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