Exhibit 3.1E
AMENDMENT NO. 2 TO PORTFOLIO VALUE SWAP AGREEMENT (this
"Amendment"), dated as of March __, 1997 by CENTRE REINSURANCE DUBLIN, a
corporation organized under the laws of the Republic of Ireland
("Centre"), THE HOME INSURANCE COMPANY, a stock insurance company
domiciled in New Hampshire ("Home"), and certain other subsidiaries of
Home listed on the signature page hereof.
The parties hereto are parties to a Portfolio Value Swap
Agreement dated as of June 12, 1995, as amended (the "Swap Agreement").
Home and certain other parties are parties to an
Investment Management Agreement dated as of June 12, 1995 (the
"Investment Management Agreement").
Gruntal Financial Corp. ("GFC"), a subsidiary of Home, and
The 1880 Group LLC ("Management") are parties to the Reorganization
Agreement dated February 24, 1997 (the "Reorganization Agreement").
GFC and Management have on the date hereof entered into a
Limited Liability Company Agreement (the "Holdings Agreement") in
connection with Gruntal Financial, L.L.C. (the "Company").
In connection with the consummation on the date hereof of
the transactions contemplated by the Reorganization Agreement and the
Holdings Agreement, Home has become directly or indirectly the owner of
certain interests in the Company which interests, pursuant to terms of
the Swap Agreement and the Investment Management Agreement, could be
considered as part of the "Portfolio," as defined in the Swap Agreement
and the Investment Management Agreement and be subject to the Swap
Agreement and the Investment Management Agreement. The parties hereto
intend to effect a different arrangement with respect to such interests,
as set forth herein.
The parties hereby agree as follows:
Section 1. Amendment. The Swap Agreement is hereby
amended, effective upon the effectiveness of this Amendment, by adding
thereto an Article VIII, as follows:
ARTICLE VIII
CERTAIN LLC INTERESTS
8.1 Definitions. Capitalized terms used but not defined in
this Article VIII shall have the meanings given to them in the Limited
Liability Company Agreement dated March __, 1997 entered into by Gruntal
Financial Corp. ("GFC") and The 1880 Group LLC (the "Holdings
Agreement"). As used in this Article VIII, the following terms have the
following meanings:
"Business Day" has the meaning set forth in the Swap
Agreement.
"Calculation Amount" means the Initial Preferred A
Nominal Amount.
"Calculation Period" means, as of any date, the period
from and including the effective date of this Article VIII to and
including such date.
"Company" means Gruntal Financial, L.L.C., a Delaware
limited liability company.
"Investment Management Agreement" means the Investment
Management Agreement dated June 12, 1995 among Home and certain other
parties.
"Lien" means any mortgage, pledge, security interest,
lease, easement, servitude or similar encumbrance.
"Payment Amount" means, as of the Termination Date, the
excess, if any, of Target Value over Portfolio Value.
"Payment Date" means the thirteenth Business Day next
following the Termination Date.
"Portfolio Value" means the sum of the future values as of
the last day of a Calculation Period (calculated at 7.5% per annum, on
the basis of a 365/366 day year, actual number of days elapsed,
compounded annually) of (i) all distributions paid or made by the Company
during the Calculation Period (a) to GFC pursuant to Sections
2.6(a)(i)(D), 2.6(a)(i)(I) (with respect to Tax Distributions pursuant to
Section 2.6(a)(i)(D) only), 2.6(a)(ii), 2.6(a)(iv)(x), 2.6(a)(v), 6.6(a)
and 6.6(b) of the Holdings Agreement,1 (b) to any Person pursuant to
Sections 2.6(a)(i)(F) and 2.6(a)(i)(I) (with respect to Tax Distributions
pursuant to Section 2.6(a)(i)(F) only) of the Holdings Agreement,2 (c) to
any Person pursuant to Sections 2.6(a)(i)(A), 2.6(a)(i)(B), 2.6(a)(i)(I)
(with respect to Tax Distributions pursuant to Sections 2.6(a)(i)(A) and
2.6(a)(i)(B) only), 2.6(a)(iii)(B), 2.6(a)(iv)(y)(2), 6.6(c)(B), and
6.6(d)(B) of the Holdings Agreement,3 and (d) to GFC pursuant to
Sections 2.6(a)(vi) and 6.6(f) of the Holdings Agreement,4 and (ii) all
proceeds (a) paid to GFC as a result of or in connection with a Transfer
or other disposition of its Preferred A Interest or Common Interest, and
(b) paid to any Person as a result of or in connection with a Transfer
or other disposition of its Preferred C Interest. Such distributions and
proceeds shall be included in the computation of Portfolio Value when so
paid, whether or not received by GFC, such Person or any of their
respective successors or transferees (for the avoidance of doubt any
amounts paid to or on behalf of creditors or Lien-holders of any of the
foregoing shall be included in the computation of Portfolio Value and, if
any such distributions, proceeds or LLC Interests are Transferred,
attached or foreclosed, the amount of such Transfer, attachment or
foreclosure shall be included in the computation of Portfolio Value).
For purposes of computation of Portfolio Value, (i) any distributions
paid or made to or proceeds received by GFC or any other direct or indi-
rect subsidiaries of Home shall be considered paid or made to or received
by Home, and (ii) all proceeds paid to Home as a result of or in
connection with a Transfer or other disposition of the equity interest of
GFC or any other subsidiary of Home that is the record or beneficial
owner of Home's LLC Interests shall be included in the computation of
Portfolio Value. If distributions or proceeds consist of any publicly
traded security, such security shall be valued at the average of the
closing price per unit of such security on the principal exchange or
market in which such security trades, for the ten consecutive trading
days ending on and including the date of such distribution or payment of
such proceeds, as the case may be. If distributions or proceeds consist
of any non-publicly traded security, such security shall be valued as
determined by Centre on the basis of the average of price quotes
obtained from at least two different brokers or dealers that Centre
selects.5
"Target Value" means, as of any date, the Calculation
Amount, plus an assumed Total Return on the Calculation Amount for the
Calculation Period of 7.5% per annum, calculated on the basis of a
365/366 day year, actual number of days elapsed, compounded annually.
"Termination Date" means the date on which the termination
of this Article VIII pursuant to Section 8.5(b) (but not Section 8.5(c))
becomes effective.
"Total Return" means a total or all-in return during any
specified period. Total Return shall be measured in "gross" and shall not
be adjusted upwards or downwards to give effect to any tax, accounting or
other special treatment of the return for purposes of measurement under
this Article VIII.
"Transfer" means, with respect to any securities or
interests (including any beneficial interest therein), including any LLC
Interests, any sale, giving, pledge, assignment, hypothecation,
encumbrance, granting of a security interest, or any other disposition
thereof and, with respect to the LLC Interests, includes the withdrawal
by a Member from the Company.
8.2 Portfolio. Notwithstanding any other provisions in
this Agreement or the Investment Management Agreement to the contrary,
the LLC Interests of the Company held directly or indirectly by Home, and
any returns or other distributions thereon (including for this purpose
any dividend distribution of such returns or distributions from direct or
indirect subsidiaries of Home to Home) shall not be considered part of
the "Portfolio" as defined in, or be subject to, this Agreement (other
than this Article VIII) and the Investment Management Agreement, and no
fees shall be payable under the Investment Management Agreement with
respect to such LLC Interests.
8.3 Calculations and Payments.
(a) Home shall promptly notify Centre upon the making or
declaring by the Company of any retur ns or distributions on the LLC
Interests, or Home's receipt of any returns, distributions or proceeds
with respect to its LLC Interests. Upon the receipt of such notification,
Centre shall calculate the Portfolio Value as of the date of such
distribution or receipt, and Home shall render such assistance as Centre
may reasonably request in connection with such calculation. If the
Portfolio Value exceeds the Target Value as of such date, Centre shall
notify Home to terminate this Article VIII pursuant to Section
8.5(b)(iii).
(b) On or before the Payment Date, Centre shall provide to
Home a notice in which Centre sets forth the Payment Amount payable on
the Payment Date, setting forth in reasonable detail the calculation of
the Payment Amount.
(c) On the Payment Date Centre shall pay Home the Payment
Amount in immediately available funds to such account as shall be
specified in a notice to Centre by Home.
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1 Distributions with respect to Home's Preferred A Interest.
2 Tax Distributions with respect to Home's Preferred B Nominal Amount.
3 Distributions with respect to Management's Preferred C Interest.
4 Distributions with respect to Home's Common Interest, other than Tax
Distributions paid to Home with respect to its Common Interest.
5 Similar language is used to define market value of non-traded
securities in Schedule 3 to the Investment Management Agreement.
(d) Payments under this Article VIII shall not be subject
to any set-off, counterclaim or other combination of accounts of or with
respect to any payment or other rights that a party hereunder may be
entitled, whether by operation of law, contract (including but not
limited to this Agreement (other than this Article VIII), the Portfolio
Value Swap Agreement (the "Holdings Swap Agreement") between Centre and
Home Holdings Inc. dated June 12, 1995, as amended, and the Aggregate
Excess of Loss Reinsurance Agreement dated June 12, 1995, as amended (as
so amended, the "Reinsurance Agreement") between Centre and Home), or
otherwise.
8.4 Amendment. No amendment, modification, supplement or
waiver in respect of this Article VIII will be effective unless (x) in
writing and signed by Home and Centre and (y) consented to in writing by
the New Hampshire Insurance Department.
8.5 Termination.
(a) This Article VIII shall not be terminated upon or
otherwise affected by the termination of the other provisions of this
Agreement.
(b) This Article VIII shall terminate upon (i) Transfer or
other disposition, with the prior written consent of Centre under Section
8.6(a) (including any consent deemed to be given pursuant to Section
8.6(b) or 8.6(c)(ii)), by Home of all of its LLC Interests (other than
the Preferred B Interests) in the Company, or if Home, with the prior
written consent of Centre under Section 8.6(a) (including any consent
deemed to be given pursuant to Section 8.6(b) or 8.6(c)(ii)), otherwise
ceases to be the record or beneficial owner (other than through GFC) of
all such LLC Interests (other than the Preferred B Interests), (ii) if
the Company is terminated and dissolved pursuant to the Holdings
Agreement and the Act, completion of the final distribution of the assets
of the Company in the liquidation and winding up of the Company, or (iii)
notice to Home by Centre under Section 8.3(a) that, as of any date, the
Portfolio Value equals or exceeds the Target Value.
(c) This Article VIII may be terminated by Centre, without
being liable to make any payments under this Article VIII, by notice to
Home (i) upon a termination of the other provisions of this Agreement
effected or caused by the New Hampshire Insurance Department and
delivery by Centre of a credit enhancement instrument or other
arrangement in form and substance reasonably satisfactory to Home and the
New Hampshire Insurance Department that continues to provide to Home
substantially all the benefit intended to be provided to Home under this
Article VIII, or (ii) if a default or violation by Home of Section 8.6(a)
shall have occurred and be continuing, Centre shall have notified Home of
such default or violation and, if such default or violation is curable
within 30 calendar days, Home has not cured such default or violation
within 30 calendar days after such notice. For the avoidance of doubt the
date on which this Article VIII is terminated pursuant to this Section
8.5(c) shall not be considered a "Termination Date".
8.6 Home's LLC Interests.
(a) Home agrees with Centre that, without the prior
written consent of Centre, which consent may be withheld by Centre at
Centre's absolute discretion:
(i) Home shall not amend, modify, supplement, waive any of
its rights under or terminate the Holdings Agreement;
(ii) Home shall not Transfer or otherwise dispose of any
or all of its Preferred A Interests or Common Interests in the Company,
or otherwise cease to be the record or beneficial owner (other than
through GFC) thereof;
(iii) Home shall not Transfer or otherwise dispose of any
or all its equity interests in GFC or any other direct or indirect
subsidiary that is the record or beneficial owner of Home's Preferred A
Interests or Common Interests in the Company, or otherwise cease to be
the record or beneficial owner (other than through a wholly-owned
subsidiary) of such equity interests;
(iv) Home shall not create, incur, assume or permit to
exist any Lien on Home's LLC Interests (other than the Preferred B
Interests); or
(v) Home shall not take any action relating to the
termination or dissolution of the Company.
(b) Centre shall be deemed to have consented to a Transfer
requested by Home pursuant to Section 8.6(a)(ii) upon execution and
delivery by Home of an instrument in form and substance satisfactory to
Centre (i) terminating this Article VIII and releasing Centre of all
obligations and liabilities under this Article VIII or (ii) confirming
that the proceeds of such proposed Transfer will cause the Portfolio
Value to exceed or equal the Target Value as of the date of such Transfer
and that the Payment Amount as of the Termination Date will be zero.
(c) (i) This Section 8.6(c) shall apply if: (1) pursuant
to the Reinsurance Agreement, Centre shall have paid (including by way of
offset pursuant to Article X of the Reinsurance Agreement) to Home an
amount up to the Aggregate Limit (as defined in the Reinsurance
Agreement), (2) Home shall not have any Cash Available (as defined in the
Reinsurance Agreement), and (3) Home proposes to Transfer to a third
party all of Home's LLC Interests (including its Preferred B Interests to
the extent not previously Transferred by Home), free and clear of any
Liens thereon, without delivering an instrument confirming that the
proceeds of such proposed Transfer will cause the Portfolio Value to
exceed or equal the Target Value, as contemplated by Section 8.6(b)(ii),
and has requested Centre's consent with respect to such proposed Transfer
of the Preferred A Interests and Common Interests included therein.
(ii) If Centre declines to consent to the proposed
Transfer referred to in Section 8.6(c)(i), then, within 30 calendar days
after such decline, Centre shall notify Home whether Centre intends to
purchase all of such LLC Interests of Home included in such proposal. If
Centre does so notify, Home shall sell, and Centre (or an Affiliate
thereof) shall purchase, all such LLC Interests on the same terms and
conditions as proposed by such proposed third party transferee, subject
to and together with the terms and conditions set forth in the next two
sentences. Home shall deliver, upon the consummation of such sale and
purchase, (1) good, valid and marketable title to such LLC Interests,
free and clear of any Liens, (2) evidence in form and substance
reasonably satisfactory to Centre (or such Affiliate) that such good,
valid and marketable title is being delivered, free and clear of any
Liens and (3) evidence in form and substance reasonably satisfactory to
Centre (or such Affiliate), including opinion from counsel reasonably
satisfactory to Centre (or such Affiliate) and certificates from senior
officers or other authorized representatives of Home or its successor,
including without limitation a duly appointed liquidator, rehabilitator,
receiver, conservator or trustee or other Person of similar capacity,
that Home has the capacity and authority to enter into and consummate
such transactions and to deliver such title, free and clear of any Liens.
The consummation of such sale and purchase shall take place at a place to
be designated by Centre (or such Affiliate), and on a date that is the
later of (x) 120 calendar days after Centre's notification of intent to
purchase and (y) the date, if any, set forth in the terms and conditions
of such proposed third party transferee. Upon the consummation of such
sale and purchase, Centre shall also be deemed to have consented to a
Transfer (to itself or such Affiliate) pursuant to Section 8.6(a). If
Centre does not so notify within such 30 calendar day period, or notifies
to decline such purchase, it shall be deemed to have consented to such
proposed Transfer under Section 8.6(a). Home may then Transfer all such
LLC Interests to the third party on the terms and conditions proposed by
such third party within 120 calendar days after the expiration of such 30
calendar day period. If such sale is not consummated within such 120
calendar day period, Home may not Transfer such LLC Interests unless it
shall have requested Centre's consent under Section 8.6(a) again.
Section 2. Status of Swap Agreement.
(a) This Amendment is limited solely for the purposes and
to the extent expressly set forth herein and nothing herein contained or
implied shall constitute an amendment or waiver of any other term,
provision or condition of the Swap Agreement.
(b) For the avoidance of doubt Centre hereby confirms that
none of the transactions contemplated by the Reorganization Agreement or
the Holdings Agreement constitutes a "Merger Without Assumption" within
the meaning of the Swap Agreement or the Portfolio Value Swap Agreement
between Centre and Home Holdings Inc. dated June 12, 1995, as amended.
Section 3. Counterparts. This Amendment may be executed in
any number of counterparts, all of which taken together shall constitute
one Amendment and any of the parties hereto may execute this Amendment by
signing such a counterpart.
Section 4. Effectiveness. This Amendment shall become
effective (i) upon the execution and delivery by each party hereto of a
counterpart hereof and (ii) if, upon such execution and delivery, the
conditions set forth in Section 6.1(c) and (d) of the Reorganization
Agreement shall have been satisfied.
IN WITNESS WHEREOF, the undersigned have executed this
Amendment as of the date first above written.
CENTRE REINSURANCE DUBLIN
By:__________________________________
Name:
Title:
By:__________________________________
Name:
Title:
THE HOME INSURANCE COMPANY
By:__________________________________
Name:
Title:
THE HOME INSURANCE COMPANY
OF ILLINOIS
By:_________________________________
Name:
Title:
THE HOME INSURANCE COMPANY
OF WISCONSIN
By:__________________________________
Name:
Title:
U.S. INTERNATIONAL REINSURANCE
COMPANY
By:__________________________________
Name:
Title:
Agreed to with respect to Section 8.2
in Section 1 of the Amendment only
CENTRE INVESTMENT SERVICES LIMITED
By:__________________________________
Name:
Title:
ZURICH CENTRE INVESTMENT LIMITED
By:__________________________________
Name:
Title:
Accepted and Agreed for the
NEW HAMPSHIRE INSURANCE
DEPARTMENT
By:__________________________
Name:
Title:
