REORGANIZATION AGREEMENT
DATED FEBRUARY 24, 1997
BETWEEN
GRUNTAL FINANCIAL CORP.
AND
THE 1880 GROUP LLC
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS..........................................1
ARTICLE II THE TRANSACTIONS...............................5
Section 2.1 GFC Actions....................................5
Section 2.2 Holdings.......................................5
ARTICLE III THE CLOSING....................................6
Section 3.1 Transactions to Occur at the Closing...........6
Section 3.2 Closing........................................7
ARTICLE IV REPRESENTATIONS AND WARRANTIES.......................7
Section 4.1 Mutual.........................................7
Section 4.2 Management.....................................9
Section 4.3 GFC............................................9
ARTICLE V COVENANTS............................................9
Section 5.1 Alternative Proposal...........................9
Section 5.2 Reasonable Efforts............................10
Section 5.3 Consents......................................10
Section 5.4 Public Announcements..........................11
Section 5.5 Tangible Book Value...........................11
Section 5.6 Miscellaneous.................................12
ARTICLE VI CONDITIONS TO CLOSING...............................13
Section 6.1 Conditions to Each Party's Obligation
to Effect the Transactions....................13
Section 6.2 Conditions to the Obligation of GFC...........14
Section 6.3 Conditions to the Obligations of
Management....................................15
ARTICLE VII TERMINATION; AMENDMENT; WAIVER......................16
Section 7.1 Termination...................................16
Section 7.2 Effect of Termination.........................17
Section 7.3 Amendments and Waivers........................17
ARTICLE VIII MISCELLANEOUS.......................................18
Section 8.1 Survival......................................18
Section 8.2 Entire Agreement..............................18
Section 8.3 Governing Law.................................18
Section 8.4 Notices.......................................18
Section 8.5 Successors and Assigns; No Third
Party Beneficiaries...........................19
Section 8.6 Counterparts..................................20
Section 8.7 Interpretation................................20
Section 8.8 Legal Enforceability..........................20
Section 8.9 Brokerage Fees and Commissions................20
Section 8.10 Expenses......................................20
EXHIBITS
2.1A Term Sheet with respect to the repurchase of
interest in GFC
3.1A Form of Operating LLC Agreement
3.1B Form of Merger Agreement
3.1C Form of Holdings LLC Agreement
3.1D Term Sheet with respect to the Services
Agreements
3.1E Form of Swap and Investment
Management Amendment
3.1F Form of Subordinated Loan Amendment
3.1G Form of the Annual Incentive Compensation
Plan of Management
3.1H Form of Registration Rights Agreement
3.1I Form of Guaranty Agreement
6.1G Form of Mutual Release
6.1GY Certain Agreements that will not be terminated
at Closing
6.2C Form of DLJ Fairness Opinion
6.2D Form of the Legal Opinion of Xxxx, Weiss,
Rifkind, Xxxxxxx & Xxxxxxxx to the Company
6.2E Items to be addressed in the Legal Opinion
of Management's Counsel to GFC
6.3C Items to be addressed in the Legal Opinion
of Xxxx, Weiss, Rifkind, Xxxxxxx & Xxxxxxxx
to Management
REORGANIZATION AGREEMENT dated February 24, 1997, between GRUNTAL
FINANCIAL CORP., a Delaware corporation ("GFC"), and THE 1880 GROUP LLC, a
Delaware limited liability company ("Management").
The parties desire to enter into this Agreement for the purpose
of setting forth the agreements of the parties with respect to certain
transactions to be entered into by the parties as herein described. The
parties intend that this Agreement be treated as a plan of liquidation
within the meaning of section 332 of the Code (as defined below).
Accordingly, the parties agree as follows:
I
DEFINITIONS
As used in this Agreement, the following terms have the following
meanings:
"Affiliate" means, with respect to any person, any other person
that directly, or indirectly through one or more intermediaries, controls,
or is controlled by, or is under direct or indirect common control with,
such person. The term "control" means the possession, direct or indirect,
of the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting securities,
by contract or otherwise.
"Alternative Proposal" means any bona fide proposal by a third
party to enter into a transaction (whether involving the issuance of
securities or otherwise) involving the recapitalization, reorganization or
other restructuring of GFC or any of its Significant Subsidiaries, the sale
of a substantial interest in GFC or any of its Significant Subsidiaries, or
the sale or other disposition, by way of merger, sale of stock or assets,
joint venture, or otherwise, of a substantial portion of the business of
GFC or any of its Significant Subsidiaries, in each case, other than
pursuant to the Transactions.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday or
Friday that is not a day that banking institutions in The City of New York
are authorized or obligated by law or executive order to close.
"Capital Stock" means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests (however designated) in capital stock of a corporation and any
other equivalent ownership interest in a person other than a corporation.
"Closing" has the meaning set forth in Section 3.2.
"Closing Date" means March 24, 1997 or such other date, after the
parties have confirmed to each other in writing that the conditions set
forth in Article VI have been satisfied or waived, as the parties may
mutually determine.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Home Holdings Inc., a Delaware corporation.
"CRD" means Centre Reinsurance Dublin, a corporation organized
and existing under the laws of Ireland.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GFC" has the meaning set forth in the introductory statement
hereof.
"GFC Subsidiaries" means, collectively, Gruntal & Co, Gruntal
Management Inc., a Delaware corporation, and The GMS Group, Inc., a New
York corporation.
"Gruntal & Co" means Gruntal & Co. Incorporated, a Delaware
corporation.
"Gruntal & Co LLC" has the meaning set forth in Section 3.1(a).
"Gruntal & Co LLC Agreement" has the meaning set forth in Section
3.1(a).
"Gruntal & Co Subsidiaries" means, collectively, Gruntal Life
Agency, Inc., a New York corporation, and Gruntal Insurance Agency, Inc., a
Massachusetts corporation.
"Gruntal & Co Subsidiary LLC" has the meaning set forth in
Section 3.1(a).
"Gruntal & Co Subsidiary LLC Agreement" has the meaning set forth
in Section 3.1(a).
"Guaranty Agreement" has the meaning set forth in Section 3.1(i).
"HI" means The Home Insurance Company, a New Hampshire domiciled
property and casualty stock insurance company.
"Holdings" has the meaning set forth in Section 3.1(c).
"Holdings LLC Agreement" has the meaning set forth in Section
3.1(c).
"Initial Senior Officers" has the meaning set forth in Section
5.6(a).
"Insurance Regulators" has the meaning set forth in Section
5.3(b).
"Insurance Regulatory Approvals" means the approvals of the
Insurance Regulators necessary in order to consummate the Transactions, as
set forth in Section 5.3(b).
"Interim Dividend" has the meaning set forth in Section 6.2(f).
"Investment Management Agreement" means the Investment Management
Agreement dated June 12, 1995, among Centre Investment Services Limited,
Zurich Centre Investments Limited, the Company, HI, U.S. International
Reinsurance Company, The Home Insurance Company of Illinois and The Home
Insurance Company of Wisconsin.
"Lien" means any mortgage, pledge, security interest, lease,
easement, servitude or similar encumbrance.
"Lost Deferred Tax Assets" means the deferred tax assets,
calculated in accordance with generally accepted accounting principles
consistently applied with past practice, on the books of GFC immediately
prior to the Closing.
"Management" has the meaning set forth in the introductory
statement hereof.
"Management/GMS LLC" has the meaning set forth in Section 3.1(a).
"Management/GMS LLC Agreement" has the meaning set forth in
Section 3.1(a).
"Material Adverse Effect" means, with respect to any person, a
material adverse effect on its financial condition or assets, taken as a
whole.
"Merger Agreement" has the meaning set forth in Section 3.1(b).
"Non-Regulatory Consents" has the meaning set forth in Section
5.3(b).
"NYSE" means the New York Stock Exchange, Inc.
"Operating LLCs" means, collectively, Gruntal & Co LLC, the
Management/GMS LLCs and the Gruntal & Co Subsidiary LLCs.
"Operating LLC Agreements" means, collectively, the Gruntal & Co
LLC Agreement, Management/GMS LLC Agreements, and Gruntal & Co Subsidiary
LLC Agreements.
"Other Regulatory Approvals" means the approvals of the
Securities and Commodities Regulators necessary in order to consummate the
Transactions, as set forth in Section 5.3(b).
"person" means an individual, a partnership, a joint venture, a
corporation, a trust, a limited liability company, an unincorporated
organization or a government or any department or agency thereof.
"Portfolio Value Swap Agreement" means the Portfolio Value Swap
Agreement dated as of June 12, 1995, as amended, between CRD, HI and
certain Subsidiaries of HI.
"Registration Rights Agreement" has the meaning set forth in
Section 3.1(h).
"Repurchase" means the repurchase or conversion into debt
securities of all of the issued and outstanding shares of Class B common
stock of GFC as contemplated in Section 2.1(i) and (v).
"SEC" means the United States Securities and Exchange Commission
and any governmental body or agency succeeding to the functions thereof.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities and Commodities Regulators" has the meaning set forth
in Section 5.3(b).
"Services Agreements" has the meaning set forth in Section
3.1(d).
"Significant Subsidiary" means, a Subsidiary (including its
Subsidiaries) of a person the net worth (calculated in accordance with
generally accepted accounting principles consistently applied) of which
Subsidiary equals or exceeds 25% of the consolidated net worth (calculated
in accordance with generally accepted accounting principles consistently
applied) of such person, as such consolidated net worth is set forth in the
most recent available quarterly or annual financial statements of such
person.
"Subordinated Loan Amendment" has the meaning set forth in
Section 3.1(f).
"Subsidiary" means, with respect to any person, any other person
of which, at the time as of which any determination is being made, such
first mentioned person or one or more of its Subsidiaries has, directly or
indirectly, Voting Control.
"Swap and Investment Management Amendment" has the meaning set
forth in Section 3.1(e).
"Transaction Documents" has the meaning set forth in Section 3.1.
"Transaction Expenses" means, as of any date, the aggregate sum
of all of the cost, fees and expenses paid or to be paid by Holdings
pursuant to Section 8.10(a).
"Transactions" has the meaning set forth in Section 3.1.
"Value" has the meaning set forth in Section 5.5(a).
"Voting Control" means, at any time, the ownership or control,
whether direct or indirect, of outstanding shares of Capital Stock of a
person that, at such time, have by the terms thereof ordinary voting power
to elect a majority of the members of the board of directors (or persons
performing similar functions) of such person (excluding voting power of the
holders of preferred stock arising upon the occurrence of a contingency).
II
THE TRANSACTIONS
2.1 GFC Actions. At or prior to the Closing GFC shall: (i) offer
to repurchase certain issued and outstanding shares of Class B common stock
of GFC not beneficially owned by HI in accordance with the procedures and
on the terms set forth in Exhibit 2.1A; (ii) form the Operating LLCs in
accordance with the provisions of the Operating LLC Agreements and make the
contributions required to be made therein; (iii) effect the merger of each
GFC Subsidiary and Gruntal & Co Subsidiary with and into an Operating LLC
in accordance with the provisions of the Merger Agreement; (iv) form
Holdings; and (v) convert any remaining outstanding shares of Class B
common stock of GFC into debt securities through a merger as set forth in
Exhibit 2.1A.
2.2 Holdings. At the Closing, the parties shall enter into the
Holdings LLC Agreement and make the contributions required to be made
therein.
III
THE CLOSING
3.1 Transactions to Occur at the Closing. Subject to the terms
and conditions of this Agreement, including, without limitation, Article VI
hereof and the Transaction Documents, on the Closing Date the parties will
execute and deliver, or cause their respective Affiliates to execute and
deliver, the following:
(a) (x) the Limited Liability Company Agreement (the
"Gruntal & Co LLC Agreement") with respect to the formation of a Delaware
limited liability company ("Gruntal & Co LLC"), (y) the Limited Liability
Company Agreements (the "Management/GMS LLC Agreements") with respect to
the formation of two Delaware limited liability companies (the
"Management/GMS LLCs") and (z) the Limited Liability Company Agreements
(the "Gruntal & Co Subsidiary LLC Agreements"), with respect to the
formation of one Delaware limited liability company and one Massachusetts
limited liability company (together, the "Gruntal & Co Subsidiary LLCs"),
each substantially in the form of Exhibit 3.1A hereto;
(b) the Merger Agreements (the "Merger Agreements"), between
(w) Gruntal & Co and the Gruntal & Co LLC, (x) each GFC Subsidiary (other
than Gruntal & Co), or its successor by merger, and a Management/GMS LLC,
and (y) each Gruntal & Co Subsidiary, or its successor by merger, and a
Gruntal & Co Subsidiary LLC, each substantially in the form of Exhibit 3.1B
hereto;
(c) the Limited Liability Company Agreement (the "Holdings
LLC Agreement") between GFC and Management with respect to the formation of
Gruntal Financial, L.L.C. ("Holdings"), substantially in the form of
Exhibit 3.1C hereto;
(d) the services agreements (the "Services Agreements")
between Management and each of the Initial Senior Officers, each reflecting
substantially the terms set forth in Exhibit 3.1D;
(e) the amendment (the "Swap and Investment Management
Amendment") to the Portfolio Value Swap Agreement and the Investment
Management Agreement, substantially in the form of Exhibit 3.1E hereto;
(f) the amendment (the "Subordinated Loan Amendment") to the
subordinated loan arrangements between HI and each of GFC and Gruntal & Co,
substantially in the form of Exhibit 3.1F hereto;
(g) the Annual Incentive Compensation Plan of Management,
substantially in the form of Exhibit 3.1G hereto;
(h) the Registration Rights Agreement (the "Registration
Rights Agreement") between Holdings and GFC, substantially in the form of
Exhibit 3.1H hereto;
(i) the Guaranty Agreement from Gruntal & Co LLC (the
"Guaranty Agreement"), substantially in the form of Exhibit 3.1I hereto;
and
(j) the mutual release referred to in Section 6.1(g).
The foregoing agreements listed in this Section 3.1 are referred to,
together with this Agreement, collectively as the "Transaction Documents"
and the transactions contemplated by any such Transaction Documents, the
"Transactions."
The parties will also enter into, execute and deliver, or cause
their respective Affiliates to enter into, execute, deliver and file, such
other instruments, opinions, certificates and other documents as are
provided for under the terms of this Agreement and the Transaction
Documents to be entered into, executed, delivered and filed at the Closing,
including the certificates of formation with respect to Holdings and the
Operating LLCs, and the certificates of merger with respect to the mergers
contemplated by the Merger Agreements.
3.2 Closing. The closing of the Transactions to occur on the
Closing Date (the "Closing") shall take place at 10:00 a.m., New York City
time, at the offices of Xxxx, Weiss, Rifkind, Xxxxxxx & Xxxxxxxx, 1285
Avenue of the Americas, Xxx Xxxx, Xxx Xxxx 00000-0000, or at such other
time and place as the parties hereto may mutually agree. All the
Transactions to occur under this Agreement and the Transaction Documents on
the Closing Date shall be deemed to occur simultaneously on the Closing
Date.
IV
REPRESENTATIONS AND WARRANTIES
4.1 Mutual. Each party represents and warrants to the other:
(a) It is an organization duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization
and has all requisite organizational power and authority to own, lease and
operate its properties and to carry on its business as now being conducted,
except where the failure to be so existing and in good standing or to have
such power and authority would not have a Material Adverse Effect.
(b) Each of it and each of its Subsidiaries that is or shall
be a party to any of the Transaction Documents has all requisite
organizational capacity, power and authority to execute and deliver such
Transaction Documents and to consummate the transactions contemplated
thereby. The execution and delivery of this Agreement and the other
Transaction Documents by it or such Subsidiary and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary organizational proceedings (including
stockholders' or members' approval where required) and no other
organizational proceedings on its or such Subsidiary's part are necessary
to authorize this Agreement or such other Transaction Documents or to
consummate the transactions contemplated hereby or thereby. This Agreement
has been, and each of the other Transaction Documents, when executed by it
or such Subsidiary, will be, duly and validly executed and delivered by
it or such Subsidiary and this Agreement is, and such other Transaction
Documents will be, its or such Subsidiary's valid and binding obligations,
enforceable against it or such Subsidiary in accordance with the terms
hereof or thereof, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, and general equitable
principles (whether considered in a proceeding in equity or at law).
(c) Except for the Insurance Regulatory Approvals, the Other
Regulatory Approvals, the Non-Regulatory Consents, any applicable
requirements of the Exchange Act, and as contemplated by this Agreement and
the Transaction Documents, neither the execution and delivery of this
Agreement or the Transaction Documents (to the extent it or one of its
Subsidiaries is a party thereto) nor the consummation by it or such
Subsidiary of the transactions contemplated hereby or thereby will (i)
conflict with or result in any breach of any provision of its or such
Subsidiary's charter document, (ii) require on its or such Subsidiary's
part any filing with, or the obtaining of any permit, authorization,
consent or approval of, any governmental or regulatory authority or any
third party, (iii) result in a violation or breach of, or constitute (with
or without notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration of payment,
or to the creation of a Lien) under any of the terms, conditions or
provisions of any note, mortgage, indenture, other evidence of
indebtedness, guarantee, license, agreement or other contract, instrument
or obligation to which it or such Subsidiary is a party or by which it or
such Subsidiary or any of its or such Subsidiary's properties or assets may
be bound or (iv) violate any award of any arbitrator or any order, writ,
injunction, decree, statute, rule or regulation applicable to it or such
Subsidiary or any of its or such Subsidiary's properties or assets, except
for such filings, permits, authorizations, consents, approvals, defaults,
rights or violations under clauses (ii), (iii) and (iv) above which, or the
failure to obtain which, (A) would not in the aggregate have a Material
Adverse Effect and (B) would not materially and adversely affect its or
such Subsidiary's ability to consummate the transactions contemplated
hereby or by the other Transaction Documents to which it or such Subsidiary
is a party.
(d) Any securities being acquired by it in connection with
the transactions contemplated hereby are being acquired by it for
investment purposes only and not with a view to the distribution thereof.
4.2 Management. Management represents and warrants that it is
entering into the transactions contemplated hereby based upon its own
knowledge and investigation of the GFC's business and is not relying upon
any representation or warranty of GFC (except as set forth in this Article
IV), or any of GFC's officers, directors, employees, agents or advisors,
nor upon the accuracy of any record, projection or statement made available
or given to Management in the performance of such investigation or
otherwise. Without limiting the generality of the foregoing, Management
acknowledges that neither GFC nor any of its Affiliates has made any
representation or warranty to Management with respect to: (i) any
projections, estimates or budgets heretofore delivered or made available to
Management regarding future revenues, expenses, results of operations,
transactions or the financial condition of GFC or (ii) any other
information or documents made available to Management or its counsel,
accountants or advisors.
4.3 GFC. GFC represents and warrants to Management that HI owns,
beneficially and of record, all of the Class A Common Stock of GFC, free
and clear of any Liens and GFC owns, beneficially and of record, directly
or indirectly, all of the outstanding capital stock of each of the GFC
Subsidiaries and the Gruntal & Co Subsidiaries, free and clear of any
Liens.
V
COVENANTS
5.1 Alternative Proposal. Neither GFC nor any of its Affiliates
shall, nor shall GFC or such Affiliate authorize any of their respective
representatives or agents directly or indirectly to, (i) solicit, or enter
into, commence or participate in any discussions or negotiations with any
person (other than Management) that indicates an interest in effecting, an
Alternative Proposal or execute a letter of intent, agreement in principle
or definitive agreement with respect to an Alternative Proposal or (ii) in
connection with any Alternative Proposal, furnish, or cause to be
furnished, to any such person any information concerning the business,
financial condition, results of operations, operations, properties or
assets of GFC or any of its Subsidiaries. If GFC, its Affiliates, and their
respective representatives and agents shall have acted as contemplated by
the immediately preceding sentence and any person shall submit an
unsolicited Alternative Proposal to GFC, the Company or HI, GFC shall
promptly notify Management of the terms and conditions of such Alternative
Proposal, including the identity of such person. After such notification
GFC may (A) upon the execution and delivery by such person of a
confidentiality agreement containing such restrictions as are customary in
such type of transactions, furnish, or cause to be furnished, to such
person any information reasonably requested concerning the business,
financial condition, results of operations, operations, properties or
assets of GFC or any of its Subsidiaries, (B) enter into, commence or
participate in any discussions or negotiations with such person, or execute
a letter of intent, agreement in principle or definitive agreement with
such person, and (C) at any time by notice to Management terminate this
Agreement if the Board of Directors of GFC determines in its good faith
judgment, based on the advice of its financial and legal advisors, that (x)
the Board of Directors of GFC, the Company or HI has a fiduciary duty under
applicable law to take such action, (y) the Alternative Proposal represents
a higher value for GFC than the Transactions or (z) the Insurance
Regulators have informed GFC, the Company or HI that such Insurance
Regulators have determined that it is in the interest of HI and its
policyholders for GFC to effect the Alternative Proposal rather than to
consummate the Transactions.
5.2 Reasonable Efforts. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use all reasonable
efforts to take, or cause to be taken, all action, and to do, or cause to
be done, all things necessary, proper or advisable under applicable laws
and regulations to consummate and make effective the transactions
contemplated by this Agreement and the other Transaction Documents
(including, without limitation, executing any additional instruments
necessary to consummate the transactions contemplated hereby or thereby).
In case at any time after the Closing Date any further action is necessary
to carry out the purposes of this Agreement, each of the parties hereto
will cause its proper officers and directors to use all reasonable efforts
to take all such necessary action.
5.3 Consents.
(a) Each of the parties shall cooperate, and use all
reasonable efforts, in as timely a manner as is reasonably practicable, to
make all filings and applications, and obtain all licenses, permits,
consents, approvals, authorizations, qualifications and orders of
governmental authorities and other third parties, necessary to consummate
the transactions contemplated by this Agreement and the other Transaction
Documents. Each of the parties hereto will furnish to the other party such
necessary information and reasonable assistance as such other persons may
reasonably request in connection with the foregoing and will provide the
other party with copies of all filings made by such party with any
governmental or regulatory entity or any other information supplied by such
party to a governmental or regulatory entity in connection with this
Agreement or the other Transaction Documents and the transactions
contemplated hereby and thereby.
(b) The parties shall cooperate (i) to obtain all approvals
(the "Insurance Regulatory Approvals") of any insurance regulatory
authority required in connection with the consummation of the Transactions
("Insurance Regulators"); (ii) to obtain all approvals (the "Other
Regulatory Approvals") of any securities or commodities regulatory
authority (including the SEC, the NYSE, the National Futures Association
and the National Association of Securities Dealers, Inc.) required in
connection with the consummation of the Transactions, including the
transactions contemplated by the Subordinated Loan Amendment (the
"Securities and Commodities Regulators"); (iii) to obtain all consents,
waivers or approvals (the "Non-Regulatory Consents") of any person required
in connection with the consummation of the Transactions; and (iv) to make
all filings and applications necessary to consummate the Transactions.
(c) The parties will keep each other advised of any material
communications with or requests received (in writing or orally) from any
Insurance Regulator or Securities and Commodities Regulator concerning the
Insurance Regulatory Approvals or the Other Regulatory Approvals,
respectively.
5.4 Public Announcements. The parties will keep all non-public
information regarding the Transactions confidential and will consult with
each other before issuing any press release or making any public filing
with respect to the Transactions and shall not issue any such press release
or make any such public filing prior to such consultation, except as may be
required by law.
5.5 Tangible Book Value.
(a) Management shall prepare (i) an unaudited consolidated
statement of financial condition of GFC as of the Closing Date, (ii) an
unaudited consolidated income statement of GFC for the period from January
1, 1997 to the Closing Date, (iii) a schedule calculating tangible book
value (the "Value") of GFC as of the Closing Date, which Value shall be
based on, and shall be brought forward to the Closing Date from, the
tangible book value of GFC as calculated from the audited financial
statements for GFC for the period ending December 31, 1996, without giving
effect to the Transactions consummated on the Closing Date, and shall set
forth the calculation of the Value in reasonable detail. For the avoidance
of doubt, Value shall not reflect or give effect to the Interim Dividend or
Transaction Expenses, but shall include the Lost Deferred Tax Assets.
(b) As soon as reasonably practicable, but no later than the
date five Business Days prior to the proposed Closing Date, Management
shall deliver to GFC an interim set of the statements and schedule referred
to in Section 5.5(a). In preparing such interim set of statements and
schedule, Management shall be entitled to rely on and use such estimates
and projections as Management considers reasonably necessary to prepare
the statements and the schedule and to calculate the Value as of the
Closing Date.
(c) Within ten Business Days after the Closing Date,
Management shall deliver to GFC a final set of the statements and schedule
referred to in Section 5.5(a).
(d) The Value, as set forth on the schedule delivered
pursuant to Section 5.5(c), shall become final and binding on the parties
hereto on the date which is 20 calendar days after Management has delivered
such schedule to GFC, unless GFC objects by notification in writing to
Management prior to the end of such 20 calendar day period, which objection
shall set forth in reasonable detail the basis of such objection.
(e) The parties shall use their best efforts to reach an
agreement on the amount of the Value after the delivery of such objection.
If such agreement cannot be reached within 10 calendar days after the
delivery of such objection, GFC and Management shall appoint Coopers &
Xxxxxxx, or another nationally recognized accounting firm, to determine the
Value. The Value so determined by such Person shall be final and binding on
the parties hereto. The parties shall cause the fees and expenses of such
Person to be borne by Holdings.
(f) Within three Business Days after the determination of
the Value has become final and binding on the parties hereto: (A) if the
sum of (i) $160 million, (ii) the Interim Dividend and (iii) the aggregate
Transaction Expenses paid or to be paid by Holdings pursuant to Section
8.10(a) is less than such Value, then Management shall cause Holdings to
pay HI an amount equal to the difference between such Value and such sum;
and (B) if such sum is greater than such Value, then GFC shall pay to
Holdings an amount equal to the lower of (i) the Interim Dividend and (ii)
the difference between such sum and such Value.
5.6 Miscellaneous.
(a) On or prior to the date five Business Days prior to the
proposed Closing Date, Management shall deliver to GFC the list of names of
a group of individuals (the "Initial Senior Officers") not more than seven,
who are proposed to be the initial senior officers of Holdings, together
with their proposed titles or positions in Holdings.
(b) Management shall use its reasonable best efforts to
cause Gruntal & Co (or Gruntal & Co LLC, as the case may be) to enter into
a brokerage clearing agreement with Xxxxxxx Cabot as soon as reasonably
practicable, and shall at all times keep GFC apprised of the status and
progress of the negotiation and execution of such agreement, including
furnishing GFC with the initial draft of such agreements and related
documents and any subsequent draft substantially different from a draft
previously delivered.
(c) The parties agree that, after the Closing, the Lost
Deferred Tax Assets shall not be reflected in the financial statements or
reports, or otherwise be carried on the books and records, of Holdings.
VI
CONDITIONS TO CLOSING
6.1 Conditions to Each Party's Obligation to Effect the
Transactions. The respective obligation of each party to effect the
transactions comprising the Transactions is subject to the satisfaction at
or prior to the Closing Date of the following conditions:
(a) No statute, rule or regulation (but not including any
statute, rule or regulation that is an Insurance Regulatory Approval or an
Other Regulatory Approval), or order, decree, or injunction enacted,
entered, promulgated or enforced by any court or governmental authority
shall be in effect which prohibits or restricts the consummation in any
material respect of the Transactions to be consummated on the Closing Date;
(b) The Insurance Regulatory Approvals and the Other
Regulatory Approvals shall have been obtained on terms reasonably
satisfactory to each of the parties hereto;
(c) The Value set forth in the interim schedule delivered to
the parties pursuant to Section 5.5(b), minus Transaction Expenses
estimated pursuant to Section 6.2(f)(y), shall have been not less than $160
million;
(d) The Lost Deferred Tax Assets set forth in the interim
statements and schedule delivered to the parties pursuant to Section 5.5(b)
shall not have been greater than $11 million;
(e) All intercompany indebtedness from GFC and its
Subsidiaries, on the one hand, to the Company and HI, on the other hand, in
excess of the principal amount set forth in the Subordinated Loan Amendment
shall have been extinguished, canceled, terminated or otherwise paid in
full, and all tax sharing or other similar agreements between the Company
and HI, on the one hand, and GFC and its Subsidiaries, on the other, shall
have been terminated;
(f) The Services Agreements, Swap and Investment Management
Amendment and the Subordinated Loan Amendment shall each have been executed
and delivered and become effective;
(g) Holdings, Management, Gruntal & Co LLC, each Gruntal &
Co Subsidiary LLC and each Management/GMS LLC, on the one hand, and the
Company, HI and GFC and their respective Subsidiaries, on the other, shall
have entered into a mutual release, substantially in the form of Exhibit
6.1G hereto, irrevocably releasing the other from any and all obligations
or liabilities owed to it, other than the obligations and liabilities under
(x) this Agreement and the other Transaction Documents and (y) the
agreements or instruments set forth in Exhibit 6.1GY; and
(h) The conditions to closing under each of the Transaction
Documents to be satisfied as of the Closing Date shall have been satisfied
or waived by the parties thereto.
6.2 Conditions to the Obligation of GFC. The obligation of GFC to
effect the Transactions is further subject to the satisfaction or waiver at
or prior to the Closing Date of the following conditions:
(a) The representations and warranties made to GFC in this
Agreement and the other Transaction Documents to which it is party shall be
true and correct in all material respects as of the date when made, and at
and as of the Closing Date as if made at and as of such time;
(b) Management shall have performed in all material respects
its obligations under this Agreement and the other Transaction Documents to
which it is a party required to be performed by it at or prior to the
Closing Date pursuant to the terms hereof and thereof;
(c) GFC shall have received a copy of a fairness opinion,
addressed to it, the Company and HI, substantially in the form of Exhibit
6.2C hereto, from Xxxxxxxxx, Xxxxxx & Xxxxxxxx Securities Corp., to the
effect that the consideration to be received by HI is fair from a financial
point of view; and the Board of Directors of the Company shall have
determined, based on a report from Xxxxxxxxx, Lufkin & Xxxxxxxx Securities
Corp. of the terms on which unaffiliated third parties have offered to
Xxxxxxxxx, Lufkin & Xxxxxxxx Securities Corp. to enter into transactions
comparable to the Swap and Investment Management Amendment, that the terms
of the transactions contemplated by the Swap and Investment Management
Amendment are no less favorable to GFC and HI than would be obtainable at
the time for a comparable transaction on an arm's-length basis from an
unrelated third party;
(d) GFC shall have received a copy of a legal opinion,
addressed to the Board of Directors of the Company, substantially in the
form of Exhibit 6.2D hereto, from Xxxx, Weiss, Rifkind, Xxxxxxx & Xxxxxxxx;
(e) GFC shall have received copies of the legal opinion,
from Debevoise & Xxxxxxxx and the general counsel of Gruntal & Co,
addressing the items set forth in Exhibit 6.2E hereto;
(f) HI shall have received a cash dividend (the "Interim
Dividend") from GFC in an amount equal to the excess, if any, of (x) the
Value set forth in the schedule delivered by Management pursuant to Section
5.5(b) over (y) the sum of $160 million and the Transaction Expenses
reasonably estimated to be paid or borne by Holdings pursuant to Section
8.10(a);
(g) The Registration Rights Agreement shall have been
executed and delivered by Holdings;
(h) The Non-Regulatory Consents (other than those the
failure to obtain would not have a Material Adverse Effect) applicable to
the Transactions contemplated by the Transaction Documents to which GFC or
any of its Affiliates is a party shall have been obtained on terms
reasonably satisfactory to GFC;
(i) The employment arrangements between the Initial Senior
Officers and GFC or its Affiliates, and related documents, including the
letter of credit from The Bank of New York dated February 14, 1996 with
respect to the employment agreement of Xxx Xxxxxxxxxxxx, and the guaranty
dated November 16, 1995 by HI, the Company and Zurich Centre Investments
Limited, a Bermuda corporation, with respect to the employment agreement of
Xxxxxx Xxxxxxxxxxx, shall each have been terminated;
(j) HI shall have received a funding commitment from Zurich
Centre Investments Limited with respect to the Swap and Investment
Management Amendment, similar to the funding commitment HI received with
respect to the Portfolio Value Swap Agreement;
(k) The Annual Incentive Compensation Plan shall have been
adopted by Management;
(l) Such directors and officers of GFC as GFC may request
shall have resigned and such resignation shall have become effective;
Management shall have delivered the corporate books and records of GFC to
GFC; and
(m) Management shall have furnished GFC with such
certificates and other documents evidencing the fulfillment of the
conditions set forth in this Section 6.2 as GFC may reasonably request.
6.3 Conditions to the Obligations of Management. The obligations
of Management to effect the Transactions are further subject to the
satisfaction or waiver at or prior to the Closing Date of the following
conditions:
(a) The representations and warranties of GFC contained in
this Agreement and the Transaction Documents shall be true and correct in
all material respects as of the date when made, and at and as of the
Closing Date as if made at and as of such time;
(b) GFC shall have performed in all material respects its
obligations under this Agreement and the Transaction Documents required to
be performed by it at or prior to the Closing Date pursuant to the terms
hereof or thereof;
(c) Management shall have received copies of the legal
opinion from Xxxx, Weiss, Rifkind, Xxxxxxx & Xxxxxxxx, addressing the items
set forth in Exhibit 6.3C;
(d) Management shall have received a certificate from HI,
representing and warranting that, to HI's knowledge, without any
investigation or verification thereof, upon the consummation of the
Transactions at the Closing as provided for in this Agreement, (i) each of
the Gruntal & Co Subsidiary LLCs will acquire good and valid title to all
of the assets of the respective Gruntal & Co Subsidiary, (ii) each of the
Management/GMS LLCs will acquire good and valid title to all of the assets
of the respective GFC Subsidiary, (iii) Gruntal & Co LLC will acquire good
and valid title to all of the assets of Gruntal & Co and (iv) Holdings will
acquire good and valid title to GFC's membership interests in Gruntal & Co
LLC and each of the Management/GMC LLCs, in each case, free and clear of
any Lien other than any liabilities arising in the ordinary course of
business of GFC or the relevant Subsidiary;
(e) The Guaranty Agreement shall have been executed and
delivered by Gruntal & Co LLC; and
(f) GFC shall have furnished Management with such
certificates and other documents evidencing the fulfillment of the
conditions set forth in this Section 6.3 as Management may reasonably
request.
VII
TERMINATION; AMENDMENT; WAIVER
7.1 Termination.
(a) This Agreement may be terminated and abandoned at any
time prior to the Closing Date:
(i) by mutual written consent of the parties hereto;
(ii) by either party hereto upon notice to the other,
if any court of competent jurisdiction in the United States or other
United States governmental body shall have issued an order, decree or
ruling or taken any other action restraining, enjoining or otherwise
prohibiting any of the transactions intended to occur on the Closing
Date and such order, decree, ruling or other action shall have become
final and non-appealable;
(iii) by either party hereto upon notice to the other,
if the Closing Date shall not have occurred by August 24, 1997 and the
failure of the Closing to occur is not due to the material breach of
any material covenant or agreement on the part of such party set forth
in this Agreement or any of the Transaction Documents; and
(iv) by GFC pursuant to Section 5.1.
7.2 Effect of Termination.
(a) In the event of the termination and abandonment of this
Agreement pursuant to Section 7.1 hereof, this Agreement shall forthwith
become void and have no effect, without any liability on the part of any
party or its directors, officers or stockholders, other than the provisions
of Sections 5.4, 7.2, 8.3, 8.4, 8.9 and 8.10(b).
(b) Without limiting the effects of Section 7.1(a), upon any
termination or abandonment of this Agreement prior to the consummation of
the Transactions, pursuant to Section 7.1(a) or otherwise, or any complete
setting aside or unwinding of the Transactions at any time, nothing herein
or in any other Transaction Documents shall terminate or otherwise affect,
or be deemed to terminate or otherwise affect, any of the rights and
obligations of the parties hereto or their Affiliates existing prior to the
execution or delivery of this Agreement, or prior to the consummation of
the Transactions, including the rights and obligations of the Initial
Senior Officers under their existing employment agreements and related
documents with GFC or its Affiliates. It is the intention of the parties
hereto that if, following consummation, the Transactions are partially set
aside or unwound, the Initial Senior Officers shall be restored to a
position neither worse nor better than their current position with respect
to GFC and its Affiliates, including their rights and obligations under
their existing employment agreements and related documents with GFC or its
Affiliates.
(c) Nothing contained in this Section 7.2 shall relieve any
party from liability for any breach of this Agreement.
7.3 Amendments and Waivers. The provisions of this Agreement may
not be changed or modified, except by an agreement in writing signed by the
parties hereto. The provisions of this Agreement may not be waived or
discharged, except by an agreement in writing signed by the party against
whom enforcement of any waiver or discharge is sought.
VIII
MISCELLANEOUS
8.1 Survival. The representations and warranties made in
Article IV hereof shall not survive the Closing.
8.2 Entire Agreement. This Agreement (including the exhibits and
the agreements and other documents referred to herein, including, without
limitation, the other Transaction Documents) constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all other prior negotiations, commitments, agreements and
understandings, both written and oral, between the parties with respect to
the subject matter hereof.
8.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York (regardless
of the laws that might otherwise govern under applicable principles of
conflicts law) as to all matters, including, without limitation, matters of
validity, construction, effect, performance and remedies.
8.4 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed effective or given upon (a) transmitter's
confirmation of a receipt of a facsimile transmission, (b) confirmed
delivery by a recognized courier service or an affidavit of the messenger
when delivered by hand or (c) the expiration of seven calendar days after
the day when mailed by certified or registered mail, postage prepaid,
addressed at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) If to GFC, to:
Gruntal Financial Corp.
c/o The Home Insurance Company
00 Xxxxxx Xxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: General Counsel
With copies to:
Skadden, Arps, Slate, Xxxxxxx & Xxxx, LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Bertil Lundqvist, Esq.
Xxxx, Weiss, Rifkind, Xxxxxxx & Xxxxxxxx
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxx X. Hand, Esq.
(b) If to Management, to:
Xxxxxx X. Xxxxxxxxxxx
Chairman of the Board and CEO
Gruntal & Co., Incorporated
Fourteen Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
With copies to:
Xxxxxx X. Xxxxxx, Esq.
Executive Vice President
and General Counsel
Gruntal & Co., Incorporated
Fourteen Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Debevoise & Xxxxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxxx, Esq.
8.5 Successors and Assigns; No Third Party Beneficiaries. This
Agreement and all of the provisions hereof shall be binding upon and inure
to the benefit of the parties and their respective successors and permitted
assigns, but neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any party (whether by operation
of law or otherwise) without the prior written consent of the other party,
except that (i) any party may assign its rights (but not its obligations)
hereunder and under the Transaction Documents to one or more of its wholly
owned Subsidiaries and (ii) GFC may at any time assign its rights and
obligations hereunder and under the other Transaction Documents to HI or
any other wholly owned Subsidiary of HI. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in
this Agreement, express or implied, is intended to or shall confer upon any
other person any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.
8.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same instrument.
8.7 Interpretation. The descriptive headings herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
8.8 Legal Enforceability. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without affecting the validity or enforceability of the
remaining provisions hereof. Any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction. If any provision of this Agreement is
so broad as to be unenforceable, the provision shall be interpreted to be
only so broad as is enforceable.
8.9 Brokerage Fees and Commissions.
(a) GFC represents and warrants to Management that no person
(other than Xxxxxxxxx, Xxxxxx & Xxxxxxxx Securities Corp.) is entitled to
receive from it or its Affiliates any investment banking, brokerage or
finder's fee or fees for financial consulting or advisory services in
connection with this Agreement or any of the transactions contemplated
hereby.
(b) Management represents and warrants to GFC that no person
is entitled to receive from it any investment banking, brokerage or
finder's fee or fees for financial consulting or advisory services in
connection with this Agreement or any of the transactions contemplated
hereby.
8.10 Expenses.
(a) The parties shall cause Holdings to bear all expenses in
connection with the negotiation and consummation of the Transactions,
including $4,361,537 incurred or made in connection with the Repurchase,
and the fees and expenses of the legal and financial advisers incurred,
paid or reimbursed by the parties participating in the negotiation and
consummation of the Transactions and their Affiliates (including the fees
and expenses of (i) Xxxxxxxxxx & Xxxxx LLP, Xxxxxxxxx & Plimpton, Skadden,
Arps, Slate, Xxxxxxx & Xxxx, LLP and Xxxx, Weiss, Rifkind, Xxxxxxx &
Xxxxxxxx and (ii) Lazard Freres & Co., Xxxxxxxxx, Xxxxxx and Xxxxxxxx
Securities Corp. and Xxxxxxx Xxxxx & Co.).
(b) If this Agreement is terminated and the Transactions are
not consummated, GFC shall bear all fees and expenses (including those of
the advisers named in Section 8.10(a)) incurred, paid or reimbursed by the
parties and their Affiliates in connection with the negotiation of this
Agreement and the attempted consummation of the Transactions.
IN WITNESS WHEREOF, each of the parties has caused this Agreement
to be executed on its behalf by its officers thereunto duly authorized, all
as of the date first above written.
GRUNTAL FINANCIAL CORP.
By /s/ Xxxxxx X. Xxxxxxxxxxx
--------------------------
Name:
Title:
THE 1880 GROUP LLC
By /s/ Xxxxxx X. Xxxxxxxxxxx
--------------------------
Name:
Title:
