is the party making the representations and warranties
set forth in Sections 4.1, 4.2, 4.3, 4.4 and 4.5, the term "Option Writer" shall
be deemed to have been replaced with the term "Reinsurance Option Writer" in
each instance where the term "Option Writer" appears, and (ii) the Option Writer
shall be the only party making the representations and warranties set forth in
Section 4.6):
4.1 Existence and Qualifications of Option Writer. Option Writer is a
corporation duly organized, validly existing and in good standing under the laws
of the state of
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domicile noted on Exhibit A, and Option Writer has the full corporate power and
authority to conduct its business as currently being conducted and to execute
and deliver the Transaction Agreements to which it is a party, and to perform
its obligations under, and consummate the transactions contemplated by the
Transaction Agreements to which it is a party, including, without limitation,
the purchase of the Preferred Shares pursuant to the exercise of the Securities
Issuance Option.
4.2 No Violation or Conflict. The execution and delivery of
the Transaction Agreements to which it is a party by Option Writer, and the
performance of Option Writer under such Transaction Agreements, do not violate
or conflict with any applicable law, any provision of Option Writer's
organizational documents or any order or judgment of any court or other
government agency applicable to Option Writer or any of its assets or subsidiary
or affiliated companies to the extent that any such order or judgment would have
a material adverse effect on the rights and privileges of HM under this
Agreement, or any contractual restriction binding upon or affecting Option
Writer or any of its assets or subsidiary or affiliated companies. Option Writer
has complied, in all material respects, with all representations, warranties,
covenants and agreements contained in any Transaction Agreements to the extent
that such compliance will not have a material adverse effect on the rights and
privileges of HM under this Agreement.
4.3 Consents. All governmental and other consents that are
required to have been obtained by Option Writer with respect to the execution
and delivery of this Agreement have been obtained and are in full force and
effect and all conditions of any such consents have been complied with.
4.4 Binding Obligations. The execution of the Transaction
Agreements to which it is a party has been duly authorized by all necessary
corporate action of Option Writer, and such Transaction Agreements (a) have been
duly executed and delivered by Option Writer, (b) constitute legal, valid and
binding obligations of Option Writer and (c) are enforceable against Option
Writer in accordance with their terms (subject to applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting creditors'
rights generally and subject, as to enforceability, to equitable principles of
general application).
4.5 Absence of Litigation. There is not pending or to its
knowledge, threatened against Option Writer or any of its subsidiaries or
affiliates, any action, suit or proceeding before any court, tribunal,
governmental body, agency or official or any arbitrator or mediator that would
reasonably be expected to materially and adversely affect the legality, validity
and enforceability of the Transaction Agreements against Option Writer.
4.6 Investment Representation. Option Writer understands that
the issuance of Preferred Shares under this Agreement and the issuance of HM
Common Stock upon conversion of Preferred Shares have not been and will not
(except as contemplated pursuant to the Registration Rights Agreement) be
registered under the Securities Act and such Preferred Shares and HM Common
Stock will be issued in reliance upon the exemption afforded by Section 4(2) of
the Securities Act for transactions by an issuer not involving any public
offering. Option Writer represents that (a) it is acquiring the Preferred Shares
and such HM Common Stock solely for its own account, for investment purposes
only, and not with a view to
11
distribution, fractionalization or resale thereof, (b) it will not sell or
otherwise dispose of the Preferred Shares and such HM Common Stock except in
compliance with the registration requirements or exemption provisions of
applicable securities laws including the Securities Act, (c) it has not relied
on HM for any explanation of the application of the various state and federal
securities laws with regard to the acquisition of the Preferred Shares and such
HM Common Stock, (d) assuming the accuracy of HM's representations and
warranties set forth in Article 3 hereof, it has access to adequate information
regarding the business and finances of HM, and has received, read and understood
the contents of the Annual Statements and the Annual Reports and Notice of
Meeting and Proxy Statements for HM and the HM Insurance Subsidiaries as of and
for each of the years ended December 31, 1999, 2000 and 2001, (e) it has such
knowledge and experience in business and financial matters that it has been able
to fully understand and completely evaluate the risks and merits of holding the
Preferred Shares and such HM Common Stock as provided in this Agreement and (f)
it is able to bear the economic risk and limitation in liquidity of an
investment in the Preferred Shares and such HM Common Stock.
5. Conditions to Exercise of Option. With respect to each exercise of
the Option, the right of HM to effect such exercise shall be subject to the
satisfaction by HM at, or waiver by Option Writer at or prior to, the Exercise
Date, of the following conditions:
5.1 Occurrence of Event. A Qualifying Catastrophic Event shall have
occurred with respect to the HM Insurance Subsidiaries collectively.
5.2 HM Net Worth. With respect to the first exercise of the Option,
after accounting for the Qualifying Catastrophic Event, but prior to payment for
any Preferred Shares to be purchased upon such first exercise of the Option, the
consolidated stockholders' equity of HM and its consolidated subsidiaries, as
determined in accordance with GAAP (the "HM Net Worth") shall not be less than
US$215,000,000, excluding goodwill. With respect to any subsequent exercise of
the Option, after accounting for the Qualifying Catastrophic Event but prior to
accounting for any payment for Preferred Shares previously issued pursuant to an
exercise of the Securities Issuance Option, the HM Net Worth shall not be less
than US$215,000,000, excluding goodwill.
5.3 Financial Leverage. Prior to accounting for the Qualifying
Catastrophic Event, the total amount of XX xxxx-term debt and short-term debt
divided by the total amount of XX xxxx-term debt and shareholders equity
(excluding any payment received for the Preferred Shares), determined in
accordance with GAAP, shall not be more than 47.5%.
5.4 Rating. Prior to the Qualifying Catastrophic Event, the S&P
Rating of HM shall not have fallen below BBB.
5.5 Compliance with Laws and Consents. With respect to the exercise
of only the Securities Issuance Option, HM shall have complied with all laws and
regulations applicable to the authorization and issuance of the Preferred
Shares, and subject to the following sentence, the conversion of the Preferred
Shares into HM Common Stock, including the adoption by the Board of Directors of
HM of the Certificate of Designations, and the filing of such Certificate of
12
Designations with the Secretary of State of Delaware. HM and Option Writer shall
have obtained all consents and approvals (whether shareholder, regulatory,
contractual or otherwise) necessary for the authorization and issuance of the
Preferred Shares, the conversion of the Preferred Shares into HM Common Stock,
and the authorization and issuance of such HM Common Stock, including without
limitation the filing and approval of any Form A application with the applicable
insurance departments (but excluding any filings required under the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended); provided
that, if any insurance regulator shall for any reason decline to approve the
conversion of the Preferred Shares and/or the issuance of HM Common Stock
pursuant to such conversion, but shall approve the authorization and issuance of
the Preferred Shares then such approval of the conversion of the Preferred
Shares and/or the issuance of HM Common Stock pursuant to such conversion, as
applicable, shall not be a condition to exercise of the Securities Issuance
Option, provided further, however, that HM has reasonably cooperated with Option
Writer to obtain such approvals.
5.6 Review of Financial Statements by Auditor. HM's regular
outside auditor or accounting firm shall have reviewed HM's consolidated balance
sheet and statement of earnings for the most recent quarter ending prior to the
date of the applicable Notice of Exercise, and shall have issued its review
report on such quarterly financial statements, and HM shall provide an adjusted
consolidated balance sheet for HM for the period up to the Exercise Date, and HM
shall represent and warrant, as of the Exercise Date, that such adjusted
consolidated balance sheet presents fairly in all material respects the
financial position of HM as of the date indicated. In addition, HM shall supply
Option Writer with such information as Option Writer may reasonably request to
permit Option Writer to determine satisfaction by HM of the conditions to
exercise set forth in Sections 5.1, 5.2, 5.3, 5.4, 5.6, 5.8, 5.9 and 5.13 of
this Agreement.
5.7 No Insolvency or Bankruptcy. None of HM or the HM
Insurance Subsidiaries shall (a) be the subject of any voluntary or involuntary
petition under any bankruptcy, insolvency or similar law affecting creditors
generally, (b) be the subject of any liquidation, transformation or
rehabilitation proceeding, (c) be under the supervision of any governmental
regulatory body or (d) have had a receiver or similar person or entity appointed
for any of its property.
5.8 Maintenance of Current HM Reinsurance Program. HM shall
have in effect a property catastrophe reinsurance program, of reasonably
consistent quality with its reinsurance program in effect on the Effective Date,
with a total retention and coinsurance of no more than $30,000,000 below the
then applicable Attachment Point for a single Event.
5.9 HM Common Stock Ownership Threshold. With respect to the
exercise of only the Securities Issuance Option, the purchase of Preferred
Shares pursuant to an exercise of the Securities Issuance Option shall not (when
taking into account all shares of HM Common Stock in which Option Writer then
holds direct, indirect or beneficial ownership) result in Option Writer having
direct, indirect or beneficial ownership of more than fifty percent (50%) of the
issued and outstanding shares of HM Common Stock, assuming that such Preferred
Shares,
13
together with any other Preferred Shares already then held directly, indirectly
or beneficially by Option Writer, were converted into shares of HM Common Stock
on the Exercise Date.
5.10 Accuracy of Representations, Warranties and Covenants.
Each of the representations and warranties of HM made in Article 3 of this
Agreement shall be true in all material respects on and as of the Exercise Date
and with the same effect as though such representations and warranties had been
made on and as of such date except as otherwise contemplated or permitted by
this Agreement, and HM shall not be in breach of any of the covenants of HM made
in Article 6 of this Agreement; and Option Writer shall have received a
certificate to that effect, in the form attached as Schedule 5.10, dated the
Exercise Date and executed on behalf of HM by a duly authorized officer.
5.11 Payment of Fees. All Option Fee payments then due shall
have been paid in full.
5.12 Legal Opinion. Option Writer shall have received, from
counsel for HM, an opinion of counsel dated as of the Exercise Date which is
substantially in the form attached as Schedule 5.12.
5.13 Consents. All governmental and other consents, including
those of HM's shareholders, that are required to have been obtained by HM with
respect to the execution, delivery and performance of the Transaction Agreements
or the issuance of the Preferred Shares shall have been obtained by HM and shall
be in full force and effect and all conditions of any such consents shall have
been complied with.
6. Covenants and Agreements. Option Writer and HM make the
following covenants and agreements:
6.1 Redemption Rights. The Preferred Shares shall be subject
to the provisions of the Certificate of Designations.
6.2 Registration Rights. Holders of Registrable Securities
(as defined in the Registration Rights Agreement) shall have registration rights
in accordance with the terms of the Registration Rights Agreement, which
Registration Rights Agreement shall be executed by HM and Option Writer
concurrently with this Agreement.
6.3 Resale Rights.
a. Option Writer shall be able to sell or transfer
Preferred Shares to its affiliates and affiliated investment funds; provided,
however, that any such sale or transfer shall not subject HM to any material
cost or expense, and provided further, that if such affiliate is foreign, there
would be no material adverse effect on HM due to the fact that such affiliate is
a foreign entity. Other than as so provided, the Preferred Shares will be freely
transferable subject only to restrictions imposed by Federal and state
securities laws.
14
b. Prior to the registration of the Preferred Shares,
pursuant to the Registration Rights Agreement or otherwise, the certificates
evidencing the Preferred Shares shall bear a legend which evidences restrictions
upon transferability of the Preferred Shares. The legend shall read as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER ANY STATE OR FOREIGN SECURITIES LAWS, AND MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT OR AN EXEMPTION FROM REGISTRATION
THEREUNDER OR A WRITTEN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO XXXXXX XXXX EDUCATORS CORPORATION TO THE EFFECT
THAT NO SUCH REGISTRATION IS REQUIRED. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER SET FORTH IN A CATASTROPHE EQUITY
SECURITIES ISSUANCE OPTION AND REINSURANCE OPTION AGREEMENT
BETWEEN XXXXXX XXXX EDUCATORS CORPORATION AND THE OPTION
WRITER NAMED THEREIN DATED AS OF MAY 7, 2002, AS AMENDED AND
MODIFIED FROM TIME TO TIME. A COPY OF SUCH AGREEMENT MAY BE
OBTAINED BY THE HOLDER HEREOF AT XXXXXX XXXX EDUCATORS
CORPORATION'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE.
The first sentence of the legend (and the eighth and eleventh words of the
second sentence) shall be removed from any certificate representing Preferred
Shares (i) sold under an effective registration statement under the Securities
Act or (ii) as to which, in an opinion of counsel reasonably satisfactory to HM
(which opinion shall be paid for solely by the holder of such Preferred Shares),
such registration is not necessary or required, and that the transfer will not
otherwise violate the Securities Act, the Exchange Act or applicable state or
foreign securities laws; and any stop transfer instructions previously given to
HM's transfer agent shall be revoked as to such Preferred Shares upon the
occurrence of (i) or (ii) above.
c. The shares of HM Common Stock into which the Preferred
Shares may be convertible shall not be subject to any restrictions on sale or
transfer by Option Writer pursuant to this Agreement.
d. Prior to the registration of any shares of HM Common
Stock into which the Preferred Shares are converted, pursuant to the
Registration Rights Agreement or otherwise, the certificates representing such
shares of HM Common Stock shall bear a legend which evidences restrictions upon
transferability of such shares of HM Common Stock. Such legend shall read as
follows:
15
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER ANY STATE OR FOREIGN SECURITIES LAWS, AND MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT OR AN EXEMPTION FROM REGISTRATION
THEREUNDER OR A WRITTEN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO XXXXXX XXXX EDUCATORS CORPORATION IS OBTAINED TO
THE EFFECT THAT NO SUCH REGISTRATION IS REQUIRED.
The legend shall be removed from any certificate representing either (i) shares
of HM Common Stock sold under an effective registration statement under the
Securities Act or (ii) shares of HM Common Stock as to which, in an opinion of
counsel reasonably satisfactory to HM (which opinion shall be paid for solely by
the holder of such shares of HM Common Stock), such registration is not
necessary or required, and that the transfer will not otherwise violate the
Securities Act, the Exchange Act or applicable state or foreign securities laws;
and stop transfer instructions previously given to HM's transfer agent shall be
revoked as to such shares of HM Common Stock upon the occurrence of (i) or (ii)
above.
6.4 Preferred Share Preference. The liquidation preference of
the Preferred Shares shall be at least equal to the highest liquidation
preference of any other class of preferred shares of HM issued and outstanding
at the time of liquidation. During the term of this Agreement and during the
period when any Preferred Shares remain issued and outstanding, HM shall not
issue any debt securities convertible into equity securities of HM or any
preferred or other capital stock, in any such case which ranks equal or senior
to the Preferred Shares with respect to dividend or distribution rights or
rights to distributions on liquidation, without the prior written approval,
which approval shall not be unreasonably withheld, of (i) Option Writer if no
Preferred Shares are then outstanding, or (ii) the holders of more than
sixty-six and two-thirds percent (66 2/3%) of the outstanding Preferred Shares
if Preferred Shares are then outstanding.
6.5 Restrictions on HM and Option Writer. During the period
when any Preferred Shares remain issued and outstanding, without the prior
written consent of the holders of more than sixty-six and two-thirds percent (66
2/3%) of such Preferred Shares, which consent shall not be unreasonably
withheld, (a) HM and the HM Insurance Subsidiaries shall not (i) pay dividends
on, make redemptions of, or make other distributions with respect to, any
capital stock of HM other than the Preferred Shares except that subsidiaries of
HM may pay dividends to HM and HM may pay dividends on the HM Common Stock at
any time if all dividends theretofore accrued on the Preferred Shares shall be
paid in full in cash to the holders of Preferred Shares before the declaration
or payment of any such dividends on the HM Common Stock, (ii) enter into related
party transactions at other than arm's length or (iii) except in the ordinary
course of business, make any loan or advance to, or investment in, any person or
entity, and (b) HM shall not dispose of its interest in any material subsidiary
(i.e., any subsidiary which contains more than ten percent (10%) of the
consolidated assets or produces more than ten percent (10%) of the consolidated
annual revenue of HM); provided, however, that the restrictions set forth in
clauses (a)(iii) and (b) above shall only apply in the event that HM has not
then paid all dividends then accrued and payable with respect to such Preferred
Shares.
16
6.6 Option Writer Filings. Notwithstanding anything in this
Agreement to the contrary, Option Writer shall be responsible for making any
filing required of it under Section 13(d) or Section 16 of the Exchange Act, but
the making of such filings shall not be a condition to the exercise of the
Securities Issuance Option.
6.7 Regulatory Filings for Conversion. HM, Option Writer and
their respective affiliates shall make all regulatory filings, including without
limitation all filings under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended, which are necessary or desirable to permit Option Writer to
convert any Preferred Shares into shares of HM Common Stock in accordance with
its terms as promptly as possible following any request by Option Writer. Option
Writer and HM shall cooperate and use commercially reasonable efforts to obtain
any insurance regulatory approvals for such conversion not theretofore obtained,
including without limitation any Form A filings required under applicable
insurance laws, rules and regulations.
6.8 Change of Control. In the event of a Change of Control, at
the option of Option Writer, to be exercised within thirty (30) Business Days
after the earlier of notice from HM to Option Writer of a pending, or an
occurrence of a, Change of Control, (i) this Agreement shall be terminated as of
the earlier of the date of such Change of Control or the end of the Agreement
Year in which notice of such Change of Control is received by Option Writer and
(ii) HM shall be obligated either to redeem any issued and outstanding Preferred
Shares or convert such Preferred Shares into Common Shares, in each case on the
terms and conditions set forth in the Certificate of Designations, provided,
however, that in the event of the cancellation of this Agreement, a portion of
the annual Option Fee shall be returned to HM in an amount equal to the amount
of the annual Option Fee paid for the year in which the Change of Control
occurs, multiplied by a fraction, the numerator of which is the number of days
between the date of the Change of Control and the end of the Agreement Year and
the denominator of which is 365, and provided further, however, that this
Agreement shall be reinstated in the event the redemption price for the
Preferred Shares must be refunded or returned by Option Writer due to any
preferential transfer or fraudulent conveyance claim.
6.9 Option Writer Credit Support. Each of Option Writer and
Reinsurance Option Writer shall, promptly upon request by HM, in the event that
the S&P Rating of Option Writer or Reinsurance Option Writer, as applicable,
falls below AA- during any period during which HM has the ability to exercise
the Option, purchase at Option Writer's or Reinsurance Option Writer's, as
applicable, sole expense an irrevocable standby letter of credit drawable in New
York, from a financial institution reasonably acceptable to HM, which letter of
credit secures the performance of Option Writer or Reinsurance Option Writer, as
applicable, under this Agreement and effectively raises the payment ability of
Option Writer or Reinsurance Option, as applicable, under this Agreement to an
S&P Rating of AAA. Such letter of credit shall remain in effect until the
earlier of (a) five (5) days following the end of the period during which HM has
the ability to exercise the Option, and (b) the date that the S&P Rating of
Option Writer or Reinsurance Option Writer, as applicable, shall be at least
AA-. Such letter of credit shall initially be in a principal amount equal to the
Original Value of the Preferred Shares subject to the Securities Issuance Option
which are not then issued and outstanding, and such principal
17
amount shall subsequently be adjusted from time to time based on adjustments to
the total Original Value of the Preferred Shares subject to the Securities
Issuance Option, whether due to exercises of the Securities Issuance Option,
redemption of Preferred Shares which are reincluded in the Preferred Shares
subject to the Securities Issuance Option, or otherwise.
6.10 Option Writer Common Stock Ownership. Option Writer shall
not acquire or own HM Common Stock (other than through the acquisition of
Preferred Shares by exercise of the Securities Issuance Option and the
subsequent conversion of such Preferred Shares into HM Common Stock) if such
acquisition or ownership could result in the inability to satisfy the condition
contained in Section 5.9.
6.11 Maintenance of Reinsurance. During the Exposure Period
and Exercise Term, if any, and during any period in which any Preferred Shares
remain outstanding, HM shall maintain the reinsurance program described in
Section 5.8.
6.12 Plans and Reports. HM shall promptly deliver, or cause to
be delivered, to Option Writer copies of (a) HM's most recent two (2) year
future business plan, which plan will generally be available on or about March 1
of each calendar year, (b) HM's most recent Annual Report on Form 10-K and
Annual Report to Shareholders, and (c) the most recent Annual Statements for the
HM Insurance Subsidiaries. The failure of HM to deliver any such items shall not
be deemed a breach of this Agreement unless such item is actually available, has
been requested in writing by Option Writer and has not been delivered by HM
within thirty (30) days after HM's receipt of such request. Option Writer shall
keep all documents or information delivered to Option Writer pursuant to this
Section 6.12 (except for the Form 10-K and Annual Report and statements
described in clauses (b) and (c) above) in strictest confidence and shall use
them solely in connection with the Transaction Agreements, except as otherwise
required by law.
6.13 Stock Dividends or Distributions. In the event that
Option Writer, whether as a holder of Common Stock or as a holder of Preferred
Shares, receives (or is entitled to receive upon conversion of such Preferred
Shares, as the case may be) a distribution (by stock dividend or otherwise) of
any securities, the sale of which is registered, not required to be registered
or exempt from such registration under the Securities Act in the hands of public
holders of the HM Common Stock, but the sale of which is not registered, and is
required to be registered or exempt from registration under the Securities Act
in the hands of Option Writer, HM shall at its option, within a reasonable time
period following a request by Option Writer, either (a) notify Option Writer
that it will be permitted to include such securities as "Registrable Securities"
as defined in the Registration Rights Agreement, or (b) repurchase such
securities from Option Writer at market value as determined in the public
market. In the event that there is no public market for such securities, HM and
Option Writer shall appoint a mutually agreeable third-party appraiser to
establish the value of such securities, provided that if the parties fail to
agree on such third-party appraiser, the value will be determined pursuant to
Article 8.
6.14 Press Releases and Confidentiality. Neither HM nor Option
Writer shall issue any press release or other announcements to the public
relating to the execution of the Transaction Agreements or the transactions
contemplated thereunder without the prior written
18
consent of the other party. Each of Option Writer and HM shall hold confidential
all financial and other information supplied by the other party in respect of
the Transaction Agreements or the transactions contemplated therein; provided
that such confidentiality obligation shall apply only to non-public information,
and information which was not available to the other party on a non-confidential
basis from a third party. Notwithstanding any provision of this Section to the
contrary, either Option Writer or HM may make any disclosure required to be made
by it under applicable law (including federal securities law) if it determines
in good faith that it is necessary to do so, and gives prior notice to the other
party and discusses such disclosure with such other party. In addition, either
Option Writer or HM may make any disclosure to which the other party gives its
prior written consent.
6.15 Default Notice. HM shall promptly give notice to Option
Writer of any breach of the representations and warranties contained in Article
3 of this Agreement of which HM is aware.
6.16 Notices to Holders of Preferred Shares. HM shall promptly
give notice (in accordance with Section 9 of the Certificate of Designations) to
the holders of any outstanding Preferred Shares of any pending Merger or Change
of Control Conversion Event or the occurrence of any Substantial Change in
Business Mix (each such term as defined in the Certificate of Designations).
7. Termination. This Agreement and the transactions contemplated
by this Agreement shall be terminated (a) by HM at any time prior to the end of
the Exposure Period, (b) in accordance with Section 6.8, (c) at the option of
Option Writer and Reinsurance Option Writer, upon the receipt of a notice in
accordance with Section 6.15 of a breach that would, if not cured, have a
material adverse effect on the rights and privileges of Option Writer or
Reinsurance Option Writer under this Agreement and such breach has not been
cured by HM within thirty (30) days of such notice or (d) if none of (a) through
(c) occur, upon the latest to occur of (i) the expiration of the Exposure
Period, (ii) the expiration of the Exercise Term for the latest Qualifying
Catastrophic Event (including an Event that develops into a Qualifying
Catastrophic Event outside the Exposure Period), (iii) the Exercise Date for
which a Notice of Exercise was properly delivered during the Exercise Term, as
such date may be extended pursuant to the submission of any matter to
alternative dispute resolution under Article 8 or (iv) the first day on which no
Preferred Shares issued pursuant to this Agreement (including without limitation
Preferred Shares issued on the Exercise Date specified in (iii) above) remain
issued and outstanding; provided, however, that Articles 8 and 9 shall survive
such termination and remain in full force and effect.
8. Alternative Dispute Resolution.
(a) In the event of a dispute regarding the satisfaction of
any of the conditions set forth in Sections 5.1, 5.2, 5.3, 5.4 and 5.6 of this
Agreement, such dispute shall be referred to a mutually acceptable public
accounting firm except for any such accounting firm which serves
19
as a then current accountant or outside auditor for either HM or Option Writer
(the "Accountant"). Either party may submit a dispute to the Accountant by
making a written submission to the Accountant and the other party, which written
submission shall include the submitting party's documentation of such dispute
and the submitting party's position on the issue(s). The other party shall then
have ten (10) Business Days to submit to the Accountant and the first party its
documentation of the dispute and its position on the issue(s); provided,
however, that if such other party fails to make a timely and complete submission
to the Accountant, such other party shall be deemed to have conceded the
dispute. Upon receipt of submissions from both parties with respect to a given
dispute, the Accountant shall then have ten (10) Business Days in which to
resolve the dispute by selecting one party's position or the other's. The
decision of the Accountant in the event of alternative dispute resolution under
this Article 8 shall be final and binding upon the parties, and each party shall
bear its own costs plus one-half (1/2) of the costs of the Accountant.
(b) In the event of a dispute regarding the satisfaction of
any of the conditions set forth in Article 5 of this Agreement other than in
Sections 5.1, 5.2, 5.3, 5.4 and 5.6, such dispute shall be referred to a panel
of three arbitrators. The place of arbitration shall be New York, New York.
Notice requesting arbitration must be in writing in accordance with Section 10.2
of this Agreement.
(c) One arbitrator shall be chosen by each party within twenty
(20) Business Days of delivery of a written notice of request for arbitration by
a party. The two arbitrators shall, before instituting the hearing, choose a
third arbitrator who shall preside at the hearing. If either party fails to
appoint its arbitrator within twenty (20) Business Days of the notice of request
for arbitration, the other party, after ten (10) Business Days notice of its
intention to do so, may appoint the second arbitrator. If the two arbitrators
are unable to agree upon the third arbitrator within fifteen (15) Business Days
of their appointment, the two arbitrators shall request the American Arbitration
Association to appoint the third arbitrator with the qualifications identified
herein.
(d) All arbitrators shall be impartial, and unless the parties
otherwise agree, all arbitrators shall be attorneys with at least fifteen (15)
years of corporate law experience.
(e) The procedure to be followed in the arbitration hereunder
shall be as prescribed herein and in such directives as shall be issued by the
arbitrators.
(f) Either party may submit a dispute to the arbitration panel
by making a written submission to the panel and the other party, which written
submission shall include the submitting party's documentation of such dispute,
and the submitting party's position on the issue(s). The other party shall then
have ten (10) Business Days to submit to the panel and the other party its
documentation of the dispute and its position on the issue(s); provided,
however, that if such party fails to make a timely and complete submission to
the panel, such other party shall be deemed to have conceded the dispute.
(g) Upon receipt of submissions from both parties with respect
to a given dispute, the panel shall then have ten (10) Business Days in which to
resolve the dispute by determining
20
whether the condition has been satisfied. The decision of any two arbitrators
when rendered in writing shall be final and binding. The arbitration award shall
be based on and accompanied by a written opinion containing findings of fact and
conclusions of law. Each party shall bear its own expenses and the expense of
its own arbitrator and shall jointly and equally bear with the other party the
cost of the third arbitrator.
9. Broker's Fees.
9.1 HM Indemnification for Broker's Fees. HM agrees to indemnify,
defend and hold harmless Option Writer and its affiliates from any and all
claims, costs and expenses (including reasonable attorney's fees and
disbursements) in respect of the assertions of any broker, finder, agent or
other person seeking compensation with respect to the transactions contemplated
herein on the basis of alleged representation of HM or alleged arrangements
undertaken by HM or for other expenses incurred in connection with such
transactions.
9.2 Option Writer Indemnification for Broker's Fees. Option Writer
agrees to indemnify, defend and hold harmless HM and its affiliates from any and
all claims, costs and expenses (including reasonable attorney's fees and
disbursements) in respect of the assertions of any broker, finder, agent or
other person seeking compensation with respect to the transactions contemplated
herein on the basis of alleged representation of Option Writer or alleged
arrangements undertaken by Option Writer or for other expenses incurred in
connection with such transactions.
9.3 Acknowledgement. HM acknowledges and agrees that Option Writer has
not provided HM with any financial, accounting, tax or other advice with respect
to the transactions contemplated herein.
10. Miscellaneous.
10.1 Amendments. The provisions of this Agreement may not be waived,
altered, amended or repealed, in whole or in part, except by the written consent
of both parties to this agreement.
10.2 Notices. Any notice or other communication required or permitted
under this Agreement shall be in writing and shall be deemed to have been given
(a) on the date of delivery if delivered personally or sent by facsimile
transmission (which transmission shall be confirmed by telephone), (b) on the
next Business Day if sent by overnight delivery service or (c) fifteen (15) days
after mailing if sent by certified, registered or express mail, postage prepaid,
if properly addressed or directed to such party at the appropriate address or
facsimile number set forth below, or such address or facsimile number as such
party may designate by written notice to the other parties:
(i) if to HM to:
21
Xxxxxx Xxxx Educators Corporation
Mail No. G 000
Xxx Xxxxxx Xxxx Xxxxx
Xxxxxxxxxxx, Xxxxxxxx 00000-0000
Attention: Xxxxxx Xxxx
Fax No.: (000) 000-0000
with a copy to:
Xxxxxx, Xxxx & Xxxxxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Attention: Xxxxx Xxxxxx
Fax No.: (000) 000-0000
and a copy to:
Aon Securities Corporation
000 X. Xxxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxx Xxxxxxx
Fax No.: (000) 000-0000
(ii) if to Option Writer or Reinsurance Option Writer to the "Contact
Information" set forth in Exhibit A,
with a copy to:
Sidley Xxxxxx Xxxxx & Xxxx LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxxx
Fax No.: (000) 000-0000
10.3 Entire Agreement. This Agreement (including the Exhibits and
the Schedules) contains the entire agreement between the parties, and supersedes
all prior agreements, written or oral, with respect to the Option.
10.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York (without regard
to any choice of law or conflict of law rules that would cause the application
of any laws or rules of any jurisdiction other than the State of New York).
10.5 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns, and any references to a
22
specific party in this Agreement shall include such party's permitted successors
or assigns. Neither party shall have the right to assign or otherwise transfer
its rights or obligations under this Agreement without the prior written consent
of the other party, provided, however, that any holder of Preferred Shares, or
Common Stock into which such Preferred Shares are convertible, shall be a
third-party beneficiary under this Agreement having all the rights of Option
Writer, subject to the obligations of, and limitations on, Option Writer
contained in this Agreement, and provided, further, that Option Writer may
assign this Agreement to any affiliate of Option Writer provided that such
affiliate agrees to and complies with the terms and conditions applicable to
Option Writer under this Agreement, including without limitation the terms set
forth in Section 6.9.
10.6 Severability. Each term, covenant, condition or provision of
this Agreement shall be viewed as separate and distinct, and in the event that
any such term, covenant, condition or provision shall be deemed by a court of
competent jurisdiction to be invalid, the remaining provisions shall continue in
full force and effect.
10.7 Necessary Acts. Each party to this Agreement shall perform
any further acts and execute and deliver any additional agreements, assignments,
documents or instruments that may be reasonably necessary or desirable to carry
out the provisions or effectuate the purposes of this Agreement.
23
10.8 Legal Expenses. If any legal action or any arbitration or
other proceeding is brought to enforce the provisions of this Agreement, or
because of an alleged dispute, breach, default or misrepresentation in
connection with any of the provisions of this Agreement, the successful or
prevailing party or parties, whether or not such party or parties have
instituted the action, shall be entitled to recover all attorneys' fees and
other costs incurred in such action or proceeding, in addition to any other
relief to which it or they may be entitled. Notwithstanding the forgoing, in the
event of alternative dispute resolution under Section 8, each party shall bear
its own costs as set forth in Section 8.
10.9 Counterparts. This Agreement may be executed in separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument.
10.10 Headings. The headings in this Agreement are for reference
only, and shall not affect the interpretation of this Agreement.
IN WITNESS WHEREOF, the parties to this Agreement have caused it to be duly
executed as of the date first written above.
Xxxxxx Xxxx Educators Corporation
By: /s/ Xxxxxx X. Xxxx
------------------
Title: Executive Vice President
Swiss Re Financial Products Corporation (Option Writer)
By: /s/ Xxxxxx Xxxxxxx
------------------
Title: Senior Managing Director
Swiss Reinsurance America Corporation (Reinsurance Option Writer)
By: /s/ Xxxx X. Xxxxxx
------------------
Title: Member of Senior Management
24
SCHEDULE 1.6
XXXXXX XXXX EDUCATORS CORPORATION
CERTIFICATE OF DESIGNATIONS
Pursuant to Section 151 of the General Corporation
Law of the State of Delaware
SERIES A CUMULATIVE CONVERTIBLE
PREFERRED STOCK
--------------------------------------------------------------------------------
RESOLVED, that, pursuant to the authority vested in the Board of Directors of
Xxxxxx Xxxx Educators Corporation (the "Corporation") in accordance with the
provisions of its Certificate of Incorporation, a series of Preferred Stock of
the Corporation be, and hereby is, created and that the designation and amount
thereof and the voting powers, preferences and relative, participating, optional
or other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereon, are as follows:
Section 1. Designation. The series of Preferred Stock established hereby shall
be designated the "Series A Cumulative Convertible Preferred Stock" (the "Series
A Preferred Shares") and the authorized number of Series A Preferred Shares
shall be 75,000 shares.
Section 2. Dividends.
(a) Holders of outstanding Series A Preferred Shares shall be
entitled to receive, if, when and as declared by the Board of Directors out of
funds legally available therefore, cash dividend payments in the amount of the
Dividend Yield on each Series A Preferred Share, payable quarterly for each of
the quarters ending March, June, September and December of each year, payable in
arrears on the first Business Day of each succeeding April, July, October and
January, respectively (each such date being hereinafter referred to as a
"Preferred Dividend Payment Date". The first dividend shall be payable on the
Preferred Dividend Payment Date corresponding to the quarter in which the
Issuance Date falls. Each such dividend will be payable to holders of record as
they appear on the stock books of the Corporation on such record dates, not less
than 10 nor more than 50 days preceding the related Preferred Dividend Payment
Date, as shall be fixed by the Board of Directors. Dividends on each Series A
Preferred Share shall accrue on a daily basis and compound quarterly commencing
on the Issuance Date for such share and continuing to, but not including, the
Redemption Date, or Conversion Date for such share (or other date on which such
Series A Preferred Share is no longer outstanding) and accrued dividends for
each quarterly dividend period shall accumulate as
Unpaid Dividend Yield, to the extent not paid, on the Preferred Dividend Payment
Date for the quarter in which they accrued. Dividend payments under this
paragraph (a) shall accrue whether or not the Corporation shall have earnings,
whether or not there shall be funds legally available for the payment of such
dividends and whether or not such dividends are declared.
(b) So long as any Series A Preferred Shares shall remain
outstanding, no dividend (other than a dividend payable in shares of Common
Stock or rights to obtain Common Stock or any class of capital stock of the
Corporation which is junior to the Series A Preferred Shares as to dividends and
upon liquidation) shall be declared, nor shall the Corporation make any other
distribution or payment or set aside anything of value for distribution or
payment on, or redeem, repurchase or otherwise acquire any shares of, the Common
Stock of the Corporation or any other class of stock or series thereof ranking
junior to the Series A Preferred Shares in the payment of dividends or upon
liquidation (other than a redemption or purchase of shares of Common Stock of
the Corporation made for purposes of an employee incentive or benefit plan of
the Corporation or any of its subsidiaries) unless the full amount of Unpaid
Dividend Yield, if any, accumulated on all outstanding Series A Preferred Shares
through all past Preferred Dividend Payment Dates shall have been paid and not
refunded. No dividend shall be declared on any share or shares on any class of
stock of the Corporation or series thereof ranking on a parity with the Series A
Preferred Shares in respect of payment of dividends or upon liquidation for any
prior dividend payment period of said parity stock unless there shall have been
declared on all shares then outstanding of the Series A Preferred Shares like
proportional dividends determined ratably in proportion to the respective Unpaid
Dividend Yield accumulated to date for all previous quarterly dividend periods
on all outstanding Series A Preferred Shares and the dividends accumulated on
all outstanding shares of said parity stock.
Section 3. Cash Redemption by the Corporation.
(a) Redemption at Option of Corporation. At any time and from time
to time on or after issuance of the Series A Preferred Shares, the Corporation
may, at its option, with proper notice as set forth in paragraph (b) of this
Section 3, redeem any or all of the outstanding Series A Preferred Shares, as of
a Proposed Redemption Date specified in the notice to holders, for cash in an
amount equal to the Redemption Price per share.
(b) Notice of Redemption. In order to properly effect the redemption
of Series A Preferred Shares, the Corporation shall provide notice, to holders
of record of the Series A Preferred Shares to be redeemed, not less than (i)
thirty (30) days prior to the Proposed Redemption Date if the Proposed
Redemption Date is three (3) years, eight (8) months and fifteen (15) days or
less from the Issuance Date of such Series A Preferred Shares, and (ii)
forty-five (45) days prior to the Proposed Redemption Date if the Proposed
Redemption Date is more than three (3) years, eight (8) months and fifteen (15)
days after the Issuance Date of such Series A Preferred Shares. Such notice may
be provided by mail, first class postage prepaid, to the holders of record of
the Series A Preferred Shares at their respective addresses as the same shall
appear on the books of the Corporation or any transfer agent for the Series A
Preferred Shares, or by facsimile or telecopy, as set forth in paragraph (a) of
Section 9 herein. Each such notice shall state, as appropriate: (1) the Proposed
Redemption Date; (2) the total number of Series A
2
Preferred Shares to be redeemed and, if fewer than all Series A Preferred Shares
are to be redeemed, the number of such shares held by such holder to be
redeemed; (3) the Redemption Price; (4) the place or places where certificates
for such shares are to be surrendered for redemption; and (5) that dividends on
the Series A Preferred Shares to be redeemed will cease to accrue on the
Proposed Redemption Date.
Each holder of Series A Preferred Shares called for redemption shall
surrender the certificates evidencing such shares to the Corporation at the
place designated in such notice and shall thereupon be entitled to receive the
cash payable upon such redemption. In case less than all of the shares
represented by any such surrendered certificate are redeemed, a new certificate
shall be issued promptly at the expense of the Corporation representing the
balance of the shares. If proper notice of redemption shall have been duly
provided to holders of the Series A Preferred Shares in accordance with this
paragraph (b), and payment therefor has been made or duly provided for, then,
notwithstanding that the certificates evidencing any of such shares so called
for redemption shall not have been surrendered, as of the close of business on
the Redemption Date the shares represented thereby shall be deemed no longer
outstanding, dividends with respect to such Series A Preferred Shares shall
cease to accrue and all rights of the holder with respect to such Series A
Preferred Shares shall forthwith cease and terminate, except for the right of
the holders to receive the cash payable upon such redemption, without interest,
upon surrender of the certificates therefor.
(c) Revocation of Notice to Redeem. The Corporation's election to
redeem the Series A Preferred Shares pursuant to paragraph (a) of this Section 3
shall be fully or partially revocable, and any notice to holders of Series A
Preferred Shares provided in accordance with paragraph (b) of this Section 3
shall be subject to revocation or amendment by the Corporation. In order to
properly effect the revocation or amendment of such notice, the Corporation
shall provide notice of its revocation or amendment, not less than five Business
Days prior to the Proposed Redemption Date, to holders of record of the Series A
Preferred Shares. Such notice may be provided in any of the manners permissible
for providing notice of redemption under paragraph (b) of this Section 3. Such
notice of revocation or amendment shall clearly state that: (1) on the Proposed
Redemption Date, the Corporation will not redeem any of the Series A Preferred
Shares, or if notice of partial revocation, the amended number of Series A
Preferred Shares held by such holder to be redeemed, and the balance of Series A
Preferred Shares held by such holder not being redeemed; and (2) dividends on
the Series A Preferred Shares not being redeemed will continue to accrue on and
after the Proposed Redemption Date without interruption.
(d) Ratable Redemption. If fewer than all outstanding Series A
Preferred Shares are to be redeemed on any Redemption Date, the shares to be
redeemed (which shall be a whole number) shall be selected by the Corporation
from outstanding Series A Preferred Shares not previously called for redemption
by lot or pro rata (to the extent possible without redeeming fractional shares)
or by any other method determined by the Corporation in its sole discretion to
be equitable.
3
(e) Redemption at the Option of the Holders in Certain
Circumstances. Within 60 days after (i) notice from the Corporation of a
pending, or the occurrence of a, Merger or (ii) the occurrence of a Substantial
Change of Business Mix, a holder of Series A Preferred Shares may, at its
option, with proper notice to the Corporation as set forth in paragraph (f) of
this Section 3, require the Corporation to redeem all of such holder's
outstanding Series A Preferred Shares, as of the date specified in such notice
(a "Special Redemption Date") for cash, in an amount equal to the Redemption
Price per share.
(f) Notice of Optional Redemption. Any holder desiring to exercise
the right to require the Corporation to redeem such holder's Series A Preferred
Shares shall provide notice to the Corporation not less than 30 days prior to
the proposed Special Redemption Date. Such notice may be provided by mail, first
class postage prepaid, to the Corporation, at its principal executive offices,
or by facsimile or telegram, as set forth in paragraph (a) of Section 9 herein.
Each such notice shall state (1) the proposed Special Redemption Date and (2)
the total number of Series A Preferred Shares to be redeemed.
(g) Cancellation of Shares. All Series A Preferred Shares redeemed
by the Corporation as provided in this Section 3 (or otherwise acquired by the
Corporation) shall be retired and thereupon restored to the status of authorized
but unissued Series A Preferred Shares.
Section 4. Conversion by Holders into Common Stock.
(a) Right of Conversion. Except as provided in paragraph (b) of this
Section 4, no holder of Series A Preferred Shares may convert such shares into
shares of Common Stock at any time prior to the close of business of the fourth
anniversary of the Issuance Date of such Series A Preferred Shares. At any time
and from time to time after such anniversary date, on the terms and subject to
the conditions set forth in this Section 4, any holder of Series A Preferred
Shares shall be entitled, at the option of such holder, to cause any or all of
such shares to be converted into shares of Common Stock of the Corporation at an
initial per share rate equal to the result obtained by dividing (i) the Original
Value of such Series A Preferred Share, plus Unpaid Dividend Yield accumulated
for all previous dividend periods up to and including the dividend period ending
on the Conversion Date, by (ii) the Market Price at Conversion, as such rate may
be subsequently adjusted hereunder (the "Conversion Rate"), as of the Proposed
Conversion Date specified in such holder's notice to the Corporation delivered
pursuant to paragraph (e) of this Section 4. The minimum number of Series A
Preferred Shares for which conversion may be elected shall be 1,000, or such
lesser number which constitutes all of the outstanding Series A Preferred Shares
held by such holder.
Notwithstanding anything to the contrary in this paragraph (a), the
holder of Series A Preferred Shares may provide notice of its intention to
convert any or all of such shares prior to the fourth anniversary of the
Issuance Date of such Series A Preferred Shares, so long as the Proposed
Conversion Date specified in such notice is a date after the date of such fourth
anniversary.
4
(b) Special or Change of Control Conversion Events.
(1) Notwithstanding anything to the contrary in paragraph (a) of
this Section 4, at any time after the occurrence of a Special Conversion Event,
any holder of Series A Preferred Shares shall be entitled, at the option of such
holder, to cause any or all of such shares to be converted into shares of Common
Stock of the Corporation at the Special Conversion Rate as of the Proposed
Conversion Date specified in such holder's notice to the Corporation delivered
pursuant to paragraph (e) of this Section 4. Such notice shall be effective only
to the extent that the condition resulting in a Special Conversion Event has not
been cured prior to the delivery of such notice.
(2) Notwithstanding anything to the contrary in paragraph (a) of
this Section 4, on any date not more than 60 days after receipt by a holder of
Series A Preferred Shares of a notice delivered in accordance with Section 9
hereofof the occurrence of a Change of Control Conversion Event, any holder of
Series A Preferred Shares shall be entitled, at the option of such holder, to
(A) cause all of such Series A Preferred Shares to be converted into shares of
Common Stock of the Corporation at the conversion rate set forth in paragraph
(d) of this Section 4 as of the Proposed Conversion Date specified in such
holder's notice to the Corporation delivered pursuant to paragraph (e) of this
Section 4, or (B) elect in a notice made consistent in time and manner to that
set forth in paragraph (e) of this Section 4 to (i) retain the Series A
Preferred Shares at a dividend rate equal to the sum of the then current
Preferred Dividend Yield Rate plus 200 basis points and (ii) at holder's option,
enter into the Treaty. Such notice shall be effective only to the extent that a
Change of Control Conversion Event has occurred prior to the delivery of such
notice.
(c) Priority of Corporation's Right of Redemption. Notwithstanding
paragraphs (a) and (b) of this Section 4, no Series A Preferred Shares shall be
converted on or after the close of business on any Redemption Date for which
notice has been properly delivered in accordance with Section 3 hereof. The
Corporation's right to redeem any or all shares of Series A Preferred Stock on
or prior to any Proposed Conversion Date shall supersede any holder's right of
conversion under this Section 4, whether or not such holder's notice of
conversion was properly delivered prior to the Corporation's notice to redeem,
so long as the Corporation's notice to redeem was properly delivered in
accordance with Section 3 hereof at least (i) thirty (30) days prior to the
Proposed Conversion Date if such notice to redeem is delivered three (3) years,
eight (8) months and fifteen (15) days or less from the applicable Issuance
Date, or (ii) forty-five (45) days prior to the Proposed Conversion Date if such
notice to redeem is delivered more than (3) years, eight (8) months and nine
fifteen (15) days from the applicable Issuance Date. Notwithstanding the
foregoing, with respect to a notice of conversion which is superceded by a
notice of redemption, such notice of conversion shall again become effective if
the notice of redemption is subsequently revoked, and the Conversion Date
pursuant to such notice of conversion shall occur on the later of (y) thirty
(30) days following revocation of the notice of redemption, or (z) the Proposed
Conversion Date originally set forth in the notice of conversion.
5
(d) Conversion Price. For purposes of conversion of Series A
Preferred Shares to shares of Common Stock pursuant to paragraph (b) of this
Section 4 other than a Special Conversion Event under part (1) of paragraph (b)
of this Section 4, each Series A Preferred Share shall be converted into the
number of Common Stock shares resulting from dividing (i) the Original Value of
such Series A Preferred Share, plus Unpaid Dividend Yield to and including the
Conversion Date, by (ii) the product of the Liquidity Factor multiplied by the
lesser of (A) the Market Price at Conversion or (B) the Closing Price on the
Trading Day immediately following the announcement of a Change in Control (such
value to be referred to as the "Conversion Price").
(e) Notice of Conversion. In order to properly effect the conversion
of Series A Preferred Shares, the holder of such shares shall provide notice to
the Corporation not less than one hundred five (105) days prior to the Proposed
Conversion Date. Such notice must be provided by first class, registered mail,
postage prepaid, to the Corporation at its principal executive offices, at the
address or number set forth in paragraph (a) of Section 9 herein. Each such
notice shall state, as appropriate: (1) the Proposed Conversion Date; (2) the
number of Series A Preferred Shares (which must be a whole number of shares) to
be converted; (3) the name or names in which such holder wishes the certificate
or certificates for Common Stock and for any Series A Preferred Shares not to be
so converted to be issued and the address to which such holder wishes delivery
to be made of the new certificates to be issued upon conversion; and (4) an
acknowledgment that the shares to be converted remain subject to the
Corporation's right of redemption in accordance with Section 3.
Notwithstanding the preceding paragraph, for any conversion pursuant
to part (1) of paragraph (b) of this Section 4, the holder of Series A Preferred
Shares may properly convert such shares into shares of Common Stock upon
providing notice to the Corporation, not less than five (5) Business Days prior
to the Proposed Conversion Date, in the manner set forth in the preceding
paragraph. Such notice shall contain the information described above for
conversion pursuant to paragraph (e) of this Section 4, as well as a statement
setting forth the facts and circumstances under which the holder believes a
Special Conversion Event has occurred.
(f) Revocation of Notice to Convert. The right of any holder of
Series A Preferred Shares electing to convert the Series A Preferred Shares
pursuant to paragraphs (a) or (b) of this Section 4 shall be fully or partially
revocable, and any notice to the Corporation provided in accordance with
paragraph (e) of this Section 4 shall be subject to revocation or amendment by
the holder of the shares to which such notice relates. In order to properly
effect the revocation or amendment of such notice, the holder shall provide
notice to the Corporation of its revocation or amendment not less than three (3)
Business Days prior to the Proposed Conversion Date. Such notice shall be
provided in the same manner specified as permissible for providing notice of
conversion under paragraph (e) of this Section 4, and shall clearly state that
the holder of such Series A Preferred Shares will not convert any of such
shares, or if notice of partial revocation, the amended number of Series A
Preferred Shares held by such holder that are to be converted.
6
(g) Surrender of Series A Preferred Shares. Any holder of Series
A Preferred Shares desiring to convert any such shares into shares of Common
Stock shall surrender the certificate or certificates representing the Series A
Preferred Shares being converted, duly assigned or endorsed for transfer to the
Corporation (or accompanied by duly executed stock powers relating thereto), at
the principal executive office of the Corporation or the offices of the transfer
agent for the Series A Preferred Shares or such office or offices in the
continental United States of an agent for conversion as may from time to time be
designated by notice to the holders of the Series A Preferred Shares by the
Corporation or the transfer agent for the Series A Preferred Shares, accompanied
by a copy of the written notice of conversion previously provided to the
Corporation in accordance with paragraph (e) of this Section 4.
(h) Delivery of Common Stock. Upon the effectiveness of a
conversion of Series A Preferred Shares on the Conversion Date for such shares,
the Corporation, subject to the provisions of paragraph (k) of this Section 4
regarding fractional shares and paragraph (m) of this Section 4 regarding
payment of taxes, shall issue and send by first-class mail, postage prepaid, to
the holder thereof, or to such holder's designee, at the address designated by
such holder a certificate or certificates for the number of whole shares of
Common Stock to which such holder shall be entitled upon conversion. In case
there shall have been surrendered a certificate or certificates representing
Series A Preferred Shares only part of which are to be converted, the
Corporation, subject to the provisions of paragraph (m) of this Section 4
regarding payment of taxes, shall issue and deliver to such holder or such
holder's designee a new certificate or certificates for the number of Series A
Preferred Shares which shall not have been converted.
(i) Effectiveness of Conversion. Any conversion of Series A
Preferred Shares into shares of Common Stock made at the option of the holder
thereof shall be effective immediately following the close of business on the
Conversion Date. At and after the effective time on the Conversion Date, the
person or persons entitled to receive the Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock.
(j) Conversion Price Adjustments. The Conversion Rate of any
Series A Preferred Shares shall be subject to the following adjustments:
(A) If any capital reorganization or reclassification of the
capital stock of the Corporation, or any consolidation or merger of the
Corporation with another corporation, or the sale of all or substantially all of
its assets to another corporation, or any other transaction, shall be effected
in such a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization, reclassification, consolidation, merger, sale
or other transactions, lawful and adequate provisions (in form authorized and
approved by the Board of Directors of the Corporation) shall be made whereby
each holder of any Series A Preferred Shares shall thereafter have the right to
receive, upon the basis and upon the terms and conditions specified herein and
in lieu of the shares of Common Stock of the Corporation immediately theretofore
receivable upon the conversion of such Series A Preferred Shares, such shares of
stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding
7
shares of such Common Stock equal to the number of shares of Common Stock
immediately theretofore so receivable had such reorganization, reclassification,
consolidation, merger, sale or other transactions, not taken place, and in any
such case appropriate provision shall be made with respect to the rights and
interests of such holder to the end that the provisions hereof (including,
without limitation, provisions for adjustments of the Conversion Rate) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise of such
conversion rights. If applicable, the Corporation shall reserve as provided by
paragraph (l) of this Section 4 such shares of common stock, other capital stock
or other securities of the Corporation as may be issuable upon conversion of
Series A Preferred Shares as provided by this Section 4 and shall comply with
the other requirements of paragraph (l) of this Section 4 in respect of such
shares or other securities so as to permit their issuance to holders of Series A
Preferred Shares upon conversion thereof.
The Corporation shall not effect any such consolidation or
merger, or any sale of all or substantially all of its assets or properties,
unless (i) prior to the consummation thereof the successor corporation (if other
than the Corporation) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume, by written instrument (in form
authorized and approved by the Board of Directors), executed and mailed or
delivered to each holder of shares of Series A Preferred Stock at the last
address of such holder appearing on the books of the Corporation, the obligation
to deliver to such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to receive
or (ii) the Series A Preferred Stock shall have been redeemed by the Corporation
pursuant to paragraph (a) or (e) of Section 3 hereof.
(B) In any case in which (i) this Section 4 shall require
that an adjustment as a result of any event become effective after the opening
of business on a specified business day following a record date, and (ii) the
date fixed for conversion pursuant to paragraph (e) of this Section 4 occurs
after such record date but before the occurrence of the event on such date, then
the Corporation may elect to defer until after the occurrence of such event (1)
issuing to the holder of any Series A Preferred Shares surrendered for
conversion certificates representing the shares or securities issuable upon such
conversion, and (2) paying to such holder any amount in cash in lieu of a
fractional share of Common Stock in accordance with paragraph (k) of this
Section 4, provided, however, that such deferral is not for an unreasonable
period of time.
(k) Fractional Shares. No fractional shares of Common Stock shall
be issued upon conversion of any Series A Preferred Shares but, in lieu of any
fraction of a share of Common Stock which would otherwise be issuable in respect
of the aggregate number of Series A Preferred Shares surrendered for conversion
at one time by the same holder, the Corporation shall pay an amount in cash
equal to the same fraction of the Conversion Price (based on the Market Price at
Conversion).
(l) Reservation of Shares. The Corporation shall at all times
reserve and keep available out of the authorized but unissued shares of Common
Stock the maximum number of shares of Common Stock into which all Series A
Preferred Shares from time to time
8
outstanding are convertible, but shares of Common Stock held in the treasury of
the Corporation may in its discretion be delivered upon any conversion of Series
A Preferred Shares.
(m) Taxes. The Corporation shall pay any and all stock transfer and
documentary stamp taxes that may be payable in respect of any issuance or
delivery of shares of Common Stock or any other securities issued upon
conversion of the Series A Preferred Shares pursuant hereto. The Corporation
shall not, however, be required to pay any such tax which may be payable in
respect of any transfer involved in the issuance and delivery of shares of
Common Stock or other securities in a name other than that in which the Series A
Preferred Shares with respect to which such shares are issued were registered,
or any payment to any person other than the registered holder thereof, and shall
not be required to make any such issuance or delivery unless and until the
person otherwise entitled to such issuance or payment has paid to the
Corporation the amount of any such tax or has established, to the satisfaction
of the Corporation, that such tax has been paid or is not payable.
(n) Cancellation of Shares. All Series A Preferred Shares converted
into shares of Common Stock, other capital stock or other securities of the
Corporation as provided in this Section 4 (or otherwise acquired by the
Corporation) shall be retired and thereupon restored to the status of authorized
but unissued shares of preferred stock, par value $0.001 per share, undesignated
as to series.
Section 5. Liquidation Rights.
(a) In the event of any Liquidation, after payment or provision for
payment has been made of the debts and other liabilities of the Corporation, the
holders of Series A Preferred Shares shall be entitled to receive, out of the
net assets of the Corporation, for each share its Original Value plus an amount
equal to the sum of Unpaid Dividend Yield (whether or not declared) accrued and
unpaid thereon for all previous periods and the current period, whether or not
accumulated, and no more. After such amount is paid in full, no further
distributions or payments shall be made in respect of Series A Preferred Shares,
such Series A Preferred Shares shall no longer be deemed to be outstanding or be
entitled to any other powers, preferences, rights or privileges, including
voting rights, and such Series A Preferred Shares shall be surrendered for
cancellation to the Corporation.
(b) The full amount payable to the holders of Series A Preferred
Shares shall be paid before any distribution shall be made to the holders of any
class of common stock of the Corporation or any other class of stock or series
thereof ranking junior to the Series A Preferred Shares with respect to the
distribution of assets upon a Liquidation. No payment on account of any
Liquidation shall be made to the holders of any class or series of stock ranking
on a parity with the Series A Preferred Shares in respect of the distribution of
assets upon Liquidation unless there shall likewise be paid at the same time to
the holders of the Series A Preferred Shares like proportionate amounts
determined ratably in proportion to the full amounts to which the holders of all
outstanding Series A Preferred Shares and the holders of all outstanding shares
of such parity stock are respectively entitled with respect to such
distribution.
9
(c) If the assets distributed to the holders of Series A Preferred
Shares upon any Liquidation shall be insufficient to permit the payment to such
holders of the full amount to which they are entitled in such circumstances,
then such assets or the proceeds thereof shall be distributed among such holders
ratably in proportion to the sums which would be payable to such holders if all
sums were paid in full.
(d) Once any payment required upon any Liquidation is made to any
holder of Series A Preferred Shares, there shall not be any conversion rights in
respect of such shares pursuant to Section 4 hereof unless the full amount of
all such distributions and payment made in respect of such shares being
converted is remitted to the Corporation prior to or concurrently with the
conversion of such shares.
(e) Neither the merger nor consolidation of the Corporation into or
with any other corporation, nor the merger or consolidation of any other
corporation into or with the Corporation, nor a sale, transfer or lease of all
or any part of the assets of the Corporation, shall be deemed to be a
Liquidation for purposes of this Section 5.
(f) Written notice of any Liquidation, stating the payment date or
dates when and the place or places where the amounts distributable in such
circumstances shall be payable, shall be given by first class mail, postage
prepaid, not less than thirty (30) days prior to any payment date stated
therein, to the holders of record of the Series A Preferred Shares at their
respective addresses as the same shall appear on the books of the Corporation or
any transfer agent for the Series A Preferred Shares.
Section 6. Voting Rights.
(a) Except as otherwise provided by paragraph (b) of this Section 6
or required by law, the holders of Series A Preferred Shares shall not be
entitled to vote on any matter on which the holders of any voting securities of
the Corporation shall be entitled to vote.
(b) So long as any Series A Preferred Shares remain outstanding, the
Corporation shall not without first obtaining the approval (by vote or written
consent, as provided by applicable law) of the holders of more than sixty-six
and two-thirds percent (66 2/3%) of the then outstanding Series A Preferred
Shares, voting together as a single class:
(A) alter or change the rights, preferences or privileges of the
Series A Preferred Shares so as to affect adversely such Series A Preferred
Shares;
(B) sell, convey or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a corporation owned by or under common
ownership with the Corporation), provided, however, that the holders of Series A
Preferred Shares shall have no voting rights under this subparagraph (B) of
paragraph (b) of this Section 6 with respect to an event or occurrence which
constitutes a Special Redemption Event;
(C) increase the authorized number of Series A Preferred Shares;
or
10
(D) create any new class or series of stock, or any other
securities convertible into equity securities of the Corporation having rights
or preferences over, or on a parity with, the Series A Preferred Shares.
(c) For purposes of any vote of the holders of Series A Preferred
Shares pursuant to the foregoing provisions of this Section 6, each Series A
Preferred Share shall have one (1) vote per share.
Section 7. Sinking Fund. No sinking fund or other mechanism for the segregation
of funds shall be established for the purpose of redemption or repurchase of the
Series A Preferred Shares or payment of dividends thereon.
Section 8. Certain Definitions. For purposes of this Certificate of
Designations, the following terms shall have the meanings as set forth below.
"Average Market Price" means, with respect to a share of Common
Stock on any date of determination, the lesser of (a) the average of the daily
Closing Prices for the thirty (30) consecutive Trading Days ending on the date
of determination or (b) the average of the daily Closing Prices for the fifteen
(15) consecutive Trading Days ending on the date of determination; provided,
however, that in averaging the daily Closing Prices for such Trading Days, all
adjustments shall be made as are necessary to reflect any subdivision,
reclassification, recapitalization or combination of, or dividend paid or
distribution made on, shares of Common Stock during such period of Trading Days.
"Business Day" means any day other than a Saturday, Sunday or a day
on which banking institutions in Xxx Xxxx, Xxx Xxxx, Xxxxxx, Xxxxxxx or Zurich,
Switzerland are not required to be open.
"Change of Control" means, with respect to the Corporation, (i) the
acquisition of ownership (by any Person or "group" within the meaning of
Sections 13(d) and 13(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) required to file a Schedule 13D under the Exchange Act (other
than a Person or "group" owning greater than 20% and less than 50% of the voting
power of the capital stock of the Corporation that otherwise meets the
requirements of a Person or "group" eligible to file a Schedule 13G in lieu of a
Schedule 13D) of greater than 30% of the voting power of the capital stock of
the Corporation (which acquisition is not approved by the Corporation's board of
directors, regardless of whether such acquisition is by sale or other transfer
of capital stock, merger, consolidation or other reorganization or means,
including a reorganization under bankruptcy or insolvency laws) (such
acquisition of ownership may sometimes be referred to herein as an "Involuntary
Change of Control") or (ii) the consummation of a sale, transfer or other
disposition of greater than 30% of the assets of the Corporation (determined on
a combined and consolidated fair market value basis) in one or a series of
related transactions to any Person that is not an affiliate of the Corporation.
11
"Change of Control Conversion Event" means the occurrence of a
Change of Control or Merger without the written consent of the holders of more
than 66 2/3% of the Series A Preferred Shares then outstanding.
"Closing Price" on any Trading Day shall mean the closing sales
price regular way on such day for one share of Common Stock or, in case no such
sale takes place on such day, the average of the reported closing bid and asked
prices regular way, in each case on the New York Stock Exchange, or, if the
Common Stock is not listed or admitted to trading on such Exchange, on the
principal national securities exchange on which the Common Stock is listed or
admitted to trading, or, if not listed or admitted to trading on any national
securities exchange, the average of the closing bid and asked prices of the
Common Stock on the over-the-counter market on the day in question as reported
by the National Quotation Bureau Incorporated, or a similarly generally accepted
reporting service, or if not so available in such manner as furnished by any New
York Stock Exchange member-firm selected from time to time by the Board of
Directors of the Corporation for that purpose.
"Common Stock" means common stock of the Corporation, par value
$0.001 per share.
"Conversion Date" shall be the same day as the Proposed
Conversion Date, provided that (i) the holder of Series A Preferred Shares has
not delivered a notice of revocation in accordance with paragraph (e) of Section
4 and (ii) the Corporation has not properly delivered a notice of redemption
pursuant to paragraph (b) of Section 3 naming any date on or prior to the
Proposed Conversion Date as the Proposed Redemption Date, and such notice to
redeem has not been revoked prior to such date in accordance with paragraph (b)
of Section 3. Notwithstanding the foregoing, in the event that the holders of
more than sixty-six and two-thirds percent (66 2/3%) of the outstanding Series A
Preferred Shares hold registration rights with respect to Common Stock into
which such Series A Preferred Shares can be converted, and such holders have
delivered to the Corporation, concurrently with any notice of conversion under
paragraph (e) of Section 4, a notice requesting registration of such Common
Stock upon conversion in an underwritten securities offering, then the
Conversion Date shall be delayed so that it occurs (i) on or after the effective
date of such registration and (ii) immediately prior to the purchase of such
Common Stock by the underwriter(s) undertaking such offering.
"Corporation" has the meaning set forth in the first paragraph
hereof.
"Dividend Yield" means, with respect to each Series A Preferred
Share for each quarter, or such lesser period as may arise in connection with
the issuance, redemption or conversion of such share, or with any Liquidation,
the amount accruing on such share during the quarter, or such lesser period, at
an annual rate equal to the Preferred Dividend Yield Rate, applied to the sum of
(A) such share's Original Value, plus (B) Unpaid Dividend Yield thereon for all
prior periods. Dividend Yield for any period shorter than a full quarterly
dividend period shall be computed on the basis of the actual number of days
elapsed over a 360 day year. Dividend Yield shall begin accruing on each Series
A Preferred Share on the Issuance Date of such share and shall accrue to, but
not including, the Redemption Date, Special Redemption Date
12
or Conversion Date for such share (or other date on which such Series A
Preferred Share is no longer outstanding).
"GAAP" means United States generally accepted accounting
principles, consistently applied.
"Issuance Date" means, for each Series A Preferred Share, the
date on which such share was originally issued by the Corporation.
"LIBOR" means an interest rate per annum equal to (a) the rate of
interest for deposits in U.S. Dollars having a term of three months appearing on
Telerate Page 3750 (as defined in the 2000 ISDA Definitions as published by the
International Swaps and Derivatives Association, Inc., as modified and amended
from time to time (the "Definitions") ("Page 3750") at approximately 11:00 a.m.
London time, on the day that is two Business Days prior to the applicable
Issuance Date or Preferred Dividend Payment Date, (b) in the event such rate is
not available from Page 3750, the rate of interest for deposits in U.S. Dollars
having a term of three months appearing on the Reuters Screen ISDA Page (as
defined in the Definitions) (the "ISDA Page") at approximately 11:00 a.m. London
time on the day that is two Business Days prior to the applicable Issuance Date
or Preferred Dividend Payment Date, (c) in the event such rate is not available
from the ISDA Page, the rate per annum for deposits in U.S. Dollars having a
term of three months equal to the USD-LIBOR-Reference Banks rate (as defined in
the Definitions) at approximately 11:00 a.m. London time on the day that is two
Business Days prior to the applicable Issuance Date or Preferred Dividend
Payment Date or (d) in the event such rate is not available from the
USD-LIBOR-Reference Banks, if determined for a Preferred Dividend Payment Date,
the rate per annum for deposits in U.S. Dollars having a term of three months
equal to LIBOR in effect for the previous Issuance Date or Preferred Dividend
Payment Date, as the case may be, or, if determined for the Issuance Date, the
most recent such rate available from the USD-LIBOR Reference Banks. For purposes
of calculating the Preferred Dividend Yield Rate for any particular Series A
Preferred Shares, LIBOR shall be such rate as reported on the applicable
Issuance Date; provided, such rate shall be adjusted up or down, effective on
the first day of each subsequent calendar quarter (i.e., January 1, April 1,
July 1 and October 1), to reflect the current published rate on the last Trading
Day of the prior calendar quarter, until such time that no Series A Preferred
Shares remain outstanding.
"Liquidity Factor" means, with respect to any conversion other
than pursuant to a Special Conversion Event, an amount equal to (i) 0.90 if the
Conversion Date for such conversion falls 60 days or more after a Change of
Control Conversion Event, or (ii) 1.00 if the Conversion Date does not fall 60
days or more after the occurrence of a Change of Control Conversion Event.
"Liquidation" means any dissolution, liquidation or winding up of
the affairs of the Corporation, whether voluntary or involuntary.
"Market Price at Conversion" means the Average Market Price of
one share of Common Stock determined as of the Proposed Conversion Date.
13
"Merger" means (i) a merger or consolidation approved by the
Corporation's board of directors, by and between the Corporation and another
Person pursuant to the provisions of Sections 251 through 264 of the Delaware
General Corporation Law or (ii) the acquisition of ownership (by any Person or
"group" within the meaning of Sections 13(d) and 13(g) of the Exchange Act
required to file a Schedule 13D under the Exchange Act (other than a Person or
"group" owning greater than 20% and less than 50% of the voting power of the
capital stock of the Corporation that otherwise meets the requirements of a
Person or "group" eligible to file a Schedule 13G in lieu of a Schedule 13D) of
greater than 30% of the voting power of the capital stock of the Corporation
(which acquisition is approved by the Corporation's board of directors,
regardless of whether such acquisition is by sale or other transfer of capital
stock, merger, consolidation or other reorganization or means, including a
reorganization under bankruptcy or insolvency laws).
"Original Issuance Date" means the first date on which any Series
A Preferred Shares were originally issued by the Corporation.
"Original Value" of each Series A Preferred Share shall be equal
to $1,000, as proportionally adjusted for all stock splits, stock dividends, and
any other subdivisions, combinations, reclassifications or recapitalization
affecting the Series A Preferred Shares.
"Person" means any individual, partnership, joint venture,
corporation, limited liability company, association, joint stock company, trust
or unincorporated organization or association, or a government or any department
or agency or political subdivision thereof.
"Preferred Dividend Payment Date" has the meaning set forth in
paragraph (a) of Section 2.
"Preferred Dividend Tax Adjustment Factor" has the meaning set
forth in paragraph (c) of Section 2.
"Preferred Dividend Yield Rate" means (A) the sum of (i) LIBOR,
expressed as an annual percentage, and (ii) an additional percentage amount
based on the S&P Rating of the Series A Preferred Shares (adjusted annually) as
set forth in the table below:
S&P Rating Additional Percentage Amount
---------- ----------------------------
AA 0.50%
AA- 0.75%
A+ 1.00%
A 1.25%
A- 1.50%
BBB+ 2.00%
BBB 2.50%
BBB- 3.00%
BB+ 4.00%
BB 5.50%
BB- 6.50%
14
Less than BB- or unrated 8.50%
Upon the occurrence of a Special Conversion Event, the Preferred
Dividend Yield Rate shall be adjusted effective as of the Preferred Dividend
Payment Date next succeeding the date of such Special Conversion Event based on
the S&P Rating as adjusted pursuant to such Special Conversion Event.
With respect to any Series A Preferred Shares that have been
issued and outstanding for four (4) years or more, the additional percentage
amounts listed in the right hand column of the above table shall be modified on
each anniversary of the Issuance Date for such Series A Preferred Shares,
beginning on the fourth (4th) anniversary of such Issuance Date, by adding to
such percentage amount an amount equal to: 12.5 basis points times the number of
such anniversaries of the Issuance Date that have passed after the third (3rd)
anniversary (i.e., the fourth (4th) anniversary shall be counted as the first
(1st) anniversary that has so passed, the fifth (5th) anniversary shall be
counted as the second (2nd) anniversary that has so passed, etc.) for all rating
classes from AA through A-; and 50 basis points times the number of such
anniversaries of the Issuance Date that have passed after the third (3rd)
anniversary (i.e., the fourth (4th) anniversary shall be counted as the first
(1st) anniversary that has so passed, the fifth (5th) anniversary shall be
counted as the second (2nd) anniversary that has so passed, etc.) for rating
classes BBB+ or lower.
"Proposed Conversion Date" shall mean the date on which a holder
of Series A Preferred Shares proposes to convert any or all of the Series A
Preferred Shares, as set forth in its notice to the Corporation properly
delivered in accordance with paragraph (e) of Section 4.
"Proposed Redemption Date" shall mean the date on which the
Corporation proposes to redeem any or all of the Series A Preferred Shares, as
set forth in its notice to holders of Series A Preferred Shares properly
delivered in accordance with paragraph (b) of Section 3.
"Redemption Date" shall be the same day as the Proposed
Redemption Date, provided that (i) the Corporation has not withdrawn its
intention to redeem the Series A Preferred Shares pursuant to paragraph (c) of
Section 3; and (ii) proper provision for the payment of the Redemption Price to
holders of Series A Preferred Shares being redeemed has been made in accordance
with paragraph (b) of Section 3 by the close of business on the Proposed
Redemption Date.
"Redemption Price" for each Series A Preferred Share shall be
equal to the sum of (A) the Original Value, plus (B) Unpaid Dividend Yield to
and including the Redemption Date on such share.
"S&P Rating" means the Preferred Stock Rating of the Series A
Preferred Shares as in effect from time to time by the Standard & Poor's
Division of The XxXxxx-Xxxx Companies or any successor. The Corporation shall
use its reasonable best efforts to obtain an S&P Rating with respect to the
Series A Preferred Shares as soon as practicable after the applicable Issuance
Date or Special Conversion Event, if any.
15
"Series A Preferred Shares" has the meaning set forth in Section
1.
"Special Conversion Event" means the occurrence of the following
event: the consolidated stockholders' equity of the Corporation and its
consolidated subsidiaries, as determined in accordance with GAAP, is less than
US$215,000,000, excluding goodwill and prior to giving effect to the invested
capital relating to any issued and outstanding Series A Preferred Shares, and
such condition remains uncured for over sixty (60) days.
"Special Conversion Rate" means, with respect to the conversion
of Series A Preferred Stock to shares of Common Stock in the event of a Special
Conversion Event, the conversion of each Series A Preferred Share into the
number of Common Stock shares resulting from dividing (i) the Original Value of
such Series A Preferred Share, plus Unpaid Dividend Yield accumulated to date
for all previous dividend periods up to and including the dividend period ending
on the Conversion Date, by (ii) the Market Price at Conversion.
"Special Redemption Date" has the meaning set forth in Section
3(e).
"Substantial Change of Business Mix" means, after the occurrence
of an Involuntary Change of Control subsequent to which a holder of Series A
Preferred Shares has elected to retain the Series A Preferred Shares held by it,
the Corporation and its subsidiaries taken as a whole (i) engage in the
significant underwriting of insurance business other than direct personal lines
property and casualty and life insurance and retirement annuities, as determined
at the end of each calendar quarter after the Involuntary Change of Control from
the quarterly statements of the insurance company subsidiaries of the
Corporation; or (ii) except for the potential quota share reinsurance of its
life insurance business, cede more than 50% of its ultimate net liability on
policies issued by subsidiaries of the Corporation.
"Trading Day" shall mean a date on which the New York Stock
Exchange (or if different, the principal national securities exchange on which
the Common Stock is listed or admitted to trading) is open for the transaction
of business.
"Treaty" means a 20% Multiline Quota Share Reinsurance Agreement
substantially similar to the Treaty as defined in the Catastrophe Equity
Securities Issuance Option and Reinsurance Right Agreement dated May 7, 2002 by
and among the Corporation, Swiss Re Financial Products Corporation and Swiss Re
America Corporation.
"Unpaid Dividend Yield" of any Series A Preferred Share means,
for any particular quarterly period (or lesser period, as may arise in
connection with the issuance, redemption or conversion of such shares, or with
any Liquidation), an amount equal to the excess, if any, of (A) the aggregate
Dividend Yield accrued on such share in such period, over (B) the aggregate
amount of cash dividends or distributions paid by the Corporation in
satisfaction of Dividend Yield on such shares for such period.
Section 9. Miscellaneous.
16
(a) Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been given (a) on the
date of delivery if delivered personally or sent by facsimile transmission
(which transmission shall be confirmed by telephone), (b) on the next Business
Day if sent by overnight delivery service or (c) fifteen (15) days after mailing
if sent by certified, registered or express mail, postage prepaid, if properly
addressed or directed to such party at the appropriate address or facsimile
number set forth below, or such address or facsimile number as such party may
designate by written notice to the other parties:
(i) if to the Corporation to:
Xxxxxx Xxxx Educators Corporation
Mail No. G 000
Xxx Xxxxxx Xxxx Xxxxx
Xxxxxxxxxxx, Xxxxxxxx 00000-0000
Attention: Xxxxxx Xxxx
Executive Vice President
with a copy to:
Xxxxxx, Xxxx & Xxxxxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000-0000
Attention: Xxxxx Xxxxxx
(ii) if to a holder of the Series A Preferred Shares: to such
holder at the address for such holder as listed in the stock record books of the
Corporation (which may include the records of any transfer agent for the Series
A Preferred Shares if appropriate).
(b) In the event a holder of Series A Preferred Shares shall not
by written notice designate the name to whom payment upon redemption of Series A
Preferred Shares should be made or the address to which the certificate or
certificates representing such shares, or such payment, should be sent, the
Corporation shall be entitled to register such shares, and make such payment, in
the name of the holder of such Series A Preferred Shares as shown on the records
of the Corporation and to send the certificate or certificates representing such
shares, or such payment, to the address of such holder shown on the records of
the Corporation.
(c) All payments in the form of dividends and distributions and
distributions upon any Liquidation or otherwise made upon the Series A Preferred
Shares and any other shares of stock ranking on a parity with the Series A
Preferred Shares with respect to such dividend or distribution shall be made pro
rata, so that amounts paid per share on the Series A Preferred Shares and such
other shares of stock shall in all cases bear to each other the same ratio that
the required dividends, distributions or payments, as the case may be, payable
per share on the Series A Preferred Shares and such other shares of stock bear
to each other.
17
(d) The Corporation may appoint, and from time to time
discharge and change, a transfer agent for the Series A Preferred Shares.
18
SCHEDULE 1.9
DEFINITION OF LOSS OCCURRENCE
"Loss occurrence" will mean the sum of all individual losses directly occasioned
by any one disaster, accident, or loss or series of disasters, accidents, or
losses arising out of one event, which occurs within the area of one state of
the United States or province of Canada and states or provinces contiguous
thereto and to one another. The duration and extent of any one "loss occurrence"
will be limited to all individual losses sustained by the Company occurring
during any period of 168 consecutive hours arising out of and directly
occasioned by the same event except that the term "loss occurrence" will be
further defined as follows:
A. As regards windstorm, hail, tornado, hurricane, and cyclone,
including ensuing collapse and water damage, all individual
losses sustained by the Company occurring during any period of
72 consecutive hours arising out of and directly occasioned by
the same event. The event need not be limited to one state or
province or states or provinces contiguous thereto.
B. As regards riot, riot attending a strike, civil commotion,
vandalism, and malicious mischief, all individual losses
sustained by the Company occurring during any period of 72
consecutive hours within the area of one municipality or
county and the municipalities or counties contiguous thereto
arising out of and directly occasioned by the same event. The
maximum duration of 72 consecutive hours may be extended in
respect of individual losses that occur beyond such 72
consecutive hours during the continued occupation of an
insured's premises by strikers, provided such occupation
commenced during the aforesaid period.
C. As regards earthquake (the epicenter of which need not
necessarily be within the territorial confines referred to in
the opening paragraph of this Article) and fire following
directly occasioned by the earthquake, only those individual
fire losses that commence during the period of 168 consecutive
hours may be included in the Company's "loss occurrence."
D. As regards "freeze," only individual losses directly
occasioned by collapse, breakage of glass, and water damage
(caused by bursting of frozen pipes and tanks) may be included
in the Company's "loss occurrence."
For all "loss occurrences" other than those referred to in B. above, the Company
may choose the date and time when any such period of consecutive hours commences
provided that it is not earlier than the date and time of the occurrence of the
first recorded individual loss sustained by the Company arising out of that
disaster, accident, or loss and provided that only one such period of 168
consecutive hours will apply with respect to one event, except for those "loss
occurrences" referred to in A. above where only one such period of 72
consecutive hours will apply with respect to one event.
As respects those "loss occurrences" referred to in B. above, if the disaster,
accident, or loss occasioned by the event is of greater duration than 72
consecutive hours, then the Company may divide that disaster, accident, or loss
into two or more "loss occurrences" provided no two periods overlap and no
individual loss is included in more than one such period and provided that no
period commences earlier than the date and time of the occurrence of the first
recorded individual loss sustained by the Company arising out of that disaster,
accident, or loss.
No individual losses occasioned by an event that would be covered by 72 hours
provisions may be included in any "loss occurrence" claimed under the 168 hours
provisions.
Losses directly or indirectly occasioned by:
(i) loss of, alteration of, or damage to
(ii) a reduction in the functionality, availability or operation of
a computer system, hardware, programme, software, data, information repository,
microchip, integrated circuit or similar device in computer equipment or
non-computer equipment, whether the property of the policyholder of the Company
or not, do not in and of themselves constitute an event unless arising out of
one or more of the following perils:
fire, lightning, explosion, aircraft or vehicle impact, falling
objects, windstorm, hail, tornado, cyclone, hurricane, earthquake,
volcano, tsunami, flood, freeze or weight of snow.
2
SCHEDULE 1.29
BINDER OF REINSURANCE
MULTILINE QUOTA SHARE
REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
Between
XXXXXX XXXX INSURANCE COMPANIES
Springfield, Illinois
(hereinafter referred to as the "Company")
and
SWISS REINSURANCE AMERICA CORPORATION
Armonk, New York
(hereinafter referred to as the "Reinsurer")
BUSINESS COVERED: The Company obligates itself to cede to the Reinsurer
and the Reinsurer obligates itself to accept from the
Company a 10% Quota Share participation of the
Company's Ultimate Net Liability for the Policies in
force as of the Inception Date, and new and renewal
Policies becoming effective on or after said date as
respects losses occurring on or after the Inception
Date.
Under this Agreement, the indemnity for reinsured
loss applies to Homeowners, Personal Automobile
Liability and Personal Automobile Physical Damage
except as excluded under this Agreement.
INCEPTION DATE AND This Agreement shall become effective with respect to
TERMINATION DATE: in force, new and renewal business effective on or
after the Inception Date and shall remain in force
for 12 months from the Inception Date, such date to
be the Termination Date.
As of the Termination Date of this Agreement, all
reinsurance hereunder shall be automatically
cancelled as of the Termination Date and the
Reinsurer shall be released of all liability as
respects losses occurring subsequent to the
Termination Date. The Reinsurer shall return to the
Company the unearned premiums on the hereunder at the
Termination Date, less the commission allowed
thereon.
The Inception Date shall be
determined based on the terms and
conditions of the CLOCS agreement
with SRFP.
TERRITORY: United States of America, its
territories and possessions, and
Canada, except as respects Inland
Marine business covered hereunder
where the territorial limits shall
be those of the policies concerned.
LIMIT AND RETENTION: This Quota Share Agreement is
subject to a maximum cession limit
of $750,000 Ultimate Net Liability
each Occurrence (10% share of the
Company's Ultimate Net Liability of
$7,500,000 each occurrence).
If the Company's Accident Year Loss
Ratio for the period exceeds 77.0%,
the Company will retain as a loss
corridor deductible, loss and Loss
Adjustment Expense for which the
Reinsurer would otherwise be liable
for the difference between the
actual Accident Year Loss Ratio and
77.0%, calculated per the following
paragraph.
The Loss Ratio percentage points
comprising the loss corridor
deductible shall be 13.0 Loss Ratio
percentage points adjusted by the
difference in the cumulative trend
percent less cumulative rate change
percent from January 1, 2002 until
the Inception Date, subject to a
minimum loss corridor deductible of
13.0 Loss Ratio percentage points.
The Reinsurer will then be liable
for its 10% share of the next 15.0
Loss Ratio percentage points in
excess of the number of loss
corridor deductible Loss Ratio
percentage points, and shall have no
liability excess of such amount of
Accident Year Loss Ratio percentage
points.
DEFINITION OF The term "Ultimate Net Liability"
ULTIMATE shall mean the of the remaining
NET LIABILITY: portion of the Company's gross
liability including 90% ECO and 90%
XPL (within the Agreement limits) as
defined herein, from each Occurrence
reinsured under this Agreement after
deducting recoveries from all other
reinsurance (excluding the aggregate
cover), if any, whether specific or
general and whether collectible or
not.
REINSURANCE PREMIUM: The Company shall cede to the
Reinsurer 10% of the Company's
unearned premiums on its Ultimate
Net Liability in force as of the
Inception Date on the business
covered hereunder.
The Company shall cede to the
Reinsurer 10% of the Company's Net
Premiums Written applicable to new
and renewal Policies becoming
effective on or after the Inception
Date, with respect to its Ultimate
Net Liability on the business
covered hereunder.
The term "Net Premiums Written"
shall mean gross and additional
premiums less return premiums, less
premiums ceded on all other
reinsurance.
CEDING COMMISSION: The Reinsurer shall allow to the
Company a ceding commission
allowance of 20.0% of the Net
Premiums Written, ceded hereunder.
ACCIDENT YEAR LOSS In calculating the Accident Year
RATIO: Loss Ratio, direct earned premium
less all ceded reinsurance earned
premium will be used to determine
Net Earned Premium. Net Incurred
Loss will be equal to the total of
all Ultimate Net Liability. Accident
Year Loss Ratio will equal Net
Incurred Loss divided by Net Earned
Premium.
The term "incurred losses" means all
losses and Loss Adjustment Expenses
paid less recoveries, including
salvage and subrogation, plus Losses
and Loss Adjustment Expenses
outstanding (including IBNR) as
respects losses which occurred
during the term.
REPORTS AND
REMITTANCES: Within 5 days after receiving a
signed binder of reinsurance the
Company shall pay to the Reinsurer
the Reinsurer's pro rata share of
the Company's unearned premium
reserve segregated by Line of
Business on the business in force as
of the Inception Date.
Within 30 days after the close of
each quarter the Company shall
forward a quarterly account
summarizing the following
transactions under this Agreement
during the quarter:
Net Premiums written ceded
segregated by Line of business;
Commissions;
Loss and LAE paid less recoveries,
segregated by Line of Business, by
year of loss;
Unearned Premium Reserves segregated by Line of Business at
the end of the quarter and calculated on a monthly pro rata
basis;
Estimated loss and LAE reserves outstanding at the end of
the quarter segregated by Line of Business, by year of
loss.
The balance due either party shall be paid within 45 days
after the close of each quarter for the transactions during
such quarter.
EXCLUSIONS: See Attached.
OTHER CLAUSES: . 90% ECO and 90% XPL Covered up to limits.
. Definition of Occurrence - No Reinstatement (attached)
. Catastrophe Reinsurance
. Currency
. Definition of Risk
. Dispute Resolution
. Errors or omissions
. Insolvency
. Losses, Loss Adjustment Expenses and Salvages
. Offset
. Special Termination
. Taxes
. Others to be Agreed
Upon signature by a duly authorized representative of the Reinsurer, this Binder
of Reinsurance shall be effective until superseded by an Agreement of
Reinsurance signed by duly authorized representatives of the Reinsurer and the
Company.
SRA Participation Accepted Hereon: 100% of 10%
Authorized Signature:____________________________
Date:__________________________
Xxxxxx Xxxx Authorized Signature:__________________________
Date:__________________
EXCLUSIONS
THIS AGREEMENT DOES NOT COVER:
A. THE FOLLOWING GENERAL CATEGORIES
1. All Lines of Business not specifically listed in Business Covered.
2. Policies issued with a deductible of $100,000 or more; provided
this exclusion shall not apply to Policies which customarily
provide a percentage deductible on the perils of earthquake or
windstorm.
3. Reinsurance assumed, except pro rata local agency reinsurance on
specific risks.
4. Ex-gratia Payments.
5. Loss or damage occasioned by war, invasion, revolution,
bombardment, hostilities, acts of foreign enemies, civil war,
rebellion, insurrection, military or usurped power, martial
law, or confiscation by order of any government or public
authority, but not excluding loss or damage which would be
covered under a standard form of Policy containing a standard
war exclusion clause.
6. Insolvency Funds as per the attached Insolvency Funds Exclusion
Clause, which is made part of this Agreement.
7. Pool, Syndicate and Association business as per the attached
Pools, Associations and Syndicates Exclusion Clause, which is made
part of this Agreement.
8. Risks where the Total Insured Value, per risk, exceeds the figure
specified as per, the attached Total Insured Value Exclusion
Clause, which is made part of this Agreement.
B. THE FOLLOWING CLASSES OF BUSINESS AND TYPES OF RISKS
1. Mortgage Impairment.
2. Growing and/or standing crops.
3. Mortality and Health covering birds, animals or fish.
4. All onshore and offshore gas and oil drilling rigs.
5. Petrochemical operations engaged in the production, refining or
upgrading of petroleum or petroleum derivatives or natural gas.
6. Satellites.
7. All railroad business.
8. As respects Inland Marine business:
a. Registered Mail and Armored Car Policies.
b. Jeweler's Block Policies.
x. Xxxxxxx'x Customers Policies.
d. Rolling Stock.
e. Parcel Post when written to cover banks and financial
institutions.
f. Commercial Negative Film Insurance.
g. Garment Contractors Policies.
h. Mining Equipment while underground.
i. Radio and Television Broadcasting Towers.
j. Motor Truck Cargo Insurance written for common carriers
operating beyond a radius of 200 miles.
C. THE FOLLOWING PERILS
1. Flood and/or Earthquake when written as such.
2. Difference in Conditions, however styled.
3. Pollution and Seepage as per the attached Pollution and
Seepage Exclusion Clause, which is made part of this
Agreement.
4. Nuclear Incident Exclusion Clauses which are attached and made
part of this Agreement:
a. Nuclear Incident Exclusion Clause - Physical Damage -
Reinsurance - U.S.A.
b. Nuclear Incident Exclusion Clause - Physical Damage -
Reinsurance - Canada.
c. Nuclear Incident Exclusion Clause - Reinsurance - No. 4.
D. In the event the Company is inadvertently bound on any risk which is
excluded under this Agreement and identified below, the reinsurance
provided under this Agreement shall apply to such risk until discovery
by the Company within its Home Office of the existence of such risk and
for 30 days thereafter, and shall then cease unless within the 30 day
period, the Company has received from the Reinsurer written notice of
its approval of such risk.
SUPPLEMENT TO THE ATTACHMENTS
DEFINITION OF IDENTIFICATION TERMS USED WITHIN THE ATTACHMENTS
A. Wherever the term "Company" or "Reinsured" or "Reassured" or whatever
other term is used to designate the reinsured company or companies
within the various attachments to the reinsurance agreement, the term
shall be understood to mean Company or Reinsured or Reassured or
whatever other term is used in the attached reinsurance agreement to
designate the reinsured company or companies.
B. Wherever the term "Agreement" or "Contract" or "Policy" or whatever
other term is used to designate the attached reinsurance agreement
within the various attachments to the reinsurance agreement, the term
shall be understood to mean Agreement or Contract or Policy or whatever
other term is used to designate the attached reinsurance agreement.
C. Wherever the term "Reinsurer" or "Reinsurers" or "Underwriters" or
whatever other term is used to designate the reinsurer or reinsurers in
the various attachments to the reinsurance agreement, the term shall be
understood to mean Reinsurer or Reinsurers or Underwriters or whatever
other term is used to designate the reinsuring company or companies.
--------------------------------------------------------------------------------
INSOLVENCY FUNDS EXCLUSION CLAUSE
This Agreement excludes all liability of the Company arising by contract,
operation of law, or otherwise from its participation or membership, whether
voluntary or involuntary, in any insolvency fund or from reimbursement of any
person for any such liability. "Insolvency fund" includes any guaranty fund,
insolvency fund, plan, pool, association, fund or other arrangement, howsoever
denominated, established or governed, which provides for any assessment of or
payment or assumption by any person of part or all of any claim, debt, charge,
fee, or other obligation of an insurer, or its successors or assigns, which has
been declared by any competent authority to be insolvent or which is otherwise
deemed unable to meet any claim, debt, charge, fee or other obligation in whole
or in part.
POOLS, ASSOCIATIONS AND SYNDICATES EXCLUSION CLAUSE
SECTION A
Excluding:
(a) All Business derived directly or indirectly from any Pool, Association
or Syndicate which maintains its own reinsurance facilities.
(b) Any Pool or Scheme (whether voluntary or mandatory) formed after March
1, 1968, for the purpose of insuring Property whether on a country-wide
basis or in respect of designated areas. This Exclusion shall not apply
to so-called Automobile Insurance Plans or other Pools formed to
provide coverage for Automobile Physical Damage.
SECTION B
It is agreed that business, written by the Company for the same perils, which is
known at the time to be insured by or in excess of underlying amounts placed in
the following Pools, Associations or Syndicates, whether by way of insurance or
reinsurance is excluded hereunder:
Industrial Risk Insurers (successor to Factory Insurance Association
and Oil Insurance Association); Associated Factory Mutuals; Improved
Risk Mutuals.
Any Pool, Association or Syndicate formed for the purpose of writing
Oil, Gas or Petro-Chemical Plants and/or Oil or Gas Drilling Rigs.
United States Aircraft Insurance Group, Canadian Aircraft Insurance
Group, Associated Aviation Underwriters, American Aviation
Underwriters.
SECTION B does not apply:
(a) Where the Total Insured value over all interests of the risk in
question is less than $250,000,000.
(b) To interests traditionally underwritten as Inland Marine or Stock
and/or Contents written on a Blanket basis.
(c) To Contingent Business Interruption, except when the Company is aware
that the key location is known at the time to be insured in any Pool,
Association or Syndicate named above.
(d) To risks as follows: Offices, Hotels, Apartments, Hospitals,
Educational Establishments, Public Utilities (other than Railroad
Schedules) and Builders Risks on the classes of risks specified in this
subsection (d) only.
TOTAL INSURED VALUE EXCLUSION CLAUSE
It is the mutual intention of the parties to exclude risks, other than Offices,
Hotels, Apartments, Hospitals, Educational Establishments, Public Utilities
(except Railroad schedules) and Builders Risk on the above classes where, at the
time of the cession, the Total Insured Value over all interests exceeds
$250,000,000. However, the Company shall be protected hereunder, subject to the
other terms and conditions of this Agreement, if subsequently to cession being
made the Company becomes acquainted with the true facts of the case and
discovers that the mutual intention has been inadvertently breached, the Company
shall at the first opportunity, and certainly by next anniversary of the
original policy, exclude the risk in question.
It is agreed that this mutual intention does not apply to Contingent Business
Interruption or to interest traditionally underwritten as Inland Marine or to
Stock and/or Contents written on a blanket basis except where the Company is
aware that the Total Insured Value of $250,000,000 is already exceeded for
buildings, machinery, equipment and direct use and occupancy at the key
location.
It is understood and agreed that this Clause shall not apply hereunder where the
Company writes 100% of the risk.
Notwithstanding anything contained herein to the contrary, it is the mutual
intention of the parties in respect of bridges and tunnels to exclude such risks
where the Total Insured Value over all interests exceeds $250,000,000.
POLLUTION AND SEEPAGE EXCLUSION CLAUSE
This Reinsurance does not apply to:
1. Pollution, seepage, contamination or environmental impairment
insurances (hereinafter collectively referred to as "pollution"),
however styled;
2. Loss or damage caused directly or indirectly by pollution, unless
said loss or damage follows as a result of a loss caused directly
by a peril covered hereunder;
3. Expenses resulting from any governmental direction or request
that material present in or part of or utilized on an insured's
property be removed or modified, except as provided in 5. below;
4. Expenses incurred in testing for and/or monitoring pollutants;
5. Expenses incurred in removing debris, unless (A) the debris
results from a loss caused directly by a peril covered hereunder,
and (B) the debris to be removed is itself covered hereunder, and
(C) the debris is on the insured's premises, subject, however, to
a limit of $5,000 plus 25% of (i) the property damage loss, any
risk, any one location, any one original insured, and (ii) any
deductible applicable to the loss;
6. Expenses incurred to extract pollutants from land or water at the
insured's premises unless (A) the release, discharge, or
dispersal of pollutants results from a loss caused directly by a
peril covered hereunder, and (B) such expenses shall not exceed
$10,000;
7. Loss of income due to any increased period of time required to
resume operations resulting from enforcement of any law
regulating the prevention, control, repair, clean-up or
restoration of environment damage;
8. Claims under 5. and/or 6. above, unless notice therefore is given
to the Company within 180 days after the date of the loss
occurrence to which such claims relate.
"Pollutants" means any solid, liquid, gaseous or thermal irritant or
contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and
waste. Waste includes materials to be recycled, reconditioned or reclaimed.
Where no pollution exclusion has been accepted or approved by an insurance
regulatory authority for use in a policy that is subject to this Agreement or
where a pollution exclusion that has been used in a policy is overturned, either
in whole or in part, by a court having jurisdiction, there shall be no recovery
for pollution under this Agreement unless said pollution loss or damage follows
as a result of a loss caused directly by a peril covered hereunder.
1
Nothing herein shall be deemed to extend the coverage afforded by this
reinsurance to property or perils specifically excluded or not covered under the
terms and conditions of the original policy involved.
2
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE - U.S.A.
N.M.A. 1119
1. This Reinsurance does not cover any loss or liability accruing to the
Reassured, directly or indirectly, and whether as Insurer or Reinsurer,
from any Pool of Insurers or Reinsurers formed for the purpose of
covering Atomic or Nuclear Energy risks.
2. Without in any way restricting the operation of paragraph 1. of this
Clause, this Reinsurance does not cover any loss or liability accruing
to the Reassured, directly or indirectly, and whether as Insurer or
Reinsurer, from any insurance against Physical Damage (including
business interruption or consequential loss arising out of such
Physical Damage) to:
I. Nuclear reactor power plants including all auxiliary property on
the site, or
II. Any other nuclear reactor installation, including laboratories
handling radioactive materials in connection with reactor
installations, and critical facilities as such, or
III. Installations for fabricating complete fuel elements or for
processing substantial quantities of "special nuclear material,"
and for reprocessing, salvaging, chemically separating, storing
or disposing of spent nuclear fuel or waste materials, or
IV. Installations other than those listed in paragraph 2. III. above
using substantial quantities of radioactive isotopes or other
products of nuclear fission.
3. Without in any way restricting the operation of paragraphs 1. and 2. of
this Clause, this Reinsurance does not cover any loss or liability by
radioactive contamination accruing to the Reassured, directly or
indirectly, and whether as Insurer or Reinsurer, from any insurance on
property which is on the same site as a nuclear reactor power plant or
other nuclear installation and which normally would be insured
therewith, except that this paragraph 3. shall not operate:
(a) where the Reassured does not have knowledge of such nuclear
reactor power plant or nuclear installation, or
(b) where the said insurance contains a provision excluding coverage
for damage to property caused by or resulting from radioactive
contamination, however caused. However, on and after 1st January,
1960, this sub-paragraph (b) shall only apply provided the said
radioactive contamination exclusion provision has been approved
by the Governmental Authority having jurisdiction thereof.
4. Without in any way restricting the operation of paragraphs 1., 2. and
3. of this Clause, this Reinsurance does not cover any loss or
liability by radioactive contamination
1
accruing to the Reassured, directly or indirectly, and whether as Insurer
or Reinsurer, when such radioactive contamination is a named hazard
specifically insured against.
5. It is understood and agreed this Clause shall not extend to risks using
radioactive isotopes in any form where the nuclear exposure is not
considered by the Reassured to be the primary hazard.
6. The term "special nuclear material" shall have the meaning given to it by
the Atomic Energy Act of 1954 or by any law amendatory thereof.
7. Reassured to be sole judge of what constitutes:
(a) substantial quantities, and
(b) the extent of installation., plant or site.
NOTE: - Without in any way restricting the operation of paragraph 1. hereof, it
is understood and agreed that
(a) all policies issued by the Reassured on or before 31st December,
1957 shall be free from the application of the other provisions of
this Clause until expiry date or 31st December, 1960 whichever first
occurs whereupon all the provisions of this Clause shall apply,
(b) with respect to any risk located in Canada policies issued by the
Reassured on or before 31st December, 1958 shall be free from the
application of the other provisions of this Clause until expiry
date or 31st December, 1960 whichever first occurs whereupon all the
provisions of this Clause shall apply.
N.M.A. 1119
2
NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE - REINSURANCE - CANADA
N.M.A. 1980
1. This Agreement does not cover any loss or liability accruing to the
Company directly or indirectly, and whether as Insurer or Reinsurer,
from any Pool of Insurers or Reinsurers formed for the purpose of
covering Atomic or Nuclear Energy risks.
2. Without in any way restricting the operation of paragraph 1. of this
clause, this Agreement does not cover any loss or liability accruing to
the Company, directly or indirectly, and whether as Insurer or
Reinsurer, from any insurance against Physical Damage (including
business interruption or consequential loss arising out of such
Physical Damage) to:
a. Nuclear reactor power plants including all auxiliary property on
the site, or
b. Any other nuclear reactor installation, including laboratories
handling radioactive materials in connection with reactor
installations, and critical facilities as such, or
c. Installations for fabricating complete fuel elements or for
processing substantial quantities of prescribed substances, and
for reprocessing, salvaging, chemically separating, storing or
disposing of spent nuclear fuel or waste materials, or
d. Installations other than those listed in c. above using in
substantial quantities of radioactive isotopes or other products
of nuclear fission.
3. Without in any way restricting the operation of paragraphs 1. and 2. of
this clause, this Agreement does not cover any loss or liability by
radioactive contamination accruing to the Company, directly or
indirectly, and whether as Insurer or Reinsurer, from any insurance on
property which is on the same site as a nuclear reactor power plant or
other nuclear installation and which normally would be insured
therewith, except that this paragraph 3. shall not operate:
a. where the Company does not have knowledge of such nuclear reactor
power plant or nuclear installation, or
b. where the said insurance contains a provision excluding coverage
for damage to property caused by or resulting from radioactive
contamination, however caused.
4. Without in any way restricting the operation of paragraphs 1., 2. and
3. of this clause, this Agreement does not cover any loss or liability
by radioactive contamination accruing to the Company, directly or
indirectly, and whether as Insurer or Reinsurer, when such radioactive
contamination is a named hazard specifically insured against.
5. This clause shall not extend to risks using radioactive isotopes in any
form where the nuclear exposure is not considered by the Company to be
the primary hazard.
1
6. The term "prescribed substances" shall have the meaning given to it by
the Atomic Energy Control Act R.S.C. 1974 or by any law amendatory
thereof.
7. Company to be sole judge of what constitutes:
a. substantial quantities, and
b. the extent of installation, plant or site.
8. Without in any way restricting the operation of paragraphs 1., 2., 3.
and 4. of this clause, this Agreement does not cover any loss or
liability accruing to the Company, directly or indirectly, and whether
as Insurer or Reinsurer, caused by any nuclear incident as defined in
The Nuclear Liability Act, nuclear explosion or contamination by
radioactive material.
NOTE: Without in any way restricting the operation of paragraphs 1., 2.,
3. and 4. of this clause, paragraph 8. of this clause shall apply to
all original contracts of the Company whether new, renewal or
replacement which become effective on or after December 31, 1984.
N.M.A. 1980
2
NUCLEAR INCIDENT EXCLUSION CLAUSE - REINSURANCE - NO. 4
1. The Reinsurance does not cover any loss or liability accruing to the
Reassured as a member of, or subscriber to, any association of insurers
or reinsurers formed for the purpose of covering nuclear energy risks
or as a direct or indirect reinsurer of any such member, subscriber or
association.
2. Without in any way restricting the operations of Nuclear Incident
Exclusion Clauses, - Liability, - Physical Damage, - Boiler and
machinery and paragraph 1. of this Clause, it is understood and agreed
that for all purposes of the reinsurance assumed by the Reinsurer from
the Reinsured, all original insurance policies or contracts of the
Reinsured (new, renewal and replacement) shall be deemed to include the
applicable existing Nuclear Clause and/or Nuclear Exclusion Clause(s)
in effect at the time and any subsequent revisions thereto as agreed
upon and approved by the Insurance Industry and/or a qualified Advisory
or Rating Bureau.
SCHEDULE 5.10
OFFICER'S CERTIFICATE
This certifies that (1) the representations and warranties of Xxxxxx Xxxx
Educators Corporation, a Delaware corporation (the "Company", as further defined
below) contained in Article 3 of the Agreement (as defined below), were true and
accurate in all material respects on the date of the Agreement, and are true and
accurate in all material respects as of the date of this Certificate, (2) the
Company has, as of the date of this Certificate, satisfied all conditions set
forth in Article 5 of the Agreement, (3) the Company is not, as of the date of
this Certificate, in breach of any of the covenants and agreements required to
be complied with by the Company as set forth in Article 6 of the Agreement, and
(4) the representation and warranty of the Company described in Section 5.8 of
the Agreement is true and accurate in all material respects as of the date of
this Certificate. This Certificate is being delivered pursuant to Section 5.10
of the Agreement.
For the purposes of this Certificate, the term (a) "Agreement" means that
certain Catastrophe Equity Securities Issuance Option and Reinsurance Option
Agreement dated as of May 7, 2002 between the Company and ____________________,
a ___________________ corporation, including its exhibits and schedules, and (b)
the "Company" includes the HM Insurance Subsidiaries (as defined in the
Agreement), on behalf of which the Company has the requisite power and authority
to make the applicable representations and warranties in Article 3 of the
Agreement and pursuant to this Certificate.
Dated: _________________
Xxxxxx Xxxx Educators Corporation,
a Delaware corporation
By:___________________________________
Name:
Title:
SCHEDULE 5.12
[Form of Opinion of Xxxxxx, Xxxx & Xxxxxxxx, LLP]
Swiss Re Financial Products Corporation
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Re: Catastrophe Equity Securities Issuance Option and Reinsurance
Option Agreement dated as of May 7, 2002 (the "Agreement") between Option Writer
and Xxxxxx Xxxx Educators Corporation, a Delaware corporation (the "Company").
Ladies and Gentlemen:
We have acted as special counsel to the Company in connection with
the Agreement. Capitalized terms used in this opinion and not otherwise defined
shall have the meanings assigned to them in the Agreement.
In rendering this opinion, we have examined originals or copies
certified or otherwise identified to our satisfaction as being true copies of
the documents and instruments relevant to our opinion.
We have, with your permission, assumed, without independent
investigation or inquiry with respect to any matter, that: the signatures on all
documents examined by us are genuine, all individuals executing such documents
had all requisite legal capacity (except in the case of documents signed on
behalf of the Company) and competency and were duly authorized (except in the
case of documents signed on behalf of the Company), the documents submitted to
us as originals are authentic and the documents submitted to us as certified or
reproduction copies conform to the originals.
With respect to questions of fact material to the opinions expressed
below, we have, with your consent, relied upon certificates of public officials
and officers of the Company, in each case without having independently verified
the accuracy or completeness thereof.
Based on the foregoing and in reliance thereon, and subject to the
assumptions, exceptions, qualifications and limitations set forth herein, we are
of the opinion that:
1. Each of HM and the HM Insurance Subsidiaries incorporated in
California and Texas is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization and has the full
corporate power and authority to conduct its business as currently being
conducted and to execute and deliver the Transaction Agreements to which it is a
party, and to perform its obligations under, and to consummate the transactions
contemplated by, the Transaction Agreements to which it is a party, including,
without limitation, the delivery of the Preferred Shares pursuant to the
exercise of the Securities Issuance Option.
2. The execution and delivery of the Transaction Agreements to which
it is a party by the Company, and the performance of the Company under such
Transaction Agreements, is not in violation of any applicable law, any provision
of the Company or HM's Insurance Subsidiaries' organizational documents or, to
our knowledge, any order or judgment of any court or other government agency
applicable to the Company or any of its assets or subsidiary or affiliated
companies, to the extent that any such order or judgment would have a material
adverse effect on the rights and privileges of Option Writer under the
Agreement, or to our knowledge any contractual restriction binding upon or
affecting the Company of any of its assets or subsidiary or affiliated
companies. To our knowledge, the Company and the HM Insurance Subsidiaries, as
applicable, have complied, in all material respects, with all representations,
warranties, covenants and agreements contained in any Transaction Agreements.
3. All governmental and other consents (including without limitation
approvals under the Federal securities laws) that are required to have been
obtained by the Company with respect to the execution and delivery of the
Agreement have been obtained and are in full force and effect and all conditions
of any such consents have been complied with.
4. The execution of the Transaction Agreements to which it is a
party have been duly authorized by all necessary corporate action of the
Company, and such Transaction Agreements (a) have been duly executed and
delivered by the Company, (b) constitute legal, valid and binding obligations of
the Company and (c) are enforceable against the Company in accordance with their
terms.
5. To our knowledge, there is not pending or threatened against the
Company or any of its subsidiaries or affiliates any action, suit or proceeding
before any court, tribunal, governmental body, agency or official or any
arbitrator or mediator that would reasonably be expected to materially and
adversely affect the legality, validity and enforceability of the Transaction
Agreements against the Company or materially adversely affect the financial
condition of the Company or any of the HM Insurance Subsidiaries.
6. The Company has ___________ authorized Preferred Shares, and such
Preferred Shares, when issued pursuant to the exercise of the Securities
Issuance Option, shall, upon delivery of payment therefor, be validly issued,
fully paid and non-assessable. Upon issuance pursuant to the Agreement, the
Preferred Shares shall be free and clear of any lien, encumbrance or other
restriction (other than as set forth in the Transaction Agreements), and upon
delivery of and payment for the Preferred Shares as provided in the Agreement,
Option Writer will acquire good title to the Preferred Shares purchased under
this Agreement, free and clear of any lien, encumbrance or other restriction
(other than as set forth in the Transaction Agreements).
7. The shares of HM Common Stock into which the Preferred Shares may
be converted, as set forth in the Certificate of Designations, shall, upon
issuance pursuant to such conversion, be validly issued, fully paid and
non-assessable. Such shares of HM Common Stock shall be free and clear of any
lien, encumbrance or other restriction (other than as set forth in the
Transaction Agreements), and upon conversion as provided in the Certificate of
Designations, Option Writer will acquire good title to the requisite number of
shares of HM Common Stock,
2
free and clear of any lien, encumbrance or other restriction (other than as set
forth in the Transaction Agreements). Such shares of HM Common Stock shall be
subject to the Registration Rights Agreement.
8. To our knowledge, except for the Agreement, there is no
outstanding right, subscription, warrant, call, unsatisfied preemptive right,
option or other agreement of any kind to purchase or otherwise to receive from
the Company any authorized but unissued, unauthorized or treasury shares of the
Preferred Shares.
9. To our knowledge, the Company and the HM Insurance
Subsidiaries incorporated in California and Texas have all requisite licenses,
permits and authority (collectively, "Licenses") that are necessary for the
conduct of their respective insurance and other businesses, if any, such
Licenses are in full force and effect and no proceeding is pending or threatened
to suspend, revoke or limit any License which is material to the operations of
any such insurance company.
10. To our knowledge, neither the Company nor any HM Insurance
Subsidiary (a) is the subject of any voluntary or involuntary petition under any
bankruptcy, insolvency or similar law affecting creditors generally, (b) is the
subject of any liquidation, transformation or rehabilitation proceeding or (c)
has had a receiver or similar person or entity appointed for any of its
property.
Each of the opinions set forth above is subject to the following
exceptions, qualifications, limitations and assumptions:
(a) Our opinions are subject to the effect of bankruptcy,
insolvency, reorganization, moratorium, arrangement or other similar state or
federal laws affecting enforcement of debtors' and creditors' rights generally,
including, without limitation, the effect of statutory or other laws regarding
fraudulent conveyances or transfers, preferential transfers and of laws
affecting distributions by corporations to stockholders.
(b) Our opinions are subject to the application of general
principles of equity, whether considered in a case or proceeding at law or in
equity, including, without limitation, concepts of materiality, reasonableness,
commercial reasonableness, good faith and fair dealing. Without limitation, we
express no opinion as to the availability of specific performance, injunctive
relief or other equitable relief as a remedy for noncompliance with any of the
terms of the Transaction Agreements.
(c) We express no opinion as to the legality, validity, binding
effect or enforceability (whether according to its terms or otherwise) of any
provisions of any Transaction Agreement to the effect that rights or remedies
are not exclusive, that every right or remedy is cumulative and may be exercised
in addition to any other right or remedy, that the election of some particular
remedy does not preclude recourse to one or more other remedies or that failure
to exercise or delay in exercising rights or remedies will not operate as a
waiver of any such right or remedy.
3
(d) We express no opinion as to the legality, validity, binding
effect or enforceability of any waiver (whether or not stated as such) under the
Transaction Agreements, or any consent thereunder relating to any presently
existing, unknown or future rights or the rights of any party thereto existing
or duties owing to it, as a matter of law. We express no opinion as to the
effectiveness of any waiver or consent contained in the Transaction Agreements
that is broadly or vaguely stated or does not describe the right or duty
purportedly waived or to which such consent relates with reasonable specificity.
Without limitation, we express no opinion as to any provision of any Transaction
Agreement waiving the right to object to venue in any court or waiving the right
to jury trial.
This opinion is limited to the effect of the present laws of the
States of New York, California and Texas and the United States of America and,
to the limited extent set forth below, the General Corporation Law of the State
of Delaware. Although we are not admitted to practice in the State of Delaware,
we are generally familiar with the General Corporation Law of the State of
Delaware as presently in effect and have made such inquiries as we consider
necessary to render our opinions expressed in Paragraphs 1 through 7 hereof. In
rendering this opinion, we assume no obligation to revise or supplement this
opinion in the event of future changes in the present laws, or the
interpretation thereof, or the present facts relevant to the transaction
contemplated by the Agreement.
This opinion is rendered to Option Writer in connection with the
Agreement and may not be relied upon by any person other than Option Writer or
by Option Writer in any other context. This opinion may not be quoted without
the prior written consent of this Firm or furnished to any other person or
entity without the prior written consent of this Firm, provided that Option
Writer may provide copies of this opinion to regulatory authorities should they
so request or in connection with their normal examinations or to the independent
auditors and attorneys of Option Writer.
Very truly yours,
4
[Form of Opinion of General Counsel of HMEC]
Swiss Re Financial Products Corporation
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Re: Catastrophe Equity Securities Issuance Option and Reinsurance
Option Agreement dated as of May 7, 2002 (the "Agreement") between Option Writer
and Xxxxxx Xxxx Educators Corporation, a Delaware corporation (the "Company").
Ladies and Gentlemen:
I am the General Counsel of the Company and am familiar with the
Agreement. Capitalized terms used in this opinion and not otherwise defined
shall have the meanings assigned to them in the Agreement.
In rendering this opinion, I have examined originals or copies
certified or otherwise identified to my satisfaction as being true copies of the
documents and instruments relevant to my opinion.
I have, with your permission, assumed, without independent
investigation or inquiry with respect to any matter, that: the signatures on all
documents examined by me are genuine, all individuals executing such documents
had all requisite legal capacity (except in the case of documents signed on
behalf of the Company) and competency and were duly authorized (except in the
case of documents signed on behalf of the Company), the documents submitted to
me as originals are authentic and the documents submitted to me as certified or
reproduction copies conform to the originals.
Based on the foregoing and in reliance thereon, and subject to the
assumptions, exceptions, qualifications and limitations set forth herein, I am
of the opinion that:
1. Each of the HM Insurance Subsidiaries incorporated in Illinois and
Arizona is duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization and has the full corporate power and
authority to conduct its business as currently being conducted and to execute
and deliver the Transaction Agreements to which it is a party, and to perform
its obligations under, and to consummate the transactions contemplated by, the
Transaction Agreements to which it is a party.
2. The execution and delivery of the Transaction Agreements to which
it is a party by the Company, and the performance of the Company under such
Transaction Agreements, is not in violation of any applicable law, any provision
of the Company or HM's Insurance Subsidiaries' organizational documents or any
order or judgment of any court or other government agency applicable to the
Company or any of its assets or subsidiary or affiliated companies, to the
extent that any such order or judgment would have a material adverse effect on
the rights and privileges of Option Writer under the Agreement, or any
contractual restriction binding upon or affecting the Company of any of its
assets or subsidiary or affiliated companies.
5
The Company and the HM Insurance Subsidiaries, as applicable, have complied, in
all material respects, with all representations, warranties, covenants and
agreements contained in any Transaction Agreements.
3. All governmental and other consents that are required to have been
obtained by the Company with respect to the execution and delivery of the
Agreement have been obtained and are in full force and effect and all conditions
of any such consents have been complied with.
4. There is not pending or threatened against the Company or any of
its subsidiaries or affiliates any action, suit or proceeding before any court,
tribunal, governmental body, agency or official or any arbitrator or mediator
that would reasonably be expected to materially and adversely affect the
legality, validity and enforceability of the Transaction Agreements against the
Company or materially adversely affect the financial condition of the Company or
any of the HM Insurance Subsidiaries.
5. Except for the Agreement, there is no outstanding right,
subscription, warrant, call, unsatisfied preemptive right, option or other
agreement of any kind to purchase or otherwise to receive from the Company any
authorized but unissued, unauthorized or treasury shares of the Preferred
Shares.
6. The Company and the HM Insurance Subsidiaries have all requisite
licenses, permits and authority (collectively, "Licenses") that are necessary
for the conduct of their respective insurance and other businesses, if any, such
Licenses are in full force and effect and no proceeding is pending or threatened
to suspend, revoke or limit any License which is material to the operations of
any such insurance company.
7. Neither the Company nor any HM Insurance Subsidiary (a) is the
subject of any voluntary or involuntary petition under any bankruptcy,
insolvency or similar law affecting creditors generally, (b) is the subject of
any liquidation, transformation or rehabilitation proceeding or (c) has had a
receiver or similar person or entity appointed for any of its property.
8. All regulatory filings made by the Company and the HM Insurance
Subsidiaries with the SEC and with applicable insurance regulatory authorities
for the past five years, at the time of filing, (a) in the case of filings with
the SEC, were all filings required by law and did not contain any material
misstatements or omissions and (b) in the case of filings with applicable
insurance regulatory authorities, were appropriately responsive to, and in
compliance with, the applicable insurance regulatory requirements in all
material respects.
This opinion is limited to the effect of the present laws of the
States of Illinois and Arizona, and as to Arizona law, I have relied entirely on
a back-up opinion to me from Arizona counsel to the Company. In rendering this
opinion, I assume no obligation to revise or supplement this opinion in the
event of future changes in the present laws, or the interpretation thereof, or
the present facts relevant to the transaction contemplated by the Agreement.
This opinion is rendered to Option Writer in connection with the
Agreement and may not be relied upon by any person other than Option Writer or
by Option Writer in any other
6
context. This opinion may not be quoted without my prior written consent or
furnished to any other person or entity without my prior written consent,
provided that Option Writer may provide copies of this opinion to regulatory
authorities should they so request or in connection with their normal
examinations or to the independent auditors and attorneys of Option Writer.
Very truly yours,
7
SCHEDULE 6.2
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of May 7,
2002, between Xxxxxx Xxxx Educators Corporation, a Delaware corporation (the
"Company") and Swiss Re Financial Products Corporation, a Delaware corporation
("Option Writer").
1. Background. Pursuant to a Catastrophe Equity Securities Issuance Option
and Reinsurance Option Agreement, dated as of the date hereof, between the
Company and Option Writer (the "Option Agreement"), Option Writer may acquire
shares of the Company's Series A Cumulative Convertible Preferred Stock, par
value US$0.001 per share (the "Preferred Stock"). The number of shares of
Preferred Stock to be acquired by Option Writer, if any, will be determined in
accordance with applicable provisions of the Option Agreement. The shares of
Preferred Stock outstanding from time to time are referred to in this Agreement
as the "Preferred Shares." The Preferred Stock will, when issued, be
convertible, subject to certain conditions, into shares of the Company's common
stock, par value $0.001 per share ("Common Stock"), all as set forth in the
Certificate of Designations for the Preferred Stock (the "Certificate of
Designations"). Pursuant to the Option Agreement, the Company has agreed to
enter into this Agreement granting to the holders of the Preferred Shares the
right to register the Registrable Securities (hereinafter defined) upon the
terms and subject to the conditions set forth in this Agreement.
2. Definitions. As used in this Agreement, the following terms have the
following respective meanings:
"Additional Securities" has the meaning ascribed thereto in Section 3.1(b).
"Affiliate" of a Person means any other Person that is controlled by,
controls, or is under common control with such Person.
"Business Day" means any day other than a Saturday, Sunday or a day on
which banking institutions in New York, New York or Zurich, Switzerland are not
required to be open.
"Certificate of Designations" is defined in Section 1.
"Commission" means the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act or the Exchange Act.
"Common Stock" is defined in Section 1.
"Company" means Xxxxxx Xxxx Educators Corporation, a Delaware corporation.
"Conversion Shares" means the shares of Common Stock issued or issuable
upon conversion of the Preferred Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder, all as the same shall be
in effect from time to time.
"Initiating Holder" is defined in Section 3.1(a).
"Minimum Period" is defined in Section 3.3(b).
"Option Agreement" is defined in Section 1.
"Option Writer" means Swiss Re Financial Products Corporation, a Delaware
corporation.
"Other Securities" is defined in Section 3.2(b)
"Person" means a corporation, association, partnership, limited liability
company, organization, business, individual, governmental or political agency or
other entity.
"Preferred Shares" is defined in Section 1.
"Preferred Stock" is defined in Section 1.
"Registrable Securities" means (i) any Conversion Shares, (ii) any
Preferred Shares which a holder is unable to convert into Conversion Shares due
to a lack of approval, from the appropriate state insurance commissioner, of any
applicable insurance regulatory filing necessary for such conversion, and (iii)
any other securities which may be included as Registrable Securities as set
forth in Section 6.13 of the Option Agreement. As to any particular Registrable
Securities, once issued such securities shall cease to be Registrable Securities
when (a) a registration statement with respect to the sale of such securities
shall have become effective under the Securities Act and such securities have
been disposed of in accordance with such registration statement (b) they shall
have been sold as permitted by Rule 144 under the Securities Act, (c) they shall
have been otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been properly delivered by the Company
and subsequent public distribution of them shall not, in the reasonable opinion
of counsel to the Company, require registration of them under the Securities
Act, or (d) they shall have ceased to be outstanding.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with Section 3, including, without limitation, all
registration, filing and NASD fees, all fees and expenses of complying with
securities or blue sky laws (including related counsel fees), all word
processing, duplicating and printing expenses, messenger and delivery expenses,
the fees and expenses incurred in connection with the listing of the securities
to be registered on each securities exchange or national marked system on which
such securities are to be listed, the fees and disbursements of counsel for the
Company and of its independent public
2
accountants, including the expenses of "cold comfort" letter required by or
incident to such performance and compliance, fees of transfer agents any fees
and disbursements of underwriters customarily paid by issuers or sellers of
securities (excluding any underwriting discounts or commissions with respect to
the Registrable Securities), but excluding any fees or expenses of counsel to
any holders. Notwithstanding the foregoing, in the event the Company shall
determine, in accordance with Section 3.2, not to register any securities with
respect to which it had given written notice of its intention to so register to
holders of Registrable Securities, all of the costs of the type (and subject to
any limitation to the extent) set forth in this definition and incurred by
Requesting Holders in connection with such registration on or prior to the date
the Company notifies the Requesting Holders of such determination shall be
deemed Registration Expenses.
"Registration Rights Holder" is defined in Section 3.1(b).
"Requesting Holder" is defined in Section 3.2(a).
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect from time to time.
"Selling Expenses" means all underwriting discounts and selling commissions
applicable to the sale of Registrable Securities and all fees and expenses of
counsel to Selling Holders.
"Selling Holder" is defined in Section 3.1(a)(ii).
"Significant Subsidiary" is defined under Rule 1-02(w) of Regulation S-X
promulgated under the Securities Act and the Exchange Act.
"Trading Day" means a date on which the New York Stock Exchange (or, if
different, the principal national securities exchange on which the Common Stock
is listed or admitted to trading) is open for the transaction of business.
"Value" is defined in Section 3.1(a).
3. Registration Under the Securities Act.
3.1 Registration on Request.
(a) Request. Subject to Section 3.9, upon the written request of
one or more holders (the "Initiating Holders") of Registrable Securities,
representing not less than US$25,000,000 of the Registrable Securities (or such
lesser amount of Registrable Securities as set forth in Section 3.1(g)(ii)
below) based on the market value of such Registrable Securities at the time of
the request (with Preferred Shares valued on an as converted basis) (the
"Value"), that the Company effect the registration under the Securities Act of
all or part of such Initiating Holders' Registrable Securities, the Company
shall promptly give written notice of such
3
requested registration to all registered holders of Registrable Securities, and
the Company will use its commercially reasonable efforts to effect, as early as
practicable, the registration under the Securities Act of
(i) the Registrable Securities which the Company has been so
requested to register by such Initiating Holders, and
(ii) all other Registrable Securities which the Company has been
requested to register by holders of Registrable Securities (such holders
together with the Initiating Holders are referred to in this Agreement as the
"Selling Holders") by written notice to the Company, within thirty (30) days
after the receipt of such written notice by the Company, all to the extent
requisite to permit the disposition of the Registrable Securities to be
registered in such manner, subject to Section 3.1(d) below.
(b) Registration of Other Securities. Whenever the Company shall
effect a registration pursuant to this Section 3.1 in connection with an
offering and sale of Registrable Securities by one or more Selling Holders of
Registrable Securities, subject to the following sentence and Section 3.1(f)
below, (i) any Person other than a Selling Holder who holds registration rights
with respect to securities of the Company (each, a "Registration Rights
Holder"), shall have the right to include, to the extent provided in the
relevant agreement between the Company and the Registration Rights Holder, in
the registration made pursuant to this Section 3.1 the securities held by the
Registration Rights Holders to which such registration rights relate, and (ii)
the Company shall have the right to include in the registration made pursuant to
this Section 3.1 securities to be issued by the Company (the securities for
which Registration Rights Holders and the Company can so require registration
are referred to in this Agreement as "Additional Securities"). No Additional
Securities, however, shall be included among the securities covered by the
registration made pursuant to this Section 3.1 if, in case of an underwritten
offering, the managing underwriter of such offering shall have advised the
Company and any Registration Rights Holder seeking to have Additional Securities
covered by such registration in writing that the inclusion of such Additional
Securities would adversely affect such offering, in which case the number of
Additional Securities included in such registration shall be limited to the
number that will not, in the judgment of the managing underwriter, adversely
affect the offering (such limited number to be allocated promptly (so as not to
interfere with the timing of the offering) between the Company and the affected
Registration Rights Holders as the Company shall determine).
(c) Registration Statement Form. Registrations under this Section 3.1
shall be on an appropriate registration form of the Commission, as reasonably
determined by the Company.
(d) Effective Registration Statement. A registration requested
pursuant to this Section 3.1 shall not be deemed to have been effected (i)
unless a registration statement with respect thereto has become effective and
remained effective in compliance with the provisions of the Securities Act until
the Minimum Period has been completed, (ii) if, after it has become
4
effective, such registration is interfered with by any stop order, injunction or
other order or requirement of the Commission or other governmental agency or
court for any reason not attributable to the Selling Holders and has not
subsequently become effective or (iii) if the conditions to closing specified in
the underwriting agreement, if any, entered into in connection with such
registration are not satisfied or waived, other than by reason of a failure on
the part of Selling Holders.
(e) Selection of Underwriters. All registrations pursuant to this
Section 3.1 shall involve underwritten securities offerings. The underwriter or
underwriters of each underwritten offering of the Registrable Securities so to
be registered shall be selected by the Company.
(f) Priority in Requested Registration. If the managing underwriter
of any underwritten offering shall advise the Company in writing (with a copy to
each Selling Holder of Registrable Securities requesting registration) that, in
its opinion, the number or type of securities requested to be included in such
registration (including any Additional Securities requested to be included
pursuant to Section 3.1(b)) is a number or type which would adversely affect
such offering (including, but not limited to, the price offered), then the
Company shall include in such registration, to the extent of the number which
the Company is so advised can be sold in such offering, Registrable Securities
requested to be included in such registration, pro rata among the Selling
Holders requesting such registration on the basis of the percentage of the
Registrable Securities of such Selling Holders requested so to be registered. In
connection with any such registration to which this Section 3.1(f) is
applicable, no securities other than Registrable Securities shall be covered by
such registration unless all Registrable Securities requested to be included in
such registration are so included. If all of the Registrable Securities
requested by the Initiating Holder to be included in such registration cannot be
included as provided in the first sentence of this Section 3.1(f), the Company
shall so notify the Initiating Holder and the Initiating Holder shall have the
right to withdraw the request for registration by giving written notice to the
Company within 20 days after receipt of notice thereof by the Company and, in
the event of such withdrawal, such request shall not be counted for purposes of
the requests for registration to which holders are entitled pursuant to Section
3.1 hereof (thereby allowing such holders to make a demand for registration
pursuant to Section 3.1 at another time).
(g) Limitations on Registration on Request. Notwithstanding anything
in this Section 3.1 to the contrary, in no event will the Company be required to
(i) effect more than five registrations pursuant to this Section 3.1, (subject
to the last sentence of Section 3.1(f) and 3.6(b)), it being understood that
Initiating Holders are entitled to one registration for each issuance of
Registrable Securities and up to two additional conditional registrations as set
forth below in this Section 3.1(g), (ii) effect a registration in which the
aggregate amount of Registrable Securities has a Value less than US$25,000,000,
unless the Value of Registrable Securities outstanding is less than
US$25,000,000 in which case the Company shall be obligated to effect one and
only one registration of no less than US$5,000,000 in Value of Registrable
Securities pursuant to this Section 3.1, subject to the other provisions hereof,
unless less than US$5,000,000 in Value of Registrable Securities remain
outstanding due to a prior partial
5
redemption of Registrable Securities by the Company, in which case such
$5,000,000 minimum shall not apply, or (iii) file a registration statement
pursuant to this Section 3.1 within the twelve-month period occurring
immediately subsequent to the effectiveness (within the meaning of Section
3.1(d)) of a registration statement filed pursuant to this Section 3.1 or
pursuant to Section 3.2. The conditions to any second and third registrations
under this Section 3.1 are as follows:
(A) Selling Holders shall be entitled to a second registration
if, at the time immediately preceding a sale in the first registration, such
Selling Holders either (i) hold Preferred Shares which on an as converted basis
would cause them, without giving effect to any other holdings of Common Stock
acquired other than upon conversion of Preferred Shares, to hold an ownership
interest in the Company of greater than 33 1/3% based on market capitalization
or (ii) stand to receive, in a sale of Registrable Securities pursuant to such
registration, gross proceeds of less than 95% of the Option Writer's cost basis
in such Registrable Securities (which cost basis shall include the amount paid
by Option Writer for the relevant Preferred Shares, plus accrued but unpaid
dividends thereon). Notwithstanding the foregoing, in the first registration
(unless clause (A)(ii) above applies, in which case the holders can withdraw
from such first registration), the Selling Holders shall be obligated to sell
Registrable Securities with an aggregate value of at least 1/3 of the aggregate
value of the outstanding Preferred Shares (valued on an as converted basis) and
Common Stock issued upon conversion of Preferred Shares.
(B) Selling Holders shall be entitled to a third registration
if, at the time immediately preceding a sale in the second registration, such
Selling Holders either (i) hold Preferred Shares which on an as converted basis
would cause them, without giving effect to any other holdings of Common Stock
acquired other than upon conversion of Preferred Shares, to hold an ownership
interest in the Company of greater than 33 1/3% based on market capitalization
or (ii) stand to receive, in a sale of Registrable Securities pursuant to such
registration, gross proceeds of less than 90% of the Option Writer's cost basis
in such Registrable Securities (which cost basis shall include the amount paid
by Option Writer for the relevant Preferred Shares, plus accrued but unpaid
dividends thereon). Notwithstanding the foregoing, in the second registration
(unless clause (B)(ii) above applies, in which case the Selling Holders can
withdraw from such second registration), the Selling Holders shall be obligated
to sell Registrable Securities with an aggregate value of at least 1/3 of the
aggregate value of the outstanding Preferred Shares (valued on an as converted
basis) and Common Stock issued upon conversion of Preferred Shares.
(C) In any third registration, the Selling Holders shall be
obligated to (i) sell all of the Common Stock that they then hold, (ii) convert
all of the Preferred Shares that they then hold into Common Stock and sell such
Common Stock (unless such Preferred Shares cannot be converted as set forth in
the definition of Registrable Securities above, in which case clause (C)(iii)
below applies), (iii) sell all of the Preferred Shares that they then hold which
cannot be converted and must therefore be registered in accordance with the
definition of Registrable Securities above and (iv) sell all other securities
that they then hold pursuant to Section 6.13 of the Option Agreement.
6
3.2 Incidental Registration.
(a) Right to Include Registrable Securities. Subject to Section 3.9, if
the Company at any time proposes to register any of its securities under the
Securities Act by registration on any form other than Forms S-4 or S-8 (or any
successor forms), whether or not for sale for its own account, it shall, each
such time give prompt written notice to all registered holders of Registrable
Securities of its intention to do so and of such holders' rights under this
Section 3.2. Upon the written request of any such holder (a "Requesting Holder")
made as promptly as practicable and in any event within seven (7) Business Days
after the receipt of any such notice (five (5) Business Days if the Company
states in such written notice or gives telephonic notice to all registered
holders of Registrable Securities, with written confirmation to follow promptly
thereafter, stating that (i) such registration will be on Form S-3 and (ii) such
shorter period of time is required because of a planned filing date), which
request shall specify the Registrable Securities intended to be disposed of by
such Requesting Holder, the Company shall, subject to Section 3.9, use its
commercially reasonable efforts to effect the registration under the Securities
Act of all Registrable Securities which the Company has been so requested to
register by the Requesting Holders thereof, provided, however, that if, at any
time after giving written notice of its intention to register any securities and
prior to the effective date of registration statement filed in connection with
such registration, the Company shall determine for any reason not to register or
to delay registration of such securities the Company may, at its election, give
written notice of such determination to each Requesting Holder of Registrable
Securities and (i) in the case of a determination not to register, shall be
relieved of its obligation to register any Registrable Securities in connection
with such registration (but not from any obligation of the Company to pay the
Registration Expenses in connection therewith), without prejudice, however, to
the rights of any holder or holders of Registrable Securities entitled to do so
to request that such registration be effected as a registration under Section
3.1, and (ii) in the case of a determination to delay registering, shall be
permitted to delay registering any Registrable Securities, for the same period
as the delay in registering such securities. Other than as provided in Section
3.1, no registration effected under this Section 3.2 shall relieve the Company
of its obligation to effect any registration upon request under Section 3.1. Any
Requesting Holder of Registrable Securities may elect, in writing not less than
five (5) Business Days prior to the effective date of such registration
statement, not to register such Registrable Securities in connection with such
registration.
(b) Priority in Incidental Registrations. If the managing underwriter
of any underwritten offering shall advise the Company in writing (with a copy to
each Requesting Holder) that, in its opinion, the number or type of Registrable
Securities requested to be included in such registration would adversely affect
such offering, then the Company shall, subject to any relevant agreements
between the Company and Registration Rights Holders, include in such
registration, to the extent of the number and type which the Company is so
advised can be sold in (or during the time of) such offering, first, all
securities proposed by the Company to be sold for its own account, second, such
Registrable Securities and other securities of the Company with
7
respect to which the holders thereof have the right to require the Company to
register such securities in connection with any registration of securities to be
offered by the Company ("Other Securities") requested to be included in such
registration, such Registrable Securities and Other Securities to be included in
such registration pro rata on the basis of the estimated gross proceeds from the
sale thereof, and third, any other securities of the Company requested to be
included in such registration. Requesting Holders who become subject to a
reduction pursuant to this Section 3.2(b) in the amount of Registrable
Securities to be included in a registration statement may elect not to sell such
Registrable Securities in connection with such registration statement. There
shall be no limit on the number or registrations that may be requested pursuant
to this Section 3.2.
(c) Limitations on Incidental Registrations. Notwithstanding anything
in this Section 3.2 to the contrary, in no event will the Company be required to
(i) grant a request to include Registrable Securities in any "shelf'
registration filed pursuant to Rule 415 under the Securities Act, or any
successor rule, relating to the offering of debt securities by the Company, or
(ii) grant a request to include Registrable Securities in any registration
unless the amount of all Registrable Securities which the Company has been so
requested to register by the Requesting Holders thereof (without giving effect
to the application of the foregoing subsection (b)) is at least US$25,000,000
(or such lesser amount as described in Section 3.l(g)(ii)).
3.3 Registration Procedures. If and whenever the Company is required
to use its commercially reasonable efforts to effect the registration of any
Registrable Securities under the Securities Act as provided in Sections 3.1 and
3.2, the Company shall as expeditiously as possible:
(a) prepare and file with the Commission the requisite registration
statement (within ninety (90) days after receipt of a request for registration
from the requisite Initiating Holders under Section 3.1(a) above) to effect such
registration and then use its commercially reasonable efforts to cause such
registration statement to become and remain effective for the Minimum Period,
provided, however, that before filing with the Commission a registration
statement or prospectus or any amendments or supplements thereto, the Company
shall furnish to one counsel selected by the holders of a majority of the
Registrable Securities requesting to be registered copies of all such documents
proposed to be filed and provided further, however, that the Company may
discontinue any registration of its securities which are not Registrable
Securities (and, under the circumstances specified in Section 3.2(a), its
securities which are Registrable Securities) at any time prior to the effective
date of the applicable registration statement relating thereto;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered by such
registration statement for such period as shall be required for the disposition
of all such Registrable Securities, provided that such period shall not exceed
ninety (90) days (such
8
period being referred to in this Agreement as the "Minimum Period");
(c) furnish to each seller of Registrable Securities covered by such
registration statement such number of conformed copies of such registration
statement and the prospectus included in such registration statement (including
each preliminary prospectus and any summary prospectus) and of each such
amendment and supplement thereto (in each case including all exhibits and
documents incorporated by reference therein), such number of copies of the
prospectus contained in such registration statement and any other prospectus
filed under Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents, as such seller may
reasonably request;
(d) use its commercially reasonable efforts (i) to register or
qualify all Registrable Securities and other securities covered by such
registration statement under such other securities or blue sky laws of such
States when an exemption is not available and as the sellers of Registrable
Securities covered by such registration statement shall reasonably request in
writing, (ii) to keep such registration or qualification in effect for the
Minimum Period and (iii) to take any other action which may be reasonably
necessary or advisable to enable such sellers to consummate the disposition in
such jurisdictions of the securities to be sold by such sellers, except that the
Company shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction in which it would not, but
for the requirements of this Section 3.3(d), be obligated to be so qualified or
to consent to general service of process in any such jurisdiction;
(e) use its commercially reasonable efforts to cause all
Registrable Securities covered by such registration statement to be registered
with or approved by such other Federal or state governmental agencies or
authorities as may be necessary to enable the seller or sellers of such
Registrable Securities to consummate the disposition of such Registrable
Securities;
(f) in the case of an underwritten or "best efforts" offering,
furnish at the effective date of such registration statement to each Selling
Holder a photocopy, and such Person's underwriters, if any, a signed
counterpart, of:
(i) an opinion of counsel for the Company, dated the effective date
of such registration statement and, if applicable, the date of the
closing under the underwriting agreement, and
(ii)a "comfort" letter signed by the independent public accountants
who have certified the Company's financial statements included or
incorporated by reference in such registration statement,
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of the
accountants' comfort letter, with respect to events subsequent to the date of
such financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' comfort letters delivered to the underwriters in
9
underwritten public offerings of securities;
(g) cause representatives of the Company to participate in any "road
show" or "road shows" reasonably requested by any underwriter of an underwritten
or "best efforts" offering of any Registrable Securities;
(h) notify each seller of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, upon discovery that, or upon
the happening of any event as a result of which, the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, in the light of the
circumstances under which they were made, and at the request of any such seller
promptly prepare and furnish (subject to the proviso below) to it a reasonable
number of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such securities,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made; provided, however, that the prompt delivery of such a supplement
to or amendment of such prospectus may be delayed by the Company pursuant to
Section 3.6 below.
(i) use its commercially reasonable efforts to list the Registrable
Securities covered by such registration statement with any national securities
exchange on which securities of the same class as those requested to be included
in such registration statement are then listed (or, if such securities are not
listed on a national securities exchange but are quoted on The Nasdaq Stock
Market, to include such shares for quotation therein);
(j) provide a transfer agent and registrar for all Registrable
Securities to be registered under this Agreement, and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration;
(k) enter into such agreements (including an underwriting agreement
as provided below, if applicable) and take all such other actions reasonably
requested in order to expedite and facilitate the disposition of the Registrable
Securities to be registered;
(1) otherwise use its commercially reasonable efforts to comply with
all applicable rules and regulations of the Commission, including without
limitation Section 11(a) of the Securities Act, and promptly furnish to each
Selling Holder of Registrable Securities a copy of any amendment or supplement
to the applicable registration statement or prospectus;
(m) notify each seller of Registrable Securities and the managing
underwriter or agent, and confirm the notice in writing (a) when the
registration statement, or any post-effective amendment to the registration
statement, shall have become effective, or any supplement to the prospectus or
any amendment to the prospectus shall have been filed, (b) of
10
the receipt of any comments from the Commission, (c) of any request of the
Commission to amend the registration statement or amend or supplement the
prospectus or for additional information and (d) of the issuance by the
Commission of any stop order suspending the effectiveness of the registration
statement or of any order preventing or suspending the use of any preliminary
prospectus or of the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or of the institution or threatening of
any proceedings for any such purposes;
(n) use its commercially reasonable efforts to obtain the withdrawal
of any order suspending the effectiveness of the registration statement at the
earliest possible time;
(o) cooperate with the sellers of Registrable Securities and the
managing underwriter or agent, if any, to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legends) representing
Registrable Securities to be sold, and enable such Registrable Securities to be
in such denominations and registered in such names as such sellers or the
managing underwriter or agent, if any, may reasonably request;
(p) cause its subsidiaries and Affiliates to take all action
necessary or advisable to effect the registration of the Registrable Securities
contemplated hereby, including preparing the filing any required financial
information; and
(q) use its commercially reasonable efforts to take all other steps
necessary or advisable to effect the registration of the Registrable Securities
contemplated hereby.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing in order to comply with Federal
and applicable state securities laws.
Each seller of Registrable Securities agrees, by requesting
registration thereof, that upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3.3(h), such holder
shall immediately discontinue such holder's disposition of Registrable
Securities pursuant to the registration statement relating to such Registrable
Securities until such holder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3.3(h) and, if so directed by the
Company, shall deliver to the Company (at the Company's expense) all copies,
other than permanent file copies, then in such holder's possession of the
prospectus relating to such Registrable Securities current at the time of
receipt of such notice.
3.4 Underwritten Offerings.
(a) Requested Underwritten Offerings. If requested by the
underwriters for any underwritten offering by holders of Registrable Securities
pursuant to registrations requested under Section 3.1, the Company shall use
commercially reasonable efforts to enter into an
11
underwriting agreement with such underwriters for such offering, such agreement
to be reasonably satisfactory in substance and form to the Company, each such
holder and the underwriters and to contain such representations and warranties
by the Company and such other terms as are generally prevailing in agreements of
that type, including, without limitation, indemnities and the furnishing of an
opinion of counsel and "cold comfort" letters from the Company's independent
certified public accountants. The holders of the Registrable Securities proposed
to be distributed by such underwriters shall cooperate with the Company in the
negotiation of, and shall be parties to, the underwriting agreement between the
Company and such underwriters.
(b) Incidental Underwritten Offerings. If the Company proposes to
register any of its securities under the Securities Act as contemplated by
Section 3.2 and such securities are to be distributed by or through one or more
underwriters, the Company shall, subject to Section 3.9, if requested by any
Requesting Holder of Registrable Securities, use its commercially reasonable
efforts to arrange for such underwriters to include all the Registrable
Securities to be offered and sold by such Requesting Holder among the securities
of the Company to be distributed by such underwriters. The holders of
Registrable Securities to be distributed by such underwriters shall be parties
to the underwriting agreement between the Company and such underwriters.
Notwithstanding the foregoing provisions of this Section 3.4(b), the Company
need not include any Registrable Securities of any such Requesting Holder in an
underwritten offering of the Company's securities under the circumstances
contemplated by Section 3.2(b) above.
3.5 Preparation: Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company shall give the holders of Registrable
Securities registered under such registration statement, their underwriters, if
any, and their respective counsel the opportunity to participate in the
preparation of such registration statement, and, to the extent practicable, each
amendment or supplement to such registration statement, and give each of them
such access to its books and records, pertinent corporate documents and
properties (to the extent customarily given to the underwriters of the Company's
securities), such opportunities to discuss the business of the Company with its
officers and the independent public accountants who have certified its financial
statements as shall be necessary to conduct a reasonable investigation within
the meaning of the Securities Act.
3.6 Limitations, Conditions and Qualifications to Obligations under
Registration Covenants. The obligations of the Company to use its commercially
reasonable efforts to cause the Registrable Securities to be registered under
the Securities Act are subject to each of the following limitations, conditions
and qualifications:
(a) The Company shall not be obligated to file any registration
statement pursuant to Section 3.1 at any time if the Company would be required
to include financial statements audited as of any date other than the end of its
fiscal year.
12
(b) The Company shall be entitled to postpone for a reasonable
period of time (but not exceeding 120 days) the filing, supplementing or
amending or any registration statement otherwise required to be prepared and
filed by it pursuant to Section 3.1 if the Company determines, in its reasonable
judgment, that such registration and offering would interfere with, or require
public disclosure of, any financing, acquisition, disposition, corporate
reorganization or other transaction involving the Company or any of its
Significant Subsidiaries, and promptly gives the holders of Registrable
Securities requesting registration pursuant to Section 3.1 written notice of
such determination and an approximation of the anticipated delay; provided,
however, that after any exercise of its right to postpone the filing of a
registration statement under this Section 3.6(b), the Company shall not, within
120 days of the expiration of any such postponement, exercise again its right of
postponement under this Section 3.6(b). The Company shall notify the Selling
Holders of the expiration of the period of delay. If the Company shall so
postpone the filing of a registration statement, such holders of Registrable
Securities requesting registration pursuant to Section 3.1 shall have the right
to withdraw the request for registration by giving written notice to the Company
within 15 days after receipt of the notice from the Company of the end of such
delay and, in the event of such withdrawal, such request for registration to
which holders of Registrable Securities are entitled pursuant to Section 3.1
shall not be considered a request for registration pursuant to Section 3.1
(thereby allowing such holders to make a demand for registration pursuant to
Section 3.1 at another time).
3.7 Indemnification and Contribution.
(a) In the event of a registration of any Registrable Securities
under the Securities Act pursuant to Section 3, the Company shall, and hereby
does, indemnify and hold harmless, to the full extent permitted by law, each
seller of Registrable Securities covered by such registration statement and each
other Person who participates as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls such seller or any such
underwriter within the meaning of the Securities Act, and their respective
directors, officers, partners, members and agents, against any losses, claims,
damages, liabilities and expenses whatsoever, as incurred, joint or several, to
which such seller or underwriter or any such director, officer, partner, member,
agent or controlling person may become subject under the Securities Act or
otherwise including, without limitation, the reasonable fees and expenses paid
in reasonable settlement of any litigation, or any investigation or proceeding
by any government agency or body, commenced or threatened, or of any claim
whatsoever, incurred in investigating, preparing or defending against any
litigation or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or of legal counsel (including those incurred in
connection with any claim for indemnity hereunder), insofar as such losses,
claims, damages or liabilities (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such Registrable Securities were registered
under the Securities Act pursuant to Section 3, any preliminary prospectus,
summary prospectus or final prospectus contained therein, or any amendment or
supplement thereof, arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein in
13
light of the circumstances in which they were made not misleading or arise out
of any violation or alleged violation by the Company of any Federal, state or
common law rule or regulation applicable to the Company and relating to action
required of or inaction by the Company in connection with such registration
statement, and shall pay or reimburse each such seller or underwriter and each
such director, officer, partner, member and controlling Person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company shall not be liable in any such case if and to the extent that
any such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with information furnished by any such seller or underwriter and each such
director, officer, partner, member and controlling Person as the case may be, in
writing specifically for use in such registration statement, prospectus,
amendment or supplement, and provided further that the Company shall not be
liable to any Person who participates as an underwriter in the offering or sale
of Registrable Securities or any other Person, if any, who controls such
underwriter within the meaning of the Securities Act, in any such case to the
extent that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of such Person's failure to send or give
a copy of the final prospectus, as the same may be then supplemented or amended,
to the Person asserting an untrue statement or alleged untrue statement or
omission or alleged omission at or prior to the written confirmation of the sale
of Registrable Securities to such Person if such statement or omission was
corrected in such final prospectus. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such seller
or any such director, officer, partner, member, agent or controlling person and
shall survive the transfer of such securities by such seller.
(b) In the event of a registration of any Registrable Securities
under the Securities Act pursuant to Section 3, each seller of Registrable
Securities under such registration, severally and not jointly, shall, and hereby
does, indemnify and hold harmless the Company, each person, if any, who controls
the Company within the meaning of the Securities Act, each officer of the
Company who signs the registration statement, each director of the Company, each
underwriter and each person who controls any underwriter within the meaning of
the Securities Act, against all losses, claims damages or liabilities, joint or
several, to which the Company or such officer, director, underwriter or
controlling person may become subject under the Securities Act or otherwise, but
only insofar as such losses, claims, damages or liabilities (or actions in
respect thereof), arise out of or are based upon an untrue statement or alleged
untrue statement or omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, made in reliance upon and in conformity with information
pertaining to such seller of Registrable Securities furnished in writing to the
Company by such seller of Registrable Securities specifically for use in such
registration statement under which such Registrable Securities were registered
under the Securities Act pursuant to Section 3, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereof, and
shall pay or reimburse the Company and
14
each such officer, director, underwriter and controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or actions; provided, however,
that (i) the liability of each seller of Registrable Securities under this
Section 3.7 shall be limited to the proportion of any such loss, claim, damage,
liability or expense which is equal to the proportion that the public offering
price of the Registrable Securities sold by such seller of Registrable
Securities under such registration statement bears to the total public offering
price of all securities sold under such registration statement, but not in any
event to exceed the net proceeds received by such seller of Registrable
Securities for the sale of Registrable Securities covered by such registration
statement, and (ii) no seller of Registrable Securities shall be liable for
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of such seller of Registrable
Securities, such consent not to be unreasonably withheld or delayed. Such
indemnity shall remain in full force and effect, regardless of any investigation
made by or on behalf of the Company or any such director, officer or controlling
person and shall survive the transfer of such securities by such seller.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim referred to in
Section 3.7(a) or (b), such indemnified party shall, if a claim is to be made
against the indemnifying party, notify the indemnifying party in writing of such
claim, but the failure to so notify the indemnifying party shall not relieve the
indemnifying party from any liability which it may have to such indemnified
party other than under this Section 3.7 and shall only relieve it from any
liability which it may have to such indemnified party under this Section 3.7 if
and to the extent the indemnifying party is actually prejudiced by such failure.
In case any such action shall be brought against any indemnified party and the
indemnified party shall notify the indemnifying party of the commencement of
that action, the indemnifying party shall be entitled to participate in and, to
the extent it shall wish, to assume and undertake the defense of that action
with counsel reasonably satisfactory to such indemnified party and, after notice
from the indemnifying party to such indemnified party of its election so to
assume and undertake the defense of that action, the indemnifying party shall
not be liable to such indemnified party under this Section 3.7 for legal and
other professional expenses subsequently incurred by such indemnified party in
connection with the defense of that action other than reasonable costs of
investigation and of liaison with counsel so selected; provided, however, that
if the defendants in any such action include both the indemnified party and the
indemnifying party, and the indemnified party shall have reasonably concluded
that there may be legal defenses or rights available to the indemnified party
(which have not been waived) which are in actual or potential conflict with
those available to the indemnifying party, the indemnified party shall have the
right to select one law firm to act as separate counsel and to assume such legal
defenses and otherwise to participate in the defense of such action, with the
reasonable fees and expenses of such separate counsel and other expenses related
to such participation to be reimbursed by the indemnifying party as incurred.
Upon the election by the indemnifying party to assume the defense of, or
otherwise contest, such litigation, proceeding or other action, the indemnifying
party shall not be liable for any legal or other expenses subsequently incurred
by the indemnified party in connection with the defense of such litigation,
proceeding or action unless (x) the indemnified party shall have employed such
15
counsel in connection with the assumption of legal defense or assertion of
rights in accordance with the provision of the preceding sentence or (y) the
indemnifying party fails to take reasonable steps necessary to diligently defend
such claim within twenty (20) days after receiving notice from the indemnified
party stating that the indemnified party believes the indemnifying party has
failed to take such steps, in which case the indemnified party may assume its
own defense and the indemnifying party shall be liable for reimbursement of all
legal and other expenses of the indemnified party as incurred by the indemnified
party. The parties shall cooperate in any such defense and give each other full
access to all information relevant to such defense. The indemnifying party shall
not be obligated to indemnify any party for any settlement entered into without
the indemnifying party's prior written consent, which consent shall not be
unreasonably withheld or delayed. No indemnifying party, in the defense of any
such claim or litigation against an indemnified party, shall consent to entry of
any judgment or enter into any settlement which does not include an
unconditional release by the claimant or plaintiff of such indemnified party
from all liability in respect of such claim or litigation, unless such
indemnified party shall otherwise consent in writing.
(d) If the indemnification provided for in this Section 3.7 shall
for any reason be held by a court to be unavailable to an indemnified party
under Section 3.7(a) or (b) hereof in respect of any loss, claim, damage or
liability, or any action in respect thereof, then, in lieu of the amount paid or
payable under Section 3.7(a) or (b), the indemnified party and the indemnifying
party under Section 3.7(a) or (b) shall contribute to the aggregate losses,
claims, damages and liabilities (including legal or other expenses reasonably
incurred in connection with investigating the same, including those incurred in
connection with any claim for indemnity hereunder), (i) in such proportion as is
appropriate to reflect the relative fault of the Company and the prospective
sellers of Registrable Securities covered by the registration statement which
resulted in such loss, claim, damage or liability, or action or proceeding in
respect thereof, with respect to the statements or omissions which resulted in
such loss, claim, damage or liability, or action or proceeding in respect
thereof, as well as any other relevant equitable considerations or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such portion as shall be appropriate to reflect the relative benefits received
by the Company and such prospective sellers from the offering of the securities
covered by such registration statement; provided, however, that for purposes of
this clause (ii), the relative benefits received by the prospective sellers
shall be deemed not to exceed the amount of proceeds received by such
prospective sellers. No Person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation. Such prospective sellers' obligations to contribute as
provided in this Section 3.7(d) are several in proportion to the relative value
of their respective Registrable Securities covered by such registration
statement and not joint. In addition, no Person shall be obligated to contribute
hereunder any amounts in payment for any settlement of any action or claim
effected without such Person's consent, which consent shall not be unreasonably
withheld.
(e) Indemnification and contribution similar to that specified in
the preceding subdivisions of this Section 3.7 (with appropriate modifications)
shall be given by the Company and each seller of Registrable Securities with
respect to any required registration or other
16
qualification of securities under any federal or state law or regulation of any
governmental authority other than the Securities Act.
(f) The indemnification and contribution required by this Section
3.7 shall be made by periodic payments of the amount thereof during the course
of the investigation or defense, as and when bills are received or expense,
loss, damage or liability is incurred.
3.8 Removal of Legends on Certificates. Following the registration of any
Registrable Securities under the Securities Act and sales pursuant to such
registration, the Company shall (a) furnish to each holder of Registrable
Securities so registered and sold unlegended certificates representing ownership
of the registered Registrable Securities, in such denominations as shall be
requested, and (b) instruct the transfer agent to release any stop transfer
orders with respect to such registered Registrable Securities.
3.9 Conditions and Limitations on Registrations of Registrable
Securities.
(a) The Company shall not be required to effect any registration of
Registrable Securities pursuant to Section 3.2 if (i) it shall deliver to the
holder or holders requesting such registration an opinion of reputable counsel
to the effect that the Registrable Securities requested to be registered may be
sold by such holder without restriction or limitation and without registration
under the Securities Act, and (ii) the Company provides or has provided to the
holders of such Registrable Securities certificates therefor which do not
contain restrictive legends, as contemplated in Section 3.8.
(b) The Company shall not be required to effect any registration of
Registrable Securities pursuant to this Agreement, if (i) the holder can resell
such Registrable Securities without restriction or limitation and without
registration under the Securities Act, and (ii) the Company provides or has
provided to the holders of such Registrable Securities certificates therefor
which do not contain restrictive legends, as contemplated in Section 3.8.
3.10 Expenses. All Registration Expenses, but not Selling Expenses, shall
be borne by the Company.
3.11 Rule 144 and 144A Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at times
permit the sale of the Registrable Securities to the public or other Persons
without registration, the Company, so long as it is required to file information
with the Commission pursuant to the requirements of the Exchange Act (or any
successor provision), shall:
(a) make and keep public information available, as contemplated by
Rule 144 under the Securities Act;
(b) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
17
(c) furnish to each holder of Registrable Securities promptly
upon request (i) a written statement by the Company as to its compliance with
the reporting requirements of such Rule 144 of the Securities Act and the
Exchange Act, (ii) copies of all SEC filings made by the Company within the
previous one (1) year period and any press releases issued by the Company since
the date of the last such filing and (iii) only in the event that Company
securities cease to be listed on a national securities exchange, copies of all
Rule 144A information with respect to the Company.
3.12 Market Stand-Off Agreement. If requested by the Company, each
holder of Registrable Securities included in a registration statement hereunder
shall not sell or otherwise transfer or dispose of any Conversion Shares or
Preferred Shares or other securities of the Company held by it (other than those
included in the registration) during the period specified by the managing
underwriter or underwriters of the underwritten offer being made pursuant to
such registration statement (which period shall not exceed seven days prior to
and 180 days following the effective date of such registration statement),
except as part of such registration, if and to the extent reasonably requested
by such managing underwriter or underwriters, provided that all officers and
directors of the Company, enter into similar agreements.
The obligations described in this Section 3.12 shall not apply to a
registration relating solely to employee benefit plans on S-8 or similar forms
which may be promulgated in the future, or a registration relating solely to a
Commission Rule 145 transaction on Form S-14 or Form S-IS or similar forms which
may be promulgated in the future. The Company may impose stop-transfer
instructions with respect to securities subject to the restrictions in this
Section 3.12 until the end of such 180 day period.
4. Voting Percentages. In determining whether a required percentage or
amount of Registrable Securities has been met under this Agreement, the amount
required shall be calculated on the basis of the aggregate value of outstanding
Registrable Securities. For purposes of this Agreement, the value of each
Conversion Share shall be the average closing market price per share of the
Common Stock on the thirty (30) most recent Trading Days prior to the valuation
date.
5. Amendments and Waivers. This Agreement may be amended with the consent
of the Company and holders of at least sixty-six and two-thirds percent (66
2/3%) of the Registrable Securities and the Company may take any action
prohibited by this Agreement, or omit to perform any act required to be
performed by it under this Agreement, only if the Company shall have obtained
the written consent to such amendment, action or omission to act, of the holder
or holders of at least sixty-six and two-thirds percent (66 2/3%) of the
Registrable Securities. Each holder of any Registrable Securities at the time or
subsequently outstanding shall be bound by any consent authorized by this
Section 5, whether or not such Registrable Securities shall have been marked to
indicate such consent, but such consent shall be effective only in the specific
instance and for the specific purpose for which given.
18
6. Nominees for Beneficial Owners. In the event that any Registrable
Securities are held by a nominee or trustee for a beneficial owner, the
beneficial owner may, at its election in writing delivered to the Company, be
treated as the holder of such Registrable Securities for purposes of any request
or other action by any holder or holders of Registrable Securities pursuant to
this Agreement or any determination of any number or percentage of Registrable
Securities held by any holder or holders of Registrable Securities contemplated
by this Agreement. If the beneficial owner of any Registrable Securities so
elects, the Company may require assurances reasonably satisfactory to it of such
owner's beneficial ownership of such Registrable Securities.
7. Notices. All notices or other communications required or permitted
hereunder shall be given only in writing and only by personal delivery,
registered or certified mail, return receipt requested, or overnight courier
service, and shall be deemed given on the fifteenth day following the date when
deposited in the mail, on the day following the date of delivery to a courier
service (postage or charges prepaid) or when personally delivered, and addressed
to the particular party to whom the notice is to be sent as follows:
7.1 if to Option Writer, addressed in the manner set forth in the
Option Agreement, or at such other address as Option Writer shall have furnished
to the Company in writing;
7.2 if to any other holder of Registrable Securities, at the address
that such holder shall have furnished to the Company in writing, or, until any
such other holder so furnishes to the Company an address, then to and at the
address of the last holder of such Registrable Securities who has furnished an
address to the Company; or
7.3 if to the Company, addressed to it in the manner set forth in the
Option Agreement or at such other address as the Company shall have furnished to
each holder of Registrable Securities at the time outstanding.
8. Transfer of Registration Rights. Any holder of Registrable Securities
may exercise the rights described in this Agreement subject to the terms and
conditions of this Agreement.
9. Successors and Assigns; Amendments; Entire Agreement. This Agreement
shall be binding upon and inure to the benefit of and be enforceable by
transferees of the Registrable Securities (and, with respect to the holders of
Registrable Securities, subject to the provisions respecting the minimum
percentage of Registrable Securities required in order to be entitled to certain
rights, or take certain actions, contained herein) and the parties to this
Agreement and their respective successors and assigns. The parties to this
Agreement may amend this Agreement as provided in Section 5 without the consent
of any other Person. This Agreement contains the entire agreement between the
parties, and supersedes all prior agreements, written or oral, with respect to
the matters addressed herein.
10. Descriptive Headings. The descriptive headings of the several sections
and paragraphs of this Agreement are inserted for reference only and shall not
limit or otherwise
19
affect the meaning of the respective sections or paragraphs to which they apply.
11. Governing Law. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of New York (without regard to any choice of law or conflict of law
rules that would cause the application of any laws or rules of any jurisdiction
other than the State of New York).
12. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same document.
13. Certain Agreements and Grants.
13.1 The Company is not now a party to or otherwise bound by, any
agreement or contract (whether written or oral) with respect to any of its
securities which is inconsistent in any adverse respect with the registration
rights granted by the Company pursuant to this Agreement.
13.2 The Company shall not at any time during the effectiveness
of this Agreement grant to any other person(s) any rights with respect to the
registration of any securities of the Company which have priority or are
inconsistent in any adverse respect with the registration rights granted by the
Company pursuant to this Agreement.
14. Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the holders
of Registrable Securities shall be enforceable to the fullest extent permitted
by law.
20
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and
delivered by their respective duly authorized officers as of the date first
written above.
Xxxxxx Xxxx Educators Corporation
By__________________________________
Name:
Title:
Swiss Re Financial Products Corporation
By__________________________________
Name:
Title:
21
EXHIBIT A
Option Writer
Swiss Re Financial Products Corporation, a Delaware corporation
The contact information is:
Swiss Re Financial Products Corporation
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: General Counsel
Telephone No.: 000-000-0000
Fax No.: 000-000-0000
With a copy to:
Swiss Re Financial Products Corporation
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Treasurer
Telephone No.: 000-000-0000
Fax No.: 000-000-0000
Reinsurance Option Writer
Swiss Reinsurance America Corporation, a New York corporation
The contact information is:
Swiss Reinsurance America Corporation
c/o Swiss Re Financial Products Corporation
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: General Counsel
Telephone No.: 000-000-0000
Fax No.: 000-000-0000
With a copy to:
Swiss Reinsurance America Corporation
c/o Swiss Re Financial Products Corporation
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Treasurer
Telephone No.: 000-000-0000
Fax No.: 000-000-0000
