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Exhibit 2.1
Stock Purchase Agreement
by and between
Strategic Acquisition Partners, LLC
and
Central Reserve Life Corporation
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STOCK PURCHASE AGREEMENT
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THIS AGREEMENT is made and entered into this 26th day of
November, 1997, by and between Strategic Acquisition Partners, LLC, a Nevada
limited liability company ("PURCHASER"), and Central Reserve Life Corporation,
an Ohio corporation (the "COMPANY").
WHEREAS, Purchaser desires to acquire 5,000,000 shares of
common stock, without par value, of the Company (the "STOCK") from the Company
on the terms set forth herein; and
WHEREAS, in consideration for the Purchase Price (as
hereinafter defined), the Company shall issue the Stock to the Purchaser.
NOW, THEREFORE, in consideration of the premises,
representations, warranties, covenants, agreements and promises herein
contained, the parties agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following capitalized
terms shall have the following meanings:
"ADVERSE CLAIMS" shall mean all of the following, whether
direct or indirect, accrued, absolute or contingent: (i) security
interests, liens, pledges, charges, escrows, options, proxies, rights
of first refusal, preemptive rights, mortgages, hypothecations,
assignments, title retention agreements, indentures and security
agreements, (ii) title defects, assessments, easements, reservations
and encroachments; (iii) contracts of lease, license and sale; (iv)
royalty and commission arrangements; (v) voting agreements and proxies;
and (vi) any other claims, covenants, limitations, encumbrances,
burdens and restrictions of any kind, except for restrictions under
applicable securities laws.
"BUSINESS" shall mean the insurance business as currently
conducted by the Company and the Company Subsidiaries.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended.
"COMMISSION" shall mean the Securities Exchange Commission.
"COMPANY MATERIAL ADVERSE EFFECT" shall mean any material
adverse change in the financial condition, results of operations or
business of the Company and the Company Subsidiaries as a whole, taking
into account all relevant factors including without limitation, assets,
liabilities, personnel, business and relationships with suppliers,
customers, distributors, sales representatives, lenders, lessors and
others. For purposes of this Agreement, Company Material Adverse Effect
(i) shall also mean the suspension of, loss of or issuance of a cease
and desist order relating to any insurance license of the
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Company or any Company Subsidiaries in any state which is reasonably
likely to result in the loss of 5% or more of the Company's premium
revenue (for the year ended December 31, 1996).
"ERISA" shall mean the Employee Retirement and Income Security
Act, as amended.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended
"FACILITIES" shall mean all the real property, buildings and
improvements owned, leased, licensed or otherwise used by the Company
or the Business.
"GAAP" shall mean U.S. generally accepted accounting
principles, as consistently applied by the Company.
"HSR ACT" shall mean the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
ARTICLE II
THE TRANSACTION
2.1. SALE AND PURCHASE OF STOCK. At Closing, the Company shall
issue, sell, transfer, assign and deliver to Purchaser, and Purchaser shall
purchase, accept, assume and receive all right, title and interest in and to the
Stock free and clear of any Adverse Claims.
2.2. PURCHASE PRICE. The aggregate purchase price for the
Stock ("PURCHASE PRICE") shall be $27,500,000 payable at Closing by the
Purchaser as follows:
(a) the aggregate amount of principal and interest accrued on
the obligations of Purchaser to the holder of indebtedness of Purchaser
incurred in connection with the bridge loan agreement between the
Company and Purchaser shall be paid by wire transfer in immediately
available funds to the bank account designated by Purchaser;
(b) the difference of $27,500,000 LESS the amount paid by
Purchaser pursuant to Section 2.2(a) shall be paid to the Company by
wire transfer in immediately available funds to the bank account
designated by the Company at least five banking days in advance of the
Closing Date.
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ARTICLE III
THE CLOSING
3.1. CLOSING. The closing of the transaction contemplated by
this Agreement (the "CLOSING") shall occur at 10:00 o'clock on the fifth
business day following satisfaction or waiver of the conditions to closing set
forth herein at the offices of XxXxxxxxx, Will & Xxxxx, 000 Xxxx Xxxxxx Xxxxxx,
Xxxxxxx, Xxxxxxxx 00000, or at such other time or place as may be mutually
agreed upon by the parties (the "CLOSING DATE"). The Closing shall be deemed to
take place as of the close of business on the Closing Date.
3.2. DELIVERIES BY PURCHASER. At the Closing, Purchaser shall
deliver or cause to be delivered the following:
(a) a wire transfer in immediately available funds in the
amount of the Purchase Price to be paid by Purchaser pursuant to
Section 2.2;
(b) such other instruments or documents as may be necessary or
appropriate to carry out the transactions contemplated hereby; and
(c) opinion of XxXxxxxxx, Will & Xxxxx relating to the
formation and existence of Purchaser and its power and authority to enter into
this Agreement and the Agreements contemplated hereby.
3.3. DELIVERIES BY THE COMPANY. At the Closing, the Company
shall deliver or cause to be delivered the following:
(a) certificates for the Stock;
(b) a legal opinion of Xxxxx & Xxxxxxxxx, counsel to the
Company, relating to the due organization of the Company, the authority
of the Company to enter the transactions contemplated hereby, the
capitalization of the Company, and certain regulatory matters
pertaining to the transactions contemplated hereby;
(c) the Warrants substantially in the form of Exhibit A hereto
issued to Purchaser or its designees pursuant to the Warrant Agreement;
(d) certificate of incorporation of the Company, certified as
of a recent date by the Secretary of State of Ohio;
(e) certificates of good standing, certified as of a recent
date by the Secretary of Ohio and of each jurisdiction in which the
Company is qualified to do business;
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(f) a certificate of the Secretary of the Company certifying
copies of the certificate of incorporation, bylaws and resolutions of
the Company as of the Closing Date;
(g) a certificate of the Company certifying as to the
continued accuracy of the representations and warranties as required by
Section 10.1 and compliance with conditions precedent to the Closing;
(h) resignations from the directors of the Company named on
Schedule 3.3(h) hereto without any claim for compensation other than
directors fees and perquisites earned prior to the dates of such
resignations as described on Schedule 3.3(h);
(i) any third party consents required to consummate the
transactions contemplated hereby; and
(j) such other instruments or documents as may be necessary or
appropriate to carry out the transactions contemplated hereby.
3.4. CLOSING AGREEMENTS. At the Closing, the appropriate
parties shall execute, acknowledge and deliver the following:
(a) the Registration Rights Agreement substantially in the
form of Exhibit B attached hereto (the "REGISTRATION RIGHTS
AGREEMENT");
(b) a voting agreement in the form of Exhibit C attached
hereto relating to the election of directors of the Company and certain
other matters referred to therein (the "VOTING AGREEMENT"); and
(c) such other instruments or documents as may be necessary or
appropriate to carry out the transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Purchaser as of the date
hereof, and as of the Closing Date, as follows:
4.1. ORGANIZATION; QUALIFICATION; GOOD STANDING; CORPORATE
POWER.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the state of Ohio and
is duly qualified to do business and is in
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good standing in the state of Ohio and in all other jurisdictions
(whether federal, state, local or foreign) where its ownership or
leasing of property or the conduct of its business requires it to be
qualified and in which the failure to be duly qualified would have a
Company Material Adverse Effect. The Company has the corporate power
and authority to carry on its business as it is now conducted and to
own, lease and operate its assets, properties, and business. The
Company has the corporate power and authority to execute and deliver
this Agreement and the corporate power to consummate the transactions
contemplated hereby. The Company has delivered to the Purchaser
complete and correct copies of its Articles of Incorporation and Code
of Regulations (collectively, the "COMPANY ORGANIZATIONAL DOCUMENTS")
as in effect on the date hereof.
(b) The only direct or indirect Subsidiaries of the Company
are the entities listed on Schedule 4.1(b) (collectively, the "COMPANY
SUBSIDIARIES"). The "COMPANY INSURANCE SUBSIDIARY" shall mean Central
Reserve Life Insurance Company. Schedule 4.1(b) sets forth a complete
list of the officers and directors of the Company and each Company
Subsidiary. Except as set forth on Schedule 4.1(b), the Company and
each Company Subsidiary does not have any direct or indirect equity or
ownership interest in any other business or entity and does not have
any direct or indirect obligation or any commitment to invest any funds
in any corporation or other business or entity, other than for
investment purposes in the ordinary course of business in accordance
with past practices. For purposes of this Agreement, the term
"SUBSIDIARY" shall mean any corporation, association or other business
entity of which more than 10% of the outstanding voting stock is owned
or controlled, directly or indirectly, by the Company or by one or more
Company Subsidiaries, or by the Company and one or more of the Company
Subsidiaries.
(c) Set forth on Schedule 4.1(c) is a list of the states of
incorporation or organization for each of the Company Subsidiaries and
states in which each of the Company Subsidiaries is licensed to issue
insurance. Each Company Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Each Company Subsidiary has the
corporate power and authority to carry on its business as it is now
conducted and to own, lease and operate its properties, and is duly
licensed to issue insurance and is in good standing in each
jurisdiction where its ownership or leasing of property or the conduct
of its business requires it to be qualified. The Company has delivered
to the Purchaser complete and correct copies of each Company
Subsidiary's Articles of Incorporation and Bylaws or Code of
Regulations as in effect on the date hereof.
(d) Except as disclosed on Schedule 4.1(d), the Company and
the Company Subsidiaries hold all material licenses, certificates,
permits, franchises and rights ("PERMITS") from all appropriate
federal, state or other public authorities necessary for the conduct of
the business of the Company and the Company Subsidiaries, and a list of
each state in which the Company has a certificate of authority or is
qualified to conduct business is attached hereto as part of Schedule
4.1(d). Except as set forth on Schedule
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4.1(d), each such license, certificate, permit or franchise is without
qualification or restriction. The Company and the Company Subsidiaries
each have conducted its and their business so as to comply with all
applicable federal, state and local statutes, ordinances, regulations
or rules, and neither the Company nor any of the Company Subsidiaries
is presently charged with, or, to the Company's knowledge, under
governmental investigation with respect to, any actual or alleged
material violations of any statute, ordinance, regulation or rule. To
the Company's knowledge, neither the Company nor the Company
Subsidiaries are the subject of any pending or to the Company's
knowledge threatened proceeding by any regulatory authority having
jurisdiction over its or their business, properties, assets or
operations.
(e) A record of all material action taken by the Boards of
Directors of the Company and each Company Subsidiary, and complete and
accurate copies of all material actions taken by written consent of the
shareholders and the Board of Directors of the Company and each Company
Subsidiary, and all minutes of their respective meetings, are contained
in the respective minute books of the Company and each Company
Subsidiary. The minute books or stock ledgers of the Company and each
Company Subsidiary, retained by the Company or by its transfer agent,
contain an accurate and complete record of all issuances, transfers and
cancellations of shares of capital stock of the Company and each
Company Subsidiary. The Purchaser has been given access to and an
opportunity to review all such minutes and minute books.
4.2. AUTHORIZATION. Except as set forth on Schedule 4.2, the
execution, delivery and performance of this Agreement by the Company and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized and approved by all necessary corporate action, subject to the
approval of the shareholders of the Company, and this Agreement is legally
binding on and enforceable against the Company in accordance with its terms,
except as enforceability may be limited by bankruptcy laws, insolvency laws or
other laws affecting creditors' rights generally. Subject to obtaining the
approvals set forth on Schedule 4.2, the execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated hereby
will not, violate the Company's Articles of Incorporation or Code of
Regulations.
4.3. GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by the Company of this Agreement and the consummation of the
transactions contemplated hereby by the Company require no action by or in
respect of, or filing with, any governmental body, agency, official or authority
other than:
(a) compliance with any applicable requirements of the HSR
Act;
(b) compliance with any applicable requirements of the
Securities Act and the Exchange Act;
(c) compliance with any applicable foreign or state securities
or "blue sky" laws;
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(d) compliance with any applicable requirement of Ohio and any
other insurance regulatory authorities having jurisdiction over the
Company, any of the Company Subsidiaries or the transactions described
herein;
(e) such other filings or registrations with, or
authorizations, consents or approvals of, governmental bodies,
agencies, officials or authorities, the failure of which to make or
obtain would adversely affect the ability of the Company and the
Company Subsidiaries to consummate the transactions contemplated hereby
and operate their businesses as heretofore operated; and
(f) those approvals described on Schedule 4.3.
4.4. CAPITALIZATION.
(a) The authorized capitalization of the Company consists of
(i) 15,000,000 shares of Common Stock, without par value (the "COMPANY
COMMON STOCK"), of which 4,195,172 are issued and outstanding, and 0
shares are held by the Company as treasury shares, and (ii) 2,000,000
shares of preferred stock, without par value (the "PREFERRED STOCK"),
of which no shares are issued and outstanding. The Company has no other
class of stock and there are, and as of the Closing Date there will be,
no fractional shares of Company Common Stock issued or outstanding.
(b) There are outstanding options for the purchase of 65,845
shares of Company Common Stock granted to certain employees of the
Company pursuant to the Company's Stock Option and Incentive Plan (the
"OPTION PLAN") (the option rights granted pursuant to the Option Plan
are sometimes collectively referred to herein as the "OPTIONS"). The
names of the Optionees, the date of each option to purchase, the number
of shares subject to each such option, the expiration date of each such
option, and the price at which each such option may be exercised are
set forth in Schedule 4.4(b). The Company has reserved an adequate
number of shares to cover exercise of Options. Except with respect to
the Options, neither the Company nor the Company Subsidiaries have
granted any outstanding warrants, options, rights, calls, agreements,
understandings or other commitments of any nature relating to the
authorization, issuance, sale or repurchase of any equity securities of
the Company or the Company Subsidiaries. There are no rights in or
claims possessed by a person enforceable against the Company in law or
in equity to compel such an authorization, issuance, sale, or
repurchase. Except as otherwise provided in the Articles of
Incorporation of the Company and except as set forth on Schedule
4.4(b), all of the issued and outstanding shares of Company Common
Stock will be entitled to vote to approve this Agreement.
(c) The Company owns directly or indirectly all of the issued
and outstanding shares of capital stock of the Company's Subsidiaries.
Schedule 4.4(c) accurately identifies the number of shares of
authorized and outstanding capital stock of the
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Company's Subsidiaries.
(d) All of the outstanding shares of the Company and the
Company's Subsidiaries (i) are duly authorized, validly issued, fully
paid, nonassessable and free of preemptive rights and, in the case of
the shares of the Company Subsidiaries, are owned free and clear of all
liens, charges or encumbrances, except as listed on Schedule 4.4(d) and
(ii) have been issued in compliance with all applicable federal and
state securities laws. Upon issuance, the Stock will be (i) duly
authorized, validly issued, fully paid, nonassessable and free of
preemptive rights and (ii) issued in compliance with all applicable
federal and state securities laws.
(e) Upon consummation of the transactions contemplated hereby,
Purchaser will have good and marketable title to and ownership of the
Stock free and clear of all Adverse Claims other than the Ohio General
Corporation Law, the Articles of Incorporation of the Company, the Code
of Regulations of the Company, all federal and state securities laws,
the Registration Rights Agreement or the Voting Agreement.
4.5. FINANCIAL STATEMENTS.
(a) The Company has furnished to the Purchaser true, correct
and complete copies of: (i) the audited Consolidated Balance Sheets of
the Company as of the fiscal years ended December 31, 1996, 1995 and
1994, and the related Consolidated Statements of Operations,
Shareholders' Equity and Cash Flows for each of the fiscal years ended
December 31, 1996, 1995 and 1994, including the respective notes
thereto, together with the reports of KPMG Peat Marwick LLP relating
thereto; (ii) the unaudited Balance Sheets as of September 30, 1997,
and the related unaudited Consolidated Statements of Operations,
Shareholders' Equity and Cash Flows for the period then ended ("COMPANY
FINANCIAL STATEMENTS"); (iii) annual audited Statutory Financial
Statements for the Company Insurance Subsidiary for the years ended
December 31, 1996, 1995 and 1994; and (iv) quarterly Statutory
Financial Statements for periods ended March 31, June 30 and September
30, 1997 (collectively, the "STATUTORY STATEMENTS"). Except as set
forth on Schedule 4.5(a), such Company Financial Statements present
fairly the financial position of the Company and the Company
Subsidiaries taken as a whole as of and for the periods ended on their
respective dates and the operating results of the Company and the
Company Subsidiaries taken as a whole for the indicated periods in
conformity with GAAP. Except as set forth on Schedule 4.5(a), since
September 30, 1997 to the date hereof, there have not been any material
adverse changes in the Company's and the Company Subsidiaries'
consolidated financial condition, assets, liabilities or business,
other than changes in the ordinary course of business. The Statutory
Statements (i) have been prepared in accordance with the books and
records of the Company Insurance Subsidiary, (ii) are prepared in
accordance with the statutory accounting provisions of the insurance
laws of the applicable jurisdictions, and (iii) are prepared in a
manner consistent with prior periods, except for any changes required
by applicable law. Such Statutory Statements, when read in conjunction
with the notes thereto and any statutory
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audit reports relating thereto, present fairly in all respects the
statutory financial condition of the Company Insurance Subsidiary at
December 31, 1996, 1995 and 1994 and at September 30, 1997, and the
statutory results of their respective operations for the periods then
ended.
(b) The Company will furnish the Purchaser, at the time of the
filing thereof, with copies of its audited (if prepared) and unaudited
quarterly reports and any amendments thereto filed with the Commission
subsequent to September 30, 1997 until the Closing Date ("SUBSEQUENT
COMPANY FINANCIAL STATEMENTS").
(c) The Subsequent Company Financial Statements, will be,
prepared in accordance with GAAP, utilizing accounting practices
consistent with prior years except as otherwise disclosed, and comply
or will comply with applicable accounting requirements and with the
rules and regulations of the Commission with respect thereto. All of
the Subsequent Company Financial Statements will present fairly, the
financial position of the Company and the Company Subsidiaries taken as
a whole and the results of its and their operations and changes in its
and their financial position as of and for the periods ending on their
respective dates.
(d) The Company has delivered to the Purchaser true and
complete copies of the following SAP Financial Statements (as defined
hereinafter) for the Company Insurance Subsidiary: SAP Financial
Statements for each Company Insurance Subsidiary for the years ended
December 31, 1994, 1995 and 1996, and for the quarters ended March 31,
June 30, and September 30, 1997, and the notes related thereto ("SAP
FINANCIAL STATEMENTS"). Each of the SAP Financial Statements complied
in all material respects with all applicable laws when so filed, and
all deficiencies known to the Company and each Company Insurance
Subsidiary with respect to any such SAP Financial Statements have been
cured or corrected or are which the Company is endeavoring to cure or
correct. The Company will furnish the Purchaser copies of any
amendments to prior SAP Financial Statements and any SAP Financial
Statements prepared for periods subsequent to September 30, 1997 and
prior to the Closing Date. Each such SAP Financial Statement (and the
notes related thereto), including without limitation, each statement of
admitted assets, liabilities and capital surplus and each of the
statements of operations, changes in unassigned surplus account, and
cash flow contained in the respective SAP Financial Statements, was or
will be prepared in accordance with SAP, is or will be true and
complete in all material respects, and presents or will present fairly
the financial condition, admitted assets and properties and liabilities
of each Company Insurance Subsidiary as of the respective dates
thereof, and the results of operations and changes in capital and
surplus and in the cash flow of each such Company Insurance Subsidiary
for and during the respective periods covered thereby. All reserves
with respect to insurance written or assumed by each Company Insurance
Subsidiary as established or reflected on such SAP Financial
Statements, were or will be determined in accordance with generally
accepted actuarial principles and practices and are or will be in all
material respects in accordance with the related insurance, coinsurance
and reinsurance contracts of the
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Company Insurance Subsidiary, and meet in all material-respects the
requirements of the insurance laws of the jurisdictions in which such
contracts were issued or delivered.
(e) As used herein, "SAP" shall mean the accounting practices
prescribed or permitted by the National Association of Insurance
Commissioners and the insurance regulatory authority in the state in
which each Company Insurance Subsidiary is domiciled or qualified to do
business, as the case may be, consistently applied throughout the
specified period and in the immediately prior comparable period. "SAP
STATEMENTS" shall mean any annual statements, quarterly statements and
other financial statements and presentations of any Company Insurance
Subsidiary prepared in accordance with SAP and filed with or submitted
to the insurance regulatory authority in the state in which such
Company Insurance Subsidiary is domiciled on forms prescribed or
permitted by such authority.
4.6. ABSENCE OF CERTAIN CHANGES AND UNDISCLOSED LIABILITIES.
(a) Except as set forth on Schedule 4.6(a) or reflected in the
Company Financial Statements or the SAP Financial Statements, since
December 31, 1996 to the date of this Agreement, (i) the businesses of
the Company and the Company Subsidiaries have been conducted only in
the ordinary course, in the same manner as theretofore conducted; (ii)
neither the Company nor any Company Subsidiary has declared, set aside
or paid any dividend or distribution in respect of the capital stock of
the Company or any Company Subsidiary, or any direct or indirect
redemption, purchase or other acquisition by the Company or such
Company Subsidiary of any such stock; (iii) neither the Company nor any
Company Subsidiary has issued additional shares or granted new options;
and (iv) there has not occurred any event or circumstance resulting, or
reasonably expected to result in a Company Material Adverse Effect.
(b) Except as described in a Schedule hereto or as and to the
extent reflected or reserved against in the Subsequent Company
Financial Statements in accordance with GAAP, since September 30, 1997,
neither the Company nor the Company Subsidiaries will have, at the date
of such statements, any liabilities or obligations, of any nature,
secured or unsecured (whether accrued, absolute, contingent or
otherwise) including, without limitation, any tax liabilities due or to
become due, except which have been incurred in the ordinary course of
business.
(c) Except as disclosed on Schedule 4.6(c), since September
30, 1997 to the date of this Agreement the Company has conducted its
business in the ordinary course and there has not been:
(i) any damage, destruction or other tangible
property or casualty loss (whether or not covered by
insurance) which, individually or in the aggregate, has had or
would have a Company Material Adverse Effect;
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(ii) any amendment, termination or waiver by the
Company or any Company Subsidiary, of any material right under
any agreement, contract or other written commitment to which
it is a party or by which it is bound and which is required to
be disclosed in Schedule 4.16, other than in the ordinary
course of business;
(iii) any material reduction in the amounts of
coverage provided by existing casualty and liability insurance
policies with respect to the business or properties of the
Company or any Company Subsidiary;
(iv) any grant of any severance or termination pay to
any director, officer or, other than in the ordinary course of
business consistent with past practice, any employee of the
Company or any Company Subsidiary, or increase in benefits
payable to any director or officer other than in the ordinary
course of business under existing benefit plans;
(v) any new or amendment to or alteration of any
existing bonus, incentive, compensation, severance, stock
option, stock appreciation right, pension, matching gift,
profit-sharing, employee stock ownership, retirement, pension
group insurance, death benefit, or other fringe benefit plan,
arrangement or trust agreement adopted or implemented by the
Company or any Company Subsidiary, excluding individual
actions with respect to non-officer employees in the ordinary
course of business consistent with past practice;
(vi) other than in the ordinary course of business
consistent with past practice, the cancellation, waiver,
release or other compromise of any debt, claim or right in
excess of $25,000;
(vii) any material change in any accounting principle
or practice or method or application thereof;
(viii) the termination, lapse, suspension, revocation
of, amendment of, limitation upon, disposal of or failure to
renew any license or permit necessary for the operation of the
business of the Company or any Company Subsidiary.
(ix) any agreements other than on an arm's-length
basis between the Company and any director, executive officer
or affiliate or associate of the foregoing;
(x) other than in the ordinary course of business
consistent with past practice, any change in any underwriting,
actuarial, investment, or financial reporting practice or
policy followed by the Company or any Company Subsidiary or
method or application thereof, or any assumption underlying
such principle, practice or policy;
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(xi) other than in the ordinary course of business
consistent with past practice, any termination, amendment, or
execution by the Company or any Company Subsidiary of any
reinsurance, coinsurance or similar contract or treaty, as
ceding or assuming insurer;
(xii) any sale, transfer, or conveyance of assets or
properties of the Company or any Company Subsidiary (other
than investment securities) with an individual book value or
with any aggregate book value in excess of $25,000; or
(xiii) any purchase of any investment securities by
the Company or any Company Subsidiary other than purchases of
investment grade commercial paper or cash equivalents.
4.7. NO VIOLATION. Except as set forth on Schedule 4.7,
neither the execution and delivery of this Agreement by the Company nor the
consummation by the Company of the transactions contemplated hereby or thereby,
nor compliance by the Company with any of the terms or provisions hereof or
thereof, will (i) violate any provision of the Articles of Incorporation or
Bylaws or Code of Regulations of the Company or any Company Subsidiary, (ii)
violate any statute, code, ordinance, rule, regulation, ("LAWS") judgment,
order, writ, decree or injunction ("ORDERS") applicable to the Company or any of
the Company Subsidiaries or any of their respective properties or assets, or
(iii) violate, conflict with, result in a breach of any provision of or the loss
of any benefit under, constitute a default (or an event which, with notice or
lapse of time, or both, would constitute a default) under, result in the
termination of or a right of termination or cancellation under, accelerate the
performance required by, or result in the creation of any lien, pledge, security
interest, charge or other encumbrance upon any of the respective properties or
assets of the Company or any Company Subsidiary under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which the Company
or any Company Subsidiary is a party, or by which they or any of their
respective properties or assets may be bound or affected.
4.8. LITIGATION. Except as set forth on Schedule 4.8, there
are no legal, quasijudicial, administrative, or other actions, suits,
proceedings, claims (including non-contractual claims, bad faith claims and
claims against the Company's or any Company Subsidiary's directors or officers,
but excluding coverage and other claims made with respect to insurance policies
issued by the Company or any Company Subsidiary), or investigations about which
the Company has knowledge, of any kind or nature pending or, to the knowledge of
the Company, threatened against the Company or any of the Company Subsidiaries.
Except as set forth on Schedule 4.8, neither the Company nor the Company
Subsidiaries are subject to or in default with respect to, nor are any of its or
their assets subject to, any outstanding judgment, order or decree of any court
or of any governmental agency or instrumentality.
4.9. TAXES, RETURNS AND REPORTS.
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(a) Except as may be reflected on Schedule 4.9(a), each of the
Company and Company Subsidiaries has duly filed all federal, state,
county, local and foreign tax returns including, without limitation,
information returns and returns of estimated tax (collectively "TAX
RETURNS"), required to be filed by it on or prior to the date hereof,
including applicable extensions (all such Tax Returns being accurate
and complete in all material respects) and has duly paid or made
adequate provision for the payment of all Taxes (as defined below) that
have been incurred by it or are due or to the Company's knowledge,
claimed to be due from it by Federal, state, county, local or foreign
taxing authorities on or prior to the date of this Agreement
(including, without limitation, if and to the extent applicable, those
due in respect of its properties, income, business, capital stock,
deposits, franchises, licenses, sales and payrolls) other than Taxes
that are being contested in good faith (and which are set forth on
Schedule 4.9(a)). Except as set forth on Schedule 4.9(a), the federal
income tax returns of the Company and Company Subsidiaries have been
examined by the Internal Revenue Service ("IRS") for all years through
and including 1989, and the deficiencies (if any) asserted as a result
of such examination have been satisfied. Except as may be reflected on
Schedule 4.9(a) there are no disputes pending, or claims asserted or
assessments upon the Company or any Company Subsidiaries regarding
Taxes, nor does the Company or any Company Subsidiaries have
outstanding any currently effective waivers extending the statutory
period of limitation applicable to any Federal, state, county, local or
foreign Tax Return for any period. In addition, except as set forth on
Schedule 4.9(a), (i) proper and accurate amounts (in all material
respects) have been withheld by the Company and Company Subsidiaries
from their employees, customers, shareholders and others from whom they
are required to withhold Tax in compliance with all applicable Federal,
state, county, local and foreign laws, and (ii) there are no Tax liens
upon any property or assets of the Company or Company Subsidiaries
except liens for current Taxes not yet due. Except as set forth on
Schedule 4.9(a), no property of the Company or any Company Subsidiaries
is property that the Company or any Company Subsidiaries is or will be
required to treat as being owned by another person pursuant to the
provisions of former Section 168(f)(8) of the Code or is "tax-exempt
use property" within the meaning of Section 168(h) of the Code. Except
as set forth on Schedule 4.9(a), neither the Company nor any Company
Subsidiaries has been required to include in income any adjustment
pursuant to Section 481 of the Code by reason of a voluntary change in
accounting method initiated by the Company or any Company Subsidiaries,
and the IRS has not initiated or proposed any such adjustment or change
in accounting method. Except as set forth on Schedule 4.9(a), neither
the Company nor any Company Subsidiaries has entered into a transaction
which is being accounted for as an installment sale under Section 453
of the Code.
(b) The Financial Statements and the Subsequent Financial
Statements delivered to the Purchaser contain in conformity with GAAP,
adequate accruals for all Taxes with respect to periods covered thereby
and all prior periods;
(c) Except as set forth on Schedule 4.9(c), all Tax
deficiencies asserted or
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assessed against the Company or any Company Subsidiaries have been paid
or finally settled with no remaining amounts owed;
(d) Except as set forth on Schedule 4.9(d), there is no
pending, or to the knowledge of the Company, threatened action, audit,
proceeding or investigation (of which investigation the Company has
knowledge) with respect to (i) the assessment or collection of Taxes,
or (ii) a claim for refund made by the Company or any Company
Subsidiaries with respect to Taxes previously paid;
(e) Except as set forth on Schedule 4.9(e), there are no
outstanding requests for extensions of time within which to file
returns and reports in respect of any Taxes;
(f) Except as set forth on Schedule 4.9(f), neither the
Company nor any Company Subsidiaries have taken action not in
accordance with past practice that would have the effect of deferring
any material Tax liability from any period ending on or before the
Closing Date to any period ending after such date;
(g) Except as set forth on Schedule 4.9(g), neither the
Company nor any of the Company Subsidiaries is a party to any
tax-sharing agreement or similar arrangement (whether express or
implied), including any terminated agreement, as to which any of them
could have any continuing liability following the Closing Date, nor has
any continuing liability for Taxes of any other corporation pursuant to
Treasury Regulation Section 1. 1502-6 (or similar state, local, or
foreign provision); and
(h) As used herein, "TAXES" and all derivations thereof means
any federal, state, local or foreign income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental, customs, duties, capital stock,
franchise, profits, withholding, social security (or similar)
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax, charge, fee levy or other like assessment of
any kind whatsoever, including any interest, penalty, and/or addition
thereto.
4.10. CORPORATE PROPERTIES.
(a) Schedule 4.10(a) accurately identifies: (i) all real
property owned, beneficially or otherwise, or controlled by the Company
or the Company Subsidiaries, whether owned outright, as a joint
venture, or owned or controlled in any other capacity (all of which
shall be defined as "REAL ESTATE") and such Schedule 4.10(a) sets forth
a complete legal description of the Real Estate and a brief description
of any buildings located thereon; and (ii) all copyrights, patents,
trademarks, trade names or applications pending therefor owned by the
Company and the Company Subsidiaries. Except as set forth on Schedule
4.10(a), all of the Company's or the Company Subsidiaries' properties,
leasehold improvements and equipment are in reasonable operating
condition, except as would not
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cause a Company Material Adverse Effect.
(b) Neither the Company nor any Company Subsidiary owns any
right, title or interest in any real property, except as particularly
described on Schedule 4.10(a). Schedule 4.10(b) sets forth a complete
and accurate list and general description of all material leases for
real property ("REAL PROPERTY LEASES") to which the Company or any
Company Subsidiary is a party or by which any of them are bound. The
activities of the Company and the Company Subsidiaries with respect to
all real property and Real Property Leases owned or held by each of
them for use in connection with their respective operations are in all
material respects permitted and authorized by applicable zoning laws,
ordinances and regulations and all laws, rules and regulations of any
court, administrative agency or commission or other governmental
authority or instrumentality affecting such properties. The Company and
each Company Subsidiary enjoy peaceful and undisturbed possession under
all Real Property Leases to which they are parties, and all of such
Real Property Leases are valid and in full force and effect.
(c) Except as set forth on Schedule 4.10(c), the Company and
the Company Subsidiaries have good and marketable title to all of their
owned real and personal property, free, clear and discharged of, and
from, any and all liens, mortgages, charges, encumbrances and/or
security interests (each, an "ENCUMBRANCE"), except for (i)
Encumbrances for inchoate mechanics' and materialmen's liens for
construction in progress and workmen's, repairmen's, warehousemen's and
carriers' liens arising in the ordinary course of business, (ii)
Encumbrances for Taxes not yet payable, (iii) Encumbrances arising out
of, under, or in connection with, this Agreement, (iv) Encumbrances and
easements of record, (v) rights of lessors, co-lessees or subleases
that are reflected in each respective Real Property Lease and (vi)
Encumbrances which do not significantly impair the use, value or
transferability of such property (collectively, "PERMITTED
ENCUMBRANCE").
(d) The Company or any of the Company Subsidiaries (as the
case may be), as lessee, has the right under valid and subsisting
leases to occupy, use, possess and control all property leased by the
Company or its Subsidiary, qualified only by the written terms of such
leases, copies of which are attached to Schedule 4.10(d).
(e) The Company and each Company Subsidiary owns or possesses,
or holds a valid right or license to use, all intellectual property,
patents, trademarks, tradenames, service marks, copyrights and
licenses, and all rights with respect to the foregoing (collectively,
the "IP RIGHTS"), necessary for the conduct of its business as now
conducted, without any conflict with the rights of others.
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4.11. INSURANCE ISSUED BY COMPANY SUBSIDIARIES; RESERVES;
REINSURANCE TREATIES.
(a) Each form of insurance policy, policy endorsement or
amendment, reinsurance contract, annuity contract, application form,
sales material and service contract now in use by the Company or any
Company Subsidiary in any jurisdiction has, where required, received
interim or final approvals from the appropriate insurance regulatory
authorities of such jurisdiction.
(b) Neither the Company nor any Company Subsidiary has issued
any participating policies or any retrospectively rated policies of
insurance, other than policies with final premiums subject to audit.
(c) (i) Any premium rates required to be filed with or
approved by insurance regulatory authorities have been so filed and
have received interim or final approval from such regulatory
authorities, and (ii) all premiums charged by the Company Subsidiaries
conform with such approvals.
(d) Schedule 4.11(d) sets forth the Company and the Company
Insurance Subsidiary's estimated liabilities for unearned premiums,
outstanding claims (including claims due and unpaid, not yet due, and
incurred but not reported) and claims expenses (collectively,
"Reserves"), gross and net reinsurance thereof, as of June 30, 1997,
pertaining to the Company's life, health and annuity insurance
businesses. Except as set forth on Schedule 4.11(d), the Reserves were
prepared in accordance with the statutory or other accounting practices
prescribed or permitted by the applicable insurance regulatory
authorities. Liabilities for outstanding claims and claims expenses as
of June 30, 1997 have been estimated in full accordance with the
Company's prior practices and procedures.
(e) Schedule 4.11(e) sets forth a list and description of all
quota share, stop loss or other reinsurance or coinsurance agreements
to which either the Company or any Company Subsidiary is a party.
(f) The Company's and the Company Insurance Subsidiary's
Reserves, gross and net of reinsurance assumed or ceded, as of June 30,
1997, and each of the preceding five calendar years pertaining to the
Company's and the Company Insurance Subsidiary's businesses, have been
determined on a consistent basis except as described in Schedule
4.11(f).
(g) All insurance contract benefits payable by the Company
Insurance Subsidiary and by any other person that is a party to or
bound by any reinsurance, coinsurance or other similar contract with
such Company Insurance Subsidiary, have in all respects been paid or
are in the course of settlement in accordance with the terms of the
insurance, reinsurance or coinsurance contracts under which they arose,
except for such benefits which the Company Insurance Subsidiary
reasonably believes there is a basis to contest
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payment.
(h) No outstanding insurance contract issued, reinsured,
underwritten or assumed by any Company Insurance Subsidiary entitles
the holder thereof or any other person to receive dividends,
distributions or other benefits based upon the revenues or earnings of
such Company Insurance Subsidiary or any other person;
(i) The underwriting standards utilized and ratings applied by
the Company Insurance Subsidiary and by any other person that is a
party to or bound by any insurance, reinsurance, coinsurance or other
similar contract with any of the Company Insurance Subsidiary conforms
in all respects as to such contracts to the standards and ratings
required pursuant to the terms of the respective insurance,
reinsurance, coinsurance or other similar contracts, except for such
non-conformity as would not have a Company Material Adverse Effect;
(j) All amounts to which each Company Insurance Subsidiary is
entitled under reinsurance, coinsurance or similar contracts (including
without limitation amounts based on paid and unpaid losses) are fully
collectible, in accordance with the terms of such contracts except as
would not have a Company Material Adverse Effect; and
(k) Each insurance agent, general agent, broker, producer, or
representative, for any Company Insurance Subsidiary, is duly licensed
under state insurance laws for the type of business written, sold or
produced by such person in the particular jurisdiction in which such
person writes, sells or produces such business for the Company
Insurance Subsidiary and, where required by law, is duly appointed by
the Company to act as agent for the Company, except where such lack of
licensure would not have a Company Material Adverse Effect.
4.12. EMPLOYEE BENEFIT PLANS.
(a) Set forth on Schedule 4.12(a) is an accurate description
of all bonus, deferred compensation, pension, retirement,
profit-sharing, thrift savings, employee stock ownership, stock bonus,
stock purchase, restricted stock and stock option plans, all employment
or severance contracts, other material employee benefit plans and any
applicable "change in control" or similar provisions in any plan,
contract or arrangement which cover employees, former employees, agents
or independent contractors of the Company and Company Subsidiaries, and
all other benefit plans, contracts or arrangements covering directors,
employees, former employees, agents or independent contractors of the
Company or Company Subsidiaries (the "EMPLOYEES"), including, but not
limited to, "employee benefit plans" within the meaning of Section 3(3)
of ERISA (collectively, the "COMPENSATION AND BENEFIT PLANS"). True and
complete copies of all Compensation and Benefit Plans and such other
benefit plans, contracts or arrangements, including, but not limited
to, any trust instruments and/or insurance contracts, if any, forming a
part of any such plans and agreements, and all amendments thereto,
including,
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but not limited to (i) the actuarial report for such plan (if
applicable) for each of the last two years, and (ii) the most recent
determination letter from the IRS (if applicable) for such plan, are
attached as Schedule 4.12(a).
(b) All employee benefit plans, other than any multiemployer
plans ("MULTIEMPLOYER PLAN") within the meaning of Sections 3(37) or
4001(a)(3) of ERISA, covering Employees (the "PLANS"), to the extent
subject to ERISA, are in substantial compliance with ERISA. Each Plan
which is an "employee pension benefit plan" within the meaning of
Section 3(2) of ERISA ("PENSION PLAN") and which is intended to be
qualified under Section 401(a) of the Code, has received a favorable
determination letter from the IRS, and the Company is not aware of any
circumstances likely to result in revocation of any such favorable
determination letter. There is no material pending or threatened
litigation relating to the Plans. Neither the Company nor any of the
Company Subsidiaries has engaged in a transaction with respect to any
Plan that, assuming the taxable period of such transaction expired as
of the date hereof, could subject the Company or any of the Company
Subsidiaries to a tax or penalty imposed by either Section 4975 of the
Code or Section 502(i) of ERISA in an amount which would be material.
(c) No liability under Subtitle C or D of Title IV of ERISA
has been or is expected to be incurred by the Company or any of Company
Subsidiaries with respect to any ongoing, frozen or terminated
"single-employer plan", within the meaning of Section 4001(a)(15) of
ERISA, currently or formerly maintained by any of them, or the
single-employer plan of any entity which is considered one employer
with the Company or any of Company Subsidiaries under Section 4001 of
ERISA or Section 414 of the Code (an "ERISA AFFILIATE"). The Company
and Company Subsidiaries have not incurred and do not expect to incur
any withdrawal liability with respect to a Multiemployer Plan under
Subtitle E of Title IV of ERISA (regardless of whether based on
contributions of an ERISA Affiliate). No notice of a "reportable
event," within the meaning of Section 4043 of ERISA, for which the
30-day reporting requirement has not been waived, has been required to
be filed for any Pension Plan or by any ERISA Affiliate within the
twelve-month period ending on the date hereof.
(d) All contributions required to be made under the terms of
any Plan have been timely made. Neither any Pension Plan nor any
single-employer plan of an ERISA Affiliate has an "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 412
of the Code or Section 302 of ERISA. Neither the Company nor the
Company Subsidiaries has provided, or is required to provide, security
to any Pension Plan or to any single-employer plan of an ERISA
Affiliate pursuant to section 401(a)(29) of the Code.
(e) The Company and Company Subsidiaries have not contributed
to any Multiemployer Plan, and are not a party to any Multiemployer
Plan.
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(f) Neither the Company nor the Company Subsidiaries has any
obligations for retiree health and life benefits under any Plan, except
as set forth on Schedule 4.12(f). Except as set forth on Schedule
4.12(f), there are no restrictions on the rights of the Company or the
Company Subsidiaries to amend or terminate any such Plan without
incurring any liability thereunder.
(g) Neither the Company nor any of the Company Subsidiaries is
a party to, or is bound by, any collective bargaining agreement,
contract, or other agreement or understanding with a labor union or
labor organization, nor is the Company or any of the Company
Subsidiaries the subject of any proceeding asserting that the Company
or any such Subsidiary has committed an unfair labor practice or
seeking to compel the Company or such Subsidiary to bargain with any
labor organization as to wages or conditions of employment, nor is
there any strike involving the Company or any of the Company
Subsidiaries pending or threatened, nor is the Company aware of any
activity involving its or any of its Subsidiaries' employees seeking to
certify a collective bargaining unit or engaging in any other
organizational activity.
(h) With respect to the Compensation and Benefit Plans, all
required payments, premiums, contributions, reimbursements or accruals
for all periods ending prior to or as of the Closing Date shall have
been made or properly accrued and any bonding with respect to such
Compensation and Benefit Plan required under ERISA is in full force and
effect, except which would not have a Company Material Adverse Effect.
None of the Compensation and Benefit Plans has any unfunded
liabilities, except which would not have a Company Material Adverse
Effect. The Company and the Company Subsidiaries have complied with all
terms of ERISA and all regulations thereunder with respect to all
Compensation and Benefit Plans.
(i) The Company has amended its Severence Benefit Plan to
exclude the transactions contemplaced hereby from the definition of a
"change in control".
4.13. EMPLOYEES.
(a) The Company and each Company Subsidiary is in compliance
with all currently applicable laws and regulations respecting
employment, discrimination in employment, terms and conditions of
employment, wages, hours and occupational safety and health and
employment practices, and is not engaged in any unfair labor practice.
The Company has complied with all applicable notice provisions of and
has no material obligations under COBRA with respect to any former
employees or qualifying beneficiaries thereunder. The Company is not a
party to any collective bargaining agreement or other labor union
contract nor does the Company know of any activities or proceedings of
any labor union to organize any of its employees.
(b) Except as disclosed in the Company Financial Statements,
all sums due for employee compensation have been paid, accrued or
otherwise provided for, and all
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employer contributions for employee benefits, including deferred
compensation obligations, and any benefits under any Compensation and
Benefit Plan have been duly and adequately paid or provided for in
accordance with plan documents. No person treated as an independent
contractor by the Company or any Company Subsidiary is an employee as
defined in Section 3401(c) of the Code, nor has any employee been
otherwise improperly classified, as exempt, nonexempt or otherwise, for
purposes of federal or state income tax withholding or overtime laws,
rules or regulations. Schedule 4.13(c) sets forth the name, title,
current annual compensation rate (including bonus and commissions) and
current base salary rate of each officer of the Company and each
Company Subsidiary as of June 30, 1997. The Company Financial
Statements contain accurate accounts of all accrual bonuses, sick
leave, severance pay and vacation benefits for Company and Company
Subsidiary employees in accordance with GAAP. Copies of organizational
charts, any employee handbook(s), and any reports and/or plans prepared
or adopted pursuant to the Equal Employment Opportunity Act of 1972, as
amended, have been made available to the Purchaser.
(c) Each of the Company and the Company Subsidiaries is in
compliance with all applicable laws respecting employment and
employment practices, terms and conditions of employment, wages and
hours and occupational safety and health, and is not engaged in any
material unfair labor practice within the meaning of Section 8 of the
National Labor Relations Act, and (i) there is no proceeding pending
or, to the knowledge of the Company, threatened against it relating to
any thereof, or (ii) to the knowledge of the Company, any investigation
pending or threatened against it relating to any thereof.
4.14. BROKERAGE COMMISSIONS AND FEES. All negotiations
relating to this Agreement and the transactions contemplated hereby have been
and will be carried on by the Company directly with the Purchaser, its counsel,
accountants and other representatives in such a manner as not to give rise to
any claim against the Purchaser or the Company for any brokerage commission,
finder's fee, investment advisor's fee or other like payment arising out of the
transactions contemplated hereby, other than the agreement between the Company
and Advest, Inc. relating to certain fees of Advest, Inc. in connection
herewith.
The Company has fee agreements with all outside attorneys, accountants,
and other independent experts and advisors it has used or plans to use in
connection with the transactions contemplated by this Agreement, which provide
that such attorneys, accountants, and other independent experts and advisors
will be compensated only at their normal rates plus reasonable out-of-pocket
expenses except as set forth on Schedule 4.14.
4.15. CERTAIN AGREEMENTS.
(a) Schedule 4.15(a) sets forth a complete and accurate list
of all material contracts of the Company and the Company Subsidiaries
as of the date of this Agreement, as defined in Item 601(b)(10) of
Regulation S-K (the "MATERIAL CONTRACTS"). The Company and the Company
Subsidiaries have performed all of the respective obligations
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required to be performed by them to date and are not in default under
or in breach of any term or provision of any of the Material Contracts
or any Real Property Leases to which any of them is a party, is subject
or is otherwise bound, and no event has occurred that, with the giving
of notice or the passage of time or both, would constitute such a
default or breach. There are no events, facts or circumstances of which
constitute or, with the gaining of notice or the passage of time or
both, would constitute a default or breach of any of the Material
Contracts or Real Property Leases by the other parties thereto. Each of
the Material Contracts is a valid and binding agreement of the Company
or a Company Subsidiary, as the case may be, and, to the Company's
knowledge, of all other parties thereto.
(b) Schedule 4.15(b) also accurately identifies all of the
following agreements, contracts, or other instruments written or, to
the knowledge of the Company, oral, to which the Company or the Company
Subsidiaries are a party or by which any of them are bound or affected
or by which any of the stock, properties, or assets of the Company or
the Company Subsidiaries are bound or affected, or under which any of
their officers, directors, employees, or shareholders have rights: (i)
any agreements, plans or arrangements under or pursuant to which any of
the benefits of which will be increased, or the vesting of benefits of
which will be increased or accelerated, by the occurrence of any of the
transactions contemplated by this Agreement, or the value of any of the
benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement; and (ii) any agreement,
instrument, or understanding of the Company or the Company Subsidiaries
with any third parties, whether or not made in the ordinary and regular
course of business, which materially restricts the ability of the
Company to enter into any line of business or any geographic region.
True, complete, and correct copies of all of the written agreements,
contracts, or other instruments, and written descriptions of the
material details of any oral agreements or instruments identified on
Schedule 4.15(b) are attached to Schedule 4.15(b).
4.16. ORDERS INJUNCTIONS, DECREES, COMPLIANCE WITH APPLICABLE
LAWS.
(a) Except as set forth on Schedule 4.16(a), neither the
Company nor the Company Subsidiaries is subject to any order,
injunction or decree, written agreement, consent agreement, or
memorandum of understanding of any governmental body or court, or is in
violation of any order, injunction, or decree, written agreement,
consent agreement or memorandum of understanding.
(b) Except as set forth on Schedule 4.16(b), neither the
Company nor the Company Subsidiaries is subject to any cease-and desist
or other order issued by, or is a party to any written agreement,
consent agreement or memorandum of understanding with, or is a party to
any commitment letter or similar undertaking to, or is subject to any
order or directive by, or is a recipient of any extraordinary
supervisory letter from, or has adopted any board resolutions at the
request of (each, whether or not set forth on Schedule 4.16(b), a
"REGULATORY AGREEMENT"), any regulatory agency or other
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governmental entity that restricts the conduct of its business or that
in any manner relates to its capital adequacy, its management or its
business, nor has the Company or the Company Subsidiaries been advised
by any regulatory agency or other governmental entity that it is
considering issuing or requesting any Regulatory Agreement.
(c) The Company has delivered to the Purchaser copies of the
most recent examination reports, including related management letters,
of the Company Insurance Subsidiary conducted by any state insurance
department examiners, and reflecting the results of the most recent
examinations of the affairs of such Company Insurance Subsidiary, and
will furnish promptly to the Purchaser any additional such reports or
drafts of such reports received by the Company or any Company Insurance
Subsidiary prior to Closing. Except as set forth on Schedule 4.16(c),
all material deficiencies or violations noted in such examination
reports for the periods examined have either been resolved or are being
resolved to the satisfaction of or accepted by the insurance regulatory
authorities of the state conducting such examinations, without any
enforcement action taken against any such Company Insurance Subsidiary.
There are no examinations by any state insurance department examiners
in progress at any Company Insurance Subsidiary, nor, to the knowledge
of the Company, pending or scheduled with respect to any Company
Insurance Subsidiary.
4.17. SHAREHOLDERS OF THE COMPANY. Schedule 4.17 accurately
identifies the names and addresses of all of the shareholders who, to the
Company's knowledge, beneficially own more than 5% of Company Common Stock and
the number of shares of stock of the Company beneficially owned by each such
shareholder and by each director and executive officer of the Company as of the
date hereof.
4.18. REGULATORY FILINGS.
(a) The Company and the Company Subsidiaries have filed and
will continue to file in a timely manner (after giving effect to the
Form 12b-25 filed with the Commission for the quarter ended June 30,
1997) all required filings with the Commission and any insurance
commissioners ("STATE COMMISSIONERS"), (and will furnish the Purchaser
with copies of all such filings made subsequent to the date hereof
until the Closing Date), and all such filings were or will be, complete
and accurate in all material respects as of the dates of the filings,
and no such filing made or will make any untrue statement of a material
fact or omitted or omit to state a material fact necessary in order to
make the statements made, in the light of the circumstances under which
they were made, not misleading. Such filings and submissions were in
substantial compliance with applicable law when filed or submitted, and
no material deficiencies have been asserted by any regulatory
commission, agency or authority with respect to such filings or
submissions. Except as set forth on Schedule 4.18(a) and except for
normal examinations conducted by the IRS and the State Commissioners in
the regular course of the business of the Company or the Company
Subsidiaries, no federal, state or local governmental agency,
commission or other entity has initiated any proceeding or, to the best
of the knowledge
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and belief of the Company, investigation into the business or
operations of the Company or the Company Subsidiaries within the past
three years.
(b) The Company has since January 1, 1992 filed all forms,
proxy statements, schedules, reports and other documents required to be
filed by it with the Commission pursuant to the Exchange Act pursuant
to its rules and regulations.
(c) The Company has heretofore delivered to the Purchaser
complete copies of all periodic reports, statements and other documents
(including exhibits thereto) that the Company has filed with the
Commission under the Exchange Act since January 1, 1994, (collectively,
the "COMPANY SEC REPORTS"). All Company SEC Reports required to be
filed with the Commission by the Company during such period were, after
giving effect to Rule 12b-25 of the Exchange Act, filed in a timely
manner and complied in all material respects with the applicable
requirements of the Exchange Act and the rules and regulations
promulgated thereunder. At the time filed with the Commission (or if
amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing), no Company SEC Report contained any
untrue statement of a material fact or omitted to state any material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading.
4.19. COMPLIANCE WITH ENVIRONMENTAL LAWS AND HEALTH AND SAFETY
LAWS. For purposes of this Agreement, the term "ENVIRONMENTAL LAWS" shall mean
all federal, state and local laws including statutes, regulations, ordinances,
codes, rules, orders, directives and other governmental restrictions and
requirements (including, but not limited to, those contained in or evidenced by
permits, temporary permits or exemption letters) relating to the discharge of
air pollutants, water pollutants, solid wastes or process waste water or
otherwise relating to the environment, hazardous wastes, materials or
substances, toxic substances, asbestos or any operations of or use of property
by the Company or the Company Subsidiaries that has an impact on the
environment, including, but not limited to, the Federal Solid Waste Disposal
Act, the Federal Clean Air Act, the Federal Clean Water Act, the Federal
Resource Conservation and Recovery Act of 1976, the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, Toxic Substances
Control Act, Federal Water Pollution Control Act, National Environmental Policy
Act, Federal Occupational Safety and Health Act, regulations of the
Environmental Protection Agency, regulations of the Nuclear Regulatory Agency,
or any applicable federal or state regulatory or administrative agency with
authority over natural resources or environmental protection now in effect, all
as presently amended.
(a) Except as set forth on Schedule 4.19(a)(i) the operations
of the Company and the Company Subsidiaries currently and in the past
are in substantial compliance with all Environmental Laws; (ii) none of
the Company's or the Company Subsidiaries' operations are subject to
any judicial or administrative proceedings, pending or threatened,
alleging the violation of any Environmental Laws; (iii) none of the
Company's or the Company Subsidiaries' operations are the subject of a
federal, state or local investigation, pending
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or threatened, evaluating whether any remedial action is needed to
respond to a release of any hazardous or toxic waste, substance or
constituent, or any other substance into the environment; (iv) neither
the Company nor the Company Subsidiaries have generated hazardous waste
in the Company's or the Company Subsidiaries' operations in amounts
which are regulated by an Environmental Law; (v) neither the Company
nor the Company Subsidiaries have transported hazardous waste
attributable to the Company's or the Company Subsidiaries' operations
for treatment, storage or disposal in amounts which are regulated by an
Environmental Law; and (vi) neither the Company nor the Company
Subsidiaries have reported a spill or release of a hazardous or toxic
waste, substance or constituent or any other substance in the
environment in amounts which are regulated by an Environmental Law due
to the Company's or the Company Subsidiaries' operations.
(b) Except as set forth in Schedule 4.19(b) all Real Estate is
in compliance with all Environmental Laws; the Real Estate is not
subject to any judicial or administrative proceedings alleging the
violation of any Environmental Laws; the Real Estate is not the subject
of a federal, state, or local investigation evaluating whether any
remedial action is needed to respond to a release of any hazardous or
toxic waste, substance or constituent, or any other substance into, the
environment; neither the Company nor any of the Company Subsidiaries
have generated any hazardous material on the Real Estate in amounts
which are regulated by an Environmental Law; neither the Company nor
any of the Company Subsidiaries have transported any hazardous material
from the Real Estate to any waste treatment, storage or disposal
facility in amounts which are regulated by an Environmental Law.
(c) For the purposes of this Section 4.19, any reference to
"hazardous" or "toxic" waste, substances, or constituents encompasses
any waste, substance, or constituent regulated by, or subject to, the
provisions and regulations of either the Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. Sec. 6901 et seq.,
or the Toxic Substances Control Act, 15 U.S.C. Sec. 2601 et seq., each
as amended.
(d) The Company has not had any Phase I, Phase II, or Phase
III environmental reports nor any other environmental reports, studies
or surveys prepared with respect to real property owned or leased by
the Company or any Company Subsidiary, nor is the Company in possession
of any of the same with respect to such real property.
4.20. OTHER INFORMATION. No representation or warranty by the
Company contained in this Agreement, or disclosure in any Schedule hereto
prepared by the Company, certificate or other instrument or document furnished
or to be furnished by or on behalf of the Company pursuant to this Agreement
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact required to be stated herein or therein
which is necessary to make the statements contained herein or therein not
misleading.
4.21. NO SENSITIVE TRANSACTIONS.
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(a) Except as set forth on Schedule 4.21(a), within the past
five years, neither the Company nor the Company Subsidiaries nor, to
the Company's knowledge, any director, employee, or agent of the
Company or the Company Subsidiaries, has directly or indirectly used
funds or other assets of the Company or the Company Subsidiaries for
(i) illegal contributions, gifts or entertainment, or other illegal
expenses related to political activities; (ii) payments to or for the
benefit of any governmental official or employee, other than payments
required or permitted by law; (iii) illegal payments to or for the
benefit of any person, firm, corporation, or other entity, or any
officer, employee, agent, or representative thereof; or (iv) the
establishment or maintenance of an illegal secret or unrecorded fund.
(b) Except as set forth on Schedule 4.21(c), to the Company's
knowledge, no officer or director of the Company or any Company
Subsidiary possesses, directly or indirectly, any financial interest
in, or is a director, officer or employee of, any corporation or
business organization that is a supplier, customer, lessor, lessee, or
competitor or potential competitor of the Company or any Company
Subsidiary or that has entered into any material contract with the
Company or any Company Subsidiary. Ownership of less than 1% of any
class of securities of a company whose securities are registered under
the Exchange Act will not be deemed to be a financial interest for
purposes of this Section.
(c) Schedules 4.15(b) and 4.21(c) list all transactions
between January 1, 1995 and the date of this Agreement involving or for
the benefit of the Company or any Company Subsidiary, on the one hand,
and any director or officer of any member of the Company or any Company
Subsidiary or affiliate of such director or officer, on the other hand,
involving (i) any debtor or creditor relationship, (ii) any transfer or
lease of real or personal property, or (iii) purchases or sales of
products or services.
4.22. TAKEOVER RESTRICTIONS. Except as set forth on Schedule
4.22, no "business combination," "moratorium," "control share," or other state
antitakeover statute or regulation (a) prohibits or restricts the Purchaser's
ability to perform its obligations under this Agreement, or its ability to
consummate the transactions contemplated hereby, (b) would have the effect of
invalidating or voiding this Agreement or any provision hereof, (c) would
subject any party hereto to any material impediment or condition in connection
with the exercise of any of its rights under this Agreement, or (d) would
provide any rights to, or permit the exercise of rights by, the Company's
employees or shareholders.
4.23. INSURANCE. Schedule 4.23 contains a true, correct and
complete list of all general liability, property and casualty, worker's
compensation, directors' and officers', and errors and omissions insurance
policies and bonds, maintained by the Company and the Company Subsidiaries,
issued in the past three years, including the name of the insurer, the policy
number, the policy period, the amount of coverage, the type of policy and any
applicable deductibles, and all such insurance policies and bonds are in full
force and effect and have been in full force and effect at all times during
which the Company or any Company Subsidiary had any insurable
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interest in the subject of such insurance policies and bonds. As of the date
hereof, neither the Company nor any Subsidiary has received any notice of
cancellation or amendment of any such policy or bond or is in default under any
such policy or bond, no coverage thereunder is being disputed and all material
claims thereunder have been filed in a timely fashion and all premiums due
thereon on or prior to the date of Closing have been paid as and when due.
4.24. NO INVESTMENT COMPANY. Neither the Company nor any of
the Company Subsidiaries is an "investment company," or a company "controlled"
by an "investment company," within the meaning of the Investment Company Act of
1940, as amended.
4.25. EFFECTIVE TIME OF REPRESENTATIONS, WARRANTIES, COVENANTS
AND AGREEMENTS. Each representation and warranty of the Company as set forth in
this Agreement, as updated by any written disclosure schedule shall be deemed to
be made on and as of the date hereof, and as of the Closing Date, except for
representations and warranties made expressly as of a specific date.
4.26. VOTING REQUIREMENTS. Except as set forth on Schedule
4.26, the affirmative vote of a majority of the outstanding shares of Company
Common Stock entitled to vote on this Agreement is the only vote of the holders
of any class or series of the Company's capital stock necessary to approve this
Agreement and the transactions described herein.
4.27. CUSTOMERS. To the knowledge of the Company, no customers
or agents of the Company or any Company Subsidiary in the aggregate representing
more than $100,000 in revenue during 1996 intends to terminate, limit or reduce
its or their business relations with the Company or any Company Subsidiary.
4.28. ASSESSMENTS. Schedule 4.28 sets forth all assessments
levied against the Company or the Company Subsidiaries during 1996 and through
June 30, 1997 by any state insurance regulatory authority, state insurance
guaranty fund or state high risk health pool.
4.29. TERMINATION AND OTHER PAYMENTS. No severance and
termination payments, benefits, acceleration of benefit vesting, and other
compensation paid by the Company or any of its subsidiaries, as provided for in
this Agreement or otherwise, shall constitute "excess parachute payments" under
Section 28OG of the Code, giving effect to any obligations of the Purchaser or
any subsidiary thereof, as provided herein. The disallowance of a deduction
under Section 162(m) of the Code for employee remuneration will not apply to any
amount paid or payable by the Company or any Company Subsidiary under any
contract, benefit plan, program, arrangement or understanding currently in
effect.
4.30. TRANSACTIONS WITH AFFILIATES. Neither the Company nor
any of the Company Subsidiaries is a party to any transaction with any of the
following other than in connection with the sale of insurance in the ordinary
course of business and any employment contract or other employment arrangement:
(i) current or former officer or director of the Company or any of the Company
Subsidiaries; (ii) any parent, spouse, child, brother or sister of any such
officer or director; (iii) any corporation, partnership or other entity of which
any such officer or
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director or any such family relation is an officer, director, partner or greater
than 10% shareholder (based on percentage ownership of voting stock); or (iv)
any Affiliate of any such persons or entities, including, without limitation,
any transaction involving a contract, agreement or other arrangement providing
for the employment of, furnishing of materials, products or services by, rental
of real or personal property from, or otherwise requiring payments to, any such
person or entity.
4.31. PROXY STATEMENT. The Proxy Statement (as hereinafter
defined) shall, at the time such Proxy Statement or Registration Statement or
supplements thereto are filed with the Commission or are first published, sent
or given to shareholders, as the case may be, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The Proxy Statement
will comply in all material respects with the requirements of the Exchange Act
and the rules and regulations promulgated thereunder. Notwithstanding the
foregoing two sentences, the Company makes no representation or warranty as to
information included in the Proxy Statement which has been provided by Purchaser
or any person or entity holding an interest therein for purposes of inclusion in
the Proxy Statement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PURCHASER
Purchaser hereby represents and warrants to the Company as of
the date hereof, and as of the Closing Date, as follows:
5.1. AUTHORITY. Purchaser has all requisite limited liability
company power and authority, without the consent of any other person, to execute
and deliver this Agreement and the agreements to be delivered at Closing and to
carry out the transactions contemplated hereby and thereby, except for consents
required under the HSR Act. All limited liability company and other acts or
proceedings required to be taken by Purchaser to authorize the execution,
delivery and performance of this Agreement and all transactions contemplated
hereby have been duly and properly taken.
5.2. VALIDITY. This Agreement has been, and the documents to
be delivered at Closing by Purchaser will be, duly executed and delivered and
constitute lawful, valid and legally binding obligations of Purchaser,
enforceable in accordance with their respective terms, except as enforcement may
be limited by applicable bankruptcy, reorganization, insolvency, moratorium and
other laws affecting creditors' rights generally and by general equitable
principles. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby will not result in the creation of any
lien, charge or encumbrance of any kind or the acceleration of any indebtedness
or other obligation of Purchaser and are not
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prohibited by, do not violate or conflict with any provision of, and do not
constitute a default under or a breach of (a) Purchaser's certificate of
incorporation or bylaws, (b) any note, bond, indenture, contract, agreement,
permit, license or other instrument to which Purchaser is a party or by which
Purchaser or any of its assets is bound, (c) any order, writ, injunction, decree
or judgment of any court or governmental agency, or (d) any law, rule or
regulation applicable to Purchaser.
5.3. DUE ORGANIZATION. Purchaser is a limited liability
company organized and validly existing under the laws of the State of Nevada,
and has full power and authority to carry on the business in which it is
engaged.
5.4. BROKERS. Purchaser has not retained any broker or finder
or incurred any liability or obligation for any brokerage fees, commissions or
finders' fees with respect to this Agreement or the transactions contemplated
hereby.
5.5. INVESTMENT REPRESENTATION. (i) The Purchaser understands
that the Stock has not been, and will not be, registered under the Securities
Act as of the Closing Date or under any state securities laws, is being offered
and sold in reliance upon federal and state exemptions for transactions not
involving any public offering.
(ii) Purchaser represents that:
(A) it is acquiring the Stock and Warrants to be acquired by
it hereunder solely for its own account for investment purposes and not with a
view to the distribution thereof within the meaning of the Securities Act;
(B) it is a sophisticated investor with knowledge and
experience in business and financial matters;
(C) it has had access to all reports filed by the Company
during the current year and the year preceding the current year pursuant to the
Securities Exchange Act of 1934, as amended, and has had the opportunity to
obtain additional information in order to evaluate the merits and risks inherent
in holding the Stock;
(D) it has not been offered the Stock by any form of general
advertising or general solicitation;
(E) it is able to bear the economic risk and lack of liquidity
inherent in holding the Stock; and
(F) it is an "accredited investor" (as defined in the
Securities Act).
(iii) The certificates representing the Stock shall bear the following
legend:
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The shares evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended, or
any applicable state securities laws, and any transfer hereof
is subject to compliance with all applicable federal and state
securities laws and regulations.
5.6. OWNERSHIP AND CONTROL OF PURCHASER. The person or
entities owning membership interests in Purchaser as of the date hereof are
listed on Schedule 5.6 hereto, which Schedule sets forth their respective
percentage interests in Purchaser, the character thereof and who or which
persons or entities are the managers of Purchaser.
5.7. QUALIFICATION AND CONFLICTS. To the knowledge of
Purchaser, none of Purchaser or any person holding any interest in Purchaser,
directly or indirectly (each, an "INTERESTED PERSON"), is disqualified from
holding a direct or indirect interest in the Company and its subsidiaries under
the regulations of any state or other governmental entity regulating the Company
or any Company Subsidiaries or the business thereof nor is subject to any
regulation, agreement or other restriction that limits or precludes their
ownership of an interest in the Company or its subsidiaries or restricts their
right to participate in the management thereof.
5.8. FINANCING. Purchaser has obtained the financing
commitment of American National Bank and Trust Company of Chicago with respect
to the funding of the loans described in Section 9.1 hereof, a true and correct
copy of which is attached hereto as Exhibit 5.8 (the "COMMITMENT").
ARTICLE VI
ACTIONS PENDING CLOSING
6.1. INTERIM CONDUCT OF BUSINESS. From the date hereof until
the Closing, the Company shall operate the Business consistent with prior
practice and in the ordinary course of business and shall use all reasonable
efforts to preserve, protect and maintain the Business. Without limiting the
generality of the foregoing, from the date hereof until the Closing or
termination of this Agreement, except as otherwise agreed by Purchaser in
writing or as expressly contemplated by this Agreement, the Company:
(a) shall not enter into any transaction involving capital
expenditures, including leases, in excess of $50,000;
(b) shall not dispose of any assets or incur any liabilities
outside the ordinary course of business;
(c) shall not merge, liquidate, consolidate, amend its charter
or bylaws or effect any other organic corporate change;
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(d) shall not make any payment of any liability outside the
ordinary course of business;
(e) shall not make any dividend or distribution or repurchase,
redeem or issue any capital stock;
(f) shall not forgive or cancel any material debts or claims,
or waive any material rights;
(g) shall not change credit practices or methods of
maintaining books, accounts or business records;
(h) shall maintain each Facility and the assets of the
Business in good repair, order and condition, reasonable wear and tear
excepted;
(i) shall comply with all material obligations under all the
Material Contracts;
(j) except as otherwise provided herein, shall use reasonable
efforts to keep available the services of the present employees and
agents (and pay benefits related thereto in the ordinary course of
business and consistent with applicable law and past practice) and
preserve the goodwill of customers, suppliers and others;
(k) except as otherwise provided herein, shall not enter into,
amend or terminate or agree to enter into, amend or terminate any
Compensation and Benefit Plan or any employment, bonus, severance or
retirement contract or arrangement, nor increase or agree to increase
any salary or other form of compensation or benefits payable or to
become payable to any employee, except in the ordinary course of
business consistent with past practice;
(l) shall not enter into, amend or terminate, or agree to
enter into, amend or terminate, any Material Contract;
(m) shall not sell, lease or otherwise dispose of or agree to
sell, lease or otherwise dispose of, any assets, properties, rights or
claims;
(n) shall not incur or become subject to, nor agree to incur
or become subject to, any debt, obligation or liability, contingent or
otherwise, except liabilities incurred in the ordinary course of
business and consistent with past practice and expenses to be borne by
the Company in connection with the transactions contemplated hereby;
(o) shall not enter into any other transaction outside the
ordinary course of
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business;
(p) shall not take or omit to take any action within its
control (i) which could have a Company Material Adverse Effect or (ii)
cause any representation or warranty herein to become false in any
material respect.
From the date hereof through the Closing, the Company shall confer on a regular
and frequent basis with one or more designated representatives of Purchaser to
report material operational matters and the general status of on-going
operations of the Business. The Company shall promptly notify Purchaser of any
threatened or actual loss of a material customer and any material change in the
financial condition, results of operations, personnel, properties, business or
prospects of the Company and shall keep Purchaser fully informed of such events.
6.2. ACCESS. The Company shall provide Purchaser and its
employees, lenders, financial advisors, attorneys, accountants and other
authorized representatives access to all properties, facilities, personnel,
accountants, customers, vendors, books, contracts, leases, commitments and
records of the Company, and shall furnish Purchaser with all financial and
operating data and other information as to the Business and the assets,
properties, rights and claims of the Company, as Purchaser may from time to time
reasonably request.
ARTICLE VII
COVENANTS OF THE COMPANY
7.1. BOARD REPRESENTATION. Promptly upon the issuance of Stock
to the Purchaser pursuant to the terms hereof, the Company shall use all
reasonable efforts to cause directors of the Company to be elected as provided
in the Voting Agreement.
7.2. PROXY STATEMENT. As promptly as practicable after the
execution of this Agreement, the Company shall prepare and file with the
Commission a proxy statement relating to the meeting of the Company's
stockholders to be held in connection with the transactions contemplated hereby
(together with any amendments thereof or supplements thereto, the "PROXY
STATEMENT"). The Proxy Statement shall include the recommendation of the Board
in favor of adopting this Agreement and approving the transactions contemplated
hereby, unless the Company terminates this Agreement pursuant to Section
13.1(b), (d) or (e). Except in the event of termination of this Agreement, no
modification or withdrawal of such recommendation shall relieve the Company of
its obligation to submit this Agreement and the transactions contemplated hereby
to its stockholders in accordance with applicable law.
7.3. CONTINUED ASSISTANCE. From time to time after Closing, at
Purchaser's request and without further consideration, the Company shall
execute, acknowledge and deliver such documents, instruments or assurances and
take such other action as Purchaser may reasonably request to carry out the
provisions hereof and the transactions contemplated hereby.
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7.4. EXCLUSIVITY. During the period beginning on the date
hereof and ending upon termination of this Agreement, the Company agrees to
negotiate only with Purchaser and shall not solicit, entertain or support any
inquiry, proposal or offer from any other party regarding the sale, lease,
transfer or other disposition of the capital stock, business or assets of the
Company (an "ACQUISITION PROPOSAL"); PROVIDED however, that nothing contained in
this Agreement shall prevent the Company or its Board of Directors from (A)
complying with Rule 14e-2 promulgated under the Exchange Act with regard to an
Acquisition Proposal; (B) engaging in any discussions or negotiations with, or
providing any information to, any Person in response to an unsolicited bona fide
written Acquisition Proposal by any such Person; or (C) recommending such
unsolicited bona fide written Acquisition Proposal to the shareholders of the
Company, if and only to the extent that, in any such case as if referred to in
clause (B) or (C), that such Acquisition Proposal would, if consummated, result
in a Superior Proposal (as defined in Section 13.1(e)); PROVIDED FURTHER, that
if Purchaser is (i) unable to obtain financing in connection with the
acquisition of the Stock prior to March 1, 1998, or (ii) unable to obtain
reinsurance from the Reassurance Company of Hannover prior to March 1, 1998,
then the Company shall not be bound by the provisions of this Section 7.4.
7.5. TERMINATION FEE. In the event that (a) a proposal with
respect to a transaction relating to the acquisition of a material portion of
the capital stock of the Company or any of the Company's Subsidiaries, its or
their assets or business, whether in whole or in part, whether directly or
indirectly, through purchase, merger, consolidation or otherwise (an
"ACQUISITION TRANSACTION") is commenced by the Company, publicly proposed,
publicly disclosed or communicated to the Company or any representative or agent
thereof after the date of this Agreement and prior to the date of termination of
this Agreement, (b) this agreement is thereafter terminated by the Company
pursuant to Section 13.1(e), and (c) within six (6) months following such
termination an Acquisition Transaction is consummated or the Company enters into
an agreement relating thereto, then in any such event, the Company shall pay the
Purchaser $750,000.00 in same day funds (the "TERMINATION FEE") plus
reimbursement of Purchaser's expenses incurred in connection with the
Transactions contemplated hereby, including, without limitation, all due
diligence expenses and expenses of counsel.
7.6. REASONABLE EFFORTS. Subject to the provisions of Section
7.4, the Company shall use its reasonable efforts to consummate the transactions
contemplated by this Agreement and shall not take any other action inconsistent
with its obligations hereunder or which could materially hinder or delay the
consummation of the transactions contemplated hereby. From the date hereof
through the Closing Date, the Company shall use its reasonable efforts to
fulfill its conditions to Closing, perform the covenants required to be
performed by it, obtain all necessary consents and cause each of its
representations and warranties to remain true and correct in all respects as of
the Closing Date.
7.7. HSR ACT. The Company will timely and promptly make or
cause to be made all filings which may be required with respect to the
transactions contemplated by this Agreement under the HSR Act and use its
reasonable efforts to cause the satisfaction or
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termination of the waiting period under the HSR Act.
ARTICLE VIII
COVENANTS OF PURCHASER
8.1. REASONABLE EFFORTS. Purchaser shall use its reasonable
efforts to consummate the transactions contemplated by this Agreement and shall
not take any other action inconsistent with its obligations hereunder or which
could hinder or delay the consummation of the transactions contemplated hereby.
From the date hereof through the Closing Date, Purchaser shall use reasonable
efforts to fulfill its conditions to Closing, perform the covenants required to
be performed by them, obtain all necessary consents and to cause each of its
representations and warranties to remain true and correct in all respects as of
the Closing Date.
8.2. HSR ACT. Purchaser will timely and promptly make or cause
to be made all filings which may be required with respect to the transactions
contemplated by this Agreement under the HSR Act and use its efforts to cause
the satisfaction or termination of the waiting period under the HSR Act.
ARTICLE IX
ADDITIONAL AGREEMENTS
9.1. INTERIM LOAN. After the date hereof and prior to December
17, 1997, Purchaser shall make available to the Company a loan in the
approximate amount of $20,000,000. The proceeds of such loan shall be used as
follows: (i) $15,000,000 shall be invested in the Company Insurance Subsidiary
and evidenced by a surplus note in a form to be mutually agreed to by the
parties and (ii) $5,000,000 shall be used to satisfy in part the obligations of
the Company to Huntington Bank. The Company shall repay the principal amount of
such loan from the proceeds of the purchase of Stock hereunder. Simultaneously
with the payment referred to in clause (ii) of the first sentence of this
Section, the Company shall cause Huntington Bank to (i) terminate and release
its security interest in the stock of the Company Insurance Subsidiary and (ii)
execute and deliver all documents necessary to effect such termination and
release.
9.2. CERTAIN BENEFIT PLANS. Prior to December 17, 1997, the
Company shall (i) amend its defined contribution plan such that, going forward,
it shall be a 401(k) plan which shall be reasonably satisfactory in form and
substance to Purchaser; PROVIDED that if such 401(k) plan permits the Company to
match the contributions of its participants, any matching contributions provided
by the Company shall be in common stock of the Company; (ii) terminate its
split-dollar life insurance policy for the officers whose names are set forth on
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Schedule 9.2; and (iii) terminate its retiree health benefits Plan.
9.3. SEVERANCE PAY PLAN. The Company hereby waives any "change
of control" provisions contained in its severance pay plan which would otherwise
be triggered by the execution of this Agreement or the consummation of the
transactions contemplated hereby. Prior to December 17, 1997, the Company shall
terminate its severance pay plan.
9.4 DIRECTORS AND OFFICER INDEMNIFICATION. Purchaser shall use
reasonable efforts to cause the Company to maintain the Company's existing
directors' and officers' liability insurance policy ("D&O" INSURANCE") for a
period of not less than five years after Closing as long as the annual premium
therefor does not exceed 120% of the premium paid for coverage in 1996;
PROVIDED, HOWEVER, that Purchaser may cause the Company to substitute therefor
policies of substantially similar coverage and amounts containing terms no less
advantageous to such former directors or officers; PROVIDED, further, that if
the existing D&O Insurance expires or is cancelled during such period, Purchaser
shall cause the Company to use reasonable efforts to obtain substantially
similar D&O Insurance.
9.5 INTEGRATION AGREEMENT. The terms of paragraphs 1 through
17 of the Integration Agreement (as hereinafter defined) are hereby incorporated
by reference as if set forth herein to the extent such terms are not
inconsistent with the terms hereof.
9.6 ADVEST. At Closing, the Company shall pay the fees of
Advest, Inc. in the amount of $925,000.
ARTICLE X
CONDITIONS PRECEDENT TO OBLIGATION TO CLOSE
OF PURCHASER
The obligations of Purchaser to consummate the transactions to
be performed by it in connection with the Closing is subject to the satisfaction
of each of the following conditions:
10.1. ACCURACY OF WARRANTIES AND PERFORMANCE OF COVENANTS. The
representations and warranties of the Company contained herein shall be accurate
in all material respects as if made on and as of the Closing Date. The Company
shall have performed in all material respects the obligations and complied with
each and all of the covenants, agreements and conditions required to be
performed or complied with on or prior to the Closing, including execution and
delivery of the agreements referred to in SECTION 3.4.
10.2. NO PENDING ACTION. No action, suit, proceeding or
investigation before or in any court, administrative agency or other
governmental authority shall be pending or threatened wherein an unfavorable
judgment, decree or order would prevent the carrying out of this Agreement or
any of the transactions contemplated hereby, declare unlawful the
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transactions contemplated hereby, cause such transactions to be rescinded, or
affect the right of Purchaser to own, operate or control the Business.
10.3. CONSENTS. All consents by third parties that are
required for the issuance of the Stock to Purchaser or that are required for the
consummation of the transactions contemplated hereby, or that are required in
order to prevent a breach of or a default under or a termination of any
agreement to which the Company is a party or to which any portion of the
property of the Company is subject, shall have been obtained or provided for.
10.4. REGULATORY APPROVALS. All regulatory agencies shall have
taken such action as may be required to permit the consummation of the
transactions contemplated hereby and such actions shall remain in full force and
effect and shall be reasonably satisfactory in form and substance to Purchaser
and its counsel.
10.5. HSR ACT MATTERS. The waiting period required by the HSR
Act shall have expired or been terminated.
10.6. BANK FINANCING. Purchaser shall have obtained financing
of not less than $12,000,000 in connection with the acquisition of the Stock and
the transactions contemplated hereby satisfactory to Purchaser.
10.7. EMPLOYMENT AND SEVERANCE AGREEMENTS. The Company and the
appropriate parties shall have entered into the following agreements:
(a) an Employment Agreement with Xxxx Lick in accordance with
the terms of the Agreement dated November 13, 1997 between Purchaser
and the Company (the "INTEGRATION AGREEMENT");
(b) an Employment Agreement with Xxxxx Xxxxxxx in accordance
with the terms of the Integration Agreement;
(c) Employment Agreements for certain key employees in
accordance with the terms of the Integration Agreement; and
(d) Severance Agreements in accordance with the terms of the
Integration Agreement.
10.8. SUSPENSION OF TRADING. There shall not have occurred nor
be continuing (i) any general suspension of trading in, or limitation on prices
for, securities on any national securities exchange or in the over-the-counter
market, (ii) the declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States, (iii) the commencement of war
involving an attack on the continental United States or (iv) in the case of any
of the foregoing existing as of the date hereof, a material acceleration or
worsening thereof;
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10.9. SHAREHOLDER APPROVAL. This Agreement and the
transactions contemplated hereby shall have been approved by the shareholders of
the Company in accordance with the requirements of its Articles of
Incorporation, Bylaws and all applicable laws.
10.10. CHANGE OF CONTROL. There shall not have occurred an
acquisition by any person, entity or "group" within the meaning of 13(d)(3) or
14(d)(2) of the Exchange Act of 15% or more (after giving effect to the
transactions contemplated hereby) of either the then outstanding equity
interests of the Company or the combined voting power of the Company's then
outstanding voting securities entitled to vote generally in the election of
directors.
10.11. REINSURANCE TREATY. The Company shall have entered into
a reinsurance treaty in an amount not less than $10,000,000 on terms reasonably
satisfactory in form and substance to Purchaser.
10.12. RELEASE OF SECURITY INTEREST. Huntington Bank shall
have terminated and released its security interest in the stock of the Company
Insurance Subsidiary and shall have executed and delivered all documents
necessary to effect such termination and release to the satisfaction of the
Purchaser.
ARTICLE XI
CONDITIONS PRECEDENT TO OBLIGATION TO CLOSE
OF THE COMPANY
The obligations of the Company to consummate the transactions
to be performed in connection with the Closing is subject to the satisfaction of
each of the following conditions:
11.1. ACCURACY OF WARRANTIES AND PERFORMANCE OF COVENANTS. The
representations and warranties of Purchaser contained herein shall be accurate
in all material respects as if made on and as of the Closing Date. Purchaser
shall have performed in all material respects the obligations and complied with
each and all of the covenants, agreements and conditions required to be
performed or complied with on or prior to the Closing, including execution and
delivery of the agreements referred to in SECTION 3.4.
11.2. NO PENDING ACTION. No action, suit, proceeding or
investigation before or in any court, administrative agency or other
governmental authority shall be pending or threatened wherein an unfavorable
judgment, decree or order would prevent the carrying out of this Agreement or
any of the transactions contemplated hereby, declare unlawful the transactions
contemplated hereby or cause such transactions to be rescinded.
11.3. CONSENTS. All consents by third parties that are
required for the purchase of the Stock by Purchaser or that are required for the
consummation of the transactions contemplated hereby, or that are required in
order to prevent a breach of or a default under or a
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termination of any agreement to which the Purchaser is a party or to which any
portion of the property of the Purchaser is subject, shall have been obtained or
provided for.
11.4. REGULATORY APPROVALS. All regulatory agencies shall have
taken such action as may be required to permit the consummation of the
transactions contemplated hereby and such actions shall remain in full force and
effect and shall be reasonably satisfactory in form and substance to the Company
and its counsel.
11.5. HSR ACT MATTERS. The waiting period required by the HSR
Act shall have expired or been terminated.
11.6. SHAREHOLDER APPROVAL. This Agreement and the
transactions contemplated hereby shall have been approved by the shareholders of
the Company in accordance with the requirements of its Articles of
Incorporation, Bylaws and all applicable laws if required.
ARTICLE XII
SURVIVAL AND INDEMNIFICATION
12.1. SURVIVAL. All covenants and agreements contained in this
Agreement shall be deemed to be material and to have been relied upon by the
parties hereto and shall survive the Closing and be enforceable until the
covenant or agreement has been fully performed. All representations and
warranties contained in this Agreement shall be deemed to be material and to
have been relied upon by the parties hereto and shall survive the Closing for a
period ending two years from the Closing Date, PROVIDED that the representations
and warranties in the following Sections shall survive and be enforceable
indefinitely: Section 4.1, Section 4.2, Section 4.4; and PROVIDED FURTHER that
the representations and warranties of Section 4.9 shall survive until expiration
of the statute of limitations (and any extensions thereof) applicable to any
return relating to the period prior to Closing or any tax position taken with
respect to the period prior to Closing. No claim for indemnification based upon
a representation and warranty that survives for a limited period of time may be
asserted after expiration of the applicable survival period but any claim
asserted prior to expiration of the applicable survival period shall survive
until finally resolved; PROVIDED that nothing herein shall limit the time in
which a party may bring a claim for fraud or intentional breach.
12.2. INDEMNIFICATION.
(a) Purchaser shall, indemnify and hold harmless the Company,
its officers, directors, employees, agents and representatives, from and against
any and all loss, diminution in value, damage, cost, expense (including court
costs and attorneys' fees and expenses and costs of investigation), fine,
penalty, suit, action, claim, deficiency, liability or obligation caused by or
arising from (i) any misrepresentation, breach of warranty or failure to fulfill
any
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covenant or agreement of Purchaser contained herein and (ii) any and all claims
of third parties made based upon facts alleged that, if true, would have
constituted such a misrepresentation, breach or failure.
(b) The Company shall indemnify and hold harmless Purchaser,
its officers, directors, employees, agents and representatives, from and against
any and all loss, diminution in value, damage, cost, expense (including court
costs and attorneys' fees and expenses and costs of investigation), fine,
penalty, suit, action, claim, deficiency, liability or obligation caused by or
arising from (i) any misrepresentation, breach of warranty or failure to fulfill
any covenant or agreement of the Company contained herein, and (ii) any and all
claims of third parties made based upon facts alleged that, if true, would
constitute such a misrepresentation, breach or failure.
(c) The representations, warranties, covenants and agreements
contained in this Agreement shall not be affected by any party hereto or by
anyone on behalf of any such party: (i) investigating, verifying or examining
any matters with respect to the Company, the Business, this Agreement or the
transactions contemplated hereby; (ii) having the opportunity to investigate,
verify or examine any matters related to the Company, the Business, this
Agreement or the transactions contemplated hereby; or (iii) failing to determine
or discover any facts which were determinable or discoverable by any such party.
All rights contained in this Article are cumulative and are in addition to all
other rights and remedies which are otherwise available, pursuant to the terms
of this Agreement or applicable law. All indemnification rights shall be deemed
to apply in favor of the indemnified party's officers, directors,
representatives, subsidiaries, affiliates, successors and assigns.
12.3. DEFENSE OF THIRD PARTY CLAIMS. With respect to each
third party claim subject to this Article (a "THIRD PARTY CLAIM"), the party
seeking indemnification (the "INDEMNIFIED PARTY") shall give prompt notice to
the indemnifying party (the "INDEMNIFYING PARTY") of the Third Party Claim,
provided that failure to give such notice promptly shall not relieve or limit
the obligations of the Indemnifying Party except to the extent the Indemnifying
Party is materially prejudiced thereby. If the remedy sought in the Third Party
Claim is solely money damages or if the Indemnified Party otherwise permits,
then the Indemnifying Party, at its sole cost and expense, may, upon notice to
the Indemnified Party within fifteen (15) days after the Indemnifying Party
receives notice of the Third Party Claim, assume the defense of the Third Party
Claim. If it assumes the defense of a Third Party Claim, then the Indemnifying
Party shall select counsel reasonably satisfactory to the Indemnified Party to
conduct the defense. The Indemnifying Party shall not consent to a settlement
of, or the entry of any judgment arising from, any Third Party Claim, unless (i)
the settlement or judgment is solely for money damages and the Indemnifying
Party admits in writing its liability to hold the Indemnified Party harmless
from and against any losses, damages, expenses and liabilities arising out of
such settlement or (ii) the Indemnified Party consents thereto, which consent
shall not be unreasonably withheld. The Indemnifying Party shall provide the
Indemnified Party with fifteen (15) days prior notice before it consents to a
settlement of, or the entry of a judgment arising from, any Third Party Claim.
The Indemnified Party shall be entitled to participate in
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the defense of any Third Party Claim, the defense of which is assumed by the
Indemnifying Party, with its own counsel and at its own expense. With respect to
Third Party Claims in which the remedy sought is not solely money damages, (i)
the Indemnifying Party shall, upon notice to the Indemnified Party within
fifteen (15) days after the Indemnifying Party receives notice of the Third
Party Claim, be entitled to participate in the defense with its own counsel at
its own expense and (ii) the Indemnified Party shall not consent to any
settlement of, or entry of any judgment arising from, such Third Party Claim
unless the Indemnifying Party consents thereto, which consent shall not be
unreasonably withheld. If the Indemnifying Party does not elect to assume or
participate in the defense of any Third Party Claim in accordance with the terms
of this Section, then the Indemnifying Party shall be bound by the results
obtained by the Indemnified Party with respect to the Third Party Claim. The
parties shall cooperate in the defense of any Third Party Claim and the relevant
records of each party shall be made available on a timely basis.
12.4. LIMITATIONS. Neither Purchaser nor the Company shall be
entitled to indemnification from the other for breaches of representations or
warranties hereunder unless and until the aggregate amount of such party's
indemnifiable claims equal or exceed $1,000,000 but it then will be entitled to
recover the full amount of all such claims;
12.5 EXCLUSIVE REMEDY. Except in the case of fraud or
intentional breach, the indemnification rights provided pursuant to this Article
shall be the exclusive remedy of the parties with respect to any dispute arising
out of or related to this Agreement and the transactions contemplated hereby.
12.6 TAX BENEFITS. The amount with respect to which any
indemnifying party is obligated to indemnify any indemnified party from and
against shall be adjusted to take into account any tax benefits reasonably
expected to be realized at determinable times by the indemnified party or its
owners (if the indemnified party is a LLC, partnership or similar entity) as a
result of its incurrence of an indemnified loss and shall also take into account
the relevant effective tax rates applicable to the indemnified party or its
owners (if the indemnified party is a LLC, partnership or similar entity) and
the tax attributes of the indemnified party or its owners (if the indemnified
party is a LLC, partnership or similar entity). An indemnified loss arising from
the inaccuracy of more than one representation or the breach of more than one
warranty or covenant or any combination of inaccuracies or breaches shall only
be recovered once.
ARTICLE XIII
TERMINATION AND WAIVER
13.1. TERMINATION OR ABANDONMENT. Notwithstanding anything
contained in this Agreement to the contrary, this Agreement may be terminated
and abandoned at any time
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prior to the Closing:
(a) by the mutual written consent of Purchaser and the
Company;
(b) by Purchaser or the Company if any court of competent
jurisdiction or governmental body, authority or agency having
jurisdiction shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree,
ruling or other action shall have become final and nonappealable;
(c) by Purchaser, if one or more of the material conditions to
the obligation of Purchaser to close has not been fulfilled by April
30, 1998;
(d) by the Company if one or more of the material conditions
to the obligation of the Company to close has not been fulfilled by
April 30, 1998;
(e) by the Company in connection with its intention to pursue
a Superior Proposal (as hereinafter defined); PROVIDED that such
termination under clause (e) hereof shall not be effective unless the
Company has made payment of the Termination Fee required by Section 6.5
if it is then due. A "Superior Proposal" shall mean a written proposal
that has not been solicited by the Company following the date of this
Agreement relating to a proposed Acquisition Transaction which proposal
is, in the reasonable good faith judgment of the Board, after
consultation with legal and financial advisors, on financial and other
terms more favorable to the shareholders of the Company than the terms
of the transactions contemplated hereby.
In the event of termination of this Agreement pursuant to this Section, this
Agreement shall terminate and there shall be no other liability on the part of
the Company to Purchaser or on the part of Purchaser to the Company except as
otherwise provided herein and except liability arising out of a willful breach
of a covenant in this Agreement or fraud, in which event, the non-breaching
party reserves the right to seek all available remedies.
13.2. EXTENSION OF TIME, WAIVER, ETC. At any time prior to the
Closing, Purchaser or the Company may by written instrument:
(a) extend the time for the performance of any of the
obligations or acts of the other party; and
(b) waive compliance with any of the agreements of the other
party contained herein; PROVIDED, HOWEVER, that no failure or delay by
any party, in exercising any right hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other rights
hereunder.
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ARTICLE XIV
GENERAL PROVISIONS
14.1. AMENDMENTS AND WAIVER. No amendment, waiver, termination
or consent with respect to any provision of this Agreement shall in any event be
effective, unless the same shall be in writing and signed by Purchaser and the
Company; PROVIDED that any exercise of any rights hereunder or any amendment,
waiver, termination or consent with respect to any provision of this Agreement
on behalf of the Company may be and shall be exercised and approved by a
majority of the independent directors of the board of directors of the Company.
14.2. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be delivered in person or
sent by registered or certified mail, postage prepaid, commercial overnight
courier (such as Express Mail, Federal Express, etc.) with written verification
of receipt or by telecopy. A notice shall be deemed given: (a) when delivered by
personal delivery (as evidenced by the receipt); (b) five (5) days after deposit
in the mail if sent by registered or certified mail; (c) one (1) business day
after having been sent by commercial overnight courier as evidenced by the
written verification of receipt; or (d) on the date of confirmation if
telecopied.
(a) If to Purchaser:
----------------------
----------------------
----------------------
----------------------
(b) If to the Company:
Central Reserve Life Corporation
00000 Xxxxxxxx Xxxx
Xxxxxxxxxxxx, Xxxx 00000
Attention: Xxxx Lick
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with a copy to:
Xxxxxx & Xxxxxxx
5800 Sears Tower
000 Xxxxx Xxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Facsimile 000-000-0000
Attention: Xxxx X. Xxxxxxxx
Any party may change its address for receiving notice by written notice given to
the others named above.
14.3. EXPENSES. Expect as provided herein, each party shall
bear its own legal, accounting and administrative expenses in connection with
the investigation, negotiation and consummation of the transaction contemplated
hereby.
14.4. COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
14.5. SUCCESSORS AND ASSIGNS. This Agreement shall bind and
inure to the benefit of the parties named herein and their respective successors
and assigns. Neither party may assign this Agreement without the prior written
consent of the other party; PROVIDED, however, the Purchaser may assign rights
to acquire less than 50% of the Stock if (i) any such assignee agrees to be
bound by the terms hereof and the terms of the Voting Agreement, and (ii) such
assignment does not release Purchaser of its obligations hereunder.
14.6. ENTIRE TRANSACTION. This Agreement and the documents
referred to herein contain the entire understanding among the parties with
respect to the transactions contemplated hereby and supersedes all other
agreements, understandings and undertakings among the parties on the subject
matter hereof;
14.7. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal substantive laws of the State of Ohio
applicable to contracts made and to be performed wholly within said State.
14.8. OTHER RULES OF CONSTRUCTION. References in this
Agreement to sections, schedules and exhibits are to sections of, and schedules
and exhibits to this Agreement unless otherwise indicated. Words in the singular
include the plural and in the plural include the singular. The word "or" is not
exclusive. The word "including" shall mean including, without limitation. The
section and other headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. As used herein, "knowledge," "to the knowledge," "to the best
knowledge" or any similar phrase shall be deemed to refer to the actual
knowledge of any of the Chief Executive officer,
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Chief Operating officer, Chief Financial Officer, General Counsel or Chief
Internal Actuary.
14.9. ANNOUNCEMENTS. The parties shall cooperate in the
preparation of any announcements regarding the transactions contemplated by this
Agreement. No announcement of this Agreement or any transaction contemplated
hereby shall be made by any party prior to the Closing without the written
approval of the other party.
14.10. PARTIAL INVALIDITY. In the event that any provision of
this Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render unenforceable any
other provision hereof.
* * *
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed all as of the date first above written.
Strategic Acquisition Partners, LLC
By: /s/ Xxx Xxxxx
---------------------------------
Its: Manager
---------------------------------
Central Reserve Life Corporation
By: /s/ Xxxx Lick, Jr.
---------------------------------
Its: President
---------------------------------
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EXHIBIT A
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES
NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT
AND SUCH LAWS THAT, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND
OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS
AVAILABLE.
------------------------------------------
CENTRAL RESERVE LIFE CORPORATION
COMMON SHARES PURCHASE WARRANT
------------------------------------------
This certifies that, for good and valuable consideration, Central
Reserve Life Corporation, an Ohio corporation (the "Company"), grants to
_____________ (the "Warrantholder"), the right to purchase from the Company
_____________________ (________) validly issued, fully paid and nonassessable
shares (the "Warrant Shares") of the Company's Common Shares, without par value
(the "Common Shares"), at the purchase price per share of $6.50 (the "Exercise
Price"), at any time prior to 5:00 p.m., New York City time, on the Expiration
Date, all subject to the terms, conditions and adjustments herein set forth.
This Warrant was issued in connection with the Stock Purchase
Agreement, dated _____________, 199_ (the "Stock Purchase Agreement"), among
the Company and Strategic Acquisition Partners, LLC and is subject to the terms
thereof. The Warrantholder is entitled to the rights and subject to the
obligations contained in the Stock Purchase Agreement relating to this Warrant
and the Warrant Shares.
I. DURATION AND EXERCISE OF WARRANT.
1.1 Duration and Exercise of Warrant. Subject to the terms and
conditions set forth herein, this Warrant may be exercised, in whole or in part,
by the Warrantholder by:
(a) the surrender of this Warrant to the Company, with a duly
executed Exercise Form specifying the number of Warrant Shares to be
purchased, during normal business
47
hours on any Business Day prior to the Expiration Date; and
(b) the delivery of payment to the Company, for the account of the
Company, by cash, wire transfer, certified or official bank check or any
other means approved by the Company, of the Exercise Price for the number
of Warrant Shares specified in the Exercise Form in lawful money of the
United States of America.
The Company agrees that such Warrant Shares shall be deemed to be issued to the
Warrantholder as the record holder of such Warrant Shares as of the close of
business on the date on which this Warrant shall have been surrendered and
payment made for the Warrant Shares as aforesaid. Notwithstanding the foregoing,
no such surrender shall be effective to constitute the Person entitled to
receive such shares as the record holder thereof while the transfer books of the
Company for the Common Shares are closed for any purpose (but not for any period
in excess of five days); but any such surrender of this Warrant for exercise
during any period while such books are so closed shall become effective for
exercise immediately upon the reopening of such books, as if the exercise had
been made on the date this Warrant was surrendered and for the number of shares
of Common Shares and at the Exercise Price in effect at the date of such
surrender.
1.2 WARRANT SHARES CERTIFICATE. A stock certificate or certificates
for the Warrant Shares specified in the Exercise Form shall be delivered to the
Warrantholder within three Business Days after receipt of the Exercise Form by
the Company and payment of the purchase price. No fractional shares shall be
issued upon the exercise of this Warrant, provided that the Warrantholder shall
receive, in lieu of any fractional shares, cash in an amount equal to the
product of the fraction multiplied by the Current Market Price per Common Share.
If this Warrant shall been exercised only in part, the Company shall, at the
time of delivery of the stock certificate or certificates, deliver to the
Warrantholder a new Warrant evidencing the rights to purchase the remaining
Warrant Shares, which new Warrant shall in all other respects be identical with
this Warrant.
2. RESTRICTIONS ON TRANSFER; RESTRICTIVE LEGENDS.
2.1 This Warrant, including the registration rights pursuant to
Section 7 hereof, may be offered, sold, transferred, pledged or otherwise
disposed of in whole or in part, to any person, subject to compliance with any
applicable securities laws.
2.2 Except as otherwise permitted by this Section 2, each stock
certificate for Warrant Shares issued upon the exercise of any Warrant and each
stock certificate issued upon the direct or indirect transfer of any such
Warrant Shares shall be stamped or otherwise imprinted with a legend in
substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND
NEITHER THE SECURITIES NOR ANY INTEREST HEREIN MAY BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE
2
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REGISTRATION STATEMENT UNDER SUCH ACT OR SUCH LAWS OR AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT AND SUCH LAWS THAT, IN THE OPINION OF COUNSEL
FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO
COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
Notwithstanding the foregoing, the Warrantholder may require the
Company to issue a Warrant or a stock certificate for Warrant Shares, in
each case without a legend, if either (i) such Warrant or such Warrant
Shares, as the case may be, have been registered for resale under the
Securities Act, (ii) the Warrantholder has delivered to the Company an
opinion of legal counsel (from a firm reasonably satisfactory to the
Company) which opinion shall be addressed to the Company and be
reasonably satisfactory in form and substance to the Company's counsel,
to the effect that such registration is not required with respect to such
Warrant or such Warrant Shares, as the case may be, or (iii) such Warrant
or Warrant Shares are sold in compliance with Rule 144 or Rule 144(k) (or
any successor provision then in effect) under the Securities Act, the
Company receives customary representations to such effect and the Company
receives an opinion of counsel to the Company in customary form that such
legend may be removed.
3. RESERVATION AND RESIGNATION OF SHARES.
The Company covenants and agrees as follows:
(a) All Warrant Shares that are issued upon the exercise of this
Warrant shall, upon issuance, be validly issued, fully paid and
nonassessable, not subject to any preemptive rights, and free from all
taxes, liens, security interests, charges, and other encumbrances with
respect to the issuance thereof.
(b) During the period within which this Warrant may be exercised,
the Company shall at all times have authorized and reserved, and keep
available free from preemptive rights, a sufficient number of Common
Shares to provide for the exercise of the rights represented by this
Warrant.
4. LOSS OR DESTRUCTION OF WARRANT
Subject to the terms and conditions hereof, upon receipt by the Company
of evidence reasonably satisfactory to it of the loss, theft, or destruction or
mutilation of this Warrant and, in the case of loss, theft or destruction, of
such bond or indemnification as the Company may reasonably require, and, in the
case of such mutilation, upon surrender and cancellation of this Warrant, the
Company will execute and deliver a new Warrant of like tenor.
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49
5. OWNERSHIP OF WARRANT
The Company may deem and treat the person in whose name this Warrant is
registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary, until
presentation of this Warrant for registration of transfer.
6. CERTAIN ADJUSTMENTS.
6.1 The number of Warrant Shares purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment as follows:
(a) STOCK DIVIDENDS, SPLITS, COMBINATIONS. If at any time after
the date of the issuance of this Warrant the Company (i) declares a
dividend or other distribution payable in Common Shares or securities
convertible into Common Shares or subdivides its outstanding Common
Shares into a larger number or (ii) combines its outstanding Common
Shares into a smaller number, then (x) the number of Warrant Shares to be
delivered upon exercise of this Warrant will, upon the occurrence of an
event set forth in clause (i) above, be increased and, upon the
occurrence of an event set forth in clause (ii) above, be decreased so
that such Warrantholder will be entitled to receive the number of Common
Shares that such Warrantholder would have owned immediately following
such action had this Warrant been exercised immediately prior thereto and
(y) the Exercise Price in effect immediately prior to such dividend,
other distribution, subdivision or combination, as the case may be, shall
be adjusted proportionately by multiplying such Exception Price by a
fraction, of which the numerator shall be the number of Warrant Shares
purchasable upon exercise of this Warrant immediately prior to such
adjustment and of which the denominator shall be the number of Warrant
Shares purchasable immediately thereafter.
(b) DISTRIBUTION OF STOCK, OTHER SECURITIES, EVIDENCE OF
INDEBTEDNESS. In case the Company shall distribute to the holders of
Common Shares, shares of its capital stock (other than Common Shares or
shares convertible into Common Shares for which adjustment is made under
Section 6.1(a)), stock or other securities of the Company or any other
Person, evidences of indebtedness issued by the Company or any other
Person, assets (excluding cash dividends) or options, Warrants or rights
to subscribe for or purchase the foregoing, then, and in each such case,
immediately following the record date fixed for the determination of the
holders of Common Shares entitled to receive such distribution, the
Exercise Price then in effect shall be adjusted by multiplying the
Exercise Price in effect immediately prior to such record date by
fraction (i) the numerator of which shall be such Current Market Price of
the Common Shares less the then Fair Market Value (as determined by the
Board of Directors or a duly appointed committee thereof) of the portion
of the stock, other securities, evidences of indebtedness so distributed
or of such options, warrants or rights applicable to one Common Share
(but such numerator shall not be less than one) and (ii) the denominator
of which shall be the Current Market Price of one Common Share on such
record date (i.e. prior to such shares trading "ex-"). Such adjustment
shall become
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50
effective at the opening of business on the Business Day following the
record date for the determination of stockholders entitled to such
distribution.
(c) REORGANIZATION, MERGER, SALE OF ASSETS. In case of any
capital reorganization or reclassification or other change of
outstanding Common Shares (other than a change in par value), any
consolidation or merger of the Company with or into another Person
(other than a consolidation or merger of the Company in which the
Company is the resulting or surviving Person and which does not result
in any reclassification or change of outstanding Common Stock) or the
sale of all or substantially all of the assets of the Company or another
Person, upon exercise of this Warrant the Warrantholder shall have the
right to receive kind and amount of shares of stock or other securities
or property to which a holder of the number of Common Shares of the
Company deliverable upon exercise of this Warrant would have been
entitled upon such reorganization, reclassification, consolidation,
merger or sale had this Warrant been exercised immediately prior to such
event; and, in such case, appropriate adjustment (as determined in good
faith by the Board of Directors or a duly appointed committee thereof)
shall be made in the application of the provisions of this Section 6
with respect to the rights and interest thereafter of the Warrantholder,
to the end that the provisions set forth in this Section 6 (including
provisions with respect to changes in and other adjustments of the
Exception Price) shall thereafter be applicable, as nearly as reasonably
may be, in relation to any shares of stock or other property thereafter
deliverable upon exercise of this Warrant.
(d) CARRYOVER. Notwithstanding any other provision of this
Section 6.1, no adjustment shall be made to the number of Common Shares
to be delivered to the Warrantholder (or to the Exercise Price) if such
adjustment represents less than 1% of the number of shares to be so
delivered, but any lesser adjustment shall be carried forward and shall
be made at the time and together with the next subsequent adjustment
that together with any adjustments so carried forward shall amount to 1%
or more of the number of shares to be so delivered, provided however,
that, upon exercise of this warrant pursuant to Section 1 hereof, any
adjustment called for by Sections 6.2(a), (b) or (c) which has not been
made as a result of this Section 6.1(d) shall be made.
6.2 NO ADJUSTMENT FOR DIVIDENDS. Except as provided in Section 6.1, no
adjustment in respect of any dividends shall be made during the term of this
Warrant or upon the exercise of this Warrant. Notwithstanding any other
provision hereof, no adjustments shall be made on Warrant Shares issuable on the
exercise of this Warrant for any cash dividends paid or payable to holders of
record of Common Shares prior to the date as of which the Warrantholder shall be
deemed to be the record holder of such Warrant Shares.
6.3. NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares or the
Exercise Price of such Warrant Shares shall be adjusted, as provided in Section
6.1, the Company shall forthwith file, at the principal office of the Company
(or at such other place as may be designated by the Company), a statement,
certified by the chief financial officer of the Company, showing in detail the
facts requiring such adjustment, the computation by which such adjustment was
made
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51
and the Exercise Price that shall be in effect after such adjustment. The
Company shall also cause a copy of such statement to be sent by first class mail
postage prepaid, to the Warrantholder, at such Warrantholder's address as shown
in the records of the Company.
7. REGISTRATION STATEMENT. The Company shall, at its expense, file a
registration statement with the United States Securities and Exchange Commission
within 30 days after the date hereof to effect the registration of the resale of
the Warrant Shares under the Securities Act; provided that the Warrantholder
shall not sell any Warrant Shares pursuant to such registration statement unless
and until it provides to the Company such information as the Company may
reasonably request for use in connection with the identification of the
Warrantholder as a selling stockholder in such registration statement, or any
prospectus included therein, and no such sale shall be made by the Warrantholder
pursuant to such registration statement unless and until such information is
included by the Company in such registration statement or prospectus. The
Company shall in good faith use its best efforts and at its expense to cause
such registration statement to be declared effective as promptly as practicable
thereafter, to amend such registration statement to include additional or
revised information with respect to the selling stockholders and to include in
such registration statement the information provided by the Warrantholder as a
selling stockholder and shall notify the Warrantholder of the effectiveness
thereof and agrees to use its best efforts to maintain the effectiveness of such
registration statement until the Warrant expires according to its terms. The
Company shall indemnify and hold harmless the Warrantholder, its officers,
directors and agents and employees, each person who controls the Warrantholder
(within the meaning of Section 15 of the Securities Act or Section 20 of the
0000 Xxx) and the officers, directors, agents and employees of any such
controlling person, from and against all damage, loss, liability and expense
(including, without limitation, reasonable expenses of investigation and
reasonable attorneys' fees and expenses in connection with any action, suit or
proceeding)("Losses") incurred or suffered and arising out of or based upon any
untrue or alleged untrue statement of a material fact contained in any such
registration statement, or related prospectus or in any amendment or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statement therein not misleading, except to the extent the same are based
upon information furnished in writing to the Company by or on behalf of the
Warrantholder expressly for use therein; provided, that the Company shall not be
liable to the Warrantholder to the extent that any such Losses arise out of or
are based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in any preliminary prospectus if either (A)(i) the
Warrantholder failed to send or deliver a copy of the final prospectus with or
prior to the delivery of written confirmation of the sale by the Warrantholder
of a Warrant Share to the person asserting the claim from which such Losses
arise and (ii) the prospectus would have completely corrected such untrue
statement or alleged untrue statement or such omission or alleged omission; or
(B)(i) such untrue statement or alleged untrue statement, omission or alleged
omission is completely corrected in an amendment or supplement to the prospectus
and (ii) having previously been furnished by or on behalf of the Company with
copies of the prospectus as so amended or supplemented, the Warrantholder
thereafter fails to deliver such prospectus as so amended or supplemented, prior
to or concurrently with the sale of a Warrant Share to the person asserting the
claim from which such Losses arise. Promptly after receipt by an indemnified
party under Article XII of the Stock
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Purchase Agreement of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made against the
Company under such Article XII notify the Company in writing of the claim or the
commencement of that action. No indemnification provided for in such Article XII
shall be available to any party who shall fail to give the notice to the extent
that the party to whom such notice was not given was unaware of the action, suit
or proceeding to which the notice would have related and was prejudiced by the
failure to give the notice, by the omission so to notify such indemnifying party
of any such notification shall not relieve such indemnifying party from any
liability which it may have to the indemnified party otherwise than under
Article XII. If any such claim or action shall be brought against an indemnified
party, and it shall notify the Company thereof, the Company may, or if the
indemnified party requests shall, participate therein and assume the defense
thereof with counsel reasonably satisfactory to the indemnified party. After
notice from the Company to the indemnified party of its election to assume the
defense of such claim or action, the Company shall not be liable to the
indemnified party under Article XII for any legal or other expenses subsequently
incurred by the indemnified party in connection with the defense thereof;
PROVIDED, HOWEVER, if the defendants in any such action include both an
indemnified party and the Company and the indemnified party shall have
reasonably concluded that there may be legal defenses available to the Company,
the indemnified party shall have the right to employ counsel to represent it
and, in that event, the reasonable fees and expenses of such separate counsel
shall be paid by the Company. Neither the Company nor the indemnified party will
accept settlement of such a claim or action without the consent of the others.
8. AMENDMENTS.
Any provision of this Warrant may be amended and the observance thereof
waived only with the written consent of the Company and the Warrantholder.
9. NOTICES OF CORPORATE ACTION.
So long as this Warrant has not been exercised in full, in the event of
(a) any taking by the Company of a record of all holders of Common
Shares for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than cash dividends or
distributions paid from the retained earnings of the Company) or other
distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right;
(b) any capital reorganization of the Company, any
reclassification (other than a change in par value of the Common Shares)
or recapitalization of the capital stock of the Company or any
consolidation or merger involving the Company and any other Person or any
transfer of all or substantially all the assets of the Company to any
other Person; or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
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53
the Company will mail to the Warrantholder a notice specifying (i) the date or
expected ate on which any such record is to be taken for the purpose of such
dividend, distribution or right and the amount and character of any such
dividend, distribution or right or (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Shares shall be entitled to exchange their Common Shares for the securities or
other property, if any, deliverable upon such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be delivered at least 5 days prior to the date
therein specified, in the case of any date referred to in the foregoing
subdivisions (i) and (ii).
10. DEFINITIONS.
As used herein, unless the context otherwise requires, the following
terms have the following respective meanings;
"AFFILIATE" means any Person who is an "affiliate" as defined in Rule
12b-2 of the General Rules and Regulations under the Exchange Act.
"BUSINESS DAY" means any day other than a Saturday, Sunday or a day on
which national banks are authorized by law to close in the State of Ohio.
"COMMON STOCK" has the meaning specified on the cover of this Warrant.
"COMPANY" has the meaning specified on the cover of this Warrant.
"CURRENT MARKET PRICE" of a share of Common Stock as of a particular date
(the "Determination Date") shall mean:
(i) If the Common Shares are listed or admitted for trading on a
national securities exchange (including The Nasdaq Stock Market), then
the Current Market Price shall be the average of the last 10 "daily sales
prices" of the Common Shares on the principal national securities
exchange on which the Common Shares is listed or admitted for trading on
the last 10 trading days prior to the Determination Date, or if not
listed or traded on any such exchange, then the Current Market Price
shall be the average of the last 10 "daily sales prices" of the Common
Shares on the over-the-counter market on the last 10 trading days prior
to the Determination Date. The "daily sales price" shall be the closing
price of the Common Shares at the end of each day; or
(ii) If the Common Shares not so listed or admitted to unlisted
trading privileges or if no such sale is made on at least 25 of such
days, then the Current Market Price shall be reasonably determined in
good faith by the Company's Board of Directors or a duly appointed
committee of the Board of Directors (which determination shall be
reasonably
8
54
described in the written notice delivered to the Warrantholder together
with the Common Shares certificates).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, (or
any successor statute thereto) and the rules and regulations of the Commission
promulgated thereunder.
"EXERCISE FORM" means an Exercise Form in the form annexed hereto as
Exhibit A.
"EXERCISE PRICE" has the meaning specified on the cover of this Warrant.
"EXPIRATION DATE" means _________, __, 200_. [5 years]
"FAIR MARKET VALUE" means the amount which a willing buyer would pay a
willing seller in an arm's length transaction.
"PERSON" means any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, governmental authority or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity.
"SECURITIES ACT" has the meaning specified on the cover of this Warrant,
or any similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Act, shall include a reference to the
comparable section, if any, of any such similar Federal statute.
"STOCK PURCHASE AGREEMENT" has the meaning specified on the cover of this
Warrant.
"WARRANTHOLDER" has the meaning specified on the cover of this Warrant.
"WARRANT SHARES" has the meaning specified on the cover of this Warrant.
11. MISCELLANEOUS.
11.1 ENTIRE AGREEMENT. This Warrant, together with the Stock
Purchase Agreement, constitute the entire agreement between the Company and the
Warrantholder with respect to this Warrant.
11.2 BINDING EFFECT; BENEFIT. This Warrant shall inure to the
benefit of and shall be binding upon the Company and the Warrantholder and their
respective successors and assigns. Nothing in this Warrant, expressed or
implied, is intended to or shall confer on any person other than the Company and
the Warrantholder, or their respective successors or assigns, any rights,
remedies, obligations or liabilities under or by reason of this Warrant.
11.3 SECTION AND OTHER HEADINGS. The section and other headings
contained in
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55
this Warrant are for reference purposes only and shall not be deemed to be a
part of this Warrant or to affect the meaning or interpretation of this Warrant.
11.4 NOTICES. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, telecopier,
courier service, overnight mail or personal delivery:
(a) if to Warrantholder:
______________________________
______________________________
______________________________
with a copy to:
XxXxxxxxx, Will & Xxxxx
000 X. Xxxxxx Xxxxxx
Xxxxxxx, XX 00000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxx, P.C.
(b) if to the Company:
Central Reserve Life Corporation
00000 Xxxxxxxx Xxxx
Xxxxxxxxxxxx, Xxxx 00000
Telecopy: _____________
Attention: ____________
with a copy to:
Xxxxxx & Xxxxxxx
000 Xxxxx Xxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxx X. Xxxxxxxx
All such notices and communications shall be deemed to have been
duly given when delivered by hand, if personally delivered; when delivered by
courier or overnight mail, if delivered by commercial courier service or
overnight mail; five (5) Business Days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is mechanically acknowledged, if
telecopied. Any party may by notice given in accordance with this Section 11.4
designate another address or Person for receipt of notices hereunder.
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56
11.5 SEVERABILITY. Any term or provision of this Warrant which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceability the terms and provisions of this Warrant
or affecting the validity or enforceability of any of the terms or provisions
of this Warrant in any other jurisdiction.
11.6 GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO, WITHOUT REGARD
TO THE CONFLICTS OF LAW PRINCIPLES THEREOF.
11.7 NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Nothing containing
in this Warrant shall be determined as conferring upon the Warrantholder any
rights as a stockholder of the Company or as imposing any liabilities on the
Warrantholder to purchase any securities whether such liabilities on the
Warrantholder to purchase any securities whether such liabilities are asserted
by the Company or by creditors or stockholders of the Company or otherwise.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer.
CENTRAL RESERVE LIFE CORPORATION
By:_____________________________
Name:
Title:
Dated: __________, 199_
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EXHIBIT B
CENTRAL RESERVE LIFE CORPORATION
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (this "Agreement"), dated as of
___________ __, 199_, is between CENTRAL RESERVE LIFE CORPORATION, an Ohio
corporation (the "Corporation"), and the entities set forth on Schedule 1
attached hereto (the "Investors").
R E C I T A L S
A. The Investors have agreed to purchase common shares, without par
value, of the Corporation (the "Common Shares") pursuant to that certain Stock
Purchase Agreement of even date herewith provided that the parties hereto
enter into this Agreement.
B. The Corporation deems it desirable to enter into this Agreement in
order to induce the Investors to purchase the Common Shares pursuant to the
Stock Purchase Agreement.
AGREEMENTS
----------
In consideration of the premises and the mutual covenants herein
contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. DEFINITIONS. As used in this Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Shares" means the Common Shares, without par value, of the
Corporation.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Person" means a natural person, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization or other entity, or a
governmental entity or any department, agency or political subdivision
thereof.
"Public Offering" means any offering by the Corporation of its equity
securities to the public pursuant to an effective registration statement under
the Securities Act or any comparable statement under any comparable federal
statute then in effect.
59
"Registrable Shares" means at any time (i) any Common Shares then
outstanding which were issued pursuant to the Stock Purchase Agreement; (ii)
any Common Shares then outstanding and held by any Investor; (iii) any Common
Shares then outstanding which were issued as, or were issued directly or
indirectly upon the conversion or exercise of other securities issued as a
dividend or other distribution with respect or in replacement of any shares
referred to in (i) or (ii); and (iv) any Common Shares then issuable directly
or indirectly upon the conversion or exercise of other securities which were
issued as a dividend or other distribution with respect to or in replacement
of any shares referred to in (i) or (ii); PROVIDED, HOWEVER, that Registrable
Shares shall not include any shares which have been registered pursuant to the
Securities Act or which have been sold to the public pursuant to Rule 144 of
the Commission under the Securities Act. For purposes of this Agreement, a
Person will be deemed to be a holder of Registrable Shares whenever such
Person has the then-existing right to acquire such Registrable Shares, whether
or not such acquisition actually has been effected.
"Securities Act" means the Securities Act of 1933, as amended.
"Stock Purchase Agreement" means the Stock Purchase Agreement of even
date herewith between the Corporation and the Investors.
2. DEMAND REGISTRATION.
2.1 REQUESTS FOR REGISTRATION. Subject to the terms of this
Agreement, the holders of at least twenty percent (20%) of the then outstanding
Registrable Shares (but not less than $1,000,000 of the then market value) may,
at any time, request registration under the Securities Act of all or part of
their Registrable Shares on Form S-1 or any similar long-form registration
("Long-Form Registrations") or, if available, then at the option of the
Company, on Form S-2 or S-3 or any similar short-form registration ("Short-Form
Registrations"). Within ten (10) days after receipt of any request pursuant to
this Section 2.1, the Corporation will give written notice of such request to
all other holders of Registrable Shares and will include in such registration
all Registrable Shares with respect to which the Corporation has received
written requests for inclusion within thirty (30) days after delivery of the
Corporation's notice. All registrations requested pursuant to this Section 2
are referred to herein as "Demand Registrations."
2.2 PAYMENT OF EXPENSES FOR DEMAND REGISTRATIONS. The Corporation
will pay all Registration Expenses (as defined in Section 6 below) for the
first three Demand Registrations (including those under Section 2.3) (whether a
Long-Form Registration or a Short-Form Registration). A registration will not
count as one of the Corporation-paid Demand Registrations until it has become
effective and the holders of Registrable Shares are able to register and sell
at least 90% of the Registrable Shares requested to be included in such
registration (or in the case of a shelf registration, it remains effective for
not less than 180 days); PROVIDED, HOWEVER, that in any event the Corporation
will pay all Registration Expenses in connection with any registration
initiated as a Demand Registration. In a Demand Registration other than the
first three Demand Registrations (including those under Section 2.3), the
Registration Expenses of such registration shall be borne by the holders of
Registrable Shares to be registered thereunder PRO RATA based on the
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number of Registrable Shares and other securities requested or permitted to be
included in such registration pursuant to the terms of this Agreement.
2.3 SHORT-FORM REGISTRATIONS. In addition to the Long-Form
Registrations provided pursuant to Section 2.1 above, the holders of
Registrable Shares will be entitled to request up to three Short-Form
Registrations, provided, however, that the aggregate offering value of the
Registrable Shares requested to be registered in any Short-Form Registration
must be reasonably expected to equal at least $1,000,000. Demand Registrations
will be Short-Form Registrations whenever the Corporation is permitted to use
any applicable short form. The Corporation will use its best efforts to make
Short-Form Registrations available for the sale of Registrable Shares. If a
Short-Form Registration is to be an underwritten public offering, and if the
underwriters for marketing or other reasons request the inclusion in the
registration statement of information which is not required under the
Securities Act to be included in a registration statement on the applicable
form for the Short-Form Registration, the Corporation will provide such
information as may be reasonably requested for inclusion by the underwriters in
the Short-Form Registration.
2.4 PRIORITY. If a Demand Registration is an underwritten public
offering and the managing underwriters advise the Corporation in writing that
in their opinion the inclusion of the number of Registrable Shares and other
securities requested to be included (by the Corporation or others) creates a
substantial risk that the price per Common Share will be reduced, the
Corporation will include in such registration, prior to the inclusion of any
securities which are not Registrable Shares, the number of Registrable Shares
requested to be included which in the opinion of such underwriters can be sold
without creating such a risk, PRO RATA among the respective Holders of
Registrable Shares on the basis of the number of Registrable Shares owned by
such holders, with further successive PRO RATA allocations among the Holders of
Registrable Shares if any such holder of Registrable Shares has requested the
registration of less than all such Registrable Shares it is entitled to
register.
2.5 RESTRICTIONS. The Corporation will not be obligated to
effect any Demand Registration within 180 days after the effective date of a
previous Demand Registration. The Corporation may postpone for up to ninety
(90) days the filing or the effectiveness of a registration statement for a
Demand Registration if the Board of Directors of the Corporation reasonably
and in good faith determines that such filing would require a disclosure of a
material fact that would have a material adverse effect on the Corporation or
any plan by the Corporation to engage in any acquisition of assets (other than
in the ordinary course of business) or any merger, consolidation, tender offer
or other significant transaction.
2.6 SELECTION OF UNDERWRITERS. The holders of at least a
majority of the Registrable Shares included in any Demand Registration shall
have the right to select the investment banker(s) and manager(s) to administer
the offering, subject to the Corporation's approval which will not be
unreasonably withheld, and any existing contract rights of Advest, Inc.
3. PIGGYBACK REGISTRATION.
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61
3.1 RIGHT TO PIGGYBACK. Whenever the Corporation proposes to
register any of its equity securities under the Securities Act (other than
pursuant to a Demand Registration hereunder or on Form S-8 or S-4 or any
successor form thereto) and the registration form to be used may be used for
the registration of any Registrable Shares (a "Piggyback Registration"), the
Corporation will give prompt written notice to all holders of the Registrable
Shares of its intention to effect such a registration and will include in such
registration all Registrable Shares (in accordance with the priorities set
forth in Sections 3.2 and 3.3 below) with respect to which the Corporation has
received written requests for inclusion within fifteen (15) days after the
delivery of the Corporation's notice.
3.2 PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback
Registration is an underwritten primary registration on behalf of the
Corporation and the managing underwriters advise the Corporation in writing
that in their opinion the number of securities requested to be included in the
registration creates a substantial risk that the price per Common Share will
be reduced, the Corporation will include in such registration FIRST, the
securities that the Corporation proposes to sell, SECOND, the Registrable
Shares requested to be included in such registration, PRO RATA among the
holders of such Registrable Shares on the basis of the number of shares which
are owned by such holders, and THIRD, other securities requested to be
included in such registration.
3.3 PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders of
the Corporation's securities and the managing underwriters advise the
Corporation in writing that in their opinion the number of securities
requested to be included in the registration creates a substantial risk that
the price per Common Share will be reduced, the Corporation will include in
such registration FIRST, the securities requested to be included therein by
the holders requesting such registration and the Registrable Shares requested
to be included in such registration, PRO RATA among the holders of such
securities on the basis of the number of Common Shares or Registrable Shares
which are owned by such holders, and SECOND, other securities requested to be
included in such registration.
3.4 OTHER REGISTRATIONS. If the Corporation has previously filed
a registration statement with respect to Registrable Shares pursuant to
Section 2 or pursuant to this Section 3, and if such previous registration has
not been withdrawn or abandoned, the Corporation will not file or cause to be
effected any other registration of any of its equity securities or securities
convertible or exchangeable into or exercisable for its equity securities
under the Securities Act (except on Form S-8 or any successor form), whether
on its own behalf or at the request of any holder or holders of such
securities, until a period of at least 180 days has elapsed from the effective
date of such previous registration.
3.5 SELECTION OF UNDERWRITERS. In connection with any Piggyback
Registration, the holders of at least a majority of the Registrable Shares
requested to be registered shall have the right to select the managing
underwriters (subject to the approval of the Corporation which shall not be
unreasonably withheld or delayed) to administer any offering of the
Corporation's securities in which the Corporation does not participate, and
the Corporation will have such right in any offering in which it participates.
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4. HOLDBACK AGREEMENTS.
4.1 HOLDERS' AGREEMENTS. Each holder of Registrable Shares
agrees not to effect any public sale or distribution of equity securities of
the Corporation, or any securities convertible into or exchangeable or
exercisable for such securities or make any demand for registration under
Sections 2 or 3 hereof, during the seven (7) days prior to, and during the
ninety (90) days following, the effective date of any underwritten Demand
Registration or any underwritten Piggyback Registration in which Registrable
Shares are included (except as part of such underwritten registration), unless
the underwriters managing the registered public offering otherwise agree.
Nothing herein shall prevent a holder of Registrable Shares that is a
partnership from making a distribution of Registrable Shares to its partners,
a holder of Registrable Shares that is a trust from making a distribution of
Registrable Shares to its beneficiaries or a holder of Registrable Shares that
is a corporation from making a distribution of Registrable Shares to its
stockholders, provided that the transferees of such Registrable Shares agree
to be bound by the provisions of this Agreement to the extent the transferor
would be so bound.
4.2 CORPORATION'S AGREEMENTS. The Corporation agrees (i) not to
effect any public sale or distribution of its equity securities, or any
securities convertible into or exchangeable or exercisable for such
securities, during the seven (7) days prior to, and during the ninety (90)
days following, the effective date of any underwritten Demand Registration or
any underwritten Piggyback Registration (except as part of such underwritten
registration or pursuant to registrations on Form S-8 or any successor form),
unless the underwriters managing the registered public offering otherwise
agree, (ii) to use all reasonable efforts to cause each holder of at least
five percent (5%) (on a fully diluted basis) of its equity securities, or any
securities convertible into or exchangeable or exercisable for such securities
to agree not to effect any public sale or distribution of any such securities
during such period (except as part of such underwritten registration, if
otherwise permitted), unless the underwriters managing the registered public
offering otherwise agree, subject to the registration obligations of the
Company under the Common Share Purchase Warrants and (iii) if requested by the
underwriters managing the registered public offering, to use all reasonable
efforts to cause each other holder of its equity securities, or any securities
convertible into or exchangeable or exercisable for such securities, purchased
from the Corporation at any time (other than in a registered public offering)
to agree not to effect any public sale or distribution of any such securities
during such period (except as part of such underwritten registration, if
otherwise permitted), unless the underwriters managing the registered public
offering otherwise agree, subject to the registration obligations of the
Company under the Common Share Purchase Warrants.
5. REGISTRATION PROCEDURES. Whenever the holders of Registrable
Shares have requested that any Registrable Shares be registered pursuant to
this Agreement, the Corporation will use its best efforts to effect the
registration and sale of such Registrable Shares in accordance with the
intended method of disposition thereof and, pursuant thereto, the Corporation
will as expeditiously as possible:
(a) prepare and file with the Commission a registration
statement with respect to such Registrable Shares and use its best efforts to
cause such registration statement to become effective (provided that before
filing a registration statement or prospectus, or any
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amendments or supplements thereto, the Corporation will furnish copies of all
such documents proposed to be filed to the counsel or counsels for the sellers
of the Registrable Shares covered by such registration statement);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus(es) used in
connection therewith as may be necessary to keep such registration statement
effective for a period of not less than nine months and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
(c) furnish to each seller of Registrable Shares such number of
copies of such registration statement, each amendment and supplement thereto,
the prospectus(es) included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Shares owned
by such seller;
(d) use its best efforts to register or qualify such Registrable
Shares under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate
the disposition in such jurisdictions of the Registrable Shares owned by such
seller (provided that the Corporation will not be required to (i) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this subparagraph or (ii) consent to general
service of process in any such jurisdiction);
(e) notify each seller of such Registrable Shares, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to make the
statements therein not misleading, and, at the request of any such seller, the
Corporation will prepare a supplement or amendment to such prospectus so that,
as thereafter delivered to the purchasers of such Registrable Shares, such
prospectus will not contain any untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading;
(f) cause all such Registrable Shares to be listed on each
securities exchange on which similar securities issued by the Corporation are
then listed, or if no similar securities issued by the Corporation are then
listed on a securities exchange, a securities exchange selected by the holders
of at least a majority of the Registrable Shares included in such
registration;
(g) provide a transfer agent and registrar for all such
Registrable Shares not later than the effective date of such registration
statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders
of at least a majority of the Registrable Shares being sold or the
underwriters, if any, reasonably requested in order to
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expedite or facilitate the disposition of such Registrable Shares (including,
but not limited to, effecting a stock split or a combination of shares);
(i) make available for inspection by any seller of Registrable
Shares, any underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent retained
by any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Corporation, and cause the
Corporation's officers, directors, employees and independent accountants to
supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement;
(j) advise each seller of such Registrable Shares, promptly
after it shall receive notice or obtain knowledge thereof, of the issuance of
any stop order by the Commission suspending the effectiveness of such
registration statement or the initiation or threatening of any proceeding for
such purpose and promptly use all reasonable efforts to prevent the issuance
of any stop order or to obtain its withdrawal if such stop order should be
issued;
(k) at least forty eight (48) hours prior to the filing of any
registration statement or prospectus, or any amendment or supplement to such
registration statement or prospectus, furnish a copy thereof to each seller of
such Registrable Shares and refrain from filing any such registration
statement, prospectus, amendment or supplement to which counsel selected by
the holders of at least a majority of the Registrable Shares being registered
shall have reasonably objected on the grounds that such document does not
comply in all material respects with the requirements of the Securities Act or
the rules and regulations thereunder, unless, in the case of an amendment or
supplement, in the opinion of counsel for the Corporation the filing of such
amendment or supplement is reasonably necessary to protect the Corporation
from any liabilities under any applicable federal or state law and such filing
will not violate applicable laws; and
(l) at the request of any seller of such Registrable Shares in
connection with an underwritten offering, furnish on the date or dates
provided for in the underwriting agreement: (i) an opinion of counsel,
addressed to the underwriters and the sellers of Registrable Shares, covering
such matters as such underwriters and sellers may reasonably request,
including such matters as are customarily furnished in connection with an
underwritten offering and (ii) a letter or letters from the independent
certified public accountants of the Corporation addressed to the underwriters
and the sellers of Registrable Shares, covering such matters as such
underwriters and sellers may reasonably request, in which letter(s) such
accountants shall state, without limiting the generality of the foregoing,
that they are independent certified public accountants within the meaning of
the Securities Act and that in their opinion the financial statements and
other financial data of the Corporation included in the registration
statement, the prospectus(es), or any amendment or supplement thereto, comply
in all material respects with the applicable accounting requirements of the
Securities Act.
6. REGISTRATION EXPENSES.
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6.1 CORPORATION'S EXPENSES. Except as provided in Section 2.2
hereof, all expenses incident to the Corporation's performance of or
compliance with this Agreement, including, but not limited to, all
registration and filing fees, fees and expenses of compliance with securities
or blue sky laws, printing expenses, messenger and delivery expenses, and fees
and disbursements of counsel for the Corporation and all independent certified
public accountants, underwriters (excluding discounts and commissions) and
other Persons retained by the Corporation (all such expenses being herein
called "Registration Expenses"), will be borne by the Corporation. In
addition, the Corporation will pay its internal expenses (including, but not
limited to, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expense of any annual audit or quarterly
review, the expense of any liability insurance obtained by the Corporation and
the expenses and fees for listing the securities to be registered on each
securities exchange.
6.2 HOLDER'S EXPENSES. Except as provided in Section 2.2 hereof,
in connection with any registration statement in which Registrable Shares are
included, the Corporation will reimburse the holders of Registrable Shares
covered by such registration for the reasonable cost and expenses incurred by
such holders in connection with such registration, including, but not limited
to, reasonable fees and disbursements of one counsel chosen by the holders of
at least a majority of such Registrable Shares.
7. INDEMNIFICATION.
7.1 BY THE CORPORATION. The Corporation agrees to indemnify, to
the extent permitted by law, each holder of Registrable Shares, its officers
and directors and each Person who controls such holder (within the meaning of
the Securities Act) against all losses, claims, damages, liabilities and
expenses (including, but not limited to, attorney's fees) caused by any untrue
or alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus, or any amendment thereof or
supplement thereto, or any omission or alleged omission of a material fact,
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Corporation by such holder expressly
for use therein or by such holder's failure to deliver a copy of the
prospectus or any amendments or supplements thereto after the Corporation has
furnished such holder with a sufficient number of copies of the same. In
connection with an underwritten offering, the Corporation will indemnify such
underwriters, their officers and directors and each Person who controls such
underwriters (within the meaning of the Securities Act) to the extent
customary. The payments required by this Section 7.1 will be made periodically
during the course of the investigation or defense, as and when bills are
received or expenses incurred, subject to an obligation of repayment in the
event such indemnity is determined not to be owed.
7.2 BY EACH HOLDER. In connection with any registration
statement in which a holder of Registrable Shares is participating, each such
holder will furnish to the Corporation in writing such information as the
Corporation reasonably requests for use in connection with any such
registration statement, preliminary prospectus or prospectus, or any amendment
or supplement thereto and, to the extent permitted by law, will indemnify the
Corporation, its directors and officers
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and each Person who controls the Corporation (within the meaning of the
Securities Act) against any losses, claims, damages, liabilities and expenses
resulting from any untrue or alleged untrue statement of material fact
contained in the registration statement, prospectus or preliminary prospectus,
or any amendment thereof or supplement thereto, or any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in any information so furnished in writing
by such holder for inclusion in the registration statement or prospectus;
PROVIDED that the obligation to indemnify will be several, not joint and
several, among such holders of Registrable Shares and the liability of each
such holder of Registrable Shares will be in proportion to and limited in all
events to the net amount received by such holder from the sale of Registrable
Shares pursuant to such registration statement.
7.3 PROCEDURE. Any Person entitled to indemnification hereunder
will (i) give prompt written notice to the indemnifying Person of any claim
with respect to which it seeks indemnification and (ii) unless in such
indemnified Person's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying Person to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified Person. If such defense is
assumed, the indemnifying Person will not be subject to any liability for any
settlement made by the indemnified Person without its consent (but such
consent will not be unreasonably withheld). An indemnifying Person who is not
entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all
parties indemnified by such indemnifying Person with respect to such claim,
unless in the reasonable judgment of any indemnified Person a conflict of
interest may exist between such indemnified Person and any other of such
indemnified parties with respect to such claim.
7.4 SURVIVAL. The indemnification provided for under this
Agreement will remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified Person or any officer, director or
controlling Person of such indemnified Person and will survive the transfer of
securities. The Corporation also agrees to make such provisions as are
reasonably requested by any indemnified Person for contribution to such Person
in the event the Corporation's indemnification is unavailable for any reason.
8. COMPLIANCE WITH RULE 144 AND RULE 144A. At the request of any
holder of Registrable Shares who proposes to sell securities in compliance
with Rule 144 of the Commission, the Corporation will (i) forthwith furnish to
such holder a written statement of compliance with the filing requirements of
the Commission as set forth in Rule 144, as such rule may be amended from time
to time and (ii) make available to the public and such holders such
information as will enable the holders of Registrable Shares to make sales
pursuant to Rule 144. Unless the Corporation is subject to Section 13 or 15(d)
of the Exchange Act, the Corporation will provide to the holder of Registrable
Shares and to any prospective purchaser of Registrable Shares under Rule 144A
of the Commission, the information described in Rule 144A(d)(4) of the
Commission.
9. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell its securities on
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the basis provided in any underwriting arrangements approved by such Person or
Persons entitled hereunder to approve such arrangements and (b) completes and
executes all questionnaires, powers of attorney, custody agreements,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements.
10. MISCELLANEOUS.
10.1 NO INCONSISTENT AGREEMENTS. The Corporation will not
hereafter enter into any agreement with respect to its securities which is
inconsistent with the rights granted to the holders of Registrable Shares in
this Agreement.
10.2 ADJUSTMENTS AFFECTING REGISTRABLE SHARES. The Corporation
will not take any action, or permit any change to occur, with respect to its
securities which would adversely affect the ability of the holders of
Registrable Shares to include such Registrable Shares in a registration
undertaken pursuant to this Agreement or which would adversely affect the
marketability of such Registrable Shares in any such registration, including,
but not limited to, effecting a stock split or combination of shares.
10.3 OTHER REGISTRATION RIGHTS. Except as provided in this
Agreement, the Corporation will not hereafter grant to any Person or Persons
the right to request the Corporation to register any equity securities of the
Corporation, or any securities convertible or exchangeable into or exercisable
for such securities, without the prior written consent of the holders of at
least a majority of the Registrable Shares.
10.4 REMEDIES. Any Person having rights under any provision of
this Agreement will be entitled to enforce such rights specifically, to
recover damages caused by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law.
10.5 AMENDMENTS AND WAIVERS. Except as otherwise expressly
provided herein, the provisions of this Agreement may be amended or waived at
any time only by the written agreement of the Corporation and the holders of
at least a majority of the Registrable Shares; PROVIDED, HOWEVER, that the
provisions of this Agreement may not be amended or waived without the consent
of the holders of all the Registrable Shares adversely affected by such
amendment or waiver if such amendment or waiver adversely affects a portion of
the Registrable Shares but does not so adversely affect all of the Registrable
Shares. Any waiver, permit, consent or approval of any kind or character on
the part of any such holders of any provision or condition of this Agreement
must be made in writing and shall be effective only to the extent specifically
set forth in writing. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of Registrable Securities and the
Corporation.
10.6 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, all covenants and agreements contained in this Agreement by
or on behalf of any of the parties hereto will bind and inure to the benefit
of the respective successors and assigns of the parties hereto, whether so
expressed or not. In addition, and whether or not any express assignment has
been made, the provisions of this Agreement which are for the benefit of the
Investors or holders of
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Registrable Shares are also for the benefit of, and enforceable by, any
subsequent holders of such Registrable Shares.
10.7 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
10.8 DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience of reference only and do not constitute
a part of and shall not be utilized in interpreting this Agreement.
10.9 NOTICES. Any notices required or permitted to be sent
hereunder shall be delivered personally or mailed, certified mail, return
receipt requested, or delivered by overnight courier service to the following
addresses, or such other address as any Person designates by written notice to
the Corporation, and shall be deemed to have been given upon delivery, if
delivered personally, three days after mailing, if mailed, or one business day
after delivery to the courier, if delivered by overnight courier service:
If to the Corporation, to:
Central Reserve Life Corporation
00000 Xxxxxxxx Xxxx
Xxxxxxxxxxxx, Xxxx 00000
with a copy to:
Xxxxxx & Xxxxxxx
5800 Sears Tower
000 X. Xxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx
Attention: Xxxx X. Xxxxxxxx
If to the Investors, to the addresses set forth on Schedule 1 hereto.
If to holders of the Registrable Shares other than the Investors, to
the addresses set forth on the stock record books of the Corporation.
10.10 GOVERNING LAW. All questions concerning the construction,
validity and interpretation of this Agreement, and the performance of the
obligations imposed by this Agreement, shall be governed by the laws of the
State of Ohio applicable to contracts made and wholly to be performed in that
state.
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10.11 FINAL AGREEMENT. This Agreement, together with the Stock
Purchase Agreement and all other agreements entered into by the parties hereto
pursuant to the Stock Purchase Agreement, constitutes the complete and final
agreement of the parties concerning the matters referred to herein, and
supersedes all prior agreements and understandings.
10.12 EXECUTION IN COUNTERPARTS. This Agreement may be executed
in any number of counterparts, each of which when so executed and delivered
shall be deemed an original, and such counterparts together shall constitute
one instrument.
10.13 NO STRICT CONSTRUCTION. The language used in this
Agreement will be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction will be used
against any Person.
[Remainder of page intentionally left blank.
Signature pages follow.]
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The parties hereto have executed this Agreement on the date first
above written.
THE CORPORATION:
----------------
CENTRAL RESERVE LIFE CORPORATION
By: _______________________________________
Its: _______________________________________
INVESTORS:
----------
STRATEGIC ACQUISITION PARTNERS, LLC
By: _______________________________________
Its: _______________________________________
TURKEY VULTURE FUND XIII
By: _______________________________________
Its: _______________________________________
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SCHEDULE 1
Strategic Acquisition Partners, LLC
00 X. Xxxxxx Xxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Turkey Vulture Fund XIII
___________________________________
___________________________________
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EXHIBIT C
VOTING AGREEMENT
This VOTING AGREEMENT (the "AGREEMENT") is entered into as of
_____________, 1997, by and among Strategic Acquisition Partners, LLC, a
Nevada limited liability company ("SAP"), Xxxxxxx Xxxxxxx, individually and on
behalf of Turkey Vulture Fund XIII (collectively, "XXXXXXX"), and Central
Reserve Life Corporation, an Ohio corporation (the "COMPANY").
WHEREAS, pursuant to the Stock Purchase Agreement dated
_____________, 1997 by and between SAP and the Company (the "STOCK PURCHASE
AGREEMENT"), the Company shall issue 5,000,000 shares of common stock, without
par value, of the Company (which, together with any stock into which such
stock is changed or converted pursuant to a merger, consolidation,
reclassification or otherwise, the "PURCHASED SHARES") and issue up to
3,500,000 shares of common stock of the Company pursuant to certain warrants
issued in connection with the Stock Purchase Agreement (the "WARRANT SHARES");
WHEREAS, upon closing of the transactions contemplated by the Stock
Purchase Agreement (the "CLOSING DATE"), the Purchased Shares shall constitute
a majority of the common stock of the Company; and
WHEREAS, the parties desire to regulate certain aspects of their
relationship as holders of common stock of the Company.
NOW THEREFORE, in consideration of the agreements and covenants
herein contained and for other good and valuable consideration, the parties
hereto agree as follows:
ARTICLE I
ELECTION OF DIRECTORS
SECTION I.1 BOARD OF DIRECTORS.
(a) For the duration of this Agreement, each of SAP and Xxxxxxx and
their respective successors and assigns, and any other holder of common stock
of the Company bound hereby (the "HOLDERS") agrees to vote the Purchased
Shares and any other shares of common stock beneficially owned by the Holders,
including the Warrant Shares which are then beneficially owned by SAP and
Xxxxxxx and their respective affiliates (the "SUBJECT SHARES") in such manner
that (i) the five individuals designated by SAP are elected to the board of
directors of the Company (the "BOARD") at any annual meeting of stockholders
or special meeting of stockholders called for the election of directors or in
filling any vacancy on the Board; (ii) the two individuals
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designated by Xxxxxxx are elected to the Board at any annual meeting of
stockholders or special meeting of stockholders called for the election of
directors or in filling any vacancy on the Board; (iii) Xxxx Xxxxxxxx is
retained as a member of the Board for a period of two years from the Closing
Date; (iv) Xxxx Lick is member of the Board until the expiration of the
remaining term of his employment agreement with the Company, as amended; (v)
at least three (3) members of the Board are "independent" as such term is
defined under applicable NASDAQ National Market System, Inc. standards (the
"INDEPENDENT DIRECTORS"); and (vi) the Company shall not voluntarily be
delisted from the NASDAQ National Market System, Inc. except in connection
with a going private transaction or if the Company becomes listed on another
national securities exchange. Each of SAP and Xxxxxxx and their respective
successors and assigns hereby agrees that it shall not take any action to
remove the designees of the other party from the Board, or to take any action
to remove any person agreed to be elected above, including by reduction in the
size of the Board.
(b) If a vacancy shall occur in the office of any director designated
pursuant to Section 1.1(a)(i) or Section 1.1(a)(ii), each party shall instruct
its respective designees on the Board to vote in favor of the individual
designated by the party whose designee's removal or resignation created the
vacancy.
(c) If a vacancy shall occur in the office of any director specified
in clauses (iii) or (iv) of Section 1.1(a) (including following the expiration
of their mandated term), (i) each party shall instruct its respective
designees on the Board to vote in favor of the individual designated by a
majority of the Independent Directors to fill such vacancy and (ii) each
Holder shall vote the Subject Shares in favor of the individual designated by
a majority of the independent directors to fill such vacancy at the next
annual meeting or special meeting of stockholders called for the election of
directors.
SECTION I.2 PROXY. For the duration of this Agreement, Xxxxxxx hereby
grants to SAP, with full powers of substitution, and SAP hereby grants to
Xxxxxxx, with full powers of substitution, an irrevocable proxy coupled with
an interest as may be necessary to permit such party, to vote the shares of
the Holder granting such proxy in accordance with the requirements of Section
1.1 (by written consent or otherwise) in event the Holder fails to vote its
shares of common stock of the Company as required under Section 1.1 within ten
(10) days after notice from the party holding such proxy requesting such a
vote.
SECTION I.3 CUMULATIVE VOTING. As promptly as
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practicable following the Closing Date, the Company shall amend its Articles
of Incorporation, Code of Regulations or Bylaws, as the case may be, to
eliminate cumulative voting in the election of directors.
SECTION I.4 PROXY STATEMENT. In connection with any annual meeting of
the stockholders or special meeting of the stockholders of the Company called
for the election of directors, the Company shall prepare and file with the
Securities and Exchange Commission (the "COMMISSION") a proxy statement
relating to such meeting (together with any amendments thereof or supplements
thereto, the "PROXY STATEMENT") which shall include the recommendation of the
Board in favor of electing the directors specified in Section 1.1. Except in
the event of termination of this Agreement, no modification or withdrawal of
such recommendation shall release the Company of its obligation to submit the
election of directors specified in Section 1.1 to its stockholders for their
vote in accordance with applicable law. The Company shall use reasonable
efforts to assure the election of the directors specified in Section 1.1.
ARTICLE II
RESTRICTIONS ON TRANSFER
SECTION II.1 RESTRICTIONS UPON TRANSFER. No Holder may effect, cause
to be effected or permit any voluntary or involuntary sale, assignment or
transfer of any Subject Shares or any interest therein (a "TRANSFER"), except
to a transferee that agrees to be bound by the provisions of this Agreement;
PROVIDED, that the Warrant Shares shall not be subject to this Agreement upon
the Transfer to a beneficial owner other than SAP or Xxxxxxx and their
respective affiliates. Any Transfer not complying with the provisions of this
Agreement shall not be effective for any purpose and any purported transferee
of such a Transfer shall not acquire any right or interest in such common
stock or the Company.
SECTION II.2 RESTRICTIVE LEGENDS.
(a) For the term of this Agreement, each certificate representing the
Purchased Shares subject hereto, and each instrument or certificate issued
upon exchange or transfer thereof, shall be stamped or otherwise imprinted
with the following legend:
"THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY ARE SUBJECT TO
TRANSFER RESTRICTIONS CONTAINED IN A VOTING AGREEMENT DATED
________________, 1997 BY AND AMONG THE COMPANY AND CERTAIN OF ITS
STOCKHOLDERS, A
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COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY."
(b) In addition, each certificate representing Purchased Shares
and each instrument or certificate issued upon exchange or transfer thereof
shall be stamped or otherwise imprinted with the following legend:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT
HAS BEEN REGISTERED THEREUNDER OR, IN THE OPINION OF COUNSEL, AN
EXEMPTION FROM REGISTRATION IS AVAILABLE."
(c) In addition, each certificate representing Purchased Shares
and each instrument or certificate issued upon exchange or Transfer thereof
shall be stamped or otherwise imprinted with any and all legends required by
applicable state securities laws.
ARTICLE III
MISCELLANEOUS
SECTION III.1 TERM. The term of this Agreement shall begin on
the Closing Date and shall remain in effect until the earlier of (i) three (3)
years from the date thereof or (ii) such date as the total number of shares of
common stock of the Company owned by SAP and Xxxxxxx, or their respective
affiliates, shall exceed the total number of shares owned by such parties
immediately following the Closing Date by 3,500,000 shares; PROVIDED, that
clauses (iii), (iv) and (v) of Section 1.1(a) shall remain in effect as long
as the Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (whether pursuant to Section 12 or 15
thereof).
SECTION III.2 AMENDMENT. Any exercise of rights hereunder or any
waiver, modification, or amendment of this Agreement on behalf of the Company
may be and shall be exercised and approved by a majority of the independent
directors of the Board.
SECTION III.3 SUCCESSORS AND ASSIGNS. All covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto including any and all subsequent Holders from
time to time.
SECTION III.4 GOVERNING LAW. This Agreement shall be
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governed by and construed in accordance with the laws of the State of Ohio, as
applicable to contracts executed and to be performed entirely in such state.
SECTION III.5 ENTIRE AGREEMENT. Except as provided below, this
Agreement constitutes the entire agreement of the parties with respect to the
subject matter hereof and may not be modified or amended except in writing.
SECTION III.6 COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
SECTION III.7 ENFORCEMENT.
(a) The Holders each acknowledge and agree that irreparable
damage will occur if any of the provisions of this Agreement are not complied
with in accordance with their specific terms. Accordingly, the Company will be
entitled to an injunction to prevent breached of this Agreement and to enforce
specifically its provisions in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which the
Company may be entitled at law or in equity.
(b) No failure or delay on the part of any party in the exercise
of any power, right or privilege hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other right, power or
privilege.
* * *
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IN WITNESS WHEREOF, each of the parties hereto has
caused this Agreement to be signed on its behalf by its duly authorized
officers, all as of the day and year first above written.
Strategic Acquisition Partners, LLC
By:____________________________________
Its:___________________________________
_______________________________________
Xxxxxxx Xxxxxxx, individually and as
authorized signatory of Turkey Vulture
Fund XIII
Central Reserve Life Corporation
By:_____________________________________
Its:____________________________________
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