SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT ("Agreement") is made as of the ____ day of
July, 1997, by and among FRONT ROYAL, INC., a North Carolina corporation (the
"Company"), and each of the persons listed on the signature pages hereto (each
of which is individually a "Purchaser" and all of which are collectively the
"Purchasers").
The parties hereby agree as follows:
1. Sale and Purchase of Securities.
1.1 Sale and Purchase. Subject to the terms and conditions of (a) this
Agreement, (b) the Registration Rights Agreement, by and among the Company, the
Purchasers and certain other shareholders of the Company, as amended (the
"Registration Rights Agreement"), and (c) the Shareholders Agreement, dated as
of December 31, 1996, by and among the Company and the other parties listed as
signatories thereto, as amended (the "Shareholders Agreement"), (i) the Company
will issue and sell to the Purchasers, and each Purchaser, severally and not
jointly, will purchase at the Closing (as defined in Section 2.1), the number of
units specified opposite the name of such Purchaser on the signature pages
hereto (or, as to any such purchaser, such lesser number of Units as the Company
shall determine in its complete discretion) ("Units") each consisting of one
hundred shares of the Company's Class C Common Stock, no par value ("Class C
Common Shares"), together with one hundred associated Rights pursuant to Section
1.3 of this Agreement ("Rights"), and a warrant ("Warrant") to purchase 7.874
Class A Common Shares of the Company pursuant to Section 1.2 of this Agreement,
at a purchase price of $400 per Unit, for a total aggregate purchase price for
all Purchasers of Two Hundred Ninety Three Thousand Two Hundred Dollars
($293,200).
1.2 Warrants. The Warrants shall be issued at the Closing in the form
attached hereto as Exhibit 1.2.
1.3 Rights. The Rights shall be issued at the Closing pursuant the terms of
the Rights Agreement, dated as of the date hereof, among the Company and the
signatories thereto in the form attached hereto as Exhibit 1.3.
1.4 Allocation of Purchase Price. The parties agree that the purchase price
of $400 per Unit shall be allocated as follows:
$398.92 shall be allocated to the 100 Class C Common Shares forming
part of each Unit, $1.00 shall be allocated to the 100 Rights forming part
of each Unit, and $.07874 shall be attributable to the Warrant to purchase
7.874 Class A Common Shares forming part of each Unit.
2. Closing Date: Delivery: Use of Proceeds.
2.1 (a) Closing Date. The closing of the purchase and sale of the Units
shall be held at the offices of Xxxxxxxx Xxxxxxxxx Xxxxxx Xxxxxxxx & Xxxxxx LLP,
at 10:00 A.M. on July ____, 1997, or as promptly thereafter as the conditions
set forth in Section 5 have been met, or at such other time and place as the
Company and the Purchasers may mutually agree. Such time is hereinafter referred
to as the "Closing" and the date of the Closing is hereinafter referred to as
the "Closing Date."
(b) Delivery by the Purchasers. At the Closing each Purchaser shall pay to
the Company, by means of wire transfer of immediately available funds, an amount
equal to the product of $400 and the number of Units set forth opposite such
Purchaser's name on the signature pages hereto (or, such lesser number of Units
as the Company shall determine in its discretion), and the Company will issue
and deliver to each such Purchaser certificates evidencing the Class C Common
Shares so purchased, together with the Rights and Warrants purchased by them.
2.2 Use of Proceeds. The Company shall use the proceeds of the sale of the
Units sold and purchased hereby for additional working capital and to repay
certain senior bank debt.
3. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Purchaser as follows:
3.1 Capitalization. (a) Upon filing of the Amendment to the Articles of
Incorporation referred to in Section 5.1(a)(iii) the authorized capital stock of
the Company shall consist of 25,200,000 shares of capital stock, (i) 20,000,000
of which are designated Class A Common Stock, no par value (the "Class A Common
Shares"), (ii) 700,000 of which are designated Class B Common Stock, no par
value (the "Class B Common Shares"), (iii) 3,500,000 of which are designated
Class C Common Stock, no par value (the "Class C Common Shares") (the Class A
Common Shares, Class B Common Shares and the Class C Common Shares,
collectively, the "Common Shares") and (iv) 1,000,000 shares of preferred stock,
of which 155,000 have been designated Series A Convertible Preferred Stock (the
"Series A Preferred Shares"). There are 5,442,030 Class A Common Shares issued
and outstanding, 272,895 Class B Common Shares issued and outstanding, 3,175,000
Class C Common Shares issued and outstanding and 155,000 Series A
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Preferred Shares issued and outstanding. All such outstanding shares of capital
stock have been duly authorized and validly issued and are fully paid and
non-assessable. There are no other shares of capital stock issued and
outstanding. Upon completion of the Closing, there will be an additional 73,300
Class C Common Shares (for a total of 3,248,300 Class C Common Shares) issued
and outstanding and all such outstanding shares will be duly authorized and
validly issued, fully paid and non-assessable.
(b) The Class C Common Shares, when issued, sold and delivered in
accordance with the terms of this Agreement, will be duly and validly issued,
fully paid, nonassessable and free and clear of all Liens, other than (i) the
restrictions on transfer and other agreements relating to the Class C Common
Shares contained in this Agreement and in the Shareholders' Agreement, (ii)
restrictions on transfer arising under the Securities Act of 1933, as amended
(the "Act"), and under state securities and "blue sky" laws, and (iii) any Liens
granted on the Class C Common Shares with the consent of the holder thereof. The
Company has duly and validly reserved out of its authorized shares of capital
stock 5,772 Class A Common Shares for issuance upon exercise of the Warrants by
certain shareholders of the Company. Upon issuance of such reserved Class A
Common Shares in accordance with the exercise provisions of the Warrants, such
Class A Common Shares will be duly and validly issued, fully paid, nonassessable
and free and clear of all Liens. For purposes of this Agreement, "Lien" shall
mean any lien, pledge, charge, security interest, encumbrance, title retention
agreement, restriction, advance, claim or option.
3.2 Authority, Validity and Enforceability. The Company has full corporate
power and authority to enter into this Agreement, the Registration Rights
Agreement and the Shareholders' Agreement and to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. All corporate action on the part of the Company and its directors,
officers, and stockholders necessary for the authorization, execution, delivery
and performance by the Company of its obligations under this Agreement, the
Registration Rights Agreement and the Shareholders' Agreement and the
consummation of the transactions contemplated hereby and thereby, including,
without limitation the issuance and sale of the Class C Common Shares, the
Warrants and the Rights will have had been taken by the Closing Date. Each of
this Agreement, the Registration Rights Agreement and the Shareholders'
Agreement has been duly executed and delivered by the Company and, upon Closing,
is a valid and binding agreement of the Company, enforceable against the Company
in accordance with its terms except (a) as the same may be limited by applicable
bankruptcy, insolvency, moratorium or similar laws of general application
relating to or affecting creditors' rights, including, without limitation, the
effect of statutory or other laws regarding
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fraudulent conveyances and preferential transfers, and (b) for the limitations
imposed by general principles of equity. The foregoing exceptions set forth in
subsections (a) and (b) of this Section 3.2 are hereinafter referred to as the
"Enforceability Exceptions."
3.3 No Violation or Breach. Subject to Section 3.4 hereof, neither the
execution and delivery of this Agreement, the Registration Rights Agreement or
the Shareholders' Agreement by the Company nor the consummation by the Company
of the transactions contemplated hereby or thereby will violate, result in a
breach of any of the terms or provisions of, constitute a default (or an event
which, with the giving of notice or the passage of time or both, would
constitute a default) under, result in the acceleration of any indebtedness
under or performance required by, result in any right of termination of,
increase any amounts payable under, decrease any amounts receivable under,
change any other rights pursuant to, or conflict with, any agreement, indenture
or other instrument to which the Company or any of its subsidiaries (each a
"Front Royal Subsidiary") is a party or by which any of their respective
properties are bound, or any law, regulation, judgment, decree, order or award
of any court, governmental body or arbitrator (domestic or foreign) applicable
to the Company or any Front Royal Subsidiary, except that the issuance of Class
A Common Shares upon exercise of the Warrants or the Rights may require
adjustments under the terms of other warrants or options issued by the Company.
3.4 Consents and Approvals. All consents, approvals and authorizations of,
and declarations, filings and registrations with, and payments of all taxes,
fees, fines and penalties to, any governmental or regulatory authority (domestic
or foreign) or any other person (either governmental or private) required to be
obtained or made by the Company or any Front Royal Subsidiary in connection with
the execution and delivery by the Company of this Agreement, the Registration
Rights Agreement (other than necessary filings to register the Company's
securities under the Act pursuant to such Agreement) or the Shareholders'
Agreement or the consummation by the Company of the transactions contemplated
hereby or thereby, have been or will be by the Closing Date, obtained, made and
satisfied, other than filings required to be made after but not before the
Closing by any Front Royal Subsidiary with the appropriate insurance department
under the insurance holding company act provisions of the insurance law of the
state of domicile of each such Front Royal Subsidiary, which filings shall be
made by each respective Front Royal Subsidiary on a timely basis after the
Closing.
3.5 Brokerage Fees. None of the Company or any Front Royal Subsidiary has
taken any action in connection with this Agreement or the transactions
contemplated hereby which would
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give rise to any valid claim against the Company or any Front Royal Subsidiary
or any of the Purchasers for any brokerage or finder's fee.
3.6 Charter Documents and By-laws. The Company has heretofore made
available to the Purchasers true and complete copies of the Articles of
Incorporation and By-Laws of the Company as in effect on the date hereof.
3.7 Minute Books. The minute books of the Company and the Front Royal
Subsidiaries accurately reflect in all material respects all formal actions
taken at all meetings and all consents in lieu of meetings of the stockholders
of each respective company since the date of formation of such company, and all
formal actions taken at all meetings and all consents in lieu of meetings of the
board of directors of the Company and the Front Royal Subsidiaries and all
committees thereof since the date of formation of such company. All of such
minute books have been made available for inspection by the Purchasers.
3.8 Statutory Statements. The Company has made available to the Purchasers
(a) the Front Royal Statutory Statements and (b) any annual statutory statements
of Front Royal Insurance Company ("Front Royal Insurance"), Xxxxxxxx Insurance
Company ("Xxxxxxxx Insurance") and Colony Insurance Company ("Colony Insurance")
that were filed for the year ended December 31, 1996 in any jurisdiction (other
than Virginia and Ohio) and which differ from the Front Royal Annual Statement
for the year ended December 31, 1996. Each such Front Royal Statutory Statement
(i) complied in all material respects with all applicable laws when so filed,
(ii) was prepared in accordance with SAP and (iii) presents fairly in all
material respects the financial position of Front Royal Insurance, Xxxxxxxx
Insurance and Colony Insurance as of the respective dates thereof and the
related summary of operations and changes in capital and surplus and in cash
flows of Front Royal Insurance, Xxxxxxxx Insurance and Colony Insurance for and
during the respective periods covered thereby. No material deficiency has been
asserted by any insurance regulatory authority with respect to any such
Statutory Statement. "Front Royal Statutory Statements," when used in this
Agreement, shall mean, collectively, the annual statements filed by each of
Front Royal Insurance, Xxxxxxxx Insurance and Colony Insurance on the NAIC
prescribed convention blank for each of the years ended December 31, 1995 and
1996, filed with the Virginia Department of Insurance or the Ohio Department of
Insurance, as the case may be, pursuant to the Virginia Insurance Law and the
Ohio Insurance Law, respectively (including management's discussion and analysis
and the supporting memorandum to the actuarial opinions given in connection with
each such Front Royal Statutory Statement).
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3.9 Financial Information. The Company has made available to the Purchasers
true and complete copies of the consolidated balance sheets and consolidated
statements of operations and stockholders' equity and of cash flows of the
Company and the Front Royal Subsidiaries for each of the fiscal years ended as
of December 31, 1995 and December 31, 1996, together with all related notes and
schedules thereto (the "Financial Statements"). The Financial Statements were
prepared from the books and records of the Company and the Front Royal
Subsidiaries and present fairly the consolidated financial condition and results
of operations of the Company and the Front Royal Subsidiaries as of the dates
thereof or for the periods covered thereby in accordance with generally accepted
accounting principles consistently applied ("GAAP").
3.10 Disclosure. The Company has provided each Purchaser with all the
information which such Purchaser has requested for deciding whether to purchase
the Class C Common Shares, Warrants and Rights and all information which the
Company believes is reasonably necessary to enable such Purchaser to make such
decision. The information provided by the Company in the Company's Offering
Memorandum dated December 20, 1996 as supplemented (the "Offering Memorandum")
and this Agreement, does not and will not as of the Closing contain any untrue
statement of a material fact or omit to state a material fact required to be
stated herein or therein or necessary to make the statements and facts contained
herein or therein, in light of the circumstances under which they are made, not
false or misleading. Copies of all documents heretofore or hereafter delivered
or made available by the Company to the Purchasers pursuant hereto were or will
be complete and accurate records of such documents. The Company knows of no
information or fact that has or is reasonably likely to have a Material Adverse
Effect that has not been disclosed to the Purchasers in writing. The
projections, taken as a whole, furnished to the Purchasers by the Company in the
Offering Memorandum, were made with due care based on assumptions which the
Company believed in good faith to be reasonable as of the date thereof. These
projections were made by the Company based on assumptions which the Company did
not consider improbable or unlikely, including, but not limited to, allocations
of general expenses of the Company and its Subsidiaries.
3.11 Registration Rights. Except as granted pursuant to and identified in
the Registration Rights Agreement, the Company has not granted or agreed to
grant any registration rights of any type to any person or entity.
3.12 No Registration. Subject to the truth and accuracy of the
representations of the Purchasers in this Agreement, the issuance, sale and
delivery of the Class C Common Shares, Warrants and Rights to the Purchasers, as
contemplated by
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this Agreement are exempt from the registration requirements of the Act, and any
applicable state securities law relating thereto.
4. Representations and Warranties of the Purchasers. Each of the Purchasers
represents and warrants, severally and not jointly, to the Company as follows as
to itself only:
4.1 Acquisition of Securities. This Agreement is made with such Purchaser
in reliance upon such Purchaser's representation to the Company, which by such
Purchaser's execution of this Agreement such Purchaser hereby confirms, that the
Class C Common Shares, Warrants and Rights to be received by such Purchaser will
be acquired for investment for such Purchaser's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that such Purchaser has no present intention of selling, granting any
participation in, or otherwise distributing the same.
4.2 No Registration. Such Purchaser understands and acknowledges that the
offering of the Class C Common Shares, Warrants and Rights pursuant to this
Agreement will not be registered under the Act, or under any other applicable
blue sky or state securities law on the grounds that the offering and sale of
the Class C Common Shares, Warrants and Rights contemplated by this Agreement
are exempt from registration pursuant to Section 4(2) of the Act and the
regulations thereunder and exempt from qualification pursuant to comparable
available exceptions in various states, and that the Company's reliance upon
such exemptions is predicated upon such Purchaser's representations set forth in
this Agreement.
4.3 Consents and Approvals. No consent, approval or authorization of, or
declaration, filing or registration with, or payment of any tax, fee, fine or
penalty to, any governmental or regulatory authority (domestic or foreign) or
any other person (either governmental or private), is required to be obtained or
made by such Purchaser in connection with the execution and delivery by such
Purchaser of this Agreement, the Registration Rights Agreement, the
Shareholders' Agreement or the consummation by such Purchaser of the
transactions contemplated hereby.
4.4 Investment Representations. Such Purchaser (a) has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of such Purchaser's prospective investment hereunder; and (b)
has the ability to bear the economic risks of such Purchaser's prospective
investment, including a complete loss of the investment.
4.5 Authorization. Such Purchaser has full power and authority to enter
into this Agreement and to perform its
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obligations hereunder and to consummate the transactions contemplated hereby.
This Agreement is a valid and binding agreement of each Purchaser, enforceable
in accordance with its terms, subject to the Enforceability Exceptions.
4.6 Brokerage Fees. Such Purchaser has not taken any action in connection
with this Agreement or the transactions contemplated hereby which would give
rise to any valid claim against the Company, the Front Royal Subsidiaries or any
of the Purchasers for any brokerage or finder's fee.
4.7 Accredited Investor Status. Such Purchaser is an "accredited investor"
within the meaning of Rule 501(a) of Regulation D promulgated by the SEC under
the Act.
4.8 ERISA. Such Purchaser will not acquire the Units with the assets of any
"employee benefit plan" as defined in the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") and no "prohibited transactions" under ERISA
and the Code will occur in connection with the Purchaser's acquisition of the
Units.
4.9 Access to Information. Such Purchaser has had the opportunity to ask
questions of, and receive answers from, management of the Company, and all such
questions have been answered to the satisfaction of such Purchaser. All
information that such Purchaser has requested has been provided to such
Purchaser to its satisfaction.
5. Conditions.
5.1 Conditions to Closing.
(a) Conditions to Purchaser Obligations. The obligation of each of the
Purchasers to purchase the Class C Common Shares, Warrants and Rights and to
perform their obligations pursuant to Section 2.1(b) at the Closing, is subject
to the fulfillment on or prior to the Closing Date of the following conditions,
any of which may be waived in accordance with the provisions of Section 10.1
hereof:
(i) Representations and Warranties Correct; Performance of
Obligations. The representations and warranties made by the Company in
Section 3 hereof shall be true and correct in all material respects on the
Closing Date; and the Company shall have performed all obligations and
conditions herein required to be performed or observed by it on or prior to
the Closing Date.
(ii) Consents and Waivers. The Company shall have obtained any and all
consents, permits and waivers necessary or appropriate to be obtained by
the Company
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for consummation of the transactions contemplated by this Agreement,
including all authorizations, approvals or permits, if any, of any
governmental authority or regulatory body of the United States or of any
state that are required to be obtained by the Company in connection with
the lawful issuance and sale of the Class C Common Shares, Warrants and
Rights pursuant to the terms of this Agreement.
(iii) Articles of Incorporation. The Articles of Amendment to the
Articles of Incorporation of the Company in the form of Exhibit 5.1(a)(iii)
shall have been duly adopted and shall have been properly filed with the
North Carolina Secretary of State and shall constitute the Articles of
Incorporation of the Company. The Company shall have delivered to such
Purchaser facsimile evidence that such Articles have been so filed.
(b) Conditions to Company Obligations. The Company's obligation to sell and
issue the Class C Common Shares, Warrants and Rights pursuant to this Agreement
is subject to the fulfillment on or prior to the Closing Date of the following
conditions, any of which may be waived by the Company as to any one or more of
the Purchasers if such waiver will not adversely affect the other Purchasers:
(i) Representations and Warranties Correct. The representations and
warranties made by the Purchasers in Section 4 hereof shall be true and
correct when made, and shall be true and correct on the Closing Date with
the same force and effect as if they had been made on and as of said date.
(ii) Payments by Purchasers. The payments by the Purchasers required
by Section 2.1(b) shall have been made.
(iii) Consents and Waivers. The Company shall have obtained the
following consents and waivers:
I. Waiver by the holders of 3/4 of Class C Common Shares of their
preemptive rights under Section 6.3 of that certain Subscription
Agreement, dated as of December 31, 1996, between the Company, Xxxxx
Global Investments, Ltd., Remington Investment Strategies, L.P., High
Ridge Capital Partners Limited Partnership and the other purchasers
set forth therein (the "Original Subscription Agreement");
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II. Consent of holders of 2/3 of the Registrable Securities (as
such term is defined in the Registration Rights Agreement) to permit
the purchasers to become parties to such agreement;
III. Waiver by certain parties to that certain Shareholder &
Registration Rights Agreement, dated as of December 31, 1996, of such
parties' preemptive rights under Section 4 of such agreement;
IV. Waiver by First Union National Bank of North Carolina, as
agent ("First Union"), of Section 6.14 of that certain Credit
Agreement, dated as of December 18, 1996, between the Company, First
Union and the Lenders (as defined therein);
and any and all consents, permits and waivers necessary or appropriate to
be obtained by the Company for consummation of the transactions
contemplated by this Agreement, including all authorizations, approvals or
permits, if any, of any governmental authority or regulatory body of the
United States or of any state that are required to be obtained by the
Company in connection with the lawful issuance and sale of the Class C
Common Shares, Warrants and Rights pursuant to the terms of this Agreement.
6. Affirmative Covenants of the Company. The Company hereby covenants and
agrees with each Purchaser that after the Closing and for so long as such
Purchaser owns Class C Common Shares, Warrants or Class A Common Shares or as
otherwise specifically provided herein, as follows:
6.1 Financial Information and Inspection Right. The Company will furnish to
each Purchaser, at such Purchaser's request as soon as practicable (and in any
event within 120 days) after the end of each fiscal year, a consolidated balance
sheet as at the end of such fiscal year, and a related consolidated statement of
operations, consolidated statement of changes in stockholders' equity and a
consolidated statement of cash flows for the year then ended, for each of the
Company and each corporation or entity of which the Company owns, directly or
indirectly, beneficially or of record, a 50% or greater equity interest,
including Rockwood (a "Subsidiary"). Such financial statements shall be prepared
in accordance with generally accepted accounting principles consistently applied
("GAAP") and shall be accompanied by the report, and a copy of the annual
management review letter, of an independent public accountant of national
reputation.
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6.2 Certain Preemptive Rights. (a) Except as hereinafter provided in this
Section 6.2, if after the date hereof the Company proposes to issue additional
shares of common equity securities or securities convertible, exchangeable or
exercisable for common equity securities ("Additional Shares"), the Company
shall deliver to each holder of then outstanding Class C Common Shares written
notice thereof, which notice shall include a general description of the terms of
such proposed issuance of Additional Shares (including the number of Additional
Shares to be so issued), the purchase price per Additional Share to be issued
and the anticipated issuance date. Within ten (10) days of delivery of such
notice, each holder may by written notice (the "Additional Shares Offer") offer
to purchase in such proposed issuance up to a maximum number of the Additional
Shares such that immediately after the purchase of such Additional Shares by
such holder, the percentage of all shares of common equity securities issued and
outstanding on a fully diluted basis (assuming conversion of warrants, options
and other instruments of the Company convertible into or exchangeable for common
equity securities other than the Warrants or the Rights) owned by such holder
shall be unchanged as a result of such issuance. Any holder who fails to provide
the Company with an Additional Shares Offer within such ten (10) day period
shall be deemed to have waived its right to buy any Additional Shares or
otherwise to participate in such proposed issuance. If the terms of the proposed
issuance of Additional Shares set forth in the notice provided by the Company
pursuant to this paragraph shall have materially changed from the date of such
notice, the Company shall deliver to each holder of then outstanding Class C
Common Shares an additional notice and such holder shall again have the rights
set forth in this paragraph (and, if such holder shall have provided the Company
with an Additional Shares Offer, such holder shall be entitled to amend such
offer) in accordance with the time periods set forth in this paragraph.
(b) The rights and obligations set forth in this Section 6.2 shall not
apply to any issuances of Additional Shares in respect of (i) warrants or
options to acquire any common equity securities which are outstanding on the
date hereof or on the Closing Date, (ii) any stock option or employee benefit
plan of the Company now existing or hereafter adopted by the Board of Directors
or shareholders of the Company, (iii) any Initial Public Offering, (iv)
securities of the Company issued or issuable pursuant to the this Agreement or
in connection with the Warrants or Rights pursuant hereto, (v) any merger or
acquisition involving the Company which has been approved by the Board, (vi) a
stock split, stock dividend or recapitalization of the Company, or (vii) any
acquisition or similar transaction of the Company not intended primarily to
raise capital. For purposes of this Agreement, "Initial Public Offering" shall
mean the first underwritten public offering of Class A Common Shares by or for
the account of the Company and offered on a "firm commitment" or
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"best efforts" basis pursuant to an offering registered under the Act on Form
S1, Form SB-1 or their equivalents.
(c) The provisions of this Section 6.2 shall terminate upon the initial
closing under an Initial Public Offering.
6.3 Availability of Class A Common Shares Upon Conversion and Exercise. The
Company will, from time to time, in accordance with the laws of the state of
North Carolina, increase its authorized number of Class A Common Shares if at
any time the number of Class A Common Shares remaining unissued and available
for issuance shall be insufficient to permit the conversion into Class A Common
Shares of all then outstanding securities convertible into Class A Common
Shares, including, without limitation, the Class C Common Shares, the Warrants
and the Rights.
7. Negative Covenants and Related Matters.
7.1 Negative Covenants of the Company.
(a) The Company shall not take any action requiring, under the Company's
Articles of Incorporation, as amended by the Articles of Amendment thereto
referred to in Section 5.1(a)(iii) hereof, the affirmative vote of holders of
the Class C Common Shares without first having obtained such vote required
thereunder.
(b) Without the approval of at least three-fourths (3/4) of the members of
the Company's Board of Directors (rounded up to the nearest whole number of
members), voting at a meeting duly called and held or by unanimous written
consent, the Company shall not purchase or otherwise reacquire any outstanding
shares of its capital stock ranking senior to the Class C Common Shares as to
dividend rights or liquidation preferences.
8. Restrictions on Transfer: Legends.
8.1 Restrictions on Transfer. Each of the Purchasers agrees that the Class
C Common Shares, the Rights and the Warrants may not be sold, transferred or
disposed of, and the Company will be entitled to refuse to register the transfer
of the Class C Common Shares and the Warrants, unless such sale, transfer or
disposition is effected pursuant to (i) an effective registration statement
under the Act and in compliance with all applicable state laws or (ii) an
opinion of counsel reasonably satisfactory to the Company, or other evidence
reasonably satisfactory to the Company, to the effect that such sale, transfer
or disposition without registration may be effected without violation of the Act
or any applicable state laws.
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8.2 Legend on Securities. (a) The Warrants and all certificates
representing the Class C Common Shares and Rights shall bear a legend to the
following effect:
THE SECURITY REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") OR ANY APPLICABLE STATE SECURITIES
LAWS. NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION OF THE SECURITY REPRESENTED BY THIS CERTIFICATE MAY BE MADE
EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
AND ANY APPLICABLE STATE SECURITIES LAWS, OR (B) IF THE COMPANY HAS BEEN
FURNISHED WITH AN OPINION OF COUNSEL FOR THE HOLDER, WHICH OPINION OF
COUNSEL SHALL BE REASONABLY SATISFACTORY TO THE COMPANY, OR NO-ACTION
LETTERS FROM THE SECURITIES AND EXCHANGE COMMISSION AND ANY STATE
SECURITIES COMMISSION, THE APPROVAL OF WHICH IS REQUIRED, OR OTHER EVIDENCE
REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT SUCH TRANSFER,
SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM
THE REGISTRATION PROVISIONS OF THE ACT AND THE RULES AND REGULATIONS IN
EFFECT THEREUNDER, AND ANY APPLICABLE STATE SECURITIES LAWS.
and any other legends required by applicable state blue sky laws.
9. Indemnification. The Company agrees to indemnify each Purchaser (the
"Indemnified Parties") for, and hold each Indemnified Party harmless from and
against: (i) any and all damages, losses and other liabilities of any kind,
including, without limitation, judgments and costs of settlement, and (ii) any
and all reasonable out-of-pocket costs and expenses of any kind, including,
without limitation, reasonable fees and disbursements of one counsel for such
Indemnified parties (selected by the Purchasers) (all of which expenses shall be
periodically reimbursed as incurred) ((i) and (ii), collectively, "Losses"), in
each case, suffered or incurred in connection with (A) any investigative,
administrative or judicial proceeding or claim, brought or threatened by a third
party, relating to or arising out of this Agreement, the Registration Rights
Agreement, the Shareholders Agreement or the transactions contemplated hereby
and thereby or the Company's use of the proceeds received in connection with the
sale of the Class C Common Shares, Warrants and Rights hereunder, (B) any
material inaccuracy in any representation or warranty made or incorporated by
reference in this Agreement, and (C) any breach by the Company of any covenant
or agreement made or incorporated by reference in this Agreement, the
Registration Rights Agreement or the Shareholders' Agreement.
10. Miscellaneous.
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10.1 Modifications, Amendments and Waivers. The provisions of this
Agreement may be amended or waived only upon the written agreement of (a) the
Company and (b) the holder or holders of at least three-fourths (3/4) of the
Class C Common Shares then outstanding, and the Class A Common Shares then
outstanding that were issued upon conversion of the Class C Common Shares or
exercise of the Warrants and/or Rights, voting together as one class. Any
waiver, permit, consent or approval of any kind or character on the part of any
party 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.
10.2 Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the internal law, and not the law pertaining to
conflicts or choice of law, of the State of New York.
10.3 Survival and Remedies. The representations of the parties made herein
shall survive the transactions contemplated hereby, notwithstanding any
investigation made by the Purchasers, for a period of two (2) years; provided,
however, that the representations and warranties contained in Sections 3.2 and
3.3 shall survive indefinitely. All statements as to factual matters contained
in any certificate or other instrument delivered by or on behalf of the Company
pursuant hereto or in connection with the transactions contemplated hereby shall
be deemed to be representations and warranties by the Company hereunder as of
the date of such certificate or instrument.
10.4 Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for the benefit of the Purchasers or
holders of Class C Common Shares, Warrants and Rights are also for the benefit
of, and enforceable by, any subsequent holders of such securities and the Class
A Common Shares into which such Class C Common Shares, Warrants and/or Rights
are converted, except any subsequent holder who acquires any such security in a
registered public offering.
10.5 Entire Agreement. This Agreement, the Registration Rights Agreement,
as amended, the Shareholders Agreement, as amended, and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement among the parties with regard to the subject matter hereof and
thereof.
10.6 Notices. All notices and other communications required or permitted
hereunder shall be effective upon receipt and shall be in writing and delivered
personally, by facsimile
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transmission, by overnight delivery service or by mail, postage prepaid,
addressed (a) if to a Purchaser, at such Purchaser's address set forth below its
name on the signature pages hereto, or at such other address as such Purchaser
shall have furnished to the Company in writing or (b) if to the Company, at 000
Xxxxxxx Xxxx., Xxxxx 000, Xxxxxxxxxxx, Xxxxx Xxxxxxxx 00000, Attention: J. Xxxx
Xxxxx, Chief Executive Officer and Xxxxx X. Xxxxx, Chief Financial Officer,
telecopy number (000) 000-0000, or at such other address as the Company shall
have furnished to the Purchasers in writing, with a copy to Xxxxxxxx Xxxxxxxxx
Xxxxxx Xxxxxxxx & Xxxxxx LLP, 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx
00000, Attention: Xxxxxxx X. Xxxxxxxxx, Esq., telecopy number (000) 000-0000.
10.7 Severability. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
10.8 Titles and Subtitles. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
10.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one instrument.
10.10 Construction of Agreement. None of the parties hereto or their
respective counsel shall be deemed to have drafted this Agreement for purposes
of construing the terms hereof. The language in all parts of this Agreement
shall in all cases be construed according to its fair meaning, and not strictly
for or against any party hereto. The phrase, "to the knowledge of the Company,"
whenever used in this Agreement with respect to any subject matter, shall mean
to the best knowledge of the president, chief financial officer, or any vice
president responsible for either claims of the Front Royal who in the course or
human resources, of the Company or any Subsidiaries who has actual knowledge, or
who, in the course of the normal performance of his or her operational
responsibilities, would have knowledge, of such subject matter.
10.11 Termination. This Agreement may be terminated at any time prior to
the Closing by either the Company or any Purchaser upon 15 days written notice
to the non-terminating party if the Closing shall not have occurred on or before
July ____, 1997.
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IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of
the day and year first above written.
THE COMPANY:
FRONT ROYAL, INC.
By:
------------------------
Name:
Title:
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SUBSCRIPTION AGREEMENT
SIGNATURE PAGE FOR PURCHASERS
125 Units By:
$50,000 ---------------------------
Xxxx Xxxxxxx
Address:
125 Units THE XXXX XXXXXXX TRUST
$50,000
By:
---------------------------
Name:
Title:
Address:
150 Units By:
$60,000 ---------------------------
Xxxx Xxxxxx
Address:
18 Units By:
$7,200 ---------------------------
Xxxxxxx Xxxx
Address:
12.5 Units By:
$5,000 ---------------------------
Xxxxx Xxxxxxx
Address:
12.5 Units By:
$100,000 ---------------------------
Xxxxxxx Xxxx
Address:
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10 Units By:
$4,000 ---------------------------
Xxxxx Xxx
Address:
10 Units By:
$4,000 ---------------------------
Xxxx Xxxxx
Address:
5 Units By:
$2,000 ---------------------------
Xxxx Xxxxxxxxxx
Address:
132.5 Units PRIMA PARTNERS, L.P.
$53,000
By:
---------------------------
Name:
Title:
Address:
132.5 Units VIRGINIA CAPITAL MANAGEMENT,INC.
$53,000
By:
---------------------------
Name:
Title:
Address:
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