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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 30, 1997
HIGHLANDS INSURANCE GROUP, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 1-14028 75-2370945
(State or Other Jurisdiction of Commission (IRS Employer
Incorporation or Organization) File Number) Identification No.)
10370 Richmond Avenue 77042
Houston, Texas (Zip Code)
(Address of Principal Executive Offices)
(713) 952-9555
(Registrant's telephone number, including area code)
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Item 2. Acquisition or Disposition of Assets.
On April 30, 1997, Highlands Insurance Group, Inc., a Delaware corporation
("Highlands") completed the acquisition of Vik Brothers Insurance, Inc. and its
subsidiaries ("VBII"). The acquisition was financed with a combination of common
stock, bank debt, preferred stock and cash. VBII is an insurance holding company
whose subsidiaries primarily write commercial property and casualty insurance
for small to medium sized companies and, to a lesser extent, personal lines. The
acquisition was completed pursuant to a merger between Highlands' wholly-owned
subsidiary, Highlands Acquisition Corp., and VBII pursuant to an Amended and
Restated Merger Agreement dated February 13, 1997, as amended. In connection
with the acquisition, Highlands paid approximately $55.4 million in cash
(including $35.6 million to repay VBII's outstanding bank debt) and issued
1,656,780 shares of its common stock (representing approximately 12.6% of
Highlands' then outstanding common stock) and 21,366 shares of newly issued
preferred stock to the holders of the common stock warrants, preferred
stockholders and creditors of VBII. The closing price of Highlands' common stock
was $17.625 on April 30, 1997. The preferred stock issued has a preference value
of $1,000 per share. Simultaneously with the closing, Highlands contributed
approximately $41.5 million to the capital of the insurance companies within the
VBII organization. Upon consummation of the acquisition, VBII was renamed
American Reliance, Inc.
In connection with the acquisition, Highlands obtained a $65 million senior
credit facility from a consortium of banks led by The Chase Manhattan Bank.
Highlands funded the cash required to complete the acquisition by utilizing the
credit facility and available working capital.
Included in the assets owned by VBII is land and an office building located in
Lawrenceville, New Jersey which VBII used in its operations and which Highlands
intends to continue to use in its operations.
Item 5. Other Events.
Simultaneously with the closing of the acquisition described in Item 2, a demand
for registration under the Securities Act of 1933, as amended, was made on
behalf of certain common stockholders of Highlands who received their shares in
connection with the acquisition. Such stockholders own an aggregate 1,139,747
shares of Highlands common stock. Highlands is in the process of notifying other
stockholders with rights to include their shares of Highlands common stock in
the registration statement required to be filed in connection with such demand.
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired:
(b) Pro Forma Financial Information
Financial statements of business acquired and the pro forma information required
to be filed are not attached to this form 8-K and will be filed by amendment not
later than 60 days after the date that this form 8-K is required to be filed.
(c) Exhibits
The following Exhibits are included herewith:
2.1 Amended and Restated Agreement and Plan of Merger among Highlands
Insurance Group, Inc., Highlands Acquisition Corp. and Vik Brothers
Insurance, Inc. dated as of February 13, 1997
2.2 Amendment No. 1 to the Amended and Restated Plan of Merger dated
March 10, 1997
99.1 Credit Agreement among Highlands Insurance Group, Inc., Various
Lending Institutions and The Chase Manhattan Bank, as Administrative
Agent, dated April 30, 1997
99.2 Registration Rights Agreement between Highlands Insurance Group, Inc.
and American Re-Insurance Company dated April 30, 1997
99.3 Registration Rights Agreement among Highlands Insurance Group, Inc.,
the Scandinavia Company, Inc., Erik M. Vik, Maneouvre Ltd. and
Triumph-Connecticut Limited Partnership and Alexander M. Vik dated
April 30, 1997
99.4 Registration Rights Agreement between Highlands Insurance Group, Inc.
and Armco Financial Services Corporation dated March 26, 1997
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HIGHLANDS INSURANCE GROUP, INC.
Dated: May 15, 1997 By: /s/ Charles J. Bachand
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Charles J. Bachand
Vice President and Treasurer
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AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
among
HIGHLANDS INSURANCE GROUP, INC.,
HIGHLANDS ACQUISITION CORP.
and
VIK BROTHERS INSURANCE, INC.
Dated as of February 13, 1997
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS.....................................................................................2
ARTICLE II THE MERGER......................................................................................8
Section 2.1 The Merger.........................................................................8
Section 2.2 Effective Time.....................................................................9
Section 2.3 Effects of the Merger..............................................................9
Section 2.4 Articles of Incorporation.........................................................10
Section 2.5 By-Laws...........................................................................10
Section 2.6 Directors.........................................................................10
Section 2.7 Officers..........................................................................11
Section 2.8 Closing...........................................................................11
ARTICLE III CONVERSION OF SHARES; PAYMENTS.................................................................11
Section 3.1 Conversion of VBI Shares and
ACQUISITION CORP Capital Stock....................................................11
Section 3.2 No Fractional Shares..............................................................12
Section 3.3 Preferred Stock and Warrant Consideration.........................................12
ARTICLE IV REPRESENTATIONS AND WARRANTIES BY
HIG AND ACQUISITION CORP.......................................................................14
Section 4.1 Organization and Qualifications, etc.............................................14
Section 4.2 Subsidiaries.....................................................................16
Section 4.3 Non-Contravention................................................................18
Section 4.4 Capital Stock....................................................................19
Section 4.5 Financial Statements.............................................................19
Section 4.6 Changes. .......................................................................21
Section 4.7 Tax Returns and Payments.........................................................22
Section 4.8 Employee Benefit Plans...........................................................23
Section 4.9 No Undisclosed Liabilities or Agreements.........................................24
Section 4.10 Reserves.........................................................................24
Section 4.11 Litigation.......................................................................24
Section 4.12 Contracts........................................................................25
Section 4.13 Dividends........................................................................27
Section 4.14 Consents and Approvals of Governmental Authorities...............................28
Section 4.15 Regulatory Filings...............................................................28
Section 4.16 Compliance with Applicable Law...................................................29
Section 4.17 Accuracy of Information Furnished................................................30
Section 4.18 Environmental Matters............................................................30
Section 4.19 Broker's, Finder's or Similar Fees...............................................33
Section 4.20 Owned Real Property..............................................................33
ARTICLE V PRESENTATIONS AND WARRANTIES BY VBI............................................................34
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Section 5.1 Organization and Qualifications, etc.............................................34
Section 5.2 Subsidiaries.....................................................................35
Section 5.3 Non-Contravention................................................................37
Section 5.4 Capital Stock....................................................................38
Section 5.5 Financial Statements.............................................................39
Section 5.6 Changes..........................................................................40
Section 5.7 Tax Returns and Payments.........................................................41
Section 5.8 Employee Benefit Plans...........................................................42
Section 5.9 No Undisclosed Liabilities or Agreements.........................................43
Section 5.10 Reserves.........................................................................43
Section 5.11 Litigation.......................................................................43
Section 5.12 Contracts........................................................................44
Section 5.13 Dividends........................................................................47
Section 5.14 Consents and Approvals of Governmental Authorities...............................47
Section 5.15 Regulatory Filings...............................................................48
Section 5.16 Compliance with Applicable Law...................................................49
Section 5.17 Accuracy of Information Furnished................................................49
Section 5.18 Environmental Matters............................................................49
Section 5.19 Broker's, Finder's or Similar Fees...............................................51
Section 5.20 Owned Real Property..............................................................51
ARTICLE VI COVENANTS AND AGREEMENTS.......................................................................52
Section 6.1 Conduct of Business until Effective Time.........................................52
Section 6.2 Access and Confidentiality.......................................................55
Section 6.3 Interim Financial Statements and Reports.........................................57
Section 6.4 Compliance with Conditions Precedent.............................................58
Section 6.5 Regulatory Filings...............................................................58
Section 6.6 Stockholder Consent..............................................................58
Section 6.7 VBI Management Compensation......................................................58
Section 6.8 Fees and Expenses................................................................58
Section 6.9 Securities Amendments............................................................59
Section 6.10 Rule 16b-3.......................................................................60
Section 6.11 Capital Commitments..............................................................60
Section 6.12 A.M. Best Communications.........................................................60
ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF VBI.................................................60
Section 7.1 No Material Adverse Change. .....................................................60
Section 7.2 Consents. ........................................................................61
Section 7.3 Opinion of HIG Counsel............................................................61
Section 7.4 Representations and Warranties; Obligation........................................61
Section 7.5 Agreements. .....................................................................61
Section 7.6 Securities Amendments.............................................................61
ARTICLE VIII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HIG.................................................62
Section 8.1 No Material Adverse Change........................................................62
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Section 8.2 Opinion of VBI Counsel............................................................62
Section 8.3 Representations and Warranties; Obligations.......................................63
Section 8.4 Agreements........................................................................63
Section 8.5 Dividend Restrictions. ..........................................................63
Section 8.6 Reserves. .......................................................................64
Section 8.7 New Business and Renewals.........................................................64
Section 8.8 A.M. Best Rating..................................................................64
ARTICLE IX GENERAL CONDITIONS PRECEDENT....................................................................64
Section 9.1 Approvals.........................................................................64
Section 9.2 Approvals by Stockholders.........................................................65
Section 9.3 Waiting Period....................................................................65
ARTICLE X SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................................................65
ARTICLE XI TERMINATION.....................................................................................66
Section 11.1 Basis for Termination.............................................................66
Section 11.2 Written Notice....................................................................68
Section 11.3 Effect of Termination.............................................................68
ARTICLE XII AMENDMENTS; WAIVER...............................................................................68
Section 12.1 Amendments........................................................................68
Section 12.2 Waiver of Compliance..............................................................68
ARTICLE XIII MISCELLANEOUS...................................................................................69
Section 13.1 Entire Agreement..................................................................69
Section 13.2 Assignment........................................................................69
Section 13.3 Notices...........................................................................69
Section 13.4 Governing Law; Jurisdiction.......................................................70
Section 13.5 Descriptive Headings..............................................................71
Section 13.6 Counterparts......................................................................71
Section 13.7 Severability......................................................................71
Section 13.8 Third Party Beneficiaries.........................................................71
Section 13.9 Construction......................................................................72
Section 13.10 Publicity.........................................................................72
Section 13.11 Waiver of Jury Trial; Punitive Damages;
Prevailing Party's Fees and Expenses..............................................72
Section 13.12 Violations. .....................................................................72
Section 13.13 Break-Up Fee. ...................................................................73
ARTICLE XIV SPECIAL CONDITIONS...............................................................................74
Section 14.1 Bank Commitment...................................................................74
Section 14.2 Security Holder Agreements........................................................74
Section 14.3 Armco Agreement...................................................................74
Section 14.4 PMSC Agreement....................................................................75
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AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this
"Agreement"), dated as of February 13, 1997, by and among HIGHLANDS INSURANCE
GROUP, INC., a Delaware corporation ("HIG"), HIGHLANDS ACQUISITION CORP., a
Delaware corporation and wholly-owned subsidiary of HIG ("ACQUISITION CORP"),
and VIK BROTHERS INSURANCE, INC., an Indiana corporation ("VBI").
WHEREAS, HIG, ACQUISITION CORP and VBI are parties to an
Agreement and Plan of Merger dated as of June 21, 1996 (the "Prior Agreement")
and the parties hereto desire to amend the Prior Agreement in certain respects
and as so amended to restate the Prior Agreement in its entirety;
WHEREAS, each of the Board of Directors of HIG, ACQUISITION
CORP and VBI have determined that it is in the mutual best interests of HIG,
ACQUISITION CORP, VBI and their shareholders for VBI to enter into this
Agreement with HIG and ACQUISITION CORP, providing for the merger of ACQUISITION
CORP with and into VBI upon the terms and conditions set forth herein; and
WHEREAS, the consummation of the transactions contemplated by
this Agreement is subject to, among other things, obtaining the approval of
various regulatory authorities.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein, and intending to be legally bound hereby, HIG, ACQUISITION CORP and VBI
hereby agree as follows:
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ARTICLE I
DEFINITIONS
The terms defined in this Article I, whenever used in this
Agreement, shall have the following meanings for all purposes of this Agreement.
"Affiliate" has the meaning set forth in Rule 12b-2 under the
Exchange Act.
"Am-Re" means American Re-Insurance Company.
"AMV" means Alexander M. Vik.
"Armco" means collectively Armco Inc. and Armco Financial
Services Corporation.
"Armco Contingent Commission" means the liability recorded on
VBI's financial statements as of September 30, 1996 as the contingent commission
payable by VBI to Armco pursuant to the terms and conditions of the Stock
Purchase Agreement.
"Business Day" means a day on which national banks doing
business in New York City are open for business.
"Closing" has the meaning set forth in Section 2.8 of this
Agreement.
"Closing Date" has the meaning set forth in Section 2.8 of
this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commonly Controlled Entity" has the meaning of such term as
used in Sections 414(b), (c), (m) and (o) of the Code.
"Corporation Laws" has the meaning set forth in Section 2.1(a)
of this Agreement.
"Current Market Price Per Share" on any date means the average
of the daily closing prices of the HIG Shares for the twenty consecutive trading
days ending three
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business days prior to the date in question; provided that any HIG Shares sold
in any public offering of such HIG Shares which is registered under the
Securities Act shall be excluded in determining the Current Market Price Per
Share.
"Disclosure Letter" means that certain letter dated as of the
date hereof among VBI, HIG and ACQUISITION CORP.
"Effective Time" has the meaning set forth in Section 2.2 of
this Agreement.
"Employee Benefit Plan" means any employee benefit plan within
the meaning of Section 3(3) of ERISA and all other deferred compensation, bonus,
other incentive compensation, vacation, severance pay, stock option, stock
purchase or other employee benefit plan or any material employee benefit
arrangement.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations promulgated thereunder.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Financial Statements" means the audited and unaudited
financial statements referred to in Sections 4.5 and 5.5 of this Agreement.
"GAAP" means generally accepted accounting principles, as such
principles are applied in the United States as of the date of the applicable
Financial Statement or other document with respect to which the term is used.
"GAAP Quarterly Statement" means, as of a certain date or for
a fiscal quarter ended on a certain date, the consolidated balance sheet of VBI
or HIG, as the case may be, and its Subsidiaries as of such date and the
consolidated statements of
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operations, stockholders' equity and cash flows of VBI or HIG, as the case may
be, and its Subsidiaries for the quarter ended on such date, including notes
thereto.
"GMV" means Gustav M. Vik.
"HIG Insurance Subsidiary" means an HIG Subsidiary that is
also an Insurance Subsidiary.
"HIG Series One Preferred Stock" means a newly issued class of
preferred stock of HIG with terms as set forth in Schedule 3.4(c) attached
hereto.
"HIG Shares" means the common stock, par value $.01 per share,
of HIG, but shall exclude all common stock of HIG designated as Series B Common
Stock.
"ING" means ING Capital (U.S.) Corporation.
"Insurance Subsidiary" means an HIG Insurance Subsidiary or a
VBI Insurance Subsidiary, as the case may be, that is authorized to do business
as an insurer.
"IP" means Insurance Partners, L.P. and Insurance Partners
(Offshore) Bermuda, L.P., collectively.
"Knowledge" means, with respect to VBI, HIG or ACQUISITION
CORP, as the case may be, the knowledge of such corporation's current officers
after having made due inquiry of the appropriate individuals employed by such
corporation.
"Lien" has the meaning set forth in Section 4.2(a) of this
Agreement.
"Material Adverse Effect" means a material adverse effect on
the assets, results of operations, business, prospects or condition (financial
or otherwise) of the named entity and its Subsidiaries, taken as a whole.
"Merger" has the meaning set forth in Section 2.1 of this
Agreement.
"Merger Price" means $21.50 per share.
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"Northwestern Insurance Subsidiaries" means the Subsidiaries
of Northwestern National Holding Company, Inc. that are Insurance Subsidiaries.
"Person" (or "persons" as the context may require) means any
individual, corporation, partnership, firm, limited liability company, limited
liability partnership, joint venture, association, trust, unincorporated
organization, governmental or regulatory body or other entity of whatever
nature.
"Preferred Stock" means, collectively, the Series One
Preferred Stock, the Series Two Preferred Stock, the Series Three Preferred
Stock, the Series Four Preferred Stock, the Series Five Preferred Stock, the
Series Six Preferred Stock and the Series Seven Preferred Stock.
"Quarterly Statement" means, with respect to an Insurance
Subsidiary, the quarterly convention statement as of a certain date or for a
fiscal quarter ended on such date, prepared in accordance with Statutory
Accounting Principles and filed by such Insurance Subsidiary with the insurance
department of such Insurance Subsidiary's domiciliary state, including all
notes, schedules and exhibits thereto.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Series One Preferred Stock" means VBI's Preferred Shares,
Series One, par value $.10 per Share.
"Series Two Preferred Stock" means VBI's Preferred Shares,
Series Two, par value $.10 per Share.
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"Series Three Preferred Stock" means VBI's Preferred Shares,
Series Three, par value $.10 per share.
"Series Four Preferred Stock" means VBI's Preferred Shares,
Series Four, par value $.10 per share.
"Series Five Preferred Stock" means VBI's Preferred Shares,
Series Five, par value $.10 per share.
"Series Six Preferred Stock" means VBI's Preferred Shares,
Series Six, par value $.10 per share.
"Series Seven Preferred Stock" means VBI's Preferred Shares,
Series Seven, par value $.10 per share.
"Statutory Accounting Principles" means the accounting
procedures and practices prescribed or permitted by the department of insurance
of the state of domicile of an Insurance Subsidiary and used by that Insurance
Subsidiary in the preparation of its Annual Statement.
"Statutory Statements" means financial statements prepared
using accounting procedures and practices prescribed or permitted by the
department of insurance of the state of domicile of an Insurance Subsidiary.
"Stock Purchase Agreement" means the Stock Purchase Agreement
dated as of August 2, 1994 between VBI and Armco.
"Subsidiary" means an HIG Subsidiary (as defined in Section
4.2(d)) or a VBI Subsidiary (as defined in Section 5.2(d)), as the case may be.
"Taxes" means all taxes, charges, fees, levies or other
similar assessments or liabilities, including without limitation (a) income,
gross receipts, ad valorem, premium,
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excise, real property, personal property, guarantee fund assessments, sales,
use, transfer, withholding, employment, payroll, medicare and franchise taxes
imposed by the United States of America, or by any state, local, or foreign
government, or any subdivision, agency or other similar person of the United
States or any such government; and (b) any interest, fines, penalties,
assessments or additions to taxes resulting from, attributable to, or incurred
in connection with any Tax or any contest, dispute or refund thereof.
"Tax Returns" means any report, return or statement required
to be supplied to a taxing authority in connection with Taxes.
"VBI Insurance Subsidiary" means a VBI Subsidiary that is an
Insurance Subsidiary.
"VBI Shares" means the common shares, par value $.001 per
share, of VBI.
"Vik Brothers" means Alexander M. Vik and Gustav M. Vik,
collectively.
ARTICLE II
THE MERGER
Section 2.1 The Merger.
(a) At the Effective Time (as herein defined) and upon the
terms and subject to the conditions of this Agreement, the Delaware General
Corporation Law (the "DGCL") and the Indiana Business Corporation Law (the
"BCL," together with the DGCL, the "Corporation Laws"), ACQUISITION CORP shall
be merged with and into VBI (the "Merger"). Following the Merger, VBI shall
continue as the surviving corporation (the "Surviving Corporation") with a name
designated by HIG prior to the Closing Date that
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does not include the word "Vik" and the separate corporate existence of
ACQUISITION CORP shall cease.
(b) VBI will take all action necessary in accordance with the
BCL, its Articles of Incorporation and its By-laws to obtain the written consent
of its shareholders, for the approval and adoption of this Agreement and the
transactions contemplated hereby.
(c) ACQUISITION CORP shall take all action necessary in
accordance with the DGCL, its Certificate of Incorporation and its By-laws to
obtain the written consent of its stockholder, for the approval and adoption of
this Agreement and the transactions contemplated hereby.
(d) HIG agrees to vote all of its shares of capital stock in
ACQUISITION CORP in favor of the approval and adoption of this Agreement and the
transactions contemplated hereby.
(e) Each of the Vik Brothers has simultaneously with the
execution of this Agreement executed an amended and restated support agreement
pursuant to which he has agreed to vote his VBI Shares in favor of the approval
and adoption of this Agreement and the transactions contemplated hereby.
Section 2.2 Effective Time. As promptly as practicable after
satisfaction or waiver of all conditions to the Merger set forth in Articles
VII, VIII and IX, the parties hereto shall properly execute, and, on the Closing
Date, cause articles of merger to be filed with the Secretaries of State of the
States of Delaware and Indiana in accordance with and make all other filings or
recordings required under the Corporation Laws in connection with the Merger.
The Merger shall become effective upon the filing of the articles of
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merger with the Secretary of States of Delaware and Indiana, or at such later
time as is specified in the articles of merger (the "Effective Time").
Section 2.3 Effects of the Merger.
(a) The Merger shall have the effects set forth in the
Corporation Laws. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the properties, rights, privileges, powers
and franchises of VBI and ACQUISITION CORP shall vest in the Surviving
Corporation, and all debts, liabilities and duties of VBI and ACQUISITION CORP
shall become the debts, liabilities and duties of the Surviving Corporation.
(b) If at any time after the Effective Time the Surviving
Corporation shall consider or be advised that any further deeds, conveyances,
assignments or assurances or any other acts (collectively "Further Assurances")
are necessary, desirable or proper to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation, the title to the assets, properties or
rights of VBI or ACQUISITION CORP acquired or to be acquired by reason of, or as
a result of the Merger, each of ACQUISITION CORP and VBI agrees that the
Surviving Corporation and its officers and directors shall execute and deliver
such Further Assurances as are necessary, desirable or proper to vest, perfect
or confirm, of record or otherwise, in the Surviving Corporation, the title to
such assets, properties or other rights. Each of VBI and ACQUISITION CORP
further agree that the officers and directors of the Surviving Corporation are
fully authorized in the name of VBI and ACQUISITION CORP to take any and all
such action.
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Section 2.4 Articles of Incorporation. The Articles of
Incorporation of the Surviving Corporation from and after the Effective Time
shall be in the form set forth in Schedule 2.4 hereto.
Section 2.5 By-Laws. At the Effective Time and without any
other further action on the part of VBI or ACQUISITION CORP, the By-Laws of the
Surviving Corporation shall be in the form set forth in Schedule 2.5 hereto and
thereafter may be amended or repealed in accordance with their terms or the
Articles of Incorporation of the Surviving Corporation and as provided by law.
Section 2.6 Directors. The directors set forth on Schedule 2.6
hereto shall be the directors of the Surviving Corporation, each to hold office
in accordance with the Articles of Incorporation and By-Laws of the Surviving
Corporation and until the earlier of his or her resignation or removal or until
his or her successor is duly elected and qualified, as the case may be.
Section 2.7 Officers. The officers set forth on Schedule 2.7
hereto shall be the officers of the Surviving Corporation to hold office in
accordance with the Articles of Incorporation and By-Laws of the Surviving
Corporation and until the earlier of his or her resignation or removal or until
his or her successor is duly appointed and qualified, as the case may be.
Section 2.8 Closing. The Closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York, at 10:00
a.m. local time, on a date within five (5) Business Days after the last of the
conditions set forth in this Agreement are fulfilled or waived (subject to
applicable law), or at such other time and place and on such other date
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as HIG and VBI shall agree. The date upon which the Closing shall take place is
herein referred to as the "Closing Date."
ARTICLE III
CONVERSION OF SHARES; PAYMENTS
Section 3.1 Conversion of VBI Shares and ACQUISITION CORP
Capital Stock. At the Effective Time, (i) each VBI Share issued or outstanding
immediately prior to the Effective Time (including each VBI Share then held in
treasury by VBI), shall, by virtue of the Merger and without any action on the
part of the holder thereof, be canceled without payment of any consideration
therefor and without any conversion thereof; and (ii) each share of capital
stock of ACQUISITION CORP issued or outstanding immediately prior to the
Effective Time (including each such share then held in treasury by ACQUISITION
CORP), shall, by virtue of the Merger and without any action on the part of the
holder thereof, be converted into one share of common stock of the Surviving
Corporation.
Section 3.2 No Fractional Shares. No fractional shares shall
be issued by HIG in the Merger. Each stockholder of VBI who otherwise would be
entitled to a fractional interest in an HIG Share shall be entitled to an
additional HIG Share only if such fractional interest is at least one-half of an
HIG Share.
Section 3.3 Preferred Stock and Warrant Consideration.
(a) At the Effective Time, the shares of Series One Preferred
Stock outstanding immediately prior to the Effective Time shall by virtue of the
Merger and without any action on the part of the holders thereof be converted
into the right to receive
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an aggregate of 132,257 HIG Shares, upon surrender of the certificates formerly
representing such shares of Series One Preferred Stock. From and after the
Effective Time, each holder of outstanding certificates representing Series One
Preferred Stock shall be entitled to receive in exchange therefor a certificate
representing the HIG Shares into which such holder's Series One Preferred Stock
was converted.
(b) At the Effective Time, the shares of Series Two Preferred
Stock outstanding immediately prior to the Effective Time shall by virtue of the
Merger and without any action on the part of the holders thereof be converted
into the right to receive an aggregate of 132,257 HIG Shares, upon surrender of
the certificates formerly representing such shares of Series Two Preferred
Stock. From and after the Effective Time, each holder of outstanding
certificates representing Series Two Preferred Stock shall be entitled to
receive in exchange therefor a certificate representing the HIG Shares into
which such holder's Series Two Preferred Stock was converted.
(c) At the Effective Time, each share of Series Three
Preferred Stock outstanding immediately prior to the Effective Time shall by
virtue of the Merger and without any action on the part of the holder thereof be
converted into the right to receive one share of HIG Series One Preferred Stock,
upon surrender of the certificates formerly representing such shares of Series
Three Preferred Stock. The rights, preferences and privileges of the HIG Series
One Preferred Stock are set forth in Schedule 3.4(c) attached hereto. From and
after the Effective Time, each holder of the outstanding certificates
representing Series Three Preferred Stock shall be entitled to receive in
exchange therefor a certificate representing the HIG Series One Preferred Stock
into which such holder's Series Three Preferred Stock was converted.
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(d) At the Effective Time, the shares of Series Four Preferred
Stock and Series Five Preferred Stock outstanding immediately prior to the
Effective Time shall by virtue of the Merger and without any action on the part
of the holders thereof be converted into the right to receive an aggregate of
440,856 HIG Shares, upon surrender of the certificates formerly representing
such shares of Series Four Preferred Stock and Series Five Preferred Stock. From
and after the Effective Time, each holder of outstanding certificates
representing Series Four Preferred Stock or Series Five Preferred Stock shall be
entitled to receive in exchange therefor a certificate representing the HIG
Shares into which such holder's Series Four Preferred Stock and Series Five
Preferred Stock was converted.
(e) At the Effective Time, the shares of Series Six Preferred
Stock outstanding immediately prior to the Effective Time shall by virtue of the
Merger and without any action on the part of the holders thereof be converted
into the right to receive an aggregate of 302,326 HIG Shares, upon surrender of
the certificates formerly representing such shares of Series Six Preferred
Stock. From and after the Effective Time, each holder of the outstanding
certificates representing Series Six Preferred Stock shall be entitled to
receive in exchange therefor a certificate representing the HIG Shares into
which such holder's Series Six Preferred Stock was converted.
(f) At the Effective Time, the shares of Series Seven
Preferred Stock outstanding immediately prior to the Effective Time shall by
virtue of the Merger and without any action on the part of the holders thereof
be converted into the right to receive an aggregate of 661,283 HIG Shares, upon
surrender of the certificates formerly representing such shares of Series Seven
Preferred Stock. From and after the Effective
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Time, each holder of outstanding certificates representing Series Seven
Preferred Stock shall be entitled to receive in exchange therefor a certificate
representing the HIG Shares into which such holder's Series Seven Preferred
Stock was converted.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
BY HIG AND ACQUISITION CORP
HIG and ACQUISITION CORP represent and warrant to VBI as
follows:
Section 4.1 Organization and Qualifications, etc. Each of HIG
and ACQUISITION CORP is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, has the corporate and
other power and all necessary state authorizations to own, lease and operate all
of its properties and assets and to carry on its business as each is now being
conducted, and is duly qualified to do business and is in good standing in each
jurisdiction in which each owns property or conducts business, except where the
failure to have such authorization or to be so qualified would not have a
Material Adverse Effect on HIG or ACQUISITION CORP. Each of ACQUISITION CORP and
HIG has all requisite corporate and other power and is duly authorized, subject
to compliance with applicable insurance regulatory requirements, to merge
pursuant to this Agreement and to enter into the other agreements required to be
executed pursuant to this Agreement (the "Other Agreements") and to perform its
other obligations hereunder and thereunder. The execution, delivery and
performance by HIG and ACQUISITION CORP of this Agreement and each of the Other
Agreements, and the consummation by HIG and ACQUISITION CORP of the transactions
contemplated hereby
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and thereby, have been duly and validly authorized by all necessary corporate
action, and no other corporate proceedings on the part of HIG or ACQUISITION
CORP are necessary to authorize the execution, delivery or performance by HIG or
ACQUISITION CORP of this Agreement or the Other Agreements, or the consummation
of the transactions contemplated hereby and thereby. This Agreement has been,
and each of the Other Agreements will be as of the Closing Date, duly and
validly executed and delivered by HIG and ACQUISITION CORP. Subject to the
satisfaction of the conditions specified in Section 9.1 hereof (and assuming
this Agreement constitutes and each of the Other Agreements will constitute, as
of the Closing Date, valid and binding obligations of VBI), this Agreement
constitutes, and each of the Other Agreements will constitute as of the Closing
Date, valid and binding obligations of HIG and ACQUISITION CORP, enforceable
against each of them in accordance with its respective terms, except that (i)
such enforceability may be subject to bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium, rehabilitation, liquidation,
conservatorship, receivership or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. The copies of each of HIG's and ACQUISITION
CORP's Certificate of Incorporation and By-laws which have been delivered by HIG
to VBI are complete and correct and in full force and effect at the date hereof.
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Section 4.2 Subsidiaries.
(a) Schedule 4.2(a) to the Disclosure Letter lists all HIG
Subsidiaries (as such term is defined in Section 4.2(d)), the jurisdiction of
incorporation of each such HIG Subsidiary and each jurisdiction where such HIG
Insurance Subsidiary is qualified to do business and licensed to do business as
an insurer. Except as indicated on such Schedule 4.2(a), HIG owns, directly or
indirectly, all of the securities of each of the HIG Subsidiaries free and clear
of all liens, charges, pledges, security interests or other encumbrances
(collectively, "Liens") and all capital stock of such HIG Subsidiaries has been
duly authorized and validly issued and is fully paid and nonassessable.
(b) None of the HIG Subsidiaries has any commitment (absolute,
contingent or otherwise) to issue or sell any shares of its capital stock or any
securities or obligations convertible into or exchangeable for, or giving any
person (other than HIG or a HIG Subsidiary) any rights to acquire from such HIG
Subsidiary, any shares of its capital stock.
(c) Each HIG Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation, has the corporate and other power and all necessary
authorizations to own, lease and operate all of its properties and assets and to
carry on its business as it is now being conducted, and is duly qualified to do
business and is in good standing in each jurisdiction in which it owns property
or conducts business, except where the failure to have such authorization or to
be so qualified would not have a Material Adverse Effect on such HIG Subsidiary.
Except as set forth in Schedule 4.2(c) to the Disclosure Letter, each HIG
Insurance Subsidiary is licensed to conduct business as an insurer in each
jurisdiction where the nature of its
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business requires such licensing, except in those instances in which the failure
to have such license would not have a Material Adverse Effect on such HIG
Insurance Subsidiary.
(d) As used in this Agreement, the term "HIG Subsidiary" means
any corporation or other organization whether incorporated or unincorporated of
which HIG and HIG Subsidiaries, separately or together, directly or indirectly,
own securities or interests having by their terms ordinary voting power to elect
a majority of the board of directors or others performing a similar function
with respect to such corporation or other organization; and the term "HIG
Significant Subsidiary" means a HIG Subsidiary which is a "Significant
Subsidiary" under the definition thereof in Regulation S-X promulgated by the
SEC as in effect on the date hereof, except that for this purpose the percentage
tests stated in subparagraphs (1), (2) and (3) of paragraph (w) of Rule 1.02 of
Regulation S-X shall be 5% instead of 10% as provided in Regulation S-X.
Section 4.3 Non-Contravention. Except as set forth in Schedule
4.3 to the Disclosure Letter, the execution, delivery and performance of this
Agreement and each of the Other Agreements does not and the consummation of the
transactions contemplated hereby will not (a) violate any provision of the
Articles or Certificate of Incorporation or ByLaws of HIG or of any HIG
Subsidiary; (b) violate any provision of, or result in the breach or the
acceleration of or entitle any party to accelerate (whether with the giving of
notice or lapse of time or both) any obligation under, or result in, or give
rise to a default (with or without notice or lapse of time, or both) under, or
give rise to a right of termination, cancellation or acceleration of any
obligation or the loss of any material benefit under any mortgage, lien, lease,
agreement, license or instrument to which HIG or any HIG Subsidiary is a party
or by which any of them is bound; (c) result in the creation or
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imposition of any Liens upon any of the property of HIG or any HIG Subsidiary;
(d) violate any order, arbitration award, judgment, writ, injunction, decree,
statute, rule or regulation applicable to HIG, any HIG Subsidiary or ACQUISITION
CORP or any of their respective properties or assets; or (e) violate or conflict
with any other material restriction of any kind or character to which HIG or any
HIG Subsidiary, or the property of any of them, is subject; except for such
violations, breaches, defaults, terminations, cancellations, accelerations of
obligations, loss of benefits, Liens or conflicts under (b), (c), (d) or (e)
which would not have a Material Adverse Effect on HIG or any HIG Significant
Subsidiary.
Section 4.4 Capital Stock. The authorized capital stock of HIG
consists of (a) 50 million shares of common stock, par value $.01 per share (10
million shares of which are designated as Series B Common Stock, none of which
shares have been issued), of which as of the date of this Agreement 11,448,370
shares are issued and outstanding and none are held in the treasury of HIG and
(b) 10 million HIG Preferred Shares, $1.00 par value per share, of which no
shares are outstanding. HIG has no commitment (absolute, contingent or
otherwise) to issue or sell any shares of its capital stock or any securities or
obligations convertible into or exchangeable for, or giving any person any
rights to acquire from HIG, any shares of its capital stock other than (i) on
the conversion of $62,850,000 principal amount of HIG Convertible Subordinated
Debentures at a conversion price of $16.16; (ii) an aggregate of 4,787,778 HIG
Shares upon the exercise of the HIG Series A Warrants at $14.69 per Share and
the exercise of HIG Series B Warrants at $14.69 (subject to adjustment) per
Share; (iii) an aggregate of 227,419 HIG Shares upon the exercise of the HIG
Series A-2 Warrants at $14.69 (subject to adjustment) per Share and the exercise
of HIG Series B-2 Warrants at $14.69 (subject
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to adjustment) per Share; and (iv) 486,000 HIG Shares upon the exercise of
options granted under the HIG 1995 Stock Option Plan and the HIG 1995 Directors'
Stock Plan. Except as set forth on Schedule 4.4 to the Disclosure Letter, there
are no existing restrictions imposed by HIG on transfers of any HIG Shares and
no covenants to register any such shares under the Securities Act.
Section 4.5 Financial Statements.
(a) The balance sheets as of December 31, 1995, December 31,
1994 and December 31, 1993 of HIG and the HIG Subsidiaries on a consolidated
basis, and the related statements of operations, stockholders' equity and cash
flows for the years then ended, examined and reported upon by Arthur Andersen
LLP, certified public accountants, copies of which have been heretofore
delivered to VBI, have been prepared in accordance with GAAP applied on a
consistent basis, and fairly present the financial position of HIG and the HIG
Subsidiaries on a consolidated basis, respectively, at such dates and the
results of their operations and cash flows for such periods. Except as otherwise
shown on such balance sheet (including the notes thereto) or pledged in the
ordinary course of business and except as disposed of in the ordinary course of
business since that date, HIG or a HIG Subsidiary owns as of December 31, 1995
the properties and assets reflected on the December 31, 1995 consolidated
balance sheet, free and clear of any Liens.
(b) The unaudited balance sheet as of September 30, 1996, of
HIG and the HIG Subsidiaries on a consolidated basis, and the related unaudited
statement of operations, stockholders' equity and cash flows for the period then
ended, copies of which have been heretofore delivered to VBI, have been prepared
in accordance with
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GAAP applied on a consistent basis, and fairly present the financial position of
HIG and the HIG Subsidiaries on a consolidated basis, respectively, at such date
and the results of their operations and cash flows for such period except for
(i) year-end adjustments consisting only of normal recurring accruals and (ii)
omissions from the footnotes permitted for unaudited interim financial
statements by Regulation S-X promulgated by the SEC under the Securities Act and
the Exchange Act.
Section 4.6 Changes.
(a) Except as listed in Schedule 4.6 to the Disclosure Letter,
since December 31, 1995 there has not been:
(i) any damage, destruction or other casualty loss with
respect to property owned or leased by HIG or any HIG Subsidiary (whether or not
covered by insurance) having a Material Adverse Effect on HIG;
(ii) any declaration, setting aside or payment of any
dividend or other distribution in respect of HIG Shares; or
(iii) any increase in compensation to any directors or
employees of HIG or any HIG Subsidiary earning more than $100,000 per annum or
in the benefits due under any Employee Benefit Plan.
(b) Except as listed in Schedule 4.6 to the Disclosure Letter,
since September 30, 1996 there has not been:
(i) any change in the financial condition or results of
operations of HIG and the HIG Subsidiaries taken as a whole from that reflected
in the financial statements as of and for the periods ended September 30, 1996
referred to in Section 4.5(b) hereof or any change in the business, assets or
prospects of HIG and the
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HIG Subsidiaries taken as a whole which would constitute a Material Adverse
Effect on HIG; or
(ii) any increase in the reserves for insurance policy
benefits, losses, claims and expenses carried on the books of HIG or any of the
HIG Subsidiaries which is material to the business, financial condition or
prospects of HIG and the HIG Subsidiaries taken as a whole.
Section 4.7 Tax Returns and Payments. Except as set forth on
Schedule 4.7 to the Disclosure Letter:
(a) all federal and all material state, local and foreign Tax
Returns of HIG and each HIG Subsidiary required to be filed have been filed and
all such Tax Returns are true, correct and complete in all material respects.
All Taxes due from or with respect to HIG or any HIG Subsidiary or any of their
properties have been paid, except in respect of state, local and foreign Taxes
which are immaterial in amount. HIG and each HIG Subsidiary has made all
required estimated Tax payments sufficient to avoid any material underpayment
penalties. HIG and each HIG Subsidiary has withheld and paid all Taxes required
by all applicable laws to be withheld or paid in connection with any amounts
paid or owing to any employee, creditor, independent contractor or other third
party.
(b) GAAP applied on a basis consistent with that followed by
HIG as of December 31,1994 and for the year then ended do not require any
provisions for federal income Taxes or for foreign, state or local Taxes in
excess of the amounts provided in the consolidated balance sheet of HIG and the
HIG Subsidiaries as of December 31, 1995;
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(c) there are no outstanding agreements, waivers or
arrangements extending the statutory period of limitation applicable to any
claim for, or the period for the collection or assessment of, Taxes due from or
with respect to HIG or any HIG Subsidiary for any taxable period. No audit or
other proceeding by any court, governmental or regulatory authority, or similar
person is pending or, to the knowledge of HIG, threatened in regard to any Taxes
due from or with respect to HIG or any HIG Subsidiary or any Tax Return filed by
or with respect to HIG or any HIG Subsidiary;
(d) no assessment by any taxing authority in an amount
exceeding $100,000 in any case for any additional Taxes has been made or
proposed and remains unresolved; and
(e) none of HIG or any HIG Subsidiary is a party to, is bound
by, or has any obligation under, any Tax sharing agreement, Tax allocation
agreement or similar contract.
Section 4.8 Employee Benefit Plans. Schedule 4.8 to the
Disclosure Letter lists each Employee Benefit Plan or other plan maintained for
employees of HIG or any HIG Subsidiary (an "HIG Plan") and true and complete
copies of each such HIG Plan have heretofore been delivered to VBI. No Person
has incurred withdrawal liability to a multi-employer plan within the meaning of
Section 3(37) of ERISA, or has failed to satisfy (or obtained a waiver of or
variance from) a minimum funding requirement under Section 412 of the Code or
Section 302 of ERISA, while a Commonly Controlled Entity with respect to HIG.
Except as indicated on such Schedule 4.8, each of the HIG Plans covered by ERISA
(a) has been operated in all material respects in accordance with ERISA and
applicable law, (b) has not engaged in any prohibited transactions (as such term
is defined
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in Section 406 of ERISA), and (c) has met the requirements for qualified status
under Section 401(a) of the Code to the extent such plan is intended to be so
qualified. Except as set forth in the Highlands Retiree Medical Program
document, and except for the 23 former employees of HIG who were covered by the
Halliburton Retiree Plan, neither HIG nor any HIG Subsidiary has made any
promise or undertaking, written or oral, to pay any part of the cost of the
medical, dental or other health care benefit for its employees after they
retire.
Section 4.9 No Undisclosed Liabilities or Agreements. Except
as disclosed in Schedule 4.9 to the Disclosure Letter or in the Financial
Statements referred to in Section 4.5(b) hereof, neither HIG nor any HIG
Subsidiary:
(a) has incurred since December 31, 1995 any debts,
liabilities or obligations (other than debts, liabilities or obligations
reasonably incurred in the ordinary course of business after December 31, 1995);
nor
(b) has conducted business otherwise than in the ordinary
course in any material respect since September 30, 1996.
Section 4.10 Reserves. The reserves carried on the books of
HIG and the HIG Subsidiaries as of September 30, 1996 for insurance policy
benefits, losses, claims and expenses are considered adequate by HIG.
Section 4.11 Litigation. Except for (a) routine litigation
relating to claims arising under insurance policies issued by any HIG Insurance
Subsidiary in the conduct of its insurance business and which are adequately
reserved, and (b) the litigation listed on Schedule 4.11 to the Disclosure
Letter, (i) there are no material actions, suits or proceedings pending or, to
the knowledge of HIG, threatened against HIG or any HIG
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Subsidiary before any court, arbitration tribunal or mediator or before or by
any governmental department, agency or instrumentality, and neither HIG nor any
HIG Subsidiary has received any written communication with respect to any such
threatened actions, suits or proceedings and (ii) there are no writs, judgments,
decrees, injunctions or similar orders of any governmental department, agency or
instrumentality outstanding against HIG or any HIG Subsidiary.
Section 4.12 Contracts. Schedule 4.12 to the Disclosure Letter
sets forth a list of the following:
(a) any collective bargaining agreement or other written
agreement of HIG or any HIG Subsidiary with any labor union;
(b) any written employment or consulting agreement, contract
or commitment between HIG or any HIG Subsidiary and any employee, officer or
director thereof (i) having more than one year to run from the date hereof, (ii)
providing for an obligation to pay or accrue compensation of $50,000 or more per
annum or (iii) providing for the payment or accrual of any additional
compensation upon a change in control of HIG or any HIG Subsidiary or upon any
termination of such employment or consulting relationship following a change in
control of HIG or any HIG Subsidiary;
(c) any agency or representation agreement of HIG or any HIG
Subsidiary with any Person which is not terminable by HIG or such HIG Subsidiary
without penalty upon not more than one hundred eighty (180) days' notice;
(d) any agreement, contract or commitment with any Person
containing any covenant limiting the freedom of HIG or any HIG Subsidiary to
engage in any line of business or to compete with any Person;
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(e) any partnership, joint venture or profit sharing agreement
(other than insurance policies) of HIG or any HIG Subsidiary with any Person;
(f) any agreement, contract, commitment, indenture or other
instrument of HIG or any HIG Subsidiary relating to the borrowing of money; or
the direct or indirect guarantee of any obligation for, or an agreement to
service the repayment of, borrowed money, or any other contingent obligation in
respect to indebtedness of any other Person, including without limitation any
agreement or arrangement relating to the maintenance of compensating balances,
any agreement or arrangement with respect to lines of credit, any agreement or
arrangement to purchase or repurchase obligations of any other Person, any
agreement or arrangement to advance or supply funds to or to invest in any other
Person, any agreement or arrangement to pay for property, products or services
of any other Person even if such property, products or services are not
conveyed, delivered or rendered or any guarantee with respect to any lease or
other similar periodic payment to be made by any other Person;
(g) any lease of HIG or any HIG Subsidiary with annual rental
payments aggregating $50,000 or more;
(h) any agreement, contract or commitment of HIG or any HIG
Subsidiary relating to the disposition or acquisition of any investment in any
Person if such investment has a book value of, or the disposition or acquisition
price of such investment or interest is, $50,000 or more;
(i) any other agreement, contract or commitment (other than
pursuant to insurance policies issued by an HIG Insurance Subsidiary or
assessments from pools, assigned risk plans or residual market mechanisms) which
involves payment
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or potential payment, pursuant to the terms of such agreement, contract or
commitment, by or to HIG or any HIG Subsidiary of $50,000 or more within any
twelve month period commencing after the date hereof;
(j) any reinsurance contract of HIG or any HIG Subsidiary
entered into since January 1, 1991 pursuant to which premiums ceded thereunder
exceed or may reasonably be expected to exceed $1,000,000 (except insofar as any
such agreement is solely among HIG and HIG Subsidiaries); or
(k) any agreement, contract, commitment or arrangement of HIG
or any HIG Subsidiary and any Affiliate of HIG or any HIG Subsidiary.
All the contracts, plans and instruments listed on such
Schedule 4.12 are in full force and effect and neither HIG nor any HIG
Significant Subsidiary (nor, to the Knowledge of HIG, any other party to any
such contract, plan or instrument) has breached any provision of, or is in
default in any respect under the terms of, any contract, plan or instrument
described in such Schedule 4.12, except for breaches or defaults of such
contracts, plans or instruments which would not have a Material Adverse Effect
on HIG. No party to any such contract, plan or instrument will have the right to
terminate any or all of the provisions of any such contract, plan or instrument
as a result of the transactions contemplated by this Agreement.
Section 4.13 Dividends. Schedule 4.13 to the Disclosure Letter
sets forth as to HIG and each HIG Significant Subsidiary each contractual
restriction or limitation on the payment of dividends. Except as set forth on
such Schedule and except for limits imposed by state corporation and state
insurance laws and regulations, there are no
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restrictions or limitations with respect to dividends which may be declared and
paid by HIG or any HIG Significant Subsidiary.
Section 4.14 Consents and Approvals of Governmental
Authorities. No consent, approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority is required in
connection with the execution and delivery of this Agreement or the Other
Agreements and the consummation of the transactions contemplated hereby or
thereby as a result of any characteristic of HIG, ACQUISITION CORP or of any of
the HIG Significant Subsidiaries or of the nature of its or their businesses or
operations, except for (a) requirements of the Securities Act, (b) requirements
of the Exchange Act, (c) requirements of any applicable state or foreign
securities laws, (d) requirements of any applicable state or foreign insurance
or insurance holding company laws or orders, (e) filings required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and (f) filing
and recordation of appropriate merger documents as required by the laws of the
State of Delaware and the State of Indiana.
Section 4.15 Regulatory Filings. Schedule 4.15 to the
Disclosure Letter lists (a) all annual statements ("Annual Insurance
Statements") which HIG and the HIG Insurance Subsidiaries have filed with or
submitted to the insurance regulatory commissions, agencies or authorities of
their respective domestic jurisdictions since December 31, 1993 and (b) all
reports of examinations issued by such insurance regulatory commissions,
agencies or authorities in respect of HIG or any of the HIG Insurance
Subsidiaries since December 31, 1993. Except as indicated on such Schedule 4.15,
(i) such filings or submissions were in substantial compliance with
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applicable law when filed and, as of their respective dates, did not contain any
material false statements or misstatements of fact or omit to state any material
facts necessary to make the statements set forth therein not materially
misleading in light of the circumstances in which such statements were made;
(ii) no material deficiencies have been asserted to HIG in writing by any such
regulatory commission, agency or authority with respect to such filings or
submissions; and (iii) neither HIG nor any HIG Insurance Subsidiary has
submitted any written response with respect to material comments from regulatory
commissions, agencies or authorities concerning such filings, submissions or
reports of examination. The Statutory Statements of each of the HIG Insurance
Subsidiaries contained in the Annual Insurance Statements for the year ended
December 31, 1995 have been prepared in accordance with the required or
permitted Statutory Accounting Principles except as expressly set forth or
disclosed in the notes, exhibits or schedules thereto (which notes, exhibits and
schedules fairly present the data purported to be shown thereby).
Section 4.16 Compliance with Applicable Law. Except as
disclosed in Section 4.16 to the Disclosure Letter, HIG, ACQUISITION CORP and
each of the HIG Subsidiaries are, in the conduct of their businesses, in
compliance with all federal, state or local laws, statutes, ordinances and
regulations, the failure to comply with which would have a Material Adverse
Effect on HIG. HIG has filed with the SEC all forms, reports, documents and
registration statements (collectively, the "SEC Reports") required to be so
filed by it since January 1, 1994 under the Exchange Act or the Securities Act.
Section 4.17 Accuracy of Information Furnished. No
representation or warranty by HIG contained in this Agreement or in the Other
Agreements, no statement
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contained in any certificate or other instrument furnished or to be furnished to
VBI pursuant hereto or thereto, or in connection with the transactions
contemplated hereby or thereby, contains or will contain any untrue statement of
a material fact or omits or will omit to state any material fact which is
necessary to make the statements contained herein or therein not misleading.
Section 4.18 Environmental Matters.
(a) For purposes of this Section 4.18 and Section 5.18:
(i) "Environmental Law" means any applicable law
regulating or prohibiting Releases into any part of the natural environment, or
pertaining to the protection of natural resources, the environment and public
and employee health and safety including, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA") (42 U.S.C.
Section 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C.
Section 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C.
Section 6901 et seq.), the Clean Water Act (33 U.S.C. Section 1251 et seq.), the
Clean Air Act (33 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act
(15 U.S.C. Section 7401 et seq.), the Federal Insecticide, Fungicide, and
Rodenticide Act (7 U.S.C. Section 136 et seq.), and the Occupational Safety and
Health Act (29 U.S.C. Section 651 et seq.) ("OSHA") and the regulations
promulgated pursuant thereto, and any such applicable state or local statutes,
and the regulations promulgated pursuant thereto, as such laws have been and may
be amended or supplemented through the Closing Date;
(ii) "Hazardous Material" means any substance, material or
waste which is regulated by any public or governmental authority in the
jurisdictions in which the applicable party or its Subsidiaries conducts
business, or the United States,
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including, without limitation, any material or substance which is defined as a
"hazardous waste," "hazardous material," "hazardous substance," "extremely
hazardous waste" or "restricted hazardous waste," "contaminant," "toxic waste"
or "toxic substance" under any provision or Environmental Law;
(iii) "Release" means any release, spill, effluent,
emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal,
leaching, or migration into the indoor or outdoor environment, or into or out of
any property owned, operated or leased by the applicable party or its
Subsidiaries;
(iv) "Remedial Action" means all actions, including,
without limitation, any capital expenditures, required by a governmental entity
or required under any Environmental Law, or voluntarily undertaken to (A) clean
up, remove, treat, or in any other way ameliorate or address any Hazardous
Materials or other substance in the indoor or outdoor environment; (B) prevent
the Release or threat of Release, or minimize the further Release of any
Hazardous Material so it does not endanger or threaten to endanger the public
health or welfare of the indoor or outdoor environment; (C) perform pre-remedial
studies and investigations or post-remedial monitoring and care pertaining or
relating to a Release; or (D) bring the applicable party into compliance with
any Environmental Law.
(b) Except as set forth on Schedule 4.18 to the Disclosure
Letter,
(i) the operations of HIG and the HIG Subsidiaries have
been in compliance with all Environmental Laws, except where the failure to so
comply would not have a Material Adverse Effect on HIG;
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(ii) HIG and the HIG Subsidiaries have obtained and will,
as of the Closing Date, maintain all permits required under applicable
Environmental Laws of the continued operations of their respective businesses,
except such permits the lack of which would not have a Material Adverse Effect
on HIG;
(iii) HIG and the HIG Subsidiaries are not subject to any
outstanding written orders or material contracts with any governmental
department, agency or instrumentality or other Person respecting (A)
Environmental Laws, (B) Remedial Action or (C) any Release or threatened Release
of a Hazardous Material;
(iv) HIG and the HIG Subsidiaries have not received any
written communication alleging, with respect to any such party, the violation of
or liability under any Environmental Law, which violation or liability would
have a Material Adverse Effect on HIG;
(v) to the Knowledge of HIG, neither HIG nor any of the
HIG Subsidiaries has any contingent liability in connection with the release of
any Hazardous Material into the indoor or outdoor environment (whether on-site
or off-site) which would have a Material Adverse Effect on HIG;
(vi) the operations of HIG and the HIG Subsidiaries which
involve the generation, transportation, treatment, storage or disposal of
hazardous waste, as defined and regulated under 40 C.F.R. Parts 260-270 (in
effect as of the date of this Agreement) or any state equivalent, are and have
been conducted in compliance with applicable Environmental Laws, except where
the failure so to comply would not have a Material Adverse Effect on HIG;
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(vii) to the Knowledge of HIG, there is not now on or in
any property of HIG or the HIG Subsidiaries any of the following: (A) any
underground storage tanks or surface impoundments, (B) any asbestos-containing
materials, or (C) any polychlorinated biphenyls, except in material compliance
with applicable Environmental Laws; and
(viii) since December 31, 1992 there have been no
environmental inspections, investigations, studies, audits, tests, reviews or
other analyses conducted on behalf of HIG in relation to any real property or
business now or previously owned, operated, or leased by HIG or a HIG
Subsidiary.
Section 4.19 Broker's, Finder's or Similar Fees. Except
for fees payable to Smith Barney, and other than pursuant to Section 6.8, there
are no brokerage commissions, finder's fees or similar fees or commissions
payable by HIG in connection with the transactions contemplated hereby based on
any agreement, arrangement or understanding with HIG or ACQUISITION CORP or any
action taken by HIG or ACQUISITION CORP.
Section 4.20 Owned Real Property. Schedule 4.20 to the
Disclosure Letter contains a true, correct and complete list of all real
property owned by HIG or any HIG Subsidiary. HIG or an HIG Subsidiary is the
holder of good, indefeasible and marketable fee simple title to such real
property free and clear of all Liens, except for such Liens which would not have
a Material Adverse Effect on HIG. There are no leases, subleases, tenancies,
licenses or other occupancy rights affecting any portion of such real property
except as set forth in such Schedule 4.20 to the Disclosure Letter.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES BY VBI
VBI represents and warrants to HIG as follows:
Section 5.1 Organization and Qualifications, etc. VBI is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Indiana, has the corporate and other power and all necessary
state authorizations to own, lease and operate all of its properties and assets
and to carry on its business as it is now being conducted, and is duly qualified
to do business and is in good standing in each jurisdiction in which it owns
property or conducts business, except where the failure to have such
authorization or to be so qualified would not have a Material Adverse Effect on
VBI. VBI has all requisite corporate and other power and is duly authorized,
subject to the approval of the stockholders of VBI and compliance with
applicable insurance regulatory requirements to merge pursuant to this Agreement
and to enter into the Other Agreements and to perform its other obligations
hereunder and thereunder. Other than the approval of the stockholders of VBI
which shall have occurred by the Closing Date, the execution, delivery and
performance by VBI of this Agreement and each of the Other Agreements, and the
consummation by VBI of the transactions contemplated hereby and thereby, have
been duly and validly authorized by all necessary corporate action, and no other
corporate proceedings on the part of VBI are necessary to authorize the
execution, delivery or performance by VBI of this Agreement or the Other
Agreements, or the consummation of the transactions contemplated hereby and
thereby. This Agreement has been, and each of the Other Agreements will be as of
the Closing Date, duly and validly executed and delivered by VBI. Subject to the
approval of the stockholders of VBI and satisfaction of the
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conditions specified in Section 9.1 hereof (and assuming this Agreement
constitutes and each of the Other Agreements will constitute, as of the Closing
Date, valid and binding obligations of HIG), this Agreement constitutes, and
each of the Other Agreements will constitute as of the Closing Date, valid and
binding obligations of VBI, enforceable against it in accordance with its
respective terms, except that (i) such enforceability may be subject to
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium,
rehabilitation, liquidation, conservatorship, receivership or other similar laws
now or hereafter in effect relating to creditors' rights generally and (ii) the
remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought. The copies of VBI 's
Articles of Incorporation and By-laws which have been delivered by VBI to HIG
are complete and correct and in full force and effect at the date hereof.
Section 5.2 Subsidiaries.
(a) Schedule 5.2(a) to the Disclosure Letter lists all VBI
Subsidiaries (as such term is defined in Section 5.2(d)), the jurisdiction of
incorporation of each such VBI Subsidiary and each jurisdiction where such VBI
Insurance Subsidiary is qualified to do business and licensed to do business as
an insurer. Except as indicated on such Schedule 5.2(a), VBI owns, directly or
indirectly, all of the securities of each of the VBI Subsidiaries free and clear
of all Liens and all capital stock of such VBI Subsidiaries has been duly
authorized and validly issued and is fully paid and nonassessable.
(b) None of the VBI Subsidiaries has any commitment (absolute,
contingent or otherwise) to issue or sell any shares of its capital stock or any
securities or
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obligations convertible into or exchangeable for, or giving any person (other
than VBI or a VBI Subsidiary) any rights to acquire from such VBI Subsidiary,
any shares of its capital stock.
(c) Except as set forth in Schedule 5.2(c) to the Disclosure
Letter, each VBI Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation, has
the corporate and other power and all necessary authorizations to own, lease and
operate all of its properties and assets and to carry on its business as it is
now being conducted, and is duly qualified to do business and is in good
standing in each jurisdiction in which it owns property or conducts business,
except where the failure to have such authorization or to be so qualified would
not have a Material Adverse Effect on such VBI Subsidiary. Except as set forth
in Schedule 5.2(c) to the Disclosure Letter, each VBI Insurance Subsidiary is
licensed to conduct business as an insurer in each jurisdiction where the nature
of its business requires such licensing, except in those instances in which the
failure to have such license would not have a Material Adverse Effect on such
VBI Insurance Subsidiary.
(d) As used in this Agreement, the term "VBI Subsidiary" means
any corporation or other organization whether incorporated or unincorporated of
which VBI and VBI Subsidiaries, separately or together, directly or indirectly,
own securities or interests having by their terms ordinary voting power to elect
a majority of the board of directors or others performing a similar function
with respect to such corporation or other organization; and the term "VBI
Significant Subsidiary" means a VBI Subsidiary which is a "Significant
Subsidiary" under the definition thereof in Regulation S-X promulgated by the
SEC as in effect on the date hereof, except that for this purpose the percentage
tests
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stated in subparagraphs (1), (2) and (3) of paragraph (w) of Rule 1.02 of
Regulation S-X shall be 5% instead of 10% as provided in Regulation S-X.
Section 5.3 Non-Contravention. Except as set forth in Schedule
5.3 to the Disclosure Letter, the execution, delivery and performance of this
Agreement and each of the Other Agreements does not and, the consummation of the
transactions contemplated hereby will not (a) violate any provision of the
Articles or Certificate of Incorporation or ByLaws of VBI or of any VBI
Subsidiary, (b) violate any provision of, or result in the breach or the
acceleration of or entitle any party to accelerate (whether with the giving of
notice or lapse of time or both) any obligation under, or result in, or give
rise to a default (with or without notice or lapse of time, or both) under, or
give rise to a right of termination, cancellation or acceleration of any
obligation or the loss of any material benefit under any mortgage, lien, lease,
agreement, license or instrument to which VBI or any VBI Subsidiary is a party
or by which any of them is bound; (c) result in the creation or imposition of
any Liens upon any of the property of VBI or any VBI Subsidiary; (d) violate any
order, arbitration award, judgment, writ, injunction, decree, statute, rule or
regulation applicable to VBI, any VBI Subsidiary or any of their respective
properties or assets; or (e) violate or conflict with any other material
restriction of any kind or character to which VBI or any VBI Subsidiary, or the
property of any of them, is subject; except for such violations, breaches,
defaults, terminations, cancellations, accelerations of obligations, loss of
benefits, Liens or conflicts under (b), (c), (d) or (e) which would not have a
Material Adverse Effect on VBI or any VBI Significant Subsidiary.
Section 5.4 Capital Stock. The authorized capital stock of VBI
consists of (a) 2 million common shares, par value $.001 per share, of which as
of the date of this
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Agreement 271,800 are issued and outstanding and none are held in the treasury
of VBI and (b) 2 million preferred shares, $.10 par value per share, of which as
of the date of this Agreement (i) 1,500 shares have been designated Series One
Preferred Stock, of which 1,500 shares are issued and outstanding, (ii) 2,500
shares have been designated Series Two Preferred Stock, of which 1,231 shares
are issued and outstanding, (iii) 50,000 shares have been designated Series
Three Preferred Stock, of which 21,366 shares are issued and outstanding, (iv)
10,000 shares have been designated Series Four Preferred Stock, of which 10,000
shares are issued and outstanding, (v) 20,000 shares have been designated Series
Five Preferred Stock, of which 1,388 shares are issued and outstanding, (vi)
10,000 shares have been designated Series Six Preferred Stock, of which 10,000
shares are issued and outstanding and (vii) 40,000 shares have been designated
Series Seven Preferred Stock, of which 19,084 shares are issued and outstanding.
VBI has no commitment (absolute, contingent or otherwise) to issue or sell any
shares of its capital stock or any securities or obligations convertible into or
exchangeable for, or giving any person any rights to acquire from VBI, any
shares of its capital stock other than as set forth in Schedule 5.4 to the
Disclosure Letter. Except as set forth on Schedule 5.4 to the Disclosure Letter,
there are no existing restrictions imposed by VBI on transfers of any VBI Shares
and no covenants to register any such shares under the Securities Act.
Section 5.5 Financial Statements.
(a) The balance sheets as of December 31, 1995, December 31,
1994 and December 31, 1993 of VBI and the VBI Subsidiaries on a consolidated
basis, and the related statements of operations, stockholders' equity and cash
flows for the years then ended, examined and reported upon by Ernst & Young,
certified public accountants,
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copies of which have been heretofore delivered to HIG, have been prepared in
accordance with GAAP applied on a consistent basis, and fairly present the
financial position of VBI and the VBI Subsidiaries on a consolidated basis,
respectively, at such dates and the results of their operations and cash flows
for such periods. Except as otherwise shown on such balance sheets (including
the notes thereto), pledged in the ordinary course of business or listed on
Schedule 5.5 to the Disclosure Letter and except as disposed of in the ordinary
course of business since that date, VBI or a VBI Subsidiary owns as of December
31, 1995 the properties and assets reflected on the December 31, 1995
consolidated balance sheet, free and clear of any Liens.
(b) The unaudited balance sheet as of September 30, 1996, of
VBI and the VBI Subsidiaries on a consolidated basis, and the related unaudited
statement of operations, stockholders' equity and cash flows for the period then
ended, copies of which have been heretofore delivered to HIG, have been prepared
in accordance with GAAP applied on a consistent basis, and fairly present the
financial position of VBI and the VBI Subsidiaries on a consolidated basis,
respectively, at such date and the results of their operations and cash flows
for such period except for (i) year-end adjustments consisting only of normal
recurring accruals and (ii) omissions from the footnotes permitted for unaudited
interim financial statements by Regulation S-X promulgated by the SEC under the
Securities Act and the Exchange Act.
Section 5.6 Changes.
(a) Except as listed in Schedule 5.6 to the Disclosure Letter,
since December 31, 1995 there has not been:
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(i) any damage, destruction or other casualty loss with
respect to property owned or leased by VBI or any VBI Subsidiary (whether or not
covered by insurance) having a Material Adverse Effect on VBI;
(ii) any declaration, setting aside or payment of any
dividend or other distribution in respect of VBI Shares; or
(iii) any increase in compensation to any directors or
employees of VBI or any VBI Subsidiary earning more than $100,000 per annum or
in the benefits due under any Employee Benefit Plan.
(b) Except as listed in Schedule 5.6 to the Disclosure Letter,
since September 30, 1996 there has not been:
(i) any change in the financial condition or results of
operations of VBI and the VBI Subsidiaries taken as a whole from that reflected
in the financial statements as of and for the periods ended September 30, 1996
referred to in Section 5.5(b) hereof or any change in the business, assets or
prospects of VBI and the VBI Subsidiaries taken as a whole which would
constitute a Material Adverse Effect on VBI; or
(ii) any increase in the reserves for insurance policy
benefits, losses, claims and expenses carried on the books of VBI or any of the
VBI Subsidiaries which is material to the business, financial condition or
prospects of VBI and the VBI Subsidiaries taken as a whole.
Section 5.7 Tax Returns and Payments. Except as set forth on
Schedule 5.7 to the Disclosure Letter:
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(a) all federal and all material state, local and foreign Tax
Returns of VBI and each VBI Subsidiary required to be filed have been filed and
all such Tax Returns are true, correct and complete in all material respects.
All Taxes due from or with respect to VBI or any VBI Subsidiary or any of their
properties have been paid, except in respect of state, local and foreign taxes
which are immaterial in amount. VBI and each VBI Subsidiary has made all
required estimated Tax payments sufficient to avoid any material underpayment
penalties. VBI and each VBI Subsidiary has withheld and paid all Taxes required
by all applicable laws to be withheld or paid in connection with any amounts
paid or owing to any employee, creditor, independent contractor or other third
party.
(b) GAAP applied on a basis consistent with that followed by
VBI as of December 31,1994 and for the year then ended do not require any
provisions for federal income Taxes or for foreign, state or local Taxes in
excess of the amounts provided in the consolidated balance sheet of VBI and the
VBI Subsidiaries as of December 31, 1995;
(c) there are no outstanding agreements, waivers or
arrangements extending the statutory period of limitation applicable to any
claim for, or the period for the collection or assessment of, Taxes due from or
with respect to VBI or any VBI Subsidiary for any taxable period. No audit or
other proceeding by any court, governmental or regulatory authority or similar
person is pending or, to the knowledge of VBI, threatened in regard to any Taxes
due from or with respect to VBI or any VBI Subsidiary or any Tax Return filed by
or with respect to VBI or any VBI Subsidiary;
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(d) no assessment by any taxing authority in an amount
exceeding $100,000 in any case for any additional Taxes has been made or
proposed and remains unresolved;
(e) except as set forth in Schedule 5.12(k) to the Disclosure
Letter, none of VBI or any VBI Subsidiary is a party to, is bound by, or has any
obligation under, any Tax sharing agreement, Tax allocation agreement or similar
contract; and
(f) VBI is not and has not been during the previous five years
a "United States real property holding corporation" within the meaning of
Section 1445(b)(3) of the Code.
Section 5.8 Employee Benefit Plans. Schedule 5.8 to the
Disclosure Letter lists each Employee Benefit Plan or other plan maintained for
employees of VBI or any VBI Subsidiary (a "VBI Plan") and true and complete
copies of each such VBI Plan have heretofore been delivered to HIG. Except as
set forth in such Schedule 5.8, there are no unfunded accrued benefits under any
VBI Plan which is subject to the vesting and funding standards of ERISA, and
none of the VBI Plans are multi-employer plans within the meaning of Section
3(37) of ERISA. Except as indicated on such Schedule 5.8, each of the VBI Plans
covered by ERISA (a) has been operated in all material respects in accordance
with ERISA and applicable law, (b) has not engaged in any prohibited
transactions (as such term is defined in Section 406 of ERISA), and (c) has met
the minimum funding standards of the Code. No material Reportable Event (within
the meaning of the Code) has occurred and is continuing with respect to any VBI
Plan.
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Section 5.9 No Undisclosed Liabilities or Agreements. Except
as disclosed in Schedule 5.9 to the Disclosure Letter or in the Financial
Statements referred to in Section 5.5(b) hereof, neither VBI nor any VBI
Subsidiary:
(a) has incurred since December 31, 1995 any debts,
liabilities or obligations (other than debts, liabilities or obligations
reasonably incurred in the ordinary course of business after December 31, 1995);
nor
(b) has conducted business otherwise than in the ordinary
course in any material respect since September 30, 1996.
Section 5.10 Reserves. Except as disclosed in Schedule 5.10 to
the Disclosure Letter, the reserves carried on the books of VBI and the VBI
Subsidiaries as of September 30, 1996 for insurance policy benefits, losses,
claims and expenses are considered adequate by VBI.
Section 5.11 Litigation. Except for (a) routine litigation
relating to claims arising under insurance policies issued by any VBI Insurance
Subsidiary in the conduct of its insurance business and which are adequately
reserved, and (b) the litigation listed on Schedule 5.11 to the Disclosure
Letter, (i) there are no material actions, suits or proceedings pending or, to
the knowledge of VBI, threatened against VBI or any VBI Subsidiary before any
court, arbitration tribunal or mediator or before or by any governmental
department, agency or instrumentality and neither VBI nor any VBI Subsidiary has
received any written communication with respect to any such threatened actions,
suits or proceedings, and (ii) there are no writs, judgments, decrees,
injunctions or similar orders of any governmental department, agency or
instrumentality outstanding against VBI or any VBI Subsidiary.
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Section 5.12 Contracts. Schedule 5.12 to the Disclosure Letter
sets forth a list of the following:
(a) any collective bargaining agreement or other written
agreement of VBI or any VBI Subsidiary with any labor union;
(b) any written employment or consulting agreement, contract
or commitment between VBI or any VBI Subsidiary and any employee, officer or
director thereof (i) having more than one year to run from the date hereof, (ii)
providing for an obligation to pay or accrue compensation of $50,000 or more per
annum or (iii) providing for the payment or accrual of any additional
compensation upon a change in control of VBI or any VBI Subsidiary or upon any
termination of such employment or consulting relationship following a change in
control of VBI or any VBI Subsidiary;
(c) any agency or representation agreement of VBI or any VBI
Subsidiary with any Person which is not terminable by VBI or such VBI Subsidiary
without penalty upon not more than one hundred eighty (180) days' notice;
(d) any agreement, contract or commitment with any Person
containing any covenant limiting the freedom of VBI or any VBI Subsidiary to
engage in any line of business or to compete with any Person;
(e) any partnership, joint venture or profit sharing agreement
(other than insurance policies) of VBI or any VBI Subsidiary with any Person;
(f) any agreement, contract, commitment, indenture or other
instrument of VBI or any VBI Subsidiary relating to the borrowing of money; or
the direct or indirect guarantee of any obligation for, or an agreement to
survive the repayment of, borrowed money, or any other contingent obligation in
respect to indebtedness of any
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other Person, including without limitation any agreement or arrangement relating
to the maintenance of compensating balances, any agreement or arrangement with
respect to lines of credit, any agreement or arrangement to purchase or
repurchase obligations of any other Person, any agreement or arrangement to
advance or supply funds to or to invest in any other Person, any agreement or
arrangement to pay for property, products or services of any other Person even
if such property, products or services are not conveyed, delivered or rendered
or any guarantee with respect to any lease or other similar periodic payments to
be made by any other Person;
(g) any lease of VBI or any VBI Subsidiary with annual rental
payments aggregating $50,000 or more;
(h) any agreement, contract or commitment of VBI or any VBI
Subsidiary relating to the disposition or acquisition of any investment in any
Person if such investment has a book value of, or the disposition or acquisition
price of such investment or interest is, $50,000 or more;
(i) any other agreement, contract or commitment (other than
pursuant to insurance policies issued by a VBI Insurance Subsidiary or
assessments from pools, assigned risk plans or residual market mechanisms) which
involves payment or potential payment, pursuant to the terms of such agreement,
contract or commitment, by or to VBI or any VBI Subsidiary of $50,000 or more
within any twelve month period commencing after the date hereof;
(j) any reinsurance contract of VBI or any VBI Subsidiary
entered into since July 1, 1994 pursuant to which premiums ceded thereunder
exceed or may
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reasonably be expected to exceed $1,000,000 (except insofar as any such
agreement is solely among VBI and VBI Subsidiaries); or
(k) any agreement, contract, commitment or arrangement of VBI
or any VBI Subsidiary and any Affiliate of VBI or any VBI Subsidiary.
All the contracts, plans and instruments listed on Schedule
5.12 are in full force and effect and neither VBI nor any VBI Significant
Subsidiary (nor, to the Knowledge of VBI, any other party to any such contract,
plan or instrument) has breached any provision of, or is in default in any
respect under the terms of, any contract, plan or instrument described in such
Schedule 5.12, except for breaches or defaults of such contracts, plans or
instruments which would not have a Material Adverse Effect on VBI and those
breaches described on Schedule 5.12 to the Disclosure Letter. No party to any
such contract, plan or instrument will have the right to terminate any or all of
the provisions of any such contract, plan or instrument as a result of the
transactions contemplated by this Agreement.
Section 5.13 Dividends. Schedule 5.13 to the Disclosure Letter
sets forth as to VBI and each VBI Significant Subsidiary each contractual
restriction or limitation on the payment of dividends. Except as set forth on
such Schedule and except for limits imposed by state corporation and state
insurance laws and regulations, there are no restrictions or limitations with
respect to dividends which may be declared and paid by VBI or any VBI
Significant Subsidiary.
Section 5.14 Consents and Approvals of Governmental
Authorities. No consent, approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority is required in
connection with the execution and
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delivery of this Agreement or the Other Agreements and the consummation of the
transactions contemplated hereby or thereby as a result of any characteristic of
VBI or of any of the VBI Significant Subsidiaries or of the nature of its or
their businesses or operations, except for (a) requirements of the Securities
Act, (b) requirements of the Exchange Act, (c) requirements of any applicable
state or foreign securities laws, (d) requirements of any applicable state or
foreign insurance or insurance holding company laws or orders, (e) filings
required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and (f) filing and recordation of appropriate merger documents as
required by the laws of the State of Delaware and the State of Indiana.
Section 5.15 Regulatory Filings. Schedule 5.15 to the
Disclosure Letter lists (a) all Annual Insurance Statements which VBI and the
VBI Insurance Subsidiaries have filed with or submitted to the insurance
regulatory commissions, agencies or authorities of their respective domestic
jurisdictions since December 31, 1993, and (b) all reports of examinations
issued by such insurance regulatory commissions, agencies or authorities in
respect of VBI or any of the VBI Insurance Subsidiaries since December 31, 1993.
Except as indicated on such Schedule 5.15, (i) such filings or submissions were
in substantial compliance with applicable law when filed and, as of their
respective dates, did not contain any material false statements or misstatements
of fact or omit to state any material facts necessary to make the statements set
forth therein not materially misleading in light of the circumstances in which
such statements were made; (ii) no material deficiencies have been asserted to
VBI in writing by any such regulatory commission, agency or authority with
respect to such filings or submissions; and (iii) neither VBI nor any VBI
Insurance Subsidiary has submitted any written response with respect to material
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comments from regulatory commissions, agencies or authorities concerning such
filings, submissions or reports of examination. The Statutory Statements of each
of the VBI Insurance Subsidiaries contained in the Annual Insurance Statements
for the year ended December 31, 1995 have been prepared in accordance with the
required or permitted Statutory Accounting Principles, except as expressly set
forth or disclosed in the notes, exhibits or schedules thereto (which notes,
exhibits and schedules fairly present the data purported to be shown thereby).
Section 5.16 Compliance with Applicable Law. Except as
disclosed in Schedule 5.16 to the Disclosure Letter, VBI and each of the VBI
Subsidiaries are, in the conduct of their businesses, in compliance with all
federal, state or local laws, statutes, ordinances and regulations, the failure
to comply with which would have a Material Adverse Effect on VBI.
Section 5.17 Accuracy of Information Furnished. No
representation or warranty by VBI contained in this Agreement or in the Other
Agreements, no statement contained in any certificate or other instrument
furnished or to be furnished to HIG pursuant hereto or thereto, or in connection
with the transactions contemplated hereby or thereby, contains or will contain
any untrue statement of a material fact or omits or will omit to state any
material fact which is necessary to make the statements contained therein not
misleading.
Section 5.18 Environmental Matters. Except as set forth on
Schedule 5.18 to the Disclosure Letter,
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(a) the operations of VBI and the VBI Subsidiaries have been
in compliance with all Environmental Laws, except where the failure to so comply
would not have a Material Adverse Effect on VBI;
(b) VBI and the VBI Subsidiaries have obtained and will, as of
the Closing Date, maintain all permits required under applicable Environmental
Laws of the continued operations of their respective businesses, except such
permits the lack of which would not have a Material Adverse Effect on VBI;
(c) VBI and the VBI Subsidiaries are not subject to any
outstanding written orders or material contracts with any governmental
department, agency or instrumentality or other Person respecting (i)
Environmental Laws, (ii) Remedial Action or (iii) any Release or threatened
Release of a Hazardous Material;
(d) VBI and the VBI Subsidiaries have not received any written
communication alleging, with respect to any such party, the violation of or
liability under any Environmental Law, which violation or liability would have a
Material Adverse Effect on VBI;
(e) to the Knowledge of VBI, neither VBI nor any of the VBI
Subsidiaries has any contingent liability in connection with the release of any
Hazardous Material into the indoor or outdoor environment (whether on-site or
off-site) which would have a Material Adverse Effect on VBI;
(f) the operations of VBI and the VBI Subsidiaries which
involve the generation, transportation, treatment, storage or disposal of
hazardous waste, as defined and regulated under 40 C.F.R. Parts 260-270 (in
effect as of the date of this Agreement) or any state equivalent, are and have
been conducted in compliance with
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applicable Environmental Laws, except where the failure so to comply would not
have a Material Adverse Effect on VBI;
(g) to the Knowledge of VBI, there is not now on or in any
property of VBI or the VBI Subsidiaries any of the following: (i) any
underground storage tanks or surface impoundments, (ii) any asbestos-containing
materials, or (iii) any polychlorinated biphenyls, except in material compliance
with applicable Environmental Laws;
(h) since December 31, 1992, there have been no environmental
inspections, investigations, studies, audits, tests, reviews or other analyses
conducted on behalf of VBI in relation to any real property or business now or
previously owned, operated, or leased by VBI or a VBI Subsidiary; and
(i) neither VBI nor any VBI Subsidiary is an "Industrial
Establishment" as such term is defined in the New Jersey Industrial Site
Recovery Act, NJSA sections 13:1K-6 to -11.11 ("ISRA"), and the provisions of
ISRA are not applicable to VBI or any VBI Subsidiary. Neither VBI nor any VBI
Subsidiary is required to make any filing with or obtain the approval of the New
Jersey Department of Environmental Protection and Energy with respect to the
transactions contemplated pursuant to this Agreement.
Section 5.19 Broker's, Finder's or Similar Fees. Except for
the fee payable to Donaldson, Lufkin & Jenrette Securities Corporation pursuant
to Section 6.8, there are no brokerage commissions, finder's fees or similar
fees or commissions payable by VBI in connection with the transactions
contemplated hereby based on any agreement, arrangement or understanding with
VBI or any action taken by VBI.
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Section 5.20 Owned Real Property. Schedule 5.20 to the
Disclosure Letter contains a true, correct and complete list of all real
property owned by VBI or any VBI Subsidiary. VBI or a VBI Subsidiary is the
holder of good, indefeasible and marketable fee simple title to such real
property free and clear of all Liens, except for such Liens which would not have
a Material Adverse Effect on VBI. There are no leases, subleases, tenancies,
licenses or other occupancy rights affecting any portion of such real property
except as set forth in such Schedule 5.20 to the Disclosure Letter.
ARTICLE VI
COVENANTS AND AGREEMENTS
Section 6.1 Conduct of Business until Effective Time.
(a) From the date of this Agreement until the Effective Time,
except with the prior written consent of HIG or as required by this Agreement,
VBI will conduct, and will cause the VBI Subsidiaries to conduct, their
respective businesses in the usual and ordinary course in substantially the same
manner as currently conducted and shall use reasonable efforts to preserve their
relations with customers, agents, employees and others having business dealings
with VBI or the VBI Subsidiaries. Without limiting the foregoing, VBI:
(i) will not
(A) declare or pay any dividends other than dividends
on the Preferred Stock provided for in the terms of the Preferred Stock; or
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(B) effect any stock split, stock dividend,
reclassification or other similar transaction;
(ii) will not, and will not permit any VBI Subsidiary to:
(A) merge or consolidate with any Person, except that
a Subsidiary may merge or consolidate with another Subsidiary or with VBI;
(B) make any acquisition or disposition, or enter into
an agreement to make any acquisition or disposition, of the stock or assets of
any Person, which shall involve the expenditure or receipt of more than $1
million (in cash or market value of securities or both), except for portfolio
and similar transactions in the ordinary course of investment operations and
except that it or a VBI Subsidiary may acquire stock or assets of a VBI
Subsidiary;
(C) authorize the creation or issuance of or issue,
sell or dispose of, or create any obligation to issue, sell or dispose of, any
shares of its capital stock or any securities or obligation convertible into or
exchangeable for, any shares of its capital stock except pursuant to existing
obligations;
(D) enter into or amend any employment contract with
any of its officers, directors or employees earning annual compensation of more
than $100,000, adopt or amend any Employee Benefit Plan in any material respect
or make any payments, awards or distributions under any Employee Benefit Plan or
otherwise not consistent with past practice or custom except (x) as required by
a contract in existence on the date hereof and listed in Schedules 5.8 or 5.12;
or (y) as necessary to make any Employee Benefit Plan of it listed on Schedules
5.8 or 5.12 meet the requirements of
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ERISA to the extent such amendment is described in either such schedule or is
approved by HIG; or
(E) initiate, solicit, encourage, negotiate, discuss,
consider or entertain (including, without limitation, by way of furnishing
information or assistance orally or in writing), or take any other action to
facilitate, any inquiries or the making of any proposal that relates to,
constitutes, or may be expected to lead to, or for the purpose of evaluating the
feasibility or advisability of making, any Acquisition Proposal (as defined
below), or enter into, maintain or continue discussions or negotiations with any
person or entity in furtherance of such inquiries or for the purpose of
obtaining an Acquisition Proposal or agree to or endorse any Acquisition
Proposal, or authorize or permit any of its officers, directors or employees or
any of its Subsidiaries or any investment banker, financial advisor, attorney,
accountant or other representative retained by any of them to take any such
action. As used in this provision, "Acquisition Proposal" shall mean any of the
following involving VBI or any VBI Subsidiary: (i) any merger, consolidation,
share exchange, recapitalization, business combination, or other similar
transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of any material amount of the assets of VBI and the VBI
Subsidiaries, taken as a whole, in a single transaction or series of
transactions (including, without limitation, by means of any reinsurance or
comparable agreement) outside of the ordinary course of business; (iii) any
offer for any of the outstanding shares of capital stock of VBI or the filing of
any documents under the Securities Act or the Exchange Act in connection
therewith; or (iv) any public announcement of a proposal, plan or intention to
do any of the foregoing or any agreement to engage in any of the foregoing;
provided, however, that, unless HIG shall
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have previously given VBI written notice of its waiver of the condition
contained in Section 8.7 of this Agreement, the provisions of this Section
6.1(a)(ii)(E) shall not apply during the period beginning on April 1, 1997 and
ending on the earlier of the termination of this Agreement and VBI's receipt of
written notice from HIG that it has waived the condition contained in Section
8.7 of this Agreement.
(b) From the date of this Agreement until the Effective Time,
except with the prior written consent of VBI or as required by this Agreement,
each of HIG and ACQUISITION CORP, respectively, will conduct, and will cause the
HIG Subsidiaries to conduct, their respective businesses in the usual and
ordinary course in substantially the same manner as currently conducted and
shall use reasonable efforts to preserve their relations with customers, agents,
employees and others having business dealings with HIG or the HIG Subsidiaries.
Without limiting the foregoing, HIG and ACQUISITION CORP:
(i) will not
(A) declare or pay any dividends; or
(B) effect any stock split, stock dividend,
reclassification or other similar transaction;
(ii) will not, and will not permit any HIG Subsidiary to
authorize the creation or issuance of or issue, sell or dispose of, or create
any obligation to issue, sell or dispose of, any shares of its capital stock or
any securities or obligation convertible into or exchangeable for, any shares of
its capital stock, except pursuant to existing obligations.
Section 6.2 Access and Confidentiality.
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(a) From the date of this Agreement to the Effective Time, HIG
and VBI each shall afford to the officers and authorized representatives of the
other (including, without limitation, counsel, financial advisers and
independent accountants) full access to their respective properties, personnel,
books and records and those of their respective Subsidiaries in order that each
party may have full opportunity to make such investigations as it shall desire
to make of the affairs of the other; and the officers of each of HIG and VBI
will furnish the other with such additional financial and operating data and
other information as to their businesses and properties and those of their
Subsidiaries as the other shall from time to time reasonably request, including,
without limitation, information for inclusion in applications or statements to
be made to any governmental or regulatory body or securities exchange in
connection with the transactions contemplated by this Agreement.
(b) HIG and VBI each affirm and agree to continue to be
subject to the terms and provisions of the letter agreement dated November 27,
1995 between IP and VBI and the letter agreement dated February 28, 1996 between
HIG and VBI (the "Confidentiality Agreements"), which agreements shall remain in
full force and effect until terminated as provided therein.
(c) HIG and VBI each agree (i) to confer, subject to
applicable law, on a regular and frequent basis with one or more representatives
of the other to report operational matters of materiality and the general status
of ongoing operations and (ii) to notify the other of any change or prospective
change in the normal course of its or its Subsidiaries' businesses or in the
operations of its or its Subsidiaries' properties and of any governmental
complaints, investigations or hearings (or communications indicating
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that the same may be contemplated) if such change or prospective change,
complaint, investigation or hearing would be material to its and its
Subsidiaries' businesses or properties taken as a whole.
Section 6.3 Interim Financial Statements and Reports.
(a) Through the Closing Date, HIG shall provide to VBI as
promptly as practicable, but in no event later than 45 days after the end of
each quarter, (i) copies of the most recent Quarterly Statements filed by each
of the HIG Insurance Subsidiaries which shall present fairly, in all material
respects, the statutory financial condition as of the date presented and
statutory results of operations for the quarter then ended of such HIG Insurance
Subsidiary in conformity with Statutory Accounting Principles applied on a
consistent basis, subject to normal year-end adjustments and (ii) copies of the
most recent GAAP Quarterly Statements prepared by HIG which shall present
fairly, in all material respects, the consolidated financial position as of the
date presented and consolidated results of operations and cash flows of HIG and
its Subsidiaries for the quarter then ended in accordance with GAAP applied on a
consistent basis, subject to normal year-end adjustments.
(b) Through the Closing Date, VBI shall provide to HIG as
promptly as practicable, but in no event later than 45 days after the end of
each quarter, (i) copies of the most recent Quarterly Statements filed by each
of the VBI Insurance Subsidiaries which shall present fairly, in all material
respects, the statutory financial condition as of the date presented and
statutory results of operations for the quarter then ended of such VBI Insurance
Subsidiary in conformity with Statutory Accounting Principles applied on a
consistent basis, subject to normal year-end adjustments and (ii) copies of the
most recent
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GAAP Quarterly Statements prepared by VBI which shall present fairly, in all
material respects, the consolidated financial position as of the date presented
and consolidated results of operations and cash flows of VBI and its
Subsidiaries for the quarter then ended in accordance with GAAP applied on a
consistent basis, subject to normal year-end adjustments.
Section 6.4 Compliance with Conditions Precedent. HIG and VBI
will each use its reasonable efforts to cause the conditions precedent to the
Merger set forth herein to be fulfilled and to consummate the Merger and all
transactions related thereto.
Section 6.5 Regulatory Filings. HIG and VBI will each promptly
file (and cause its Subsidiaries to file) with applicable regulatory authorities
and prosecute diligently the applications and related documents required to be
filed by it and its Subsidiaries in order to consummate the transactions
contemplated by this Agreement, and each of HIG and VBI shall cooperate (and
cause its Subsidiaries to cooperate) with the other as reasonably necessary in
connection with the filing and prosecution thereof.
Section 6.6 Stockholder Consent. VBI covenants and agrees that
its Board of Directors will, as soon as reasonably practicable hereafter,
recommend to its stockholders approval of this Agreement and the Merger and
solicit written consents from such stockholders for such approval.
Section 6.7 VBI Management Compensation. HIG and VBI will
cooperate in designing a management compensation package for VBI's senior
management which will be effective as of the Effective Time.
Section 6.8 Fees and Expenses. All fees to Donaldson, Lufkin &
Jenrette Securities Corporation, legal fees to Schnader, Harrison, Segal &
Lewis, Debevoise &
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Plimpton and Stroock & Stroock & Lavan LLP and accounting fees, and any other
reasonable expenses incurred by VBI in connection with this Agreement and the
transactions contemplated hereby shall be paid by the Surviving Corporation at
Closing. VBI shall notify HIG of the amount of such fees and expenses no later
than five days prior to the Closing Date.
Section 6.9 Securities Amendments. Prior to the Closing Date,
HIG shall obtain (collectively the "Securities Amendments")
(a) amendments to the terms of its outstanding Common Stock
Subscription Warrants, Series A, Series B, Series A-2 and Series B-2 to provide
that there shall be no adjustment to the number of shares of HIG common stock
issuable upon exercise thereof as a result of any Additional Adverse Development
(as defined in such warrants);
(b) amendments to the terms of its outstanding Common Stock
Subscription Warrants, Series B and Series B-2 (collectively the "Series B
Warrants") to add a definition for "Change of Control" that is identical to the
definition of "Change of Control" in the HIG 10% Convertible Subordinated
Debentures due December 31, 2005 (the "Debentures"); and
(c) amendments to or waivers of the terms of its outstanding
Debentures, Common Stock Subscription Warrants, Series A and Series A-2, and
Series B Warrants to specify that the issuance of HIG Shares pursuant to this
Agreement shall not constitute a "Change of Control" pursuant to those
securities and shall not result in an adjustment to the number of shares of HIG
common stock issuable upon exercise thereof or an adjustment to the exercise or
conversion price thereof.
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Section 6.10 Rule 16b-3. Prior to the Closing Date, HIG shall
have obtained the approval of its board of directors required by Rule
16b-3(d)(1) under the Exchange Act with respect to the issuance of HIG Shares
pursuant to this Agreement.
Section 6.11 Capital Commitments. If required by applicable
insurance regulatory authorities, HIG shall commit to contribute additional
capital to the following VBI Insurance Subsidiaries in an amount not to exceed
the following: Pacific National Insurance Company, $5 million; State Capital
Insurance Company, $7 million; and LMI Insurance Company, $30 million.
Section 6.12 A.M. Best Communications. HIG shall send to VBI
copies of all written communications by HIG to A.M. Best, or received by HIG
from A.M. Best, with respect to the Merger and the upgrade in the rating of VBI
contemplated by Section 8.8.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF VBI
All obligations of VBI under this Agreement are subject to and
shall be conditional upon the satisfaction of each of the following conditions.
Section 7.1 No Material Adverse Change. There shall not have
been any change (except as set forth in the Disclosure Letter) in the
consolidated business, results of operations, financial condition or prospects
of HIG and the HIG Subsidiaries taken as a whole at any time between September
30, 1996 and the date of the Closing which would have a Material Adverse Effect
on HIG.
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Section 7.2 Consents. VBI shall have received consents or
waivers from such Persons as are necessary for VBI to consummate the
transactions contemplated by this Agreement.
Section 7.3 Opinion of HIG Counsel. At the Closing, VBI shall
have received from Weil, Gotshal & Manges LLP, counsel to HIG, a written opinion
reasonably satisfactory to VBI, dated as of the Closing Date, substantially to
the effect as set forth in Exhibit A hereto.
Section 7.4 Representations and Warranties; Obligation. The
representations and warranties of HIG contained in this Agreement shall have
been true and correct in all material respects at the date hereof and shall also
be true and correct in all material respects at and as of the Closing Date, with
the same force and effect as if made at and as of the Closing Date; HIG shall
have performed and complied in all material respects with all covenants,
obligations and agreements to be performed or complied with by it on or prior to
the Closing Date; and HIG shall have delivered to VBI a certificate, dated as of
the date of the Closing Date, of the chief executive officer of HIG to such
effect.
Section 7.5 Agreements. At the Closing, HIG and IP shall have
duly executed and delivered the Stockholders Agreement, attached as Exhibit B
hereto, the Registration Rights Agreement, attached as Exhibit C hereto, and the
Am-Re Registration Rights Agreement, attached as Exhibit D hereto.
Section 7.6 Securities Amendments. On or before the Closing,
HIG shall have obtained all of the Securities Amendments.
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ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HIG
All obligations of HIG under this Agreement are subject to and
shall be conditional upon the satisfaction of each of the following conditions.
Section 8.1 No Material Adverse Change. There shall not have
been any change (except as set forth in the Disclosure Letter) in the
consolidated business, results of operations, financial condition or prospects
of VBI and the VBI Subsidiaries taken as a whole at any time between September
30,1996 and the date of the Closing which would have a Material Adverse Effect
on VBI; provided, however, that the following shall not be deemed to have a
Material Adverse Effect on VBI: (i) the downgrade of VBI's A.M. Best rating to
B-, announced on January 21, 1997, (ii) any net costs to VBI in connection with
its current dispute with Cat. Limited, so long as such net costs do not
materially exceed $1.5 million, and (iii) the financial results of VBI as of
December 31, 1996 so long as such results are not materially worse than the
projected results at December 31, 1996, a copy of which have previously been
provided to HIG by VBI.
Section 8.2 Opinion of VBI Counsel. At the Closing, HIG shall
have received from Schnader, Harrison, Segal & Lewis, co-counsel to VBI, and,
with respect to matters of Indiana law, Johnson, Smith, Fence, Densborn, Wright
& Heath, written opinions reasonably satisfactory to HIG, dated as of the
Closing Date, substantially to the effect as set forth in Exhibit E hereto, and
from Stroock & Stroock & Lavan LLP, co-counsel to VBI, a written opinion
reasonably satisfactory to HIG, dated as of the Closing Date, substantially to
the effect as set forth in Exhibit F hereto.
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Section 8.3 Representations and Warranties; Obligations. The
representations and warranties of VBI contained in this Agreement shall have
been true and correct in all material respects at the date hereof and shall also
be true and correct in all material respects at and as of the Closing Date, with
the same force and effect as if made at and as of the Closing Date; VBI shall
have performed and complied in all material respects with all covenants,
obligations and agreements to be performed or complied with by it on or prior to
the Closing Date; and VBI shall have delivered to HIG a certificate, dated as of
the Closing Date, of the chief executive officer of VBI to such effect.
Section 8.4 Agreements. At the Closing, Erik Martin Vik, The
Scandinavia Company, Inc. and Manoeuvre Ltd. shall have duly executed and
delivered the Stockholders Agreement, attached as Exhibit B hereto, and,
together with AMV, the Registration Rights Agreement, attached as Exhibit C
hereto, and Am-Re shall have duly executed and delivered the Am-Re Registration
Rights Agreement, attached as Exhibit D hereto.
Section 8.5 Dividend Restrictions. On or before the Closing
Date, all insurance regulatory issues shall have been resolved to HIG's
satisfaction, including the termination or cancellation of any restriction on
the ability of VBI or any of VBI's Subsidiaries to pay dividends (except any
such limits imposed by state corporation and state insurance law and
regulations), provided, however, that HIG shall not be required to contribute
more than the following amounts of additional capital to the following Insurance
Subsidiaries of VBI in order to secure such termination or cancellation: Pacific
National Insurance Company, $5 million, State Capital Insurance Company, $7
million and LMI Insurance Company, $30 million; or, if HIG shall have failed to
secure such termination or
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cancellation, such failure shall not have prevented HIG from obtaining financing
for the Merger on terms which are reasonably acceptable to HIG.
Section 8.6 Reserves. VBI shall have increased the reserves
for loss and loss adjustment expenses (including IBNR and losses from
uncollectible reinsurance) set forth on the books and records of its Insurance
Subsidiaries by at least $17 million since September 30, 1996.
Section 8.7 New Business and Renewals. During the period from
February 1, 1997 through the Closing Date, (i) the retention rate of VBI's
Insurance Subsidiaries, taken as a whole, for eligible renewals shall be not
less than 75% and (ii) new business submissions for VBI's Insurance
Subsidiaries, taken as a whole, shall be not less than 60% of the new business
submissions for VBI's Insurance Subsidiaries, taken as a whole, for the
comparable period in 1996.
Section 8.8 A.M. Best Rating. A.M. Best shall have confirmed a
rating of B+ for VBI after the Merger based upon the plan, previously delivered
by VBI to HIG, presented to A.M. Best.
ARTICLE IX
GENERAL CONDITIONS PRECEDENT
All obligations of each of VBI and HIG under this Agreement
are subject to and shall be conditional upon the satisfaction of each of the
following conditions:
Section 9.1 Approvals. VBI and HIG and their respective
Subsidiaries shall have (a) complied with all regulatory requirements of the
applicable regulatory authorities as necessary or desirable to consummate the
transactions contemplated by this
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Agreement and (b) obtained the consents, waivers or approvals, satisfactory in
form and substance to HIG and VBI, as necessary or desirable under the terms of
material debt instruments, leases, warrants and other agreements and instruments
to consummate the transactions contemplated by this Agreement.
Section 9.2 Approvals by Stockholders. The Merger shall have
received the requisite approvals of the stockholders of VBI and ACQUISITION CORP
under the Corporation Laws.
Section 9.3 Waiting Period. The waiting period (including any
extensions thereof) applicable to the Merger under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 shall have been terminated or shall have
expired.
ARTICLE X
SURVIVAL OF
REPRESENTATIONS AND WARRANTIES
All representations and warranties of the parties under this
Agreement or in any exhibit, schedule, certificate or other document delivered
pursuant hereto, shall expire on the Closing Date and shall not survive the
Closing Date.
ARTICLE XI
TERMINATION
Section 11.1 Basis for Termination. Notwithstanding its
approval by the stockholders of VBI and ACQUISITION CORP, this Agreement may be
terminated and the Merger provided for herein abandoned, at any time prior to
the Effective Time, without the creation of any liability by reason of such act
of termination, as follows:
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(a) By mutual consent evidenced in writing pursuant to
authorization of the Board of Directors of VBI and the Board of Directors of
HIG.
(b) By the Board of Directors of VBI or the Board of Directors
of HIG if:
(i) any insurance regulatory authority in any state of the
United States having jurisdiction over VBI or HIG, or any of their respective
Insurance Subsidiaries, or any other governmental agency or authority shall in
any order respecting this Agreement or the Merger impose any term or condition
(A) which modifies this Agreement as a whole in any material respect or (B)
which will materially and adversely affect the benefits to VBI and its
stockholders, if the VBI Board wishes to terminate this Agreement, or to HIG and
its stockholders, if the HIG Board wishes to terminate this Agreement, of the
transactions contemplated by this Agreement and is therefore unacceptable to
such Board;
(ii) the Effective Time has not occurred on or before
April 30, 1997 or such later date as shall have been agreed to in writing by VBI
and HIG;
(iii) HIG or ACQUISITION CORP, on the one hand or, VBI, on
the other hand, (A) has failed to perform or comply with its obligations and
covenants under this Agreement in any material respect or (B) has made a
material misrepresentation or breach of warranty in its representations and
warranties set forth herein or in any certificate or schedule delivered pursuant
hereto; or
(iv) there shall be pending, at the Closing Date, any
action, proceeding or investigation pending before any court or governmental
agency or authority in the United States, or threatened by any governmental
agency or authority in the United
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States, other than any action, proceeding or investigation relating to complying
with any regulatory requirement of a regulatory authority referred to in Section
9.1(a) that presents a substantial risk of (A) restraining, enjoining or
prohibiting transactions contemplated hereby or (B) obtaining of substantial
damages or other relief materially adverse in connection therewith (for purposes
of this paragraph (iv), an action, proceeding or investigation may be deemed to
be "threatened", if there is a reasonable likelihood that the action, proceeding
or investigation will be instituted), or if the transactions contemplated hereby
have become inadvisable or impracticable by reason of any order, decree or
judgment of any court of competent jurisdiction restraining or prohibiting such
transactions or permitting such transactions to proceed on terms or subject to
conditions with respect to any significant operation of VBI or HIG or any of
their respective Subsidiaries after the Effective Time.
Section 11.2 Written Notice. In order to terminate this
Agreement pursuant to Section 11.1 hereof, the party or parties so acting shall
give written notice thereof to the other parties hereto, specifying the grounds
therefor.
Section 11.3 Effect of Termination. In the event of the
termination of this Agreement pursuant to the foregoing provisions of this
Article XI, the provisions of this Agreement shall become void and have no
effect, with no liability on the part of any party, its stockholders, directors
or officers in respect thereof; provided, however, that no such termination
shall relieve any party hereto from liability for its breach of this Agreement.
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ARTICLE XII
AMENDMENTS; WAIVER
Section 12.1 Amendments. This Agreement may, subject to
applicable law, be amended, before or after the meeting of or execution of
written consents by the stockholders of VBI and ACQUISITION CORP by written
agreement authorized by the Boards of Directors of HIG and VBI hereto.
Section 12.2 Waiver of Compliance. Any failure of VBI or HIG
to comply with any obligation, covenant or agreement and any condition herein
may be expressly waived by the party which is, or whose stockholders are,
entitled to the benefits thereof, to the extent permitted under applicable law,
in writing by its Chairman of the Board or President or, by written agreement
authorized by its Board of Directors. Such waiver or failure to insist upon
strict compliance with such obligation, covenant, agreement or condition shall
not operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
ARTICLE XIII
MISCELLANEOUS
Section 13.1 Entire Agreement. This Agreement, the exhibits,
schedules and other agreements referred to herein constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all other prior agreements and understandings, both written and oral,
between the parties or any of them with respect to the subject matter hereof.
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Section 13.2 Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be negotiable or assignable by
any of the parties hereto without the prior written consent of the other
parties.
Section 13.3 Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be deemed given
(i) upon delivery if delivered personally, (ii) upon receipt after mailing by
registered or certified mail (return receipt requested), or (iii) upon receipt
if sent by an overnight delivery service or sent by facsimile transmission (with
confirmation received) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
If to HIG or ACQUISITION CORP:
Highlands Insurance Group, Inc.
10370 Richmond Avenue
Houston, Texas 77042-4123
Attention: President
Telecopy No.: (713) 952-0240
with a copy to:
Weil, Gotshal & Manges LLP
700 Louisiana, Suite 1600
Houston, Texas 77002
Attention: Steven D. Rubin
Telecopy No.: (713) 224-9511
If to VBI:
Vik Brothers Insurance, Inc.
1000 Lenox Drive
Lawrenceville, New Jersey 08648-0426
Attention: Stephen J. Greenberg,
Executive Vice President and General Counsel
Telecopy No.: (609) 219-1774
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with a copy to:
Schnader, Harrison, Segal & Lewis
1600 Market Street
Suite 3600
Philadelphia, Pennsylvania 19103
Attention: Larry P. Laubach, Esquire
Telecopy No.: (215) 751-2205
Alexander M. Vik
Chairman and Chief Executive Officer
Vik Brothers Insurance, Inc. and subsidiaries
10 Ashton Drive
Greenwich, Connecticut 06831
Telecopy No: (203) 622-1610
Section 13.4 Governing Law; Jurisdiction. This Agreement shall
be governed by and construed in accordance with the laws of the State of
Delaware, regardless of the laws that might otherwise govern under applicable
principles of conflict of laws thereof. Each of the parties to the Agreement (i)
agrees to submit to personal jurisdiction and to waive any objection as to venue
in the state or federal courts in the county of New Castle of the State of
Delaware, (ii) agrees that any action or proceeding shall be brought exclusively
in such courts and (iii) agrees that service of process in any such action shall
be effective if sent to such party at the address listed in Section 13.3 hereof.
Section 13.5 Descriptive Headings. The descriptive headings
used 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.
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Section 13.6 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 agreement.
Section 13.7 Severability. Whenever possible, each provision
or portion of any provision of this Agreement will be interpreted in such manner
as to be effective and valid under applicable law but if any provision or
portion of any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or portion of any provision in such jurisdiction, and this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision or portion of any provision had
never been contained herein.
Section 13.8 Third Party Beneficiaries. This Agreement shall
be binding upon and inure solely to the benefit of each party hereto, and their
successors and assigns. There are no third party beneficiaries of or in this
Agreement or any of the terms or provisions hereof or any of the rights,
privileges, duties, liabilities or obligations created hereby.
Section 13.9 Construction. This Agreement is the result of
arms-length negotiations between the parties hereto and has been prepared
jointly by the parties. In applying and interpreting the provisions of this
Agreement, there shall be no presumption that the Agreement was prepared by any
one party or that the Agreement shall be construed in favor of or against any
one party.
Section 13.10 Publicity. So long as this Agreement is in
effect, no party shall issue or cause the publication of any press release or
other public announcement
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<PAGE>
with respect to the transactions contemplated by this Agreement without the
consent of the other parties, unless such announcement is required by the
provisions of applicable law or regulations or by any governmental entity have
jurisdiction over such party.
Section 13.11 Waiver of Jury Trial; Punitive Damages;
Prevailing Party's Fees and Expenses. HIG, ACQUISITION CORP and VBI each (a)
hereby waive all right to trial by jury in any action or proceeding to enforce
or defend any rights under this Agreement and (b) agree to waive any and all
rights to request or receive punitive damages in connection with any action or
proceeding related to the subject matter of this Agreement. The substantially
prevailing party in any action or proceeding relating to this Agreement shall be
entitled to receive an award of, and to recover from any non-prevailing party,
any fees or expenses incurred by him or it (including, without limitation, fees
and disbursements of such prevailing party's counsel) in connection with any
such action or proceeding.
Section 13.12 Violations. If VBI violates Section 6.1 of this
Agreement as a result of any action taken by either of the Vik Brothers or any
action taken by any other person at the express request or direction of either
of the Vik Brothers, whether or not such action was authorized by the Board of
Directors of VBI, VBI shall pay $5 million to HIG as damages. VBI agrees that
such damages are reasonable in light of the facts and circumstances surrounding
this transaction and the negotiations pertaining thereto and waives any right to
claim such amounts are not reasonable. The parties agree that any actions taken
by James Marino, Stephen Greenberg or Stephen Kibblehouse shall not be deemed
action taken at the express request or direction of either of the Vik Brothers.
If HIG becomes aware of any violation or alleged violation by VBI of this
Section 13.12, HIG
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<PAGE>
shall promptly notify VBI of such violation or alleged violation, provided that
any such notification will not derogate HIG's rights under this Section 13.12.
Notwithstanding the provisions of this Section 13.12, HIG shall have such other
rights and remedies as specified in this Agreement (including, without
limitation, the right to obtain specific performance, injunctive relief,
additional monetary damages or otherwise). This Section 13.12 shall survive any
termination of this Agreement.
Section 13.13 Break-Up Fee. If HIG and ACQUISITION CORP are
prepared to consummate the Merger in accordance with the terms of this Agreement
and VBI fails to perform its obligations under this Agreement, and within one
year of such failure to perform, VBI executes an agreement with respect to any
transaction described in items (i), (ii) or (iii) in the definition of
Acquisition Proposal in Section 6.1(a)(ii)(E) of this Agreement or issues a
public announcement of the type described in item (iv) in such definition, VBI
shall pay $5 million to HIG as a break-up fee. Notwithstanding the provisions of
this Section 13.13, HIG shall have such other rights and remedies as specified
in this Agreement or the Amended and Restated Support Agreement dated the date
hereof (including, without limitation, the right to obtain specific performance,
injunctive relief, additional monetary damages or otherwise). This Section 13.13
shall survive any termination of this Agreement.
ARTICLE XIV
SPECIAL CONDITIONS
Section 14.1 Bank Commitment. Within five (5) Business Days
after the date of this Agreement, HIG shall have obtained a letter of commitment
from a bank
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<PAGE>
reasonably acceptable to HIG, a copy of which shall have been delivered to VBI,
to provide HIG with a $65 million loan ("Credit Facility") on the Closing Date.
If HIG fails to obtain such letter within such five Business Day period, either
such party may terminate this Agreement.
Section 14.2 Security Holder Agreements. Within five (5)
Business Days after the date of this Agreement, VBI and HIG shall have obtained
agreements in form and substance reasonably satisfactory to both VBI and HIG
from each of the security holders of VBI consenting to this Agreement and the
Merger on the terms set forth herein. If VBI and HIG fail to obtain such
agreements within such five Business Day period, either such party may terminate
this Agreement.
Section 14.3 Armco Agreement. Within five (5) Business Days
after the date of this Agreement, VBI shall have obtained an agreement in form
and substance reasonably satisfactory to both VBI and HIG from Armco, a copy of
which shall have been delivered to HIG, providing that the amount of the Armco
Contingent Commission shall be reduced to not more than $8.5 million, payable in
cash on the Closing Date. If VBI fails to obtain such agreement within such five
Business Day period, either such party may terminate this Agreement.
Section 14.4 PMSC Agreement. Within five (5) Business Days
after the date of this Agreement, VBI shall have obtained an agreement in form
and substance reasonably satisfactory to both VBI and HIG from Policy Management
Systems Corporation ("PMSC"), a copy of which shall have been delivered to HIG,
pursuant to which PMSC shall have agreed to certain changes with respect to the
Master Agreement for Data Processing Services dated November 8, 1994 between VBI
and PMSC, as
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<PAGE>
amended (the "Master Agreement"), including without limitation the termination
as of the Closing Date of the personal guaranty of AMV with respect to the
Master Agreement. If VBI fails to obtain such agreement within such five
Business Day period, either party may terminate this Agreement.
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all of the day and year first above written.
HIGHLANDS INSURANCE GROUP, INC.
Attest
/s/ Michael A. Weberpal By: /s/ Richard Haverland
- ---------------------------- ----------------------------
Name: Richard Haverland
Title: Chairman and CEO
VIK BROTHERS INSURANCE, INC.
Attest
By: /s/ Gustav M. Vik
- ---------------------------- ----------------------------
Name: Gustav M. Vik
Title: President
HIGHLANDS ACQUISITION CORP.
Attest
/s/ Michael A. Weberpal By: /s/ Richard Haverland
- ---------------------------- ----------------------------
Name: Richard Haverland
Title: Chairman and CEO
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<PAGE>
AMENDMENT
NUMBER 1
TO
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
This Amendment Number 1 (the "Amendment") is entered into by
and among each of Highlands Insurance Group, Inc., a Delaware corporation
("HIG"), Highlands Acquisition Corp., a Delaware corporation ("Acquisition
Corp.") and Vik Brothers Insurance, Inc., an Indiana corporation ("VBI") with
respect to that certain Amended and Restated Agreement and Plan of Merger, dated
as of February 13, 1997, among HIG, Acquisition Corp. and VBI, as amended,
supplemented, extended or otherwise modified from time to time (the "Merger
Agreement").
RECITAL
Each of HIG, Acquisition Corp. and VBI, as a party to
the Merger Agreement, wishes, pursuant to Section 12.1 thereof,
to amend the Merger Agreement as set forth below.
Now therefore, in consideration of the foregoing and good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, each of HIG, Acquisition Corp. and VBI agrees as follows:
AGREEMENT
1. Defined Terms. Capitalized terms not otherwise defined herein shall have the
respective meanings specified for such terms in the Merger Agreement.
2. Amendments to Subsections (a), (b), (d) and (f) of Section 3.3 of the Merger
Agreement.
<PAGE>
2.1 Subsection (a) of Section 3.3 of the Merger Agreement is hereby
deleted and replaced in its entirety with the following new Subsection (a):
(a) At the Effective Time, the shares of Series One
Preferred Stock outstanding immediately prior to the Effective Time
shall by virtue of the Merger and without any action on the part of the
holders thereof be converted into the right to receive an aggregate of
122,654 HIG Shares, upon surrender of the certificates formerly
representing such shares of Series One Preferred Stock. From and after
the Effective Time, each holder of outstanding certificates
representing Series One Preferred Stock shall be entitled to receive in
exchange therefor a certificate representing the HIG Shares into which
such holder's Series One Preferred Stock was converted.
2.2 Subsection (b) of Section 3.3 of the Merger Agreement is hereby
deleted and replaced in its entirety with the following new Subsection (b):
(b) At the Effective Time, the shares of Series Two
Preferred Stock outstanding immediately prior to the Effective Time
shall by virtue of the Merger and without any action on the part of the
holders thereof be converted into the right to receive an aggregate of
122,654 HIG Shares, upon surrender of the certificates formerly
representing such shares of Series Two Preferred Stock. From and after
the Effective Time, each holder of outstanding certificates
representing Series Two Preferred Stock shall be entitled to receive in
exchange therefor a certificate representing the HIG Shares into which
such holder's Series Two Preferred Stock was converted.
2.3 Subsection (d) of Section 3.3 of the Merger Agreement is hereby
deleted and replaced in its entirety with the following new Subsection (d):
(d) At the Effective Time, the shares of Series Four
Preferred Stock and Series Five Preferred Stock outstanding immediately
prior to the Effective Time shall by
2
<PAGE>
virtue of the Merger and without any action on the part of the holders
thereof be converted into the right to receive an aggregate of 408,978
HIG Shares, upon surrender of the certificates formerly representing
such shares of Series Four Preferred Stock and Series Five Preferred
Stock. From and after the Effective Time, each holder of outstanding
certificates representing Series Four Preferred Stock or Series Five
Preferred Stock shall be entitled to receive in exchange therefor a
certificate representing the HIG Shares into which such holder's Series
Four Preferred Stock and Series Five Preferred Stock was converted.
2.4 Subsection (f) of Section 3.3 of the Merger Agreement is hereby
deleted and replaced in its entirety with the following new Subsection (f):
(f) At the Effective Time, the shares of Series Seven
Preferred Stock outstanding immediately prior to the Effective Time
shall by virtue of the Merger and without any action on the part of the
holders thereof be converted into the right to receive $4 million in
immediately available funds plus an aggregate of 427,321 HIG Shares,
upon surrender of the certificates formerly representing such shares of
Series Seven Preferred Stock. From and after the Effective Time, each
holder of outstanding certificates representing Series Seven Preferred
Stock shall be entitled to receive in exchange therefor a certificate
representing the HIG Shares into which any portion of such holder's
Series Seven Preferred Stock was converted.
3. Amendment of Article VII of the Merger Agreement.
3.1 Article VII of the Merger Agreement is hereby amended by adding,
immediately following Section 7.6, the following new Section 7.7.
Section 7.7 Release of PMSC Guaranty. On or before the
Closing, Policy Management Systems Corporation ("PMSC") shall have
delivered to VBI and AMV an agreement, effective as of the Closing
Date, terminating the personal guaranty of AMV with respect to the
Master Agreement for Data Processing
3
<PAGE>
Services dated November 8, 1994 between VBI and PMSC, as amended.
4. Amendments to Article XIV of the Merger Agreement.
4.1 Each of Sections 14.1, 14.3 and 14.4 of Article XIV of the Merger
Agreement is hereby deleted in its entirety.
4.2 Section 14.2 of the Merger Agreement is hereby deleted and replaced
in its entirety with the following new Section 14.1:
Section 14.1 Security Holder Agreements. By 5:00 p.m. New York
time on the Business Day twenty (20) Business Days after the date of
this Agreement, VBI and HIG shall have obtained agreements,
substantially in the forms attached hereto, from each of the following
security holders of VBI consenting to this Agreement and the Merger on
the terms set forth herein: (i) each holder of the Series One Preferred
Stock, (ii) each holder of the Series Two Preferred Stock, (iii) each
holder of the Series Four and Series Five Preferred Stock and (iv) each
holder of the Series Seven Preferred Stock. If VBI and HIG fail to
obtain such agreements within such twenty (20) Business Day period, HIG
may terminate this Agreement prior to the receipt of such agreements
from the foregoing security holders of VBI.
5. No Effect on Other Merger Agreement Provisions. All other provisions of the
Merger Agreement shall not be affected by this Amendment and shall remain in
full force and effect.
[SIGNATURES CONTAINED ON NEXT PAGE]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of March 10, 1997.
Highlands Insurance Group, Inc.
By: /s/ Charles J. Bachand
------------------------------------
Name: Charles J. Bachand
Title: Vice President and Treasurer
Vik Brothers Insurance, Inc.
By: /s/ Gustav M. Vik
------------------------------------
Name: Gustav M. Vik
Title: President
Highlands Acquisition Corp.
By: /s/ Charles J. Bachand
------------------------------------
Name: Charles J. Bachand
Title: Vice President and Treasurer
5
<PAGE>
CREDIT AGREEMENT
among
HIGHLANDS INSURANCE GROUP, INC.,
VARIOUS LENDING INSTITUTIONS,
and
THE CHASE MANHATTAN BANK,
as ADMINISTRATIVE AGENT
------------------------------------
Dated as of April 30, 1997
------------------------------------
$65,000,000
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. Amount and Terms of Credit.................................... 1
1.01 Commitments................................................ 1
1.02 Minimum Borrowing Amounts, etc............................. 2
1.03 Notice of Borrowing........................................ 2
1.04 Disbursement of Funds...................................... 2
1.05 Notes...................................................... 3
1.06 Conversions................................................ 3
1.07 Pro Rata Borrowings........................................ 4
1.08 Interest................................................... 4
1.09 Interest Periods........................................... 5
1.10 Increased Costs, Illegality, etc........................... 6
1.11 Compensation............................................... 8
1.12 Change of Lending Office................................... 9
1.13 Replacement of Banks....................................... 9
SECTION 2. Fees; Commitments............................................. 10
2.01 Fees....................................................... 10
2.02 Voluntary Reduction of Commitments......................... 10
2.03 Mandatory Adjustments of Commitments, etc.................. 10
SECTION 3. Payments...................................................... 12
3.01 Voluntary Prepayments...................................... 12
3.02 Mandatory Prepayments...................................... 12
3.03 Method and Place of Payment................................ 13
3.04 Net Payments............................................... 13
SECTION 4. Conditions Precedent.......................................... 15
4.01 Conditions Precedent to Effective Date..................... 15
4.02 Conditions Precedent to Loans.............................. 20
SECTION 5. Representations, Warranties and Agreements.................... 21
5.01 Corporate Status........................................... 21
5.02 Corporate Power and Authority.............................. 21
5.03 No Violation............................................... 21
(i)
<PAGE>
Page
5.04 Litigation................................................. 22
5.05 Use of Proceeds; Margin Regulations........................ 22
5.06 Governmental Approvals..................................... 22
5.07 True and Complete Disclosure............................... 23
5.08 Financial Condition; Financial Statements.................. 23
5.09 Security Interests......................................... 24
5.10 Representations and Warranties in Acquisition Documents.... 24
5.11 Tax Returns and Payments................................... 25
5.12 Compliance with ERISA...................................... 25
5.13 Subsidiaries............................................... 26
5.14 Intellectual Property, etc................................. 26
5.15 Compliance with Statutes................................... 27
5.16 Labor Relations; Collective Bargaining Agreements.......... 27
5.17 Acquisition................................................ 27
5.18 Properties................................................. 27
5.19 10% Convertible Subordinated Debentures.................... 27
SECTION 6. Affirmative Covenants......................................... 28
6.01 Information Covenants...................................... 28
6.02 Books, Records and Inspections............................. 33
6.03 Insurance.................................................. 33
6.04 Payment of Taxes........................................... 34
6.05 Corporate Franchises....................................... 34
6.06 Compliance with Statutes, etc.............................. 34
6.07 Good Repair................................................ 34
6.08 End of Fiscal Years; Fiscal Quarters....................... 34
6.09 Compliance with Environmental Laws......................... 35
6.10 Additional Security; Further Assurances.................... 35
6.11 Bermuda Opinion............................................ 36
SECTION 7. Negative Covenants............................................ 36
7.01 Changes in Business........................................ 36
7.02 Consolidation, Merger, Purchase or Sale of Assets, etc..... 37
7.03 Liens...................................................... 38
7.04 Indebtedness............................................... 40
7.05 Advances, Investments and Loans............................ 41
7.06 Prepayments of Indebtedness, Modifications of
Agreements, etc......................................... 43
7.07 Dividends, etc............................................. 44
7.08 Transactions with Affiliates............................... 46
7.09 Creation of Subsidiaries................................... 46
(ii)
<PAGE>
Page
7.10 Transactions with Highlands U.K............................ 46
7.11 Leverage Ratio............................................. 46
7.12 Interest Coverage Ratio.................................... 46
7.13 Minimum Statutory Surplus.................................. 47
7.14 Minimum Risk-Based Capital................................. 47
7.15 Operating Leverage Ratio................................... 47
7.16 Issuance of Stock.......................................... 47
7.17 Consolidated Capital Expenditures.......................... 47
SECTION 8. Events of Default............................................. 47
8.01 Payments................................................... 48
8.02 Representations, etc....................................... 48
8.03 Covenants.................................................. 48
8.04 Default Under Other Agreements............................. 48
8.05 Bankruptcy, etc............................................ 48
8.06 ERISA...................................................... 49
8.07 Security Documents......................................... 50
8.08 Judgments.................................................. 50
8.09 Reserve Adequacy........................................... 50
8.10 Ownership.................................................. 50
SECTION 9. Definitions................................................... 51
SECTION 10. The Administrative Agent..................................... 70
10.01 Appointment............................................... 70
10.02 Delegation of Duties...................................... 71
10.03 Exculpatory Provisions.................................... 71
10.04 Reliance by Administrative Agent.......................... 71
10.05 Notice of Default......................................... 72
10.06 Non-Reliance.............................................. 72
10.07 Indemnification........................................... 73
10.08 The Administrative Agent in its Individual Capacity....... 73
10.09 Successor Administrative Agent............................ 73
SECTION 11. Miscellaneous................................................ 74
11.01 Payment of Expenses, etc.................................. 74
11.02 Right of Setoff........................................... 74
11.03 Notices................................................... 75
11.04 Benefit of Agreement...................................... 75
11.05 No Waiver; Remedies Cumulative............................ 77
(iii)
<PAGE>
Page
11.06 Payments Pro Rata......................................... 77
11.07 Calculations; Computations................................ 77
11.08 GOVERNING LAW; SUBMISSION TO JURISDICTION;
VENUE................................................... 78
11.09 Counterparts.............................................. 79
11.10 Execution................................................. 79
11.11 Headings Descriptive...................................... 79
11.12 Amendment or Waiver....................................... 79
11.13 Survival.................................................. 80
11.14 Domicile of Loans......................................... 80
11.15 Confidentiality........................................... 80
11.16 Registry.................................................. 80
ANNEX I -- Commitments
ANNEX II -- Bank Addresses
ANNEX III -- Schedule of Subsidiaries
ANNEX IV -- Litigation
ANNEX V -- Certain Indebtedness
ANNEX VI -- Existing Advances, Loans, Investments and Related
Commitments
ANNEX VII -- Government Approvals
ANNEX VIII -- ERISA Matters
ANNEX IX -- Existing Liens
ANNEX X -- Convertible Subordinated Debt Changes
ANNEX XI -- Material Agreements
ANNEX XII -- Tax Matters
EXHIBIT A -- Form of Notice of Borrowing
EXHIBIT B -- Form of Note
EXHIBIT C-1 -- Form of Opinion of Counsel for Borrower
EXHIBIT C-2 -- Form of Opinion of Counsel to NNHC
EXHIBIT C-3 -- Form of Opinion of Special Indiana Counsel to VIK
EXHIBIT C-4 -- Form of Opinion of Counsel to VIK
EXHIBIT C-5 -- Form of Opinion of White & Case,
Special Counsel to the Banks
EXHIBIT D -- Form of Officers' Certificate
EXHIBIT E -- Form of Guaranty
EXHIBIT F -- Form of Pledge Agreement
(iv)
<PAGE>
EXHIBIT G -- Form of Assignment Agreement
(v)
<PAGE>
CREDIT AGREEMENT, dated as of April 30, 1997, among HIGHLANDS
INSURANCE GROUP, INC. (the "Borrower"), a Delaware corporation, the lending
institutions listed from time to time on Annex I hereto (each a "Bank" and,
collectively, the "Banks") and THE CHASE MANHATTAN BANK, as Administrative
Agent. Unless otherwise defined herein, all capitalized terms used herein and
defined in Section 9 are used herein as so defined.
W I T N E S S E T H :
WHEREAS, subject to and upon the terms and conditions set
forth herein, the Banks are willing to make available to the Borrower the credit
facilities provided for herein;
NOW, THEREFORE, IT IS AGREED:
SECTION 1. Amount and Terms of Credit.
1.011 Commitments. Subject to and upon the terms and
conditions herein set forth, each Bank severally agrees to make a revolving loan
or revolving loans (each a "Loan" and, collectively, the "Loans") to the
Borrower, which Loans:
(i) shall be made at any time and from time to time on
and after the Effective Date and prior to the Maturity Date;
(ii) except as provided in Section 1.10, may, at the option of
the Borrower, be incurred and maintained as and/or converted into Base
Rate Loans or Eurodollar Loans, provided, that (x) Loans may not be
incurred as Eurodollar Loans prior to the Syndication Date and (y) all
Loans made as part of the same Borrowing shall, unless otherwise
specifically provided herein, consist of Loans of the same Type;
(iii) may be repaid and reborrowed in accordance with the
provisions hereof; and
(iv) shall not exceed for any Bank at any time outstanding
that aggregate principal amount which equals the Commitment of such
Bank at such time.
<PAGE>
1.012 Minimum Borrowing Amounts, etc. The aggregate principal
amount of each Borrowing shall not be less than the Minimum Borrowing Amount.
More than one Borrowing may be incurred on any day, provided that at no time
shall there be outstanding more than five Borrowings of Eurodollar Loans.
1.013 Notice of Borrowing. (a) When the Borrower desires to
incur Loans hereunder, it shall give the Administrative Agent at its Notice
Office, prior to 12:00 Noon (New York time) at least three Business Days' prior
written notice (or telephonic notice promptly confirmed in writing) of each
incurrence of Eurodollar Loans and at least one Business Day's prior written
notice (or telephonic notice promptly confirmed in writing) of each incurrence
of Base Rate Loans. Each such notice (each, a "Notice of Borrowing") shall, to
the extent a written notice or a written confirmation of a telephonic notice, be
in the form of Exhibit A, shall be irrevocable and shall specify: (i) the
aggregate principal amount of the Loans to be so incurred, (ii) the date of
incurrence (which shall be a Business Day) and (iii) whether the Loans to be
incurred shall consist of Base Rate Loans or (to the extent permitted)
Eurodollar Loans and, if Eurodollar Loans, the Interest Period to be initially
applicable thereto. The Administrative Agent shall promptly give each Bank
written notice (or telephonic notice promptly confirmed in writing) of each
proposed incurrence, of such Bank's participation therein and of the other
matters covered by the Notice of Borrowing.
(b) Without in any way limiting the obligation of the Borrower
to confirm in writing any telephonic notice permitted to be given hereunder, the
Administrative Agent may act prior to receipt of written confirmation without
liability upon the basis of such telephonic notice believed by the
Administrative Agent in good faith to be from an Authorized Officer of the
Borrower entitled to give telephonic notices under this Agreement on behalf of
the Borrower. In each such case, the Administrative Agent's record of the terms
of such telephonic notice shall be conclusive absent manifest error.
1.014 Disbursement of Funds. (a) No later than 1:00 P.M. (New
York time) on the date specified in each Notice of Borrowing, each Bank
hereunder will make available to the Administrative Agent its pro rata share of
each Borrowing requested to be made on such date in the manner provided below.
All amounts shall be made available to the Administrative Agent in U.S. dollars
and immediately available funds at the Payment Office and the Administrative
Agent promptly will make available to the Borrower by depositing to its account
at the Payment Office the aggregate of the amounts so made available in the type
of funds received. Unless the Administrative Agent shall have been notified by
any Bank prior to the date of the Borrowing that such Bank does not intend to
make available to the Administrative Agent its portion of the Borrowing or
Borrowings to be made on such date, the Administrative Agent may assume that
such Bank has made such amount available to the Administrative Agent on such
date, and the Administrative Agent, in reliance upon such assumption, may (in
its sole discretion and without any obligation to
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<PAGE>
do so) make available to the Borrower a corresponding amount. If such
corresponding amount is not in fact made available to the Administrative Agent
by such Bank and the Administrative Agent has made available same to the
Borrower, the Administrative Agent shall be entitled to recover such
corresponding amount from such Bank. If such Bank does not pay such
corresponding amount forthwith upon the Administrative Agent's demand therefor,
the Administrative Agent shall promptly notify the Borrower, and the Borrower
shall immediately pay such corresponding amount to the Administrative Agent. The
Administrative Agent shall also be entitled to recover from such Bank or the
Borrower, as the case may be, interest on such corresponding amount in respect
of each day from the date such corresponding amount was made available by the
Administrative Agent to the Borrower to the date such corresponding amount is
recovered by the Administrative Agent, at a rate per annum equal to (x) if paid
by such Bank, the overnight Federal Funds Effective Rate or (y) if paid by the
Borrower, the then applicable rate of interest, calculated in accordance with
Section 1.08, for the respective Loans.
(b) Nothing herein shall be deemed to relieve any Bank from
its obligation to fulfill its commitments hereunder or to prejudice any rights
which the Borrower may have against any Bank as a result of any default by such
Bank hereunder.
1.015 Notes. (a) The Borrower's obligation to pay the
principal of, and interest on, the Loans made to it by each Bank shall be
evidenced by a promissory note substantially in the form of Exhibit B with
blanks appropriately completed in conformity herewith (each a "Note" and,
collectively, the "Notes").
(b) The Note issued to a Bank shall: (i) be executed by the
Borrower; (ii) be payable to the order of such Bank and be dated the Effective
Date; (iii) be in a stated principal amount equal to the Commitment of such Bank
and be payable in the principal amount of Loans evidenced thereby; (iv) mature
on the Maturity Date; (v) bear interest as provided in the appropriate clause of
Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case
may be, evidenced thereby; (vi) be subject to voluntary prepayment as provided
in Section 3.01 and mandatory repayment as provided in Section 3.02; and (vii)
be entitled to the benefits of this Agreement and the other Credit Documents.
(c) Each Bank will note on its internal records the amount of
each Loan made by it and each payment in respect thereof and will, prior to any
transfer of its Note, endorse on the reverse side thereof the outstanding
principal amount of Loans evidenced thereby. Failure to make any such notation
or any error in any such notation shall not affect the Borrower's obligations in
respect of such Loans.
1.016 Conversions. The Borrower shall have the option to
convert on any Business Day occurring after the Syndication Date all or a
portion at least equal to the
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<PAGE>
applicable Minimum Borrowing Amount of the outstanding principal amount of the
Loans of one Type into a Borrowing of the other Type of Loan provided that (i)
no partial conversion of a Borrowing of Eurodollar Loans shall reduce the
outstanding principal amount of the Eurodollar Loans made pursuant to such
Borrowing to less than the Minimum Borrowing Amount applicable thereto, (ii)
Base Rate Loans may only be converted into Eurodollar Loans if no Default under
Section 8.01 or Event of Default is in existence on the date of the conversion
and (iii) Borrowings of Eurodollar Loans resulting from this Section 1.06 shall
be limited in numbers as provided in Section 1.02. Each such conversion shall be
effected by the Borrower giving the Administrative Agent at its Notice Office,
prior to 12:00 Noon (New York time), at least three Business Days' (or one
Business Day's, in the case of a conversion into Base Rate Loans) prior written
notice (or telephonic notice promptly confirmed in writing) (each a "Notice of
Conversion") specifying the Loans to be so converted, the Type of Loans to be
converted into and, if to be converted into a Borrowing of Eurodollar Loans, the
Interest Period to be initially applicable thereto. The Administrative Agent
shall give each Bank prompt notice of any such proposed conversion affecting any
of its Loans.
1.017 Pro Rata Borrowings. Loans shall be made by the Banks on
the basis of their respective Commitments. It is understood that no Bank shall
be responsible for any default by any other Bank in its obligation to make Loans
hereunder and that each Bank shall be obligated to make the Loans provided to be
made by it hereunder, regardless of the failure of any other Bank to fulfill its
commitments hereunder.
1.018 Interest. (a) The unpaid principal amount of each Base
Rate Loan shall bear interest from the date of the Borrowing thereof until
maturity (whether by acceleration or otherwise) at a rate per annum which shall
at all times be the Applicable Percentage then in effect for Base Rate Loans
plus the Base Rate in effect from time to time.
(b) The unpaid principal amount of each Eurodollar Loan shall
bear interest from the date of the Borrowing thereof until maturity (whether by
acceleration or otherwise) at a rate per annum which shall at all times be the
Applicable Percentage then in effect for Eurodollar Loans plus the relevant
Eurodollar Rate.
(c) All overdue principal and, to the extent permitted by law,
overdue interest in respect of each Loan and any other overdue amount payable
hereunder shall bear interest at a rate per annum equal to the greater of (x)
the Base Rate in effect from time to time plus the sum of (i) 2% and (ii) the
Applicable Percentage then in effect for Base Rate Loans and (y) the rate which
is 2% in excess of the rate then borne by such Loan.
(d) Interest shall accrue from and including the date of any
Borrowing to but excluding the date of any repayment thereof and shall be
payable (i) in respect of each Base Rate Loan, quarterly in arrears on the last
Business Day of each calendar quarter, (ii) in
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respect of each Eurodollar Loan, (x) the last day of each Interest Period
applicable thereto and (y) in respect of each Eurodollar Loan with an Interest
Period of six months, on the date three months after the first day of such
period and (iii) in respect of each Loan, on any prepayment or conversion (on
the amount prepaid or converted), at maturity (whether by acceleration or
otherwise) and, after such maturity, on demand.
(e) All computations of interest hereunder shall be made in
accordance with Section 11.07(b).
(f) The Administrative Agent, upon determining the interest
rate for any Borrowing of Eurodollar Loans for any Interest Period, shall
promptly notify in writing the Borrower and the Banks thereof.
1.019 Interest Periods. (a) At the time the Borrower gives a
Notice of Borrowing or Notice of Conversion in respect of the making of or
conversion into a Borrowing of Eurodollar Loans (in the case of the initial
Interest Period applicable thereto) or prior to 12:00 Noon (New York time) on
the third Business Day prior to the expiration of an Interest Period applicable
to a Borrowing of Eurodollar Loans, it shall have the right to elect by giving
the Administrative Agent written notice (or telephonic notice promptly confirmed
in writing) of the Interest Period applicable to such Borrowing, which Interest
Period shall, at the option of the Borrower, be a one, two, three or six month
period. Notwithstanding anything to the contrary contained above:
(i) the initial Interest Period for any Borrowing of
Eurodollar Loans shall commence on the date of such Borrowing
(including the date of any conversion from a Borrowing of Base Rate
Loans) and each Interest Period occurring thereafter in respect of such
Borrowing shall commence on the day on which the next preceding
Interest Period expires;
(ii) if any Interest Period begins on a day for which there is
no numerically corresponding day in the calendar month at the end of
such Interest Period, such Interest Period shall end on the last
Business Day of such calendar month;
(iii) if any Interest Period would otherwise expire on a day
which is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day, provided that if any Interest Period
would otherwise expire on a day which is not a Business Day but is a
day of the month after which no further Business Day occurs in such
month, such Interest Period shall expire on the next preceding Business
Day;
(iv) no Interest Period may extend beyond the Maturity Date;
and
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(v) no Interest Period may be elected at any time when a
Default under Section 8.01 or an Event of Default is then in existence.
(b) If upon the expiration of any Interest Period, the
Borrower has failed to (or may not) elect a new Interest Period to be applicable
to the respective Borrowing of Eurodollar Loans as provided above, the Borrower
shall be deemed to have elected to convert such Borrowing into a Borrowing of
Base Rate Loans effective as of the expiration date of such current Interest
Period.
1.10 Increased Costs, Illegality, etc. (a) In the event that (x) in the case of
clause (i) below, the Administrative Agent or (y) in the case of clauses (ii)
and (iii) below, any Bank shall have determined on a reasonable basis (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto):
(i) on any date for determining the Eurodollar Rate for any
Interest Period, that, by reason of any changes arising after the
Effective Date affecting the interbank Eurodollar market, adequate and
fair means do not exist for ascertaining the applicable interest rate
on the basis provided for in the definition of Eurodollar Rate; or
(ii) at any time, that such Bank shall incur increased costs or
reductions in the amounts received or receivable hereunder in an amount
which such Bank deems material with respect to any Eurodollar Loans
(other than any increased cost or reduction in the amount received or
receivable resulting from the imposition of or a change in the rate of
taxes or similar charges) because of (x) any change since the Effective
Date in any applicable law, governmental rule, regulation, guideline,
order or request (whether or not having the force of law), or in the
interpretation or administration thereof and including the introduction
of any new law or governmental rule, regulation, guideline, order or
request (such as, for example, but not limited to, a change in official
reserve requirements) and/or (y) other circumstances adversely
affecting the interbank Eurodollar market; or
(iii) at any time, that the making or continuance of any
Eurodollar Loan has become unlawful by compliance by such Bank in good
faith with any change since the Effective Date in any law, governmental
rule, regulation, guideline or order, or the interpretation or
application thereof, or would conflict with any thereof not having the
force of law but with which such Bank customarily complies, or has
become impracticable as a result of a contingency occurring after the
Effective Date which materially adversely affects the interbank
Eurodollar market;
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then, and in any such event, such Bank (or the Administrative Agent in the case
of clause (i) above) shall (x) on such date and (y) within 10 Business Days of
the date on which such event no longer exists give notice (by telephone
confirmed in writing) to the Borrower and to the Administrative Agent of such
determination (which notice shall describe in reasonable detail (a) the
circumstances giving rise to such event and (b) the computation of any resulting
increased costs and shall be promptly transmitted by the Administrative Agent to
each of the other Banks). Thereafter (x) in the case of clause (i) above,
Eurodollar Loans shall no longer be available until such time as the
Administrative Agent notifies the Borrower and the Banks that the circumstances
giving rise to such notice by the Administrative Agent no longer exist, and any
Notice of Borrowing or Notice of Conversion given by the Borrower with respect
to Eurodollar Loans which have not yet been incurred shall be deemed rescinded
by the Borrower or, in the case of a Notice of Borrowing, shall, at the option
of the Borrower, be deemed converted into a Notice of Borrowing for Base Rate
Loans to be made on the date of Borrowing contained in such Notice of Borrowing,
(y) in the case of clause (ii) above, the Borrower shall pay to such Bank, upon
written demand therefor, such additional amounts (in the form of an increased
rate of, or a different method of calculating, interest or otherwise as such
Bank shall determine) as shall be required to compensate such Bank for such
increased costs or reductions in amounts receivable hereunder (a written notice
as to the additional amounts owed to such Bank, showing the basis for the
calculation thereof, which basis must be reasonable, submitted to the Borrower
by such Bank shall, absent manifest error, be final and conclusive and binding
upon all parties hereto) and (z) in the case of clause (iii) above, the Borrower
shall take one of the actions specified in Section 1.10(b) as promptly as
possible and, in any event, within the time period required by law.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may (and
in the case of a Eurodollar Loan affected pursuant to Section 1.10(a)(iii) the
Borrower shall) either (i) if the affected Eurodollar Loan is then being made
pursuant to a Borrowing, by giving the Administrative Agent telephonic notice
(confirmed promptly in writing) thereof on the same date that the Borrower was
notified by a Bank pursuant to Section 1.10(a)(ii) or (iii), cancel said
Borrowing, convert the related Notice of Borrowing into one requesting a
Borrowing of Base Rate Loans or require the affected Bank to make its requested
Loan as a Base Rate Loan, or (ii) if the affected Eurodollar Loan is then
outstanding, upon at least one Business Day's notice to the Administrative
Agent, require the affected Bank to convert each such affected Eurodollar Loan
into a Base Rate Loan, provided that if more than one Bank is affected at any
time, then all affected Banks must be treated the same pursuant to this Section
1.10(b).
(c) If any Bank shall have determined that after the Effective
Date the adoption or effectiveness of any applicable law, rule or regulation
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged by law with the interpretation or
administration thereof, or compliance by such Bank or its parent corporation
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with any request or directive regarding capital adequacy (whether or not having
the force of law) of any such governmental authority, central bank or comparable
agency, in each case made subsequent to the Effective Date, has or would have
the effect of reducing by an amount reasonably deemed by such Bank to be
material the rate of return on such Bank's or its parent corporation's capital
or assets as a consequence of such Bank's commitments or obligations hereunder
to a level below that which such Bank or its parent corporation could have
achieved but for such adoption, effectiveness, change or compliance (taking into
consideration such Bank's or its parent corporation's policies with respect to
capital adequacy), then from time to time, within 15 days after demand by such
Bank (with a copy to the Administrative Agent), the Borrower shall pay to such
Bank such additional amount or amounts as will compensate such Bank or its
parent corporation for such reduction. Each Bank, upon determining in good faith
that any additional amounts will be payable pursuant to this Section 1.10(c),
will give prompt written notice thereof to the Borrower, which notice shall set
forth the basis of the calculation of such additional amounts, which basis must
be reasonable, although the failure to give any such notice shall not release or
diminish any of the Borrower's obligations to pay additional amounts pursuant to
this Section 1.10(c) upon the subsequent receipt of such notice. No Bank shall
demand compensation for any reduction referred to in this Section 1.10(c) if it
shall not at the time be the general policy or practice of such Bank to demand
such compensation in similar circumstances under comparable provisions of other
credit agreements.
(d) Notwithstanding anything in this Agreement to the
contrary, to the extent any notice required by this Section 1.10 is given by any
Bank more than 120 days after such Bank obtained, or reasonably should have
obtained, knowledge of the occurrence of the event giving rise to the additional
costs of the type described in this Section 1.10, such Bank shall not be
entitled to compensation under this Section 1.10 for any amounts incurred or
accruing more than 120 days prior to such notice to the Borrower.
1.11 Compensation. The Borrower shall compensate each Bank,
within five Business Days of the receipt of a written request (which request
shall set forth in reasonable detail the basis for requesting and the method of
calculating such compensation), for all reasonable losses, expenses and
liabilities (including, without limitation, any loss, expense or liability
incurred by reason of the liquidation or reemployment of deposits or other funds
required by such Bank to fund its Eurodollar Loans) which such Bank may sustain:
(i) if for any reason (other than a default by such Bank or the Administrative
Agent) a Borrowing of Eurodollar Loans does not occur on a date specified
therefor in a Notice of Borrowing or Notice of Conversion (whether or not
withdrawn by the Borrower or deemed withdrawn pursuant to Section 1.10(a)); (ii)
if any repayment or conversion of any of its Eurodollar Loans occurs on a date
which is not the last day of an Interest Period applicable thereto; (iii) if any
prepayment of any of its Eurodollar Loans is not made on any date specified in a
notice of prepayment given by the Borrower; or (iv) as a consequence of (x) any
other default
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by the Borrower to repay its Eurodollar Loans when required by the terms of this
Agreement or (y) an election made pursuant to Section 1.10(b).
1.12 Change of Lending Office. Each Bank agrees that, upon the
occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or
(iii), 1.10(c) or 3.04 with respect to such Bank, it will, if requested by the
Borrower, use reasonable efforts (subject to overall policy considerations of
such Bank) to designate another lending office for any Loans or Commitments
affected by such event, provided that such designation is made on such terms
that such Bank and its lending office suffer no economic, legal or regulatory
disadvantage, with the object of avoiding the consequence of the event giving
rise to the operation of any such Section. Nothing in this Section 1.12 shall
affect or postpone any of the obligations of the Borrower or the right of any
Bank provided in Section 1.10 or 3.04.
1.13 Replacement of Banks. If (x) the Borrower receives notice
from any Bank requesting increased costs or additional amounts under Section
1.10 or 3.04 or (y) a Bank does not consent to any proposed change, waiver,
discharge or termination with respect to this Agreement which has been approved
by the Required Banks (whether or not such change, waiver, discharge or
termination has become effective), the Borrower shall have the right, unless in
the case of clause (x) such Bank has removed or cured the conditions which
resulted in the obligation to pay such increased costs or additional amounts or
agreed to waive and otherwise forego any right it may have to any payments
provided for under Sections 1.10 and 3.04 in respect of such conditions, to
replace in its entirety such Bank (the "Replaced Bank") and each Bank that may
constitute a Replaced Bank agrees to be so replaced, upon prior written notice
to the Administrative Agent and such Replaced Bank, with one or more other
Eligible Transferee or Transferees (collectively, the "Replacement Bank")
respectively acceptable to the Administrative Agent (which acceptance shall not
be unreasonably withheld or delayed), provided that at the time of any
replacement pursuant to this Section 1.13, no Event of Default exists and the
Replaced Bank and the Replacement Bank shall enter into one or more Assignment
Agreements pursuant to which (i) the Replacement Bank shall acquire all of the
Commitments and Loans of the Replaced Bank and, in connection therewith, shall
pay to the Replaced Bank in respect thereof an amount equal to the principal of,
and all accrued but unpaid interest on, all outstanding Loans of the Replaced
Bank and all accrued but unpaid Commitment Fees owing the Replaced Bank and (ii)
the Borrower shall pay to the Replaced Bank any other amounts payable to the
Replaced Bank under this Agreement (including, without limitation, amounts
payable under Section 1.10 and/or 1.11) which accrued prior to the effective
date of such assignment. Upon the execution of the respective assignment
documentation, the payment of amounts referred to in the preceding sentence and,
if so requested by the Replacement Bank, delivery to the Replacement Bank of a
Note executed by the Borrower, the Replacement Bank shall become a Bank
hereunder and the Replaced Bank shall cease to constitute a Bank hereunder,
except with respect to indemnification provisions under this Agreement, which
shall survive as to such Replaced Bank.
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SECTION 2. Fees; Commitments.
2.01 Fees. (a) The Borrower agrees to pay to the
Administrative Agent for distribution to each Non-Defaulting Bank a commitment
fee (the "Commitment Fee") for the period from the Effective Date to but not
including the date the Total Commitment has been terminated, computed for each
day at a rate equal to the CF Percentage for such day multiplied by the then
unutilized Commitment of such Bank. Accrued Commitment Fees shall be due and
payable quarterly in arrears on the last Business Day of March, June, September
and December and the date upon which the Total Commitment is terminated.
(b) The Borrower shall pay to the Administrative Agent, for
its own account, such fees as have been agreed to in writing by the Borrower and
the Administrative Agent and such other fees and expenses as may be agreed to
from time to time between the Borrower and the Administrative Agent, when and as
due.
(c) All computations of Fees shall be made in accordance with
Section 11.07(b).
2.02 Voluntary Reduction of Commitments. Upon at least two
Business Days' prior written notice (or telephonic notice promptly confirmed in
writing) to the Administrative Agent at its Notice Office (which notice the
Administrative Agent shall promptly transmit to each of the Banks), the Borrower
shall have the right, without premium or penalty, to terminate or partially
reduce the unutilized Total Commitment; provided, that (x) any such termination
or partial reduction shall apply to proportionately and permanently reduce the
Commitment of each of the Banks and (y) any partial reduction pursuant to this
Section 2.02 shall be in the amount of at least $1,000,000.
2.03 Mandatory Adjustments of Commitments, etc. (a) The Total
Commitment (and the Commitment of each Bank) shall be terminated on June 30,
1997 unless the initial incurrence of Loans shall have been made on or prior to
such date.
(b) The Total Commitment shall be terminated on the Maturity
Date.
(c) On the third Business Day following the date of receipt
thereof by the Borrower and/or any of its Subsidiaries of the Cash Proceeds from
any Asset Sale, the Total Commitment shall be permanently reduced by an amount
equal to 100% of the Net Cash Proceeds then received from such Asset Sale
provided that if any such Asset Sale has been consummated by a Regulated
Insurance Company and such Regulated Insurance Company may not dividend the Net
Cash Proceeds thereof to VIK and/or the Borrower without first obtaining
specific regulatory approval for the payment of extraordinary dividends, then
(to the extent a written application or request for such approval has been made
and the foregoing
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is certified in writing to the Administrative Agent by the Borrower) such Total
Commitment reduction will not be required to be made until the third Business
Day following the obtaining of such specific regulatory approval (or if earlier,
the date such Regulated Insurance Company is first permitted to make dividends
under applicable law without such specific regulatory approval in an aggregate
amount equal to such Net Cash Proceeds), the Borrower hereby agreeing to cause
each such Regulated Insurance Company to make all reasonable efforts to obtain
such specific regulatory approval as promptly as possible.
(d) On the third Business Day following the date of receipt
thereof by the Borrower and/or any of its Subsidiaries of the cash proceeds from
any material reinsurance transactions outside the ordinary course of business,
the Total Commitment shall be permanently reduced by an amount equal to 100% of
the Surplus Increase resulting therefrom provided that if any such material
reinsurance transaction has been consummated by a Regulated Insurance Company
and such Regulated Insurance Company may not dividend the net cash proceeds
thereof to VIK and/or the Borrower without first obtaining specific regulatory
approval for the payment of extraordinary dividends, then (to the extent a
written application or request for such approval has been made and the foregoing
is certified in writing to the Administrative Agent by the Borrower) such Total
Commitment reduction will not be required to be made until the Business Day
following the obtaining of such specific regulatory approval (or if earlier, the
date such Regulated Insurance Company is first permitted to make dividends under
applicable law without such specific regulatory approval in an aggregate amount
equal to such net cash proceeds), the Borrower hereby agreeing to cause each
such Regulated Insurance Company to make all reasonable efforts to obtain such
specific regulatory approval as promptly as possible.
(e) On the third Business Day following the date of the
receipt thereof by the Borrower and/or any of its Subsidiaries, the Total
Commitment shall be permanently reduced by an amount equal to 100% of the cash
proceeds (net of underwriting discounts and commissions and other customary fees
and costs associated therewith) from (x) any sale or issuance of equity by the
Borrower or any of its Subsidiaries (other than any issuance of common stock by
the Borrower to the extent (i) issued in connection with the cash exercise of
stock options or Management Securities issued to the employees or directors of
the Borrower or its Subsidiaries, (ii) issued to make incentive payments under
employment contracts or (iii) issued to fund the redemption of Existing
Preferred Stock) or (y) the incurrence of indebtedness for borrowed money by the
Borrower or any of its Subsidiaries (except to the extent permitted by Section
7.04 (other than clause (g) thereof) as in effect on the Effective Date).
(f) Each partial reduction of the Total Commitments pursuant
to this Section 2.03 shall apply proportionately to reduce the Commitment of
each Bank.
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SECTION 3. Payments.
3.01 Voluntary Prepayments. The Borrower shall have the right
to prepay Loans, in whole or in part, without premium or penalty, from time to
time on the following terms and conditions: (i) the Borrower shall give the
Administrative Agent at the Payment Office written notice (or telephonic notice
promptly confirmed in writing) of its intent to prepay the Loans, the amount of
such prepayment and (in the case of Eurodollar Loans) the specific Borrowing(s)
pursuant to which made, which notice shall be received by the Administrative
Agent by 12:00 Noon (New York time) two Business Days prior to the date of such
prepayment (and which notice shall promptly be transmitted by the Administrative
Agent to each of the Banks); (ii) each partial prepayment of any Borrowing shall
be in an aggregate principal amount of at least $5,000,000 provided that no
partial prepayment of Eurodollar Loans made pursuant to a Borrowing shall reduce
the aggregate principal amount of the Loans outstanding pursuant to such
Borrowing to an amount less than the Minimum Borrowing Amount applicable
thereto; and (iii) each prepayment in respect of any Loans made pursuant to a
Borrowing shall be applied pro rata among such Loans (provided that at the
Borrower's election, no portion of any such prepayment shall be required to be
applied to Loans of Defaulting Banks).
3.02 Mandatory Prepayments.
(A) Requirements:
(a) If on any date the sum of the aggregate outstanding
principal amount of all Loans of all Non-Defaulting Banks exceeds the Adjusted
Total Commitment as then in effect, the Borrower shall repay on such date the
principal of Loans in an aggregate amount equal to such excess.
(b) If on any date the aggregate outstanding principal amount
of all Loans of a Defaulting Bank exceeds its Commitment as then in effect, the
Borrower shall repay on such date the principal of such Loans in an aggregate
amount equal to such excess.
(B) Application: With respect to each prepayment of Loans
required by this Section 3.02, the Borrower may designate the Types of Loans
which are to be prepaid and the specific Borrowing(s) pursuant to which made;
provided, that (i) if any prepayment of Eurodollar Loans made pursuant to a
single Borrowing shall reduce the outstanding Loans made pursuant to such
Borrowing to an amount less than the Minimum Borrowing Amount, such Borrowing
shall be immediately converted into Base Rate Loans and (ii) each prepayment of
any Loans made pursuant to a Borrowing shall be applied pro rata among such
Loans, provided that no prepayment pursuant to Section 3.02(A) (a) shall be
applied to any Loans of a Defaulting Bank. In the absence of a designation by
the Borrower as described in the preceding sentence, the Administrative Agent
shall, subject to the above, make such
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designation in its sole discretion with a view, but no obligation, to minimize
breakage costs owing under Section 1.11.
3.03 Method and Place of Payment. Except as otherwise
specifically provided herein, all payments under this Agreement shall be made
to the Administrative Agent for the ratable (based on its pro rata share)
account of the Banks entitled thereto, not later than 1:00 P.M. (New York time)
on the date when due and shall be made in immediately available funds and in
lawful money of the United States of America at the Payment Office, it being
understood that written notice by the Borrower to the Administrative Agent to
make a payment from the funds in the Borrower's account at the Payment Office
shall constitute the making of such payment to the extent of such funds held in
such account. Any payments under this Agreement which are made later than 1:00
P.M. (New York time) shall be deemed to have been made on the next succeeding
Business Day. Whenever any payment to be made hereunder shall be stated to be
due on a day which is not a Business Day, the due date thereof shall be extended
to the next succeeding Business Day and, with respect to payments of principal,
interest shall be payable during such extension at the applicable rate in effect
immediately prior to such extension.
3.04 Net Payments. (a) All payments made by the Borrower
hereunder, under any Note or any other Credit Document, will be made without
setoff, counterclaim or other defense. Except as provided for in Section
3.04(b), all such payments will be made free and clear of, and without deduction
or withholding for, any present or future taxes, levies, imposts, duties, fees,
assessments or other charges of whatever nature now or hereafter imposed by any
Governmental Authority (but excluding, except as provided in the second
succeeding sentence, any tax imposed on or measured by the net income or net
profits (or any franchise tax measured by or imposed on net income or net
profits) of a Bank pursuant to the laws of the jurisdiction (or any political
subdivision or taxing authority thereof or therein) in which such Bank is
organized or in which the principal office or applicable lending office of such
Bank is located or in which such other office with respect to which such payment
is treated as "effectively connected" income for U.S. Federal income tax
purposes is located) and all interest, penalties or similar liabilities with
respect to such non-excluded taxes, levies, imposts, duties, fees, assessments
or other charges (all such non-excluded taxes, levies, imposts, duties, fees,
assessments or other charges being referred to collectively as "Taxes"). If any
Taxes are so levied or imposed, the Borrower agrees to pay the full amount of
such Taxes, and such additional amounts as may be necessary so that every
payment of all amounts due hereunder, under any Note or under any other Credit
Document, after withholding or deduction for or on account of any Taxes, will
not be less than the amount provided for herein or in such Note or in such other
Credit Document. If any amounts are payable in respect of Taxes pursuant to the
preceding sentence, the Borrower agrees to reimburse each Bank, upon the written
request of such Bank, for taxes imposed on or measured by the net income or net
profits of such Bank, or any franchise tax based on the net income or net
profits of such Bank, in either case pursuant to the laws of the jurisdiction
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in which such bank is organized or in which the principal office or applicable
lending office of such Bank is located or under the laws of any political
subdivision or taxing authority of any such jurisdiction in which such Bank is
organized or in which the principal office or applicable lending office of such
Bank is located and for any withholding of taxes as such Bank shall determine
are payable by, or withheld from, such Bank in respect of such amounts so paid
to or on behalf of such Bank pursuant to the preceding sentence and in respect
of any amounts paid to or on behalf of such Bank pursuant to this sentence. The
Borrower will furnish to the Administrative Agent within 45 days after the date
the payment of any Taxes, or any withholding or deduction on account thereof, is
due pursuant to applicable law certified copies of tax receipts, or other
evidence satisfactory to the Bank, evidencing such payment by the Borrower. The
Borrower will indemnify and hold harmless the Administrative Agent and each
Bank, and reimburse the Administrative Agent or such Bank upon its written
request, for the amount of any Taxes so levied or imposed and paid or withheld
by such Bank.
(b) Each Bank will notify the Borrower in writing if under
applicable law and treaties as in effect on the Effective Date (if such Bank is
an original signatory to this Agreement) or on the date of any assignment
pursuant to Section 11.12(b) (if such Bank becomes party hereto after the
Effective Date) U.S. Federal income tax will be required to be withheld by the
Administrative Agent or the Borrower with respect to such Person or any payments
be made to such Person pursuant to this Agreement. Each Bank which is not a
United States person (as such term is defined in Section 7701(a)(30) of the
Code) for U.S. Federal income tax purposes agrees to provide to the Borrower and
the Administrative Agent on or prior to the Effective Date, or in the case of a
Bank that is an assignee or transferee of an interest under this Agreement
pursuant to Section 1.13 or Section 11.04 (unless the respective Bank was
already a Bank hereunder immediately prior to such assignment or transfer), on
the date of such assignment or transfer to such Bank, (i) two accurate and
complete original signed copies of Internal Revenue Service Form 4224 or 1001
(or successor forms) certifying to such Bank's entitlement to a complete
exemption from United States withholding tax with respect to payments to be made
under this Agreement, any Note or any other Credit Document, or (ii) if the Bank
is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code and
cannot deliver either Internal Revenue Service Form 1001 or 4224 pursuant to
clause (i) above, (x) a certificate representing that such non-U.S. Bank is not
a bank for purposes of Section 881(c) of the Code, is not a 10% shareholder
(within the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is
not a controlled foreign corporation related to the Borrower (within the meaning
of Section 864(d)(4) of the Code) (any such certificate, a "Section 3.04(b)(ii)
Certificate") and (y) two accurate and complete original signed copies of
Internal Revenue Service Form W-8 (or successor form) certifying to such Bank's
entitlement to a complete exemption from United States withholding tax with
respect to payments of interest to be made under this Agreement, any Note or any
other Credit Document. In addition, each Bank agrees that from time to time
after the Effective Date, when a lapse in time or change in circumstances
renders the previous certification
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obsolete or inaccurate in any material respect, it will timely deliver to the
Borrower and the Administrative Agent two new accurate and complete original
signed copies of Internal Revenue Service Form 4224 or 1001, or Form W-8 and a
Section 3.04(b)(ii) Certificate, as the case may be, and such other forms as may
be required in order to confirm or establish the entitlement of such Bank to a
continued exemption from or reduction in United States withholding tax with
respect to payments under this Agreement, any Note or any other Credit Document,
or it shall immediately notify the Borrower and the Administrative Agent of its
inability to deliver any such Form or Certificate, in which case such Bank shall
not be required to deliver any such Form or Certificate pursuant to this Section
3.04(b). Notwithstanding anything to the contrary contained in Section 3.04(a),
but subject to the immediately succeeding sentence, (x) the Borrower shall be
entitled, to the extent it is required to do so by law, to deduct or withhold
income or similar taxes imposed by the United States (or any political
subdivision or taxing authority thereof or therein) from interest, fees or other
amounts payable hereunder for the account of any Bank which is not a United
States person (as such term is defined in Section 7701(a)(30) of the Code) for
U.S. Federal income tax purposes to the extent such Bank has not provided to the
Borrower U.S. Internal Revenue Service forms that establish a complete exemption
from such deduction or withholding and (y) the Borrower shall not be obligated
pursuant to Section 3.04(a) to make additional payments to a Bank in respect of
income or similar taxes imposed by the United States if (I) such Bank has not
provided to the Borrower the Internal Revenue Service forms required to be
provided to the Borrower pursuant to this Section 3.04(b) or (II) in the case of
a payment, other than interest, to a Bank described in clause (ii) above, to the
extent that such forms do not establish a complete exemption from withholding of
such taxes. Notwithstanding anything to the contrary contained in the preceding
sentence or elsewhere in this Section 3.04, the Borrower agrees to pay
additional amounts and indemnify each Bank in the manner set forth in Section
3.04(a) in respect of any Taxes deducted or withheld by it as described in the
immediately previous sentence as a result of any changes after the Effective
Date in any applicable law, treaty, governmental rule, regulation, guideline or
order, or in the interpretation thereof, relating to the deducting or
withholding of income or similar Taxes.
SECTION 4. Conditions Precedent.
4.01 Conditions Precedent to Effective Date. The obligation of
the Banks to make Loans hereunder on the Effective Date is subject to the
satisfaction of each of the following conditions at such time:
(a) Effectiveness; Notes. (i) This Agreement shall have been
executed and delivered as provided in Section 11.10 and (ii) there shall have
been delivered to the Administrative Agent for the account of each Bank the
appropriate Note executed by the Borrower in the amount, maturity and as
otherwise provided herein.
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(b) Opinions of Counsel. The Administrative Agent shall have
received opinions, addressed to the Administrative Agent and each of the Banks
and dated the Effective Date, from (i) Weil, Gotshal & Manges LLP, counsel for
the Borrower, which opinion shall cover the matters contained in Exhibit C-1
hereto, (ii) Stephen J. Greenberg, Esq., general counsel for NNHC, which opinion
shall cover the matters contained in Exhibit C-2 hereto, (iii) Johnson, Smith,
Fence, Densborn, Wright & Heath, special Indiana counsel to VIK, which opinion
shall cover the matters contained in Exhibit C-3 hereto, (iv) Stephen J.
Greenberg, Esq., general counsel for VIK, which opinion shall cover the matters
contained in Exhibit C-4 hereto and (v) White & Case, special counsel to the
Banks, which opinion shall cover the matters contained in Exhibit C-4 hereto.
(c) Corporate Proceedings. (i) The Administrative Agent shall
have received from each Credit Party a certificate, dated the Effective Date,
signed by the President or any Vice-President of such Credit Party substantially
in the form of Exhibit D hereto with appropriate insertions and deletions,
together with (x) copies of the articles of incorporation, any certificate of
designation, the by-laws, or other organizational documents, of such Credit
Party, (y) the resolutions of such Credit Party, which shall be reasonably
satisfactory to the Administrative Agent, and (z) in the case of the certificate
of the Borrower, a statement that all of the applicable conditions set forth in
Sections 4.01(g), (j), (l), (m), and (n) and Section 4.02(b) exist as of such
date.
(ii) All corporate and legal proceedings and all instruments
and agreements in connection with the transactions contemplated by this
Agreement and the other Transaction Documents shall be reasonably satisfactory
in form and substance to the Administrative Agent, and the Administrative Agent
shall have received all information and copies of all certificates, documents
and papers, including good standing certificates and any other records of
corporate proceedings and governmental approvals, if any, which the
Administrative Agent may have reasonably requested in connection therewith, such
documents and papers, where appropriate, to be certified by proper corporate or
governmental authorities.
(d) Plans; etc. There shall have been made available to the
Administrative Agent copies, certified as true and correct by an appropriate
officer of the Borrower, of:
(i) all Plans (and for each Plan that is required to file an
annual report on Internal Revenue Service Form 5500-series, a copy of
the most recent such report (including, to the extent required, the
related financial and actuarial statements and opinions and other
supporting statements, certifications, schedules and information), and
for each Plan that is a "single-employer plan," as defined in Section
4001(a)(15) of ERISA, the most recently prepared actuarial valuation
therefor) and any other "employee benefit plans," as defined in Section
3(3) of ERISA, and any other material agreements, plans or arrangements
(other than wages paid to current employees in the ordinary course),
with or for the benefit of current or former
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employees of the Borrower or any of its Subsidiaries or any ERISA
Affiliate (provided that the foregoing shall apply in the case of any
multiemployer plan, as defined in 4001(a)(3) of ERISA, only to the
extent that any document described therein is in the possession of the
Borrower or any Subsidiary of the Borrower or any ERISA Affiliate or
reasonably available thereto from the sponsor or trustee of any such
plan);
(ii) any material employment agreement with respect to the
senior management of the Borrower or any of its Subsidiaries,
including VIK and its Subsidiaries;
(iii) any collective bargaining agreements or any other
similar agreement or arrangements covering the employees of the
Borrower or any of its Subsidiaries;
(iv) all agreements evidencing, governing or relating to the
10% Convertible Subordinated Debentures; and
(v) all tax sharing, tax allocation and other similar
agreements entered into by the Borrower and/or any of its Subsidiaries
(collectively, the "Tax Sharing Agreements") including any Tax Sharing
Agreement between the Borrower and any of its Subsidiaries (including
VIK);
all of which shall be in form and substance reasonably satisfactory to the
Administrative Agent, it being understood and agreed that the Plans and
agreements set forth on Annex IX, the employment agreement, dated January 23,
1996, between HIC and Richard Haverland and the agreements and other documents
set forth in Annex XI in the form specified therein) are in form and substance
reasonably satisfactory to the Administrative Agent.
(e) Adverse Change, etc. From December 31, 1996 to the
Effective Date, nothing shall have occurred (and neither the Banks nor shall
have become aware of any facts or conditions not previously known) which the
Administrative Agent or the Required Banks shall reasonably determine (i) has,
or is reasonably likely to have, a material adverse effect on the rights or
remedies of the Banks or the Administrative Agent under this Agreement or any
other Credit Document, or on the ability of the Borrower to perform its
obligations to them, or (ii) has, or is reasonably likely to have, a Material
Adverse Effect.
(f) Litigation. No actions, suits or proceedings shall be
pending or, to the knowledge of the Borrower, threatened (i) with respect to
this Agreement or any other Credit Document or the transactions contemplated
hereby or thereby (including the Acquisition) or (ii) which either the
Administrative Agent or the Required Banks shall determine has, or is reasonably
likely to have, (x) a Material Adverse Effect or (y) a material adverse effect
on the rights or remedies of the Banks or Administrative Agent hereunder or
under any other
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Credit Document or on the ability of the any Credit Party to perform its
obligations to them hereunder or under any other Credit Documents.
(g) Approvals, etc. All necessary governmental and material
third party approvals, permits and material licenses in connection with the
Acquisition shall have been obtained and remain in effect, and all applicable
waiting periods shall have expired without any action being taken by any
competent authority (including any court having jurisdiction) which restrains or
prevents such transactions or imposes, in the reasonable judgment of the
Required Banks or the Administrative Agent, materially adverse conditions upon
the consummation of the Acquisition.
(h) Other Credit Documents. (x) VIK and NNHC shall have duly
authorized, executed and delivered a Guaranty substantially in form of Exhibit E
(as modified, amended or supplemented from time to time in accordance with the
terms thereof and hereof, the "Guaranty"), which Guaranty shall be in full force
and effect and (y) each Credit Party shall have duly authorized, executed and
delivered a Pledge Agreement substantially in the form of Exhibit F hereto (as
modified, amended or supplemented from time to time in accordance with the terms
thereof and hereof, the "Pledge Agreement") and each such pledgor shall have
delivered to the Collateral Agent, as pledgee thereunder, all of the
certificates representing the Pledged Securities referred to therein, endorsed
in blank or accompanied by executed and undated stock powers, and the Pledge
Agreement shall be in full force and effect.
(i) Projected Financial Statements. Prior to the Effective
Date, the Borrower and VIK shall have delivered, or shall have caused to be
delivered, to the Administrative Agent, projected financial statements, if any,
for (i) the Borrower and its Subsidiaries and (ii) VIK and its Subsidiaries,
respectively, updating the projections, dated April 2, 1997, of such Persons
previously delivered to the Administrative Agent reflecting the financial
condition, income and expenses of the Borrower and its Subsidiaries and VIK and
its Subsidiaries, as the case may be, after giving effect to the Transaction,
which updates shall be reasonably satisfactory in form and substance to the
Administrative Agent and the Banks.
(j) Fees. The Borrower shall have paid to the Administrative
Agent and the Banks all Fees and expenses agreed upon by such parties to be paid
on or prior to such date.
(k) Acquisition. There shall have been delivered to the
Administrative Agent all Acquisition Documents, as executed, certified as true
and correct by an Authorized Officer of the Borrower, which Acquisition
Documents shall be in form and substance reasonably satisfactory to the
Administrative Agent (provided that the Acquisition Agreement dated as of
February 13, 1997 (including the Exhibits A to G attached thereto) and Amendment
No. 1 thereto, shall be deemed satisfactory to the Administrative Agent) and
each of the conditions precedent to the consummation of the Acquisition as set
forth in such Acquisition Documents shall have been satisfied or, if applicable,
waived to the reasonable
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satisfaction of the Administrative Agent. Such Acquisition shall have been
consummated in accordance with the terms and conditions of the Acquisition
Documents and all applicable laws.
(l) Preferred Stock. Prior to the Effective Date, the Borrower
shall have delivered to the Administrative Agent copies of the Preferred Stock,
which shall be reasonably satisfactory in form and substance to the
Administrative Agent and the Banks (it being understood and agreed that the
draft of the Preferred Stock dated April 15, 1997 is in form and substance
reasonably satisfactory to the Administrative Agent).
(m) Indebtedness. On the Effective Date and after giving
effect to the consummation of the Acquisition, there shall be no outstanding
Indebtedness of the Borrower and its Subsidiaries (including VIK and its
Subsidiaries) except (x) Indebtedness pursuant to the 10% Convertible
Subordinated Debentures, (y) Indebtedness set forth on Annex V and (z)
Indebtedness incurred pursuant to this Agreement.
(n) 10% Convertible Subordinated Debentures. The 10%
Convertible Subordinated Debentures shall have been amended to address, in a
manner reasonably satisfactory to the Administrative Agent and the Banks, those
matters set forth in Annex X.
(o) Other Agreements. (i) The Borrower shall have delivered,
or shall have caused to be delivered, to the Administrative Agent and the Banks
all changes and updates to all agreements listed on Annex XI, which changes and
updates shall be reasonably satisfactory in form and substance to the
Administrative Agent and the Banks.
(ii) The Borrower shall have delivered, or shall have caused
to be delivered, to the Administrative Agent and the Banks (a) all changes and
updates, if any, made to the actuarial valuation reports of (x) Tillinghast,
dated June 30, 1995 and (y) Ernst & Young, as of year end 1995 and (b) all
subsequent actuarial valuation reports provided in connection with insurance
businesses of the Borrower and of VIK respectively, which changes and reports
shall be reasonably satisfactory in form and substance to the Administrative
Agent and the Banks.
(iii) The Borrower shall have entered into a Tax Sharing
Agreement with each of its Subsidiaries.
(p) On the Effective Date, the Armco Debt shall have been
repaid in full, together with all accrued and unpaid interest thereon, with the
aggregate consideration paid to retire the Armco Debt not to exceed $15,000,000,
of which no more than $11,000,000 shall be in cash.
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(q) Capital Contribution. On the Effective Date, the Borrower
shall have made a capital contribution to (i) VIK to be contributed by VIK to
the VIK Insurance Subsidiaries in an aggregate amount equal to $32,500,000 and
(ii) VIK in an amount equal to (x) the full amount owing on the Effective Date
pursuant to the Existing VIK Credit plus (y) that amount required to pay certain
expenses of VIK, but in no event more than $40,000,000 in the aggregate
(collectively, the "Capital Contribution").
(r) Redemption. On the Effective Date, the Redemption shall
have been consummated in accordance with the Redemption Documents and all
applicable laws, which Redemption Documents shall be in form and substance
reasonably satisfactory to the Administrative Agent, and each of the conditions
precedent to the consummation of the Redemption shall have been satisfied and
not waived except with the consent of the Administrative Agent to the
satisfaction of the Administrative Agent.
(s) Existing VIK Credit. (i) On the Effective Date, (i) the
total commitments in respect of the Existing VIK Credit shall have been
terminated, (ii) all loans and notes thereunder shall have been repaid in full,
together with interest thereon, (iii) all letters of credit issued thereunder
shall have been terminated, (iv) all other amounts (including premiums) owing
pursuant to the Existing VIK Credit shall have been repaid in full, (v) all
documents in respect of, and all guarantees with respect to, the Existing VIK
Credit shall have been terminated and be of no further force and effect and (vi)
all security interests in and Liens created pursuant to the Existing VIK Credit
shall have been terminated and released, to the satisfaction of the
Administrative Agent (the "Refinancing").
4.02 Conditions Precedent to Loans. The obligation of each
Bank to make Loans (including in each case Loans made on the Effective Date) is
subject, at the time of each such Loan, to the satisfaction of the following
conditions:
(a) Notice of Borrowing. The Administrative Agent shall have
received a Notice of Borrowing meeting the requirements of Section 1.03.
(b) No Default; Representations and Warranties. At the time of
the making of each Loan and also after giving effect thereto, (i) there shall
exist no Default or Event of Default and (ii) all representations and warranties
contained herein or in the other Credit Documents shall be true and correct in
all material respects with the same effect as though such representations and
warranties had been made on and as of the date of the making of such Loan,
except to the extent that such representations and warranties expressly relate
to an earlier date.
The acceptance of the benefits of each Loan shall constitute a
representation and warranty by the Borrower to each of the Banks that all of the
applicable conditions specified in Section 4.01 (as to the Loans made on the
Effective Date) and/or 4.02 exist as
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of that time. All of the certificates, legal opinions and other documents and
papers referred to in Section 4.01, unless otherwise specified, shall be
delivered to the Administrative Agent for the account of each of the Banks and,
except for the Notes, in sufficient counterparts for each of the Banks.
SECTION 5. Representations, Warranties and Agreements. In
order to induce the Banks to enter into this Agreement and to make the Loans
provided for herein, the Borrower makes the following representations and
warranties to, and agreements with, the Banks, all of which shall survive the
execution and delivery of this Agreement and the making of the Loans:
5.01 Corporate Status. Each of the Borrower and its
Subsidiaries (i) is a duly organized and validly existing corporation in good
standing or a duly formed partnership under the laws of the jurisdiction of its
organization or formation and has the corporate power or other organizational
power and authority to own its property and assets and to transact the business
in which it is engaged and presently proposes to engage and (ii) has duly
qualified and is authorized to do business and is in good standing in all
jurisdictions where it is required to be so qualified except where the failure
to be so qualified would not have a Material Adverse Effect.
5.02 Corporate Power and Authority. Each Credit Party has the
corporate power and authority to execute, deliver and carry out the terms and
provisions of the Credit Documents to which it is party and has taken all
necessary corporate action to authorize the execution, delivery and performance
of the Credit Documents to which it is party. Each Credit Party has duly
executed and delivered each Credit Document to which it is party and each Credit
Document to which it is party constitutes the legal, valid and binding
obligation of each such Credit Party enforceable in accordance with its terms
except to the extent that the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization, or other similar laws
affecting creditors' rights generally and by general equitable principles
(regardless of whether the issue of enforceability is considered in a proceeding
in equity or at law).
5.03 No Violation. Neither the execution, delivery and
performance by the Credit Parties of the Credit Documents nor compliance with
the terms and provisions thereof, nor the consummation of the loan transactions
contemplated therein (i) will contravene any applicable provision of any law,
statute, rule, regulation, order, writ, injunction or decree of any court or
governmental instrumentality, (ii) will conflict or be inconsistent with or
result in any breach of, any of the terms, covenants, conditions or provisions
of, or constitute a default under, or (other than pursuant to, or as satisfied
by, the Security Documents) result in the creation or imposition of (or the
obligation to create or impose) any Lien upon any of the property or assets of
the Borrower or any of its Subsidiaries pursuant to the terms of any material
indenture, mortgage, deed of trust, agreement or other material instrument to
which
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the Borrower or any of its Subsidiaries is a party or by which it or any of its
property or assets are bound or to which it may be subject or (iii) will violate
any provision of the Charter or By-Laws of the Borrower or any of its
Subsidiaries.
5.04 Litigation. Except as set forth on Annex IV hereto, there
are no actions, suits or proceedings pending or to the knowledge of the Borrower
threatened with respect to the Borrower or any of its Subsidiaries that have, or
are reasonably likely to have, (i) a Material Adverse Effect or (ii) a material
adverse effect on the rights or remedies of the Banks or the Administrative
Agent or on the ability of any Credit Party to perform its obligations to them
hereunder and under the other Credit Documents.
5.05 Use of Proceeds; Margin Regulations. (a) The proceeds of
all Loans shall be utilized (i) to finance, in part, the purchase and/or
redemption of the capital stock of VIK, including options and warrants in
respect thereof, and/or the repayment of Indebtedness of VIK, all in connection
with the consummation of the Acquisition and (ii) to pay certain fees and
expenses arising in connection with the Transaction.
(b) No part of the proceeds of any Loan will be used to
purchase or carry Margin Stock or to extend credit for the purpose of purchasing
or carrying any Margin Stock.
5.06 Governmental Approvals. Except as disclosed on Annex VII
hereto, or as has been obtained and are in full force and effect, no order,
consent, approval, license, authorization, or validation of, or filing,
recording or registration with, or exemption by, any foreign or domestic
governmental or public body or authority, or any subdivision thereof, is
required to authorize or is required in connection with (i) the execution,
delivery and performance of any Credit Document or (ii) the legality, validity,
binding effect or enforceability of any Credit Document provided that in order
to exercise certain remedies provided in the Security Documents the
Administrative Agent, Collateral Agent and/or the Banks may need to obtain the
consent of the Applicable Regulatory Insurance Authority.
5.07 True and Complete Disclosure. All factual information
(taken as a whole) heretofore or contemporaneously furnished by the Borrower or
any of its Subsidiaries in writing to the Administrative Agent or any Bank for
purposes of or in connection with this Agreement or any transaction contemplated
herein is, and all other such factual information (taken as a whole) hereafter
furnished by the Borrower or any such Subsidiary in writing to any Bank pursuant
to this Agreement will be, true and accurate in all material respects on the
date as of which such information is dated or certified and not incomplete by
omitting to state any material fact necessary to make such information (taken as
a whole) not misleading at such time in light of the circumstances under which
such information was provided (it being understood that interim financial
statements will not contain footnotes and will be subject to ordinary year-end
adjustment). The projections and pro forma financial information prepared
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by the Borrower which are contained in such materials are based on good faith
estimates and assumptions believed by such Persons to be reasonable at the time
made, it being recognized by the Banks that such projections as to future events
are not to be viewed as facts and that actual results during the period or
periods covered by any such projections may differ materially from the projected
results. As of the Effective Date, there is no fact known to the Borrower which
has, or is reasonably likely to have, a Material Adverse Effect which has not
theretofore been disclosed to the Banks or to the Administrative Agent on behalf
of the Banks.
5.08 Financial Condition; Financial Statements. (a) On and as
of the Effective Date on a pro forma basis after giving effect to the
Acquisition and to all Indebtedness incurred and to be incurred, and Liens
created, and to be created, by the Borrower and its Subsidiaries in connection
therewith, (i) the sum of the assets, at a fair valuation, of the Borrower will
exceed its debts, (ii) the Borrower will not have incurred or intended to, or
believe that it will, incur debts beyond its ability to pay such debts as such
debts mature and (iii) the Borrower will have sufficient capital with which to
conduct its business. For purposes of this Section 5.08, "debt" means any
liability on a claim, and "claim" means (x) right to payment whether or not such
a right is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, disputed, undisputed, legal, equitable, secured or
unsecured, or (y) right to an equitable remedy for breach of performance if
such breach gives rise to a payment, whether or not such right to an equitable
remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured or unsecured.
(b) (i) The consolidated balance sheet of (x) the Borrower and
its Subsidiaries at December 31, 1996 and the related consolidated statements of
income and cash flows for the fiscal period ended as of said date, which have
been examined by KPMG Peat Marwick LLP, independent certified public accountants
and (y) VIK and its Subsidiaries at December 31, 1996 and the related
consolidated statements of income and cash flows for the fiscal period ended as
of said date and (ii) the pro forma (after giving effect to the Acquisition and
the related financings thereof) consolidated balance sheet of the Borrower and
its Subsidiaries as of December 31, 1996, copies of each of which have
heretofore been furnished to each Bank, present fairly in all material respects,
the consolidated financial position of the respective entities at the dates of
said statements and their results of operations for the periods covered thereby,
subject to normal year end audit adjustments in the case of the VIK financial
statements (or, in the case of the pro forma balance sheet, presents a good
faith estimate of the consolidated pro forma financial condition of the Borrower
and its Subsidiaries after giving effect to the Acquisition and the related
financings thereof at the date thereof). All such financial statements (other
than the aforesaid pro forma balance sheets) have been prepared in accordance
with GAAP and practices consistently applied except to the extent provided in
the notes to said financial statements. Except for (i) the downgrading by A.M.
Best of its rating of VIK to "B-", (ii) the Texas Rebate Issues and (iii) the
increase in
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liabilities arising from the incurrence of Indebtedness hereunder, nothing has
occurred since December 31, 1996 that has had a Material Adverse Effect.
(c) Except as fully reflected in the financial statements and
the notes thereto described in Section 5.08(b), there were as of the Effective
Date (after giving effect to the Loans made on such date), no material
Contingent Obligations, contingent liability (other than with respect to the
Texas Rebate Issues) or (except as incurred in the ordinary course of business)
liability for taxes, or any long-term lease or unusual forward or long-term
commitment, including, without limitation, interest rate or foreign currency
swap or exchange transaction with respect to the Borrower or any of its
Subsidiaries which, either individually or in aggregate, would be material to
the Borrower and its Subsidiaries taken as a whole.
(d) From March 31, 1996 through the Effective Date, the
Borrower and its Subsidiaries made no investments in or advances to Highlands
U.K.
5.09 Security Interests. Once executed and delivered, and
until terminated in accordance with the terms thereof, each of the Security
Documents creates, as security for the obligations purported to be secured
thereby, a valid and enforceable perfected security interest in and Lien on all
of the Collateral subject thereto, superior to and prior to the rights of all
third Persons and subject to no other Liens (except that the Additional Security
Documents Collateral may be subject to Permitted Liens relating thereto), in
favor of the Collateral Agent for the benefit of the Secured Creditors. No
filings or recordings are required in order to perfect the security interests
created under any Security Document except for filings or recordings required in
connection with any such Security Document which shall have been made, or for
which satisfactory arrangements have been made, upon or prior to the execution
and delivery thereof.
5.10 Representations and Warranties in Acquisition Documents.
All representations and warranties of the Borrower set forth in any of the
Acquisition Documents were true and correct in all material respects as of the
time such representations and warranties were made and shall be true and
correct in all material respects as of the Effective Date as if such
representations and warranties were made on and as of such date, unless stated
to relate to a specific earlier date, in which case such representations and
warranties shall be true and correct in all material respects as of such earlier
date.
5.11 Tax Returns and Payments. Each of the Borrower and each
of its Subsidiaries has filed all Federal income tax returns and all other
material tax returns, domestic and foreign, required to be filed by it and has
paid all material taxes and assessments payable by it which have become due,
except for those contested in good faith and adequately disclosed and fully
provided for on the financial statements of the Borrower and its Subsidiaries in
accordance with GAAP. The Borrower and each of its Subsidiaries have at
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all times paid, or have provided adequate reserves (in the good faith judgment
of the management of the Borrower) for the payment of, all material Federal,
state and foreign income taxes applicable for all prior fiscal years and for the
current fiscal year to date. There is no material action, suit, proceeding,
investigation, audit, or claim now pending or, to the knowledge of the Borrower
or any of its Subsidiaries, threatened by any taxing or other governmental
authority regarding any taxes relating to the Borrower or any of its
Subsidiaries. Except as provided in Annex XII, neither the Borrower nor any of
its Subsidiaries has entered into an agreement or waiver or been requested to
enter into an agreement or waiver extending any statute of limitations relating
to the payment or collection of taxes of the Borrower or any of its
Subsidiaries, or is aware of any circumstances that would cause the taxable
years or other taxable periods of the Borrower or any of its Subsidiaries not to
be subject to the normally applicable statute of limitations.
5.12 Compliance with ERISA. Annex VIII sets forth each Plan;
each Plan (and each related trust, insurance contract or fund) is in substantial
compliance with its terms and with all applicable laws, including, without
limitation, ERISA and the Code; each Plan (other than a Multiemployer Plan) (and
each related trust, if any) which is intended to be qualified under Section
401(a) of the Code has received a determination letter from the Internal Revenue
Service to the effect that it meets the requirements of Sections 401(a) and
501(a) of the Code; no Reportable Event has occurred; no Plan which is a
Multiemployer Plan is insolvent or in reorganization; no Plan (other than a
Multiemployer Plan) has an Unfunded Current Liability which, when added to the
aggregate amount of Unfunded Current Liabilities with respect to all other Plans
(other than a Multiemployer Plan) exceeds $1,000,000; no Plan (other than a
Multiemployer Plan) which is subject to Section 412 of the Code or Section 302
of ERISA has an accumulated funding deficiency, within the meaning of such
sections of the Code or ERISA, or has applied for or received a waiver of an
accumulated funding deficiency or an extension of any amortization period,
within the meaning of Section 412 of the Code or Section 303 or 304 of ERISA;
all contributions required to be made by the Borrower or any Subsidiary of the
Borrower or any ERISA Affiliate with respect to a Plan have been timely made;
neither the Borrower nor any Subsidiary of the Borrower nor any ERISA Affiliate
has incurred any material liability to or on account of a Plan pursuant to
Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of
ERISA or Section 401(a)(29), 4971 or 4975 of the Code or expects to incur any
such liability under any of the foregoing sections with respect to any Plan; no
condition exists which presents a material risk to the Borrower or any
Subsidiary of the Borrower or any ERISA Affiliate of incurring a liability to or
on account of a Plan pursuant to the foregoing provisions of ERISA and the Code;
no proceedings have been instituted to terminate or appoint a trustee to
administer any Plan pursuant to Title IV of ERISA; no action, suit, proceeding,
hearing, audit or investigation with respect to the administration, operation or
the investment of assets of any Plan (other than a Multiemployer Plan) (other
than routine claims for benefits) is pending, expected or threatened; using
actuarial assumptions and computation methods consistent with Part 1 of subtitle
E of Title IV of
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ERISA, the aggregate liabilities of the Borrower and its Subsidiaries and its
ERISA Affiliates to all Plans which are multiemployer plans (as defined in
Section 4001(a)(3) of ERISA) in the event of a complete withdrawal therefrom, as
of the close of the most recent fiscal year of each such Plan ended prior to the
date hereof would not exceed an amount which could reasonably be expected to
have a Material Adverse Effect; each group health plan (as defined in Section
607(1) of ERISA or Section 4980B(g)(2) of the Code) which covers or has covered
employees or former employees of the Borrower, any Subsidiary of the Borrower,
or any ERISA Affiliate has at all times been operated in substantial compliance
with the provisions of Part 6 of subtitle B of Title I of ERISA and Section
4980B of the Code and any failure to so comply would not result in a material
liability; no lien imposed under the Code or ERISA on the assets of the Borrower
or any Subsidiary of the Borrower or any ERISA Affiliate exists or is likely to
arise on account of any Plan; and the Borrower and its Subsidiaries do not
maintain or contribute to any employee welfare benefit plan (as defined in
Section 3(1) of ERISA) which provides benefits to retired employees or other
former employees (other than as required by Section 601 of ERISA) or any Plan
the obligations with respect to which could reasonably be expected to have a
Material Adverse Effect on the ability of the company to perform its obligations
under this Agreement.
5.13 Subsidiaries. Annex III hereto lists each Subsidiary of
the Borrower (and the direct and indirect ownership interest of the Borrower
therein), in each case existing on the Effective Date but after giving effect to
the Acquisition. The Borrower will at all times own directly or indirectly the
percentages specified in said Annex III of the outstanding capital stock of all
of said entities except to the extent otherwise permitted pursuant to Section
7.02.
5.14 Intellectual Property, etc. The Borrower and each of its
Subsidiaries have obtained all material patents, trademarks, servicemarks, trade
names, copyrights, licenses and other rights, free from burdensome
restrictions, that are necessary for the operation of their businesses taken as
a whole as presently conducted and as proposed to be conducted.
5.15 Compliance with Statutes. Each of the Borrower and its
Subsidiaries is in compliance with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its property (including compliance with all applicable Environmental Laws),
except such noncompliance as is not reasonably likely to, in the aggregate, have
a Material Adverse Effect.
5.16 Labor Relations; Collective Bargaining Agreements. There
is (i) no significant unfair labor practice complaint pending against the
Borrower or any of its Subsidiaries or, to the best knowledge of the Borrower,
threatened against any of them, before the National Labor Relations Board, and
no significant grievance or significant arbitration proceeding arising out of or
under any collective bargaining agreement is now
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pending against the Borrower or any of its Subsidiaries or, to the knowledge of
the Borrower, threatened against any of them, (ii) no significant strike, labor
dispute, slowdown or stoppage is pending against the Borrower or any of its
Subsidiaries or, to the knowledge of the Borrower, threatened against the
Borrower or any of its Subsidiaries and (iii) to the knowledge of the Borrower,
no union representation question exists with respect to the employees of the
Borrower or any of its Subsidiaries, except (with respect to any matter
specified in clause (i), (ii) or (iii) above, either individually or in the
aggregate) such as is not reasonably likely to have a Material Adverse Effect.
5.17 Acquisition. On and as of the Effective Date, (i) all
consents and approvals of, and filings and registrations with, and all other
actions in respect of, all governmental agencies, authorities or
instrumentalities required in order to make or consummate the Acquisition, or
otherwise required in connection with the Acquisition, will have been obtained,
given, filed or taken and are or will be in full force and effect (or effective
judicial relief with respect thereto will have been obtained) and (ii) the
Acquisition shall have been consummated in accordance with the respective
Acquisition Documents and in compliance with all applicable laws.
5.18 Properties. The Borrower and each of its Subsidiaries has
good and marketable title to all properties owned by them, free and clear of all
Liens other than Permitted Liens.
5.19 10% Convertible Subordinated Debentures. The
subordination provisions contained in the 10% Convertible Subordinated
Debentures are enforceable against the Borrower and the holders of the 10%
Convertible Subordinated Debentures and all Obligations are within the
definition of "Senior Indebtedness" included in such subordination provisions.
SECTION 6. Affirmative Covenants. The Borrower hereby
covenants and agrees that on the Effective Date and thereafter so long as this
Agreement is in effect and until such time as the Total Commitment has been
terminated, no Notes are outstanding and the Loans, together with interest, Fees
and all other Obligations (except Obligations which by the terms hereof survive
payment in full of the Loans and termination of this Agreement) have been paid
in full:
1.061 Information Covenants. The Borrower will furnish to
each of the Banks:
(a) Annual Financial Statements. (i) As soon as available and
in any event within 90 days after the close of each fiscal year of the Borrower,
(x) the consolidated balance sheet of the Borrower and its Subsidiaries as at
the end of such fiscal year and the related consolidated statements of income,
of stockholders' equity and of cash flows for such
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fiscal year and (y) the consolidating balance sheet of the Borrower and each of
its Subsidiaries as at the end of such fiscal year and the related consolidating
statements of income, of stockholders' equity and of cash flows for such fiscal
year; in each case prepared in accordance with GAAP and setting forth
comparative figures for the preceding fiscal year, and, in the case of such
consolidated financial statements, examined by independent certified public
accountants of recognized national standing whose opinion shall not be qualified
as to the scope of audit, together with a certificate of such accounting firm
stating that in the course of its regular audit of the business of the Borrower
and its Subsidiaries, which audit was conducted in accordance with generally
accepted auditing standards, nothing came to the attention of such accounting
firm which would lead it to believe that any Default or Event of Default as they
relate to accounting matters has occurred and is continuing or if in the opinion
of such accounting firm such a Default or Event of Default has occurred and is
continuing, a statement as to the nature thereof.
(ii) As soon as available and in any event within 60 days after the close of
each fiscal year of each Regulated Insurance Company, the Annual Statement of
such Regulated Insurance Company (prepared in accordance with SAP) for such
fiscal year and as filed with the Applicable Regulatory Insurance Authority,
together with the opinion thereon of the Chief Financial Officer or other
Authorized Officer of such Regulated Insurance Company stating that such Annual
Statement presents fairly in all material respects the financial condition and
results of operations of such Regulated Insurance Company in accordance with
SAP.
(iii) As soon as available and in any event within 120 days
after the close of each fiscal year of the Borrower, the Annual Statement of the
HIC Insurance Subsidiaries and the VIK Insurance Subsidiaries, each on a
combined basis (prepared in accordance with SAP), for such fiscal year and as
filed with the Applicable Regulatory Insurance Authority, together with the
opinion thereon of the Chief Financial Officer or other Authorized Officer of
the Borrower stating that such Annual Statement presents fairly in all material
respects the combined financial condition and results of operations of such
insurance companies in accordance with SAP.
(iv) As soon as available and in any event within 90 days
after the close of each fiscal year of the Borrower, a copy of the "Statement of
Actuarial Opinion" and "Management Discussion and Analysis" for each Regulated
Insurance Company (prepared in accordance with SAP) for such fiscal year and as
filed with the Applicable Regulatory Insurance Authority in compliance with the
requirements thereof (or a report containing equivalent information for any
Regulated Insurance Company not so required to file the foregoing with the
Applicable Regulatory Insurance Authority).
(b) Quarterly Financial Statements. (i) As soon as available
and in any event within 45 days after the close of each of the first three
quarterly accounting periods in each fiscal year of the Borrower, (x) the
consolidated balance sheet of the Borrower and its
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Subsidiaries as at the end of such quarterly period and the related consolidated
statements of income, of stockholders' equity and of cash flows for such
quarterly period and for the elapsed portion of the fiscal year ended with the
last day of such quarterly period and (y) the consolidating balance sheet of the
Borrower and each of its Subsidiaries as at the end of such fiscal quarter and
the related consolidating statements of income, of stockholders' equity and of
cash flows for such quarterly period and for the elapsed portion of the fiscal
year ended with the last day of such quarterly period; in each case setting
forth comparative figures for the related periods in the prior fiscal year, and
all of which shall be prepared in accordance with GAAP and certified by the
Chief Financial Officer or other Authorized Officer of the Borrower, subject to
changes resulting from normal year-end adjustments.
(ii) As soon as available and in any event within 45 days after the
close of each of the first three quarterly accounting periods in each fiscal
year of each Regulated Insurance Company, Quarterly Statements of such Regulated
Insurance Company (prepared in accordance with SAP) for such fiscal period and
as filed with the Applicable Regulatory Insurance Authority, together with the
opinion thereon of the Chief Financial Officer or other Authorized Officer of
such Regulated Insurance Company stating that such financial statements present
fairly in all material respects the financial condition and results of
operations of such Regulated Insurance Company in accordance with SAP.
(iii) As soon as available and in any event within 90 days
after the close of each of the first three quarterly accounting periods in each
fiscal year of the Borrower, Quarterly Statements of the HIC Insurance
Subsidiaries and the VIK Insurance Subsidiaries, each on a combined basis
(prepared in accordance with SAP), for such fiscal period and as filed with the
Applicable Regulatory Insurance Authority, together with the opinion thereon of
the Chief Financial Officer or other Authorized Officer of the Borrower stating
that such financial statements present fairly in all material respects the
combined financial condition and results of operations of such insurance
companies in accordance with SAP.
(c) Financial Plans, etc. Not more than 60 days after the
commencement of each fiscal year of the Borrower, a financial plan of the
Borrower and its Subsidiaries in reasonable detail for each such fiscal year.
Together with each delivery of financial statements pursuant to Section
6.01(a)(i) and (b)(i), a comparison of the current year to date financial
results (other than in respect of the balance sheets included therein) against
the plans required to be submitted pursuant to this clause (c) shall be
presented.
(d) Officer's Certificates. At the time of the delivery of
the financial statements provided for in Sections 6.01(a)(i) and (ii), (b)(i)
and (ii), a certificate of the Chief Financial Officer or other Authorized
Officer of the Borrower to the effect that no Default or Event of Default exists
or, if any Default or Event of Default does exist, specifying the nature and
extent thereof, which certificate shall set forth the calculations required to
establish whether the Borrower and its Subsidiaries were in compliance with the
provisions of
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Sections 7.07(a), 7.11, 7.12, 7.13, 7.14 and 7.15 as at the end of such fiscal
year or quarter, as the case may be.
(e) Notice of Default or Litigation. Promptly, and in any
event within five Business Days after the Borrower or any of its Subsidiaries
obtains knowledge thereof, notice of (x) the occurrence of any event which
constitutes a Default or Event of Default, which notice shall specify the nature
thereof, the period of existence thereof and what action the Borrower proposes
to take with respect thereto and (y) any litigation or governmental or
regulatory proceeding pending against the Borrower or any of its Subsidiaries
which is likely to have a Material Adverse Effect or a material adverse effect
on the ability of the Borrower to perform its obligations hereunder or under any
other Credit Document.
(f) Auditors' Reports. Promptly upon receipt thereof, a copy
of each material report or "management letter" submitted to the Borrower or any
of its Subsidiaries by their independent accountants or independent actuaries in
connection with any annual, interim or special audit made by them of the books
of the Borrower or any of its Subsidiaries.
(g) Actuarial Valuation. (i) Within 150 days of the start of
each fiscal year, a report by an independent actuarial consulting firm of
recognized national standing reviewing the adequacy of loss and loss adjustment
expense reserves as at the end of the last fiscal year of each Regulated
Insurance Company determined in accordance with SAP and stating an estimated
amount of minimum reserves, it being agreed that in each case such independent
firm will be provided access to or copies of all relevant valuations relating to
the insurance business of each such Regulated Insurance Company in the
possession of or available to the Borrower or its Subsidiaries and (ii) within
90 days of the start of each fiscal year a certification by an independent
actuarial consulting firm of recognized national standing stating the adequacy
of loss and loss adjustment expense reserves as at the end of the last fiscal
year of each such Regulated Insurance Company determined in accordance with SAP.
(h) Other Regulatory Statements and Reports. Promptly, and
without duplication in respect of any other reporting requirement, (A) after
their becoming available, copies of any statutory financial statements that the
Borrower or any Regulated Insurance Company periodically files with the
Applicable Regulatory Insurance Authority (including all exhibits and schedules
thereto), (B) after receipt thereof, copies of all regular and periodic reports
of reviews or examinations (including, without limitation, triennial
examinations and risk adjusted capital reports) of any Regulated Insurance
Company that had been delivered to such Person by any Applicable Regulatory
Insurance Authority, (C) after receipt thereof, written notice of any assertion
by any Applicable Regulatory Insurance Authority as to a violation of any Legal
Requirement by any Regulated Insurance Company which is likely to have a
Material Adverse Effect or a material adverse effect on the ability of the
Borrower to perform its obligations hereunder or under any other Credit
Document, (D) after receipt
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thereof, a copy of the final report to each Regulated Insurance Company from the
NAIC for each fiscal year as to such Regulated Insurance Company's compliance or
noncompliance with each of the NAIC Tests, (E) after receipt thereof, a copy of
any new rating analysis by any rating agency for each Regulated Insurance
Company, (F) after receipt thereof, a copy of any notice of termination,
cancellation or recapture of any Reinsurance Agreement to which a Regulated
Insurance Company is a party to the extent such termination or cancellation may
have a Material Adverse Effect or a material adverse effect on the ability of
the Borrower to perform its obligations hereunder or under any Credit Document,
(G) and in any event within three Business Days after receipt thereof, copies of
any notice of actual suspension, termination or revocation of any license of any
Regulated Insurance Company by any Applicable Regulatory Insurance Authority
(other than any termination voluntarily effected by such Regulated Insurance
Company), including any request by an Applicable Regulatory Insurance Authority
which commits a Regulated Insurance Company to take or refrain from taking any
material action or which otherwise materially affects the authority of such
Regulated Insurance Company to conduct its business and (H) and in any event
within three Business Days after the Borrower or any of its Subsidiaries obtains
knowledge thereof, notice of any actual changes in the insurance laws enacted in
any state in which any Regulated Insurance Company is domiciled which could have
a Material Adverse Effect or a material adverse effect on the ability of the
Borrower to perform its obligations hereunder or under any Credit Document.
(i) ERISA. As soon as possible and, in any event, within ten
(10) days after the Borrower, any Subsidiary of the Borrower or any ERISA
Affiliate knows or has reason to know of the occurrence of any of the following,
the Borrower will deliver to each of the Banks a certificate of the chief
financial officer of the Borrower setting forth the full details as to such
occurrence and the action, if any, that the Borrower, such Subsidiary or such
ERISA Affiliate is required or proposes to take, together with any notices
required or proposed to be given to or filed with or by the Borrower, the
Subsidiary, the ERISA Affiliate, the PBGC, a Plan participant or the Plan
administrator with respect thereto: that a Reportable Event has occurred (except
to the extent that the Company has previously delivered to the Banks a
certificate and notices (if any) concerning such event pursuant to the next
clause hereof); that a contributing sponsor (as defined in Section 4001(a)(13)
or ERISA) of a Plan subject to Title IV of ERISA is subject to the advance
reporting requirement of PBGC Regulation Section 4043.61 (without regard to
subparagraph (b)(1) thereof), and an event described in subsection .62, .63,
.64, .65, .66, .67 or .68 of PBGC Regulation Section 4043 is reasonably expected
to occur with respect to such Plan within the following 30 days; that an
accumulated funding deficiency, within the meaning of Section 412 of the Code or
Section 302 of ERISA, has been incurred or an application may be or has been
made 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 or Section 303 or 304 of ERISA with respect to a Plan;
that any contribution required to be made by the Borrower or any Subsidiary of
the Borrower or any ERISA Affiliate with respect
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to a Plan (other than a Multiemployer Plan) has not been timely made; that a
Plan has been or may be terminated, reorganized, partitioned or declared
insolvent under Title IV of ERISA; that a Plan has an Unfunded Current Liability
which, when added to the aggregate amount of Unfunded Current Liabilities with
respect to all other Plans exceeds $1,000,000; that proceedings may be or have
been instituted to terminate or appoint a trustee to administer a Plan pursuant
to Title IV of ERISA; that a proceeding has been instituted pursuant to Section
515 of ERISA to collect a delinquent contribution to a Plan; that the Borrower,
any Subsidiary of the Borrower or any ERISA Affiliate will or may incur any
liability to or on account of the termination of or withdrawal from a Plan under
Section 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or with respect to a
Plan under Section 401(a)(29), 4971, 4975 or 4980 of the Code or Section 409 or
502(i) or 502(l) of ERISA or with respect to a group health plan (as defined in
Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B
of the Code; or that the Borrower or any Subsidiary of the Borrower may incur
any material liability pursuant to any employee welfare benefit plan (as defined
in Section 3(1) of ERISA) that provides benefits to retired employees or other
former employees (other than as required by Section 601 of ERISA) or any Plan
(other than a Multiemployer Plan) which liability is materially in excess of any
such liability existing on the date hereof. Upon request, the Borrower will
deliver to each of the Banks a complete copy of the annual report (on Internal
Revenue Service Form 5500-series) of each Plan (including, to the extent
required, the related financial and actuarial statements and opinions and other
supporting statements, certifications, schedules and information) required to be
filed with the Internal Revenue Service. In addition to any certificates or
notices delivered to the Banks pursuant to the first sentence hereof, copies of
annual reports and any material notices received by the Borrower, any Subsidiary
of the Borrower or any ERISA Affiliate with respect to any Plan shall be
delivered to the Banks no later than ten (10) days after the date such report
has been filed with the Internal Revenue Service or such notice has been
received by the Borrower, the Subsidiary or the ERISA Affiliate, as applicable.
(j) Other Information. Promptly upon transmission thereof,
copies of any filings and registrations with, and reports to, the SEC by the
Borrower or any of its Subsidiaries (other than any registration statement on
Form S-8) and copies of all financial statements, proxy statements, notices and
reports as the Borrower or any of its Subsidiaries shall send to the holders
(other than the Borrower and its Subsidiaries) of their capital stock or of any
publicly issued Indebtedness in their capacity as such holders (in each case to
the extent not theretofore delivered to the Banks pursuant to this Agreement)
and, with reasonable promptness, such other information or documents (financial
or otherwise) as the Administrative Agent on its own behalf or on behalf of the
Required Banks may reasonably request from time to time.
(k) Other Financial Statements. Not more than 30 days after
the Effective Date the Borrower shall deliver to the Banks the consolidated
balance sheet of VIK and its Subsidiaries at December 31, 1996 and the related
consolidated statements of income and
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cash flows for the fiscal year ended as of said date which shall have been
examined by KPMG Peat Marwick LLP, independent public accountants and which
shall be in form and substance reasonably satisfactory to the Banks.
1.062 Books, Records and Inspections. The Borrower will, and
will cause each of its Subsidiaries to, permit, upon at least two Business Days'
notice to the Chief Financial Officer or any other Authorized Officer of the
Borrower, officers and designated representatives of the Administrative Agent or
the Required Banks to visit and inspect any of the properties or assets of the
Borrower and any of its Subsidiaries in whomsoever's possession (but only to the
extent the Borrower or such Subsidiary has the right to do so to the extent in
the possession of another Person), and to examine the books of account of the
Borrower and any of its Subsidiaries and discuss the affairs, finances and
accounts of the Borrower and of any of its Subsidiaries with, and be advised as
to the same by, its and their officers and (to the extent arranged through the
Borrower) their independent accountants and actuaries, if any, all at such
reasonable times and during normal business hours and to such reasonable extent
as the Administrative Agent or the Required Banks may request.
1.063 Insurance. The Borrower will, and will cause each of its
Subsidiaries to, at all times maintain in full force and effect insurance in
such amounts, covering such risks and liabilities and with such deductibles or
self-insured retentions as are in accordance with normal industry practice.
1.064 Payment of Taxes. The Borrower will pay and discharge,
and will cause each of its Subsidiaries to pay and discharge, all material
taxes, assessments and governmental charges or levies imposed upon it or upon
its income or profits, or upon any properties belonging to it, prior to the date
on which penalties attach thereto, and all lawful claims for sums that have
become due and payable (other than claims relating to the adjustment or
settling, in the ordinary course of business, of claims in respect of insurance
policies or reinsurance contracts) which, if unpaid, might become a Lien or
charge upon any properties of the Borrower or any of its Subsidiaries; provided
that neither the Borrower nor any of its Subsidiaries shall be required to pay
any such tax, assessment, charge, levy or claim which is being contested in good
faith and by proper proceedings if it has maintained adequate reserves (in the
good faith judgment of the management of the Borrower) with respect thereto in
accordance with GAAP.
1.065 Corporate Franchises. The Borrower will do, and will
cause each Subsidiary to do, or cause to be done, all things necessary to
preserve and keep in full force and effect its corporate existence, rights and
authority; provided that any transaction permitted by Section 7.02 will not
constitute a breach of this Section 6.05.
1.066 Compliance with Statutes, etc. The Borrower will, and
will cause each Subsidiary to, comply with all applicable statutes, regulations
and orders of, and all applic-
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able restrictions imposed by, all governmental bodies, domestic or foreign, in
respect of the conduct of its business and the ownership of its property
(including applicable statutes, regulations, orders and restrictions relating to
environmental standards and controls) other than those the non-compliance with
which would not have a Material Adverse Effect or a material adverse effect on
the ability of the Borrower or such Subsidiary to perform its obligations under
any Credit Document.
1.067 Good Repair. The Borrower will, and will cause each of
its Subsidiaries to, ensure that its material properties and equipment used or
useful in its business in whomsoever's possession they may be, are kept in good
repair, working order and condition, normal wear and tear excepted, and that
from time to time there are made in such properties and equipment all needful
and proper repairs, renewals, replacements, extensions, additions, betterments
and improvements thereto, to the extent and in the manner customary for
companies in similar businesses.
1.068 End of Fiscal Years; Fiscal Quarters. The Borrower will,
for financial reporting purposes, cause (i) each of its, and each of its
Subsidiaries', fiscal years to end on December 31 of each year and (ii) each of
its, and each of its Subsidiaries', fiscal quarters to end on March 31, June 30,
September 30 and December 31 of each year.
1.069 Compliance with Environmental Laws. (a) The Borrower
will pay, and will cause each of its Subsidiaries to pay, all costs and expenses
incurred by it in keeping in compliance with all Environmental Laws, and will
keep or cause to be kept all Real Properties owned or operated by the Borrower
or any of its Subsidiaries free and clear of any Liens imposed pursuant to such
Environmental Laws; and (b) neither the Borrower nor any of its Subsidiaries
will generate, use, treat, store, release or dispose of, or permit the
generation, use, treatment, storage, release or disposal of, Hazardous Materials
on any Real Property owned or operated by the Borrower or any of its
Subsidiaries, or transport or permit the transportation of Hazardous Materials
to or from any such Real Property, unless the failure to comply with the
requirements specified in clause (a) or (b) above, either individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
If the Borrower or any of its Subsidiaries, or any tenant or occupant of any
Real Property owned or operated by the Borrower or any of its Subsidiaries,
cause or permit any intentional or unintentional act or omission resulting in
the presence or Release of any Hazardous Material (except in compliance with
applicable Environmental Laws), the Borrower agrees to undertake, and/or to
cause any of its Subsidiaries, tenants or occupants to undertake, at their sole
expense, any clean up, removal, remedial or other action required pursuant to
Environmental Laws to remove and clean up any Hazardous Materials from any Real
Property, except where the failure to do so would not reasonably be expected to
have a Material Adverse Effect; provided, that neither the Borrower nor any of
its Subsidiaries shall be required to comply with any such order or directive
which is being contested in good
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faith and by proper proceedings so long as it has maintained adequate reserves
with respect to such compliance to the extent required in accordance with GAAP.
6.10 Additional Security; Further Assurances. (a) The Borrower
will, and will cause each of its Subsidiaries that are not Regulated Insurance
Companies or Subsidiaries of a Regulated Insurance Company to, grant to the
Collateral Agent security interests and mortgages in such assets and properties
of the Borrower and its Subsidiaries that are not Regulated Insurance Companies
as are not covered by the original Pledge Agreement, and as may be requested
from time to time by the Administrative Agent or the Required Banks
(collectively, the "Additional Security Documents"), provided that no such Liens
shall be required to be created in respect of any interest in any asset unless
such asset has a fair market value of more than $750,000. All such security
interests and mortgages shall be granted pursuant to documentation reasonably
satisfactory in form and substance to the Administrative Agent and shall
constitute valid and enforceable perfected security interests and liens superior
to and prior to the rights of all third Persons and subject to no other Liens
except for Permitted Liens. The Additional Security Documents or instruments
related thereto shall have been duly recorded or filed in such manner and in
such places as are required by law to establish, perfect, preserve and protect
the Liens in favor of the Collateral Agent required to be granted pursuant to
the Additional Security Documents and all taxes, fees and other charges payable
in connection therewith shall have been paid in full.
(b) The Borrower will, and will cause each of its Subsidiaries
that are not Regulated Insurance Companies or Subsidiaries of a Regulated
Insurance Company to, at the expense of the Borrower, make, execute, endorse,
acknowledge, file and/or deliver to the Collateral Agent from time to time such
vouchers, invoices, schedules, confirmatory assignments, conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, real
property surveys, reports and other assurances or instruments and take such
further steps relating to the collateral covered by any of the Security
Documents as the Collateral Agent may reasonably require. Furthermore, the
Borrower shall cause to be delivered to the Collateral Agent such opinions of
counsel, and other related documents as may be reasonably requested by the
Administrative Agent to assure themselves that this Section 6.10 has been
complied with.
(c) The Borrower agrees that each action required above by
this Section 6.10 shall be completed as soon as possible, but in no event later
than 90 days after such action is either requested to be taken by the
Administrative Agent or the Required Banks or required to be taken by the
Borrower and its Subsidiaries pursuant to the terms of this Section 6.10.
6.11 Bermuda Opinion. No later than 30 days after the
Effective Date, the Borrower shall deliver to the Administrative Agent an
opinion from a reputable Bermuda counsel, addressed to the Administrative Agent
and each of the Banks, which opinion shall
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cover matters incident to the pledge by the Borrower to the Administrative Agent
of the stock of Highlands Limited and Highlands Overseas Limited.
SECTION 7. Negative Covenants. The Borrower hereby covenants
and agrees that on the Effective Date and thereafter for so long as this
Agreement is in effect and until such time as the Total Commitment has been
terminated, no Notes remain outstanding and the Loans, together with interest,
Fees and all other Obligations (except Obligations which by the terms hereof
expressly survive the payment in full of the Loans and the termination of this
Agreement) are paid in full:
1.071 Changes in Business. The Borrower will not (x) engage in
any business other than the ownership of the capital stock of, and the provision
of management and other services to, its Subsidiaries, including incidental and
related activities, and (y) permit its Subsidiaries to substantively alter their
business activities taken as a whole from the property and casualty business
activities (including incidental or related activities) conducted by its
Subsidiaries (after giving effect to the Acquisition) on the Effective Date.
1.072 Consolidation, Merger, Purchase or Sale of Assets, etc.
The Borrower will not, and will not permit any Subsidiary to, wind up, liquidate
or dissolve its affairs, or enter into any transaction of merger or
consolidation or sell or otherwise dispose of any of its property or assets (but
excluding any sale or disposition of property or assets in the ordinary course
of business), or purchase, lease or otherwise acquire (in one transaction or a
series of related transactions) all or any part of the property or assets of any
Person (excluding any purchases, leases or other acquisitions of property or
assets in, and for use in, the ordinary course of business) or agree to do any
of the foregoing at any future time, except that the following shall be
permitted:
(a) Consolidated Capital Expenditures by the Borrower and its
Subsidiaries permitted by Section 7.17;
(b) The investments, acquisitions and transfers or
dispositions of property permitted pursuant to Section 7.05;
(c) The merger, consolidation, liquidation or dissolution of
any Wholly-Owned Subsidiary of the Borrower (other than VIK) with or
into another Wholly-Owned Subsidiary of the Borrower or of any Parent
Holding Company (other than VIK) into the Borrower, provided that no
such merger or consolidation shall be permitted between a Regulated
Insurance Company and a Non-Regulated Insurance Company;
(d) Any Regulated Insurance Company may enter into any
Insurance Contract or Reinsurance Agreement in the ordinary course of
business in accordance
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with its normal underwriting, indemnity and retention policies,
provided that no Regulated Insurance Company shall enter into any
transaction resulting in Surplus Relief;
(e) The Borrower or any of its Subsidiaries may sell or
otherwise dispose of any property or assets for cash provided that (i)
Net Cash Proceeds from all sales and or dispositions permitted by this
clause (e) shall not exceed $15,000,000 in the aggregate and (ii) no
portion of the capital stock or other equity interests of any
Subsidiary may be so sold or disposed of unless all of such capital
stock and/or equity interests held by the Borrower and its Subsidiaries
are sold or disposed of pursuant to the same transaction); and
(f) The Borrower and its Subsidiaries may acquire assets
constituting all or any portion of a business, business unit, division
or product line of any Person not already a Subsidiary of the Borrower
or capital stock of any such Person (including any such acquisition by
way of a merger or consolidation) (any such acquisition permitted by
this clause (f), a "Permitted Acquisition"), so long as (i) the only
consideration paid by the Borrower and its Subsidiaries in respect of
such Permitted Acquisitions consists of (w) cash in an amount not to
exceed (A) within the eighteen months immediately following the
Effective Date, $2,500,000 in the aggregate and thereafter (B)
$7,500,000 in the aggregate less amounts expended pursuant to (A)
above, (x) common stock in value not to exceed $30,000,000 in the
aggregate, (y) paid in kind preferred stock with a liquidation value
not in excess of (A) $15,000,000 less (B) amounts expended pursuant to
(z) herein, and which preferred stock shall be in form and substance
reasonably satisfactory to the Required Banks and (z) paid in kind
subordinated debt not to exceed $5,000,000 in the aggregate and in form
and substance reasonably satisfactory to the Required Banks and (ii) no
Default or Event of Default then exists (both before and after giving
effect to any such Permitted Acquisition).
1.073 Liens. The Borrower will not, and will not permit any of
its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or
with respect to any property or assets of any kind (real or personal, tangible
or intangible) of the Borrower or any such Subsidiary whether now owned or
hereafter acquired, or sell any such property or assets subject to an
understanding or agreement, contingent or otherwise, to repurchase such property
or assets (including sales of accounts receivable or notes with recourse to the
Borrower or any of its Subsidiaries) or assign any right to receive income, or
file or permit the filing of any financing statement under the UCC or any other
similar notice of Lien under any similar recording or notice statute, except:
(a) Liens for taxes, assessments and governmental charges,
claims or levies not yet due or Liens for taxes, assessments and
governmental charges, claims or
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levies being contested in good faith and by appropriate proceedings for
which adequate reserves (in the good faith judgment of the management
of the Borrower) have been established;
(b) Liens in respect of property or assets of any of the
Borrower's Subsidiaries imposed by law which were incurred in the
ordinary course of business, such as carriers', warehousemen's and
mechanics' Liens and other similar Liens arising in the ordinary course
of business, and (x) which do not in the aggregate materially detract
from the value of such property or assets or materially impair the use
thereof in the operation of the business of the Borrower or any
Subsidiary and (y) which are being contested in good faith by
appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or asset subject to
such Lien;
(c) Liens created by this Agreement or the other Credit
Documents;
(d) Liens in existence on, or subsequently created pursuant to
commitments in existence on, the Effective Date which (x) are listed,
and the property subject thereto on the Effective Date described, in
Annex IX, and any extensions or renewals thereof (provided that (i) the
securities subject to any such Lien may be replaced by other securities
of no greater principal amount and (ii) no such extension or renewal
will increase the obligations secured thereby or result in any such
Lien attaching to any additional property) or (y) are otherwise
permitted under this Section 7.03;
(e) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 8.08;
(f) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds, Reinsurance
Agreements, retrocession agreements and other similar obligations
incurred in the ordinary course of business (exclusive of obligations
in respect of the payment for borrowed money);
(g) Leases or subleases granted to others not interfering in
any material respect with the business of the Borrower or any of its
Subsidiaries and any interest or title of a lessor under any lease not
in violation of this Agreement;
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(h) Easements, rights-of-way, restrictions defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the ordinary conduct of the
business of the Borrower or any of its Subsidiaries;
(i) Liens arising from UCC financing statements regarding
leases not in violation of this Agreement;
(j) Liens on pledges or deposits of cash or securities made by
any Regulated Insurance Company as a condition to obtaining or
maintaining any licenses issued to it by any Applicable Regulatory
Insurance Authority;
(k) Liens incurred in connection with the acquisition of
property or assets after the Effective Date and attaching only to the
property or assets being acquired, provided that the Indebtedness
secured by such Liens (x) is non-recourse to the Borrower and/or any of
its Subsidiaries generally or to any other property and (y) does not
exceed 100% of the fair market value of such property or assets at the
time of acquisition thereof;
(l) Liens on property or assets of a Person existing at the
time such Person is first acquired and becomes a Subsidiary of the
Borrower as permitted by this Agreement, provided that (x) any such
Liens were not created in contemplation of such acquisition and do not
extend to or cover any property or assets other than specific property
and assets of the Person being acquired, (y) such Person continues as a
separate Subsidiary of the Borrower and is not merged or consolidated
with the Borrower or any other Subsidiary and (z) the Indebtedness
secured by any such Liens remains the obligation of such Person and is
not assumed or guaranteed by the Borrower or any of its other
Subsidiaries;
(m) Liens securing Indebtedness expressly permitted under
Section 7.04(b); and
(n) Liens created pursuant to the Cash Collateral Account.
1.074 Indebtedness. The Borrower will not, and will not permit
any of its Subsidiaries to, contract, create, incur, assume or suffer to exist
any Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement and the
other Credit Documents;
(b) Indebtedness owing by (i) any Wholly-Owned Subsidiary of
the Borrower (other than VIK) to another Wholly-Owned Subsidiary of the
Borrower provided that no loans or advances shall be permitted by this
clause (b) between a Regulated Insurance Company and a Non-Regulated
Insurance Company, (ii) the
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Borrower to any of its Subsidiaries representing advance payments made
by such Subsidiaries under Tax Sharing Agreements and (iii) the
Indebtedness owing by the Borrower which is evidenced by the Demand
Note;
(c) Indebtedness represented by the 10% Convertible
Subordinated Debentures;
(d) Obligations of a Regulated Insurance Company with respect
to letters of credit issued under letter of credit facilities and (i)
securing obligations under Reinsurance Agreements entered into in the
ordinary course of business of any such Regulated Insurance Company or
(ii) issued in lieu of deposits to satisfy Legal Requirements, in any
case to the extent such letters of credit are not drawn upon or, if and
to the extent drawn upon, such drawing is reimbursed no later than 10
days following receipt by such Regulated Insurance Company of notice of
payment on such letter of credit;
(e) Indebtedness of the Borrower and Regulated Insurance
Companies under Interest Rate Agreements entered into in the ordinary
course of business consistent with past practices (in the case of
Regulated Insurance Companies) and for bona fide hedging purposes and
not for speculation purposes, in an aggregate notional amount not to
exceed $65,000,000 at any time;
(f) Indebtedness consisting of currency hedging arrangements
entered into by any Regulated Insurance Company in respect of its (i)
assets or (ii) obligations, as the case may be, denominated in a
foreign currency to the extent in excess of its (a) obligations or (b)
assets, respectively, denominated in such foreign currency;
(g) Indebtedness the net cash proceeds of which are applied to
reduce the Commitments as provided in Section 2.03(e) provided that
such Indebtedness (i) shall be permitted under the 10% Convertible
Subordinated Debentures and (ii) shall be subordinate to the
Indebtedness incurred under this Agreement on a basis, and shall
otherwise be upon terms and conditions, reasonably satisfactory to the
Required Banks;
(h) Indebtedness of the Borrower to any Non-Regulated
Insurance Company that is a Subsidiary provided that such Indebtedness
shall be subordinate to the Indebtedness incurred under this Agreement
on a basis, and shall otherwise be upon terms and conditions,
reasonably satisfactory to the Required Banks;
(i) Indebtedness secured by Liens permitted by Sections
7.03(k) and/or (l);
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(j) Indebtedness under reimbursement obligations in respect of
letters of credit issued to guaranty or support the payment of
performance bonds, workers' compensation claims, insurance claims
(including, without limitation, obligations to fund securities industry
insurance companies in which any Subsidiary participates) and contested
appeals and compliance with operational and regulatory obligations
incurred in the ordinary course of business in an aggregate principal
amount not to exceed $1,000,000; and
(k) Other Indebtedness not to exceed an aggregate principal
amount at any time outstanding of $5,000,000.
1.075 Advances, Investments and Loans. The Borrower will not,
and will not permit any of its Subsidiaries to, lend money or credit or make
advances to any Person, or purchase or acquire any stock, obligations or
securities of, or any other interest in, or make any capital contribution to,
any Person, except:
(a) The Borrower or any of its Subsidiaries may invest in
cash, Cash Equivalents and Investment Grade Securities (other than
investments which are Risk Derivatives) (determined at the time of
acquisition); provided that (x) investments by Regulated Insurance
Companies shall not breach clause (d) below and (y) any investment in
Investment Grade Securities (other than U.S. Government Obligations)
issued by any single issuer shall not exceed on the date such
investment is made an amount which, when added to all other investments
by the Borrower and its Subsidiaries in such issuer and outstanding on
such date, is equal to 4% of Invested Assets at such time;
(b) The Borrower and its Subsidiaries may acquire and hold
receivables owing to them in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms;
(c) Loans and advances constituting intercompany Indebtedness
permitted under Section 7.04(b) and/or (h) shall be permitted;
(d) Regulated Insurance Companies may invest in securities to
the extent permitted by the Applicable Regulatory Insurance Authority
provided that (A) no investment will be made in (i) any debt securities
which are Non-Investment Grade Securities or (ii) any equity
securities, at a time when, or if after giving effect thereto, the
aggregate principal amount of all Non-Investment Grade Securities held
by all Regulated Insurance Companies plus the aggregate outstanding
investment made by all Regulated Insurance Companies in equity
securities (other than securities of Persons which are Affiliates of
the Borrower on the Effective Date) equal or exceed or would equal or
exceed 5% of Invested Assets; (B) no investment will be made in
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any real estate or loan secured by real estate (other than (x)
collateralized mortgage obligations and (y) (I) credit tenant loans (as
defined by NAIC on the Effective Date), (II) those existing on the
Effective Date (without giving effect to any increase thereto), (III)
loans secured by owner-occupied real estate, if made at a time when,
and if after giving effect thereto, the aggregate of all such
investments in mortgage loans referred to in (y) does not exceed, and
would not exceed, 1% of Invested Assets); and (C) no investment (other
than U.S. Government Obligations) in any single issuer shall exceed on
the date such investment is made an amount which, when added to all
other investments by all Regulated Insurance Companies in the same
issuer and outstanding on such date, is equal to the Applicable
Investment Percentage;
(e) Any Regulated Insurance Company may make investments in
companies which are Wholly-Owned Subsidiaries of such Person to the
extent that any such investment, at the time made, does not reduce
Statutory Earnings or Statutory Surplus;
(f) Investments existing on the Effective Date and identified
on Annex VI, Part I;
(g) Regulated Insurance Companies may make other investments
pursuant to commitments in effect as of the Effective Date and
described (as to matter and amount) on Annex VI, Part II;
(h) Investments acquired by the Borrower or any of its
Subsidiaries (x) in exchange for any other investment held by the
Borrower or any such Subsidiary in connection with or as a result of a
bankruptcy, workout, reorganization or recapitalization of the issuer
of such other investment or (y) as a result of a foreclosure by the
Borrower or any of its Subsidiaries with respect to any secured
investment or other transfer of title with respect to any secured
investment in default;
(i) Investments of the Borrower and Regulated Insurance
Companies in Interest Rate Agreements as permitted by Section 7.04(e);
(j) The Borrower and its Subsidiaries may make loans and
advances in to their respective employees so long as the aggregate
principal amount thereof at any time outstanding shall not exceed
$5,000,000;
(k) The Borrower may make equity contributions on or after the
Effective Date to any Subsidiaries (except LMI Insurance Company and
Highlands U.K.) in an aggregate amount for all such contributions not
to exceed at the time of making any such contribution (i) $10,000,000
(but in no event will such contribution be more
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than $9,000,000 in the case of a contribution to VIK on the Effective
Date) plus (ii) an amount equal at such time to 50% of the combined
statutory income of the Regulated Insurance Companies that are direct
Subsidiaries of the Borrower, VIK or any Parent Holding Company, on a
cumulative basis from July 1, 1997 to such time;
(l) The Acquisition shall be permitted;
(m) The Capital Contribution shall be permitted; and
(n) Permitted Acquisitions.
1.076 Prepayments of Indebtedness, Modifications of
Agreements, etc. The Borrower will not, and will not permit any of its
Subsidiaries to:
(a) make (or give any notice in respect thereof) any voluntary
or optional payment or prepayment or redemption or acquisition for
value of (including, without limitation, by way of depositing with the
trustee with respect thereto money or securities before due for the
purpose of paying when due) or exchange of the 10% Convertible
Subordinated Debentures, except upon the conversion thereof in
accordance with their terms so long as no cash payments are made in
connection with such conversion (except for cash payments in lieu of
accrued interest and fractional shares);
(b) amend or modify (or permit the amendment or modification
of) any of the terms or provisions of the 10% Convertible Subordinated
Debentures, any of the Acquisition Documents or any of the Redemption
Documents without the consent of the Required Banks, which consent
shall not be unreasonably withheld;
(c) amend, modify or terminate (or permit the amendment,
modification or termination of) any Tax Sharing Agreement or any other
Specified Contract without the prior written consent of the Required
Banks if the effect of such modification or termination would be
adverse to the interests of the Banks;
(d) amend, modify or change in any manner adverse to the
interests of the Banks the Certificate of Incorporation (including,
without limitation, by the filing of any certificate of designation) or
by-laws of the Borrower or any of its Subsidiaries, or enter into any
new agreement with respect to the capital stock of the Borrower or (to
the extent adverse to the interests of the Banks) any of its
Subsidiaries; and/or
(e) amend or modify (or permit the amendment or modification
of any of the terms of) the Demand Note or the Cash Collateral
Agreement without the consent of the Required Banks.
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it being understood that no provision of this Section 7.06 or of Section 7.07
will prohibit redemptions of Management Securities held by their employees and
permitted by Section 7.04(c) in an aggregate amount not to exceed $3,000,000, in
each case, so long as no Default under Section 8.01 or Event of Default exists
or would result therefrom.
1.077 Dividends, etc. (a) The Borrower will not, and will not
permit any of its Subsidiaries to, declare or pay any dividends (other than
dividends payable solely in common stock of such Person) or return any capital
to, its stockholders or authorize or make any other distribution, payment or
delivery of property or cash to its stockholders as such, or redeem, retire,
purchase or otherwise acquire, directly or indirectly, for a consideration, any
shares of any class of its capital stock now or hereafter outstanding (or any
warrants for or options or stock appreciation rights in respect of any of such
shares), or set aside any funds for any of the foregoing purposes, or permit any
of its Subsidiaries to purchase or otherwise acquire for consideration any
shares of any class of the capital stock of the Borrower or any other
Subsidiary, as the case may be, now or hereafter outstanding (or any options or
warrants or stock appreciation rights issued by such Person with respect to its
capital stock) (all of the foregoing "Dividends"), except that:
(i) any Subsidiary may pay dividends to its parent if such
parent is the Borrower or a Subsidiary of the Borrower;
(ii) the Borrower may repurchase its Preferred Stock (x) with
the proceeds of the issuance of common stock of the Borrower or (y)
upon maturity pursuant to the terms of such Preferred Stock as in
effect on the Effective Date provided that no Default or Event of
Default exists or would result therefrom at the time of any such
purchase;
(iii) the Borrower may from time to time pay dividends to the
holders of the Preferred Stock or other permitted preferred stock
pursuant to the terms thereof, provided that (x) such dividends are
paid in kind and (y) no Default or Event of Default then exists or
would exist immediately after giving effect thereto;
(iv) the Borrower may repurchase its common stock and/or
options or warrants to purchase its common stock from directors, former
directors, management or former management of the Borrower and its
Subsidiaries in accordance with arrangements made with such directors
or management, provided that (x) no Default or Event of Default exists
at the time of any such purchase and (y) the aggregate amount expended
by the Borrower after the Effective Date pursuant to this clause (iii)
shall not exceed $3,000,000;
(v) the Borrower may repurchase shares of its common stock, or
warrants, rights or options to acquire shares of its common stock, and
may reissue and resell
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shares of its common stock, or warrants, rights or options to acquire
shares of its common stock to its employees provided that the aggregate
cash amount expended pursuant to this clause (v) shall not exceed
$4,000,000; and
(vi) the Redemption shall be permitted.
(b) The Borrower will not, and will not permit any of its
Subsidiaries to, create or otherwise cause or suffer to exist any encumbrance or
restriction which prohibits or otherwise restricts (A) the ability of any
Subsidiary to (a) pay dividends or make other distributions or pay any
Indebtedness owed to the Borrower or any Subsidiary, (b) make loans or advances
to the Borrower or any Subsidiary, (c) transfer any of its properties or assets
to the Borrower or any Subsidiary or (d) guarantee the Obligations or (B) the
ability of the Borrower or any Subsidiary of the Borrower to create, incur,
assume or suffer to exist any Lien upon its property or assets to secure the
Obligations, other than prohibitions or restrictions existing under or by reason
of (i) this Agreement, the other Credit Documents, (ii) Legal Requirements,
(iii) customary non-assignment provisions entered into in the ordinary course of
business and consistent with past practices, (iv) purchase money obligations for
property acquired in the ordinary course of business, so long as such
obligations are permitted under this Agreement, (v) any restriction or
encumbrance with respect to a Subsidiary of the Borrower imposed pursuant to an
agreement which has been entered into for the sale or disposition of all or
substantially all of the capital stock or assets of such Subsidiary, so long as
such sale or disposition is permitted under this Agreement and (vi) Liens
permitted under Section 7.03 and any documents or instruments governing the
terms of any Indebtedness or other obligations secured by any such Liens,
provided that such prohibitions or restrictions apply only to the assets subject
to such Liens.
1.078 Transactions with Affiliates. The Borrower will not, and
will not permit any Subsidiary to, enter into any transaction or series of
transactions with any Affiliate (other than the Borrower or any Wholly-Owned
Subsidiary of the Borrower) other than in the ordinary course of business and on
terms and conditions substantially as favorable to the Borrower or such
Subsidiary as would be obtainable by the Borrower or such Subsidiary at the time
in a comparable arm's-length transaction with a Person other than an Affiliate.
1.079 Creation of Subsidiaries. The Borrower shall not create
or acquire any Subsidiary other than (A) Regulated Insurance Companies (each a
"RIC") which are direct Subsidiaries of the Borrower and 100% of the capital
stock of which is pledged to the Collateral Agent pursuant to a Pledge
Agreement, (B) Non-Regulated Insurance Companies which are not Subsidiaries of
any Regulated Insurance Company and 100% of the capital stock of which is
pledged to the Collateral Agent pursuant to a Pledge Agreement and (C) a RIC
which shall be a direct Subsidiary of another RIC, provided that no more than
10% of the surplus of such other RIC is used to capitalize such Subsidiary.
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7.10 Transactions with Highlands U.K. The Borrower will not,
and will not permit any Subsidiary (other than Highlands U.K.) to, enter into
any transactions or series of transactions with Highlands U.K. provided that
such restriction shall not apply to the Borrower's ability to collect management
and/or investment fees from Highlands U.K.
7.11 Leverage Ratio. The Borrower will not permit the ratio of
(i) Consolidated Indebtedness to (ii) Total Capital at any time to be greater
than .31:1.
7.12 Interest Coverage Ratio. The Borrower will not permit the
Interest Coverage Ratio at the end of any quarter ending during any period set
forth below to be less than the ratio set forth opposite such period below:
Period Ratio
------- -------
From the Effective Date to and
including December 31, 1999 2.00:1
Thereafter 2.50:1
7.13 Minimum Statutory Surplus. (a) The Borrower will not
permit HIC, on a combined basis, to have during any period set forth below a
Statutory Surplus of less than the amount set forth below:
Period Amount
-------- --------
From the Effective Date
to and including December 31, 1997 $165,000,000
Thereafter $185,000,000
(b) The Borrower will not permit VIK on a combined statutory
basis to have at any time a Statutory Surplus of less than $100,000,000.
7.14 Minimum Risk-Based Capital. (a) The Borrower will not
permit the Risk-Based Capital for any Subsidiary listed below to be less than
the percentage set forth below opposite such Subsidiary:
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Subsidiary Percentage
----------- ------------
HIC 275%
Northwestern National 275%
(b) The Borrower will not permit the ratio of (x) Total Adjusted
Capital to (y) Authorized Control Level for any Subsidiary (other than HIC,
Northwestern National and LMI) which is a Regulated Insurance Company to be less
than 2.00:1.00 at any time.
7.15 Operating Leverage Ratio. The Borrower will not permit
the Operating Leverage Ratio at the end of any fiscal quarter for (i) HIC, on a
combined statutory basis, and (ii) VIK, on a combined statutory basis, in each
case to be greater than 3.00 to 1.
7.16 Issuance of Stock. The Borrower will not permit any of
its Subsidiaries directly or indirectly to issue, sell, assign, pledge, or
otherwise encumber or dispose of any shares of its capital stock or other equity
securities (or warrants, rights or options to acquire shares or other equity
securities) of such Subsidiary, except (i) to qualify directors if required by
applicable law and (ii) pursuant to the Security Documents.
7.17 Consolidated Capital Expenditures. The Borrower will not
permit Consolidated Capital Expenditures to exceed $3,000,000 in any fiscal
year.
SECTION 8. Events of Default. Upon the occurrence of any of
the following specified events (each an "Event of Default"):
1.081 Payments. The Borrower shall (i) default in the payment
when due of any principal of the Loans or (ii) default, and such default shall
continue for three or more days, in the payment when due of (x) any interest on
the Loans, (y) any Fees or (z) after notice thereof to the Borrower, if and to
the extent required in such Credit Document, any other amounts owing hereunder
or under any other Credit Document; or
1.082 Representations, etc. Any representation, warranty or
statement made by any Credit Party herein or in any other Credit Document or in
any statement or certificate delivered or required to be delivered pursuant
hereto or thereto shall prove to be untrue in any material respect on the date
as of which made or deemed made; or
1.083 Covenants. The Borrower shall (i) default in the due
performance or observance by it of any term, covenant or agreement contained in
Section 6.08, 6.10 or 7, or (ii) default in the due performance or observance by
it of any term, covenant or agreement (other than those referred to in Section
8.01, 8.02 or clause (i) of this Section 8.03) contained in this Agreement and
such default shall continue unremedied for a period of at least 30 days; or
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1.084 Default Under Other Agreements. (a) The Borrower or any
of its Subsidiaries shall (i) default in any payment with respect to any
Indebtedness (other than the Obligations), and such default shall continue after
the applicable grace period, if any, specified in the agreement or instrument
relating to such Indebtedness, or (ii) default in the observance or performance
of any agreement or condition relating to any such Indebtedness or contained in
any instrument or agreement evidencing, securing or relating thereto (and all
grace periods applicable to such observance, performance or condition shall have
expired), or any other event shall occur or condition exist, the effect of which
default or other event or condition is to cause, or to permit the holder or
holders of such Indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause any such Indebtedness to become due prior to its stated
maturity; or (b) any such Indebtedness of the Borrower or any of its
Subsidiaries shall be declared to be due and payable, or shall be required to be
prepaid other than by a regularly scheduled required prepayment or redemption,
prior to the stated maturity thereof, provided that it shall not constitute an
Event of Default pursuant to this Section 8.04 unless the aggregate amount of
all Indebtedness referred to in clause (a)(i) above exceeds $2,000,000 at any
one time; or
1.085 Bankruptcy, etc. The Borrower or any of its Subsidiaries
shall commence a voluntary case concerning itself under Title 11 of the United
States Code entitled "Bankruptcy," as now or hereafter in effect, or any
successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced
against the Borrower or any of its Subsidiaries and the petition is not
controverted within 10 days, or is not dismissed within 60 days, after
commencement of the case; or a custodian (as defined in the Bankruptcy Code) is
appointed for, or takes charge of, all or substantially all of the property of
the Borrower or any of its Subsidiaries; or the Borrower or any of its
Subsidiaries commences (including by way of applying for or consenting to the
appointment of, or the taking of possession by, a rehabilitator, receiver,
custodian, trustee, conservator or liquidator (collectively, a "conservator") of
itself or all or any substantial portion of its property) any other proceeding
under any reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency, liquidation, rehabilitation, conservatorship or similar
law of any jurisdiction whether now or hereafter in effect relating to the
Borrower or any of its Subsidiaries; or any such proceeding is commenced against
(a) any Regulated Insurance Company which is engaged in the business of
underwriting insurance and/or reinsurance in the United States, or (b) the
Borrower or any of its Subsidiaries (other than any Regulated Insurance Company
described in the immediately preceding clause (a)) to the extent such proceeding
is consented to by such Person or remains undismissed for a period of 60 days;
or the Borrower or any of its Subsidiaries is adjudicated insolvent or bankrupt;
or any order of relief or other order approving any such case or proceeding is
entered; or (a) any Regulated Insurance Company which is engaged in the business
of underwriting insurance and/or reinsurance in the United States suffers any
appointment of any conservator or the like for it or any substantial part of its
property, or (b) the Borrower or any of its Subsidiaries (other than any
Regulated Insurance Company described in the immediately preceding clause (a))
suffers any appointment of any conservator or the like for it or any substantial
part of its property which continues undischarged or unstayed for a period of 60
days; or the Borrower or any of its
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Subsidiaries makes a general assignment for the benefit of creditors; or any
corporate action is taken by the Borrower or any of its Subsidiaries for the
purpose of effecting any of the foregoing; or
1.086 ERISA. (a) Any Plan shall fail to satisfy the minimum
funding standard required for any plan year or part thereof under Section 412 of
the Code or Section 302 of ERISA or a waiver of such standard or extension of
any amortization period is sought or granted under Section 412 of the Code or
Section 303 or 304 of ERISA, a Reportable Event shall have occurred, a
contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan
subject to Title IV of ERISA shall be subject to the advance reporting
requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph
(b)(1) thereof) and an event described in subsection .62, .63, .64, .65, .66,
.67, or .68 of PBGC Regulation Section 4043 shall be reasonably expected to
occur with respect to such Plan within the following 30 days, any Plan which is
subject to Title IV of ERISA shall have had or is likely to have a trustee
appointed to administer such Plan, any Plan which is subject to Title IV of
ERISA is, shall have been or is likely to be terminated or to be the subject of
termination proceedings under ERISA, any Plan shall have an Unfunded Current
Liability, a contribution required to be made with respect to a Plan has not
been timely made, the Borrower or any Subsidiary of the Borrower or any ERISA
Affiliate has incurred or is likely to incur any liability to or on account of a
Plan under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204
or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or on account
of a group health plan (as defined in Section 607(1) of ERISA or Section
4980B(g)(2) of the Code) under Section 4980B of the Code, or the Borrower or any
Subsidiary of the Borrower has incurred or is likely to incur liabilities
pursuant to one or more employee welfare benefit plans (as defined in Section
3(1) of ERISA) that provide benefits to retired employees or other former
employees (other than as required by Section 601 of ERISA) or Plans; (b) there
shall result from any such event or events the imposition of a lien, the
granting of a security interest, or a liability or a material risk of incurring
a liability; and (c) such lien, security interest or liability, individually,
and/or in the aggregate, in the opinion of the Required Banks, has had, or could
reasonably be expected to have, a Material Adverse Effect; or
1.087 Security Documents. (a) Any Security Document shall
cease to be in full force and effect, or shall cease to give the Collateral
Agent any of the material Liens purported to be created thereby in favor of the
Collateral Agent for the benefit of the Secured Creditors or (b) the Borrower
shall default in the due performance or observance of any material term,
covenant or agreement on its part to be performed or observed pursuant to any
Security Document and such default shall continue unremedied for a period beyond
the grace period, if any, provided in such Security Document for such default;
or
1.088 Judgments. One or more judgments or decrees shall be
entered against the Borrower and/or any of its Subsidiaries involving a
liability (not paid or fully covered by insurance) of $2,000,000 or more in the
aggregate for all such judgments and decrees for the Borrower and its
Subsidiaries and any such judgments or decrees shall not have been
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vacated, discharged or stayed or bonded pending appeal within 45 days from the
entry thereof or, in the case of a default judgment, 45 days from the date the
Borrower obtains notice thereof; or
1.089 Reserve Adequacy. A reserve adequacy report delivered
pursuant to Section 6.01(g) indicates that the Borrower and its Subsidiaries
shall have reserves (net of reinsurance) of less than the higher of (a) the low
end of the adequacy range set forth in such report, if a range is provided
therein, and (b) 95% of the lower of (1) the midpoint of the adequacy range set
forth in such report, if a range is provided therein and (2) the adequacy point
estimate set forth in such report, if any; provided that if at the time of the
delivery of any such report the Borrower and its Subsidiaries do not have
reserves as provided above, no Event of Default shall occur under this Section
8.09 until the 60th day after the delivery of such report and then only if the
Borrower and its Subsidiaries have failed to comply with the foregoing
requirement within such 60-day period; or
8.10 Ownership. A Change of Control shall occur; then, and in
any such event, and at any time thereafter, if any Event of Default shall then
be continuing, the Administrative Agent shall, upon the written request of the
Required Banks, by written notice to the Borrower, take any or all of the
following actions, without prejudice to the rights of the Administrative Agent
or any Bank to enforce its claims against the Borrower, except as otherwise
specifically provided for in this Agreement (provided that, if an Event of
Default specified in Section 8.05 shall occur with respect to the Borrower, the
result which would occur upon the giving of written notice by the Administrative
Agent as specified in clauses (i) and (ii) below shall occur automatically
without the giving of any such notice): (i) declare the Total Commitment
terminated, whereupon the Commitment of each Bank shall forthwith terminate
immediately; (ii) declare the principal of and any accrued interest in respect
of all Loans and all obligations owing hereunder and thereunder to be, whereupon
the same shall become, forthwith due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by the
Borrower; and (iii) enforce, as Administrative Agent (or direct the Collateral
Agent to enforce), any or all of the Liens and security interests created
pursuant to, and in accordance with, the Security Documents.
SECTION 9. Definitions. As used herein, the following terms
shall have the meanings herein specified unless the context otherwise requires.
Defined terms in this Agreement shall include in the singular number the plural
and in the plural the singular:
"Acquisition" shall mean the acquisition by the Borrower of
VIK through the merger of a newly formed Wholly-Owned Subsidiary of the Borrower
with and into VIK whereby VIK shall become a Wholly-Owned Subsidiary of the
Borrower and the insurance subsidiaries shall remain direct Wholly-Owned
Subsidiaries of the Borrower or direct or indirect Wholly-Owned Subsidiaries of
VIK, as the case may be, effected pursuant to and in accordance with the
Acquisition Documents.
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"Acquisition Agreement" shall mean the Amended and Restated
Agreement and Plan of Merger, dated as of February 13, 1997 between the
Borrower, Highlands Acquisition Corp and VIK, as amended by Amendment No. 1,
dated as of March 10, 1997, each in the form delivered pursuant to Section
4.01(k) and as the same may be amended or modified pursuant to the terms therein
and hereof.
"Acquisition Documents" shall mean the Acquisition Agreement
and all other agreements and documents relating to the Acquisition including the
Exhibits to the Acquisition Agreement, in the form delivered pursuant to Section
4.01(k) and as the same may be amended or modified pursuant to the terms therein
and hereof.
"Additional Security Documents" shall have the meaning
provided in Section 6.10.
"Adjusted Total Commitment" shall mean, at any time (x) the
Total Commitment less (y) the aggregate Commitments of Defaulting Banks.
"Administrative Agent" shall have the meaning provided in the
first paragraph of this Agreement and shall include any successor to the
Administrative Agent appointed pursuant to Section 10.09.
"Affiliate" shall mean, with respect to any Person, any other
Person directly or indirectly controlling (including but not limited to all
directors and officers of such Person), controlled by, or under direct or
indirect common control with such Person. A Person shall be deemed to control a
corporation if such Person possesses, directly or indirectly, the power (i) to
vote 10% or more of the securities having ordinary voting power for the election
of directors of such corporation or (ii) to direct or cause the direction of the
management and policies of such corporation, whether through the ownership of
voting securities, by contract or otherwise.
"Aggregate Maximum Dividends Available" shall mean, for any
period, the sum of the Maximum Dividends Available for each Regulated Insurance
Company which is a direct Subsidiary of the Borrower, VIK or a Parent Holding
Company.
"Agreement" shall mean this Credit Agreement, as the same may
be from time to time further modified, amended and/or supplemented.
"Annual Statement" shall mean the annual financial statement
required to be filed by any Regulated Insurance Company with the Applicable
Regulatory Insurance Authority.
"Applicable Investment Percentage" shall mean, for any issuer,
for any day, a percentage determined on the basis of the S&P Equivalent Rating
for the securities of such issuer (or if higher, of any entity fully
guaranteeing such securities) on such date, as follows:
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========================================================================
S&P Equivalent Rating Then the Applicable Investment
Percentage shall be:
- ------------------------------------------------------------------------
AAA- or Higher 4%
AA+, AA or AA- 3%
A+, A or A- 2%
BBB+ or Lower 1%
======================================== ===============================
"Applicable Percentage" shall mean, with respect to Base Rate
Loans or Eurodollar Loans, as the case may be, (i) from the Effective Date
through the date on which Section 6.01 Financials of the Borrower for the fiscal
quarter ending June 30, 1997 (the "First Section 6.01 Financials") are delivered
to the Banks, 0.00% and 1.00%, respectively, and (ii) upon receipt of Section
6.01 Financials for each fiscal quarter commencing with the First Section 6.01
Financials and a certificate of an Authorized Officer of the Borrower setting
forth the Quarter End Ratio as of the end of such quarter, the applicable
percentage set forth below based upon the respective quarter end Quarter End
Ratio:
<TABLE>
<CAPTION>
Quarter End Base Rate Eurodollar
Ratio Loans Loans
----------- --------- ----------
<S> <C> <C>
(greater than) 6.00:1 0.50% 1.50%
(Less than or equal to) 6.00:1 but (greater than) 5.00:1 0.25% 1.25%
(Less than or equal to) 5.00:1 but (greater than) 3.50:1 0.00% 1.00%
(Less than) 3.50:1 0.00% .75%
</TABLE>
provided that (A) if any Section 6.01 Financials of the Borrower for any fiscal
quarter or year are not delivered within 50 days of such quarter or year end
(the "Late Section 6.01 Financials") and such Late Section 6.01 Financials when
delivered establish that the Applicable Percentages would be increased as
provided above on the delivery date of such Financials then the Applicable
Percentages shall be increased retroactively to such fiftieth day and (B) if the
Borrower shall have made any interest payment during the period prior to the
actual date of delivery of such Late Section 6.01 Financials based upon the
lower Applicable Percentage in effect prior to such delivery, the Borrower shall
pay as additional interest an amount which equals the difference between the
amount of interest which would otherwise have been paid if the Late Section 6.01
Financials were delivered on such fiftieth day and the amount of such interest
so paid, which supplemental interest payment shall be due and
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<PAGE>
payable on the Business Day following the date of delivery of the Late Section
6.01 Financials.
"Applicable Regulatory Insurance Authority" shall mean, when
used with respect to any Regulated Insurance Company, the Superintendent of
Insurance, insurance commission or similar administrative authority or agency
located in (x) each state in which such Regulated Insurance Company is domiciled
or incorporated or (y) to the extent validly asserting regulatory jurisdiction
over such Regulated Insurance Company, the Superintendent of Insurance or
insurance commission in each state in which such Regulated Insurance Company is
licensed, and shall include any U.S. Federal insurance regulatory department,
authority or agency that may be created and that validly asserts regulatory
jurisdiction over such Regulated Insurance Company.
"Armco" shall mean Armco Inc., an Ohio corporation.
"Armco Debt" shall mean the amounts owing to Armco in
connection with the contingent commission payable by VIK to Armco under the
Northwestern Sale Agreement.
"Asset Sale" shall mean the sale, transfer or other
disposition by the Borrower or any Subsidiary to any Person other than the
Borrower or any Wholly-Owned Subsidiary of the Borrower of any asset of the
Borrower or such Subsidiary (other than (i) sales, transfers or other
dispositions in the ordinary course of business (including any such sales or
transfers of securities and investments included in or constituting the
investment portfolios of the Regulated Insurance Companies) and (ii) sales,
transfers or other dispositions permitted pursuant to Section 7.02(e)).
"Assignment Agreement" shall mean an Assignment and
Assumption Agreement substantially in the form of Exhibit G hereto.
"Authorized Control Level" shall mean "Authorized Control
Level Risk Based Capital" as defined by the NAIC from time to time and as
applied in the context of the Risk Based Capital Guidelines promulgated by the
NAIC (or any term substituted therefor by the NAIC).
"Authorized Officer" shall mean any senior officer of the
Borrower or a Regulated Insurance Company, as the case may be, designated as
such in writing to the Administrative Agent by the Borrower to the extent
reasonably acceptable to the Administrative Agent.
"Bank" shall have the meaning provided in the first paragraph
of this Agreement.
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<PAGE>
"Bank Default" shall mean (i) the refusal (which has not been
retracted) of a Bank to make available its portion of any incurrence of Loans or
(ii) a Bank having notified the Administrative Agent and/or the Borrower that it
does not intend to comply with the obligations under Section 1.01, including in
each case as a result of the appointment of a receiver or conservator with
respect to such Bank at the direction or request of any regulatory agency or
authority.
"Bankruptcy Code" shall have the meaning provided in
Section 8.05.
"Base Rate" at any time shall mean the higher of (i) the rate
which is 1/2 of 1% in excess of the Federal Funds Effective Rate and (ii) the
Prime Lending Rate.
"Base Rate Loan" shall mean each Loan bearing interest at the
rates provided in Section 1.08(a).
"Borrower" shall have the meaning provided in the first
paragraph of this Agreement.
"Borrower Pledge Agreement" shall have the meaning provided in
Section 4.01(h)(i).
"Borrowing" shall mean the incurrence of one Type of Loan
hereunder by the Borrower from all of the Banks on a pro rata basis on a given
date (or resulting from conversions on a given date), having in the case of
Eurodollar Loans the same Interest Period, provided that Base Rate Loans
incurred pursuant to Section 1.10(b) shall be considered part of any related
Borrowing of Eurodollar Loans.
"Business Day" shall mean (i) for all purposes other than as
covered by clause (ii) below, any day excluding Saturday, Sunday and any day
which shall be in the City of New York a legal holiday or a day on which banking
institutions are authorized by law or other governmental actions to close and
(ii) with respect to all notices and determinations in connection with, and
payments of principal and interest on, Eurodollar Loans, any day which is a
Business Day described in clause (i) and which is also a day for trading by and
between banks in U.S. dollar deposits in the interbank Eurodollar market.
"Capital Contribution" shall have the meaning provided in
Section 4.01(q).
"Capital Lease" as applied to any Person shall mean any lease
of any property (whether real, personal or mixed) by that Person as lessee
which, in conformity with GAAP, is accounted for as a capital lease on the
balance sheet of that Person.
"Capitalized Lease Obligations" shall mean all obligations
under Capital Leases of the Borrower or any of its Subsidiaries in each case
taken at the amount thereof accounted for as liabilities in accordance with
GAAP.
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<PAGE>
"Cash Collateral Account" shall mean the cash collateral
account (which shall be at all times satisfactory to the Administrative Agent)
established by the Borrower pursuant to the Demand Note to hold deposits of U.S.
Government Obligations to secure the payment of the principal of and interest on
the Demand Note.
"Cash Collateral Agreement" shall mean the Security
Agreement, dated April 30, 1997 among the Borrower, LMI Insurance Company and
Bank One, Texas, N.A., as Agent.
"Cash Equivalents" shall mean (i) securities issued or
directly and fully guaranteed or insured by the United States of America or any
agency or instrumentality thereof (provided that the full faith and credit of
the United States of America is pledged in support thereof) having maturities of
not more than one year from the date of acquisition, (ii) U.S. dollar
denominated time deposits, certificates of deposit and bankers' acceptances of
(x) any Bank or (y) any bank whose short-term commercial paper rating from S&P
is at least A-1 or the equivalent thereof or from Moody's is at least P-1 or the
equivalent thereof (any such bank, an "Approved Bank"), in each case with
maturities of not more than one year from the date of acquisition and (iii)
commercial paper issued by any Bank or Approved Bank or by the parent company of
any Bank or Approved Bank and commercial paper issued by, or guaranteed by, any
industrial or financial company with a short-term commercial paper rating of at
least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent
thereof by Moody's, or guaranteed by any industrial company with a long term
unsecured debt rating of at least A or A2, or the equivalent of each thereof,
from S&P or Moody's, as the case may be, and in each case maturing within one
year after the date of acquisition.
"Cash Flow" shall mean the sum (without duplication) of (i)
the Aggregate Maximum Dividends Available for such period plus (ii) Net Tax
Sharing Payments made to the Borrower during such period less investments made
in VIK and its Subsidiaries (other than the Capital Contribution plus any equity
contribution made to VIK on the Effective Date as permitted pursuant to Section
7.05(k)) during such period.
"Cash Proceeds" shall mean, with respect to any Asset Sale,
the aggregate cash payments (including any cash received by way of deferred
payment pursuant to a note receivable issued in connection with such Asset Sale,
other than the portion of such deferred payment constituting interest, but only
as and when so received) received by the Borrower and/or any Subsidiary from
such Asset Sale.
"CF Percentage" shall mean (x) at any time when the
Applicable Percentage for Base Rate Loans is more than zero, .375% and (y) at
any time when the Applicable Percentage for Base Rate Loans is zero, .250%,
provided that if the Applicable Percentage applicable to Base Rate Loans is at
any time retroactively increased from zero to a percentage greater than zero, as
provided in the definition of Applicable Percentage, then the CF Percentage
shall be retroactively increased for the same period and the payment of the
Commitment Fee resulting from such increase shall be payable at the same time as
would be
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<PAGE>
payable any increased interest resulting from such increase to the Applicable
Percentage (whether or not any Base Rate Loans are then outstanding).
"Change of Control" shall mean (i) any "Change of Control" as
such term is defined in the 10% Convertible Subordinated Debentures, (ii) any
"Person" or "group" (other than IP and its affiliates) (as such terms are used
in Sections 13(d) and 14(d) of the 1934 Act), is or shall become the "beneficial
owner" (as defined in Rules 13(d)-3 and 13(d)-5 under the 1934 Act), directly or
indirectly, of 25% or more on a fully diluted basis of the voting capital stock
interests of the Borrower, (iii) IP and its affiliates shall cease to own (x) at
least 30% on a fully diluted basis of the capital stock of the Borrower, or (y)
to the extent diluted as a result of new issuances of capital stock, 25% on a
fully diluted basis of the capital stock of the Borrower or (iv) the Board of
Directors of the Borrower shall cease to consist of a majority of Continuing
Directors.
"Chase" shall mean The Chase Manhattan Bank.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to the Code are to the Code, as in effect at the
date of this Agreement and any subsequent provisions of the Code, amendatory
thereof, supplemental thereto or substituted therefor.
"Collateral" shall mean all of the Collateral as defined in
each of the Security Documents.
"Collateral Agent" shall mean the Administrative Agent acting
as collateral agent for the Secured Creditors pursuant to the Security
Documents.
"Commitment" shall mean, with respect to each Bank, the
amount set forth opposite such Bank's name in Annex I hereto directly below the
column entitled "Commitment," as the same may be (x) reduced or terminated
pursuant to Section 2.02 and 2.03 or (y) adjusted from time to time as a result
of assignments to or from such Bank pursuant to Section 1.13 and/or 11.04.
"Commitment Fee" shall have the meaning provided in Section
2.01(a).
"Consolidated Capital Expenditures" shall mean, with respect
to any Person, all expenditures by such Person and its Subsidiaries which would
be capitalized in accordance with GAAP, including all such expenditures with
respect to fixed or capital assets (including, without limitation, expenditures
for maintenance and repairs which should be capitalized in accordance with GAAP)
and the amount of all Capitalized Lease Obligations incurred by such Person and
its Subsidiaries.
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<PAGE>
"Consolidated Indebtedness" shall mean, at any time, the
Loans and all other indebtedness for borrowed money of or guaranteed by the
Borrower at such time determined in accordance with GAAP.
"Consolidated Interest Expense" shall mean, for any period,
total interest expense (including that attributable to Capital Leases in
accordance with GAAP) of the Borrower and its Subsidiaries during such period
determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Worth" shall mean at any time for the
determination thereof all amounts which, in conformity with GAAP, would be
included under the caption "total shareholders' equity" (or any like caption) on
a consolidated balance sheet of the Borrower and its Subsidiaries as at such
date, but excluding in any event (i) goodwill and (ii) any adjustment resulting
from the application with FASB 115.
"Contingent Obligations" shall mean as to any Person any
obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations ("primary obligations") of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (a) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (b) to advance or
supply funds (i) for the purchase or payment of any such primary obligation or
(ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (c) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (d) otherwise to assure or hold
harmless the owner of such primary obligation against loss in respect thereof,
provided, however, that the term Contingent Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.
"Continuing Directors" shall mean the directors of the
Borrower on the Effective Date and each other director, if such director's
nomination for election to the Board of Directors of the Borrower is recommended
by a majority of the then Continuing Directors.
"Credit Documents" shall mean this Agreement, the Notes, the
Guaranty and the Security Documents.
"Credit Party" shall mean the Borrower, VIK and each other
Subsidiary party to the Security Documents.
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"D&P" shall mean Duff & Phelps and its successors.
"Default" shall mean any event, act or condition which solely
with notice or lapse of time, or both, would constitute an Event of Default.
"Defaulting Bank" shall mean any Bank with respect to which a
Bank Default is in effect.
"Demand Note" shall mean that certain note dated April 30,
1997, issued by the Borrower in favor of LMI Insurance Company in an aggregate
principal amount of $5,000,000, the principal of and interest on such note to be
paid from the Cash Collateral Account.
"Dividends" shall have the meaning provided in Section 7.07.
"Effective Date" shall mean the date on which the initial
Loans are made.
"Eligible Transferee" shall mean and include a commercial
bank, financial institution or other "accredited" investor (as defined in SEC
Regulation D).
"Environmental Law" shall mean any federal, state or local
statute, law, rule, regulation, ordinance, legally binding code, policy or rule
of common law now or hereafter in effect and in each case as amended, and any
applicable judicial or administrative interpretation thereof, including any
judicial or administrative order, consent, decree or judgment (for purposes of
this definition (collectively, "Laws")), relating to the environment or
Hazardous Materials or health and safety to the extent such health and safety
issues arise under the Occupational Safety and Health Act of 1970, as amended,
or any such similar Laws.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time, and the regulations promulgated
thereunder. Section references to ERISA are to ERISA, as in effect at the date
of this Agreement and any subsequent provisions of ERISA, amendatory thereof,
supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in
Section 3(9) of ERISA) which together with the Borrower or a Subsidiary of the
Borrower would be deemed to be a "single employer" (i) within the meaning of
Section 414(b), (c), (m) or (o) of the Code or (ii) as a result of the Borrower
or a Subsidiary of the Borrower being or having been a general partner of such
person.
"Eurodollar Loans" shall mean each Loan bearing interest at
the rates provided in Section 1.08(b).
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"Eurodollar Rate" shall mean with respect to each Interest
Period (i) the offered quotation to first-class banks in the interbank
Eurodollar market by the Administrative Agent for dollar deposits of amounts in
same day funds comparable to the outstanding principal amount of the Eurodollar
Loan of the Administrative Agent for which an interest rate is then being
determined with maturities comparable to the Interest Period to be applicable to
such Eurodollar Loan, determined as of 11:00 A.M. (London time) on the date
which is two Business Days prior to the commencement of such Interest Period
divided (and rounded upward to the next whole multiple of 1/16 of 1%) by (ii) a
percentage equal to 100% minus the then stated maximum rate of all reserve
requirements (including without limitation any marginal, emergency,
supplemental, special or other reserves) applicable to any member bank of the
Federal Reserve System in respect of Eurocurrency liabilities as defined in
Regulation D (or any successor category of liabilities under Regulation D).
"Event of Default" shall have the meaning provided in
Section 8.
"Existing Preferred Stock" shall mean that preferred stock of
the Borrower and its Subsidiaries which remain outstanding on the Effective Date
after giving effect to the consummation of the Acquisition.
"Existing VIK Credit" shall mean the credit facility under
the credit agreement, dated as of April 7, 1995 and as amended and restated as
of March 22, 1996, between VIK, the lenders party thereto and ING Capital (U.S.)
Corporation, as in effect on the Effective Date.
"Federal Funds Effective Rate" shall mean, for any period, a
fluctuating interest rate equal for each day during such period to the weighted
average of the rates on overnight Federal Funds transactions with members of the
Federal Reserve System arranged by Federal Funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for such day
on such transactions received by the Administrative Agent from three Federal
Funds brokers of recognized standing selected by the Administrative Agent.
"Financial Reinsurance Agreement" shall mean a reinsurance
agreement covering any transaction in which any Regulated Insurance Company
cedes business that does not meet the conditions for reinsurance accounting as
provided by the Financial Accounting Standards Board in Statement of Financial
Accounting Standards No. 113, as the same may be revised, replaced, or
supplemented from time to time.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect on the date of this Agreement; it
being understood and agreed that determinations in accordance with GAAP for
purposes of Section 7, including defined terms as used therein, are subject (to
the extent provided therein) to Section 11.07(a).
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"Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereof or therein of and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Guaranty" shall have the meaning provided in Section
4.01(h)(i).
"Hazardous Materials" shall mean (a) any petrochemical or
petroleum products, radioactive materials, asbestos in any form that is or could
become friable, urea formaldehyde foam insulation, transformers or other
equipment that contain dielectric fluid containing levels of polychlorinated
biphenyls, and radon gas; and (b) any chemicals, materials or substances defined
as or included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "restricted hazardous materials," "extremely hazardous
wastes," "restrictive hazardous wastes," "toxic substances," "toxic pollutants,"
"contaminants" or "pollutants," or words of similar meaning and regulatory
effect.
"HIC" shall mean Highlands Insurance Company, a Texas
corporation.
"HIC Insurance Subsidiaries" shall mean collectively HIC and
each of its Subsidiaries which are insurance companies.
"Highlands Acquisition Corp." shall mean Highlands Acquisition
Corp., a Delaware corporation.
"Highlands Limited" shall mean Highlands Limited, a Bermuda
corporation.
"Highlands Overseas Limited" shall mean Highlands Overseas
Limited, a Bermuda corporation.
"Highlands U.K." shall mean Highland Insurance Company (U.K.)
Limited, a company incorporated under the laws of England.
"Indebtedness" of any Person shall mean without duplication
(i) all indebtedness of such Person for borrowed money, (ii) the deferred
purchase price of assets or services which in accordance with GAAP would be
shown on the liability side of the balance sheet of such Person, (iii) the face
amount of all letters of credit issued for the account of such Person and,
without duplication, all drafts drawn thereunder, (iv) all Indebtedness of a
second Person secured by any Lien on any property owned by such first Person,
whether or not such indebtedness has been assumed, (v) all Capitalized Lease
Obligations of such Person, (vi) all obligations of such Person to pay a
specified purchase price for goods or services whether or not delivered or
accepted, i.e., take-or-pay and similar obligations, (vii) all net obligations
of such Person under Interest Rate Agreements and (viii) all Contingent
Obligations of such Person, provided that Indebtedness shall not include trade
payables, accrued expenses and deferred taxes, in each case arising in the
ordinary course of business.
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"Insurance Business" shall mean one or more aspects of the
business of selling, issuing or underwriting insurance or reinsurance.
"Insurance Contract" shall mean any insurance contract or
policy issued by a Regulated Insurance Company but shall not include any
Reinsurance Agreement.
"Interest Coverage Ratio" shall mean, as at the end of any
fiscal quarter, the ratio of (x) Cash Flow to (y) Consolidated Interest Expense
for the Test Period then ended.
"Interest Period" with respect to any Loan shall mean the
interest period applicable thereto, as determined pursuant to Section 1.09.
"Interest Rate Agreement" shall mean any interest rate swap
agreement, any interest rate cap agreement, any interest rate collar agreement
or other similar agreement or arrangement designed to protect against
fluctuations in interest rates.
"Invested Assets" shall mean, at any time, all the
investments, taken as a whole, held by all Regulated Insurance Companies, valued
at fair market value.
"Investment Grade Securities" shall mean and include (i) U.S.
Government Obligations (other than Cash Equivalents), (ii) debt securities or
debt instruments with a rating of BBB- or higher by S&P, Baa3 or higher by
Moody's, Class (2) or higher by NAIC or the equivalent of such rating by S&P,
Moody's, or NAIC, but excluding any debt securities or instruments constituting
loans or advances among the Borrower and its Subsidiaries, and (iii) any fund
investing exclusively in investments of the type described in clauses (i) and
(ii) which fund may also hold immaterial amounts of cash pending investment
and/or distribution.
"IP" shall mean, collectively, Insurance Partners, L.P. and
Insurance Partners Offshore (Bermuda), L.P.
"Leasehold" of any Person shall mean all of the right, title
and interest of such Person as lessee or licensee in, to and under leases or
licenses of land, improvements and/or fixtures.
"Legal Requirements" shall mean all applicable laws, rules,
orders and regulations made by any legislature or government or any governmental
body or regulatory authority (including, without limitation, any Applicable
Regulatory Insurance Authority) having jurisdiction over the Borrower or a
Subsidiary of the Borrower.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement or any
lease in the nature thereof).
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"LMI Insurance Company" shall mean LMI Insurance Company, an
Ohio corporation.
"Loan" shall have the meaning provided in Section 1.01.
"Management Securities" shall mean any of the following
securities of the Borrower which have been issued to members of management of
the Borrower: (i) 10% Convertible Subordinated Debentures and (ii) Common Stock
Subscription Warrants, Series A, Series A-2, Series B and Series B-2.
"Margin Stock" shall have the meaning provided in Regulation
U.
"Material Adverse Effect" shall mean a material adverse
effect on the business, operations, results of operations, assets, liabilities,
condition (financial or otherwise) or prospects of the Borrower and its
Subsidiaries taken as a whole and/or, in the case of Section 4.01(e), VIK and
its Subsidiaries taken as a whole.
"Maturity Date" shall mean the fifth anniversary of the
Effective Date.
"Maximum Dividends Available" shall mean for any period, for
any Regulated Insurance Company ("RIC") that is a direct Subsidiary of the
Borrower, VIK or any Parent Holding Company, its net income during such period
("Net Income") determined in accordance with SAP on a combined basis, if such
RIC is permitted by the Applicable Regulatory Insurance Authority to pay
dividends.
"Minimum Borrowing Amount" shall mean (i) for Base Rate
Loans, $1,000,000 and (ii) for Eurodollar Loans, $5,000,000.
"Moody's" shall mean Moody's Investors Service, Inc. and its
successors.
"Multiemployer Plan" means a multiemployer plan (as such term
is defined in Section 4001(a)(3) of ERISA).
"NAIC" shall mean the National Association of Insurance
Commissioners or any successor organization thereto.
"NAIC Tests" shall mean the ratios and other financial
measurements developed by the NAIC under its Insurance Regulatory Information
System, as in effect from time to time.
"Net Cash Proceeds" shall mean, with respect to any Asset
Sale, the Cash Proceeds resulting therefrom net of (i) expenses of sale incurred
in connection with such Asset Sale, and other fees and expenses incurred, and
all state and local taxes paid or reasonably estimated to be payable, as a
consequence of such Asset Sale and the payment of
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principal, premium and interest of Indebtedness secured by the asset which is
the subject of the Asset Sale and required to be, and which is, repaid under the
terms thereof as a result of such Asset Sale), (ii) amounts of any distributions
payable to holders of minority interests in the relevant Person or in the
relevant property or assets and (iii) incremental income taxes paid or payable
as a result thereof.
"Net Premiums Written" shall mean, for any period, for any
Person, determined in accordance with SAP, the aggregate amount of premiums
written by such Person and its Subsidiaries during such period, as same would be
shown on line 32, page 7, column 1 of the Annual Statement for such Person
covering such period.
"Net Tax Sharing Payments" shall mean the aggregate amount of
all payments made to the Borrower by any Subsidiary for the payment of the
Borrower's Federal income taxes less the sum of (x) any such taxes paid by the
Borrower and (y) any reimbursement payments made, or required to be made, by the
Borrower to any Subsidiary with respect to any such payments.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Non-Defaulting Bank" shall mean each Bank other than a
Defaulting Bank.
"Non-Investment Grade Securities" shall mean all debt
securities or instruments that are not Investment Grade Securities.
"Non-Regulated Insurance Company" shall mean each Subsidiary
of the Borrower which is not a Regulated Insurance Company provided each
Non-Regulated Insurance Company must be a direct Subsidiary of the Borrower or
of another Non-Regulated Insurance Company, except as set forth in Annex III.
"Northwestern National" shall mean Northwestern National
Casualty Company, a Wisconsin corporation.
"NNHC" shall mean Northwestern National Holding Company, Inc.
a Delaware corporation.
"Northwestern Sale Agreement" shall mean the Stock Purchase
Agreement dated as of August 2, 1994 among Armco, Armco Financial Services
Corporation and VIK, as in effect on the Effective Date.
"Note" shall have the meaning provided in Section 1.05(a).
"Notice of Borrowing" shall have the meaning provided in
Section 1.03.
"Notice of Conversion" shall have the meaning provided in
Section 1.06.
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"Notice Office" shall mean the office of the Administrative
Agent at One Chase Manhattan Plaza, New York, NY 10081, Attention: Richard Bosek
or such other office as the Administrative Agent may designate to the Borrower
from time to time.
"Obligations" shall mean all amounts, direct or indirect,
contingent or absolute, of every type or description, and at any time existing,
owing to the Administrative Agent or any Bank pursuant to the terms of this
Agreement or any other Credit Document.
"Operating Leverage Ratio" shall mean as at the end of any
fiscal quarter, the ratio of (x) Net Premiums Written for the Test Period then
ended to (y) Statutory Surplus as at the end of such fiscal quarter; provided
that (i) for the Test Period ending June 30, 1997, the Net Premiums Written for
such Test Period shall be multiplied by 2 and (ii) for the Test Period ending
September 30, 1997, the Net Premiums Written for such Test Period shall be
multiplied by 4/3.
"Parent Holding Company" shall mean each Non-Regulated
Insurance Company existing after giving effect to the Acquisition that operates
essentially as a holding company and not an operating company and that (i) owns
common stock of a Regulated Insurance Company or (ii) owns capital stock of
another Non-Regulated Insurance Company that owns capital stock of a Regulated
Insurance Company or (iii) owns capital stock of a Non-Regulated Insurance
Company described in clause (ii) above.
"Payment Office" shall mean the office of the Administrative
Agent at One Chase Manhattan Bank, 8th Floor, New York, NY 10081, Attention:
Laura Rebecca or such other office as the Administrative Agent may designate to
the Borrower from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Section 4002 of ERISA, or any successor thereto.
"Permitted Liens" shall mean Liens described in Section 7.03.
"Permitted Acquisition" shall have the meaning provided in
Section 7.02(f).
"Person" shall mean any individual, partnership, joint
venture, firm, corporation, association, trust or other enterprise or any
government or political subdivision or any agency, department or instrumentality
thereof.
"Plan" shall mean any pension plan as defined in Section 3(2)
of ERISA, which is maintained or contributed to by (or to which there is an
obligation to contribute of) the Borrower or a Subsidiary of the Borrower or an
ERISA Affiliate, and each such plan for the five year period immediately
following the latest date on which the Borrower, or a Subsidiary of the Borrower
or an ERISA Affiliate maintained, contributed to or had an obligation to
contribute to such plan.
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"Pledge Agreement" shall have the meaning provided in Section
4.01(h)(i).
"Pledged Securities" shall mean all the Pledged Securities as
defined in the Pledge Agreements.
"Preferred Stock" shall mean the Borrower's Series One
Preferred Stock, par value $.10 per share.
"Prime Lending Rate" shall mean the rate which the
Administrative Agent announces from time to time as its prime commercial lending
rate, the Prime Lending Rate to change when and as such prime lending rate
changes. The Prime Lending Rate is a reference rate and does not necessarily
represent the lowest or best rate actually charged to any customer. The
Administrative Agent may make commercial loans or other loans at rates of
interest at, above or below the Prime Lending Rate.
"Quarter End Ratio" shall mean, as at the end of any fiscal
quarter, the ratio of (x) the average outstanding principal amount of
Consolidated Indebtedness during such fiscal quarter to (y) Cash Flow for the
Test Period then ended; provided that (i) for the Test Period ending June 30,
1997, Cash Flow for such Test Period shall be multiplied by 2 and (ii) for the
Test Period ending September 30, 1997, Cash Flow for such Test Period shall be
multiplied by 4/3.
"Quarterly Statement" shall mean the quarterly financial
statement required to be filed by any Regulated Insurance Company with the
Applicable Regulatory Insurance Authority.
"Real Property" of any Person shall mean all of the right,
title and interest of such Person in and to land, improvements and fixtures,
including Leaseholds.
"Redemption" shall mean the purchase and cancellation of the
preferred stock of VIK held by Alexander Vik, Gustav Vik and other third party
stockholders.
"Redemption Documents" shall mean each of the agreements,
documents and instruments entered into in connection with the Redemption.
"Refinancing" shall have the meaning provided in Section
4.01(s).
"Refinancing Documents" shall mean each of the agreements,
documents and instruments entered into in connection with the Refinancing.
"Register" shall have the meaning provided in Section
11.17(a).
"Regulated Insurance Company" shall mean any Subsidiary,
whether now owned or hereafter acquired, that is authorized or admitted to carry
on or transact Insurance
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Business in any jurisdiction and is regulated by the Superintendent of
Insurance, insurance commission or other Applicable Regulatory Insurance
Authority. No Regulated Insurance Company may be a Subsidiary of a Non-Regulated
Insurance Company other than a Parent Holding Company.
"Regulation D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof establishing reserve requirements.
"Regulation U" shall mean Regulation U of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof establishing margin requirements.
"Reinsurance Agreement" shall mean any agreement, contract,
treaty or other arrangement whereby one or more insurers, as reinsurers, assume
liabilities under insurance policies or agreements issued by another insurance
or reinsurance company or companies.
"Release" means disposing, discharging, injecting, spilling,
pumping, leaking, leaching, dumping, emitting, escaping, emptying, seeping,
placing, pouring and the like, into or upon any land or water or air, or
otherwise entering into the environment.
"Replaced Bank" shall have the meaning provided in Section
1.13.
"Replacement Bank" shall have the meaning provided in Section
1.13.
"Reportable Event" shall mean an event described in Section
4043(c) of ERISA with respect to a Plan that is subject to Title IV of ERISA
other than those events as to which the 30-day notice period is waived under
subsection .22, .23, .25, .27 or .28 of PBGC Regulation Section 4043.
"Required Banks" shall mean Non-Defaulting Banks with
Commitments aggregating at least 66-2/3% of the Commitments of all
Non-Defaulting Banks (determined in the case where all Commitments have been
terminated, immediately prior to such termination).
"Risk-Based Capital" shall mean at any time for any Person,
the ratio (expressed as a percentage) of the Total Adjusted Capital to the
Authorized Control Level, in each case of such Person.
"Risk Derivatives" shall mean Z bonds, floaters/inverse
floaters, PAC II, PAC III, Ioettes, support bonds, Interest Only Investments,
Principal Only Investments residuals, inverse IO's, super floaters, any other
instruments with similar economic risk factors and any bonds backed in whole or
in part by any of the foregoing (including component or "kitchen sink" bonds).
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"S&P" shall mean Standard & Poor's Corporation and its
successors.
"S&P Equivalent Rating" shall mean, with respect to any
Investment Grade Security or Non-Investment Grade Security, the rating given
such security by S&P or the S&P equivalent rating of the rating given such
security by Moody's, D&P or NAIC, it being understood that if any such security
is rated by more than one of S&P, Moody's, D&P and NAIC and any of such ratings
(or the S&P equivalent of such ratings) differ, then the S&P Equivalent Rating
for such security shall be the lower or lowest, as the case may be, of such
ratings (or the S&P equivalent of such ratings).
"SAP" shall mean, with respect to any Regulated Insurance
Company, the accounting procedures and practices prescribed or permitted by the
Applicable Regulatory Insurance Authority of the primary regulatory jurisdiction
to which such Regulated Insurance Company is subject or the state in which such
Regulated Insurance Company is domiciled; it being understood and agreed that
determinations in accordance with SAP for purposes of Section 7, including
defined terms as used therein, are subject (to the extent provided therein) to
Section 11.07(a).
"SEC" shall mean the United States Securities and Exchange
Commission, or any successor thereto.
"SEC Regulation D" shall mean Regulation D as promulgated
under the Securities Act of 1933, as amended, as the same may be in effect from
time to time.
"Section 6.01 Financials" shall mean the financial statements
delivered pursuant to Section 6.01(a)(i) or (b)(i).
"Section 3.04(b)(ii) Certificate" shall have the meaning
provided in Section 3.04(b)(ii).
"Secured Creditors" shall mean with respect to any Security
Document the "Secured Creditors" referred to therein, which in any event shall
include the Banks.
"Security Documents" shall mean the Pledge Agreement and,
once executed and delivered, the Additional Security Documents.
"Statutory Earnings" shall mean, for any period, for any
Regulated Insurance Company, the net income of such Regulated Insurance Company
determined in accordance with SAP as reported on line 16, page 4, column 1 of
the Annual Statement of such Regulated Insurance Company, or an amount
determined in a consistent manner for any date other than one as of which an
Annual Statement is prepared.
"Statutory Surplus" shall mean at any time for any Person the
regulatory capital for such entity as reported on line 32, page 4, column 1 of
the Annual Statement of
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such Person, or an amount determined in a consistent manner for any date other
than one as of which an Annual Statement is prepared.
"Subsidiary" of any Person shall mean and include (i) any
corporation more than 50% of whose stock of any class or classes having by the
terms thereof ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time stock of any class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time owned by such Person directly
or indirectly through Subsidiaries, (ii) any partnership, association, joint
venture or other entity in which such Person directly or indirectly through
Subsidiaries, has more than a 50% equity interest at the time and (iii)
Highlands Lloyds and Northwest National County Mutual so long as such entities
are controlled by the Borrower or any of its Subsidiaries. Unless otherwise
expressly provided, all references herein to "Subsidiary" shall mean a
Subsidiary of the Borrower.
"Surplus Increase" shall mean, with respect to each material
reinsurance transaction effected by a Regulated Insurance Company, the increase
in Statutory Surplus of such Regulated Insurance Company resulting therefrom.
"Surplus Relief" shall mean, for any Regulated Insurance
Company, the resulting after tax increase in Statutory Surplus of such Regulated
Insurance Company resulting from entering into a Financial Reinsurance
Agreement.
"Syndication Date" shall mean the earlier of (x) the date
which is 90 days after the Effective Date or (y) the date upon which the
Administrative Agent determines in its sole discretion (and notifies the
Borrower) that the primary syndication (and the resulting addition of Banks
pursuant to Section 11.04) has been completed.
"Tax Sharing Agreement" shall have the meaning provided in
Section 4.01(d).
"Taxes" shall have the meaning provided in Section 3.04.
"10% Convertible Subordinated Debentures" shall mean (i)
those certain debentures in an aggregate amount of $62,850,000, issued by the
Borrower due December 31, 2005, as in effect on the Effective Date and as
subsequently modified, amended or supplemented as provided for therein and
herein.
"Test Period" shall mean (i) for any determination made on or
prior to December 31, 1997, the period from January 1, 1997 to the last day of
the fiscal quarter of the Borrower then last ended, provided that the first Test
Period shall end on June 30, 1997 and (ii) for any determination made
thereafter, the four consecutive fiscal quarters of the Borrower then last
ended.
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"Texas Rebate Issues" shall mean (x) the regulation currently
proposed by the Texas Department of Insurance which would require certain of the
Borrower's Subsidiaries to rebate portions of premiums to policyholders holding
retrospectively rated policies issued by such Subsidiaries and assessed by the
Texas Workers Compensation Insurance Facility and (y) any litigation relating to
such rebates.
"Total Adjusted Capital" shall mean "Total Adjusted Capital"
as defined by the NAIC from time to time and as applied in the context of the
Risk Based Capital Guidelines promulgated by the NAIC (or any term substituted
therefor by the NAIC).
"Total Capital" shall mean at any time the sum of (i)
Consolidated Net Worth and (ii) Consolidated Indebtedness.
"Total Commitment" shall mean the sum of the Commitments of
all of the Banks at such time.
"Transaction" shall mean, collectively, the consummation of
the Acquisition, the Capital Contribution, the Refinancing, the Redemption and
the incurrence of Loans on the Effective Date.
"Transaction Documents" shall mean and include the Acquisition
Documents, the Refinancing Documents, the Redemption Documents and the Credit
Documents.
"Type" shall mean any type of Loan determined with respect to
the interest option applicable thereto, i.e., a Base Rate Loan or Eurodollar
Loan.
"UCC" shall mean the Uniform Commercial Code.
"Unfunded Current Liability" of any Plan means the amount, if
any, by which the actuarial present value of the accumulated plan benefits under
the Plan as of the close of its most recent plan year exceeds the fair market
value of the assets allocable thereto, each determined in accordance with
Statement of Financial Accounting Standards No. 87, based upon the actuarial
assumptions used by the Plan's actuary in the most recent annual valuation of
the Plan.
"U.S. Government Obligations" shall mean and include (A)
securities that are (x) direct obligations of the United States of America for
the timely payment of which its full faith and credit is pledged or (y)
obligations of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the timely payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which in either case, are not callable or redeemable at the
option of the issuer thereof, and shall also include a depository receipt issued
by a bank (as defined in Section 3(a)(2) of the Securities Act of 1933, as
amended), as custodian with respect to any such U.S. Government Obligation or as
specific payment of principal of or interest on
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any such U.S. Government Obligation held by such custodian for the account of
the holder of such depository receipt; provided that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal of or interest on the U.S. Government Obligation evidenced by such
depository receipt and (B) to the extent in each case having an S&P Equivalent
Rating of AAA, obligations issued or guaranteed by the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association, the Government
National Mortgage Association the Student Loan Marketing Association and the
Federal Home Loan Bank.
"VIK" shall mean Vik Brothers Insurance, Inc., an Indiana
corporation.
"VIK Insurance Subsidiaries" shall mean collectively the
Subsidiaries of VIK which are insurance companies.
"Wholly-Owned Subsidiary" of any Person shall mean any
Subsidiary of such Person to the extent all of the capital stock or other
ownership interests in such Subsidiary, other than directors' qualifying shares,
is owned directly or indirectly by such Person.
"Written" or "in writing" shall mean any form of written
communication or a communication by means of telex, facsimile transmission,
telegraph or cable.
SECTION 10. The Administrative Agent.
1.101 Appointment. Each Bank hereby irrevocably designates
and appoints Chase as Administrative Agent (such term as used in this Section 10
to include Chase acting as Collateral Agent) to act as specified herein and in
the other Credit Documents, and each such Bank hereby irrevocably authorizes
Chase as the Administrative Agent for such Bank, to take such action on its
behalf under the provisions of this Agreement and the other Credit Documents and
to exercise such powers and perform such duties as are expressly delegated to
the Administrative Agent by the terms of this Agreement and the other Credit
Documents, together with such other powers as are reasonably incidental thereto.
The Administrative Agent agrees to act as such upon the express conditions
contained in this Section 10. Notwithstanding any provision to the contrary
elsewhere in this Agreement, the Administrative Agent shall not have any duties
or responsibilities, except those expressly set forth herein or in the other
Credit Documents, nor any fiduciary relationship with any Bank, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or otherwise exist against the Administrative Agent.
The provisions of this Section 10 are solely for the benefit of the
Administrative Agent, and the Banks, and no Credit Party shall have any rights
as a third party beneficiary of any of the provisions hereof. In performing its
functions and duties under this Agreement, the Administrative Agent shall act
solely as agent of the Banks and do not assume and shall not
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be deemed to have assumed any obligation or relationship of agency or trust with
or for any Credit Party.
1.102 Delegation of Duties. The Administrative Agent may
execute any of its duties under this Agreement or any other Credit Document by
or through agents or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The Administrative
Agent shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care except to the extent
otherwise required by Section 10.03.
1.103 Exculpatory Provisions. Neither the Administrative
Agent nor any of its officers, directors, employees, agents, attorneys-in-fact
or affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement (except
for its or such Person's own gross negligence or willful misconduct) or (ii)
responsible in any manner to any of the Banks for any recitals, statements,
representations or warranties made by the Borrower or any Subsidiary or any of
their respective officers contained in this Agreement, any other Credit Document
or in any certificate, report, statement or other document referred to or
provided for in, or received by the Administrative Agent under or in connection
with, this Agreement or any other Credit Document or for any failure of the
Borrower or any Subsidiary or any of their respective officers to perform its
obligations hereunder or thereunder. The Administrative Agent shall not be under
any obligation to any Bank to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement, or to inspect the properties, books or records of the Borrower or any
Subsidiary. The Administrative Agent shall not be responsible to any Bank for
the effectiveness, genuineness, validity, enforceability, collectibility or
sufficiency of this Agreement or any Credit Document or for any representations,
warranties, recitals or statements made herein or therein or made in any written
or oral statement or in any financial or other statements, instruments, reports,
certificates or any other documents in connection herewith or therewith
furnished or made by the Administrative Agent to the Banks or by or on behalf of
the Borrower to the Administrative Agent or any Bank or be required to ascertain
or inquire as to the performance or observance of any of the terms, conditions,
provisions, covenants or agreements contained herein or therein or as to the use
of the proceeds of the Loans or of the existence or possible existence of any
Default or Event of Default.
1.104 Reliance by Administrative Agent. The Administrative
Agent shall be entitled to rely, and shall be fully protected in relying, upon
any note, writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, facsimile transmission, telex or teletype message,
statement, order or other document or conversation believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Borrower), independent accountants and other experts
selected by the Administrative Agent. The Administrative Agent shall be fully
justified in failing or refusing to take any action under this Agreement or any
other Credit Document unless it shall first
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receive such advice or concurrence of the Required Banks as it deems appropriate
or it shall first be indemnified to its satisfaction by the Banks against any
and all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Administrative Agent shall in all cases
be fully protected in acting, or in refraining from acting, under this Agreement
and the other Credit Documents in accordance with a request of the Required
Banks, and such request and any action taken or failure to act pursuant thereto
shall be binding upon all the Banks.
1.105 Notice of Default. The Administrative Agent shall not
be deemed to have knowledge or notice of the occurrence of any Default or Event
of Default hereunder unless the Administrative Agent has received notice from a
Bank or the Borrower or any other Credit Party referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
"notice of default." In the event that the Administrative Agent receives such a
notice, the Administrative Agent shall give prompt notice thereof to the Banks.
The Administrative Agent shall take such action with respect to such Default or
Event of Default as shall be reasonably directed by the Required Banks, provided
that unless and until the Administrative Agent shall have received such
directions, the Administrative Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interests of the Banks.
1.106 Non-Reliance. Each Bank expressly acknowledges that
neither the Administrative Agent nor any of its officers, directors, employees,
agents, attorneys-in-fact or affiliates have made any representations or
warranties to it and that no act by the Administrative Agent hereinafter taken,
including any review of the affairs of the Borrower or any Subsidiary, shall be
deemed to constitute any representation or warranty by the Administrative Agent
to any Bank. Each Bank represents to the Administrative Agent that it has,
independently and without reliance upon the Administrative Agent or any other
Bank, and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, assets,
operations, property, financial and other conditions, prospects and
creditworthiness of the Borrower and its Subsidiaries and made its own decision
to make its Loans hereunder and enter into this Agreement. Each Bank also
represents that it will, independently and without reliance upon the
Administrative Agent or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement, and to make such investigation as it deems necessary to inform
itself as to the business, assets, operations, property, financial and other
conditions, prospects and creditworthiness of the Borrower and its Subsidiaries.
The Administrative Agent shall not have any duty or responsibility to provide
any Bank with any credit or other information concerning the business,
operations, assets, property, financial and other conditions, prospects or
creditworthiness of the Borrower or any Subsidiary which may come into the
possession of the Administrative Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates.
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1.107 Indemnification. The Banks agree to indemnify the
Administrative Agent in its capacity as such ratably according to their
respective Loans and Commitments, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
reasonable expenses or disbursements of any kind whatsoever which may at any
time (including, without limitation, at any time following the payment of the
Obligations) be imposed on, incurred by or asserted against the Administrative
Agent in its capacity as such in any way relating to or arising out of this
Agreement or any other Credit Document, or any documents contemplated by or
referred to herein or the transactions contemplated hereby or any action taken
or omitted to be taken by the Administrative Agent under or in connection with
any of the foregoing, but only to the extent that any of the foregoing is not
paid by the Borrower or any of its Subsidiaries, provided that no Bank shall be
liable to the Administrative Agent for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting solely from the Administrative
Agent's gross negligence or willful misconduct. If any indemnity furnished to
the Administrative Agent for any purpose shall, in the opinion of the
Administrative Agent, be insufficient or become impaired, the Administrative
Agent may call for additional indemnity and cease, or not commence, to do the
acts indemnified against until such additional indemnity is furnished. The
agreements in this Section 10.07 shall survive the payment of all Obligations.
1.108 The Administrative Agent in its Individual Capacity.
The Administrative Agent and its affiliates may make loans to, accept deposits
from and generally engage in any kind of business with the Borrower and its
Subsidiaries as though not acting as Administrative Agent hereunder. With
respect to the Loans made by it and all Obligations owing to it, the
Administrative Agent shall have the same rights and powers under this Agreement
as any Bank and may exercise the same as though it were not the Administrative
Agent, and the terms "Bank" and "Banks" shall include the Administrative Agent
in its individual capacity.
1.109 Successor Administrative Agent. The Administrative
Agent may resign as the Administrative Agent upon 20 days' notice to the Banks
and the Borrower. Upon such resignation, the Required Banks shall, with the
consent of the Borrower (such consent not to be unreasonably withheld), appoint
from among the Banks a successor Administrative Agent for the Banks, whereupon
such successor agent shall succeed to the rights, powers and duties of the
Administrative Agent, and the term "Administrative Agent" shall include such
successor agent effective upon its appointment, and the resigning Administrative
Agent's rights, powers and duties as the Administrative Agent shall be
terminated, without any other or further act or deed on the part of such former
Administrative Agent or any of the parties to this Agreement. After the retiring
Administrative Agent's resignation hereunder as the Administrative Agent, the
provisions of this Section 10 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Administrative Agent under this
Agreement.
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SECTION 11. Miscellaneous.
1.111 Payment of Expenses, etc. The Borrower agrees to: (i)
whether or not the transactions herein contemplated are consummated, pay all
reasonable out-of-pocket costs and expenses of the Administrative Agent in
connection with the negotiation, preparation, syndication, execution and
delivery of the Credit Documents and the documents and instruments referred to
therein and any amendment, waiver or consent relating thereto (including,
without limitation, the reasonable fees and disbursements of White & Case) and
of the Administrative Agent and each of the Banks in connection with the
enforcement of the Credit Documents and the documents and instruments referred
to therein (including, without limitation, the reasonable fees and disbursements
of counsel for the Administrative Agent and for each of the Banks); (ii) pay and
hold each of the Banks harmless from and against any and all present and future
stamp and other similar taxes with respect to the foregoing matters and save
each of the Banks harmless from and against any and all liabilities with respect
to or resulting from any delay or omission (other than to the extent
attributable to such Bank) to pay such taxes; and (iii) indemnify each Bank, its
officers, directors, employees, representatives and agents (collectively, the
"Indemnitees") from and hold each of them harmless against any and all losses,
liabilities, claims, damages or expenses incurred by any of them as a result of,
or arising out of, or in any way related to, or by reason of, any investigation,
litigation or other proceeding (whether or not any Bank is a party thereto)
related to the entering into and/or performance of any Credit Document or the
use of the proceeds of any Loans hereunder or the Acquisition or the
consummation of any transactions contemplated in any Credit Document, including,
without limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation, litigation or other proceeding (but
excluding any such losses, liabilities, claims, damages or expenses to the
extent incurred by reason of the gross negligence or willful misconduct of the
Person to be indemnified or of any other Indemnitee who is such Person or an
affiliate of such Person), including, without limitation, the reasonable fees
and disbursements of counsel and independent consultants incurred in connection
with any such investigation, litigation or other proceeding.
1.112 Right of Setoff. In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence and continuance of an Event
of Default, each Bank is hereby authorized at any time or from time to time,
without presentment, demand, protest or other notice of any kind to the Borrower
or to any other Person, any such notice being hereby expressly waived, to set
off and to appropriate and apply any and all deposits (general or special) and
any other Indebtedness at any time held or owing by such Bank (including,
without limitation, by branches and agencies of such Bank wherever located) to
or for the credit or the account of the Borrower against and on account of the
Obligations and liabilities of the Borrower to such Bank under this Agreement or
under any of the other Credit Documents, including, without limitation, all
interests in Obligations the Borrower purchased by such Bank pursuant to Section
11.06(b), and all other claims of any nature or description arising out of or
connected with this Agreement or any other Credit Document, irrespective of
whether or not such Bank
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shall have made any demand hereunder and although said Obligations, liabilities
or claims, or any of them, shall be contingent or unmatured.
1.113 Notices. Except as otherwise expressly provided herein,
all notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, telecopier or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered, if to the Borrower, at
the address specified opposite its signature below; if to any Bank, at its
address specified for such Bank on Annex II hereto; or, at such other address as
shall be designated by any party in a written notice to the other parties
hereto. All such notices and communications shall be mailed, telegraphed,
telexed, telecopied, or cabled or sent by overnight courier, and shall be
effective when received.
1.114 Benefit of Agreement. (a) This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto, provided that the Borrower may not
assign or transfer any of its rights or obligations hereunder without the prior
written consent of all the Banks. Each Bank may at any time grant participations
in any of its rights hereunder or under any of the Notes to another financial
institution, provided that in the case of any such participation, (i) the
participant shall not have any rights under this Agreement or any of the other
Credit Documents, including rights of consent, approval or waiver (the
participant's rights against such Bank in respect of such participation to be
those set forth in the agreement executed by such Bank in favor of the
participant relating thereto), (ii) such Bank's obligations under this Agreement
(including, without limitation, its Commitment) shall remain unchanged, (iii)
such Bank shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iv) such Bank shall remain the holder of any
such Note for all purposes of this Agreement and (v) the Borrower, the
Administrative Agent and the other Banks shall continue to deal solely and
directly with the respective Bank in connection with such Bank's rights and
obligations under this Agreement, and all amounts payable by the Borrower
hereunder shall be determined as if such Bank had not sold such participation,
except that the participant shall be entitled to the benefits of Sections 1.10,
1.11 and 3.04 of this Agreement to the extent that such Bank would be entitled
to such benefits if the participation had not been entered into or sold, and,
provided further, that no Bank shall transfer, grant or assign any participation
under which the participant shall have rights to approve any amendment to or
waiver of this Agreement or any other Credit Document except to the extent such
amendment or waiver would (x) extend the final scheduled maturity of the Loans
in which such participant is participating, or reduce the rate or extend the
time of payment of interest or Fees thereon (except in connection with a waiver
of the applicability of any post-default increase in interest rates), or reduce
the principal amount thereof, or increase such participant's participating
interest in any Commitment over the amount thereof then in effect (it being
understood that a waiver of any Default or Event of Default or of a mandatory
reduction in the Total Commitment, or a mandatory prepayment, shall not
constitute a change in the terms of any Commitment), (y) release all or
substantially all of the Collateral (in each case except as expressly provided
in the Credit Documents) or (z) consent to the assignment or transfer by the
Borrower of any of its rights and obligations under this Agreement.
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(b) Notwithstanding the foregoing, with the consent of the
Administrative Agent and the Borrower (which consents shall not be unreasonably
withheld), (x) any Bank may assign all or any portion of its Loans and/or
Commitments and its rights and obligations hereunder to another Bank, and (y)
any Bank may assign all or a portion of its Loans and/or Commitments and its
rights and obligations hereunder to one or more commercial banks or other
financial institutions (including one or more Banks). No assignment pursuant to
the immediately preceding sentence shall to the extent such assignment
represents an assignment to an institution other than one or more Banks
hereunder, be in an aggregate amount less than $5,000,000 unless the entire
Commitments and Loans of the assigning Bank is so assigned. If any Bank so sells
or assigns all or a part of its rights hereunder or under the Notes, any
reference in this Agreement or the Notes to such assigning Bank shall thereafter
refer to such Bank and to the respective assignee to the extent of their
respective interests and the respective assignee shall have, to the extent of
such assignment (unless otherwise provided therein), the same rights and
benefits as it would if it were such assigning Bank. Each assignment pursuant to
this Section 11.04(b) shall be effected by the assigning Bank and the assignee
Bank executing an Assignment Agreement (appropriately completed). In the event
of any such assignment to a lender not previously a Bank hereunder, either the
assigning or the assignee Bank shall pay to the Administrative Agent a
nonrefundable assignment fee of $3,000, and at the time of any assignment
pursuant to this Section 11.04(b), (i) Annex I shall be deemed to be amended to
reflect the Commitment of the respective assignee (which shall result in a
direct reduction to the Commitment of the assigning Bank) and of the other
Banks, and (ii) if any such assignment occurs after the Effective Date, the
Borrower will issue a new Note to the respective assignee and to the assigning
Bank in conformity with the requirements of Section 1.05. Each Bank and the
Borrower agree to execute such documents (including, without limitation,
amendments to this Agreement and the other Credit Documents) as shall be
necessary to effect the foregoing. Nothing in this clause (b) shall prevent or
prohibit any Bank from pledging its Notes or Loans to a Federal Reserve Bank in
support of borrowings made by such Bank from such Federal Reserve Bank.
(c) Notwithstanding any other provisions of this Section
11.04, no transfer or assignment of the interests or obligations of any Bank
hereunder or any grant of participation therein shall be permitted if such
transfer, assignment or grant would require the Borrower to file a registration
statement with the SEC or to qualify the Loans under the "Blue Sky" laws of any
State.
(d) Each Bank initially party to this Agreement hereby
represents, and each Person that became a Bank pursuant to an assignment
permitted by this Section 11 will, upon its becoming party to this Agreement,
represent that it is a commercial lender, other financial institution or other
"accredited" investor (as defined in SEC Regulation D) which makes loans in the
ordinary course of its business and that it will make or acquire Loans for its
own account in the ordinary course of such business, provided that subject to
the preceding clauses (a) and (b), the disposition of any promissory notes or
other evidences of or interests in Indebtedness held by such Bank shall at all
times be within its exclusive control.
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1.115 No Waiver; Remedies Cumulative. No failure or delay on
the part of the Administrative Agent or any Bank in exercising any right, power
or privilege hereunder or under any other Credit Document and no course of
dealing between the Borrower and the Administrative Agent or any Bank shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder or under any other Credit Document preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege hereunder or thereunder. The rights and remedies herein expressly
provided are cumulative and not exclusive of any rights or remedies which the
Administrative Agent or any Bank would otherwise have. No notice to or demand on
the Borrower in any case shall entitle the Borrower to any other or further
notice or demand in similar or other circumstances or constitute a waiver of the
rights of the Administrative Agent or the Banks to any other or further action
in any circumstances without notice or demand.
1.116 Payments Pro Rata. (a) The Administrative Agent agrees
that promptly after its receipt of each payment from or on behalf of the
Borrower in respect of any Obligations, it shall distribute such payment to the
Banks (other than any Bank that has expressly waived its right to receive its
pro rata share thereof) pro rata based upon their respective shares, if any, of
the Obligations with respect to which such payment was received.
(b) Each of the Banks agrees that, if it should receive any
amount hereunder (whether by voluntary payment, by realization upon security, by
the exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the principal of, or interest
on, the Loans or Fees, of a sum which with respect to the related sum or sums
received by other Banks is in a greater proportion than the total of such
Obligation then owed and due to such Bank bears to the total of such Obligation
then owed and due to all of the Banks immediately prior to such receipt, then
such Bank receiving such excess payment shall purchase for cash without recourse
or warranty from the other Banks an interest in the Obligations to such Banks in
such amount as shall result in a proportional participation by all of the Banks
in such amount, provided that if all or any portion of such excess amount is
thereafter recovered from such Bank, such purchase shall be rescinded and the
purchase price restored to the extent of such recovery, but without interest.
1.117 Calculations; Computations. (a) The financial
statements to be furnished to the Banks pursuant hereto shall be made and
prepared in accordance with GAAP or SAP consistently applied throughout the
periods involved (except as set forth in the notes thereto or as otherwise
disclosed in writing by the Borrower to the Banks), provided that except as
otherwise specifically provided herein, all computations determining compliance
with Section 7, including definitions used therein, shall utilize accounting
principles and policies in effect at the time of the preparation of, and in
conformity with those used to prepare, the December 31, 1996 historical
financial statements of the Borrower delivered to the Banks pursuant to Section
5.08(b), provided that in the event GAAP or SAP shall be modified from the GAAP
or SAP so used, the Borrower shall be entitled to utilize GAAP or
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SAP as so modified for the purpose of such determinations to the extent that (x)
the Borrower gives the Administrative Agent 30 days' prior written notice of its
desire to use the modified GAAP or SAP and (y) prior to using same for such
determinations, the Borrower and the Administrative Agent shall have agreed upon
adjustments, if any, to the various provisions of Section 7 and/or the
definitions used therein the sole purpose of which shall be to give effect to
such proposed change (provided that no such change shall be made in the absence
of such agreement among the Borrower and the Administrative Agent) and provided
further that if at any time the computations determining compliance with Section
7 utilize accounting principles different from those utilized in the financial
statements furnished to the Banks pursuant to Section 6.01, such financial
statements shall be accompanied by reconciliation work-sheets.
(b) All computations of interest on Eurodollar Loans and
Commitment Fees shall be made on the actual number of days elapsed over a year
of 360 days.
(c) All computations of interest on Base Rate Loans hereunder
shall be made on the actual number of days elapsed over a year of 365/366 days.
1.118 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE.
(a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE
CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW
YORK. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER
CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE
UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, THE BORROWER HEREBY IRREVOCABLY ACCEPTS FOR ITSELF
AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION
OF THE AFORESAID COURTS. THE BORROWER HEREBY FURTHER IRREVOCABLY WAIVES ANY
CLAIM THAT ANY SUCH COURTS LACK JURISDICTION OVER THE BORROWER, AND AGREES NOT
TO PLEAD OR CLAIM, IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN ANY OF THE AFORESAID COURTS,
THAT ANY SUCH COURT LACKS JURISDICTION OVER THE BORROWER. THE BORROWER FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER AT ITS ADDRESS
FOR NOTICES PURSUANT TO SECTION 11.03, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS
AFTER SUCH MAILING. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO SUCH
SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO
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PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING HEREUNDER OR UNDER ANY OTHER CREDIT
DOCUMENT THAT SERVICE OF PROCESS WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING
HEREIN SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT OR ANY BANK TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR
OTHERWISE PROCEED AGAINST THE BORROWER IN ANY OTHER JURISDICTION.
(b) The Borrower hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with this
Agreement or any other Credit Document brought in the courts referred to in
clause (a) above and hereby further irrevocably waives and agrees not to plead
or claim in any such court that any such action or proceeding brought in any
such court has been brought in an inconvenient forum.
(c) Each of the parties to this Agreement hereby irrevocably
waives all right to a trial by jury in any action, proceeding or counterclaim
arising out of or relating to this Agreement, the other Credit Documents or the
transactions contemplated hereby or thereby.
1.119 Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument. A set of
counterparts executed by all the parties hereto shall be lodged with the
Borrower and the Administrative Agent.
11.10 Execution. Each of the Banks shall sign a copy hereof (whether the same or
different copies) and shall deliver the same to the Administrative Agent at the
Notice Office of the Administrative Agent or, in the case of the Banks, shall
give to the Administrative Agent telephonic (confirmed in writing), written
telex or facsimile transmission notice (actually received) at such office that
the same has been signed and mailed to it.
11.11 Headings Descriptive. The headings of the several
sections and subsections of this Agreement are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of this
Agreement.
11.12 Amendment or Waiver. Neither this Agreement nor any
other Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by the Borrower and the Required Banks, provided that no such
change, waiver, discharge or termination shall, without the consent of each Bank
directly affected thereby, (i) extend the final maturity date applicable to the
Loans, reduce the rate or extend the time of payment of interest (other than as
a result of waiving the applicability of any post-default increase in interest
rates) thereon, or reduce the principal amount thereof, or increase the
Commitment of any Bank
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over the amount thereof then in effect (it being understood that a waiver of any
Default or Event of Default or of a mandatory prepayment or a mandatory
reduction in the Total Commitment shall not constitute a change in the terms of
any Commitment), (ii) release all or substantially all of the Collateral (in
each case except as expressly provided in the Credit Documents), (iii) amend,
modify or waive any provision of this Section 11.12, or Section 10.07, 11.01,
11.02, 11.04, 11.06, 11.07(b) or 11.15, (iv) reduce the percentage specified in,
or otherwise modify, the definition of Required Banks or (v) consent to the
assignment or transfer by the Borrower of any of its rights and obligations
under this Agreement. No provision of Section 10 may be amended without the
consent of the Administrative Agent.
11.13 Survival. All indemnities set forth herein including,
without limitation, in Section 1.10, 1.11, 3.04, 10.07 or 11.01 shall survive
the execution and delivery of this Agreement and the making and repayment of the
Loans.
11.14 Domicile of Loans. Each Bank may transfer and carry its
Loans at, to or for the account of any branch office, subsidiary or affiliate of
such Bank, provided that the Borrower shall not be responsible for costs arising
under Section 1.10 or 3.04 resulting from any such transfer (other than a
transfer pursuant to Section 1.12) to the extent not otherwise applicable to
such Bank prior to such transfer.
11.15 Confidentiality. Subject to Section 11.04, the Banks
shall hold all non-public information obtained pursuant to the requirements of
this Agreement which it knows to be non-public confidential information or which
has been identified as such by the Borrower in accordance with its customary
procedure for handling confidential information of this nature and in accordance
with safe and sound banking practices and in any event may make disclosure
reasonably required by any bona fide transferee or participant in connection
with the contemplated transfer of any Loans or participation therein (provided
that each such prospective transferee and/or participant shall execute an
agreement for the benefit of the Borrower with such prospective transferor Bank
containing provisions substantially identical to those contained in this Section
11.15) or as required or requested by any governmental agency or representative
thereof or pursuant to legal process, provided that, unless specifically
prohibited by applicable law or court order, each Bank shall notify the Borrower
of any request by any governmental agency or representative thereof (other than
any such request in connection with an examination of the financial condition of
such Bank by such governmental agency) for disclosure of any such non-public
information prior to disclosure of such information, and provided further, that
in no event shall any Bank be obligated or required to return any materials
furnished by the Borrower or any Subsidiary.
11.16 Registry. The Borrower hereby designates the
Administrative Agent to serve as the Borrower's agent, solely for purposes of
this Section 11.16, to maintain a register (the "Register") on which it will
record the Commitments from time to time of each of the Banks, the Loans made by
each of the Banks and each repayment in respect of the principal amount of the
Loans of each Bank. Failure to make any such recordation, or any error in such
recordation shall not affect the Borrower's obligations in respect of such
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Loans. With respect to any Bank, the transfer of the Commitments of such Bank
and the rights to the principal of, and interest on, any Loan made pursuant to
such Commitments shall not be effective until such transfer is recorded on the
Register maintained by the Administrative Agent with respect to ownership of
such Commitments and Loans and prior to such recordation all amounts owing to
the transferor with respect to such Commitments and Loans shall remain owing to
the transferor. The registration of assignment or transfer of all or part of any
Commitments and Loans shall be recorded by the Administrative Agent on the
Register only upon the acceptance by the Administrative Agent of a properly
executed and delivered Assignment Agreement pursuant to Section 11.04(b). The
Borrower agrees to indemnify the Administrative Agent from and against any and
all losses, claims, damages and liabilities of whatsoever nature which may be
imposed on, asserted against or incurred by the Administrative Agent in
performing its duties under this Section 11.16, except to the extent that any
such losses, claims, damages or liabilities result from the gross negligence or
wilful misconduct of the Administrative Agent.
* * *
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IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Agreement to be duly executed and delivered as of the date
first above written.
Address:
HIGHLANDS INSURANCE GROUP, INC.
10370 Richmond Avenue
Houston, Texas 77042-4123
Attention: Charles Bachand
Telephone No.: (713) 267-8567 By /s/ Charles J. Bachand
Telecopier No.: (713) 267-8688 ---------------------------------
Title: Vice President & Treasurer
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THE CHASE MANHATTAN BANK,
Individually and as
Administrative Agent
By /s/ Peter Platten
------------------------------
Title: Vice President
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BANKBOSTON, N.A.
By /s/ Karen A. Gallagher
------------------------------
Title: Vice President
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BANK OF MONTREAL
By /s/ Charles W. Reed
------------------------------
Title: Director
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BANK ONE, TEXAS, N.A.
By /s/ unreadable
------------------------------
Title: Assistant Vice President
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DRESDNER BANK AG, New York Branch
and/or Grand Cayman Branch
By /s/ Christopher E. Sarisky
------------------------------
Title: Assistant Treasurer
By /s/ John W. Sweeney
------------------------------
Title: Assistant Vice President
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NATIONSBANK, N.A. (SOUTH)
By /s/ Gregory Seib
------------------------------
Title:
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REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement") entered into
and effective as of April 30, 1997 between Highlands Insurance Group, Inc., a
Delaware corporation (the "Company") and American Re-Insurance Company, a
Delaware insurance company ("Am-Re").
W I T N E S S E T H:
WHEREAS, Vik Brothers Insurance, Inc., an Indiana corporation
("VBI"), the Company and Highlands Acquisition Corp., a subsidiary of the
Company ("HAC"), have entered into an amended and restated merger agreement (as
so amended and restated and as supplemented, extended or otherwise modified from
time to time, the "Merger Agreement"), dated as of February 13, 1997, pursuant
to which HAC and VBI are merging (the "Merger") as of the date hereof with VBI
being the surviving corporation of the Merger;
WHEREAS, as a result of the consummation of the Merger, Am-Re
is receiving shares of Common Stock, par value $.01 per share (the "Common
Stock"), of the Company; and
WHEREAS, in connection with and as a condition to the
consummation of the Merger, the parties hereto have entered into this Agreement
in order to define certain rights, duties and obligations of such parties.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Definitions. Except as otherwise set forth below,
terms defined in the Stockholders Agreement (as defined below)
are used herein as therein defined.
<PAGE>
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in the City of New York are authorized by
law to close.
"Common Stock Equivalents" means (without duplication with any
other Common Stock or Common Stock Equivalents) rights, warrants, options,
convertible securities or exchangeable securities or indebtedness, or other
rights, exercisable for or convertible or exchangeable into, directly or
indirectly, Common Stock, whether at the time of issuance or upon the passage of
time or the occurrence of some future event.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fully-Diluted Common Stock" means, at any time, the then
outstanding shares of Common Stock plus (without duplication) all shares of
Common Stock issuable, whether at such time or upon the passage of time or the
occurrence of some future event, upon the exercise, conversion or exchange of
all then-outstanding Common Stock Equivalents.
"Holder" means any Person who holds Registrable Securities.
"Indemnified Party" has the meaning set forth in Section 8(c)
below.
"Indemnifying Party" has the meaning set forth in Section 8(c)
below.
"Material Adverse Effect" has the meaning set forth in Section
2(d) below.
"Registrable Securities" means the Common Stock issued to
Am-Re pursuant to the Merger Agreement, any other Common Stock beneficially
owned by Am-Re and any other securities issuable with respect to such Common
Stock by way of a stock dividend or stock split or in connection with a
combination of shares,
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recapitalization, merger, consolidation or reorganization; provided that
(1) any Registrable Security will cease to be a Registrable
Security when (a) a registration statement covering such
Registrable Security has been declared effective by the SEC
and it has been disposed of pursuant to such effective
registration statement, (b) it is sold under circumstances in
which all of the applicable conditions of Rule 144 (or any
similar provisions then in force) under the Securities Act are
met or (c) (i) it has been otherwise transferred and (ii) the
Company has delivered a new certificate or other evidence of
ownership for it not bearing the legend pertaining to the
Securities Act required pursuant to Section 6.4 of the
Stockholders Agreement and (iii) it may be resold without
subsequent registration under the Securities Act;
(2) with respect to any Demand Registration, Registrable
Securities shall only include such Registrable Securities
which any Requesting Holder could not otherwise sell pursuant
to Rule 144 under the Securities Act, without restriction as a
result of volume limitations, whether under subsection (k) of
Rule 144 or otherwise.
"Registration Expenses" has the meaning set forth in Section 7
below.
"Requesting Holder" means any Holder who makes a Demand
Request.
"Selling Holder" means a Holder who is selling Registrable
Securities pursuant to a registration statement under the Securities Act.
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"Stockholders Agreement" means the Stockholders Agreement,
dated as of the date hereof, among the Company, Insurance Partners, L.P.,
Insurance Partners Offshore (Bermuda), L.P. and, Erik M. Vik, The Scandinavia
Company, Inc. and Manoeuvre Ltd.
"Underwriter" means a securities dealer which purchases any
Registrable Securities as principal and not as part of such dealer's
market-making activities.
2. Demand Registration. (a) Request for Registration. Am-Re
may make a written request of the Company (a "Demand Request") for registration
under the Securities Act (a "Demand Registration") of all or part of its
Registrable Securities. Such Demand Request shall specify the number of shares
of Registrable Securities proposed to be sold. Upon any such Demand Request, the
Company will promptly, but in any event within 15 days, give written notice
thereof (the "Demand Registration Notice") to all Holders of Registrable
Securities and subject to Section 4(c), the Company shall file the Demand
Registration promptly, but in any event within 60 days after receiving a Demand
Request (the "Required Filing Date") covering the Registrable Securities covered
by the Demand Request and all other Registrable Securities which the Company has
been requested to register by the Holders thereof by written request given to
the Company within 20 days after the giving of the Demand Registration Notice,
all to the extent required to permit the disposition of the Registrable
Securities so to be registered in accordance with the intended method or methods
of disposition of each seller of such Registrable Securities and shall use its
best efforts to cause the same to be declared effective by the SEC as promptly
as practicable after such filing; provided that the Company need effect only one
Demand Registration in the aggregate pursuant hereto.
(b) Effective Registration and Expenses. A registration made
pursuant to a Demand Request will not count as a Demand Registration until it
has become effective with respect to all of the Registrable Securities whose
registration was requested pursuant to such Demand Request or (i) if, within 180
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<PAGE>
days after the registration relating to such Demand Request has become
effective, such registration is interfered with by any stop order, injunction or
other order or requirement of the SEC or other governmental agency or court for
any reason and the Company fails to have such stop order, injunction or other
order or requirement removed, withdrawn or resolved to the Vik Parties'
reasonable satisfaction or (ii) the conditions to closing speci fied in any
purchase agreement or indemnity agreement entered into in connection with the
registration relating to such Demand Request are not satisfied (other than as a
result of a default or breach thereunder by any of the Holders), and such
closing does not occur as a result thereof.
(c) Selection of Underwriters. If the offering of Registrable
Securities pursuant to a Demand Registration shall be in the form of a "firm
commitment" underwritten offering, the Requesting Holders of a majority of the
shares of Registrable Securities to be registered in a Demand Registration (the
"Majority Requesting Holders") shall select the book-running managing
Underwriter or Underwriters (the "Managing Underwriter") and such additional
Underwriters to be used in connection with the offering, provided that the
selection of the Managing Underwriter shall be subject to the consent of the
Company, which consent shall not be unreasonably withheld.
(d) Priority on Demand Registrations. No securities to be sold
for the account of any Person (including the Company) other than a Requesting
Holder shall be included in a Demand Registration relating to a "firm
commitment" underwritten offering if the Managing Underwriter shall advise the
Requesting Holders and the Company in writing that the inclusion of such
securities would materially and adversely affect the price or success of the
offering (a "Material Adverse Effect"). Furthermore, in the event that the
Managing Underwriter shall advise the Requesting Holders that even after
exclusion of all securities of other Persons pursuant to the immediately
preceding sentence, the amount of Registrable Securities proposed to be included
in such Demand Registration by Requesting Holders would be sufficiently large to
cause a Material Adverse Effect, the Registrable Securities of Requesting
Holders to be included in
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such Demand Registration shall be allocated pro rata among the Requesting
Holders on the basis of the number of shares of Registrable Securities requested
to be included in such registration by each such Requesting Holder.
3. Piggy-Back Registration. (a) Subject to the provisions of
this Agreement, if the Company proposes to file a registration statement under
the Securities Act with respect to an offering of any equity securities (as such
term is defined in Section 3(a) of the Exchange Act) by the Company, whether or
not for its own account, and the registration form to be used may be used for
the registration of the Registrable Securities, then the Company shall give
prompt written notice of such proposed filing to Holders of the Registrable
Securities. Upon the written request of any such Holder made within 20 days
after the receipt of any such notice, subject to Section 3(b) hereof, the
Company shall include in each such registration (a "Piggyback Registration") all
Registrable Securities requested to be included in the registration for such
offering.
(b) The Company shall use its best efforts to cause the
Managing Underwriter of a proposed underwritten offering to permit the
Registrable Securities requested by the Holder thereof to be included in the
registration statement for such offering under Section 3(a) or pursuant to other
piggyback registration rights granted by the Company to such Holder ("Piggyback
Securities"), to be included on the same terms and conditions as any similar
securities included therein. Notwithstanding the foregoing, the Company shall
not be required to include such Holder's Piggyback Securities in such offering
if the Managing Underwriter of a proposed underwritten offering advises the
Company and the holders of Piggyback Securities in writing that in its opinion
the total amount of securities, including Piggyback Securities and the
securities of any other Person who has requested the inclusion thereof in the
registration statement for such offering pursuant to any contractual "piggyback"
rights of such Person, to be included in such offering exceeds the number which
can be sold in such offering without causing a Material Adverse Effect. If the
Managing Underwriter so advises the Company, the Company will include in such
registration, to
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<PAGE>
the extent of the number which the Company is so advised can be sold in such
offering without causing a Material Adverse Effect, first the securities being
sold by the Company, and next any other securities pro rata among the holders of
Piggyback Securities and any other Person which possesses comparable contractual
"piggyback" registration rights on the basis of the number of shares of
Fully-Diluted Common Stock requested to be included in such registration by each
such Person.
(c) No registration effected under this Section 3 shall
relieve the Company from its obligation to effect registrations under Section 2.
4. Holdback Agreements. (a) Restrictions on Public Sale by
Holder of Registrable Securities. Each Holder of Registrable Securities (whether
or not such Registrable Securities are included in a registration statement
pursuant hereto) agrees not to effect any public sale or distribution of the
issue being registered or of any securities convertible into or exchangeable or
exercisable for such securities, including a sale pursuant to Rule 144 under the
Securities Act, during the 7 days prior to, and during the 90-day period
beginning on the effective date of a registration statement with respect to any
securities of the Company except as part of such registration if and to the
extent requested by the Company in the case of a non-underwritten public
offering or if and to the extent requested by the Managing Underwriter in the
case of an underwritten public offering.
(b) Restrictions on Public Sale by the Company and Others. The
Company agrees (i) not to effect any public sale or distribution of any
securities similar to those being registered, or any securities convertible into
or exchangeable or exercisable for such securities, during the 7 days prior to,
and during the 90-day period beginning on, the effective date of any
registration statement which includes Registrable Securities (unless such sale
or distribution is pursuant to such registration statement and either (A) the
Holders of a majority of the shares of Registrable Securities to be included in
such registration statement consent or (B) Holders are participating
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<PAGE>
pursuant to Section 3 hereof in such registration statement, such registration
statement was filed by the Company with respect to the sale of securities by the
Company and no Holder is simultaneously participating in a registration
statement pursuant to Section 2 hereof); and (ii) that any agreement entered
into after the date of the Agreement pursuant to which the Company issues or
agrees to issue any privately placed securities shall contain a provision under
which holders of such securities agree not to effect any public sale or
distribution of any such securities during the period described in (i) above,
including a sale pursuant to Rule 144 under the Securities Act (except as part
of any such registration, if permitted); provided, however, that the provisions
of this paragraph (b) shall not prevent the conversion or exchange of any
securities of the Company pursuant to their terms into or for other securities.
(c) Deferral of Filing. The Company may defer the filing of a
registration statement required by Section 2 until a date not later than 90 days
after the Required Filing Date (or, if longer, 90 days after the effective date
of the registration statement contemplated by clause (ii) below) if (i) at the
time the Company receives the Demand Request, the Company or its Subsidiaries
are engaged in confidential negotiations or other confidential business
activities or developments (such negotiations, activities or developments
referred to herein as "Pending Matters"), disclosure of which may, in the good
faith judgment of the Board of Directors, materially and adversely affect the
Company (and the Company shall use its best efforts to resolve such Pending
Matters as soon as possible), or (ii) prior to receiving the Demand Request, the
Board of Directors had been considering a registered underwritten public
offering of the Company's securities for the Company's account and the Board of
Directors determines, in its good faith judgment, after consultation with a firm
of nationally recognized underwriters, that there will be a Material Adverse
Effect on the proposed public offering; provided, however, that the aggregate
number of days such filings are so deferred may not exceed 120 days during any
consecutive 360 day period. A deferral of the filing of a registration statement
pursuant to this Section 4(c) shall be lifted, and the requested registration
statement shall be filed
8
<PAGE>
forthwith, if, in the case of a deferral pursuant to clause (i) of the preceding
sentence, the negotiations, other activities or developments are publicly
disclosed or terminated, or, in the case of a deferral pursuant to clause (ii)
of the preceding sentence, the proposed registration for the Company's account
is abandoned. In order to defer the filing of a registration statement pursuant
to this Section 4(c), the Company shall promptly, upon determining to seek such
deferral, deliver to each Requesting Holder a certificate signed by the
President of the Company stating that the Company is deferring such filing
pursuant to this Section 4(c). Within five days after receiving such
certificate, the Holders of a majority of the Registrable Securities held by the
Requesting Holders and for which registration was previously requested may
withdraw such request by giving notice to the Company; if withdrawn, the Demand
Request shall be deemed not to have been made for all purposes of this
Agreement.
5. Registration Procedures. Whenever the Holders have
requested that any Registrable Securities be registered pursuant to Section 2 or
3 hereof, the Company will, at its expense, use its best efforts to effect the
registration and the sale of such Registrable Securities under the Securities
Act in accordance with the intended method of disposition thereof, and in
connection with any such request, the Company will (subject to Section 4(c)
hereof):
(a) prepare and, as soon as practicable, but in any event
within 60 days after notice is given by the Company to Holders pursuant to
Sections 2(a) or 3(a), file with the SEC a registration statement on any form
for which the Company then qualifies or which counsel for the Company shall deem
appropriate and which form shall be available for the sale of the Registrable
Securities to be registered thereunder in accordance with the intended method of
distribution thereof, and use its best efforts to cause such filed registration
statement to become effective under the Securities Act; provided that before
filing a registration statement or prospectus or any amendments or supplements
thereto, the Company will furnish to all Selling Holders and to one counsel
reasonably acceptable to the Company
9
<PAGE>
selected by the Selling Holders, copies of all such documents proposed to be
filed, which document will be subject to the review of and comment by such
counsel;
(b) prepare and promptly file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period (except as provided in the last paragraph of this Section 5) of not
less than 180 consecutive days or, if shorter, the period terminating when all
Registrable Securities covered by such registration statement have been sold
(but not before the expiration of the applicable period referred to in Section
4(3) of the Securities Act and Rule 174 thereunder, if applicable) and comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the Selling Holders
thereof set forth in such registration statement;
(c) furnish to each such Selling Holder such number of copies
of such registration statement, each amendment and supplement thereto (in each
case including all exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus) and such other
documents as such Selling Holder may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Selling Holder;
(d) notify the Selling Holders promptly, and (if requested by
any such Person) confirm such notice in writing, (i) when the registration
statement or any post-effective amendment has become effective under the
Securities Act and applicable state law, (ii) of any request by the SEC or any
other Federal or state governmental authority for amendments or supplements to a
registration statement or related prospectus or for additional information,
(iii) of the issuance by the SEC of any stop order suspending the effectiveness
of a registration statement or the initiation of any proceedings for that
purpose, (iv) of the receipt by the Company of any notification with respect to
the
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<PAGE>
suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and (v) of the happening of any
event which makes any statement made in such registration statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in such registration statement, prospectus or documents so that, in the
case of the registration statement, it will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and that in the case
of the prospectus, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading;
(e) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of a registration statement, or the lifting of any
suspension of the qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction, at the earliest practicable
moment;
(f) use its best efforts to cooperate with the Selling Holders
and any Managing Underwriter to facilitate the timely preparation and delivery
of certificates representing Registrable Securities to be sold, which
certificates shall not bear any restrictive legends and shall be in a form
eligible for deposit with The Depositary Trust Company; and enable such
Registrable Securities to be registered in such names as the Managing
Underwriter or Selling Holders request at least two business days prior to any
sale of Registrable Securities;
(g) use its best efforts to register or qualify such
Registrable Securities as promptly as practicable under such other securities or
blue sky laws of such jurisdictions as any Selling Holder or Managing
Underwriter reasonably (in light of the intended plan of distribution) requests
and do any and all
11
<PAGE>
other acts and things which may be reasonably necessary or advisable to enable
such Selling Holder or Managing Underwriter to consummate the disposition in
such jurisdictions of the Registrable Securities owned by such Selling Holder;
provided that the Company will not be required to (i) qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this paragraph (g), (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction;
(h) use its best efforts to cause such Registrable Securities
to be registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and operations of the
Company to enable the Selling Holder thereof to consummate the disposition of
such Registrable Securities;
(i) enter into customary agreements (including an underwriting
agreement in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such Registrable
Securities;
(j) furnish to each Selling Holder an opinion of counsel to
the Company, dated the effective date of the registration statement (and, if
such registration includes an underwritten public offering, dated the date of
the closing under the underwriting agreement) and a comfort letter from the
Company's independent public accountants, dated the effective date of such
registration statement (and if such registration includes an underwritten public
offering, dated the date of the closing under the underwriting agreement) in
customary form and covering such matters of the type customarily covered by
comfort letters and such other matters as the Selling Holders of a majority of
the shares of Registrable Securities being sold or the Managing Underwriter
reasonably requests;
(k) make available to its security holders, as soon as
reasonably practicable, an earnings statement covering a period of twelve
months, beginning within three months after the effective date of the
registration statement, which earnings
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<PAGE>
statement shall satisfy the provisions of Section 11(a) of the Securities Act;
(l) use its best efforts to cause all such Registrable
Securities to be listed on each securities exchange on which similar securities
issued by the Company are then listed or quoted on any inter-dealer quotation
system on which similar securities issued by the Company are then quoted;
(m) if any event contemplated by Section 5(d)(v) above shall
occur, as promptly as practicable prepare a supplement or amendment or
post-effective amendment to such registration statement or the related
prospectus or any document incorporated therein by reference or promptly file
any other required document so that, as thereafter delivered to the purchasers
of the Registrable Securities, the prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading; and
(n) cooperate and assist in any filing required to be made
with the National Association of Securities Dealers, Inc. and in the performance
of any reasonable due diligence investigation by any underwriter.
The Company may require each Selling Holder to promptly
furnish in writing to the Company such information regarding the distribution of
the Registrable Securities as it may from time to time reasonably request and
such other information as may be legally required in connection with such
registration. Notwithstanding anything herein to the contrary, the Company shall
have the right to exclude from any offering the Registrable Securities of any
Selling Holder who does not comply with the provisions of the immediately
preceding sentence.
Each Selling Holder agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
5(d)(v) hereof, such Selling Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable
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Securities until such Selling Holder's receipt of the copies of the supplemented
or amended prospectus contemplated by Section 5(d)(v) hereof, and, if so
directed by the Company, such Selling Holder will deliver to the Company all
copies, other than permanent file copies, then in such Selling Holder's
possession, of the most recent prospectus covering such Registrable Securities
at the time of receipt of such notice. In the event the Company shall give such
notice, the Company shall extend the period during which such registration
statement shall be maintained effective (including the period referred to in
Section 5(b) hereof) by the number of days during the period from and including
the date of the giving of notice pursuant to Section 5(d)(v) hereof to the date
when the Company shall make available to the Selling Holders of Registrable
Securities covered by such registration statement a prospectus supplemented or
amended to conform with the requirements of Section 5(d)(v) hereof.
6. Underwriting Agreement. (a) If requested by the
underwriters for any underwritten offering by holders of Registrable Securities
pursuant to a registration requested under Section 2 or 3, the Company shall
enter into an underwriting agreement with the underwriters for such offering,
such agreement to be reasonably satisfactory in substance and form to the
Selling Holders, the Managing Underwriter and the Company and to contain such
representations and warranties by the Company and such other terms and
provisions as are customarily contained in agreements of this type, including,
without limitation, indemnities to the effect and to the extent provided in
Section 8. The holders of Registrable Securities to be distributed by such
underwriters shall be parties to such underwriting agreement and may, at their
option, require that any or all of the representations and warranties by, and
the agreements on the part of, the Company to and for the benefit of such
underwriters be made to and for the benefit of such holders of Registrable
Securities and that any or all of the conditions precedent to the obligations of
such underwriters under such underwriting agreement shall also be conditions
precedent to the obligations of such holders of Registrable Securities.
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(b) No underwriting agreement referred to in Section 6(a)
above (or other agreement in connection with such offering) shall require any
holder of Registrable Securities to make any representations or warranties to or
agreements with the Company or the underwriters other than representations,
warranties or agreements regarding such holder, the ownership of such holder's
Registrable Securities and such holder's intended method or methods of
disposition and any other representation required by law or to furnish any
indemnity to any Person which is broader than the indemnity furnished by such
holder in Section 8(b).
7. Registration Expenses. (a) In connection with any
registration statement required to be filed hereunder, the Company shall pay the
following registration expenses (the "Registration Expenses"): (i) all
registration and filing fees (including, without limitation, with respect to
filings to be made with the National Association of Securities Dealers, Inc.),
(ii) fees and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), (iii) word processing,
duplicating and printing expenses, (iv) internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), (v) transfer agents', trustees', depositories',
registrars' and fiscal agents' fees, (vi) the fees and expenses incurred in
connection with the listing on an exchange of the Registrable Securities, (vii)
reasonable fees and disbursements of counsel for the Company and customary fees
and expenses for independent certified public accountants retained by the
Company (including the expenses of any comfort letters requested pursuant to
Section 5(j) hereof), (viii) the reasonable fees and expenses of any special
experts retained by the Company in connection with such registration, (ix) the
reasonable fees and disbursements of any one counsel retained by the Selling
Holders and (x) any fees and disbursements of underwriters customarily paid by
issuers or sellers of securities, but excluding underwriting fees, discounts and
commissions and transfer taxes, if any.
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8. Indemnification; Contribution. (a) Indemnification by the
Company. The Company agrees to indemnify and hold harmless each Selling Holder,
each Person, if any, who controls such Selling Holder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, and the
officers, directors, agents, general and limited partners, and employees of each
Selling Holder and each such controlling person from and against any and all
losses, claims, damages, liabilities, and reasonable expenses (including
reasonable costs of investigation) directly or indirectly arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus relating to the
Registrable Securities or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or reasonable expenses arise out of, or are
based upon, any such untrue statement or omission or allegation thereof based
upon information furnished to the Company by such Selling Holder or on such
Selling Holder's behalf expressly for use therein; and the Company will
reimburse such Indemnified Party for any legal or other expenses reasonably
incurred by them in connection with enforcing its rights hereunder, provided,
however, that with respect to any untrue statement or omission or alleged untrue
statement or omission made in any preliminary prospectus, the indemnity
agreement contained in this paragraph shall not apply to the extent that any
such loss, claim, damage, liability or expense results from the fact that a
current copy of the prospectus was not sent or given to the Persons asserting
any such loss, claim, damage, liability or expense at or prior to the written
confirmation of the sale of the Registrable Securities concerned to such Person
if it is determined that (i)(A) it was the responsibility of such Selling Holder
to provide such person with a current copy of the prospectus, (B) such Selling
Holder was provided with a current copy of the prospectus prior to the written
confirmation of sale and (C) such current copy of the prospectus would have
cured the defect giving rise to such loss, claim, damage, liability or expense
or (ii) the Selling Holder
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<PAGE>
provided a prospectus to any Person in violation of the last paragraph of
Section 5 hereof.
(b) Indemnification by Holder of Registrable Securities. Each
Selling Holder agrees to indemnify and hold harmless the Company, and each
Person, if any, who controls the Company within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act and the officers,
directors, agents and employees of the Company and each such controlling Person
to the same extent as the foregoing indemnity from the Company to such Selling
Holder, but only with respect to written information furnished by such Selling
Holder or on such Selling Holder's behalf expressly for use in any registration
statement or prospectus relating to the Registrable Securities. The liability of
any Selling Holder under this Section 8(b) shall be limited to the net amount of
proceeds received by such Selling Holder pursuant to the sale of Registrable
Securities covered by such registration statement or prospectus.
(c) Conduct of Indemnification Proceedings. If any action or
proceeding (including any governmental investigation) shall be brought or
asserted against any Person entitled to indemnification under Section 8(a) or
8(b) above (an "Indemnified Party") in respect of which indemnity may be sought
from any party who has agreed to provide such indemnification under Section 8(a)
or 8(b) above (an "Indemnifying Party"), the Indemnified Party shall give prompt
notice to the Indemnifying Party, provided that the failure of any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Section 8, except to the extent that such
Indemnifying Party is materially prejudiced by such failure to give notice. The
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Party, and shall assume the
payment of all reasonable expenses of such defense. Such Indemnified Party shall
have the right to employ separate counsel in any such action or proceeding and
to participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the Indemnifying
Party has agreed to pay such fees and expenses or
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(ii) the Indemnifying Party fails promptly to assume the defense of such action
or proceeding or fails to employ counsel reasonably satisfactory to such
Indemnified Party or (iii) the named parties to any such action or proceeding
(including any impleaded parties) include both such Indemnified Party and
Indemnifying Party (or an Affiliate of the Indemnifying Party), and such
Indemnified Party shall have been advised by counsel that there is a conflict of
interest on the part of counsel employed by the Indemnifying Party to represent
such Indemnified Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense of such action or proceeding on behalf of such
Indemnified Party). Notwithstanding the foregoing, the Indemnifying Party shall
not, in connection with any one such action or proceeding or separate but
substantially similar related actions or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be liable at any
time for the fees and expenses of more than one separate firm of attorneys
(together in each case with appropriate local counsel). The Indemnifying Party
shall not be liable for any settlement of any such action or proceeding effected
without its written consent (which consent will not be unreasonably withheld),
but if settled with its written consent, or if there be a final judgment for the
plaintiff in any such action or proceeding, the Indemnifying Party shall
indemnify and hold harmless such Indemnified Party from and against any loss or
liability (to the extent stated above) by reason of such settlement or judgment.
The Indemnifying Party shall not consent to entry of any judgment or enter into
any settlement that does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party of a release, in form and
substance satisfactory to the Indemnified Party, from all liability in respect
of such action or proceeding for which such Indemnified Party would be entitled
to indemnification hereunder.
(d) Contribution. If the indemnification provided for in this
Section 8 is unavailable to the Indemnified Parties in respect of any losses,
claims, damages, liabilities or judgments
18
<PAGE>
referred to herein, then each such Indemnifying Party, in lieu of indemnifying
such Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages, liabilities and
judgments as between the Company on the one hand and each Selling Holder on the
other, in such proportion as is appropriate to reflect the relative fault of the
Company and of each Selling Holder in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The relative
fault of the Company on the one hand and of each Selling Holder on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by such party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and the Selling Holders agree that it would not be
just and equitable if contribution pursuant to this Section 8(d) were determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Party as a result of the
losses, claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8(d), no Selling Holder shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities of such Selling Holder were offered to
the public exceeds the amount of any damages which such Selling Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
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<PAGE>
9. Participation in Underwritten Registrations. No Holder may
participate in any underwritten registration hereunder unless such Holder (a)
agrees to sell such Holder's Registrable Securities on the basis provided in any
underwriting arrangements approved by the Person entitled hereunder to approve
such arrangements, (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and this Agreement,
and (c) if requested by another Person participating in such underwritten
registration, provides that all securities convertible or exchangeable into
Common Stock that are included in such underwritten registration shall be so
converted or exchanged on or prior to the consummation thereof.
10. Miscellaneous. (a) Rule 144 etc. The Company will file the
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the Commission thereunder, and will
take such further action as any holder of Registrable Securities may reasonably
request, all to the extent required from time to time to enable such holder to
sell Registrable Securities without registration under the Securities Act within
the limitation of the exemptions provided by (i) Rule 144 under the Securities
Act, as such rule may be amended from time to time, or (ii) any successor rule
or regulation hereafter adopted by the Commission. Upon the request of any
holder of Registrable Securities, the Company will deliver to such holder a
written statement as to whether it has complied with such requirements.
(b) Amendment. Any provision of this Agreement may be altered,
supplemented, amended, or waived only by the written consent of each of the
parties hereto.
(c) Specific Performance. The parties hereto recognize that
the obligations imposed on them in this Agreement are special, unique, and of
extraordinary character, and that in the event of breach by any party, damages
will be an insufficient remedy; consequently, it is agreed that the parties may
have specific performance and injunctive relief (in addition to
20
<PAGE>
damages) as a remedy for the enforcement hereof, without proving damages.
(d) Assignment. Except as otherwise expressly provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties hereto. In
addition, and provided that an express assignment shall have been made, a copy
of which shall have been delivered to the Company, the provisions of this
Agreement which are for the benefit of a holder of Registrable Securities shall
be for the benefit of and enforceable by any subsequent holder of any
Registrable Securities. Any purported assignment made in violation of this
Section 10(d) shall be void and of no force and effect.
(e) Notices. Any and all notices, designations, consents,
offers, acceptances, or other communications provided for herein (each a
"Notice") shall be given in writing by overnight courier, telegram, or telecopy
(with receipt confirmed) which shall be addressed, or sent, to the respective
addresses as follows (or such other address as any party may specify to the
Company and all other parties by Notice):
The Company:
Highlands Insurance Group, Inc.
10370 Richmond Avenue
Houston, Texas 77042-4123
Attn: Secretary
Telecopy Number: (713) 952-0240
Copy to:
Weil, Gotshal & Manges LLP
700 Louisiana, Suite 1600
Houston, Texas 77002
Attention: Steven D. Rubin
Telecopy Number: (713) 224-9511
21
<PAGE>
Am-Re:
American Re-Insurance Company
College Road East
Princeton, New Jersey 08543-5241
Attention: George P. Judd
Telecopy Number (609) 243-4992
Copy to::
LeBoeuf, Lamb, Greene & MacRae L.L.P.
125 West 57th Street
New York, New York 10019-5389
Attention: Warren Ingbert
Telecopy Number: (212) 424-8500
All Notices shall be deemed effective and received (a) if given by telecopy,
when such telecopy is transmitted to the telecopy number specified above and
receipt thereof is confirmed; (b) if given by overnight courier, on the business
day immediately following the day on which such Notice is delivered to a
reputable overnight courier service; or (c) if given by telegram, when such
Notice is delivered at the address specified above. No party shall be entitled
to receive a Notice hereunder (or a copy of a Notice delivered to the Company)
if, at the time such Notice is to be sent, such party (including its Affiliates
and the employees of such party and its Affiliates) no longer owns any
Registrable Securities.
(f) Counterparts. This Agreement may be executed in two or
more counterparts and each counterpart shall be deemed to be an original and
which counterparts together shall constitute one and the same agreement of the
parties hereto.
(g) Section Headings. Headings contained in this Agreement are
inserted only as a matter of convenience and in no way define, limit, or extend
the scope or intent of this Agreement or any provisions hereof.
22
<PAGE>
(h) No Punitive Damages; Waiver of Jury Trial; Prevailing
Party's Fees and Expenses. The parties hereto agree to waive any and all rights
to request or receive punitive damages in connection with any action or
proceeding related to the subject matter of this Agreement. The parties hereto
waive all right to trial by jury in any action or proceeding to enforce or
defend any rights under this Registration Rights Agreement. The substantially
prevailing party in any action or proceeding relating to this Agreement shall be
entitled to receive an award of, and to recover from any non-prevailing party,
any fees or expenses incurred by him or it (including, without limitation, fees
and disbursements of such prevailing party's counsel) in connection with any
such action or proceeding.
(i) Choice of Law. This Agreement will be governed by and
construed and enforced in accordance with the laws of the State of Delaware
(without regard to the principles of conflicts of law) applicable to a contract
executed and to be performed in such state. Each of the parties hereto (i)
agrees to submit to personal jurisdiction and to waive any objection as to venue
in the State or federal courts located in the County of New Castle, State of
Delaware, (ii) agrees that any action or proceeding shall be brought exclusively
in such courts, unless subject matter jurisdiction or personal jurisdiction
cannot be obtained, and (iii) agrees that service of process on any party in any
such action shall be effective if made by registered or certified mail addressed
to such party at the address specified herein, or to any party hereto at such
other addresses as it or he may from time to time specify to the other parties
in writing for such purpose. The exclusive choice of forum set forth in this
Section 9(i) shall not be deemed to preclude the enforcement of any judgment
obtained in such forum or the taking of any action under this Agreement to
enforce such judgment in any appropriate jurisdiction.
(j) Entire Agreement. This Agreement, together with the
Stockholders Agreement, contains the entire understanding of the parties hereto
respecting the subject matter hereof and supersedes all prior agreements,
discussions and understandings with respect thereto.
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<PAGE>
(k) Cumulative Rights. The rights of the Parties and the
Company under this Agreement are cumulative and in addition to all similar and
other rights of the parties under other agreements.
(l) Severability. If any term, provision, covenant, or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void, or unenforceable, the remainder of the terms, provisions,
covenants, and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired, or invalidated.
(m) Termination. This Agreement shall terminate on the tenth
anniversary hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Registration Rights Agreement as of the date first above written.
HIGHLANDS INSURANCE GROUP, INC.
By: /s/ Charles J. Bachand
------------------------------------
Name: Charles J. Bachand
Title: Vice President and Treasurer
AMERICAN RE-INSURANCE COMPANY
By: /s/ Paul R. McDermott
------------------------------------
Name: Paul R. McDermott
Title: Senior Vice President
25
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement") entered into
and effective as of April 30, 1997 among Highlands Insurance Group, Inc., a
Delaware corporation (the "Company"), The Scandinavia Company, Inc.
("Scandinavia"), Erik M. Vik ("EMV"), Manoeuvre Ltd. ("Manoeuvre") and
Triumph-Connecticut Limited Partnership ("Triumph" and collectively with
Scandinavia, EMV and Manoeuvre, the "Stockholder Parties") and Alexander M. Vik
("Vik").
W I T N E S S E T H:
WHEREAS, Vik Brothers Insurance, Inc., an Indiana corporation
("VBI"), the Company and Highlands Acquisition Corp., a subsidiary of the
Company ("HAC"), have entered into an amended and restated merger agreement (as
so amended and restated and as supplemented, extended or otherwise modified from
time to time, the "Merger Agreement"), dated as of February 13, 1997, pursuant
to which HAC and VBI are merging (the "Merger") as of the date hereof with VBI
being the surviving corporation of the Merger;
WHEREAS, as a result of the consummation of the Merger, the
Stockholder Parties are receiving shares of Common Stock, par value $.01 per
share (the "Common Stock"), of the Company; and
WHEREAS, in connection with and as a condition to the
consummation of the Merger, the parties hereto have entered into this Agreement
in order to define certain rights, duties and obligations of such parties.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
<PAGE>
1. Definitions. Except as otherwise set forth below, terms
defined in the Stockholders Agreement (as defined below) are used herein as
therein defined.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in the City of New York are authorized by
law to close.
"Common Stock Equivalents" means (without duplication with any
other Common Stock or Common Stock Equivalents) rights, warrants, options,
convertible securities or exchangeable securities or indebtedness, or other
rights, exercisable for or convertible or exchangeable into, directly or
indirectly, Common Stock, whether at the time of issuance or upon the passage of
time or the occurrence of some future event.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fully-Diluted Common Stock" means, at any time, the then
outstanding shares of Common Stock plus (without duplication) all shares of
Common Stock issuable, whether at such time or upon the passage of time or the
occurrence of some future event, upon the exercise, conversion or exchange of
all then-outstanding Common Stock Equivalents.
"Holder" means any Person who holds Registrable Securities.
"Indemnified Party" has the meaning set forth in Section 8(c)
below.
"Indemnifying Party" has the meaning set forth in Section 8(c)
below.
"Material Adverse Effect" has the meaning set forth in Section
2(d) below.
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<PAGE>
"Registrable Securities" means the Common Stock issued to the
Stockholder Parties pursuant to the Merger Agreement, any other Common Stock
beneficially owned by the Stockholder Parties and any other securities issuable
with respect to such Common Stock by way of a stock dividend or stock split or
in connection with a combination of shares, recapitalization, merger,
consolidation or reorganization; provided that
(1) any Registrable Security will cease to be a Registrable
Security when (a) a registration statement covering such
Registrable Security has been declared effective by the SEC
and it has been disposed of pursuant to such effective
registration statement, (b) it is sold under circumstances in
which all of the applicable conditions of Rule 144 (or any
similar provisions then in force) under the Securities Act are
met or (c) (i) it has been otherwise transferred and (ii) the
Company has delivered a new certificate or other evidence of
ownership for it not bearing the legend pertaining to the
Securities Act required pursuant to Section 6.4 of the
Stockholders Agreement and (iii) it may be resold without
subsequent registration under the Securities Act;
(2) with respect to any Demand Registration, Registrable
Securities shall only include such Registrable Securities
which any Requesting Holder could not otherwise sell pursuant
to Rule 144 under the Securities Act, without restriction as a
result of volume limitations, whether under subsection (k) of
Rule 144 or otherwise.
"Registration Expenses" has the meaning set forth in Section 7
below.
3
<PAGE>
"Requesting Holder" means any Holder who makes a Demand
Request, and any Holder who requests that such Holder's Registrable Securities
be registered in response to a Demand Registration.
"Selling Holder" means a Holder who is selling Registrable
Securities pursuant to a registration statement under the Securities Act.
"Stockholders Agreement" means the Stockholders Agreement,
dated as of the date hereof, among the Company, Insurance Partners, L.P.,
Insurance Partners Offshore (Bermuda), L.P. and each of the Stockholder Parties.
"Underwriter" means a securities dealer which purchases any
Registrable Securities as principal and not as part of such dealer's
market-making activities.
2. Demand Registration. (a) Request for Registration. Vik or
his legal representative, on behalf of the Holders, may make a written request
of the Company (a "Demand Request") for registration under the Securities Act (a
"Demand Registration") of the Holders' Registrable Securities. Upon any such
Demand Request, the Company will promptly, but in any event within 15 days, give
written notice thereof (the "Demand Registration Notice") to all Holders of
Registrable Securities and subject to Section 4(c), the Company shall file the
Demand Registration promptly, but in any event within 60 days after receiving a
Demand Request (the "Required Filing Date") covering all Registrable Securities
which the Company has been requested to register by the Holders thereof by
written request given to the Company within 20 days after the giving of the
Demand Registration Notice, all to the extent required to permit the disposition
of the Registrable Securities so to be registered in accordance with the
intended method or methods of disposition of each seller of such Registrable
Securities and shall use its best efforts to cause the same to be declared
effective by the SEC as promptly as practicable after such filing; provided that
the Company need effect only three Demand Registrations in the
4
<PAGE>
aggregate, and only one Demand Registration during any 12 month period, pursuant
hereto; provided further, that the Company shall be required to undertake and
effect any such Demand Registration only if the amount of Registrable Securities
requested to be included therein equals or exceeds $2,000,000.
(b) Effective Registration and Expenses. A registration made
pursuant to a Demand Request will not count as a Demand Registration until it
has become effective or (i) if, within 180 days after the registration relating
to such Demand Request has become effective, such registration is interfered
with by any stop order, injunction or other order or requirement of the SEC or
other governmental agency or court for any reason and the Company fails to have
such stop order, injunction or other order or requirement removed, withdrawn or
resolved to the Vik's reasonable satisfaction or (ii) the conditions to closing
specified in the purchase agreement or indemnity agreement entered into in
connection with the registration relating to such Demand Request are not
satisfied (other than as a result of a default or breach thereunder by Vik or
any of the Holders), and such closing does not occur as a result thereof.
(c) Selection of Underwriters. If the offering of Registrable
Securities pursuant to a Demand Registration shall be in the form of a "firm
commitment" underwritten offering, the Requesting Holders of a majority of the
shares of Registrable Securities to be registered in a Demand Registration (the
"Majority Requesting Holders") shall select the book-running managing
Underwriter or Underwriters (the "Managing Underwriter") and such additional
Underwriters to be used in connection with the offering, provided that the
selection of the Managing Underwriter shall be subject to the consent of the
Company, which consent shall not be unreasonably withheld.
(d) Priority on Demand Registrations. No securities to be sold
for the account of any Person (including the Company) other than a Requesting
Holder shall be included in a Demand Registration relating to a "firm
commitment" underwritten offering if the Managing Underwriter shall advise the
Requesting
5
<PAGE>
Holders and the Company in writing that the inclusion of such securities would
materially and adversely affect the price or success of the offering (a
"Material Adverse Effect"). Furthermore, in the event that the Managing
Underwriter shall advise the Requesting Holders that even after exclusion of all
securities of other Persons pursuant to the immediately preceding sentence, the
amount of Registrable Securities proposed to be included in such Demand
Registration by Requesting Holders would be sufficiently large to cause a
Material Adverse Effect, the Registrable Securities of Requesting Holders to be
included in such Demand Registration shall be allocated pro rata among the
Requesting Holders on the basis of the number of shares of Registrable
Securities requested to be included in such registration by each such Requesting
Holder.
3. Piggy-Back Registration. (a) Subject to the provisions of
this Agreement, if the Company proposes to file a registration statement under
the Securities Act with respect to an offering of any equity securities (as such
term is defined in Section 3(a) of the Exchange Act) by the Company, whether or
not for its own account, and the registration form to be used may be used for
the registration of the Registrable Securities, then the Company shall give
prompt written notice of such proposed filing to Holders of the Registrable
Securities. Upon the written request of any such Holder made within 20 days
after the receipt of any such notice, subject to Section 3(b) hereof, the
Company shall include in each such registration (a "Piggyback Registration") all
Registrable Securities requested to be included in the registration for such
offering.
(b) The Company shall use its best efforts to cause the
Managing Underwriter of a proposed underwritten offering to permit the
Registrable Securities requested by the Holder thereof to be included in the
registration statement for such offering under Section 3(a) or pursuant to other
piggyback registration rights granted by the Company to such Holder ("Piggyback
Securities"), to be included on the same terms and conditions as any similar
securities included therein. Notwithstanding the foregoing, the Company shall
not be required to include such
6
<PAGE>
Holder's Piggyback Securities in such offering if the Managing Underwriter of a
proposed underwritten offering advises the Company and the holders of Piggyback
Securities in writing that in its opinion the total amount of securities,
including Piggyback Securities and the securities of any other Person who has
requested the inclusion thereof in the registration statement for such offering
pursuant to any contractual "piggyback" rights of such Person, to be included in
such offering exceeds the number which can be sold in such offering without
causing a Material Adverse Effect. If the Managing Underwriter so advises the
Company, the Company will include in such registration, to the extent of the
number which the Company is so advised can be sold in such offering without
causing a Material Adverse Effect, first the securities being sold by the
Company, and next any other securities pro rata among the holders of Piggyback
Securities and any other Person which possesses comparable contractual
"piggyback" registration rights on the basis of the number of shares of
Fully-Diluted Common Stock requested to be included in such registration by each
such Person.
(c) No registration effected under this Section 3 shall
relieve the Company from its obligation to effect registrations under Section 2.
4. Holdback Agreements. (a) Restrictions on Public Sale by
Holder of Registrable Securities. Each Holder of Registrable Securities (whether
or not such Registrable Securities are included in a registration statement
pursuant hereto) agrees not to effect any public sale or distribution of the
issue being registered or of any securities convertible into or exchangeable or
exercisable for such securities, including a sale pursuant to Rule 144 under the
Securities Act, during the 7 days prior to, and during the 90-day period
beginning on the effective date of a registration statement with respect to any
securities of the Company except as part of such registration if and to the
extent requested by the Company in the case of a non-underwritten public
offering or if and to the extent requested by the Managing Underwriter in the
case of an underwritten public offering.
7
<PAGE>
(b) Restrictions on Public Sale by the Company and Others. The
Company agrees (i) not to effect any public sale or distribution of any
securities similar to those being registered, or any securities convertible into
or exchangeable or exercisable for such securities, during the 7 days prior to,
and during the 90-day period beginning on, the effective date of any
registration statement which includes Registrable Securities (unless such sale
or distribution is pursuant to such registration statement and either (A) the
Holders of a majority of the shares of Registrable Securities to be included in
such registration statement consent or (B) Holders are participating pursuant to
Section 3 hereof in such registration statement, such registration statement was
filed by the Company with respect to the sale of securities by the Company and
no Holder is simultaneously participating in a registration statement pursuant
to Section 2 hereof); and (ii) that any agreement entered into after the date of
the Agreement pursuant to which the Company issues or agrees to issue any
privately placed securities shall contain a provision under which holders of
such securities agree not to effect any public sale or distribution of any such
securities during the period described in (i) above, including a sale pursuant
to Rule 144 under the Securities Act (except as part of any such registration,
if permitted); provided, however, that the provisions of this paragraph (b)
shall not prevent the conversion or exchange of any securities of the Company
pursuant to their terms into or for other securities.
(c) Deferral of Filing. The Company may defer the filing of a
registration statement required by Section 2 until a date not later than 90 days
after the Required Filing Date (or, if longer, 90 days after the effective date
of the registration statement contemplated by clause (ii) below) if (i) at the
time the Company receives the Demand Request, the Company or its Subsidiaries
are engaged in confidential negotiations or other confidential business
activities or developments (such negotiations, activities or developments
referred to herein as "Pending Matters"), disclosure of which may, in the good
faith judgment of the Board of Directors, materially and adversely affect the
Company (and the Company shall use its best efforts to
8
<PAGE>
resolve such Pending Matters as soon as possible), or (ii) prior to receiving
the Demand Request, the Board of Directors had been considering a registered
underwritten public offering of the Company's securities for the Company's
account and the Board of Directors determines, in its good faith judgment, after
consultation with a firm of nationally recognized underwriters, that there will
be a Material Adverse Effect on the proposed public offering. A deferral of the
filing of a registration statement pursuant to this Section 4(c) shall be
lifted, and the requested registration statement shall be filed forthwith, if,
in the case of a deferral pursuant to clause (i) of the preceding sentence, the
negotiations, other activities or developments are publicly disclosed or
terminated, or, in the case of a deferral pursuant to clause (ii) of the
preceding sentence, the proposed registration for the Company's account is
abandoned. In order to defer the filing of a registration statement pursuant to
this Section 4(c), the Company shall promptly, upon determining to seek such
deferral, deliver to each Requesting Holder a certificate signed by the
President of the Company stating that the Company is deferring such filing
pursuant to this Section 4(c). Within five days after receiving such
certificate, the Holders of a majority of the Registrable Securities held by the
Requesting Holders and for which registration was previously requested may
withdraw such request by giving notice to the Company; if withdrawn, the Demand
Request shall be deemed not to have been made for all purposes of this
Agreement.
5. Registration Procedures. Whenever the Holders have
requested that any Registrable Securities be registered pursuant to Section 2 or
3 hereof, the Company will, at its expense, use its best efforts to effect the
registration and the sale of such Registrable Securities under the Securities
Act in accordance with the intended method of disposition thereof, and in
connection with any such request, the Company will (subject to Section 4(c)
hereof):
(a) prepare and, as soon as practicable, but in any event
within 60 days after notice is given by the Company to Holders pursuant to
Sections 2(a) or 3(a), file with the SEC a
9
<PAGE>
registration statement on any form for which the Company then qualifies or which
counsel for the Company shall deem appropriate and which form shall be available
for the sale of the Registrable Securities to be registered thereunder in
accordance with the intended method of distribution thereof, and use its best
efforts to cause such filed registration statement to become effective under the
Securities Act; provided that before filing a registration statement or
prospectus or any amendments or supplements thereto, the Company will furnish to
all Selling Holders and to one counsel reasonably acceptable to the Company
selected by the Selling Holders, copies of all such documents proposed to be
filed, which document will be subject to the review of and comment by such
counsel;
(b) prepare and promptly file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period (except as provided in the last paragraph of this Section 5) of not
less than 180 consecutive days or, if shorter, the period terminating when all
Registrable Securities covered by such registration statement have been sold
(but not before the expiration of the applicable period referred to in Section
4(3) of the Securities Act and Rule 174 thereunder, if applicable) and comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the Selling Holders
thereof set forth in such registration statement;
(c) furnish to each such Selling Holder such number of copies
of such registration statement, each amendment and supplement thereto (in each
case including all exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus) and such other
documents as such Selling Holder may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Selling Holder;
10
<PAGE>
(d) notify the Selling Holders promptly, and (if requested by
any such Person) confirm such notice in writing, (i) when the registration
statement or any post-effective amendment has become effective under the
Securities Act and applicable state law, (ii) of any request by the SEC or any
other Federal or state governmental authority for amendments or supplements to a
registration statement or related prospectus or for additional information,
(iii) of the issuance by the SEC of any stop order suspending the effectiveness
of a registration statement or the initiation of any proceedings for that
purpose, (iv) of the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and (v) of the happening of any
event which makes any statement made in such registration statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in such registration statement, prospectus or documents so that, in the
case of the registration statement, it will not contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and that in the case
of the prospectus, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading;
(e) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of a registration statement, or the lifting of any
suspension of the qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction, at the earliest practicable
moment;
(f) use its best efforts to cooperate with the Selling Holders
and any Managing Underwriter to facilitate the timely preparation and delivery
of certificates representing Registrable
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<PAGE>
Securities to be sold, which certificates shall not bear any restrictive legends
and shall be in a form eligible for deposit with The Depositary Trust Company;
and enable such Registrable Securities to be registered in such names as the
Managing Underwriter or Selling Holders may request at least two business days
prior to any sale of Registrable Securities;
(g) use its best efforts to register or qualify such
Registrable Securities as promptly as practicable under such other securities or
blue sky laws of such jurisdictions as any Selling Holder or Managing
Underwriter reasonably (in light of the intended plan of distribution) requests
and do any and all other acts and things which may be reasonably necessary or
advisable to enable such Selling Holder or Managing Underwriter to consummate
the disposition in such jurisdictions of the Registrable Securities owned by
such Selling Holder; provided that the Company will not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph (g), (ii) subject itself
to taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction;
(h) use its best efforts to cause such Registrable Securities
to be registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and operations of the
Company to enable the Selling Holder thereof to consummate the disposition of
such Registrable Securities;
(i) enter into customary agreements (including an underwriting
agreement in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such Registrable
Securities;
(j) furnish to each Selling Holder an opinion of counsel to
the Company, dated the effective date of the registration statement (and, if
such registration includes an underwritten public offering, dated the date of
the closing under the underwriting agreement) and a comfort letter from the
12
<PAGE>
Company's independent public accountants, dated the effective date of such
registration statement (and if such registration includes an underwritten public
offering, dated the date of the closing under the underwriting agreement) in
customary form and covering such matters of the type customarily covered by
comfort letters and such other matters as the Selling Holders of a majority of
the shares of Registrable Securities being sold or the Managing Underwriter
reasonably requests;
(k) make available to its security holders, as soon as
reasonably practicable, an earnings statement covering a period of twelve
months, beginning within three months after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act;
(l) use its best efforts to cause all such Registrable
Securities to be listed on each securities exchange on which similar securities
issued by the Company are then listed or quoted on any inter-dealer quotation
system on which similar securities issued by the Company are then quoted;
(m) if any event contemplated by Section 5(d)(v) above shall
occur, as promptly as practicable prepare a supplement or amendment or
post-effective amendment to such registration statement or the related
prospectus or any document incorporated therein by reference or promptly file
any other required document so that, as thereafter delivered to the purchasers
of the Registrable Securities, the prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading; and
(n) cooperate and assist in any filing required to be made
with the National Association of Securities Dealers, Inc. and in the performance
of any reasonable due diligence investigation by any underwriter.
13
<PAGE>
The Company may require each Selling Holder to promptly
furnish in writing to the Company such information regarding the distribution of
the Registrable Securities as it may from time to time reasonably request and
such other information as may be legally required in connection with such
registration. Notwithstanding anything herein to the contrary, the Company shall
have the right to exclude from any offering the Registrable Securities of any
Selling Holder who does not comply with the provisions of the immediately
preceding sentence.
Each Selling Holder agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
5(d)(v) hereof, such Selling Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Selling Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 5(d)(v) hereof, and,
if so directed by the Company, such Selling Holder will deliver to the Company
all copies, other than permanent file copies, then in such Selling Holder's
possession, of the most recent prospectus covering such Registrable Securities
at the time of receipt of such notice. In the event the Company shall give such
notice, the Company shall extend the period during which such registration
statement shall be maintained effective (including the period referred to in
Section 5(b) hereof) by the number of days during the period from and including
the date of the giving of notice pursuant to Section 5(d)(v) hereof to the date
when the Company shall make available to the Selling Holders of Registrable
Securities covered by such registration statement a prospectus supplemented or
amended to conform with the requirements of Section 5(d)(v) hereof.
6. Underwriting Agreement. (a) If requested by the
underwriters for any underwritten offering by holders of Registrable Securities
pursuant to a registration requested under Section 2 or 3, the Company shall
enter into an underwriting agreement with the underwriters for such offering,
such agreement to be reasonably satisfactory in substance and form to the
Selling Holders, the Managing Underwriter and the Company and to
14
<PAGE>
contain such representations and warranties by the Company and such other terms
and provisions as are customarily contained in agreements of this type,
including, without limitation, indemnities to the effect and to the extent
provided in Section 8. The holders of Registrable Securities to be distributed
by such underwriters shall be parties to such underwriting agreement and may, at
their option, require that any or all of the representations and warranties by,
and the agreements on the part of, the Company to and for the benefit of such
underwriters be made to and for the benefit of such holders of Registrable
Securities and that any or all of the conditions precedent to the obligations of
such underwriters under such underwriting agreement shall also be conditions
precedent to the obligations of such holders of Registrable Securities.
(b) No underwriting agreement referred to in Section 6(a)
above (or other agreement in connection with such offering) shall require any
holder of Registrable Securities to make any representations or warranties to or
agreements with the Company or the underwriters other than representations,
warranties or agreements regarding such holder, the ownership of such holder's
Registrable Securities and such holder's intended method or methods of
disposition and any other representation required by law or to furnish any
indemnity to any Person which is broader than the indemnity furnished by such
holder in Section 8(b).
7. Registration Expenses. (a) In connection with any
registration statement required to be filed hereunder, the Company shall pay the
following registration expenses (the "Registration Expenses"): (i) all
registration and filing fees (including, without limitation, with respect to
filings to be made with the National Association of Securities Dealers, Inc.),
(ii) fees and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), (iii) word processing,
duplicating and printing expenses, (iv) internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), (v) transfer agents', trustees',
15
<PAGE>
depositories', registrars' and fiscal agents' fees, (vi) the fees and expenses
incurred in connection with the listing on an exchange of the Registrable
Securities, (vii) reasonable fees and disbursements of counsel for the Company
and customary fees and expenses for independent certified public accountants
retained by the Company (including the expenses of any comfort letters requested
pursuant to Section 5(j) hereof), (viii) the reasonable fees and expenses of any
special experts retained by the Company in connection with such registration,
(ix) the reasonable fees and disbursements of any one counsel retained by the
Selling Holders and (x) any fees and disbursements of underwriters customarily
paid by issuers or sellers of securities, but excluding underwriting fees,
discounts and commissions and transfer taxes, if any.
8. Indemnification; Contribution. (a) Indemnification by the
Company. The Company agrees to indemnify and hold harmless each Selling Holder,
each Person, if any, who controls such Selling Holder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, and the
officers, directors, agents, general and limited partners, and employees of each
Selling Holder and each such controlling person from and against any and all
losses, claims, damages, liabilities, and reasonable expenses (including
reasonable costs of investigation) directly or indirectly arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus relating to the
Registrable Securities or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or reasonable expenses arise out of, or are
based upon, any such untrue statement or omission or allegation thereof based
upon information furnished to the Company by such Selling Holder or on such
Selling Holder's behalf expressly for use therein; and the Company will
reimburse such Indemnified Party for any legal or other expenses reasonably
incurred by them in connection with
16
<PAGE>
enforcing its rights hereunder, provided, however, that with respect to any
untrue statement or omission or alleged untrue statement or omission made in any
preliminary prospectus, the indemnity agreement contained in this paragraph
shall not apply to the extent that any such loss, claim, damage, liability or
expense results from the fact that a current copy of the prospectus was not sent
or given to the Persons asserting any such loss, claim, damage, liability or
expense at or prior to the written confirmation of the sale of the Registrable
Securities concerned to such Person if it is determined that (i)(A) it was the
responsibility of such Selling Holder to provide such person with a current copy
of the prospectus, (B) such Selling Holder was provided with a current copy of
the prospectus prior to the written confirmation of sale and (C) such current
copy of the prospectus would have cured the defect giving rise to such loss,
claim, damage, liability or expense or (ii) the Selling Holder provided a
prospectus to any Person in violation of the last paragraph of Section 5 hereof.
(b) Indemnification by Holder of Registrable Securities. Each
Selling Holder agrees to indemnify and hold harmless the Company, and each
Person, if any, who controls the Company within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act and the officers,
directors, agents and employees of the Company and each such controlling Person
to the same extent as the foregoing indemnity from the Company to such Selling
Holder, but only with respect to written information furnished by such Selling
Holder or on such Selling Holder's behalf expressly for use in any registration
statement or prospectus relating to the Registrable Securities. The liability of
any Selling Holder under this Section 8(b) shall be limited to the net amount of
proceeds received by such Selling Holder pursuant to the sale of Registrable
Securities covered by such registration statement or prospectus.
(c) Conduct of Indemnification Proceedings. If any action or
proceeding (including any governmental investigation) shall be brought or
asserted against any Person entitled to indemnification under Section 8(a) or
8(b) above (an "Indemnified
17
<PAGE>
Party") in respect of which indemnity may be sought from any party who has
agreed to provide such indemnification under Section 8(a) or 8(b) above (an
"Indemnifying Party"), the Indemnified Party shall give prompt notice to the
Indemnifying Party, provided that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 8, except to the extent that such Indemnifying
Party is materially prejudiced by such failure to give notice. The Indemnifying
Party shall assume the defense thereof, including the employment of counsel
reasonably satisfactory to such Indemnified Party, and shall assume the payment
of all reasonable expenses of such defense. Such Indemnified Party shall have
the right to employ separate counsel in any such action or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the Indemnifying
Party has agreed to pay such fees and expenses or (ii) the Indemnifying Party
fails promptly to assume the defense of such action or proceeding or fails to
employ counsel reasonably satisfactory to such Indemnified Party or (iii) the
named parties to any such action or proceeding (including any impleaded parties)
include both such Indemnified Party and Indemnifying Party (or an Affiliate of
the Indemnifying Party), and such Indemnified Party shall have been advised by
counsel that there is a conflict of interest on the part of counsel employed by
the Indemnifying Party to represent such Indemnified Party (in which case, if
such Indemnified Party notifies the Indemnifying Party in writing that it elects
to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of such action
or proceeding on behalf of such Indemnified Party). Notwithstanding the
foregoing, the Indemnifying Party shall not, in connection with any one such
action or proceeding or separate but substantially similar related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable at any time for the fees and expenses of more than
one separate firm of attorneys (together in each case with appropriate local
counsel). The Indemnifying Party shall not be liable for any settlement of any
18
<PAGE>
such action or proceeding effected without its written consent (which consent
will not be unreasonably withheld), but if settled with its written consent, or
if there be a final judgment for the plaintiff in any such action or proceeding,
the Indemnifying Party shall indemnify and hold harmless such Indemnified Party
from and against any loss or liability (to the extent stated above) by reason of
such settlement or judgment. The Indemnifying Party shall not consent to entry
of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release, in form and substance satisfactory to the
Indemnified Party, from all liability in respect of such action or proceeding
for which such Indemnified Party would be entitled to indemnification hereunder.
(d) Contribution. If the indemnification provided for in this
Section 8 is unavailable to the Indemnified Parties in respect of any losses,
claims, damages, liabilities or judgments referred to herein, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, liabilities and judgments as between the
Company on the one hand and each Selling Holder on the other, in such proportion
as is appropriate to reflect the relative fault of the Company and of each
Selling Holder in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative fault of the Company on the one
hand and of each Selling Holder on the other shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by such party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Selling Holders agree that it would not be
just and equitable if contribution pursuant to this Section 8(d) were determined
by pro rata allocation or by any
19
<PAGE>
other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Party as a result of the losses, claims,
damages, liabilities or judgments referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8(d), no Selling Holder shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities of such Selling Holder were offered to
the public exceeds the amount of any damages which such Selling Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
9. Participation in Underwritten Registrations. No Holder may
participate in any underwritten registration hereunder unless such Holder (a)
agrees to sell such Holder's Registrable Securities on the basis provided in any
underwriting arrangements approved by the Person entitled hereunder to approve
such arrangements, (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and this Agreement,
and (c) if requested by another Person participating in such underwritten
registration, provides that all securities convertible or exchangeable into
Common Stock that are included in such underwritten registration shall be so
converted or exchanged on or prior to the consummation thereof.
10. Miscellaneous. (a) Rule 144 etc. The Company will file the
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the Commission thereunder, and will
take such further
20
<PAGE>
action as any holder of Registrable Securities may reasonably request, all to
the extent required from time to time to enable such holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (i) Rule 144 under the Securities Act, as such
rule may be amended from time to time, or (ii) any successor rule or regulation
hereafter adopted by the Commission. Upon the request of any holder of
Registrable Securities, the Company will deliver to such holder a written
statement as to whether it has complied with such requirements.
(b) Amendment. Any provision of this Agreement may be altered,
supplemented, amended, or waived only by the written consent of each of the
parties hereto.
(c) Specific Performance. The parties hereto recognize that
the obligations imposed on them in this Agreement are special, unique, and of
extraordinary character, and that in the event of breach by any party, damages
will be an insufficient remedy; consequently, it is agreed that the parties may
have specific performance and injunctive relief (in addition to damages) as a
remedy for the enforcement hereof, without proving damages.
(d) Assignment. Except as otherwise expressly provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties hereto. In
addition, and provided that an express assignment shall have been made, a copy
of which shall have been delivered to the Company, the provisions of this
Agreement which are for the benefit of a holder of Registrable Securities shall
be for the benefit of and enforceable by any subsequent holder of any
Registrable Securities. Any purported assignment made in violation of this
Section 10(d) shall be void and of no force and effect.
(e) Notices. Any and all notices, designations, consents,
offers, acceptances, or other communications provided for herein (each a
"Notice") shall be given in writing by
21
<PAGE>
overnight courier, telegram, or telecopy (with receipt confirmed) which shall be
addressed, or sent, to the respective addresses as follows (or such other
address as any party may specify to the Company and all other parties by
Notice):
The Company:
Highlands Insurance Group, Inc.
10370 Richmond Avenue
Houston, Texas 77042-4123
Attn: Secretary
Telecopy Number: (713) 952-0240
Copy to:
Weil, Gotshal & Manges LLP
700 Louisiana, Suite 1600
Houston, Texas 77002
Attention: Steven D. Rubin
Telecopy Number: (713) 224-9511
Alexander M. Vik:
Alexander M. Vik
10 Ashton Drive
Greenwich, Connecticut 06831
Telecopy Number: (203) 622-1610
Copy to::
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
Attention: Hillel M. Bennett
Telecopy Number: (212) 806-6006
22
<PAGE>
Scandinavia:
The Scandinavia Company, Inc.
c/o RHB Trust Co. Ltd.
P.O. Box 1787
Third Floor
One Regis Place
Grand Cayman, Cayman Islands
British West Indies
EMV:
Erik Martin Vik
20 Avenue de Grand
Bretagne
MC-98000
Monaco
Telecopy Number: 011-33-93-255250
Triumph:
Thomas W. Janes
Triumph-Connecticut Limited Partnership
60 State Street, 21st Floor
Boston, Massachusetts 02109
Manoeuvre:
Manoeuvre Ltd.
28 Irishtown
Gibraltar
All Notices shall be deemed effective and received (a) if given by telecopy,
when such telecopy is transmitted to the telecopy number specified above and
receipt thereof is confirmed; (b) if given by overnight courier, on the business
day immediately following the day on which such Notice is delivered to a
reputable overnight courier service; or (c) if given by telegram, when such
Notice is delivered at the address specified above. No
23
<PAGE>
party shall be entitled to receive a Notice hereunder (or a copy of a Notice
delivered to the Company) if, at the time such Notice is to be sent, such party
(including its Affiliates and the employees of such party and its Affiliates) no
longer owns any Registrable Securities.
(f) Counterparts. This Agreement may be executed in two or
more counterparts and each counterpart shall be deemed to be an original and
which counterparts together shall constitute one and the same agreement of the
parties hereto.
(g) Section Headings. Headings contained in this Agreement are
inserted only as a matter of convenience and in no way define, limit, or extend
the scope or intent of this Agreement or any provisions hereof.
(h) No Punitive Damages; Waiver of Jury Trial; Prevailing
Party's Fees and Expenses. The parties hereto agree to waive any and all rights
to request or receive punitive damages in connection with any action or
proceeding related to the subject matter of this Agreement. The parties hereto
waive all right to trial by jury in any action or proceeding to enforce or
defend any rights under this Registration Rights Agreement. The substantially
prevailing party in any action or proceeding relating to this Agreement shall be
entitled to receive an award of, and to recover from any non-prevailing party,
any fees or expenses incurred by him or it (including, without limitation, fees
and disbursements of such prevailing party's counsel) in connection with any
such action or proceeding.
(i) Choice of Law. This Agreement will be governed by and
construed and enforced in accordance with the laws of the State of Delaware
(without regard to the principles of conflicts of law) applicable to a contract
executed and to be performed in such state. Each of the parties hereto (i)
agrees to submit to personal jurisdiction and to waive any objection as to venue
in the State or federal courts located in the County of New Castle, State of
Delaware, (ii) agrees that any action or proceeding shall be brought exclusively
in such courts, unless subject
24
<PAGE>
matter jurisdiction or personal jurisdiction cannot be obtained, and (iii)
agrees that service of process on any party in any such action shall be
effective if made by registered or certified mail addressed to such party at the
address specified herein, or to any party hereto at such other addresses as it
or he may from time to time specify to the other parties in writing for such
purpose. The exclusive choice of forum set forth in this Section 9(i) shall not
be deemed to preclude the enforcement of any judgment obtained in such forum or
the taking of any action under this Agreement to enforce such judgment in any
appropriate jurisdiction.
(j) Entire Agreement. This Agreement, together with the
Stockholders Agreement, contains the entire understanding of the parties hereto
respecting the subject matter hereof and supersedes all prior agreements,
discussions and understandings with respect thereto.
(k) Cumulative Rights. The rights of the Parties and the
Company under this Agreement are cumulative and in addition to all similar and
other rights of the parties under other agreements.
(l) Severability. If any term, provision, covenant, or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void, or unenforceable, the remainder of the terms, provisions,
covenants, and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired, or invalidated.
(m) Termination. This Agreement shall terminate on the tenth
anniversary hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Registration Rights Agreement as of the date first above written.
HIGHLANDS INSURANCE GROUP, INC.
By: /s/ Charles J. Bachand
------------------------------------
Name: Charles J. Bachand
Title:Vice President and Treasurer
/s/ Alexander M. Vik
---------------------------------------
ALEXANDER M. VIK
THE SCANDINAVIA COMPANY, INC.
By: /s/ Alexander M. Vik
---------------------------------------
Name: Alexander M. Vik
Title: Chairman
/s/ Erik M. Vik
---------------------------------------
ERIK MARTIN VIK
MANOEUVRE LTD.
By: /s/ unreadable
------------------------------------
Name:
Title:
TRIUMPH-CONNECTICUT LIMITED PARTNERSHIP
By: /s/ Thomas W. Janes
------------------------------------
Name: Thomas W. Janes
Title: Managing Partner
26
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement") entered into
and effective as of March 26, 1997 between Highlands Insurance Group, Inc., a
Delaware corporation (the "Company") and Armco Financial Services Corporation, a
Delaware insurance company ("AFSC").
W I T N E S S E T H:
WHEREAS, Vik Brothers Insurance, Inc., an Indiana corporation
("VBI"), the Company and Highlands Acquisition Corp., a subsidiary of the
Company ("HAC"), have entered into an amended and restated merger agreement (as
so amended and restated and as supplemented, extended or otherwise modified from
time to time, the "Merger Agreement"), dated as of February 13, 1997, pursuant
to which HAC and VBI are merging (the "Merger") as of the date hereof with VBI
being the surviving corporation of the Merger;
WHEREAS, in connection with and as a condition to the
consummation of the Merger, AFSC, Armco Inc. and VBI have entered into that
certain Amendment Number 3 to the Stock Purchase Agreement among AFSC, Armco
Inc. and VBI ("Amendment No. 3");
WHEREAS, pursuant to Amendment No. 3 and the Subscription
Agreement referred to therein (the "Subscription Agreement"), upon consummation
of the Merger, AFSC is receiving shares of Common Stock, par value $.01 per
share (the "Common Stock"), of the Company; and
WHEREAS, in connection with and as a condition to the
consummation of the transactions contemplated by Amendment No. 3, the parties
hereto have entered into this Agreement in order to define certain rights,
duties and obligations of such parties.
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants and
obligations hereinafter set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. Definitions. Except as otherwise set forth below, terms defined in the
Stockholders Agreement (as defined below) are used herein as therein defined.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in the City of New York are authorized by
law to close.
"Common Stock Equivalents" means (without duplication with any
other Common Stock or Common Stock Equivalents) rights, warrants, options,
convertible securities or exchangeable securities or indebtedness, or other
rights, exercisable for or convertible or exchangeable into, directly or
indirectly, Common Stock, whether at the time of issuance or upon the passage of
time or the occurrence of some future event.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fully-Diluted Common Stock" means, at any time, the then
outstanding shares of Common Stock plus (without duplication) all shares of
Common Stock issuable, whether at such time or upon the passage of time or the
occurrence of some future event, upon the exercise, conversion or exchange of
all then-outstanding Common Stock Equivalents.
"Holder" means any Person who holds Registrable Securities.
"Indemnified Party" has the meaning set forth in Section 8(c)
below.
"Indemnifying Party" has the meaning set forth in Section 8(c)
below.
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<PAGE>
"Material Adverse Effect" has the meaning set forth in Section
2(d) below.
"Registrable Securities" means the Common Stock issued to AFSC
pursuant to the Merger Agreement, any other Common Stock beneficially owned by
AFSC and any other securities issuable with respect to such Common Stock by way
of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or reorganization; provided that
(1) any Registrable Security will cease to be a Registrable
Security when (a) a registration statement covering such
Registrable Security has been declared effective by the SEC
and it has been disposed of pursuant to such effective
registration statement, (b) it is sold under circumstances in
which all of the applicable conditions of Rule 144 (or any
similar provisions then in force) under the Securities Act are
met or (c) (i) it has been otherwise transferred and (ii) the
Company has delivered a new certificate or other evidence of
ownership for it not bearing the legend pertaining to the
Securities Act required pursuant to Section 6.4 of the
Stockholders Agreement and (iii) it may be resold without
subsequent registration under the Securities Act;
(2) with respect to any Demand Registration, Registrable
Securities shall only include such Registrable Securities
which any Requesting Holder could not otherwise sell pursuant
to Rule 144 under the Securities Act, without restriction as a
result of volume limitations, whether under subsection (k) of
Rule 144 or otherwise.
"Registration Expenses" has the meaning set forth in
Section 7 below.
3
<PAGE>
"Requesting Holder" means any Holder who makes a Demand
Request.
"Selling Holder" means a Holder who is selling Registrable
Securities pursuant to a registration statement under the Securities Act.
"Underwriter" means a securities dealer which purchases any
Registrable Securities as principal and not as part of such dealer's
market-making activities.
2. Demand Registration. (a) Request for Registration. AFSC may
make a written request of the Company (a "Demand Request") for registration
under the Securities Act (a "Demand Registration") of all or part of its
Registrable Securities. Such Demand Request shall specify the number of shares
of Registrable Securities proposed to be sold. Upon any such Demand Request, the
Company will promptly, but in any event within 15 days, give written notice
thereof (the "Demand Registration Notice") to all Holders of Registrable
Securities and subject to Section 4(c), the Company shall file the Demand
Registration promptly, but in any event within 60 days after receiving a Demand
Request (the "Required Filing Date") covering the Registrable Securities covered
by the Demand Request and all other Registrable Securities which the Company has
been requested to register by the Holders thereof by written request given to
the Company within 20 days after the giving of the Demand Registration Notice,
all to the extent required to permit the disposition of the Registrable
Securities so to be registered in accordance with the intended method or methods
of disposition of each seller of such Registrable Securities and shall use its
best efforts to cause the same to be declared effective by the SEC as promptly
as practicable after such filing; provided that the Company need effect only one
Demand Registration in the aggregate pursuant hereto.
(B) Effective Registration and Expenses. A registration made
pursuant to a Demand Request will not count as a Demand Registration until it
has become effective with respect to all of the Registrable Securities whose
registration was requested pursuant to such Demand Request or (i) if, within 180
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days after the registration relating to such Demand Request has become
effective, such registration is interfered with by any stop order, injunction or
other order or requirement of the SEC or other governmental agency or court for
any reason and the Company fails to have such stop order, injunction or other
order or requirement removed, withdrawn or resolved to the Holders' reasonable
satisfaction or (ii) the conditions to closing specified in any purchase
agreement or indemnity agreement entered into in connection with the
registration relating to such Demand Request are not satisfied (other than as a
result of a default or breach thereunder by any of the Holders), and such
closing does not occur as a result thereof.
(c) Selection of Underwriters. If the offering of Registrable
Securities pursuant to a Demand Registration shall be in the form of a "firm
commitment" underwritten offering, the Requesting Holders of a majority of the
shares of Registrable Securities to be registered in a Demand Registration (the
"Majority Requesting Holders") shall select the book-running managing
Underwriter or Underwriters (the "Managing Underwriter") and such additional
Underwriters to be used in connection with the offering, provided that the
selection of the Managing Underwriter shall be subject to the consent of the
Company, which consent shall not be unreasonably withheld.
(d) Priority on Demand Registrations. No securities to be sold
for the account of any Person (including the Company) other than a Requesting
Holder shall be included in a Demand Registration relating to a "firm
commitment" underwritten offering if the Managing Underwriter shall advise the
Requesting Holders and the Company in writing that the inclusion of such
securities would materially and adversely affect the price or success of the
offering (a "Material Adverse Effect").
3. Piggy-Back Registration. (a) Subject to the provisions of
this Agreement, if the Company proposes to file a registration statement under
the Securities Act with respect to an offering of any equity securities (as such
term is defined in Section 3(a) of the Exchange Act) by the Company, whether or
not for its own account, and the registration form to be used may be
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used for the registration of the Registrable Securities, then the Company shall
give prompt written notice of such proposed filing to Holders of the Registrable
Securities. Upon the written request of any such Holder made within 20 days
after the receipt of any such notice, subject to Section 3(b) hereof, the
Company shall include in each such registration (a "Piggyback Registration") all
Registrable Securities requested to be included in the registration for such
offering.
(b) The Company shall use its best efforts to cause the
Managing Underwriter of a proposed underwritten offering to permit the
Registrable Securities requested by the Holder thereof to be included in the
registration statement for such offering under Section 3(a) or pursuant to other
piggyback registration rights granted by the Company to such Holder ("Piggyback
Securities"), to be included on the same terms and conditions as any similar
securities included therein. Notwithstanding the foregoing, the Company shall
not be required to include such Holder's Piggyback Securities in such offering
if the Managing Underwriter of a proposed underwritten offering advises the
Company and the holders of Piggyback Securities in writing that in its opinion
the total amount of securities, including Piggyback Securities and the
securities of any other Person who has requested the inclusion thereof in the
registration statement for such offering pursuant to any contractual "piggyback"
rights of such Person, to be included in such offering exceeds the number which
can be sold in such offering without causing a Material Adverse Effect. If the
Managing Underwriter so advises the Company, the Company will include in such
registration, to the extent of the number which the Company is so advised can be
sold in such offering without causing a Material Adverse Effect, first the
securities being sold by the Company, and next any other securities pro rata
among the holders of Piggyback Securities and any other Person which possesses
comparable contractual "piggyback" registration rights on the basis of the
number of shares of Fully-Diluted Common Stock requested to be included in such
registration by each such Person.
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(c) No registration effected under this Section 3 shall
relieve the Company from its obligation to effect registrations under Section 2.
4. Holdback Agreements. Restrictions on Public Sale by Holder
of Registrable Securities. Each Holder of Registrable Securities (whether or not
such Registrable Securities are included in a registration statement pursuant
hereto) agrees not to effect any public sale or distribution of the issue being
registered or of any securities convertible into or exchangeable or exercisable
for such securities, including a sale pursuant to Rule 144 under the Securities
Act, during the 7 days prior to, and during the 90-day period beginning on the
effective date of a registration statement with respect to any securities of the
Company except as part of such registration if and to the extent requested by
the Company in the case of a non-underwritten public offering or if and to the
extent requested by the Managing Underwriter in the case of an underwritten
public offering.
(b) Restrictions on Public Sale by the Company and Others. The
Company agrees (i) not to effect any public sale or distribution of any
securities similar to those being registered, or any securities convertible into
or exchangeable or exercisable for such securities, during the 7 days prior to,
and during the 90-day period beginning on, the effective date of any
registration statement which includes Registrable Securities (unless such sale
or distribution is pursuant to such registration statement and either (A) the
Holders of a majority of the shares of Registrable Securities to be included in
such registration statement consent or (B) Holders are participating pursuant to
Section 3 hereof in such registration statement, such registration statement was
filed by the Company with respect to the sale of securities by the Company and
no Holder is simultaneously participating in a registration statement pursuant
to Section 2 hereof); and (ii) that any agreement entered into after the date of
the Agreement pursuant to which the Company issues or agrees to issue any
privately placed securities shall contain a provision under which holders of
such securities agree not to effect any public sale or distribution of any such
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securities during the period described in (i) above, including a sale pursuant
to Rule 144 under the Securities Act (except as part of any such registration,
if permitted); provided, however, that the provisions of this paragraph (b)
shall not prevent the conversion or exchange of any securities of the Company
pursuant to their terms into or for other securities.
(c) Deferral of Filing. The Company may defer the filing of a
registration statement required by Section 2 until a date not later than 90 days
after the Required Filing Date (or, if longer, 90 days after the effective date
of the registration statement contemplated by clause (ii) below) if (i) at the
time the Company receives the Demand Request, the Company or its Subsidiaries
are engaged in confidential negotiations or other confidential business
activities or developments (such negotiations, activities or developments
referred to herein as "Pending Matters"), disclosure of which may, in the good
faith judgment of the Board of Directors, materially and adversely affect the
Company (and the Company shall use its best efforts to resolve such Pending
Matters as soon as possible), or (ii) prior to receiving the Demand Request, the
Board of Directors had been considering a registered underwritten public
offering of the Company's securities for the Company's account and the Board of
Directors determines, in its good faith judgment, after consultation with a firm
of nationally recognized underwriters, that there will be a Material Adverse
Effect on the proposed public offering; provided, however, that the aggregate
number of days such filings are so deferred may not exceed 120 days during any
consecutive 360 day period. A deferral of the filing of a registration statement
pursuant to this Section 4(c) shall be lifted, and the requested registration
statement shall be filed forthwith, if, in the case of a deferral pursuant to
clause (i) of the preceding sentence, the negotiations, other activities or
developments are publicly disclosed or terminated, or, in the case of a deferral
pursuant to clause (ii) of the preceding sentence, the proposed registration for
the Company's account is abandoned. In order to defer the filing of a
registration statement pursuant to this Section 4(c), the Company shall
promptly, upon determining to seek such deferral, deliver to each Requesting
Holder a certificate signed by the President of the
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Company stating that the Company is deferring such filing pursuant to this
Section 4(c). Within five days after receiving such certificate, the Holders of
a majority of the Registrable Securities held by the Requesting Holders and for
which registration was previously requested may withdraw such request by giving
notice to the Company; if withdrawn, the Demand Request shall be deemed not to
have been made for all purposes of this Agreement; if not withdrawn, the Demand
Request shall remain in effect and the Company shall comply with its obligations
specified herein with respect to such Demand Request as set forth in the second
sentence of this Section 4(c).
5. Registration Procedures. Whenever the Holders have
requested that any Registrable Securities be registered pursuant to Section 2 or
3 hereof, the Company will, at its expense, use its best efforts to effect the
registration and the sale of such Registrable Securities under the Securities
Act in accordance with the intended method of disposition thereof, and in
connection with any such request, the Company will (subject to Section 4(c)
hereof):
(a) prepare and, as soon as practicable, but in any event
within 60 days after notice is given by the Company to Holders pursuant to
Sections 2(a) or 3(a), file with the SEC a registration statement on any form
for which the Company then qualifies or which counsel for the Company shall deem
appropriate and which form shall be available for the sale of the Registrable
Securities to be registered thereunder in accordance with the intended method of
distribution thereof, and use its best efforts to cause such filed registration
statement to become effective under the Securities Act; provided that before
filing a registration statement or prospectus or any amendments or supplements
thereto, the Company will furnish to all Selling Holders and to one counsel
reasonably acceptable to the Company selected by the Requesting Holder, copies
of all such documents proposed to be filed, which document will be subject to
the review of and comment by such counsel;
(b) prepare and promptly file with the SEC such amendments and
supplements to such registration statement and the
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<PAGE>
prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period (except as provided in the last
paragraph of this Section 5) of not less than 180 consecutive days or, if
shorter, the period terminating when all Registrable Securities covered by such
registration statement have been sold (but not before the expiration of the
applicable period referred to in Section 4(3) of the Securities Act and Rule 174
thereunder, if applicable) and comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the Selling Holders thereof set forth in such registration
statement;
(c) furnish to each such Selling Holder such number of copies
of such registration statement, each amendment and supplement thereto (in each
case including all exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus) and such other
documents as such Selling Holder may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Selling Holder;
(d) notify the Selling Holders promptly, and (if requested by
any such Person) confirm such notice in writing, (i) when the registration
statement or any post-effective amendment has become effective under the
Securities Act and applicable state law, (ii) of any request by the SEC or any
other Federal or state governmental authority for amendments or supplements to a
registration statement or related prospectus or for additional information,
(iii) of the issuance by the SEC of any stop order suspending the effectiveness
of a registration statement or the initiation of any proceedings for that
purpose, (iv) of the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; and (v) of the happening of any
event which makes any statement made in such registration statement or related
prospectus or any document incorporated or deemed to be
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<PAGE>
incorporated therein by reference untrue in any material respect or that
requires the making of any changes in such registration statement, prospectus or
documents so that, in the case of the registration statement, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and that in the case of the prospectus, it will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading;
(e) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of a registration statement, or the lifting of any
suspension of the qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction, at the earliest practicable
moment;
(f) use its best efforts to cooperate with the Selling Holders
and any Managing Underwriter to facilitate the timely preparation and delivery
of certificates representing Registrable Securities to be sold, which
certificates shall not bear any restrictive legends and shall be in a form
eligible for deposit with The Depositary Trust Company; and enable such
Registrable Securities to be registered in such names as the Managing
Underwriter or Selling Holders request at least two business days prior to any
sale of Registrable Securities;
(g) use its best efforts to register or qualify such
Registrable Securities as promptly as practicable under such other securities or
blue sky laws of such jurisdictions as any Selling Holder or Managing
Underwriter reasonably (in light of the intended plan of distribution) requests
and do any and all other acts and things which may be reasonably necessary or
advisable to enable such Selling Holder or Managing Underwriter to consummate
the disposition in such jurisdictions of the Registrable Securities owned by
such Selling Holder; provided that the Company will not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be
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<PAGE>
required to qualify but for this paragraph (g), (ii) subject itself to taxation
in any such jurisdiction or (iii) consent to general service of process in any
such jurisdiction;
(h) use its best efforts to cause such Registrable Securities
to be registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and operations of the
Company to enable the Selling Holder thereof to consummate the disposition of
such Registrable Securities;
(i) enter into customary agreements (including an underwriting
agreement in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such Registrable
Securities;
(j) furnish to each Selling Holder an opinion of counsel to
the Company, dated the effective date of the registration statement (and, if
such registration includes an underwritten public offering, dated the date of
the closing under the underwriting agreement) and a comfort letter from the
Company's independent public accountants, dated the effective date of such
registration statement (and if such registration includes an underwritten public
offering, dated the date of the closing under the underwriting agreement) in
customary form and covering such matters of the type customarily covered by
comfort letters and such other matters as the Selling Holders of a majority of
the shares of Registrable Securities being sold or the Managing Underwriter
reasonably requests;
(k) make available to its security holders, as soon as
reasonably practicable, an earnings statement covering a period of twelve
months, beginning within three months after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act;
(l) use its best efforts to cause all such Registrable
Securities to be listed on each securities exchange on which similar securities
issued by the Company are then listed or
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quoted on any inter-dealer quotation system on which similar securities issued
by the Company are then quoted;
(m) if any event contemplated by Section 5(d)(v) above shall
occur, as promptly as practicable prepare a supplement or amendment or
post-effective amendment to such registration statement or the related
prospectus or any document incorporated therein by reference or promptly file
any other required document so that, as thereafter delivered to the purchasers
of the Registrable Securities, the prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading; and
(n) cooperate and assist in any filing required to be made
with the National Association of Securities Dealers, Inc. and in the performance
of any reasonable due diligence investigation by any underwriter.
The Company may require each Selling Holder to promptly
furnish in writing to the Company such information regarding the distribution of
the Registrable Securities as it may from time to time reasonably request and
such other information as may be legally required in connection with such
registration. Notwithstanding anything herein to the contrary, the Company shall
have the right to exclude from any offering the Registrable Securities of any
Selling Holder who does not comply with the provisions of the immediately
preceding sentence.
Each Selling Holder agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
5(d)(v) hereof, such Selling Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Selling Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 5(d)(v) hereof, and,
if so directed by the Company, such Selling Holder will deliver to the Company
all copies, other than permanent file copies, then in such Selling Holder's
possession, of the most recent prospectus covering such Registrable
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Securities at the time of receipt of such notice. In the event the Company shall
give such notice, the Company shall extend the period during which such
registration statement shall be maintained effective (including the period
referred to in Section 5(b) hereof) by the number of days during the period from
and including the date of the giving of notice pursuant to Section 5(d)(v)
hereof to the date when the Company shall make available to the Selling Holders
of Registrable Securities covered by such registration statement a prospectus
supplemented or amended to conform with the requirements of Section 5(d)(v)
hereof.
6. Underwriting Agreement. (a) If requested by the
underwriters for any underwritten offering by holders of Registrable Securities
pursuant to a registration requested under Section 2 or 3, the Company shall
enter into an underwriting agreement with the underwriters for such offering,
such agreement to be reasonably satisfactory in substance and form to the
Selling Holders, the Managing Underwriter and the Company and to contain such
representations and warranties by the Company and such other terms and
provisions as are customarily contained in agreements of this type, including,
without limitation, indemnities to the effect and to the extent provided in
Section 8. The holders of Registrable Securities to be distributed by such
underwriters shall be parties to such underwriting agreement and may, at their
option, require that any or all of the representations and warranties by, and
the agreements on the part of, the Company to and for the benefit of such
underwriters be made to and for the benefit of such holders of Registrable
Securities and that any or all of the conditions precedent to the obligations of
such underwriters under such underwriting agreement shall also be conditions
precedent to the obligations of such holders of Registrable Securities.
(b) No underwriting agreement referred to in Section 6(a)
above (or other agreement in connection with such offering) shall require any
holder of Registrable Securities to make any representations or warranties to or
agreements with the Company or the underwriters other than representations,
warranties or agreements regarding such holder, the ownership of such holder's
Registrable Securities and such holder's intended method or
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methods of disposition and any other representation required by law or to
furnish any indemnity to any Person which is broader than the indemnity
furnished by such holder in Section 8(b).
7. Registration Expenses. (a) In connection with any
registration statement required to be filed hereunder, the Company shall pay the
following registration expenses (the "Registration Expenses"): (i) all
registration and filing fees (including, without limitation, with respect to
filings to be made with the National Association of Securities Dealers, Inc.),
(ii) fees and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), (iii) word processing,
duplicating and printing expenses, (iv) internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), (v) transfer agents', trustees', depositories',
registrars' and fiscal agents' fees, (vi) the fees and expenses incurred in
connection with the listing on an exchange of the Registrable Securities, (vii)
reasonable fees and disbursements of counsel for the Company and customary fees
and expenses for independent certified public accountants retained by the
Company (including the expenses of any comfort letters requested pursuant to
Section 5(j) hereof), (viii) the reasonable fees and expenses of any special
experts retained by the Company in connection with such registration, (ix) the
reasonable fees and disbursements of any one counsel retained by the Selling
Holders and (x) any fees and disbursements of underwriters customarily paid by
issuers or sellers of securities, but excluding underwriting fees, discounts and
commissions and transfer taxes, if any.
8. Indemnification; Contribution. (a) Indemnification by the
Company. The Company agrees to indemnify and hold harmless each Selling Holder,
each Person, if any, who controls such Selling Holder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, and the
officers, directors, agents, general and limited partners, and employees of each
Selling Holder and each such controlling person from and against any and all
losses, claims, damages,
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liabilities, and reasonable expenses (including reasonable costs of
investigation) directly or indirectly arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement or prospectus relating to the Registrable Securities or
in any amendment or supplement thereto or in any preliminary prospectus, or
arising out of or based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages,
liabilities or reasonable expenses arise out of, or are based upon, any such
untrue statement or omission or allegation thereof based upon written
information furnished to the Company by such Selling Holder or on such Selling
Holder's behalf expressly for use therein; and the Company will reimburse such
Indemnified Party for any legal or other expenses reasonably incurred by them in
connection with enforcing its rights hereunder, provided, however, that with
respect to any untrue statement or omission or alleged untrue statement or
omission made in any preliminary prospectus, the indemnity agreement contained
in this paragraph shall not apply to the extent that any such loss, claim,
damage, liability or expense results from the fact that a current copy of the
prospectus was not sent or given to the Persons asserting any such loss, claim,
damage, liability or expense at or prior to the written confirmation of the sale
of the Registrable Securities concerned to such Person if it is determined that
(i)(A) it was the responsibility of such Selling Holder to provide such person
with a current copy of the prospectus, (B) such Selling Holder was provided with
a current copy of the prospectus prior to the written confirmation of sale and
(C) such current copy of the prospectus would have cured the defect giving rise
to such loss, claim, damage, liability or expense or (ii) the Selling Holder
provided a prospectus to any Person in violation of the last paragraph of
Section 5 hereof.
(b) Indemnification by Holder of Registrable Securities. Each
Selling Holder agrees to indemnify and hold harmless the Company, and each
Person, if any, who controls the Company within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act and the officers,
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directors, agents and employees of the Company and each such controlling Person
to the same extent as the foregoing indemnity from the Company to such Selling
Holder, but only with respect to written information furnished by such Selling
Holder or on such Selling Holder's behalf expressly for use in any registration
statement or prospectus relating to the Registrable Securities. The liability of
any Selling Holder under this Section 8(b) shall be limited to the net amount of
proceeds received by such Selling Holder pursuant to the sale of Registrable
Securities covered by such registration statement or prospectus.
(c) Conduct of Indemnification Proceedings. If any action or
proceeding (including any governmental investigation) shall be brought or
asserted against any Person entitled to indemnification under Section 8(a) or
8(b) above (an "Indemnified Party") in respect of which indemnity may be sought
from any party who has agreed to provide such indemnification under Section 8(a)
or 8(b) above (an "Indemnifying Party"), the Indemnified Party shall give prompt
notice to the Indemnifying Party, provided that the failure of any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Section 8, except to the extent that such
Indemnifying Party is materially prejudiced by such failure to give notice. The
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Party, and shall assume the
payment of all reasonable expenses of such defense. Such Indemnified Party shall
have the right to employ separate counsel in any such action or proceeding and
to participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the Indemnifying
Party has agreed to pay such fees and expenses or (ii) the Indemnifying Party
fails promptly to assume the defense of such action or proceeding or fails to
employ counsel reasonably satisfactory to such Indemnified Party or (iii) the
named parties to any such action or proceeding (including any impleaded parties)
include both such Indemnified Party and Indemnifying Party (or an Affiliate of
the Indemnifying Party), and such Indemnified Party shall have been advised by
counsel that there is a conflict of interest on the part of counsel
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employed by the Indemnifying Party to represent such Indemnified Party (in which
case, if such Indemnified Party notifies the Indemnifying Party in writing that
it elects to employ separate counsel at the expense of the Indemnifying Party,
the Indemnifying Party shall not have the right to assume the defense of such
action or proceeding on behalf of such Indemnified Party). Notwithstanding the
foregoing, the Indemnifying Party shall not, in connection with any one such
action or proceeding or separate but substantially similar related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable at any time for the fees and expenses of more than
one separate firm of attorneys (together in each case with appropriate local
counsel). The Indemnifying Party shall not be liable for any settlement of any
such action or proceeding effected without its written consent (which consent
will not be unreasonably withheld), but if settled with its written consent, or
if there be a final judgment for the plaintiff in any such action or proceeding,
the Indemnifying Party shall indemnify and hold harmless such Indemnified Party
from and against any loss or liability (to the extent stated above) by reason of
such settlement or judgment. The Indemnifying Party shall not consent to entry
of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release, in form and substance satisfactory to the
Indemnified Party, from all liability in respect of such action or proceeding
for which such Indemnified Party would be entitled to indemnification hereunder.
d) Contribution. If the indemnification provided for in this
Section 8 is unavailable to the Indemnified Parties in respect of any losses,
claims, damages, liabilities or judgments referred to herein, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, liabilities and judgments as between the
Company on the one hand and each Selling Holder on the other, in such proportion
as is appropriate to reflect the relative fault of the Company and of each
Selling Holder in connection with the statements or omissions which resulted in
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such losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative fault of the Company on the one
hand and of each Selling Holder on the other shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by such party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Selling Holders agree that it would not be
just and equitable if contribution pursuant to this Section 8(d) were determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Party as a result of the
losses, claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8(d), no Selling Holder shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities of such Selling Holder were offered to
the public exceeds the amount of any damages which such Selling Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
9. Participation in Underwritten Registrations. No Holder may
participate in any underwritten registration hereunder unless such Holder (a)
agrees to sell such Holder's Registrable Securities on the basis provided in any
underwriting arrangements approved by the Person entitled hereunder to approve
such arrangements, (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and
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other documents reasonably required under the terms of such underwriting
arrangements and this Agreement, and (c) if requested by another Person
participating in such underwritten registration, provides that all securities
convertible or exchangeable into Common Stock that are included in such
underwritten registration shall be so converted or exchanged on or prior to the
consummation thereof.
10. Miscellaneous. Rule 144 etc. The Company will file the
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the Commission thereunder, and will
take such further action as any holder of Registrable Securities may reasonably
request, all to the extent required from time to time to enable such holder to
sell Registrable Securities without registration under the Securities Act within
the limitation of the exemptions provided by (i) Rule 144 under the Securities
Act, as such rule may be amended from time to time, or (ii) any successor rule
or regulation hereafter adopted by the Commission. Upon the request of any
holder of Registrable Securities, the Company will deliver to such holder a
written statement as to whether it has complied with such requirements.
(b) Amendment. Any provision of this Agreement may be altered,
supplemented, amended, or waived only by the written consent of each of the
parties hereto.
(c) Specific Performance. The parties hereto recognize that
the obligations imposed on them in this Agreement are special, unique, and of
extraordinary character, and that in the event of breach by any party, damages
will be an insufficient remedy; consequently, it is agreed that the parties may
have specific performance and injunctive relief (in addition to damages) as a
remedy for the enforcement hereof, without proving damages.
(d) Assignment. Except as otherwise expressly provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties hereto. In
addition, and
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provided that an express assignment shall have been made, a copy of which shall
have been delivered to the Company, the provisions of this Agreement which are
for the benefit of a holder of Registrable Securities shall be for the benefit
of and enforceable by any subsequent holder of any Registrable Securities. Any
purported assignment made in violation of this Section 10(d) shall be void and
of no force and effect.
e) Notices. Any and all notices, designations, consents,
offers, acceptances, or other communications provided for herein (each a
"Notice") shall be given in writing by overnight courier, telegram, or telecopy
(with receipt confirmed) which shall be addressed, or sent, to the respective
addresses as follows (or such other address as any party may specify to the
Company and all other parties by Notice):
The Company:
Highlands Insurance Group, Inc.
10370 Richmond Avenue
Houston, Texas 77042-4123
Attn: Secretary
Telecopy Number: (713) 952-0240
Copy to:
Weil, Gotshal & Manges LLP
700 Louisiana, Suite 1600
Houston, Texas 77002
Attention: Steven D. Rubin
Telecopy Number: (713) 224-9511
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AFSC:
Armco Financial Services Corporation
c/o Armco Inc.
One Oxford Centre
301 Grant Street
Pittsburgh, PA 15219
Attention: Gary R. Hildreth, Esq.
Telecopy Number: (412) 255-9985
Copy to::
Arnold & Porter
399 Park Avenue
New York, NY 10022-4690
Attention: Jonathan C. Stapleton, Esq.
Telecopy Number: (212) 715-1399
All Notices shall be deemed effective and received (a) if given by telecopy,
when such telecopy is transmitted to the telecopy number specified above and
receipt thereof is confirmed; (b) if given by overnight courier, on the business
day immediately following the day on which such Notice is delivered to a
reputable overnight courier service; or (c) if given by telegram, when such
Notice is delivered at the address specified above. No party shall be entitled
to receive a Notice hereunder (or a copy of a Notice delivered to the Company)
if, at the time such Notice is to be sent, such party (including its Affiliates
and the employees of such party and its Affiliates) no longer owns any
Registrable Securities.
(f) Counterparts. This Agreement may be executed in two or
more counterparts and each counterpart shall be deemed to be an original and
which counterparts together shall constitute one and the same agreement of the
parties hereto.
(g) Section Headings. Headings contained in this Agreement are
inserted only as a matter of convenience and in no way define, limit, or extend
the scope or intent of this Agreement or any provisions hereof.
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(h) No Punitive Damages; Waiver of Jury Trial; Prevailing
Party's Fees and Expenses. The parties hereto agree to waive any and all rights
to request or receive punitive damages in connection with any action or
proceeding related to the subject matter of this Agreement. The parties hereto
waive all right to trial by jury in any action or proceeding to enforce or
defend any rights under this Registration Rights Agreement. The substantially
prevailing party in any action or proceeding relating to this Agreement shall be
entitled to receive an award of, and to recover from any non-prevailing party,
any fees or expenses incurred by him or it (including, without limitation, fees
and disbursements of such prevailing party's counsel) in connection with any
such action or proceeding.
(i) Choice of Law. This Agreement will be governed by and
construed and enforced in accordance with the laws of the State of Delaware
(without regard to the principles of conflicts of law) applicable to a contract
executed and to be performed in such state. Each of the parties hereto (i)
agrees to submit to personal jurisdiction and to waive any objection as to venue
in the State or federal courts located in the County of New Castle, State of
Delaware, (ii) agrees that any action or proceeding shall be brought exclusively
in such courts, unless subject matter jurisdiction or personal jurisdiction
cannot be obtained, and (iii) agrees that service of process on any party in any
such action shall be effective if made by registered or certified mail addressed
to such party at the address specified herein, or to any party hereto at such
other addresses as it or he may from time to time specify to the other parties
in writing for such purpose. The exclusive choice of forum set forth in this
Section 9(i) shall not be deemed to preclude the enforcement of any judgment
obtained in such forum or the taking of any action under this Agreement to
enforce such judgment in any appropriate jurisdiction.
(j) Entire Agreement. This Agreement, together with Amendment
No. 3 and the Subscription Agreement, contains the entire understanding of the
parties hereto respecting the subject matter hereof and supersedes all prior
agreements, discussions and understandings with respect thereto.
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(k) Cumulative Rights. The rights of the Parties and the
Company under this Agreement are cumulative and in addition to all similar and
other rights of the parties under other agreements.
(l) Severability. If any term, provision, covenant, or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void, or unenforceable, the remainder of the terms, provisions,
covenants, and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired, or invalidated.
(m) Termination. This Agreement shall terminate on the tenth
anniversary hereof.
11. Effective Date. The provisions of this Agreement shall be
effective upon its execution but this Agreement shall terminate, ab initio, and
shall be of no further force and effect in the event of (and simultaneously
with) the termination of Amendment No. 3 pursuant to Section 1 thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Registration Rights Agreement as of the date first above written.
HIGHLANDS INSURANCE GROUP, INC.
By: /s/ Charles J. Bachand
-------------------------------
Name: Charles J. Bachand
Title: Vice President and Treasurer
ARMCO FINANCIAL SERVICES CORPORATION
By: /s/ Ernest J. Blache, Jr.
-------------------------------
Name: Ernest J. Blache, Jr.
Title: President
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