SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to________________
Commission file number: 1-6732
Danielson Holding Corporation
(Exact Name of Registrant as Specified in its Charter)
Delaware 95-6021257
(State of Incorporation) (I.R.S. Employer Identification No.)
767 Third Avenue, New York, New York 10017-2023
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (212) 888-0347
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at August 12, 1999
- ----- -----------------------------
Common Stock, $0.10 par value 17,576,276 shares
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
DANIELSON HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share information)
(Unaudited)
<TABLE>
For the Three For the Six
Months Ended June 30, Months Ended June 30,
---------------------- ----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Gross premiums earned $ 15,030 $ 16,295 $ 30,393 $ 33,251
Ceded premiums earned (2,681) (2,723) (5,550) (5,664)
---------- ---------- ---------- ----------
Net premiums earned 12,349 13,572 24,843 27,587
Net investment income 1,876 1,935 3,783 4,274
Net realized investment gains (losses) (154) 87 (154) 124
Other income 241 243 425 421
--------- --------- --------- ---------
Total revenues 14,312 15,837 28,897 32,406
--------- --------- --------- ---------
Losses and expenses:
Gross losses and loss adjustment expenses 11,462 11,143 22,071 23,130
Ceded losses and loss adjustment expenses (3,031) (1,521) (5,168) (3,575)
---------- ---------- ---------- ----------
Net losses and loss adjustment expenses 8,431 9,622 16,903 19,555
Policyholder dividends 81 91 360 203
Policy acquisition expenses 3,269 3,285 6,600 6,602
General and administrative expenses 2,257 2,522 4,645 4,879
--------- --------- --------- ---------
Total losses and expenses 14,038 15,520 28,508 31,239
--------- --------- --------- ---------
Income before provision for income taxes 274 317 389 1,167
Income tax provision 8 10 23 53
--------- --------- --------- ---------
Net income $ 266 $ 307 $ 366 $ 1,114
========= ========= ========= =========
Earnings per share of Common Stock
Basic $ .01 $ .02 $ .02 $ .07
========= ========= ========= =========
Diluted $ .01 $ .02 $ .02 $ .07
========= ========== ========== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE>
DANIELSON HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share information)
<TABLE>
June 30, 1999 December 31,
(Unaudited) 1998
------------ -----
<S> <C> <C>
Assets:
Fixed maturities, available for sale at fair value
(Cost: $111,627 and $112,131) $ 110,752 $ 114,683
Equity securities, at fair value (Cost: $19,974 and $20,129) 18,519 16,889
Short term investments, at cost which
approximates fair value 4,496 3,287
-------- ---------
Total investments 133,767 134,859
Cash 54 870
Accrued investment income 1,472 1,427
Premiums and fees receivable, net of allowances
of $ 156 and $136 10,809 9,972
Reinsurance recoverable on paid losses, net of allowances
of $374 and $374 2,866 7,714
Reinsurance recoverable on unpaid losses, net of
allowances of $619 and $559 20,419 18,187
Prepaid reinsurance premiums 1,460 1,668
Property and equipment, net of accumulated depreciation
of $7,960 and $8,322 1,869 1,930
Deferred acquisition costs 2,612 2,381
Other assets 1,724 1,887
-------- ---------
Total assets $ 177,052 $ 180,895
========== ==========
Liabilities and Stockholders' Equity:
Unpaid losses and loss adjustment expenses $ 90,987 $ 95,653
Unearned premiums 15,010 13,705
Policyholder dividends 189 181
Reinsurance premiums payable 2,764 2,143
Funds withheld on ceded reinsurance 1,504 1,442
Other liabilities 4,601 4,498
-------- ---------
Total liabilities 115,055 117,622
Preferred stock ($0.10 par value; authorized
10,000,000 shares; none issued and outstanding) -- --
Common stock ($0.10 par value; authorized
20,000,000 shares; issued 15,586,994 shares;
outstanding 15,576,276 shares) 1,559 1,559
Additional paid-in capital 46,673 46,673
Accumulated other comprehensive loss (2,330) (688)
Retained earnings 16,161 15,795
Treasury stock (Cost of 10,718 shares) (66) (66)
-------- ---------
Total stockholders' equity 61,997 63,273
-------- ---------
Total liabilities and stockholders' equity $ 177,052 $ 180,895
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
DANIELSON HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
(In thousands, except share amounts)
(Unaudited)
<TABLE>
Comprehensive Comprehensive
Income (Loss) for the Loss for the
Three Months Ended Six Months Ended
June 30, June 30,
June 30, 1999 1999 1998 1999 1998
------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Common stock
Balance, beginning of year $ 1,559
------
Balance, end of period 1,559
------
Additional paid-in capital
Balance, beginning of year 46,673
------
Balance, end of period 46,673
------
Retained earnings
Balance, beginning of year 15,795
Net income 366 $ 266 $ 307 $ 366 $ 1,114
------ ----- ------ ------ -----
Balance, end of period 16,161
------
Accumulated other comprehensive loss
Balance, beginning of year (688)
Net unrealized gain (loss) on available-
for-sale securities (1) 347 (2,632) (1,642) (2,589)
---- ------- ------- -------
Other comprehensive income (loss) (1,642) 347 (2,632) (1,642) (2,589)
------- ------ ------- ------- -------
Total comprehensive income (loss) $ 613 $ (2,325) $ (1,276) $(1,475)
===== ======== ======== =======
Balance, end of period (2,330)
Treasury stock
Balance, beginning of year (66)
----
Balance, end of period (66)
Total stockholders' equity $61,997
=======
_______________________________________________________________________________
Common stock, shares
Balance, beginning of year 15,586,994
----------
Balance, end of period 15,586,994
----------
Treasury stock, shares
Balance, beginning of year 10,718
------
Balance, end of period 10,718
======
</TABLE>
______________________________________
<TABLE>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
(1) Disclosure of reclassification amount: 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Unrealized holding gains (losses)
arising during the period $ 193 $(2,545) $ (1,796) $(2,465)
Less: reclassification adjustment
for net gains (losses) included in
net income (154) 87 (154) 124
------ ------- ------ -----
Net unrealized gains (losses) on securities $ 347 $(2,632) $ (1,642) $(2,589)
====== ======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
DANIELSON HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
For the Six
Months Ended June 30,
1999 1998
------------- ---------
<S> <C> <C>
Cash flows from operating activities:
Income from continuing operations $ 366 $ 1,114
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Net realized investment (gains) losses 154 (124)
Depreciation and amortization 367 369
Change in accrued investment income (45) 556
Change in premiums and fees receivable (837) (3,603)
Change in reinsurance recoverables 4,848 (515)
Change in reinsurance recoverable on unpaid losses (2,232) 1,095
Change in prepaid reinsurance premiums 208 (35)
Change in deferred acquisition costs (231) (578)
Change in unpaid losses and loss adjustment expenses (4,666) (6,573)
Change in unearned premiums 1,305 2,641
Change in reinsurance payables and funds withheld 683 1,121
Change in policyholder dividends payable 8 (144)
Other, net 162 423
-------- ---------
Net cash provided by (used in) operating activities 90 (4,253)
-------- ----------
Cash flows from investing activities:
Proceeds from sales:
Fixed income maturities available-for-sale 741 17,714
Investments, matured or called:
Fixed income maturities available-for-sale 13,726 17,189
Investments, purchased:
Fixed income maturities available-for-sale (13,950) (11,325)
Equity securities __ (19,952)
Proceeds from sale of property and equipment __ 6
Purchases of property and equipment (214) (52)
----- ----
Net cash provided by investing activities 303 3,580
-------- ---------
Net increase (decrease) in cash and short term investments 393 (673)
Cash and short term investments at beginning of period 4,157 1,818
-------- ---------
Cash and short term investments at end of period $ 4,550 $ 1,145
======= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
DANIELSON HOLDING CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1) BASIS OF PRESENTATION
The accompanying unaudited Consolidated Financial Statements of
Danielson Holding Corporation ("DHC" or "Registrant") and subsidiaries
(collectively with DHC, the "Company") have been prepared in accordance with
generally accepted accounting principles. However, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete consolidated financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
six months ended June 30, 1999 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1999. For further
information, reference is made to the Consolidated Financial Statements and
footnotes thereto included in DHC's Annual Report on Form 10-K for the year
ended December 31, 1998.
2) PER SHARE DATA
Per share data is based on the weighted average number of
shares of common stock of DHC, par value $0.10 per share ("Common Stock"),
outstanding during a particular year or other relevant period. Diluted earnings
per share computations, as calculated under the treasury stock method, include
the average number of shares of additional outstanding Common Stock issuable for
stock options, whether or not currently exercisable. Such average shares were
15,932,147 and 15,849,466 for the three and six months ended June 30, 1999,
respectively, and 16,177,757 and 16,171,268 for the three and six months ended
June 30, 1998, respectively. Basic earnings per share are calculated using only
the average number of outstanding shares of Common Stock and disregarding the
average number of shares issuable for stock options. Such average shares were
15,576,276 for the three and six months ended June 30, 1999, and 15,576,285 and
15,576,286 for the three and six months ended June 30, 1998, respectively.
3) INCOME TAXES
DHC files a Federal consolidated income tax return with its
subsidiaries and certain trusts that assumed various liabilities of certain
present and former subsidiaries of DHC. The Company records its interim tax
provisions based upon estimated effective tax rates for the year.
The Company has made provisions for certain state and local taxes. Tax
filings for these jurisdictions do not consolidate the activities of the trusts
referred to above. For further information, reference is made to Note 12 of the
Notes to Consolidated Financial Statements included in DHC's Annual Report on
Form 10-K for the year ended December 31, 1998.
4) FOREIGN CURRENCY TRANSLATION AND FOREIGN INVESTMENTS
During 1998, DHC's main operating subsidiary, National American
Insurance Company of California ("NAICC") invested approximately $10.3 million
in Japanese yen based equity securities. In order to hedge the currency risk of
these investments, during the second quarter of 1998 NAICC purchased a foreign
currency option to sell Japanese yen at a fixed price on a given date in April
1999. The foreign currency option expired in April 1999, resulting in a realized
loss of $155,000. Investments in equity securities denominated in foreign
currencies are translated into U.S. dollars using current rates of exchange and
the related translation adjustments are recorded in accumulated other
comprehensive loss
6
<PAGE>
in stockholders' equity. For the six months ended June 30, 1999, the Company
recorded a cumulative unrealized loss on the Japanese yen based equity
securities of $802,376 which is inclusive of a cumulative gain of $536,277 as a
result of changes in foreign currency exchange rates, which is included in
accumulated other comprehensive loss in the accompanying consolidated balance
sheets.
5) STOCKHOLDERS' EQUITY
Effective April 14, 1999, the Company entered into a Stock Purchase and
Sale Agreement with Samstock, L.L.C. ("Samstock"), which agreement was assigned
with the Company's consent by Samstock to its sole member SZ Investments, L.L.C.
("SZ"), pursuant to an amendment and assignment agreement (such Purchase and
Sale Agreement, as amended and assigned, the "Purchase Agreement"). Pursuant to
the Purchase Agreement, the Company agreed to sell to SZ, for consideration of
$9 million, 2,000,000 shares of Common Stock and a four year warrant (subject to
extension in certain circumstances) to purchase an additional 2,000,000 shares
of Common Stock at $4.75 per share (subject to downward adjustment under certain
circumstances). In order to provide sufficient available shares of Common Stock
to consummate this proposed transaction, on July 20, 1999, the Registrant's
stockholders approved an amendment to the Registrant's Certificate of
Incorporation to increase the number of authorized shares of the Registrant's
common stock from 20,000,000 shares to 100,000,000 shares. The stockholders also
approved amendments to eliminate cumulative voting for Directors and to
eliminate a prohibition on issuing non-voting equity securities. The
transaction was consummated on August 12, 1999.
6) GAIN CONTINGENCIES
On June 22, 1999, the Missouri Court of Appeals reversed a decision to
award interest on claims under a plan of distribution of assets of the Mission
Reinsurance Corporation Trust (the "Trust"). The effect of the decision of the
Court of Appeals may result in the return to the Company of the surplus existing
in the Trust, which was one of the trusts that had been created in connection
with the insolvency and reorganization of Mission Insurance Group, Inc.
and its subsidiaries from which the Company emerged. Although it does not
know the specific amount of the surplus currently in the Trust, the company has
reason to believe that the surplus currently approximates $14 million.
The Missouri Department of Insurance has appealed the decision of the
Court of Appeals and the decision could be reversed. In the event the decision
is reversed and the Missouri Department of Insurance is permitted to pay
interest on claims, it is anticipated that there would be no surplus remaining
in the Trust after payment of the interest. It therefore cannot be determined
at this time when, or if, the Company would receive any proceeds from the
Trust's surplus. Accordingly, the Company has not reflected any prospect of
receiving funds from this matter as an asset on its balance sheet or as income.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1. GENERAL
Danielson Holding Corporation ("DHC") is organized as a holding company
with substantially all of its operations conducted by its subsidiaries
(collectively with DHC, the "Company"). DHC, on a parent-only basis, has limited
continuing expenditures for rent and administrative expenses and derives
7
<PAGE>
revenues primarily from investment returns on portfolio securities. Therefore,
the analysis of the Company's financial condition is generally done on an
operating subsidiary basis.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and the information in Item 3, " Qualitative and
Quantitative Disclosures About Market Risk" contain forward-looking statements,
including statements concerning capital adequacy, adequacy of reserves, goals,
future events, Year 2000 compliance or performance and underlying assumptions
and other statements which are other than statements of historical facts. Such
forward-looking statements may be identified, without limitation, by the use of
the words "believes", "anticipates", "expects", "intends", "plans" and similar
expressions. All such statements represent only current estimates or
expectations as to future results and are subject to risks and uncertainties
which could cause actual results to materially differ from current estimates or
expectations. See "RISK FACTORS THAT MAY AFFECT FUTURE RESULTS".
2. RESULTS OF NAICC'S OPERATIONS
The operations of DHC's principal subsidiary, National American Insurance
Company of California ("NAICC"), are primarily in specialty property and
casualty insurance.
PROPERTY AND CASUALTY INSURANCE OPERATIONS
Net premiums earned were $12.3 million and $24.8 million for the three
and six months ended June 30, 1999, compared to $13.6 million and $27.6 million
for the three and six months ended June 30, 1998. The decrease in net premiums
earned is directly related to the change in net written premiums. Net written
premiums were $13.0 million and $26.4 million for the three and six months ended
June 30, 1999, compared to $14.4 million and $30.2 million for the three and six
months ended June 30, 1998.
The overall decrease in net written premuims for 1999 over the
comparable periods in 1998 is attributable to increased competition in the
automobile lines and an increase in reinsurance coverage associated with several
new treaties that significantly reduce NAICC's workers' compensation retention.
The participant in the new treaties is a reinsurer with an A.M. Best rating of
"A-" (Excellent).
Net investment income was $1.8 million and $3.6 million for the three
and six months ended June 30, 1999, compared to $1.8 million and $4.1 million
for the three and six months ended June 30, 1998. The decline for the six
month period is reflective of a slight decrease in average portfolio yield on
bonds purchased during the twelve months ended June 30, 1999.
Net losses and loss adjustment expenses (LAE) were $8.4 million and
$16.9 million for the three and six months ended June 30, 1999, compared to $9.6
million and $19.6 million for the three and six months ended June 30, 1998. The
resulting loss and LAE ratios for the corresponding year-to-date periods were
68.0 percent and 70.9 percent, respectively for 1999 and 1998. The loss and LAE
ratio decreased in 1999 over 1998 due to the reduction of the Company's workers'
compensation retention.
Policy acquisition costs were $3.3 million and $6.6 million for the
three and six months ended in each of June 30, 1999 and 1998. As a percentage of
net premiums earned, policy acquisition expenses were 26.6 percent and 23.9
percent for the six months ended June 30, 1999 and 1998, respectively. The
increase in the policy acquisition expense ratio in 1999 is due primarily to the
overall decrease in premium volume while fixed underwriting expenses of policy
acquisition costs remained relatively constant.
Combined underwriting ratios were 110.8 percent and 108.5 percent for
the six months ended June 30, 1999 and 1998, respectively. Net income from
insurance operations for the six months ended June 30, 1999 and 1998 was $1.2
million and $2.2 million, respectively. The decrease in net income from
8
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insurance operations during the first six months of 1999 compared to the
same period for 1998 is primarily attributable to a decrease in premium volume
combined with a decrease in net investment income.
CASH FLOW FROM INSURANCE OPERATIONS
Cash provided by operations was $1.0 million for the six months ended
June 30, 1999 and cash used in operations was $3.2 million for the six months
ended June 30, 1998. The decrease in cash used in operations is attributable to
the collection of previously disputed reinsurance balances in excess of $6
million during the 1999 period. Overall cash and invested assets, at market
value, at June 30, 1999 were $127.9 million, compared to $128.9 million at
December 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's insurance subsidiaries require both readily liquid assets
and adequate capital to meet ongoing obligations to policyholders and claimants,
as well as to pay ordinary operating expenses. The primary sources of funds to
meet these obligations are premium revenues, investment income, recoveries from
reinsurance and, if required, the sale of invested assets. NAICC's investment
policy guidelines require that all liabilities be matched by a comparable amount
of investment grade invested assets. Management of NAICC believes that NAICC has
both adequate capital resources and sufficient reinsurance to meet any
unforeseen events such as natural catastrophes, reinsurer insolvencies or
possible reserve deficiencies.
The two most common measures of capital adequacy for insurance
companies are premium-to-surplus ratios (which measure current operating risk)
and reserves-to-surplus ratios (which measure financial risk related to possible
changes in the level of loss and loss adjustment expense reserves). A commonly
accepted standard net written premium-to-surplus ratio is 3 to 1, although this
varies with different lines of business. NAICC's annualized premium-to-surplus
ratio of 1.05 to 1 and 1.4 to 1 for the six months ended June 30, 1999 and 1998,
respectively, remains well under current industry standards. A commonly accepted
standard for the ratio of losses and loss adjustment expense reserves-to-surplus
is 5 to 1, compared with NAICC's ratio of 1.4 to 1 at June 30, 1999. Given these
relatively conservative financial security ratios, management is confident that
existing capital is adequate.
3. RESULTS OF DHC'S OPERATIONS
CASH FLOW FROM PARENT-ONLY OPERATIONS
Operating cash flow of DHC on a parent-only basis is primarily
dependent upon the rate of return achieved on its investment portfolio and the
payment of general and administrative expenses incurred in the normal course of
business. For the six months ended June 30, 1999 and 1998, cash used in
parent-only operating activities was $0.9 million and $1.1 million,
respectively. The decrease in cash used was primarily attributable to the timing
of certain expense payments. For information regarding DHC's operating
subsidiaries' cash flow from operations, see "RESULTS OF NAICC'S OPERATIONS,
CASH FLOW FROM INSURANCE OPERATIONS."
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, cash and investments of DHC were approximately $5.9
million, compared to $6.8 million at December 31, 1998. As described above, the
primary use of funds was the payment of general and administrative expenses in
the normal course of business. For information regarding DHC's
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operating subsidiaries' liquidity and capital resources, see "RESULTS OF
NAICC'S OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES."
4. AUTHORITATIVE ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for
fiscal years beginning after June 15, 1999 and establishes standards for the
reporting for derivative instruments. It requires changes in the fair value of a
derivative instrument and the changes in fair value of the assets or liabilities
hedged by that instrument to be included in income. The Company has not adopted
SFAS 133. However, the effect of adoption on the consolidated financial
statements at June 30, 1999 would not be material. In June 1999, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 137, "Accounting for Derivative Instruments and Hedging Activities- Deferral
of the Effective Date of FASB Satement No. 133." This statement defers the
effective date of SFAS 133 to fiscal years beginning after June 15, 2000.
5. YEAR 2000
The Company has undertaken a review of its systems for "Year 2000"
compliance at both the holding company and subsidiary levels. DHC has completed
an assessment of its hardware and software systems and has contacted the third
party vendors that it believes are critical to its operations. DHC believes that
it is currently Year 2000 compliant and has received assurances from its third
party vendors that they are Year 2000 compliant. However, there can be no
assurance that such assessments are correct and DHC is currently developing a
contingency plan in the event that those assessments are incorrect.
NAICC is highly dependent on electronic data processing and information
systems in its operations. NAICC has reviewed its information systems, hardware
and software operations and applications in relation to the Year 2000. NAICC
believes that its hardware and operating system software are Year 2000
compliant. NAICC also believes that it has identified substantially all of the
application software programs which require modification in order to become Year
2000 compliant and has a formal plan to correct and test the programs affected
by the conversion of a two-digit year to a four-digit year. NAICC has completed
and tested the modifications to its insurance applications and believes that
they are Year 2000 compliant. All non-insurance applications (e.g. e-mail
software, accounting software, and report archiving software) have been upgraded
and NAICC believes that they are Year 2000 compliant.
NAICC has identified the third parties it believes are material to its
operations and is continuing to monitor and, in the case of certain material
third parties, has been able to test its interface to the external systems of
these third parties and believes that they are Year 2000 compliant.
NAICC believes that it does not currently issue any insurance policies
with coverages under which claims for Year 2000 related losses or damages could
be successfully asserted. Management does not believe that material risk exists
that such claims will be made on previous policies.
NAICC is utilizing internal and external resources to meet its
deadlines for Year 2000 modifications. Management believes that the costs of
Year 2000 compliance related efforts are expected to be $200,000 for the year
ended December 31, 1999. Due to the complexities of estimating the cost of
modifying all applications to become Year 2000 compliant and the difficulties in
assessing third-party vendors' abilities to become Year 2000 compliant,
estimates are subject to and are likely to change.
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The management of NAICC believes that its electronic data processing
and information systems will be Year 2000 compliant. However, should any
material system fail to correctly process information due to the century change,
operations could be interrupted and this could have a material adverse effect on
NAICC's results of operations.
6. RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
As noted above, the foregoing discussion may include
forward-looking statements that involve risks and uncertainties. In addition to
other factors and matters discussed elsewhere herein, some of the important
factors that, in the view of the Company, could cause actual results to differ
materially from those discussed in the forward-looking statements include the
following:
1. The insurance products sold by the Company are subject to
intense competition from many competitors, many of whom have substantially
greater resources than the Company. There can be no assurance that the Company
will be able to successfully compete and generate sufficient premium volume at
attractive prices to be profitable.
2. In order to implement its business plan, the Company has been
seeking to enter into strategic partnerships and/or make acquisitions of
businesses that would enable the Company to earn an attractive return on
investment. Restrictions on the Company's ability to issue additional equity in
order to finance any such transactions exist which could significantly affect
the Company's ability to finance any such transaction. The Company may have
limited other resources with which to implement its strategy and there can be no
assurance that any transaction will be successfully consummated.
3. The insurance industry is highly regulated and it is not
possible to predict the impact of future state and federal regulation on the
operations of the Company.
4. Unpaid losses and loss adjustment expenses ("LAE") are based on
estimates of reported losses, historical Company experience of losses reported
by reinsured companies for insurance assumed from such insurers, and estimates
based on historical Company and industry experience for unreported claims. Such
liability is, by necessity, based upon estimates which may change in the near
term, and there can be no assurance that the ultimate liability will not exceed,
or even materially exceed, such estimates.
Item 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's objectives in managing its investment portfolio
are to maximize investment income and investment returns while minimizing
overall credit risk. Investment strategies are developed based on many factors
including underwriting results, overall tax position, regulatory requirements,
and fluctuations in interest rates. Investment decisions are made by management
and approved by the Board of Directors. Market risk represents the potential for
loss due to adverse changes in the fair value of securities. The market risks
related to the Company's fixed maturity portfolio are primarily interest rate
risk and prepayment risk. The market risks related to the Company's equity
portfolio are foreign currency risk and equity price risk. There have been no
material changes to the Company's market risk for the six months ended June 30,
1999. For further information, reference is made to Management's Discussion and
Analysis of Financial Condition and Results of Operations included in DHC's
Annual Report on Form 10-K for the year ended December 31, 1998.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
NAICC is a party to various legal proceedings which are considered
routine and incidental to its business and are not material to the financial
condition and operation of its business.
Item 2. Changes in Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
10.1 Stock Purchase and Sale Agreement dated as of April 14,
1999 between Samstock, L.L.C. and the Registrant.
10.2 Amendment No. 1, Assignment and Consent to Assignment
of Stock Purchase and Sale Agreement dated May, 7, 1999
among Samstock, L.L.C., S.Z. Investments, L.L.C. and
the Registrant.
10.3 Investment Agreement dated as of April 14, 1999
among the Registrant, Samstock, L.L.C. and Martin J.
Whitman.
10.4 Assignment and Consent to Assignment of Investment
Agreement dated May, 7, 1999 among the Registrant,
Martin J. Whitman and S.Z. Investments, L.L.C.
10.5 Letter Agreement dated April 14, 1999 between Equity
Group Investments, L.L.C. and the Registrant.
10.6 Amendment dated June 2, 1999 to letter agreement dated
April 14, 1999 between Equity Group Investments, L.L.C.
and the Registrant.
10.7 Employment Agreement dated April 14, 1999 between the
Registrant and David Barse.
10.8 Employment Agreement dated April 14, 1999 between the
Registrant and Michael Carney.
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(b) Reports on Form 8-K:
1. The Registrant reported that it had entered into an
agreement on April 14, 1999 with Samstock, L.L.C.
pursuant to which the Registrant agreed to sell
Samstock 2,000,000 shares of common stock and a
warrant to purchase an additional 2,000,000 shares of
common stock. The Registrant subsequently reported
that Samstock had assigned its rights to its sole
member, S.Z. Investments, L.L.C. The Registrant also
reported an agreement relating to the nomination of
certain individuals to the Board of Directors and the
voting of certain shares for certain directors and an
agreement providing for Equity Group Investments,
L.L.C. to provide certain investment banking services
to the Registrant.
2. The Registrant reported that on June 22, 1999, the
Missouri Court of Appeals announced a decision in a
certain litigation that could ultimately result in the
Registrant receiving certain sums from the Missouri
Reinsurance Corporation Trust.
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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.
Date: August 13, 1999
DANIELSON HOLDING CORPORATION
(Registrant)
By: /s/ DAVID BARSE
------------------------
David Barse
President & Chief Operating Officer
By: /s/ MICHAEL CARNEY
--------------------------
Michael Carney
Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT DOCUMENT PAGE
NUMBER -------- NUMBER
------ -------
10.1 Stock Purchase and Sale Agreement dated as of April 14, 17
1999 between Samstock, L.L.C. and the Registrant.
10.2 Amendment No. 1, Assignment and Consent to Assignment 72
of Stock Purchase and Sale Agreement dated May, 7, 1999
among Samstock, L.L.C., S.Z. Investments, L.L.C. and
the Registrant.
10.3 Investment Agreement dated as of April 14, 1999 75
among the Registrant, Samstock, L.L.C. and Martin J.
Whitman.
10.4 Assignment and Consent to Assignment of Investment 86
Agreement dated May, 7, 1999 among the Registrant,
Martin J. Whitman and S.Z. Investments, L.L.C.
10.5 Letter Agreement dated April 14, 1999 between Equity 89
Group Investments, L.L.C. and the Registrant.
10.6 Amendment dated June 2, 1999 to letter agreement dated 92
April 14, 1999 between Equity Group Investments, L.L.C.
and the Registrant.
10.7 Employment Agreement dated April 14, 1999 between the 93
Registrant and David Barse.
10.8 Employment Agreement dated April 14, 1999 between the 108
Registrant and Michael Carney.
STOCK PURCHASE AND SALE AGREEMENT
THIS STOCK PURCHASE AND SALE AGREEMENT is made and entered into as of
April 14, 1999 (as amended, supplemented or otherwise modified from time to
time, this "Agreement"), by and between Samstock, L.L.C., a Delaware limited
liability company ("Purchaser"), and Danielson Holding Corporation, a Delaware
corporation (the "Company). All capitalized terms used and not otherwise defined
herein have the meanings ascribed to them in Article X hereof.
WHEREAS, the Company desires to issue and sell to Purchaser, and
Purchaser desires to purchase from the Company, (i) 2,000,000 newly issued
shares (such 2,000,000 newly issued shares, collectively the "Shares") of Common
Stock in the aggregate, representing as of the date hereof approximately 9.43%
of the Fully Diluted Common Stock and approximately 11.38% of the outstanding
Common Stock (after giving effect to the sale and issuance of the Shares), and
(ii) a warrant (the "Warrant") in the form of Exhibit A hereto to purchase an
additional 2,000,000 shares of Common Stock in the aggregate (such additional
2,000,000 shares of Common Stock in the aggregate issuable from time to time
upon exercise of the Warrant, collectively the "Warrant Shares"), representing
as of the date hereof approximately 9.43% of the Fully Diluted Common Stock, all
upon the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises, representations and
warranties and the mutual covenants and agreements set forth herein and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES AND WARRANT
1.1 Purchase and Sale. Upon the terms and subject to the satisfaction
of the conditions contained in this Agreement, at the Closing, the Company shall
issue and sell to Purchaser and Purchaser shall purchase from the Company the
Shares and the Warrant, in each case free and clear of all Liens.
1.2 Consideration. Upon the terms and subject to the satisfaction of
the conditions contained in this Agreement, at the Closing, Purchaser shall pay
to the Company Nine Million Dollars ($9,000,000) in the aggregate (the "Purchase
Price") for the Shares and the Warrant.
ARTICLE II
THE CLOSING
2.1 Time and Place. Upon the terms and subject to the satisfaction of
the conditions contained in this Agreement, the closing of the issuance and sale
of the Shares and the Warrant contemplated by this Agreement (the "Closing")
shall take place at the offices of Rosenberg & Liebentritt, P.C., Two North
Riverside Plaza, Chicago, Illinois at 10:00 a.m. (local time) on the third
business day following the date on which all of the conditions hereunder have
<PAGE>
been satisfied or waived, or at such other place or time as Purchaser and the
Company may agree. The date and time at which the Closing actually occurs is
hereinafter referred to as the "Closing Date."
2.2 Deliveries by the Company. At the Closing, the Company shall
deliver the following to Purchaser:
(a) escrow receipts evidencing Purchaser's beneficial ownership of the
Shares, dated as of the Closing Date, in accordance with Section 5.2(a), of the
Company's Certificate of Incorporation;
(b) the Warrant, dated as of the Closing Date, in the name of
Purchaser;
(c) an opinion of Zukerman Gore & Brandeis, LLP substantially in the
form attached hereto as Exhibit B; and
(d) all other documents, instruments and writings reasonably required
to be delivered by the Company at or prior to the Closing Date in connection
with this Agreement.
2.3 Deliveries by Purchaser. At the Closing, Purchaser shall deliver
the following to the Company:
(a) the Purchase Price by interbank transfer of federal funds to one or
more accounts designated in a writing delivered by the Company to Purchaser no
less than two (2) business days prior to the Closing Date or by such other means
as may be agreed upon in writing by the Company and Purchaser;
(b) an opinion letter from Rosenberg & Liebentritt, P.C., counsel to
Purchaser, in substantially the form attached hereto as Exhibit C; and
(c) all other documents, instruments and writings reasonably required
to be delivered by Purchaser at or prior to the Closing Date in connection with
this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents, warrants and covenants to Purchaser on the date
of this Agreement and again on the Closing Date, which representations,
warranties and covenants shall survive the Closing until the Survival Date (as
hereinafter defined), as follows:
3.1 Organization and Qualification. Each of the Company and each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority to carry on its business as it is now
being conducted. Each of the Company and each Subsidiary is duly qualified or
licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction (including any foreign country) where the character of its
properties owned, leased or operated by it or the nature of its activities makes
such qualification or licensing necessary,
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except for such failures to be so qualified or licensed or in good standing
which would not, individually or in the aggregate, have a Material Adverse
Effect.
3.2 Certificate of Incorporation and Bylaws. The Company has heretofore
made available to Purchaser a complete and correct copy of the certificates of
incorporation of the Company and each Subsidiary and the bylaws of the Company
and each Subsidiary as currently in effect (collectively, the "Organizational
Documents"). Such Organizational Documents are in full force and effect, and no
other organizational documents are applicable to or binding upon the Company or
any Subsidiary (including, without limitation, any joint venture, investment or
other agreement). Neither the Company nor any Subsidiary is in violation of any
of the provisions of its Organizational Documents in any material respect or in
any respect (whether or not material) which could reasonably be expected to
result in a Material Adverse Effect.
3.3 Capitalization; Subsidiaries.
(a) The authorized capital stock of the Company consists of 20,000,000
shares of Common Stock and 10,000,000 shares of Preferred Stock. As of the date
hereof, (i) 15,586,994 shares of Common Stock were issued, 15,576,276 shares of
Common Stock were outstanding and 10,718 shares of Common Stock were held in the
treasury of the Company, all of which shares were validly issued, fully paid and
nonassessable, (ii) no shares of Preferred Stock were issued or outstanding, and
(iii) other than 10,718 shares of Common Stock, no Equity Securities were held
in the treasury of the Company.
(b) As of the date hereof and the Closing Date and after giving affect
to the sale of the Shares, the Shares represent, or shall represent,
approximately 9.43% of the Fully Diluted Common Stock and approximately 11.38%
of the outstanding shares of Common Stock. As of the date hereof and the Closing
Date, the Warrant Shares represent, or shall represent, approximately 9.43% of
the Fully Diluted Common Stock.
(c) Except as set forth above in Section 3.3(a) and as set forth in
Schedule 3.3(c) hereto, there are no outstanding Equity Securities of the
Company. Schedule 3.3(c) includes a true and correct table summarizing all
outstanding stock options, warrants and other rights to acquire Equity
Securities of the Company or any Subsidiary (other than the Warrant), including
the identity of the holder, the number of shares covered, the vesting schedule
therefor, the exercise price therefor, and the termination date therefor.
(d) Attached as Schedule 3.3(d) hereto is a true, correct and complete
organization chart identifying the Company, each direct or indirect Subsidiary
and the ownership of each such entity. Each of the outstanding shares of capital
stock of each Subsidiary is duly authorized, validly issued, fully paid and
nonassessable, and all such shares are owned by the Company, directly or
indirectly through other wholly-owned Subsidiaries, as represented in Schedule
3.3(d), free and clear of all Liens, and there are no outstanding Equity
Securities of any Subsidiary other than such shares. The Company does not own,
directly or indirectly, any capital stock or other equity interest in any Person
other than the Subsidiaries identified or as otherwise identified on Schedule
3.3(d). No Subsidiary engaged in the insurance business is commercially
domiciled in any jurisdiction other than its jurisdiction of incorporation.
3
<PAGE>
3.4 The Shares and the Warrant.
(a) Upon payment of the Purchase Price at the Closing, Purchaser will
acquire good and marketable title to the Shares, free and clear of all Liens.
Upon payment of the Purchase Price, the Shares shall be validly issued, fully
paid and nonassessable.
(b) Upon payment of the Purchase Price at the Closing, Purchaser will
acquire good and marketable title to the Warrant, free and clear of all Liens.
Upon exercise of the Warrant, in whole or, from time to time, in part, and upon
payment of the exercise price therefor, all in accordance with the terms of the
Warrant, Purchaser will acquire good and marketable title to the Warrant Shares,
free and clear of all Liens, and such Warrant Shares shall be validly issued,
fully paid and nonassessable.
3.5 Power and Authority. The Company has all necessary corporate power
and authority to execute and deliver this Agreement, the Investment Agreement,
the Warrant and all other documents, instruments and other writings to be
executed and/or delivered by or on behalf of the Company to Purchaser or any of
its representatives in connection with the transactions contemplated hereby or
thereby (collectively, the "Company Transaction Documents"), to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby, except that the Proxy Proposals require
shareholder approval as referenced in Section 3.23(b). The execution, delivery
and performance of each of the Company Transaction Documents by the Company, and
the consummation by the Company of the transactions contemplated hereby and
thereby, have been duly and validly authorized by the Board of Directors of the
Company (the "Board"), and no other corporate proceedings on the part of the
Company are necessary to authorize the execution, delivery and performance of
the Company Transaction Documents or the consummation of the transactions
contemplated hereby and thereby, except that the Proxy Proposals require
shareholder approval as referenced in Section 3.23(b).
3.6 No Conflict; Required Filings and Consents. The execution, delivery
and performance of the Company Transaction Documents by the Company do not and
will not: (a) conflict with or violate the Organizational Documents of the
Company or any Subsidiary; (b) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to the Company or any
Subsidiary or by which its or any of their respective properties are bound or
affected which could reasonably be expected to have a Material Adverse Effect;
(c) require any consent, approval, authorization or permit of, action by, filing
with or notification to, any Governmental Entity (other than (i) any filing
required under Section 13(a) or (d), 14, 15(d) or 16(a) of the Exchange Act,
(ii) the Purchaser Insurance Filings and Consents, or (iii) with respect to the
exercise of the Warrant, the filing of the HSR Report and the expiration or
termination of the applicable waiting period under the HSR Act) or any
securities exchange including AMEX (except that the Company must and shall as
soon as practicable notify AMEX of this transaction and take all action
necessary to cause the Shares and Warrant Shares to be, and the Shares and the
Warrant Shares must be, listed and approved by AMEX), except where the failure
to obtain or effect the same would not have a Material Adverse Effect; or (d)
result in any breach or violation of or constitute a default (or an event which
with notice or lapse of time or both could become a default) or result in the
loss by the Company or any Subsidiary of a material benefit under, or give rise
to any right of termination, amendment, acceleration or cancellation of, or
result in the creation of a Lien on any of the properties or assets of the
Company or any Subsidiary pursuant to, any Contract, Permit or other instrument
or obligation
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<PAGE>
to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary or any of their respective properties are bound or
affected which could reasonably be expected to have a Material Adverse Effect.
3.7 Employment, Consulting and Severance Agreements and Related
Matters. Except as set forth in Schedule 3.7 hereto:
(a) There are no Employment, Consulting or Severance Agreements to
which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any of their respective assets may be bound, and no present or
former employee, officer, director, consultant, independent contractor or other
agent of the Company or any Subsidiary is a party to or the beneficiary of any
such Employment, Consulting or Severance Agreements.
(b) The execution and delivery of this Agreement or the other Company
Transactions Documents and the consummation of the transactions contemplated
hereby and thereby: (i) do not and will not result in any breach or violation of
or constitute a default (or an event which with notice or lapse of time or both
could become a default) or result in the loss by the Company or any Subsidiary
of a material benefit under, or give rise to any right of termination,
amendment, acceleration or cancellation of any Employment, Consulting or
Severance Agreement; or (ii) do not and will not give rise to any obligation on
the part of the Company or any Subsidiary to pay or provide any Severance
Payment.
3.8 Compliance; No Violation. Each of the Company and each Subsidiary
is in compliance with, and is not in default or violation of, (i) its respective
Organizational Documents, and (ii) all Contracts, Permits and other instruments
or obligations to which any of them are a party or by which any of them or any
of their respective properties may be bound or affected, except, in the case of
clause (ii), for any such failures of compliance, defaults and violations which
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
3.9 Insurance Regulatory Compliance and Related Matters.
(a) The statutory Annual Statements of the Company and each Subsidiary
for the year ended December 31, 1998, together with all exhibits and schedules
thereto, and financial statements relating thereto, and any actuarial opinion,
affirmation or certification filed in connection therewith, and all Insurance
Reports, with respect to the Company and each of its Subsidiaries, in each case
as filed with the applicable Insurance Regulator of its jurisdiction or
domicile, in every jurisdiction in which it holds a certificate of authority or
in any other jurisdiction as otherwise required, were timely filed and were
prepared in all material respects in conformity with SAP, applied on a
consistent basis, and present fairly, in all material respects, to the extent
required by and in conformity with SAP, the admitted assets, liabilities,
capital and surplus, cash flow, other funds liability for unpaid losses and loss
adjustment expenses and unearned premiums, of the Subsidiaries at such date and
the results of operations, changes in capital and surplus and cash flow of each
such entity for such period, and were correct in all material respects when
filed and there were no material omissions therefrom when filed. The reserves
for unpaid losses and loss adjustment expenses included therein have been
estimated in accordance with generally accepted actuarial standards and in
accordance with SAP. Except as set forth on Schedule 3.9(a), no Insurance
Regulator has given any written notice of any deficiency or violation of any
applicable statute, law, ordinance, rule, order or regulation of any
5
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Governmental Entity which deficiency or violation would have a Material Adverse
Effect. Each of the Company and its Subsidiaries has filed with Insurance
Regulators all Insurance Reports required to be filed under the insurance and
other laws of its state of domicile and in each state where it holds a
certificate of authority except where such failure to file, individually or in
the aggregate, would not have a Material Adverse Effect. Schedule 3.9(a) sets
forth all reports of examination issued by any Insurance Regulator with respect
to the Company or any of its Subsidiaries since January 1, 1996. The Company and
its Insurance Subsidiaries have resolved all material issues raised in such
reports to the satisfaction of the issuer thereof.
(b) Schedule 3.9(b) identifies all in force Subsidiary Reinsurance
Agreements. Each Subsidiary Reinsurance Agreement is in full force and effect,
enforceable in accordance with the terms thereof, and neither the Company nor
any Subsidiary is in default under or breach of any of the provisions of any
Subsidiary Reinsurance Agreements and, except as set forth on Schedule 3.9(b),
there is no event that has occurred which, with the passage of time or the
giving of notice, or both, would create a default or breach by the Company or
any such Subsidiary thereunder, except to the extent that any such default or
breach would not have a Material Adverse Effect. The execution and delivery of
this Agreement or the other Company Transactions Documents and the consummation
of the transactions contemplated hereby and thereby including the issuance and
sale of the Shares and Warrant or the exercise of the Warrant or the sale and
issuance of Warrant Shares upon exercise of the Warrant do not and will not
result in any breach or violation of or constitute a default (or an event which
with notice or lapse of time or both could become a default) or result in the
loss by the Company or any Subsidiary of a material benefit under, or give rise
to any right of termination, amendment, acceleration or cancellation of any
Subsidiary Reinsurance Agreement. None of the Company, any Subsidiary or any
reinsurer under any Subsidiary Reinsurance Agreement has given any notice of
termination with respect to any such arrangement or treaty, and there is no
dispute other than those that occur in the ordinary course of business, under
any such arrangement or treaty regarding the liability for any claim against the
Company or any Subsidiary by its insureds that is covered by any such
arrangement or treaty, which if adversely determined would, individually or in
the aggregate, have a Material Adverse Effect.
(c) All insurance products offered and sold by the Company or any
Subsidiary, complied when offered, issued, and sold, in all material respects
with the provisions of all applicable laws and regulations. All policies, bonds
or contracts of insurance issued by the Company or any Subsidiary, as currently
in force, are to the extent required under applicable law, on forms approved by
Insurance Regulators or other appropriate Governmental Entities or which have
been filed and not objected to by such authorities within the period provided
for objection, and all such insurance in force is valid and binding upon the
Company or its Subsidiaries, in accordance with the terms of such policies,
bonds and contracts. All premium rates required to be filed with or approved by
Insurance Regulators have been so filed, approved or not objected to within the
period provided for objection and all premiums charged, conform thereto.
(d) Neither the Company nor any Subsidiary has advertised or used any
sales promotional materials in connection with the offer and sale of insurance
products that does not comply with applicable laws, except where any such
practice would not have a Material Adverse Effect.
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(e) Neither the Company nor any of its Insurance Subsidiaries has
empowered any independent agent with the authority to bind it to any insurance
or reinsurance contract or any amendment or endorsement thereto, whether known
as or acting as managing general agent or otherwise, with the exception of the
authority granted to the agents of the Company or its Insurance Subsidiaries
pursuant to their respective Agency Agreements. Each Agency Agreement is in full
force and effect, enforceable in accordance with the terms thereof, and neither
the Company nor any Subsidiary is in default under or breach of any of the
provisions of any Agency Agreements, and there is no event that has occurred (or
to the Company's knowledge that is likely to occur) which, with the passage of
time or the giving of notice, or both, would create a default or breach by the
Company or any such Subsidiary thereunder, except to the extent that any such
default or breach would not have a Material Adverse Effect. None of the Company,
any Subsidiary or any agent under any Agency Agreement has given any notice of
termination with respect to any such arrangement.
(f) The execution, delivery and performance of the Purchaser
Transaction Documents by any Person acquiring the Shares and Warrant as
contemplated by this Agreement, does not and will not: (i) conflict with or
violate any insurance law, statute, rule, regulation or policy of any
jurisdiction, (collectively, "Purchaser Insurance Regulations") applicable to
any Person acquiring the Shares and Warrant Shares as contemplated by this
Agreement; and (ii) except as specified in Schedule 3.9(f) hereto, require any
consent, approval, authorization or permit of, action by, filing with or
notification to, any Insurance Regulator (all such consents, approvals,
authorizations, permits, actions, filings and notifications, collectively,
"Purchaser Insurance Filings and Consents").
(g) Except as set forth on Schedule 3.9(g) hereto, each of the Company
and each Subsidiary is in compliance with all statutes, laws, regulations,
rules, injunctions, decrees, permits, orders and licenses to which it is
subject, including, without limitation, laws, statutes, rules, regulations,
permits, and orders of or issued or administered by Insurance Regulators
governing their businesses, including, without limitation, development and
marketing of insurance products, the licensure or registration of agents and
brokers and the execution and performance of reinsurance agreements, except
where such failure to comply would not have a Material Adverse Effect, and has
received no notice of any alleged violation of any such law, statute, rule,
regulation, injunction, decree, permit, order or license.
(h) Schedule 3.9(h) contains a complete and accurate list and
description of all certificates of authority, licenses and permits held by each
insurance Subsidiary, which certificates of authority, licenses and permits
constitute all authority necessary to the lawful conduct of each such
Subsidiary's business as currently contemplated, and are in full force and
effect. Neither the Company nor any Subsidiary is aware of or has received any
notice from any Insurance Regulator indicating any problem with, or condition or
limitation on, any certificate of authority, license or permit, including
without limitation, any condition or limitation that could restrict or prohibit
the use thereof upon the consummation of the transactions contemplated hereby.
(i) Schedule 3.9(i) sets forth a complete and accurate list and
description of each registration, filing, application, notice, transfer,
consent, approval, order, qualification or waiver (each a "Required Consent")
known to the Company to be required to be obtained by the Company or a
Subsidiary by virtue of the execution of this Agreement or the consummation of
the transactions contemplated hereby (a) to avoid the loss of any certificate of
authority or of
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any license or permit or the violation of any law or regulation or any order to
which the Company or a Subsidiary is subject or by which any of their assets
may be bound, or to prevent the possibility of a termination or impairment
of any contract or reinsurance agreement disclosed or referred to in Schedule
3.9(i), (b) to enable the transfer of valid and marketable title to the Shares
to Purchaser, (c) to enable the Company and each Subsidiary to continue their
respective businesses after the Closing as conducted prior to the Closing, or
(d) to continue after the Closing the agreements of the reinsurers of each
Subsidiary to provide reinsurance.
3.10 SEC Documents; Undisclosed Liabilities.
(a) The Company has filed with the SEC all required reports, schedules,
forms, proxy, registration and other statements and other documents
(collectively, the "SEC Documents"). As of the date of this Agreement, the last
SEC Document filed by the Company was the Company's Annual Report on Form 10-K
for the year ended December 31, 1998. As of their respective filing dates, the
SEC Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents.
As of their respective filing dates, none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, except to
the extent such statements have been modified or superseded by a later SEC
Document filed and publicly available prior to the Closing Date, the
circumstances or bases for which modifications or supersessions have not and
will not individually or in the aggregate result in any material liability or
obligation on behalf of the Company under the Securities Act, the Exchange Act,
the rules promulgated under the Securities Act or the Exchange Act, or any
federal, state or local anti-fraud, blue-sky, securities or similar laws. The
consolidated financial statements of the Company included in the SEC Documents
(as amended or supplemented by any later filed SEC Document filed and publicly
available prior to March 31, 1999), comply as to form in all material respects
with applicable accounting requirements and the rules and regulations of the SEC
with respect thereto, have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be indicated in
notes thereto) and fairly present the consolidated financial position of the
Company and the Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments).
Other than liabilities and obligations reflected or reserved against in the
consolidated financial statements of the Company and its consolidated
Subsidiaries included in the Company's Annual Report on Form10-K for the year
ended December 31, 1998, or incurred since the date of the balance sheet
included in such financial statements in the ordinary course of business which
are not individually or collectively material to the Company and the
Subsidiaries taken as a whole, and except as set forth in the SEC Documents
(which includes, without limitation, descriptions of the uncertainties involved
in determining reserve for insurance payments), neither the Company nor any
Subsidiary has any obligation or liability of any nature whatsoever (direct or
indirect, matured or unmatured, absolute, accrued, contingent or otherwise)
either (i) required by GAAP to be set forth on a consolidated balance sheet of
the Company and the Subsidiaries or in the notes thereto or (ii) which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect whether or not required by GAAP to be provided for or
reserved against on a balance sheet prepared in accordance with GAAP.
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(b) At the date the Proxy Statement is first mailed to the Company's
stockholders or at the time of the Stockholders' Meeting, the Proxy Statement
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading (other than with respect to information concerning Purchaser provided
by Purchaser in writing to the Company specifically to be included in the Proxy
Statement as to which the Company makes no representation). The Proxy Statement
shall comply in all material respects with the requirements of the Exchange Act
and the rules and regulations promulgated thereunder except that the Company
makes no representation, warranty or covenant with respect to any written
information supplied by Purchaser specifically for inclusion in the Proxy
Statement.
3.11 Absence of Certain Changes or Events. Except as disclosed in the
SEC Documents, since December 31, 1998, the Company and the Subsidiaries have
conducted their businesses only in the ordinary course and in a manner
consistent with past practice, and there has not occurred any event, condition,
circumstance, change or development (whether or not in the ordinary course of
business) that, individually or in the aggregate, has had or could reasonably be
expected to have a Material Adverse Effect. Without limiting the generality of
the foregoing, except as set forth on Schedule 3.11 hereto or as disclosed in
any SEC Documents and publicly available prior to March 31, 1999, since December
31, 1998, there has not been (i) any change by the Company in its accounting
methods, principles or practices, (ii) any revaluation by the Company of any of
its or any Subsidiary's material assets, other than in the ordinary course of
business consistent with past practice, (iii) any entry outside the ordinary
course of business by the Company or any Subsidiary into any commitments or
transactions material, individually or in the aggregate, to the Company and the
Subsidiaries taken as a whole, (iv) any declaration, setting aside or payment of
any dividends or distributions in respect of the shares of Common Stock or, any
redemption, purchase or other acquisition of any of its securities, (v) any
grant or issuance of any Equity Securities of the Company or any Subsidiary; or
(vi) any increase in, establishment of or amendment of any Employment,
Consulting or Severance Agreement, bonus, insurance, deferred compensation,
pension, retirement, profit sharing, stock option (including without limitation
the granting of stock options, stock appreciation rights, performance awards, or
restricted stock awards), stock purchase or other employee benefit plan or
agreement or arrangement, or any other increase in the compensation payable or
to become payable to any present or former directors, officers or employees of
the Company or any Subsidiary, except for increases in compensation in the
ordinary course of business consistent with past practice.
3.12 Absence of Litigation; Compliance. Except as set forth on Schedule
3.12 hereto or as disclosed in any SEC Documents filed with the SEC and publicly
available prior to March 31, 1999, there are no suits, claims, actions,
proceedings or investigations pending or, to the Company's knowledge, overtly
threatened against the Company or any Subsidiary, or any properties or rights of
the Company or any Subsidiary, including, without limitation before any
arbitrator or Governmental Entity that (i) if determined adversely to the
Company or any Subsidiary could, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect or (ii) seek to delay or prevent the
consummation of the transactions contemplated by this Agreement. Neither the
Company nor any Subsidiary nor any of their respective properties is or are
subject to any order, writ, judgment, injunction, decree, determination or award
having, or which in the future could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect or could prevent or
delay the
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consummation of the transactions contemplated by this Agreement or any other
Transaction Document. Neither the Company nor any Subsidiary is in
violation of, nor has the Company or any Subsidiary violated, any applicable
provisions of any Contract, Permit or other instrument or obligations to which
the Company or any Subsidiary is a party or by which the Company, any Subsidiary
or any of their respective properties are bound or affected except for any such
violations which could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Except as disclosed in any SEC
Documents filed with the SEC and publicly available prior to March 31, 1999, the
Company and its Subsidiaries are in compliance with all applicable statutes,
laws, ordinances, rules, orders and regulations of any Governmental Entity
(including, without limitation, with respect to employment and employment
practices, immigration laws relevant to employment, and terms and conditions of
employment and wages and hours) except for any failure to comply which could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Except as disclosed in any SEC Documents filed with the SEC and
publicly available prior to March 31, 1999, no investigation by any Governmental
Entity with respect to the Company or any Subsidiary is pending or, to the best
of the Company's knowledge, threatened.
3.13 Employee Benefit Plans.
(a) The Company has made available or delivered to Purchaser copies (or
if the same do not exist in written form, descriptions) of each material formal,
informal, oral or written bonus, deferred compensation, incentive compensation,
stock purchase, stock option, restricted stock purchase or other issuance,
severance or termination pay, hospitalization or other medical, life or other
insurance (or similar self-insurance), supplemental unemployment benefits,
profit-sharing, employee stock ownership, pension, or retirement plan, program,
agreement or arrangement, and each other employee benefit plan, program,
agreement or arrangement whether for the benefit of present or former officers,
employees, agents, directors or independent contractors of the Company or any
Subsidiary or any ERISA Affiliate, sponsored, maintained or contributed to or
required to be contributed to by the Company or by any trade or business,
whether or not incorporated (an "ERISA Affiliate"), that together with the
Company would be deemed a "single employer" within the meaning of Section
4001(b) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") or Section 414(b) or (c) of the Code (collectively, the "Plans"). Each
of the Plans that is an "employee benefit plan," as that term is defined in
Section 3(3) of ERISA and subject thereto is collectively referred to herein as
"ERISA Plans."
(b) No material liability under Title IV of ERISA has been incurred by
the Company or any ERISA Affiliate that has not been satisfied in full, and no
condition exists that presents a material risk to the Company or any ERISA
Affiliate of incurring a material liability under such Title, other than
liability for premiums due the Pension Benefit Guaranty Corporation ("PBGC")
(which premiums have been paid when due). To the extent this representation
applies to sections 4064, 4069 or 4204 of Title IV of ERISA, it is made not only
with respect to each ERISA Plan but also with respect to any employee benefit
plan, program, agreement or arrangement subject to Title IV of ERISA to which
the Company or any ERISA Affiliate made, or was required to make, contributions
during the five-year period ending on the Closing Date. Neither the Company nor
any ERISA Affiliate is required to contribute to a "multiemployer plan" (as
defined in Section 4001(a)(3) of ERISA) or has withdrawn from any multiemployer
plan where such withdrawal has resulted or would result in any "withdrawal
liability" (within the meaning of Title IV of ERISA) that has not been fully
paid.
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(c) The PBGC has not instituted proceedings to terminate any ERISA Plan
and no condition exists that presents a material risk that such proceedings will
be instituted.
(d) Neither the Company nor any ERISA Affiliate, nor any ERISA Plan,
nor any trust created thereunder, nor any trustee or administrator thereof has
engaged in a transaction in connection with which the Company or any ERISA
Affiliate, any ERISA Plan, any such trust, or any trustee or administrator
thereof, or any party dealing with any ERISA Plan or any such trust could
reasonably be subject to either a material civil penalty assessed pursuant to
section 409 or 502(i) of ERISA or a material tax imposed pursuant to section
4975 or 4976 of the Code.
(e) No ERISA Plan or any trust established thereunder has incurred any
"accumulated funding deficiency" (as defined in section 302 of ERISA and section
412 of the Code), whether or not waived, as of the last day of the most recent
fiscal year of each ERISA Plan, which could reasonably be expected to result in
a material liability to the Company; and all contributions required to be made
with respect thereto (whether pursuant to the terms of any ERISA Plan or
otherwise) have been timely made.
(f) Each Plan has been operated and administered in accordance with its
terms and applicable law in all material respects, including, but not limited
to, ERISA and the Code. No Plan is subject to any material dispute or proceeding
other than relating to a routine claim for benefits.
(g) There are no material pending or (to the knowledge of the Company)
threatened claims by or on behalf of any Plan, by any employee or beneficiary
covered under any such Plan, or otherwise involving any such Plan (other than
routine claims for benefits).
(h) To the knowledge of the Company, no fact exists that could
reasonably be expected to result in the disqualification of any Plan that is
intended to be qualified under Section 401(a) of the Code.
3.14 Tax Matters. Since August 15, 1990, each of the Company and the
Subsidiaries has filed all Tax Returns, or requests for extensions to file Tax
Returns, which the Company and the Subsidiaries were required to have filed on
or before the date hereof, except where the failure to do so could not
reasonably be expected to have a Material Adverse Effect. All Tax Returns filed
by the Company or the Subsidiaries are complete and accurate, except where the
failure to be complete and accurate could not reasonably be expected to have a
Material Adverse Effect. The Company and the Subsidiaries have paid (or the
Company has paid on behalf of the Subsidiaries) or has made adequate provision
for the payment of all Taxes shown as due on such Tax Returns and reflected in
the most recent financial statements contained in the SEC Documents for all
taxable periods and portions thereof accrued through the date of such financial
statements, except where the failure to do so could not reasonably be expected
to have a Material Adverse Effect. No deficiencies for any Taxes have been
proposed, asserted or assessed against the Company or any Subsidiary that are
not adequately reserved for, pursuant to such Tax Returns or pursuant to any
assessment received with respect thereto. Neither the Company nor any Subsidiary
has been notified, or otherwise has knowledge, of any pending audit or
examination of any Tax Return of the Company or any Subsidiary by any
Governmental Entity, nor has the Company or any Subsidiary received written
notice of any such audit or examination and there are no unexpired waivers or
agreements for the extension of time for the assessment of taxes on the Company
or any Subsidiary or extension of any
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statute of limitations with respect to any Taxes, and there are no pending,
nor has the Company or any Subsidiary received any written notice of any
threatened, actions, proceedings or investigations by any Governmental Entity
with respect to Taxes.
3.15 Environmental Matters. To the best knowledge of the Company, none
of the Company or any Subsidiary (including, without limitation, their
respective assets) is in violation of any Environmental Laws or Environmental
Permits. To the best knowledge of the Company, the Company and each Subsidiary
possesses and is in compliance with all Environmental Permits which are required
for the operation of their respective businesses, except where the failure to
possess or comply with such Environmental Permits could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect. During
the last five years, none of the Company or any Subsidiary has received any
notice, citation, inquiry or complaint of any alleged violation by any of them
of any Environmental Law or Environmental Permit
3.16 Labor Matters. (a) neither the Company nor any Subsidiary is
engaged in any unfair labor practice; (b) there is no unfair labor practice
charge or complaint against the Company or any Subsidiary pending before the
National Mediation Board, the National Labor Relations Board, or any comparable
state or local agency, (c) there is no (x) labor strike, material dispute, slow
down or stoppage actually pending or, to the knowledge of the Company,
threatened against or involving the Company or any Subsidiary, or (y) material
labor grievance or pending arbitration involving the Company or any Subsidiary;
(d) neither the Company nor any Subsidiary has experienced any work stoppage or
other material labor difficulty during the three-year period prior to the date
of this Agreement; (e) there are no collective bargaining agreements, union
contracts or similar types of agreements by which the Company or any Subsidiary
is bound or covered; (f) there are no union representation petitions pending
before the National Labor Relations Board, and no union within the past three
years has sought or demanded recognition by the Company or any Subsidiary; and
(g) there is no union organizing activity, to the knowledge of the Company,
currently in progress involving the Company or any Subsidiary.
3.17 Real Property. None of the Company or any Subsidiary owns,
or has any option to purchase, any real property.
3.18 Material Contracts; Defaults. Schedule 3.18 hereto sets forth a
correct and complete list of all material Contracts (other than Employment,
Consulting or Severance Agreements and insurance contracts) to which the Company
or any Subsidiary is a party or by which the Company or any Subsidiary or any of
their respective assets may be bound (the "Material Contracts"), including,
without limitation, any such Contracts (a) involving the expenditure (or the
transfer of assets or services) by any party thereto in an aggregate amount or
with an aggregate value in excess of $100,000 in any year, (b) which do not by
their terms expire and are not subject to termination (without penalty to the
Company or any Subsidiary) within six (6) months from the date of execution and
delivery thereof, or (c) to which any director or officer of the Company or any
Subsidiary or any holder of more than 5% of the outstanding Common Stock or any
of their respective Affiliates is a party. The Company has made available or
delivered to Purchaser correct and complete copies of all Material Contracts.
Neither the Company nor any Subsidiary is, or has received any notice or has any
knowledge that any other party is, in default in any respect under any Material
Contract, except for those defaults which would not, either individually or in
the aggregate, reasonably be expected to
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have a Material Adverse Effect, and there has not occurred any event that
with the lapse of time or the giving of notice or both would constitute such a
default by the Company or any Subsidiary or, to the Company's knowledge, by any
other party. To the Company's knowledge, no party to any Material Contract has
threatened to terminate such Material Contract (or modify such Material
Contract in a manner detrimental to the Company or any Subsidiary).
3.19 Intellectual Property. The Company and each of its Subsidiaries
owns, or is licensed to use (in each case, free and clear of any Liens) all
patents, trademarks, trade names, service marks, service names, copyrights,
technology, know-how, trade secrets, processes and computer software (including,
without limitation, all documentation and source and object codes with respect
to such software) used in or necessary for the conduct of its business as
currently conducted which are material to the business, operations, assets,
prospects, financial condition or results of operations of the Company and its
Subsidiaries taken as a whole. To the Company's knowledge, the use of such
patents, trademarks, trade names, copyrights, technology, know-how, trade
secrets, processes and computer software (including, without limitation, all
documentation and source and object codes with respect to such software) by the
Company and its Subsidiaries does not infringe or otherwise violate the rights
of any person. To the Company's knowledge, no person is infringing any right of
the Company or any Subsidiary with respect to any such patents, trademarks,
trade names, copyrights, technology, know-how, processes or computer software
(including, without limitation, all documentation and source and object codes
with respect to such software). The Company and each of its Subsidiaries is Year
2000 Compliant, except where the failure to be Year 2000 Compliant could not
reasonably be expected to have a Material Adverse Effect.
3.20 Insurance. The Company has heretofore made available to Purchaser
copies of all policies or binders of fire, liability, product liability,
worker's compensation, vehicular and other insurance bonds that insure the
operations of the Company and the Subsidiaries. Such policies include all
policies that are required in connection with the operation of the businesses of
the Company and the Subsidiaries, as presently conducted, by applicable laws or
regulations or by the terms of any Contract to which the Company or any
Subsidiary is a party or by which any of their respective assets is bound. The
policies concerning such insurance are in full force and effect and no notice of
cancellation or termination has been received by the Company or any Subsidiary
with respect to any such policy. There are no outstanding unsettled claims under
any such policy or binder that individually, or in the aggregate, exceed the
coverage of any such policy or binder. There is no failure by the Company or any
Subsidiary to pay premiums when due, and there is no material inaccuracy in any
application for such policies or binders. Neither the Company nor any Subsidiary
has received any notice of cancellation or nonrenewal of any such policy or
binder. Neither the Company nor any Subsidiary has received any notice from any
carrier of such insurance that any insurance premiums will be materially
increased in the future or that any such insurance coverage will not be
available in the future on substantially the same terms as now in effect.
3.21 Permits. The Company and the Subsidiaries have all Permits
required by law or governmental regulations from all applicable Governmental
Entities that are necessary to operate their respective businesses as presently
conducted and all such Permits are in full force and effect, except where the
failure to have any such Permits in full force and effect could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Neither the Company nor any Subsidiary is in default under, or
in violation of or noncompliance with, any of such Permits, except for any such
default, violation of or noncompliance which
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could not, individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect. Upon consummation of the transactions
contemplated by this Agreement, each such Permit will remain in full force
and effect and will not create a right of any other person to terminate or
revoke, modify or condition such Permit based on such consummation.
3.22 Related Party Transactions. Except as disclosed in any SEC
Documents filed with the SEC and publicly available prior to March 31, 1999, no
director or officer of the Company or any Subsidiary or holder of more than 5%
of the outstanding Common Stock or any of their respective Affiliates or any
Affiliate of the Company or any Subsidiary (i) has borrowed any monies from or
has outstanding any indebtedness or other similar obligations to the Company or
any Subsidiary in excess, individually or in the aggregate, of $100,000; (ii)
owns more than a 5% equity interest in, or is a director, officer, employee,
partner, Affiliate or associate of, or consultant or lender to, or borrower
from, or has the right to participate in the management, operations or profits
of, any person which is a competitor, supplier, customer, creditor, or debtor of
the Company or any Subsidiaries; or (iii) is otherwise a party to any contract,
arrangement or understanding with the Company or any Subsidiary with an
aggregate value or amount in excess of $100,000, in all cases other than travel
and other expenses and reimbursements, company car charges and other similar
transactions which are customary in amount and in the ordinary course of
business.
3.23 Vote Required.
(a) No vote of the holders of any class or series of capital stock or
other Equity Securities of the Company or any Subsidiary is required to approve
or effect this Agreement or the transactions contemplated hereby, including,
without limitation, under applicable law, AMEX regulations, the Organizational
Documents, any Contract or any Permit, except that the Proxy Proposals require
shareholder approval as referenced in Section 3.23(b).
(b) The affirmative vote of the holders of no more than a majority of
the outstanding shares of Common Stock is the only vote of the holders of any
class or series of capital stock or other Equity Securities of the Company
necessary to approve the Proxy Proposals.
3.24 Takeover Status. No "fair price", "moratorium", "control share
acquisition" or other similar anti-takeover statute or regulation enacted under
state or federal laws or applicable stock exchange rules or regulations,
including, without limitation, Section 203 of the Delaware General Corporation
Law, applicable to the Company or any Subsidiary is applicable to the
transactions contemplated hereby or by any other Transaction Document, taken
individually or in the aggregate.
3.25 Compliance with Securities Laws. The Company has not taken, and
will not take, any action which would subject the issuance and sale of the
Shares, the Warrant and/or the Warrant Shares pursuant to this Agreement to the
provisions of Section 5 of the Securities Act, or violate the registration or
qualification provisions of any securities or blue sky laws of any applicable
jurisdiction, and, based in part on the representations of Purchaser in Section
4.5, the sale of the Shares and the Warrant pursuant to this Agreement and the
issuance of the Warrant Shares from time to time upon exercise of the Warrant
complies with all applicable requirements of applicable federal and state
securities and blue sky laws.
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3.26 Reporting Company; Form S-3. The Company is subject to the
reporting requirements of the Exchange Act and its Common Stock is registered
under Section 12 of the Exchange Act. The Company is eligible to register for
resale shares of its Common Stock to be sold by parties other than the Company
on a registration statement on Form S-3 under the Securities Act.
3.27 Trading on AMEX. The Company's Common Stock is listed for trading
on AMEX, and the trading in the Company's Common Stock on AMEX has not been
suspended as of the date hereof and as of the Closing Date.
3.28 Brokers. No broker, finder, or investment banker or other Person
is entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by the Company Transaction Documents based
upon arrangements made by or on behalf of the Company.
3.29 Accuracy. All of the representations, warranties, understandings
and acknowledgments that the Company has made herein are true and correct in all
material respects as of the date of the execution hereof.
3.30 Use of Proceeds. The Company agrees that the Purchase Price and
the proceeds, if any, paid to the Company upon exercise of the Warrant shall be
retained as direct assets of the Company and such proceeds shall not be
transferred or attributed in any way, directly or indirectly, to any Insurance
Subsidiary.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents, warrants and covenants to the Company on
the date of this Agreement and again on the Closing Date, which representations
and warranties shall survive the Closing, as follows:
4.1 Organization. Purchaser is a limited liability company duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized.
4.2 Authority Relative to This Agreement. Purchaser has the limited
liability company power and authority to execute and deliver this Agreement, the
Investment Agreement and all other documents, instruments and other writings to
be executed and/or delivered by or on behalf of Purchaser to the Company or any
of its representatives in connection with the transactions contemplated hereby
or thereby (collectively, "Purchaser Transaction Documents"), to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance of each
of the Purchaser Transaction Documents by Purchaser and the consummation by
Purchaser of the transactions contemplated hereby and thereby have been duly
authorized by the managing member of Purchaser, and no other limited liability
company proceedings on the part of Purchaser are necessary to authorize the
execution, delivery and performance of the Purchaser Transaction Documents or
the transactions contemplated hereby or thereby. Each of the Purchaser
Transaction Documents has been duly executed and delivered by Purchaser, and,
assuming due authorization, execution and delivery by the
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Company, constitutes a legal, valid and binding obligation of Purchaser,
enforceable against Purchaser, in accordance with its terms.
4.3 No Conflict; Required Filings and Consents. The execution, delivery
and performance of the Purchaser Transaction Documents by Purchaser, does not
and will not: (a) conflict with or violate the organizational documents of
Purchaser; (b) conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to Purchaser, or by which any of its properties
are bound or affected (other than with respect to Purchaser Insurance
Regulations or Purchaser Insurance Filings and Consents); (c) require any
consent, approval, authorization or permit of, action by, filing with or
notification to, any Governmental Entity (other than any filing (i) required
under Section 13(a) or (d), 14, 15(d) or 16(a) of the Exchange Act, (ii) with
respect to Purchaser Insurance Regulations or Purchaser Insurance Filings and
Consents or (iii) with respect to the exercise of the Warrant, the filing of the
HSR Report and the expiration or termination of the applicable waiting period
under the HSR Act); (d) result in any breach or violation of or constitute a
default (or an event which with notice or lapse of time or both could become a
default) or result in the loss of a material benefit under, or give rise to any
right of termination, amendment, acceleration or cancellation of, or result in
the creation of a Lien on any of the property or assets of Purchaser, pursuant
to, any Contract, Permit or other instrument or obligation to which Purchaser is
a party or by which Purchaser, or any of its properties are bound or affected;
or (e) to Purchaser's knowledge, conflict with or violate any Purchaser
Insurance Regulations or require any consent, approval, authorization or permit
of, action by, filing with or notification to, any Governmental Entity other
than any Purchaser Insurance Filings and Consents, except, in the case of
clauses (b), (c), (d) and (e), for any such conflicts, violations, breaches,
defaults or other occurrences which could not, individually or in the aggregate,
reasonably be expected to impair or delay the ability of Purchaser to perform
its obligations under this Agreement.
4.4 Brokers. No broker, finder, investment banker or other person is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by the Purchaser Transaction Documents based
upon arrangements made by or on behalf of Purchaser.
4.5 Investment Intent. Purchaser represents and warrants that the
Shares and the Warrant (and the Warrant Shares issuable upon the exercise of the
Warrants) are being purchased or acquired solely for Purchaser's own account,
for investment purposes only and not with a view towards the distribution or
resale to others. Purchaser acknowledges, understands and appreciates that the
Shares, the Warrant and the Warrant Shares have not been registered under the
Securities Act by reason of a claimed exemption under the provisions of the
Securities Act which depends, in large part, upon the Purchaser's
representations as to investment intention, investor status and related and
other matters set forth herein. Purchaser understands that, in the view of the
United States Securities and Exchange Commission (the "SEC"), among other
things, a purchase with a present intent to distribute or resell would represent
a purchase and acquisition with an intent inconsistent with its representation
to the Company, and the SEC might regard such a transfer as a deferred sale for
which the registration exemption is not available. The Purchaser agrees and
consents to the placement of a legend on the certificate(s) representing the
Shares purchased hereunder (and upon the Warrant Shares) stating that such
securities have not been registered under the Act or applicable state securities
laws. Such legend shall also reference the transfer restrictions described in
the last sentence of Section 4.11 below.
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4.6 Certain Risks. Purchaser expressly understands that: (i) no return
on investment, whether through distributions, appreciation, transferability or
otherwise, and no performance by, through or of the Company, has been promised,
assured, represented or warranted by the Company, or by any director, officer,
employee, agent or representative thereof; (ii) while the Company's Common Stock
is presently traded on the AMEX, and while the Purchaser is a beneficiary of
certain registration rights with respect to the Shares and the Warrant Shares,
the Shares and the Warrant subscribed for and that may be purchased under this
Agreement and the Warrant Shares issuable upon exercise of the Warrants (x) are
not registered under applicable federal or state securities laws, and thus may
not be sold, conveyed, assigned or transferred unless registered under such laws
or unless an exemption from registration is available under such laws, as more
fully described below, and (y) are not quoted, traded or listed for trading or
quotation on the AMEX, or any other organized market or quotation system, and
there is therefore no present public or other market for the Shares, the Warrant
or the Warrant Shares, nor can there be any assurance that the Common Stock will
continue to be quoted, traded or listed for trading or quotation on the AMEX or
on any other organized market or quotation system; and (iii) that the purchase
of Shares and the Warrant is a speculative investment, involving a degree of
risk, and is suitable only for a person or entity of adequate financial means
who has no need for liquidity in this investment in that, among other things,
(x) such person or entity may not be able to liquidate their investment in the
event of an emergency or otherwise, (y) transferability is limited, and (z) in
the event of a dissolution or otherwise, such person or entity could sustain a
complete loss of their entire investment.
4.7 Sophistication. Purchaser (i) has adequate means of providing for
the Purchaser's current financial needs and possible contingencies and has no
need for liquidity of the Purchaser's investment in the Shares and the Warrant;
(ii) the Purchaser is able to bear the economic risks inherent in an investment
in the Shares and the Warrant and an important consideration bearing on its
ability to bear the economic risk of the purchase of Shares and the Warrant is
whether the Purchaser can afford a complete loss of the Purchaser's investment
in the Shares and the Warrant and the undersigned Purchaser represents and
warrants that the Purchaser can afford such a complete loss; and (iii) the
Purchaser has such knowledge and experience in business, financial, investment
and banking matters (including, but not limited to investments in restricted,
non-listed and non-registered securities) that the Purchaser is capable of
evaluating the merits, risks and advisability of an investment in the Shares and
the Warrant.
4.8 Accredited Investor. Purchaser is an "accredited investor," as such
term is defined in Rule 501 of Regulation D promulgated under the Act.
4.9 Documents, Information and Access. Purchaser's (i) decision to
purchase the Shares and the Warrant is not based on any promotional, marketing
or sales materials, and (ii) Purchaser and its representatives have been
afforded, prior to purchase thereof, the opportunity to ask questions of, and to
receive answers from, the Company and its management, and has had access to all
documents and information which the Purchaser deems material to an investment
decision with respect to the purchase of the Shares and Warrant hereunder. The
Purchaser acknowledges and understands that the Company is a public reporting
company, that annual, quarterly and other reports are, from time to time, filed
by the Company with the SEC under the Exchange Act, and that the Purchaser can
obtain a copy of any such reports, and of the notice and proxy statement of the
Company relating to its
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annual meeting of stockholders at which (among other things) directors are
elected, without charge, from certain public information offices maintained
by the SEC or from the Company.
4.10 No Registration, Review or Approval. Purchaser acknowledges and
understands that the limited private offering and sale of the Shares and Warrant
pursuant to this Agreement has not been reviewed or approved by the SEC or by
any state securities commission, authority or agency, and is not registered
under the Act or under the securities or "blue sky" laws, rules or regulations
of any state. The Purchaser acknowledges, understands and agrees that the Shares
and the Warrant are being offered and sold hereunder pursuant to (i) a private
placement exemption to the registration provisions of the Act pursuant to
Section 4(2) of such Act (and Rule 506 of Regulation D promulgated under such
Act), and (ii) a similar exemption to the registration provisions of applicable
state securities laws.
4.11 Transfer Restrictions.
(a) Purchaser will not transfer any Securities purchased under this
Agreement unless such Securities are registered under the Act and under any
applicable state securities or "blue sky" laws (collectively, the "Securities
Laws"), or unless an exemption is available under such Securities Laws, and the
Company may, if it chooses, where an exemption from registration is claimed by
such Purchaser, condition any transfer of Securities out of the Purchaser's name
on an opinion of the Company's counsel, to the effect that the proposed transfer
is being effected in accordance with, and does not violate, an applicable
exemption from registration under the Securities Laws.
(b) Purchaser expressly agrees to be bound by all of the provisions of
Article Fifth of the Company's Certificate of Incorporation ("Article Fifth").
For purposes of applying such Article Fifth, except with regard to an actual
exercise of the Warrant, the Warrant will be treated as fully exercised into
Warrant Shares after taking into account the adjustments contained in Sections 3
and 4 of the Warrant. None of the Purchaser or any person that has either a
direct or indirect ownership interest in the Purchaser or which acquires an
interest in the shares from the Purchaser pursuant to this paragraph, including
without limitation, a "first tier entity," a "higher tier entity", a "5-percent
owner," a "public owner" or any other "entity" (collectively "Indirect Owners")
will engage in any transaction that could result in a "shift" in the ownership
of the Company's stock without first complying with the procedures of Article
Fifth. Notwithstanding the foregoing, compliance with the procedures of Article
Fifth will not be required to consummate any transfer or other disposition not
involving a "shift" if the Indirect Owners receive an opinion of competent
counsel that such transaction will not result in a "shift" in the ownership of
the Company's stock. For purposes of this section the terms "first tier entity,"
"higher tier entity," "5-percent owner," "public owner," "entity" and "shift"
have the meanings ascribed to them in Treasury Regulation Sections 1.382-2T(f)
and 1.382-3. The Purchaser and the Indirect Owners will cooperate with the
Company concerning the Company's duty to inquire as to actual stock ownership
pursuant to Treasury Regulation 1.382-2T(k)(3) and or any successor provision
and will provide any related documentation that is reasonably requested by the
Company. The foregoing representations will survive as long as Purchaser holds
all or any portion of the Shares, the Warrant or the Warrant Shares or until the
termination of the Stock Escrow pursuant to Article Fifth of the Company's
Certificate of Incorporation.
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4.12 Accuracy of Purchaser Information. Purchaser represents and
warrants that all information concerning Purchaser provided by Purchaser
specifically for the purpose of being included in any public documents to be
filed by the Company shall be true and accurate in all material respects.
4.13 Reliance. Purchaser understands, acknowledges and appreciates that
the Company is relying upon all of the representations, warranties, covenants,
understandings, acknowledgements and agreements contained in this Agreement in
determining whether to accept this subscription, and sell and issue the Shares
and Warrant to the Purchaser.
4.14 Litigation. There are no outstanding suits, claims, actions,
proceedings or investigations pending or, to Purchaser's knowledge, overtly
threatened against Purchaser, which could reasonably be expected to impair or
delay the ability of Purchaser to perform its obligations under this Agreement
and/or, if Purchaser so elects, exercise the Warrant.
4.15 Accuracy. All of the representations, warranties, understandings
and acknowledgments that Purchaser has made herein are true and correct in all
material respects as of the date of the execution hereof.
ARTICLE V
CONDUCT OF BUSINESS OF THE COMPANY PENDING CLOSING
5.1 Conduct of Business of the Company Pending Closing. During the
period from the date hereof to the earlier of the termination of this Agreement
pursuant to Section 8.1 hereof and the Closing, unless Purchaser shall otherwise
agree in writing in advance, the businesses of the Company and the Subsidiaries
shall be conducted only in, and the Company and the Subsidiaries shall not take
any action except in, the ordinary course of business and in a manner consistent
with past practice and in compliance with applicable laws; and the Company and
its Subsidiaries each shall use commercially reasonable efforts to preserve
substantially intact the business organization of the Company and the
Subsidiaries, to keep available the services of the present officers, employees
and consultants of the Company and the Subsidiaries and to preserve the present
relationships of the Company and the Subsidiaries with customers, and other
Persons with which the Company or any Subsidiary has significant business
relations. By way of amplification and not limitation, unless Purchaser shall
otherwise agree in writing in advance, neither the Company nor any Subsidiary
shall, between the date of this Agreement and the Closing, directly or
indirectly do, or propose or commit to do, any of the following:
(a) amend its Organizational Documents other than by means of the
Charter Amendment;
(b) issue, deliver, sell, pledge, dispose of or encumber, or authorize
or commit to the issuance, sale, pledge, disposition or encumbrance of, (i) any
Equity Securities of the Company or any Subsidiary (other than upon the exercise
of employee and/or director options pursuant to the terms of stock option plans
disclosed in the schedules to this Agreement), or (ii) any assets of the Company
or any Subsidiary with an individual value in excess of $100,000 or an aggregate
value as to all such assets of $500,000 (other than the purchase or sale of
insurance and/or investment related assets in the ordinary course of business);
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(c) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) except in the ordinary course of business consistent with past
practices, acquire (by merger, consolidation or acquisition of stock or assets)
any corporation, partnership or other business organization or division thereof
or any assets, except for such transactions which involve aggregate
consideration of less than $100,000; (ii) except in the ordinary course of
business consistent with past practices, sell, transfer, lease, mortgage,
pledge, encumber or otherwise dispose of or subject to any Lien any of its
assets (including capital stock of the Subsidiaries), except for such
transactions which involve aggregate consideration of less than $100,000; (iii)
incur any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any Person, or make any loans, advances or
capital contributions to, or investments in, any other Person other than in the
ordinary course of business consistent with past practices; (iv) enter into,
amend or terminate any Subsidiary Reinsurance Agreement or Agency Agreements,
except in the ordinary course of business consistent with past practices; (v)
enter into any commitments or transactions material, individually or in the
aggregate, to the Company and the Subsidiaries taken as a whole, except in the
ordinary course of business consistent with past practices; (vi) authorize any
capital expenditure in excess of $100,000, individually, or $500,000 in the
aggregate, except in the ordinary course of business consistent with past
practices; or (vii) enter into or amend any Contract obligating it to take any
of the actions set forth in this Section 5.1(e);
(f) (i) increase the compensation or fringe benefits of any of its
present or former directors, officers, employees, consultants or independent
contractors except for increases in salary or wages of employees of the Company
or the Subsidiaries who are not officers of the Company in all cases to the
extent in the ordinary course of business in accordance with past practice, (ii)
grant any severance, termination or similar payments or benefits except in the
ordinary course of business in accordance with past practice, (iii) enter into,
or amend, any Employment, Consulting or Severance Agreements except in the
ordinary course of business in accordance with past practice, or (iv) establish,
adopt, enter into or amend or terminate any bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, or other plan, agreement, trust, fund, policy or arrangement for
the benefit of any present or former directors, officers, employees,
consultants, independent contractors or other agents of the Company or any
Subsidiary;
(g) except as may be required as a result of a change in law or in
GAAP, change any of the accounting practices or principles used by it;
(h) except in the ordinary course of business, settle or compromise any
pending or threatened suits, actions or claims in a manner obligating the
Company or any Subsidiary thereof to pay, or waiving amounts claimed by the
Company or any Subsidiary.
(i) authorize, recommend, propose, announce or adopt a plan of complete
or partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization (other than the transactions contemplated by the Transaction
Documents) or other reorganization;
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(j) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of liabilities reflected or reserved against in
the financial statements of the Company or incurred in the ordinary course of
business and consistent with past practice;
(k) enter into any Contract providing for the acceleration of payment
or performance or other consequences as a result of any of the transactions
contemplated by any Transaction Document;
(l) enter into any new non-insurance related business; or
(m) take, or offer or propose to take, or agree to any of the actions
described in this Article V.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Exclusivity.
(a) In consideration of the expenditure of time, effort and expense to
be undertaken by Purchaser in connection with the preparation of this Agreement
and the other Transaction Documents, and the investigations and review of the
business of the Company and the Subsidiaries, the Company agrees that, prior to
the Termination Date, neither it, any of the Subsidiaries, any of their
respective Affiliates, nor any of the respective directors, officers, employees,
agents or representatives of any of the foregoing will, directly or indirectly:
(a) solicit or discuss with any potential third party buyer any proposals with
respect to the issuance, sale or other disposition, however effected, to any
potential third party buyer of any Equity Securities of the Company or any
Subsidiary or, other than in the ordinary course of business, any assets of the
Company or any Subsidiary (any such transaction or proposed transaction, a
"Competing Transaction"); (b) provide any information relating to or in
connection with any Competing Transaction to any potential third party buyer; or
(c) disclose publicly or disclose to any potential third party buyer the fact
that the Company or any Subsidiary is, or any of their Equity Securities or,
other than in the ordinary course of business, assets are for sale or
disposition generally. The Company agrees to promptly advise Purchaser in
writing of the existence of (i) any inquiries or proposals (or desire to make a
proposal) received by (or indicated to), any information requested from, or any
negotiations or discussions sought to be initiated or continued with, the
Company, the Subsidiaries, their respective Affiliates, or any of the respective
directors, officers, employees, agents or representatives of the foregoing, in
each case from any party with respect to a Competing Transaction, and (ii) the
terms thereof, including the identity of such party (and any other real party in
interest, including the direct and indirect owners of such party). The Company
agrees, without limitation of its obligations, that any violation of this
Section 6.1 by any directors, officers, or other management personnel of the
Company and/or any Subsidiary whether or not such Person is purporting to act on
behalf of the Company or by any investment banker, financial advisor, attorney
or other advisor, consultant, agent or representative of the Company, the
Subsidiaries and their respective
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Affiliates, acting upon the authority and with the knowledge of the Company,
shall be deemed to be a breach of this Section 6.1 by the Company.
(b) Nothing in this Agreement shall prevent the Company and the board
of directors of the Company from complying with Rule 14e-2 under the Exchange
Act, or issuing a communication meeting the requirements of Rule 14d-9(e) under
the Exchange Act, with respect to any tender offer or otherwise prohibit the
Company from making any public disclosures required by law or the requirements
of the American Stock Exchange (provided, whenever practicable, the Company
first consults with Purchaser concerning the timing and content of such
disclosure).
6.2 Access to Information. Purchaser is entitled to continue its due
diligence investigation of the Company and the Subsidiaries, including without
limitation, any business, legal, financial or environmental due diligence as
Purchaser deems appropriate. The Company will permit Purchaser and its
authorized representatives, accountants, attorneys, advisors and consultants
full access to the Company's and the Subsidiaries' property and all records and
other data with respect to the Company, the Subsidiaries, and their respective
properties, assets, operations, and products and services, as is reasonably
requested, and will provide such assistance as is reasonably requested.
Purchaser is entitled to contact and communicate with employees, legal advisors
and accountants of the Company and the Subsidiaries.
6.3 Form 8-K. Within five days after the date hereof, the Company shall
provide a draft of the Form 8-K to Purchaser for Purchaser's review and comment
with respect to the information contained therein relating to Purchaser, this
Agreement or the transactions contemplated hereby, and promptly after receiving
Purchaser's comments thereon, file the final version of the Form 8-K with the
SEC.
6.4 Filings. As promptly as practicable after the date of this
Agreement, the Company and Purchaser shall make or cause to be made all other
filings and submissions under laws and regulations applicable to the Company and
Purchaser, if any, as may be required for the consummation of the transactions
contemplated by this Agreement. Purchaser and the Company shall coordinate and
cooperate in exchanging such information and providing such reasonable
assistance as may be requested by any of them in connection with the filings and
submissions contemplated by this Section 6.4.
6.5 Stockholders' Meeting. The Company acting through the Board,
shall, in accordance with applicable law:
(a) as soon as practicable, give notice of, convene and hold an annual
or special meeting of its stockholders (the "Stockholders' Meeting") for the
purpose of considering and taking action upon each of the Proxy Proposals;
(b) include in the proxy statement (the "Proxy Statement") to be
distributed to the Company's stockholders in connection with the Proxy
Proposals, including any amendments or supplements thereto (which Proxy
Statement shall be in form and content reasonably satisfactory to Purchaser),
the recommendation of the Board that the stockholders of the Company vote in
favor of the approval of each of the Proxy Proposals;
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(c) (i) obtain and furnish the information required to be included by
it in the Proxy Statement and respond promptly to any comments made by the SEC
with respect to the Proxy Statement and any preliminary version thereof and
cause the Proxy Statement to be mailed to its stockholders at the earliest
practicable time, and (ii) obtain the necessary approvals by its stockholders of
the Proxy Proposals;
(d) cause the Proxy Statement (i) not to contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading (other than with respect
to information concerning Purchaser provided by Purchaser in writing to the
Company specifically to be included in the Proxy Statement), and (ii) to comply
as to form in all material respects with the applicable provisions of the
Exchange Act and the rules and regulations thereunder; and
(e) immediately upon approval of the Proxy Proposals by the
stockholders of the Company, file the Charter Amendment with the Secretary of
State of the State of Delaware and take, or cause to be taken, all action and to
do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to adopt and make effective the Proxy Proposals.
6.6 Agreement to Cooperate; Further Assurances. Subject to the terms
and conditions of this Agreement, each of the parties hereto shall use all
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement and the other Transaction Documents, including providing
information and using reasonable efforts to obtain all necessary or appropriate
waivers, consents and approvals, and effecting all necessary registrations and
filings, including, without limitation, in the case of Purchaser, all Purchaser
Insurance Filings and Consents, and in the case of the Company, all Required
Consents. In case at any time after the Closing Date any further action is
necessary or desirable to transfer any Shares, the Warrant or the Warrant Shares
to Purchaser or otherwise to carry out the purposes of this Agreement and the
other Transaction Documents, the Company and Purchaser shall execute such
further documents and shall take such further action as shall be necessary or
desirable to effect such transfer and to otherwise carry out the purposes of
this Agreement and the other Transaction Documents, in each case to the extent
not inconsistent with applicable law or the Company's Certificate of
Incorporation.
6.7 Public Announcements. Any public announcement made by or on behalf
of either Purchaser or the Company prior to the termination of this Agreement
pursuant to Article VIII hereof concerning this Agreement, the transactions
described herein or in any other Transaction Document or any other aspect of the
dealings heretofore had or hereafter to be had between the Company and Purchaser
and their respective Affiliates must first be approved in writing by the other
(any such approval not to be unreasonably withheld), subject to the Company's
obligations under applicable law or AMEX rules and listing requirements as a
public company (but the Company shall use its best efforts to consult with
Purchaser as to all such public announcements). A copy of the press release to
be issued upon the execution of this Agreement is attached hereto as Exhibit
6.7.
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6.8 Notification of Certain Matters. The Company shall promptly provide
Purchaser (or its counsel) with copies of all filings made by the Company with
the SEC, any other Governmental Entity or AMEX in connection with this
Agreement, the other Transaction Documents and the transactions contemplated
hereby and thereby.
6.9 Representations and Warranties. The Company shall give prompt
notice to Purchaser, and Purchaser shall give prompt notice to the Company, of
(a) any representation or warranty made by such party contained in this
Agreement that is qualified as to materiality becoming untrue or inaccurate in
any respect or any such representation or warranty that is not so qualified
becoming untrue or inaccurate in any material respect prior to the Closing or
(b) the failure by such party prior to Closing to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by such party under this Agreement; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
6.10 Purchaser Insurance Filings and Consents. Purchaser shall, as soon
as practicable and in accordance with all applicable laws, (i) file all required
filings, applications and notices in connection with the required Purchaser
Insurance Filings and Consents with the applicable Governmental Entities, (ii)
prosecute the same, (iii) upon reasonable request by the Company, furnish copies
of all such filings to the Company to the extent providing said copies to the
Company would not in the good faith judgment of Purchaser materially prejudice
Purchaser, and (iv) update the Company, from time to time, as to the status of
any such filings.
ARTICLE VII
CONDITIONS TO CLOSING
7.1 Conditions to Obligation of Each Party. The respective obligations
of each party to effect the transactions contemplated by this Agreement shall be
subject to the satisfaction at or prior to the Closing Date of the following
conditions:
(a) No temporary restraining order, preliminary or permanent injunction
or other order or decree by any court of competent jurisdiction which prevents
the consummation of the transactions contemplated by this Agreement or the other
Transaction Documents or imposes material conditions with respect thereto shall
have been issued and remain in effect (each party agreeing to use its reasonable
efforts to have any such injunction, order or decree lifted);
(b) No action shall have been taken, and no statute, rule or regulation
shall have been enacted, by any Governmental Entity which would prevent the
consummation of the transactions contemplated by this Agreement or the other
Transaction Documents or impose material conditions with respect thereto; and
(c) No action or proceeding shall be pending against the Company or
Purchaser before any court of competent jurisdiction to prohibit, restrain,
enjoin or restrict the consummation of the transactions contemplated by this
Agreement or the other Transaction Documents.
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(d) All orders, consents and approvals of Governmental Entities
(including, without limitation, the consents of any Insurance Regulator
specified in the Purchaser Insurance Filings and Consents), legally required for
the consummation of the transactions contemplated by this Agreement or the other
Transaction Documents shall have been obtained and be in effect at the Closing
Date.
7.2 Condition to Obligations of the Company. The obligation of the
Company to effect the transactions contemplated by this Agreement shall be
subject to the fulfillment at or prior to the Closing Date of the following
additional condition:
(a) Purchaser shall have performed in all material respects all
obligations by it required to be performed at or prior to the Closing Date, and
the representations and warranties of Purchaser contained in this Agreement
shall be true and correct in all material respects (if not qualified by
materiality) and true and correct (if so qualified) on and as of the date of
this Agreement and at and as of the Closing Date as if made at and as of the
Closing Date, except to the extent that any such representation or warranty
expressly relates to another date (in which case, as of such date) and the
Company shall have received a certificate signed on behalf of Purchaser by an
executive officer thereof, to such effect;
(b) All consents, approvals, authorizations and permits of, actions by,
filing with or notifications to, Governmental Entities and third parties
required in connection with the transactions contemplated by this Agreement and
the other Transaction Documents shall have been obtained, taken or made; and
(c) Each of the Proxy Proposals shall have received Stockholder
Approval.
7.3 Conditions to Obligations of Purchaser. The obligations of
Purchaser to effect the transactions contemplated by this Agreement shall be
subject to the fulfillment at or prior to the Closing Date of the following
additional conditions:
(a) The Company shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the Closing Date, and the representations and warranties of the Company
contained in this Agreement shall be true and correct in all material respects
(if not qualified by materiality) and true and correct (if so qualified) on and
as of the date of this Agreement and at and as of the Closing Date as if made at
and as of the Closing Date, except to the extent that any such representation or
warranty expressly relates to another date (in which case, as of such date) and
Purchaser shall have received a certificate from the Company signed by an
executive officer), to such effect;
(b) All consents, approvals, authorizations and permits of, actions by,
filings with or notifications to, Governmental Entities and third parties
required in connection with the transactions contemplated by this Agreement and
the other Transaction Documents shall have been obtained, taken or made;
(c) The Company and each current Company stockholder who is to be made
a party thereto shall have executed and delivered to Purchaser the Investment
Agreement, and such Investment Agreement shall be in full force and effect; and
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(d) Each of the Proxy Proposals shall have received Stockholder
Approval, and the Charter Amendment shall have been filed with the Delaware
Secretary of State and be shall be effective.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated and the transactions
contemplated by this Agreement may be abandoned at any time prior to the Closing
Date:
(a) By mutual written consent of Purchaser and the Company;
(b) By Purchaser, upon notice to the Company, if (i) the Company shall
not have mailed the Proxy Statement to the Company's stockholders by June 15,
1999, or (ii) the Closing shall not have occurred on or before the sixtieth
(60th) day following the mailing of the Proxy Statement, unless the absence of
such occurrence shall be due to (i) the failure of the Stockholders to approve
the Proxy Proposals at the Stockholders' Meeting, or (ii) the failure of
Purchaser to perform in all material respects each of its obligations under this
Agreement required to be performed by it at or prior to the Closing.
(c) By Purchaser (i) if there has been a material breach by the Company
of any representation, warranty, covenant or agreement set forth in this
Agreement (other than the covenant set forth in Section 6.1 hereof), which
breach has not been cured within ten (10) business days following receipt by the
breaching party of notice of such breach; (ii) if there has been a material
breach by the Company of any covenant set forth in Section 6.1 hereof (including
due to the act or omission of any directors, officers, or other management
personnel of the Company and/or any Subsidiary whether or not such Person is
purporting to act on behalf of the Company or by any investment banker,
financial advisor, attorney or other advisor, consultant, agent or
representative of the Company, the Subsidiaries and their respective Affiliates,
acting upon the authority and with the knowledge of the Company) provided,
however, that in the event Purchaser has knowledge of any such material breach,
Purchaser has notified the Company in writing of such breach and such breach has
not been cured (to the extent such breach is curable) within 48 hours of receipt
of such notice; (iii) if the Board fails to recommend, or revokes or otherwise
modifies its recommendation of, the Proxy Proposals or resolves to do so, or
(iv) if the Company enters into a definitive agreement concerning a Competing
Transaction;
(d) By the Company, upon notice to Purchaser, if the Closing shall not
have occurred on or before the sixtieth (60th) day following the mailing of the
Proxy Statement, unless the absence of such occurrence shall be due to the
failure of the Company to perform in all material respects each of its
obligations under this Agreement required to be performed by it at or prior to
the Closing;
(e) By Purchaser or the Company, upon notice to the other, if the
Company's stockholders fail to adopt each of the Proxy Proposals at the
Stockholders' Meeting.
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(f) By Purchaser or the Company, if (i) the Board of Directors of the
Company shall withdraw, modify or change its approval or recommendation of the
Proxy Proposals in a manner adverse to Purchaser or shall have resolved to do
so; or (ii) the Board of Directors of the Company shall have recommended to the
stockholders of the Company a Competing Transaction;
(g) By the Company, if there has been a material and intentional breach
by Purchaser of any representation, warranty, covenant or agreement set forth in
this Agreement which breach has not been cured within ten (10) business days
following receipt by the breaching party of notice of such breach;
(h) By the Company, in event that Purchaser fails to consummate the
transactions contemplated by this Agreement in accordance with its terms and
such failure constitutes an intentional breach of this Agreement by Purchaser.
8.2 Termination Fees and Expenses Payable to Purchaser or the
Company.
(a) Notwithstanding any provision to the contrary contained in this
Agreement, in the event that Purchaser terminates this Agreement pursuant to
Section 8.1(b), 8.1(c), 8.1(d), or 8.1(f), hereof (provided the Company is not
entitled to terminate this Agreement pursuant to Section 8.1(h) hereof), or if
the Company terminates this Agreement other than pursuant to Section 8.1(d),
8.1(g) or 8.1(h) hereof (provided Purchaser is not entitled to terminate this
Agreement pursuant to Section 8.1(b), 8.1(c), 8.1(d), or 8.1(f), hereof), then
the Company shall immediately pay to Purchaser an amount equal to (a) One
Million Dollars ($1,000,000), plus (ii) all documented out-of-pocket costs and
expenses (including attorneys' fees and expenses), not to exceed $250,000 in the
aggregate, reasonably incurred by Purchaser and their Affiliates in connection
with this Agreement and the other Purchaser Transaction Documents, with the One
Million Dollars to be paid concurrently with such termination of this Agreement,
and the expense amount under clause (ii) above to be paid within five (5)
business days after receipt by the Company of reasonably detailed evidence of
the same. Upon receipt of such payments, Purchaser shall not be entitled to and
shall be deemed to have waived the right to seek Damages or remedies from the
Company for breach of, or otherwise in connection with, this Agreement.
Notwithstanding any provision to the contrary contained in this Agreement, in
the event that Purchaser terminates this Agreement pursuant to Section 8.1(e)
hereof, then the Company shall immediately pay to Purchaser an amount equal to
all documented out-of-pocket costs and expenses (including attorneys' fees and
expenses), not to exceed $250,000 in the aggregate, reasonably incurred by
Purchaser and their Affiliates in connection with this Agreement and the other
Purchaser Transaction Documents, with the expense amount to be paid within five
(5) business days after receipt by the Company of reasonably detailed evidence
of the same. Notwithstanding anything to the contrary in this Section 8.2, the
Company shall not be obligated to pay the One Million Dollar fee referred to
above or any out-of-pocket costs and expenses of Purchaser in the event that
this Agreement is terminated pursuant to Section 8.1(b) because any of the
conditions to Closing specified in Section 7.1, Section 7.2(b), or Section
7.3(b) have not been satisfied or waived (except, with respect to Section 7.1,
Section 7.2(b) and Section 7.3(b), where the failure to obtain the consents,
approvals, authorizations and permits of, actions by, filings with or
notifications to, Governmental Entities and third parties referred to in said
Section 7.1, Section 7.2(b) and Section 7.3(b) shall be due to the failure by
the Company to perform in all material respects each of its obligations under
this Agreement required to be performed by the Company prior to the Closing).
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(b) Notwithstanding any provision to the contrary contained in this
Agreement, in the event that the Company terminates this Agreement pursuant to
Section 8.1(g) or 8.1(h) hereof (provided Purchaser is not entitled to terminate
this Agreement pursuant to Section 8.1(b), 8.1(c), 8.1(d), or 8.1(f) hereof)
then Purchaser shall immediately pay to the Company an amount equal to (i) One
Million Dollars ($1,000,000), plus (ii) all documented out-of-pocket costs and
expenses (including attorneys' fees and expenses), not to exceed $250,000 in the
aggregate, reasonably incurred by the Company and its Affiliates in connection
with this Agreement and the other Company Transaction Documents, with the One
Million Dollars ($1,000,000) to be paid concurrently with such termination of
this Agreement, and the expense amount under clause (ii) above to be paid within
five (5) business days after receipt by the Company of reasonably detailed
evidence of the same. Upon receipt of such payments, the Company shall not be
entitled to and shall be deemed to have waived the right to seek Damages or
remedies from Purchaser for breach of, or otherwise in connection with, this
Agreement.
8.3 Other Remedies. Notwithstanding any provision to the contrary
contained in this Agreement, if this Agreement is terminated pursuant to Article
VIII or otherwise by the Company, on the one hand, or Purchaser, on the other
hand, and the non-terminating party is not entitled to receive the payments
described in Section 8.2, then the non-terminating party shall be entitled to
pursue any available legal rights to recover Damages.
ARTICLE IX
INDEMNIFICATION
9.1 General. From and after the Closing, the parties shall indemnify
each other as provided in this Article IX. No specifically enumerated
indemnification obligation with respect to a particular subject matter as set
forth below shall limit or affect the applicability of a more general
indemnification obligation as set forth below with respect to the same subject
matter. For the purposes of this Article IX, each party shall be deemed to have
remade all of its representations, warranties and covenants contained in this
Agreement at the Closing with the same effect as if originally made at the
Closing. No Person which may be subject to an indemnification obligation under
this Article IX shall be entitled to require that any action be brought against
any other Person before action is brought against it hereunder by a Person
seeking indemnification by such Person.
9.2 The Company's Indemnification Obligations. The Company shall
indemnify, save and keep harmless Purchaser, its Affiliates and their respective
officers, directors, employees, agents, representatives, successors and
permitted assigns (collectively, "Purchaser Indemnitees") against and from all
Damages sustained or incurred by any of them resulting from or arising out of or
by virtue of any inaccuracy in, breach of or other failure to comply with any
representation, warranty or covenant made by the Company in this Agreement or
any other Company Transaction Document. A claim for indemnification under this
Section 9.2 must be asserted by notice delivered to the Company within one year
after the Closing Date (such one year period, hereinafter the "Survival Date").
Notwithstanding anything to the contrary in this Agreement, no investigation or
lack of investigation by Purchaser shall in any way limit the Company's
indemnification obligations hereunder. The Purchaser Indemnification shall not
be entitled to recover any amount hereunder until the total amount which the
Purchaser
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Indemnitee would be entitled to recover hereunder, but for this
sentence, exceeds $100,000, and then only for the excess over $100,000.
9.3 Purchaser's Indemnification Obligations. Purchaser shall indemnify,
save and keep harmless the Company, its Subsidiaries and Affiliates and their
respective officers, directors, employees, agents, representatives, successors
and permitted assigns against and from all Damages sustained or incurred by any
of them resulting from or arising out of or by virtue of any inaccuracy in or
breach of any representation and warranty made by Purchaser to the Company in
this Agreement or in any other Purchaser Transaction Document. A claim for
indemnification under this Section 9.3 must be asserted by notice delivered to
the party from whom indemnification is sought no later than the Survival Date,
provided however, that notwithstanding the foregoing, any such claim resulting
from, arising out of or by virtue of any inaccuracy in or breach of the
representation made in Section 4.11(b) hereof, must be asserted by notice
delivered to Purchaser at any time (including after the Survival Date) within
three (3) months after the Company has actual knowledge of such breach.
ARTICLE X
DEFINITIONS
"AMEX" means the American Stock Exchange.
"Affiliate" shall mean, with respect to any person, any other person
that directly or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with such first person. As used in this
definition, "control" (including, with correlative meanings, "controlled by" and
"under common control with") shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of management or policies, whether
through the ownership of securities or partnership or other ownership interests,
by contract or otherwise.
"Agency Agreement" means all agreements whereby the Company or any of
its Insurance Subsidiaries has empowered any independent agent with the
authority to bind it to any insurance or reinsurance contract or any amendment
or endorsement thereto, whether known as or acting as managing general agent or
otherwise, including, without limitation, that certain Agency Agreement, dated
as of March 15, 1993, by and between National American Insurance Company of
California and SCJ Insurance Services.
"Board" has the meaning given it in Section 3.5 hereof.
"Charter Amendment" means an amendment to the Company's Certificate of
Incorporation, in form and content acceptable to Purchaser, (i) increasing the
number of authorized shares of Common Stock from 20,000,000 to 55,000,000 and
(ii) eliminating the right to cumulative voting in connection with the election
of directors.
"Closing" has the meaning given it in Section 2.1 hereof.
"Closing Date" has the meaning given it in Section 2.1 hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
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"Common Stock" means the common stock, $.10 par value per share, of the
Company.
"Company Transaction Document" has the meaning given it in Section 3.5
hereof.
"Competing Transaction" has the meaning given it in Section 6.1(a)
hereof.
"Contract" means any contract, agreement, commitment, indenture, lease,
note, bond, mortgage, license, plan, arrangement or understanding, whether
written or oral.
"Damages" means all liabilities, demands, claims, actions or causes of
action, regulatory, legislative or judicial proceedings or investigations,
assessments, levies, losses, fines, penalties, damages, costs and expenses,
including, without limitation, reasonable attorneys', accountants',
investigators', and experts' fees and expenses, sustained or incurred in
connection with the defense or investigation of any of the foregoing.
"Employment, Consulting or Severance Agreements" means all oral and
written (i) agreements for the employment for any period of time whatsoever, or
in regard to the employment, or restricting the employment, of any employee of
the Company or any Subsidiary, (ii) consulting, independent contractor or
similar agreements, and (iii) policies, agreements, arrangements or
understandings relating to the payment or provision of severance, termination or
similar pay or benefits to any present or former employees, officers, directors,
consultants, independent contractors or other agents of the Company or any
Subsidiary.
"Environmental Laws" means all federal, state and local statutes,
regulations, ordinances, rules, regulations and policies, all court orders and
decrees and arbitration awards, and the common law, which pertain to
environmental matters or contamination of any type whatsoever.
"Environmental Permits" means licenses, permits, registrations,
governmental approvals, agreements and consents which are required under or are
issued pursuant to Environmental Laws.
"Equity Securities" means, with respect to the Company or any
Subsidiary, as the case may be, (i) any class or series of common stock,
preferred stock or other capital stock, whether voting or non-voting, including,
without limitation, with respect to the Company, Common Stock and Preferred
Stock, (ii) any other equity securities issued by the Company or such
Subsidiary, as the case may be, whether now or hereafter authorized for issuance
by the Company's or such Subsidiary's, as the case may be, Certificate of
Incorporation, (iii) any debt, hybrid or other securities issued by the Company
or such Subsidiary, as the case may be, which are convertible into, exercisable
for or exchangeable for any other Equity Securities, whether now or hereafter
authorized for issuance by the Company's or such Subsidiary's, as the case may
be, Certificate of Incorporation, (iv) any equity equivalents (including,
without limitation, stock appreciation rights, phantom stock or similar rights),
interests in the ownership or earnings of the Company or such Subsidiary, as the
case may be, or other similar rights, (v) any written or oral rights, options,
warrants, subscriptions, calls, preemptive rights, rescission rights or other
rights to subscribe for, purchase or otherwise acquire any of the foregoing,
(vi) any written or oral obligation of the Company or such Subsidiary, as
the case may be, to issue, deliver or sell, any of the foregoing, (vii) any
written or oral obligations of the Company or such Subsidiary, as
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the case may be, to repurchase, redeem or otherwise acquire any Equity
Securities, and (viii) any bonds, debentures, notes or other indebtedness
of the Company or such Subsidiary, as the case may be, having the right to
vote (or convertible into, or exchangeable for securities having the right to
vote) on any matters on which the stockholders of the Company or such
Subsidiary, as the case may be, may vote.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Form 8-K" shall mean a Current Report on Form 8-K disclosing this
Agreement and the transactions contemplated hereby.
"Fully Diluted Common Stock" means the total number of shares of Common
Stock outstanding after taking into account the following: (i) all shares of
Common Stock outstanding (exclusive of the Shares); (ii) all Shares and Warrant
Shares (assuming full exercise of the Warrant and issuance of all Warrant
Shares); (iii) all shares of Common Stock issuable upon conversion, exchange or
other exercise of the Company's Equity Securities outstanding; and (iv)
adjustments needed to account or adjust for stock splits, stock dividends,
recapitalizations, recombinations and similar events.
"GAAP" means United States generally accepted accounting principles.
"Governmental Entity" means any court, administrative agency or
commission or other governmental authority or instrumentality, whether domestic
(federal, state or local) or foreign.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"HSR Report" means the notification report required under the HSR Act.
"IRS" means the Internal Revenue Service.
"Insurance Regulators" means Governmental Entities charged with the
supervision of insurance companies or the sale or provision of insurance
policies.
"Insurance Reports" means all filings, statements, documents, and
reports required of insurance companies and their Affiliates by the insurance
laws, statutes, regulations, rules or policies of any Governmental Entities.
"Interim Financial Statements" has the meaning given it in Section 6.9
hereof.
"Investment Agreement" means that certain Investment Agreement, dated
as of even date herewith, among Purchaser, the Company and certain current
stockholders of the Company.
"knowledge" in the context of the phrase "to the knowledge" or "to the
best knowledge" of the Company and/or its Subsidiaries, or words or phrases of
similar import, includes, without limitation, the knowledge of any officers,
directors or other management personnel of the Company and/or any Subsidiary,
and the knowledge of any of them is imputed to the Company and each Subsidiary.
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"Lien" means any preemptive or similar rights of any third party,
purchase options, calls, proxies, voting trusts, voting agreements, judgments,
pledges, charges, assessments, levies, escrows, rights of first refusal or first
offer, transfer restrictions, mortgages, indentures, claims, liens, equities,
mortgages, deeds of trust, deeds to secure debt, security interests and other
encumbrances of every kind and nature whatsoever, whether arising by agreement,
operation of law or otherwise, other than any created by (i) Purchaser or the
Purchaser Transaction Documents, (ii) the Certificate of Incorporation of the
Company, or (iii) federal and state securities laws, rules and regulations.
"Material Adverse Effect" means a material adverse effect (or any
development which could reasonably be expected to have a material adverse
effect) on the business, operations, assets, financial or other condition,
results of operations or prospects of the Company and the Subsidiaries, taken as
a whole, or that could reasonably be expected to impair or delay the ability of
the Company to perform its obligations under this Agreement, whether or not
required by GAAP to be provided for or reserved against on a balance sheet
prepared in accordance with GAAP.
"Material Contracts" has the meaning given it in Section 3.17 hereof.
"Organizational Documents" has the meaning given it in Section 3.2
hereof.
"Parachute Payment" means any Severance Payment constituting a
"parachute payment" within the meaning of Section 280G(b)(2) of the Code and the
regulations issued thereunder.
"Permit" means any permit, certificate, consent, approval,
authorization, order, license, variance, franchise or other similar indicia of
authority issued or granted by any Governmental Entity.
"Person" or "person" means any individual, corporation, partnership,
limited liability partnership, limited liability company, joint venture,
association, joint stock company, trust, unincorporated organization or
Governmental Entity, or any agency or political subdivision thereof, or any
other entity.
"Preferred Stock" means the preferred stock, $.10 par value per share,
of the Company.
"Proxy Proposals" means the following proposals to be included in the
Proxy Statement for Stockholder Approval: (i) the election to the Board of the
individuals designated in accordance with Section 1.1 of the Investment
Agreement; and (ii) the Charter Amendment.
"Proxy Statement" has the meaning given it in Section 6.4(b) hereof.
"Purchase Price has the meaning given it in the recitals to this
Agreement.
"Purchaser Indemnitees" has the meaning given it in Section 6.2 hereof.
"Purchaser Insurance Filings and Consents" has the meaning given it in
Section 3.9(f) hereof.
"Purchaser Insurance Regulation" has the meaning given to it in Section
3.9(f) hereof.
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"Purchaser Transaction Documents" has the meaning given it in Section
4.2 hereof.
"Required Consent" has the meaning given it in Section 3.9(i) hereof.
"SAP" means statutory accounting practices prescribed or permitted by
Insurance Regulators.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Laws" has the meaning given it in Section 4.11 hereof.
"SEC" means the Securities and Exchange Commission.
"SEC Documents" has the meaning given it in Section 3.9 hereof.
"Severance Payment" means any termination, severance or similar payment
or benefit, including without limitation any such payment or benefit as would
constitute a Parachute Payment, to which any present or former employee,
officer, director, consultant, independent contractor or other agent of the
Company or any Subsidiary might be entitled pursuant to any Employment,
Consulting or Severance Agreement or otherwise, which entitlement results from
the Company's execution and delivery of this Agreement or the other Company
Transaction Documents or the consummation of the transactions contemplated
hereby or thereby, whether taken alone or taken together with any other action
or failure to act by Purchaser, the Company or any Subsidiary or any of their
respective officers, directors, employees, agents or other representatives.
"Shares" has the meaning given it in the recitals to this Agreement.
"Stockholder Approval" means the requisite approval of the Company's
stockholders under the Company's Organizational Documents, the Delaware General
Corporation Law for the Proxy Proposals and the rules, regulations and notices
of AMEX or other applicable stock exchanges.
"Stockholders' Meeting" has the meaning given it in Section 6.4(a).
"Subsidiary" means each of (i) National American Insurance Company of
California, a California corporation, (ii) Mission American Insurance Company, a
California corporation, (iii) Danielson Indemnity Company, a Missouri
corporation, (iv) Danielson Reinsurance Corporation, a Missouri corporation, (v)
Danielson Insurance Company, a California corporation, (vi) Danielson National
Insurance Company, a California corporation, (vii) KCP Holding Company, a
Delaware corporation, (viii) Kramer Capital Consultants, Inc., a New York
corporation, (ix) Danielson Mortgage Corporation, a Delaware corporation, (x)
Danielson Advisers, Inc., a Delaware corporation, (xi) Danielson Investments,
Inc., a Delaware corporation, (xii) Mission Sub D, Inc., a Delaware corporation,
(xiii) Mission Sub E, Inc., a Delaware corporation, (xiv) Valor Insurance
Company, Inc., a Montana corporation, (xv) Great River Insurance Company, a
California corporation, (xvi) Viscount Insurance Services, Inc., a California
corporation, (xvii) NAICC Insurance Services, Inc., a California corporation,
and (viii) Victory Insurance Services, Inc., a Montana corporation, all of which
are identified on Schedule 3.3(d) hereto.
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"Subsidiary Reinsurance Agreements" means all presently in force
reinsurance arrangements and treaties, and all addenda thereto, to which any
Subsidiary is a party.
"Survival Date" has the meaning given it in Section 9.2 hereof.
"Taxes" means all federal, state, local and foreign taxes, duties,
fees, levies, governmental charges or other assessments of any kind (whether
imposed directly or through withholding), including any interest, additions to
tax or penalties applicable thereto.
"Tax Return" means all federal, state, local and foreign tax returns,
declarations, statements, reports, schedules, forms and information returns and
any amendment to any of the foregoing.
"Termination Date" means the earlier of (i) the Closing Date, or (ii)
the date on which the Agreement is terminated pursuant to Article VIII.
"Transaction Document" means any Company Transaction Document and any
Purchaser Transaction Document.
"Warrant" has the meaning given it in the recitals to this Agreement.
"Warrant Shares" has the meaning given it in the recitals to this
Agreement.
"Year 2000 Compliant" means that the "Company's Technology" (as
hereinafter defined), is designed to be used prior to, during and after the
calendar year 2000 A.D., and that the Company's Technology used during each such
time period will: (i) accurately receive, provide and process date/time data
including, but not limited to, calculating, comparing, and sequencing from, into
and between the twentieth and twenty-first centuries, including the years 1999
and 2000, and leap-year calculations, provided that the provider's date/time
data is delivered in a Year 2000 Compliant Manner and (ii) will not malfunction,
cease to function, or provide incorrect results as a result of date/time data.
"Technology" shall mean computer software, computer firmware, computer hardware,
computer chip embedded equipment and other similar or related items of
automated, computerized, or software system(s) or equipment. The "Company's
Technology" shall mean all Technology owned, licensed, used or relied on by the
Company and/or any Subsidiary in the conduct of its business.
ARTICLE XI
MISCELLANEOUS
11.1 Notices. All notices, and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by documented
overnight delivery service or, to the extent receipt is confirmed, facsimile, to
the appropriate address or facsimile number set forth below (or at such other
address or facsimile number for a party as shall be specified by like notice):
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if to Purchaser:
c/o Samstock, L.L.C.
Two N. Riverside Plaza, Suite 600
Chicago, IL 60606
Attention: Bill Pate
Fax: (312) 559-1280
with an additional copy to:
Rosenberg & Liebentritt, P.C.
Two N. Riverside Plaza, Suite 1600
Chicago, IL 60606
Attention: President
Fax: (312) 454-0335
if to the Company:
Danielson Holding Corporation
767 Third Avenue
New York, NY 10017
Attention: David M. Barse
Fax: (212) 888-6704
with a copy to:
Danielson Holding Corporation
767 Third Avenue
New York, NY 10017
Attention: Ian M. Kirschner
Fax: (212) 735-0003
11.2 Expenses. Except as otherwise provided in this Agreement, the
Company shall bear all fees and expenses incurred by the Company or any
Subsidiary in connection with, relating to or arising out of the execution,
delivery and performance of this Agreement and the other Company Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby, including attorneys', accountants' and other professional fees and
expenses. Purchaser shall bear all fees and expenses incurred by Purchaser in
connection with, relating to or arising out of the execution, delivery and
performance of this Agreement and the other Purchaser Transaction Documents and
the consummation of the transactions contemplated hereby and thereby, including
attorneys', accountants' and other professional fees and expenses.
11.3 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in
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an acceptable manner to the end that the transactions contemplated hereby are
fulfilled to the fullest extent possible
11.4 Entire Agreement; Amendment; Waiver; Assignment; Nature of
Obligations. This Agreement, together with the other Transaction Documents,
constitutes the entire agreement among the parties with respect to the subject
matter hereof and thereof and supersedes all prior agreements and undertakings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof and thereof. No amendment, supplement, modification or
waiver of this Agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision of this
Agreement, whether or not similar, nor shall such waiver constitute a continuing
waiver unless otherwise expressly provided. This Agreement shall not be assigned
by operation of law or otherwise.
11.5 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
rights, benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
11.6 Publicity. Neither the Company nor Purchaser will make or issue,
or cause to be made or issued, any announcement or written statements concerning
the Transaction Documents or the transactions contemplated thereby for
dissemination to the general public without the prior written consent of the
Company or Purchaser, as appropriate, which consent shall not be unreasonably
withheld. This provision will not apply to any announcement or written statement
required to be made by law or the regulations of the SEC or AMEX, except that
the party required to make such announcement will, whenever practicable, consult
with the other parties hereto concerning the timing and content of such
announcement before such announcement is made.
11.7 Governing Law. This Agreement shall be governed and controlled as
to validity, enforcement, interpretation, construction, effect and in all other
respects by the internal laws of the State of Delaware applicable to contracts
made in that State.
11.8 Headings. The descriptive headings contained in this Agreement are
included for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
11.9 Interpretation. Unless the context requires otherwise, all words
used in this Agreement in the singular number shall extend to and include the
plural, all words in the plural number shall extend to and include the singular,
and all words in any gender (including neutral gender) shall extend to and
include all genders.
11.10 Counterparts. This Agreement may be executed in two or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
11.11 Jurisdiction and Service of Process. THE COMPANY AND PURCHASER
HEREBY CONSENT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT
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LOCATED WITHIN THE STATE OF DELAWARE AND IRREVOCABLY AGREE THAT, SUBJECT
TO THE OTHER PROVISIONS OF THIS AGREEMENT, ALL ACTIONS OR PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT WHICH MAY BE LITIGATED SHALL BE
LITIGATED IN SUCH COURTS. EACH OF THE COMPANY AND PURCHASER ACCEPTS FOR
SUCH PARTY AND IN CONNECTION WITH SUCH PARTY'S PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE
BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT.
EACH OF THE COMPANY AND PURCHASER AGREES TO ACCEPT SERVICE OF ALL PROCESS BY
REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, IN ANY SUCH
PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY EACH
SUCH PARTY TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. IF ANY AGENT
APPOINTED BY THE COMPANY, OR PURCHASER REFUSES TO ACCEPT SERVICE, SUCH PARTY
HEREBY AGREES THAT SERVICE UPON SUCH PARTY BY MAIL SHALL CONSTITUTE SUFFICIENT
NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE COMPANY OR PURCHASER
TO BRING PROCEEDINGS AGAINST THE COMPANY OR PURCHASER IN THE COURTS OF ANY
OTHER JURISDICTION.
11.12 Trial. EACH OF THE COMPANY AND PURCHASER HEREBY WAIVES SUCH
PARTY'S RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THE PARTIES HERETO
RELATING TO THE SUBJECT MATTER HEREOF. EACH OF THE COMPANY AND PURCHASER ALSO
WAIVES ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS
WAIVER, BE REQUIRED OF ANY PARTY TO THIS AGREEMENT WITH RESPECT TO ANY ACTION
COMMENCED BY ONE OF THEM AGAINST THE OTHER OF THEM. THE SCOPE OF THIS WAIVER IS
INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY
COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING
WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW AND STATUTORY CLAIMS. EACH OF THE COMPANY AND PURCHASER
ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS
AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED
FUTURE DEALINGS. EACH OF THE COMPANY AND PURCHASER FURTHER WARRANTS AND
REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH SUCH PARTY'S LEGAL
COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES SUCH PARTY'S JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT. IN THE EVENT OF LITIGATION, THIS AGREEMENT
MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
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IN WITNESS WHEREOF, Purchaser and the Company have executed this Stock
Purchase and Sale Agreement as of the date first above written.
PURCHASER:
SAMSTOCK, L.L.C.
Donald J. Liebentritt
----------------------------------------
By: Donald J. Liebentritt, Vice President
COMPANY:
DANIELSON HOLDING CORPORATION
David Barse
---------------------------------------
By: David Barse, President and
Chief Operating Officer
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EXHIBIT A
---------
Stock Warrant No. ______
THIS WARRANT AND THE SECURITIES THAT MAY BE ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES ACT AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
REGISTRATION OR EXEMPTION THEREFROM OR AS OTHERWISE PROVIDED IN THIS WARRANT.
THE EXERCISE OF THIS WARRANT MAY BE SUBJECT TO THE FILING OF A NOTIFICATION
REPORT UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS
AMENDED, AND THE EXPIRATION OF OR TERMINATION OF THE APPLICABLE WAITING PERIOD
THEREUNDER.
DANIELSON HOLDING CORPORATION
Common Stock Warrant
Danielson Holding Corporation, a Delaware corporation (the "Company"),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Samstock, L.L.C., a Delaware
limited liability company ("Samstock"), or its permitted assigns under the terms
of this warrant (Samstock or such permitted assigns at the time being the
registered holder or holders hereof being hereinafter referred to as "Holder")
is entitled, subject to the terms set forth below, to purchase from the Company,
at a purchase price per share of $4.75 (as such amount may be adjusted from time
to time pursuant to Sections 1.5 or 3 hereof, the "Purchase Price"), at any time
or from time to time prior to 5:00 p.m., Eastern Standard Time, on the
Expiration Date, 2,000,000 fully paid and non-assessable shares of Common Stock,
$.10 par value per share, of the Company (the "Common Stock") (such shares of
Common Stock as the number and characterization of such shares may be adjusted
or otherwise modified from time to time pursuant to Sections 3 or 4, are herein
referred to as the "Warrant Shares").
Certain capitalized terms not otherwise defined herein shall have the
meanings set forth in Section 6 hereof.
Section 1 EXERCISE OF WARRANT.
1.1 Exercise. This Warrant may be exercised by Holder, in whole or in
part (but not for less than 100,000, subject to pro rata adjustment for any
subdivision of Common Stock or the payment of any dividend in shares of Common
Stock, of the Warrant Shares issuable under this Warrant, or the remaining
Warrant Shares, if less than such amount), at any time and from time to time
prior to 5:00 p.m., Eastern Standard Time, on the Expiration Date, by surrender
of this Warrant, together with a subscription substantially in the form of
Exhibit A attached to this Warrant (or a reasonable facsimile thereof) duly
executed by Holder, to the Company at its principal office and accompanied by
payment in full, in cash or by check payable to the order of
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the Company (or in the manner provided in Section 1.2 hereof), in the amount
of the aggregate Purchase Price for the Warrant Shares covered by such
exercise.
1.2 Cashless Exercise. In lieu of exercising this Warrant pursuant to
Section 1.1 above, the Holder shall have the right at any time and from time to
time prior to 5:00 p.m., Eastern Standard Time, on the Expiration Date to
exercise this Warrant, in whole or in part, by requiring the Company to convert
all or any part of this Warrant (the "Conversion Right"), into Warrant Shares by
surrendering this Warrant to the Company accompanied by the form conversion
notice (substantially in the form attached hereto as Exhibit B, or a reasonable
facsimile thereof) which has been duly completed and signed. Upon exercise of
the Conversion Right, the Company shall deliver to the Holder (without payment
by the Holder of any cash in respect of the Purchase Price) that number of
Warrant Shares which is equal to the amount obtained by dividing (x) an amount
equal to the difference between (A) the Current Market Price Per Share
multiplied by the number of Warrant Shares as to which the Conversion Right is
then being exercised (the "Conversion Shares"), determined as of immediately
prior to the effective time of the exercise of the Conversion Right, minus (B)
the aggregate Purchase Price then applicable to the Conversion Shares (such
difference, the "Conversion Amount"), by (y) the Current Market Price Per Share
of one share of Common Stock determined as of immediately prior to the effective
time of the exercise of the Conversion Right. Upon exercise of the Conversion
Right, the Conversion Amount shall be deemed to have been paid to the Company in
respect of the Warrant Shares so acquired. Any references in this Warrant to the
"exercise" of this Warrant, and the use of the term "exercise" herein, shall be
deemed to include, without limitation, any exercise of the Conversion Right. In
the event this Warrant is not exercised in full, the Warrant Shares shall be
reduced by the number of Warrant Shares subject to such partial exercise, and
the Company, at its expense, shall forthwith issue and deliver to Holder a new
Warrant of like tenor in the name of Holder, reflecting such adjusted Warrant
Shares.
1.3 When Exercise Effective. Each exercise of this Warrant shall be
deemed to have been effected immediately prior to the close of business on the
Business Day on which this Warrant (together with the applicable subscription
and Purchase Price) shall have been surrendered to the Company as provided in
Section 1.1 or 1.2 hereof, and at such time the Person or Persons in whose name
or names any certificate or certificates for shares of Common Stock (or Other
Securities) shall be issuable upon such exercise as provided in Section 1.4
shall be deemed to have become the holder or holders of record thereof. The
warrant or warrants surrendered upon exercise thereof shall thereafter be
canceled and of no further force or effect.
1.4 Delivery of Stock Certificates, etc. As soon as practicable after
each exercise of this Warrant, in whole or in part, the Company at its expense
(including the payment by it of any and all applicable issue taxes but excluding
any applicable transfer taxes) will issue and deliver to Holder: (a) a
certificate or certificates (or an escrow receipt in lieu thereof as may be
required under Section 5.2 of the Company's Certificate of Incorporation), in
such name or names as such Holder may designate, for the number of duly
authorized, validly issued, fully paid and non-assessable shares of Common Stock
to which Holder shall be entitled on such exercise, plus, in lieu of any
fractional share to which such holder would otherwise be entitled, cash in an
amount equal to the same fraction of the Current Market Price Per Share
determined as of the Business Day preceding the date of such exercise, and (b)
in case such exercise is for less than all the Warrant Shares issuable
hereunder, a new Warrant representing such Warrant or Warrants remaining
hereunder in substantially the form of this Warrant.
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1.5 Reduction of Purchase Price for A&E Deficiency. If on the date of
any exercise pursuant to Section 1.1 or 1.2 above (determined in accordance with
Section 1.3 hereof) the Company does not have in effect an Excess of Loss Policy
and there exists an A&E Deficiency, then the Purchase Price applicable to such
exercise shall be automatically reduced as follows (the "Price Reduction"):
(a) If the A&E Deficiency is:
(i) greater than $5,000,000 but less than or equal to
$10,000,000, the Purchase Price shall be reduced by an amount
determined by dividing (x) 40.8% of the amount by which the A&E
Deficiency exceeds $5,000,000, by (y) the initial number of Warrant
Shares represented by the original Warrant (taking into account any
adjustment pursuant to Sections 3 and 4 hereof);
(ii) greater than $10,000,000, the Purchase Price shall be
reduced by an amount determined by dividing (x) an amount equal to the
sum of (A) 20.4% of the amount by which the A&E Deficiency exceeds
$10,000,000 plus (B) $2,040,000 by (y) the initial number of Warrant
Shares represented by the original Warrant (taking into account any
adjustment pursuant to Sections 3 and 4 hereof);
(b) If the Holder has previously exercised a portion of the Warrant,
then the Purchase Price shall, in addition to any reduction pursuant to
subsection (a) above, be further reduced by an amount determined by dividing (x)
the excess, if any, of (A) the Price Reduction calculated pursuant to subsection
(a) above multiplied by the aggregate number of Warrant Shares issued upon all
prior exercises of the Warrant over (B) the Aggregate Price Reduction, by (y)
the total number of Warrant Shares to which the current exercise relates.
(c) Notwithstanding the foregoing, the Price Reduction shall be applied
only to the extent that it does not cause the Purchase Price to be reduced below
the lower of (x) $3.00, which amount shall be adjusted proportionately with any
adjustment in the Purchase Price pursuant to Section 3 hereof, or (y) the
Current Market Price Per Share as of the date of such adjustment.
(d) The Price Reduction is independent of and in addition to any
adjustment required by Section 3 hereof, is applicable only to the particular
exercise to which such Price Reduction relates and shall not affect any future
calculations except to the extent that a Price Reduction increases Aggregate
Price Reduction.
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Section 2 CERTAIN OBLIGATIONS OF THE COMPANY.
2.1 Reservation of Stock. The Company covenants that it will at all
times reserve and keep available, free from preemptive rights, solely for
issuance and delivery upon exercise of this Warrant, the number of shares of
Common Stock (or Other Securities) from time to time issuable upon exercise of
this Warrant. In furtherance of and not in limitation of the foregoing, the
Company will from time to time, in accordance with the laws of its state of
incorporation, take all necessary action to increase and maintain the authorized
amount of its Common Stock (or Other Securities) if at any time the number of
shares of Common Stock authorized but remaining unissued and unreserved for
other purposes shall be insufficient to permit the full exercise of this
Warrant.
2.2 Status of Warrant Shares; Corporate Actions. The Company covenants
that all Warrant Shares, upon issuance in accordance with the terms of this
Warrant Agreement and the Company's Certificate of Incorporation, as amended
from time to time (the "Certificate of Incorporation"), shall be fully paid and
nonassessable and free from all taxes with respect to the issuance thereof
(other than income taxes, if any, related to ordinary income attributable to the
Holder) and from all liens, charges and security interests other than transfer
restrictions contained in the Company's Certificate of Incorporation. The
Company will not, by amendment of its Certificate of Incorporation or through
any consolidation, merger, reorganization, transfer of assets, dissolution,
issuance or sale of securities or any other voluntary action or omission, avoid
or seek to avoid the observance or performance of any of the terms of this
Warrant. Without limiting the generality of the foregoing, the Company (a) will
not permit the par value or the determined or stated value of any shares of the
Common Stock receivable upon the exercise of this Warrant to exceed the amount
payable therefor upon such exercise and (b) will take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of the Common Stock (or Other Securities)
upon the exercise of this Warrant, including, without limitation, amending the
Certificate of Incorporation.
2.3 Maintenance of Office. The Company will maintain an office where
presentations and demands to or upon the Company in respect of this Warrant may
be made. The initial location of such office shall be at 767 Third Avenue, New
York, NY 10017. The Company will give notice in writing to Holder in accordance
with Section 11 hereof of each change in the location of such office.
2.4 Use of Proceeds. The Company agrees that proceeds paid to the
Company from any Holder's exercise of the Warrant shall be retained as direct
assets of the Company and such proceeds shall not be transferred or attributed
in any way, directly or indirectly, to any insurance subsidiary of the Company.
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Section 3 ADJUSTMENT OF PURCHASE PRICE.
3.1 General; Purchase Price. The number of shares of Common Stock which
the holder of this Warrant shall be entitled to receive upon each exercise
hereof shall be determined by multiplying the number of shares of Common Stock
which would otherwise (but for the provisions of this Section 3) be issuable
upon such exercise, as designated by the holder hereof pursuant to Section 1
hereof, by the fraction of which (a) the numerator is $4.75, and (b) the
denominator is the Purchase Price in effect on the date of such exercise. The
"Purchase Price" shall initially be $4.75 per share, shall be adjusted and
readjusted from time to time as provided in this Section 3 and, as so adjusted
or readjusted, shall remain in effect until a further adjustment or readjustment
thereof is required by this Section 3.
3.2. Issuance of Additional Shares of Common Stock. In case the Company
at any time or from time to time after the date hereof shall issue or sell
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section 3.3 or 3.4 hereof) without consideration
or for a consideration per share less than the Purchase Price in effect
immediately prior to such issue or sale, then, and in each such case, such
Purchase Price shall be reduced, concurrently with such issue or sale, to a
price (calculated to the nearest .001 of a cent) determined by multiplying such
Purchase Price by a fraction,
(i) the numerator of which shall be (A) the number of
shares of Common Stock outstanding immediately prior to such
issue or sale plus (B) the number of shares of Common Stock
which the aggregate consideration received by the Company for
the total number of such Additional Shares of Common Stock so
issued or sold would purchase at the Purchase Price in effect
immediately prior to such sale; and
(ii) the denominator of which shall be the number of
shares of Common Stock outstanding immediately after such
issue or sale, provided that, for the purposes of this Section
3.2, (A) immediately after any Additional Shares of Common
Stock are deemed to have been issued pursuant to Section 3.3
or 3.4 hereof, such Additional Shares of Common Stock shall be
deemed to be outstanding, and (B) treasury shares shall not be
deemed to be outstanding.
3.3. Treatment of Options and Convertible Securities. In case the
Company at any time or from time to time after the date hereof shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities entitled to receive, any Options or
Convertible Securities, then, and in each such case, the maximum number of
Additional Shares of Common Stock (as set forth in the instrument relating
thereto, without regard to any provisions contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in the
case of Convertible Securities and options therefor, issuable upon the
conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue, sale,
grant or assumption or, in case such a record date shall have been fixed, as of
the close of business on such record date (or, if the Common Stock trades on an
ex-dividend basis, on the date prior to the commencement of ex-dividend
trading); provided that such Additional Shares of Common Stock shall not be
deemed to have been issued unless the consideration per share (determined
pursuant to Section 3.5 hereof) of such shares would be less than the Purchase
Price in effect on the date of and immediately prior to such issue, sale, grant
or assumption or
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immediately prior to the close of business on such record date (or, if the
Common Stock trades on an ex-dividend basis, on the date prior to the
commencement of ex-dividend trading), as the case may be; and, provided,
further, that in any such case in which Additional Shares of Common Stock are
deemed to be issued:
(a) no further adjustment of the Purchase Price shall be made
upon the subsequent issue or sale of Convertible Securities or shares of Common
Stock upon the exercise of such Options or the conversion or exchange of such
Convertible Securities, except in the case of any such Options or Convertible
Securities which contain provisions requiring an adjustment, subsequent to the
date of the issue or sale thereof, of the number of Additional Shares of Common
Stock issuable upon the exercise of such Options or the conversion or exchange
of such Convertible Securities by reason of (i) a change of control of the
Company or (ii) the acquisition by any Person or group of Persons of any
specified number or percentage of the Voting Securities of the Company;
(b) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of Additional
Shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof (by change of rate or otherwise), the Purchase Price computed upon the
original issue, sale, grant or assumption thereof (or upon the occurrence of the
record date, or date prior to the commencement of ex-dividend trading, as the
case may be, with respect thereto), and any subsequent adjustments based
thereon, shall, upon any such increase or decrease becoming effective, be
recomputed to reflect such increase or decrease insofar as it affects such
options, or the rights of conversion or exchange under such Convertible
Securities, which are outstanding at such time;
(c) upon the expiration (or purchase by the Company and
cancellation or retirement) of any such Options which shall not have been
exercised or the expiration of any rights of conversion or exchange under any
such Convertible Securities which (or purchase by the Company and cancellation
or retirement of any such Convertible Securities the rights of conversion or
exchange under which) shall not have been exercised, the Purchase Price computed
upon the original issue, sale, grant or assumption thereof (or upon the
occurrence of the record date, or date prior to the commencement of ex-dividend
trading, as the case may be, with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration (or such cancellation or
retirement, as the case may be), be recomputed as if:
(i) in the case of Options for Common Stock or Convertible
Securities, the only Additional Shares of Common Stock issued or sold
were the Additional Shares of Common Stock, if any, actually issued or
sold upon the exercise of such Options or the conversion or exchange of
such Convertible Securities and the consideration received therefor was
the consideration actually received by the Company for the issue, sale,
grant or assumption of all such Options, whether or not exercised, plus
the consideration actually received by the Company upon such exercise,
or for the issue or sale of all such Convertible Securities which were
actually converted or exchanged, plus the additional consideration, if
any, actually received by the Company upon such conversion or exchange;
and
(ii) in the case of Options for Convertible Securities, only
the Convertible Securities, if any, actually issued or sold upon the
exercise of such Options were issued
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at the time of the issue, sale, grant or assumption of such Options,
and the consideration received by the Company for the Additional
Shares of Common Stock deemed to have then been issued was the
consideration actually received by the Company for the issue, sale,
grant or assumption of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Company
(pursuant to Section 3.5 hereof) upon the issue or sale of such
Convertible Securities with respect to which such Options were
actually exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above
shall have the effect of increasing the Purchase Price by an amount in excess of
the amount of the adjustment thereof originally made in respect of the issue,
sale, grant or assumption of such Options or Convertible Securities; and
(e) in the case of any such Options which expire by their
terms not more than 30 days after the date of issue, sale, grant or assumption
thereof, no adjustment of the Purchase Price shall be made until the expiration
or exercise of all such Options, whereupon such adjustment shall be made in the
manner provided in subdivision (c) above.
3.4. Treatment of Stock Dividends, Stock Splits, etc. In case the
Company at any time or from time to time after the date hereof shall declare or
pay any dividend on the Common Stock payable in Common Stock, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, with respect to any
adjustment of the Purchase Price pursuant to Section 3.2, Additional Shares of
Common Stock shall be deemed to have been issued (a) in the case of any such
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or (b) in the case of any such subdivision, at the close of business
on the day immediately prior to the day upon which such corporate action becomes
effective.
3.5 Computation of Consideration. For the purposes of this
Section 3:
(a) the consideration for the issue or sale of any
Additional Shares of Common Stock shall, irrespective of the accounting
treatment of such consideration,
(i) insofar as it consists of cash, be computed at
the net amount of cash received by the Company, (without
deducting any expenses paid or incurred by the Company or any
commissions or compensations paid or concessions or discounts
allowed to underwriters, dealers or others performing similar
services in connection with such issue or sale);
(ii) insofar as it consists of property (including
securities) other than cash, be computed at the fair value
thereof at the time of such issue or sale, as determined in
good faith by the Board of Directors of the Company; and
(iii) in case Additional Shares of Common Stock are
issued or sold together with other stock or securities or
other assets of the Company for a consideration which covers
both, be the portion of such consideration so received,
computed as provided in clauses (i) and (ii) above, allocable
to such
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Additional Shares of Common Stock, all as determined
in good faith by the Board of Directors of the Company.
(b) Additional Shares of Common Stock deemed to have been
issued pursuant to Section 3.3, relating to Options and Convertible Securities,
shall be deemed to have been issued for a consideration per share determined by
dividing
(i) the total amount, if any, received and receivable
by the Company as consideration for the issue, sale, grant or
assumption of the Options or Convertible Securities in
question plus the aggregate amount of additional consideration
(as set forth in the instruments relating thereto, without
regard to any provision contained therein for a subsequent
adjustment of such consideration to protect against dilution)
payable to the Company upon the exercise in full of such
Options or the conversion or exchange of such Convertible
Securities or, in the case of Options for Convertible
Securities, the exercise of such options for Convertible
Securities and the conversion or exchange of such Convertible
Securities, in each case computing such consideration as
provided in the foregoing subdivision (a), by
(ii) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without
regard to any provision contained therein for a subsequent
adjustment of such number to protect against dilution)
issuable upon the exercise of such Options or the conversion
or exchange of such Convertible Securities.
(c) Additional Shares of Common Stock deemed to have been issued
pursuant to Section 3.4 hereof, relating to stock dividends, stock splits, etc.,
shall be deemed to have been issued for no consideration, unless and only to the
extent that consideration is actually paid therefor.
3.6. Adjustments for Combinations, etc. In case the outstanding shares
of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Purchase Price in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
Section 4 RECLASSIFICATION, CONSOLIDATION, MERGER, ETC. In the case of (A) any
capital reorganization, reclassification or other change of outstanding Common
Stock (or Other Securities) (other than those referred to in Section 3.4 hereof
and other than a change in par value), or (B) any consolidation of the Company
with any other corporation or any merger of the Company into another corporation
or of another corporation into the Company (other than a consolidation or merger
in which the Company is the continuing or surviving corporation and which does
not result in any reclassification of, or change (other than a change in par
value, or as a result of a subdivision or combination to which Section 3.4
hereof is applicable) in, the outstanding Common Stock (or Other Securities)),
or (C) any sale or transfer to another Person (other than by mortgage or pledge)
of all or substantially all of the properties and assets of the Company, each
Warrant shall from and after such event or transaction be exercisable upon the
terms and conditions specified in this Warrant, for the number of shares of
stock or other securities or assets to which the Holder (at the time of the
transaction or event) upon
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exercise of this Warrant would have been entitled upon such transaction or
event as if such Holder exercised this Warrant in full immediately prior to
such transaction or event and in any such case, if necessary, the
provisions set forth in this Section 4 with respect to the rights thereafter of
the Holder shall be appropriately adjusted so as to be applicable, as nearly as
may be possible, to any shares of stock or other securities or assets
thereafter deliverable on the exercise of the Warrant; provided, that any such
resulting or surviving corporation or purchaser, as the case may be, in any such
transaction, shall expressly assume, by delivery of a written instrument
delivered to the Company and the Holder prior to consummation of the transaction
in question, the obligation to deliver, upon the exercise of the Warrant, such
shares, securities or property as the Holder of the Warrant or other securities
received by the Holder in place thereof, shall be entitled to receive pursuant
to the provisions hereof, and to make provisions for the protection of the
exercise rights as above provided.
Section 5 NOTICE OF CERTAIN EVENTS.
If at any time:
(a) the Company shall declare any dividend or distribution payable to
the holders of its Common Stock (whether payable in cash, Common Stock or other
consideration);
(b) the Company shall offer for subscription or issuance pro rata to
the holders of its Common Stock any additional shares of stock of any class;
(c) there shall be any capital reorganization of the Company, any
recapitalization or reclassification of the capital stock of the Company, or
consolidation or merger involving the Company, or any sale or transfer of all or
substantially all of the Company's assets to any other Person;
(d) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company as a whole or substantially as a whole in a single
transaction or a series of related transactions; or
(e) there shall be any other event which would or may require
adjustment of at least 1% of the Purchase Price or the Warrant Shares pursuant
to Section 3 or 4 hereof,
then, in any one or more of such cases, the Company shall give Holder written
notice of the date on which a record shall be taken for such dividend,
distribution or subscription rights or for determining stockholders entitled to
vote upon such reorganization, recapitalization, reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up
and of the date, if determined, when any such transaction shall take place, as
the case may be. If and to the extent applicable, such notice shall also specify
the date as of which the holders of Common Stock of record shall participate in
such dividend, distribution or subscription rights or shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such recapitalization, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be. Such notice shall be given at least 30 days
before the earliest date required to be specified therein in accordance with
this subparagraph, shall describe the proposed transaction in reasonable detail
and shall specify the consideration to be received by the holders of Common
Stock in respect thereto and/or any adjustment which would be made to the number
of Warrant Shares obtainable upon the exercise of this Warrant as a result of
such
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transaction; provided, however, that the Company shall be obligated to give only
ten 10 days prior notice with respect to the following events: (i) any
event the occurrence of which would give rise to an adjustment pursuant to the
provisions of Section 3 or (ii) any regularly-scheduled dividend or distribution
which, individually or as a policy, has been previously publicly announced. The
Company shall also furnish to each Holder all notices and materials furnished to
its stockholders in connection with such transaction as and when such notices
and materials are furnished to its stockholders.
Section 6 DEFINITIONS.
As used herein, the following terms, unless the context otherwise
requires, have the following respective meanings:
6.1 The term "Additional Shares of Common Stock" shall mean all shares
(including treasury shares) of Common Stock issued or sold (or, pursuant to
Section 3.3 or 3.4 hereof, deemed to be issued) by the Company after the date
hereof, whether or not subsequently reacquired or retired by the Company, other
than: (a) shares issued upon the exercise of this Warrant; (b) options and
shares issued upon the exercise of options outstanding on the date hereof or to
be granted under any Company stock option plan or stock purchase plan as in
effect on the date hereof or under any other employee or director stock option
or purchase plan or plans adopted or assumed after such date and which have been
duly approved and adopted by a vote of the stockholders of the Company; (c) such
additional number of shares as may become issuable upon the exercise of any of
the securities referred to in the foregoing clauses (a) or (b), by reason of
adjustments required pursuant to anti-dilution provisions applicable to such
securities as in effect on the date hereof, but only if and to the extent that
such adjustments are required as the result of the original issuance of the
Warrants; (d) such additional number of shares as may become issuable upon the
exercise of any of the securities referred to in the foregoing clauses (a), (b),
or (c) by reason of adjustments required pursuant to anti-dilution provisions
applicable to such securities as in effect on the date hereof, in order to
reflect any subdivision or combination of Common Stock, by reclassification or
otherwise, or any dividend on Common Stock payable in Common Stock.
6.2 The term "A&E Deficiency" shall mean the amount by which the sum of
losses and loss adjustment expenses actually paid by the insurance company
subsidiaries of the Company in settlement of asbestos-related claims and
environmental-related claims between December 31, 1998, and the date of exercise
of the Warrant, plus the reserves for such losses and loss adjustment expenses
as of such exercise date, exceed the reserves established by such subsidiaries
for such losses and loss adjustment expenses (including reserves for losses that
have been incurred but which have not been reported) as of December 31, 1998.
6.3 The term "Aggregate Price Reduction" means the sum of all
reductions from the aggregate purchase price paid in connection with all prior
exercises, calculated in accordance with Section 1.5 hereof; provided that for
purposes of determining this amount, such reductions for cashless exercises
pursuant to Section 1.2 hereof shall be determined by multiplying the number of
Warrant Shares as to which the Conversion Right is then being exercised by the
Price Reduction applicable to such cashless exercise.
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6.4 The term "Business Day" means any day other than a Saturday or a
Sunday or a day on which commercial banking institutions in New York City are
authorized by law to be closed. Any reference to "days" (unless Business Days
are specified) shall mean calendar days.
6.5 The term "Charter Amendment" shall have the meaning ascribed to it
in the Purchase and Sale Agreement.
6.6 The term "Common Stock" shall have the meaning ascribed to it in
the introductory paragraph to this Warrant, provided that such term shall also
include any other securities or rights into which or for which the Common Stock
is converted or exchanged, whether pursuant to a plan of reclassification,
reorganization, consolidation, merger, sale of assets, dissolution, liquidation,
or otherwise.
6.7 The term "Convertible Securities" shall mean any evidence of
indebtedness, shares of stock (other than Common Stock) or other securities
directly or indirectly convertible into or exchangeable for Additional Shares of
Common Stock.
6.8 The term "Current Market Price Per Share" shall mean, with respect
to any of the Common Stock, as of any particular date of determination, the
average of the daily closing prices of the Common Stock as reported in The Wall
Street Journal or other reputable financial news source, for the 20 consecutive
trading days immediately preceding such date.
6.9 The term "Excess of Loss Policy" shall mean a policy of reinsurance
obtained by the insurance company subsidiaries of the Company, which reinsurance
policy shall limit the amount of the A&E Deficiency payable by such insurance
company subsidiaries to [$10,000,000.]
6.10 The term "Expiration Date" shall mean 5:00 p.m., Eastern Standard
Time, on ________________, 2003 [insert fourth anniversary of the Closing Date
under Purchase and Sale Agreement]; provided however that if on such date the
Purchase Price would be subject to adjustment pursuant to Section 1.5 herein if
the Warrant were then exercised, then the Expiration Date shall be extended
until _________, 2004 [insert fifth anniversary of the Closing Date under the
Purchase Agreement].
6.11 The term "Options" shall mean any and all rights, options or
warrants to subscribe for, purchase or otherwise acquire either Additional
Shares of Common Stock or Convertible Securities.
6.12 The term "Other Securities" shall mean any stock (other than
Common Stock) and other securities of the Company or any other Person (corporate
or otherwise) which the holders of this Warrant at any time shall be entitled to
receive, or shall have received, upon the exercise of this Warrant, in lieu of
or in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 hereof or otherwise.
6.13 The term "Person" shall mean an individual, corporation,
partnership, limited liability company, association, trust, joint venture,
unincorporated organization or any government, governmental department or agency
or political subdivision thereof.
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[6.14 The term "Price Reduction" shall have the meaning ascribed to
it in Section 1.5 hereof.]
6.15 The term "Purchase and Sale Agreement" shall mean that certain
Stock Purchase and Sale Agreement dated as of April 14, 1999 between the Company
and Holder.
6.16 The term "Voting Securities" shall mean stock of any class or
classes (or equivalent interests), if the holders of the stock of such class or
classes (or equivalent interests) are ordinarily, in the absence of
contingencies, entitled to vote for the election of the directors (or persons
performing similar functions) of such business entity, even though the right so
to vote has been suspended by the happening of such a contingency.
6.17 The term "Warrant" shall refer to this or any replacement Warrant
covering any Warrant Shares.
6.18 The term "Warrant Shares" shall have the meaning ascribed to it in
the introductory paragraph to this Warrant, provided that such term shall
include all Other Securities issuable from time to time upon exercise of this
Warrant in whole or in part.
Section 7 REPLACEMENT OF WARRANTS.
Upon surrender of this Warrant in mutilated form or receipt of evidence
satisfactory to the Company of the loss, theft or destruction of this Warrant,
then, the Company, at the Holder's expense, shall execute and deliver, in lieu
of and in replacement of this Warrant, a Warrant identical in form to this
Warrant.
Section 8 REMEDIES.
The Company stipulates that the remedies at law of the Holder in the
event of any breach or threatened breach by the Company of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a breach of any of the terms hereof
or otherwise. The Company hereby irrevocably waives, to the extent that it may
do so under applicable law, any defense based on the adequacy of a remedy at law
which may be asserted as a bar to the remedy of specific performance in any
action brought against the Company for specific performance of this Warrant by
the Holder. Such remedies and all other remedies provided for in this Warrant
shall, however, be cumulative and not exclusive and shall be in addition to any
other remedies which may be available under this Warrant.
Section 9 APPLICABILITY OF ARTICLE FIFTH OF CERTIFICATE OF
INCORPORATION; TRANSFER.
This Warrant and its direct and indirect owners are subject to all of
the restrictions set forth in Article Fifth of the Company's Certificate of
Incorporation and in Section 4.11(b) of the Purchase and Sale Agreement. Upon a
transfer in accordance with this Section 9, the Company at its expense
(excluding any applicable transfer taxes) shall execute and deliver, in lieu of
and in replacement of this Warrant, Warrants identical in form to this Warrant
and in such denominations as the transferring Holder shall request; provided
that, any such transferee, by
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<PAGE>
acceptance hereof, agrees to assume all of the obligations of Holder and be
bound by all of the terms and provisions of this Warrant.
Section 10 NOTICES.
Where this Warrant provides for notice of any event, such notice shall
be given (unless otherwise herein expressly provided) in writing and either (i)
delivered personally, (ii) sent by certified, registered or express mail or a
nationally recognized express courier, postage and other applicable charges
prepaid, (iii) sent by facsimile transmission, and shall be deemed given when so
delivered personally, sent by facsimile transmission (confirmed in writing) or
four days after being mailed. Notices shall be addressed, as follows:
if to Holder:
Samstock, L.L.C.
Two North Riverside Plaza
Suite 600
Chicago, IL 60606
Attention: Bill Pate
if to the Company:
Danielson Holding Corporation
767 Third Avenue
New York, NY 10017
Attention: General Counsel
provided, that the exercise of this Warrant shall be effective in the manner
provided in Section 1 hereof.
Section 11 SALE OF WARRANT OR SHARES.
Neither this Warrant nor the shares of Common Stock issuable upon
exercise hereof have been registered under the Securities Act of 1933, as
amended (the "Federal Act"), or under the securities laws of any state. Neither
this Warrant nor such shares, when issued, may be sold, transferred, pledged or
hypothecated in the absence of an effective registration statement for this
Warrant, or the shares, as the case may be, under the Federal Act, such
registration or qualification as may be necessary under the securities laws of
any state, an exemption from such registration or qualification requirements.
The certificate or certificates evidencing all or any of the shares issued upon
exercise of this Warrant shall bear the following legend:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or any state
securities act and may not be sold or transferred in the absence of
such registration or an exemption therefrom, or in the absence of
receipt by the issuer of an opinion of counsel reasonably satisfactory
to the issuer that the securities may be sold or transferred without
such registration. The securities represented by this
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<PAGE>
certificate are also subject to certain restrictions on transfer
contained in the issuer's Certificate of Incorporation."
This Warrant shall be registered on the books of the Company, which
shall be kept by it at its principal office for that purpose and shall be
transferable only on said books by the registered Holder's duly authorized
attorney upon surrender of this Warrant properly endorsed, and only in
compliance with the provisions of the preceding paragraph.
Section 12 NO DIVIDENDS OR VOTING RIGHTS.
No provision of this Warrant shall be construed as conferring upon the
Holder the right to receive dividends or to vote as a shareholder of the
Company, or as imposing any obligation on the Holder to purchase any securities
or as imposing any liabilities on such Holder as a stockholder of the Company,
whether such obligation or liabilities are asserted by the Company or by
creditors of the Company.
Section 13 MISCELLANEOUS.
This Warrant shall be binding upon the Company and Holder and their
legal representatives, successors and permitted assigns. In case any provision
of this Warrant shall be invalid, illegal or unenforceable, or partially
invalid, illegal or unenforceable, the provision shall be enforced to the
extent, if any, that it may legally be enforced and the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by a statement in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This Warrant shall be governed by, and construed and enforced in
accordance with, the laws of the State of Delaware without regard to its
principles of conflicts of laws. The headings in this Warrant are for purposes
of reference only, and shall not limit or otherwise affect any of the terms
hereof. This Warrant may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which constitute one and the same
instrument.
Section 14 JUDICIAL PROCEEDINGS; WAIVER OF JURY TRIAL. Any judicial proceeding
brought against the Company with respect to this Warrant may be brought in any
state or federal court of competent jurisdiction in the State of Delaware and,
by execution and delivery of this Agreement, the Company (a) accepts, generally
and unconditionally, the nonexclusive jurisdiction of such courts and any
related appellate court, and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Warrant, subject to any rights of
appeal, and (b) irrevocably waives any objection the Company may now or
hereafter have as to the venue of any such suit, action or proceeding brought in
such a court or that such court is an inconvenient forum. THE COMPANY HEREBY
WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY, OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY
WAY ARISING OUT OF, RELATED TO, OR CONNECTION WITH THIS WARRANT OR THE
RELATIONSHIP ESTABLISHED HEREUNDER.
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<PAGE>
IN WITNESS WHEREOF, the Company and the Holder have caused this Warrant
to be executed as an instrument under seal by a duly authorized officer and, in
the case of the Company, attested by its Secretary or Assistant Secretary.
Dated as of _______________, 1999
(Corporate Seal)
DANIELSON HOLDING CORPORATION
Attest:
_______________________ By:
___________________________
Secretary/Assistant Secretary Name:
Title:
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<PAGE>
EXHIBIT A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: DANIELSON HOLDING CORPORATION
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to receive thereunder, shares of Common
Stock of DANIELSON HOLDING CORPORATION (the "Company"), and herewith makes
payment of $_________ therefor, and requests that the certificates (or escrow
receipts therefor, in lieu thereof, if applicable) for such shares be issued in
the name of _________________________, and delivered to
_________________________ whose address is____________________________.
Dated:
_____________________________
(Signature must conform in all respects to
name of Holder as specified on the face of
the Warrant)
___________________________________
(Address)
_____________________
*Insert here the number of shares of Common Stock to which the Warrant is being
exercised (including partial exercise), and in any event without making any
adjustment for Additional Shares of Common Stock or any other stock or Other
Securities or property or cash which, pursuant to the adjustment provisions of
this Warrant, may be delivered upon exercise. In the case of partial exercise, a
new Warrant or Warrants will be issued and delivered, representing the
unexercised portion of the Warrant, to the holder of the surrendering Warrant.
<PAGE>
EXHIBIT B
FORM OF NOTICE OF CONVERSION
(To be executed upon conversion of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant delivered herewith, in accordance with Section 1.2 of
the Warrant, to convert the Warrant represented thereby into ___ shares of
Common Stock in accordance with the terms hereof. The undersigned requests that
a certificate (or escrow receipts therefor, in lieu thereof, if applicable) for
such shares of Common Stock be registered in the name of
___________________________ whose address is _____________________________ and
that such certificate be delivered to _______________________ whose address is
___________________. If said number of shares of Common Stock is less than all
of the Warrant Shares obtainable hereunder, the undersigned requests that a new
Warrant representing the remaining balance of the Warrant Shares be registered
in the name of ___________________________ whose address is
______________________________ and that such Warrant be delivered to
____________________________ whose address is ____________________________.
Signature:
_________________________________________________
(Signature must conform in all respects to name
of Holder as specified on the face of the Warrant.)
Date:_____________
AMENDMENT NO. 1, ASSIGNMENT AND CONSENT TO ASSIGNMENT OF
STOCK PURCHASE AND SALE AGREEMENT
AMENDMENT NO. 1, ASSIGNMENT AND CONSENT TO ASSIGNMENT OF STOCK PURCHASE
AND SALE AGREEMENT, dated May 7, 1999 (the "Amendment"), by and among Samstock,
L.L.C., a Delaware limited liability company ("Samstock"), Danielson Holding
Corporation, a Delaware corporation (the "Company") and SZ Investments, L.L.C.,
a Delaware limited liability company ("SZ") relating to the Stock Purchase and
Sale Agreement (the "Purchase Agreement"), dated as of April 14, 1998, by and
between Samstock and the Company. All capitalized terms not otherwise defined
herein shall have the meanings given such terms in the Purchase Agreement.
WHEREAS, Samstock is controlled by SZ, its sole limited liability
company member;
WHEREAS, pursuant to the Purchase Agreement, Samstock agreed to
purchase from the Company, and the Company agreed to sell to Samstock, the
Shares and the Warrant;
WHEREAS, Samstock and the Company desire to amend certain of the terms
and conditions set forth in the Purchase Agreement as provided in Section 11.4
of the Purchase Agreement;
WHEREAS, Samstock desires to assign to SZ (the "Assignment"), and SZ
desires to assume from Samstock (the "Assumption"), all of Samstock's rights,
duties, obligations and interest arising under the Purchase Agreement; and
WHEREAS, the Company desires to consent to the Assignment and the
Assumption.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Amendment. Samstock and the Company agree that the last
sentence of Section 11.4 of the Purchase Agreement is hereby amended and
restated in its entirety as follows:
"This Agreement may not be assigned by operation of law or otherwise,
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<PAGE>
without the prior written consent of each party hereto."
2. Assignment and Assumption. Samstock hereby assigns to SZ all of its
rights, obligations, duties, liabilities and interests arising under or relating
to the Purchase Agreement, as amended by this Amendment, and SZ hereby accepts
this Assignment from Samstock. Samstock shall be released from, and SZ shall
assume as its direct obligations as if SZ were the original party to the
Purchase Agreement with the Company, all of Samstock's rights, obligations,
duties, liabilities and interests arising under or relating to the Purchase
Agreement, as amended by this Amendment, and agrees to perform and discharge all
of Samstock's obligations, duties, and liabilities thereunder. The Assignment
and Assumption shall be effective as of the date hereof.
3. Consent to Assignment and Assumption. The Company hereby consents,
pursuant to Section 11.4 of the Purchase Agreement, as amended by this
Amendment, to the Assignment and Assumption as provided in the foregoing
paragraph and agrees that wherever the term "Samstock" and/or "Purchaser"
appears in the Purchase Agreement or the Exhibits thereto, it shall be deemed to
read and refer to SZ. The Company hereby fully, finally and forever waives,
releases and discharges Samstock from any and all claims, causes of action,
demands, suits, costs, liabilities, debts, expenses (including but not limited
to reasonable attorneys' fees) and damages, that it now may have, ever had, or
hereafter may acquire of whatsoever nature and kind, whether known or unknown,
whether now existing or hereafter arising, whether at law or in equity, in
contract, tort or otherwise, by statute or common law, arising out of the
Purchase Agreement.
4. Miscellaneous.
(a) Reaffirmation. Except as expressly modified hereby, the
Company and SZ hereby reaffirm each and every provision set forth in the
Purchase Agreement and, except as modified hereby, the Company and SZ
acknowledge and agree that each provision and obligation therein continues in
full force and effect. SZ hereby makes each of the representations and
warranties contained in Section 4 of the Agreement as of the date of the
Purchase Agreement. References to the "Agreement" in the Purchase Agreement
shall hereinafter be deemed to mean such Agreement as amended by this Amendment.
(b) Counterparts. This Amendment may be executed in one or
more counterparts, each of which shall be deemed an original but both of which
together will constitute one and the same instrument.
(c) Headings. The section headings contained in this Amendment
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Amendment.
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<PAGE>
(d) Governing Law; Jurisdiction; Process. This Amendment shall
be governed by and construed in accordance with the internal laws (and not the
laws of conflicts) of the State of Delaware.
(e) Parties in Interest. This Amendment shall be binding upon
and inure to the benefit of the parties hereto and their respective legal
representatives, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No.
1, Assignment and Consent to Assignment of Stock Purchase and Sale Agreement as
of the date first above written.
SAMSTOCK, L.L.C.
By: /s/ Donald J. Liebentritt
__________________________________
Name: Donald J. Liebentritt
Title: Vice President
SZ INVESTMENTS, L.L.C.
By: /s/ Donald J. Liebentritt
________________________________
Name: Donald J. Liebentritt
Title: Vice President
DANIELSON HOLDING CORPORATION
By: /s/ David Barse
________________________________
Name: David Barse
Title: President and
Chief Operating Officer
3
INVESTMENT AGREEMENT
Investment Agreement dated as of April 14, 1999, (as amended,
supplemented or otherwise modified from time to time, this "Agreement"), among
Danielson Holding Corporation, a Delaware corporation (the "Company"), Samstock,
L.L.C., a Delaware limited liability company ("Samstock"), and Martin J.
Whitman, individually ("Stockholder").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Stock Purchase and Sale Agreement,
dated as of the date hereof, between the Company and Samstock (the "Purchase
Agreement"), the Company has agreed to issue and sell to Samstock, and Samstock
has agreed to purchase from the Company, an aggregate of (i) 2,000,000 newly
issued shares (collectively, the "Shares") of the Company's Common Stock, par
value $.10 per share ("Common Stock"), and (ii) a warrant to purchase an
additional 2,000,000 shares of Common Stock. All capitalized terms used and not
defined herein shall have the meanings given to them in the Purchase Agreement.
WHEREAS, the Company, Samstock and the Stockholder are entering into
this Agreement concurrently with the execution of the Purchase Agreement, to
establish certain arrangements with respect to the relationships between them.
NOW, THEREFORE, intending to be legally bound, the parties
hereto agree as follows:
ARTICLE I
VOTING OF COMPANY SECURITIES AND RELATED MATTERS
1.1 Samstock and Stockholder Board Designees.
(a) Company and Stockholder hereby agree to take all action
within their power to cause, on or prior to the Closing Date, (i) two members of
the Company's Board of Directors acceptable to Samstock to resign, (ii) two of
the resigning members of the Company's Board of Directors to be replaced by
persons designated by Samstock who are reasonably acceptable to the Company (it
being agreed by the Company that Sam Zell, Rod F. Dammeyer and Bill Pate are
acceptable to the Company), and (iii) provided Sam Zell elects to serve as one
of Samstock's director designees, Sam Zell to be elected Chairman of the Board
of the Company (which Samstock acknowledges is a non-executive position). In
addition, concurrently therewith, Company and Stockholder hereby agree to take
all action within their power to cause to be formed an acquisition committee to
the Company's Board of Directors (the "Acquisition Committee") consisting of
four members to be comprised of Stockholder (who will serve as Chairman of the
Acquisition Committee), David Barse and the two Samstock director designees.
(b) So long as Samstock owns directly or indirectly at least
1,000,000 shares of Company Voting Securities (as adjusted in the event of stock
dividends, subdivisions or similar events) (i) Samstock shall have the right to
designate two directors to the Company's Board of Directors who are reasonably
acceptable to the Company (it being agreed that Sam
<PAGE>
Zell, Rod F. Dammeyer and Bill Pate are reasonably acceptable to the
Company); (ii) the Company and Stockholder shall take all necessary or
appropriate action to assist in the nomination and election as directors the
individuals so designated by Samstock; (iii) Stockholder shall vote all
Company Voting Securities now or hereafter owned of record by Stockholder
and shall cause all Company Voting Securities owned of record or beneficially
by him (other than any such shares which are owned beneficially or of record
by Whitman Hefferan & Rhein Workout Fund, L.P. or the Third Avenue Value
Fund, together, the "Funds") to be voted at any election of directors of
the Company in favor of the appointment as directors the individuals so
designated by Samstock; (iv) in the event that Sam Zell is so designated by
Samstock, the Company and Stockholder shall take all action necessary to
cause Sam Zell to be nominated to be appointed as Chairman of the Board of
Directors; and (v) the Company and Stockholder shall take all action
necessary to maintain the Acquisition Committee comprised of four individuals
including the two Samstock director designees. As used in this Agreement, the
term "Company Voting Securities" shall mean Common Stock and any other Equity
Securities entitled to vote generally for the election of directors. The Company
shall maintain in effect at all times directors' and officers' liability
insurance covering those persons who are designated to the Board of Directors
hereunder by Samstock on terms reasonably acceptable to Samstock, it being
agreed that the insurance in effect on the date of this Agreement is acceptable.
(c) So long as Stockholder and the Funds, (i) own directly or
indirectly collectively at least 500,000 shares of Voting Securities (as
adjusted in the event of stock dividends, subdivisions or similar events) and
(ii) Stockholder is affiliated with both Funds in the same or substantially
similar capacity in which Stockholder is affiliated as of the date hereof,
Samstock shall vote all Company Voting Securities now or hereafter owned
beneficially or of record by Samstock and shall cause all Company Voting
Securities owned beneficially or of record by it, to be voted at any election of
directors of the Company in favor of the appointment as directors each of,
Stockholder and an additional individual designated by Stockholder and
reasonably acceptable to Samstock.
1.2 Approval of Proxy Proposals. Stockholder agrees to vote all Company
Voting Securities now or hereafter owned of record or beneficially by him and
shall use his best efforts to cause all Company Voting Securities now or
hereafter owned beneficially by him, to be voted in favor of the Proxy
Proposals.
ARTICLE II
REGISTRATION RIGHTS
2.1 Definitions. For purposes of this Article II:
(a) The term "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act of 1933, as amended (the "Act").
(b) The term "Registrable Securities" means shares of Common Stock
held, from time to time, by Samstock.
(c) The term "Rule 415 Offering" means an offering on a delayed or
continuous basis pursuant to Rule 415 (or any successor rule to similar effect)
promulgated under the Act.
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<PAGE>
(d) The term "Shelf Registration Statement" means a registration
statement intended to effect a shelf registration in connection with a Rule 415
Offering.
2.2 Shelf Registrations and Piggy-Back Registrations.
(a) Upon the earlier of (i) the Company's Board of Directors
approving an acquisition proposal recommended by the Acquisition Committee or
(ii) the first anniversary of this Agreement, and provided Article Fifth of the
Company's Certificate of Incorporation does not prohibit the sale, pledging or
other disposition or transfer of the Registrable Securities, if the Company
shall at any time receive a written request from Samstock (or its designee) on
behalf of Samstock who are the holders of Registrable Securities that the
Company file a Shelf Registration Statement with respect to any Registrable
Securities, then, within sixty (60) days after the receipt of such request, the
Company shall prepare and file with the SEC a Shelf Registration Statement
(which shall include pledgees of any selling stockholder in the "plan of
distribution") with respect to such number of Registrable Securities which the
Holders request to be registered and use its reasonable efforts to cause such
Shelf Registration Statement to become effective and keep such Shelf
Registration Statement effective until such time as all such Registrable
Securities covered thereby have been sold or disposed of thereunder or sold,
transferred or otherwise disposed of (other than pursuant to a pledge of such
Registrable Securities) to a person that is not a Holder. Notwithstanding the
foregoing, if the Company shall furnish to Samstock a certificate signed by the
Chief Executive, Chief Operating, or Chief Financial Officer of the Company
stating that, in the good faith judgment of a majority of the Disinterested
Directors, it would be materially detrimental to the Company for such Shelf
Registration Statement to be filed, the Company shall have the right to defer
such filing for a period of not more than 120 days after receipt of the
Samstock's request; provided, however, that the Company may not utilize this
right more than twice in any 12-month period. Notwithstanding the foregoing,
Samstock and the Company agree that Samstock's right to request a Shelf
Registration and the Company's obligation to effect a Shelf Registration shall
terminate as of the earlier of (i) such time as Samstock no longer holds
Registrable Securities or (ii) such time as the Company has filed two (2) Shelf
Registration Statements at the request of Samstock (or its designee) and such
previously filed Shelf Registration Statements have been effective for the
period required under this Section 2.2(a).
(b) Piggyback Registration. If (but without any obligation to
do so) the Company proposes to register any of its Common Stock under the Act in
connection with the public offering of such Common Stock by the Company solely
for cash (other than a registration relating solely to the sale of securities to
participants in a dividend reinvestment plan, stock plan or employee benefit
plan; a registration relating solely to the issuance of securities to the
security holders of an acquired company in connection with an acquisition; or a
registration on any form which does not permit inclusion of selling
stockholders), or the Company proposes to register any of its securities on
behalf of a holder exercising demand registration rights, the Company shall, at
such time, promptly give Samstock written notice of such registration. Upon the
written request of Samstock given within 15 days after mailing of such notice by
the Company, the Company shall cause to be registered under the Act all of the
Registrable Securities that each Samstock has requested to be registered.
Notwithstanding anything to the contrary in this Section 2.2(b), in connection
with any offering involving an underwriting of shares being issued by the
Company, the Company shall not be required under this Section 2.2(b) to include
any of the Holders' Registrable Securities in such underwriting or the
registration statement relating thereto unless they accept the terms of the
underwriting as
3
<PAGE>
agreed upon between the Company and the underwriters selected by the Company.
If the total amount of securities, including Registrable Securities,
requested by Holders and other stockholders to be included in such offering
exceeds the amount of securities offered other than by the Company that the
underwriters reasonably believe can be offered without jeopardizing the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
which the underwriters believe will not jeopardize the success of the offering.
To achieve any necessary reduction in the securities to be sold, the securities
to be excluded from the offering shall first be selected (in each case, pro rata
among such class of holders according to the total amount of securities proposed
to be included in the registration statement or in such other proportions as
shall mutually be agreed to by such class of holders) in the following order
(subject to any contrary provisions in registration rights agreements executed
by the Company prior to the date hereof): (i) first, securities being included
on behalf of holders other than either Samstock or other holders of Registrable
Securities shall be excluded; (ii) next, if additional securities must be
excluded, Registrable Securities included pursuant to Section 2.2(b) shall be
excluded; (iii) finally, if additional securities must be excluded, securities
offered by the Company shall be excluded.
2.3 Additional Obligations of the Company. Whenever the Company has
filed a registration statement under this Article II, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to comply with the provisions of the Act with respect to the
disposition of all securities covered thereby.
(b) Furnish to the holders of Registrable Securities such numbers of
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities covered
by such registration statement owned by them.
(c) Use its best efforts to register and qualify the securities covered
by such registration statement under such other securities or Blue Sky laws of
such states or other jurisdictions as shall be reasonably requested by the
holders of Registrable Securities, provided that the Company shall not be
required to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions where it is not so subject.
(d) Notify each holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing, and then
use its best efforts to promptly correct such statement or omission.
Notwithstanding the foregoing and anything to the contrary set forth in this
Section 2.3, each holder of Registrable Securities acknowledges that the Company
shall have the right to suspend the use of the prospectus forming a part of a
registration statement if such offering would interfere with a pending corporate
transaction or for other reasons until such time as an amendment to the
registration
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<PAGE>
statement has been filed by the Company and declared effective by the SEC, or
until such time as the Company has filed an appropriate report with the SEC
pursuant to the Exchange Act. Each holder of Registrable Securities hereby
covenants that it will (a) keep any such notice strictly confidential, and (b)
not sell any shares of Common Stock pursuant to such prospectus during the
period commencing at the time at which the Company gives the holder of
Registrable Securities notice of the suspension of the use of such prospectus
and ending at the time the Company gives the holder of Registrable Securities
notice that it may thereafter effect sales pursuant to such prospectus. The
Company shall only be able to suspend the use of such prospectus for periods
aggregating no more than 90 days in respect of any registration.
(e) Use its best efforts to cause all Registerable Securities to be
listed on all securities exchanges on which similar securities issued by the
Company are then listed.
2.4 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Article II with
respect to the Registrable Securities of any selling holder of Registrable
Securities that such holder of Registrable Securities shall furnish to the
Company such information regarding itself, the Registrable Securities held by
it, and the intended method of disposition of such securities as shall be
required to effect the registration of such holder's Registrable Securities and
as may be required from time to time to keep such registration current.
2.5 Expenses of Registration. All expenses incurred by or on behalf of
the Company in connection with registrations, filings or qualifications pursuant
to Section 2.2, including, without limitation, all registration, filing and
qualification fees, printers' and accounting fees, and fees and disbursements of
counsel for the Company, shall be borne by the Company. In no event shall the
Company be obligated to bear any underwriting discounts or commissions or
brokerage fees or commissions relating to Registrable Securities or the fees and
expenses of counsel to the selling holders of Registrable Securities.
2.6 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Article II:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each holder and the affiliates of such holder, and their respective
directors, officers, general and limited partners, agents and representatives
(and the directors, officers, affiliates and controlling persons thereof), and
each other person, if any, who controls such holder within the meaning of the
Act, against any losses, claims, damages, or liabilities (joint or several) to
which they may become subject under the Act, the Exchange Act or other federal
or state law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus (but only if such
statement is not corrected in the final prospectus) contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading (but only if such omission is not
corrected in the final prospectus), or (iii) any violation or alleged violation
by the Company in connection with the registration of Registrable Securities
under the Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Act, the Exchange Act or any state securities
law; and the Company will pay to each such Holder, affiliate or controlling
5
<PAGE>
person, as incurred, any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section 2.5(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably withheld),
nor shall the Company be liable in any such case for any such loss, claim,
damage, liability or action to the extent that it arises out of or is based upon
a Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
any such holder or controlling person. Each indemnified party shall furnish such
information regarding itself or the claim in question as an indemnifying party
may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom.
(b) To the extent permitted by law, each selling holder of Registrable
Securities will indemnify and hold harmless the Company, each of its directors,
each of its officers who has signed the registration statement, each person, if
any, who controls the Company within the meaning of the Act, any underwriter,
any other holder selling securities in such registration statement and any
controlling person of any such underwriter or other holder, against any losses,
claims, damages or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such holder expressly
for use in connection with such registration; and each such holder will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this Section 2.5(b) in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this Section 2.5(b)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of such
holder, which consent shall not be unreasonably withheld; provided, that, in no
event shall any indemnity under this Section 2.5(b) exceed the gross proceeds
from the offering received by such holder.
(c) Promptly after receipt by an indemnified party under this Section
2.5 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 2.5, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties. The failure to deliver written notice to the
indemnifying party within a reasonable time after the commencement of any such
action, if materially prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 2.5 to the extent of such prejudice, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 2.5.
The indemnified party shall have the right, but not the obligation, to
participate in the defense of any action referred to above through counsel of
its own choosing and shall have the right, but not the obligation, to assert any
and all separate defenses, cross claims or counterclaims which it may have, and
the fees and expenses of such counsel shall be at the expense of such
6
<PAGE>
indemnified party unless (i) the employment of such counsel has been
specifically authorized in advance by the indemnifying party, (ii) there is a
conflict of interest that prevents counsel for the indemnifying party from
adequately representing the interests of the indemnified party or there are
defenses available to the indemnified party that are different from, or
additional to, the defenses that are available to the indemnifying party, (iii)
the indemnifying party does not employ counsel that is reasonably satisfactory
to the indemnified party within a reasonable period of time, or (iv) the
indemnifying party fails to assume the defense or does not reasonably contest
such action in good faith, in which case, if the indemnified party notifies the
indemnifying party that it elects to employ separate counsel, the indemnifying
party shall not have the right to assume the defense of such action on behalf of
the indemnified party and the reasonable fees and expenses of such separate
counsel shall be borne by the indemnifying party; provided, however, that, the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm (in addition to one firm acting as local
counsel) for all indemnified parties.
(d) The obligations of the Company and the holders under this Section
2.5 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Article II.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement (if
any) entered into in connection with any underwritten public offering of the
Registrable Securities are in conflict with the foregoing provisions, the
provisions in such underwriting agreement shall control.
2.6 Reports Under the Exchange Act. With a view to making available to
the holders of Registrable Securities the benefits of Rule 144 and any other
rule or regulation of the SEC that may at any time permit a holder to sell
securities of the Company to the public without registration or pursuant to a
registration on Form S-3, the Company agrees to:
(a) use its best efforts to make and keep public information available,
as those terms are understood and defined in Rule 144;
(b) use its best efforts to file with the SEC in a timely manner all
reports and other documents required under the Act and the Exchange Act; and
(c) furnish to any Holder forthwith upon request (i) a written
statement by the Company as to its compliance with the reporting requirements of
Rule 144, or as to whether it qualifies as a registrant whose securities may be
resold pursuant to Form S-3, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information (and the Company shall take such
action) as may be reasonably requested in availing any holder of Registrable
Securities of any rule or regulation of the SEC which permits the selling of any
such securities without registration or pursuant to such form.
2.7 No Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Article II may only
be assigned by a holder of Registrable Securities to a transferee or assignee of
any Registrable Securities if immediately
7
<PAGE>
following such transfer the further disposition of such securities by the
transferee or assignee is restricted under the Act.
2.8 Waiver Procedures. The observance by the Company of any provision
of this Article II may be waived (either generally or in a particular instance
and either retroactively or prospectively) with the written consent of the
holders of a majority of the Registrable Securities, and any waiver effected in
accordance with this paragraph shall be binding upon each holder of Registrable
Securities.
2.9 "Market Stand-off" Agreement. Any holder of Registrable Securities,
if requested by an underwriter of any registered public offering of Company
securities being sold in a firm commitment underwriting, agrees not to sell or
otherwise transfer or dispose of any Common Stock (or other Company Voting
Securities) held by such holder other than shares of Registrable Securities
included in the registration during the seven days prior to, and during a period
of up to 180 days following, the effective date of the registration statement.
Such agreement shall be in writing in a form reasonably satisfactory to the
Company and such underwriter. The Company may impose stop-transfer instructions
with respect to the securities subject to the foregoing restriction until the
end of the required stand-off period.
ARTICLE III
MISCELLANEOUS
3.1. Termination of this Agreement. This Agreement shall terminate
immediately upon, and without further liability to any of the parties hereto,
the termination of the Purchase Agreement in accordance with Article VIII
thereof.
3.2 Remedies. Each of Stockholder, Samstock and the Company acknowledge
and agree that (i) the provisions of this Agreement are reasonable and necessary
to protect the proper and legitimate interests of the parties hereto, and (ii)
the parties would be irreparably damaged in the event any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that each party shall be
entitled to seek preliminary and permanent injunctive relief to prevent breaches
of the provisions of this Agreement by the other party (or its Affiliates)
without the necessity of proving actual damages or of posting any bond, and to
enforce specifically the terms and provisions hereof and thereof in any court of
the United States or any state thereof having jurisdiction, which rights shall
be cumulative and in addition to any other remedy to which the parties may be
entitled hereunder or at law or equity.
3.3 Notices. All notices, and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by documented
overnight delivery service or, to the extent receipt is confirmed, facsimile, to
the appropriate address or facsimile number set forth below (or at such other
address or facsimile number for a party as shall be specified by like notice):
if to Samstock:
Samstock, L.L.C.
Two N. Riverside Plaza - Suite 600
8
<PAGE>
Chicago, IL 60606
Attention: Bill Pate
Fax: (312) 454-0610
with an additional copy to:
Rosenberg & Liebentritt, P.C.
Two N. Riverside Plaza - Suite 1600
Chicago, IL 60606
Attention: President
Fax: (312) 454-0335
if to Whitman:
c/o Danielson Holding Corporation
767 Third Avenue
New York, NY 10017-2023
Attention: David M. Barse
Fax: (212) 888-6704
with a copy to:
Danielson Holding Corporation
767 Third Avenue
New York, NY 10017-2023
Attention: Ian M. Kirschner, Esq.
Fax: (212) 735-0003
3.4 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 shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. The parties hereto agree that they will use
their best efforts at all times to support and defend this Agreement.
3.5 Amendments. This Agreement may be amended only by an
agreement in writing signed by each of the parties hereto;
3.6 Governing Law. This Agreement shall be governed and controlled as
to validity, enforcement, interpretation, construction, effect and in all other
respects by the internal laws of the State of Delaware applicable to contracts
made in that State.
3.7 Descriptive Headings. Descriptive headings are for convenience
only and shall not control or affect the meaning or construction of any
provision of this Agreement.
3.8 Counterparts; Facsimile Signatures. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
bears the signatures of each of the parties hereto. This Agreement may be
executed in any number of counterparts, each of which shall be an original as
against the party whose signature appears thereon, or on whose
9
<PAGE>
behalf such counterpart is executed, but all of which taken together shall
be one and the same agreement. A facsimile copy of a signature of a party to
this Agreement or any such counterpart shall be fully effective as if an
original signature.
3.9 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the successors and assigns of the
parties hereto.
3.10 Assignments. This Agreement may not be assigned without the prior
written consent of each party hereto, and any attempt to effect an assignment
hereof without such consent shall be void.
3.11 Jurisdiction and Service of Process. THE COMPANY,
PURCHASER AND STOCKHOLDER HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR
FEDERAL COURT LOCATED WITHIN THE STATE OF DELAWARE AND IRREVOCABLY AGREE THAT,
SUBJECT TO THE OTHER PROVISIONS OF THIS AGREEMENT, ALL ACTIONS OR PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT WHICH MAY BE LITIGATED SHALL BE
LITIGATED IN SUCH COURTS. THE COMPANY, PURCHASER AND STOCKHOLDER ACCEPTS FOR
SUCH PARTY AND IN CONNECTION WITH SUCH PARTY'S PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND
BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. THE COMPANY,
PURCHASER AND STOCKHOLDER AGREES TO ACCEPT SERVICE OF ALL PROCESS BY REGISTERED
OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, IN ANY SUCH PROCEEDINGS IN ANY SUCH
COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY EACH SUCH PARTY TO BE EFFECTIVE
AND BINDING SERVICE IN EVERY RESPECT. IF ANY AGENT APPOINTED BY THE COMPANY, OR
PURCHASER REFUSES TO ACCEPT SERVICE, SUCH PARTY HEREBY AGREES THAT SERVICE UPON
SUCH PARTY BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL
AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL
LIMIT THE RIGHT OF THE COMPANY OR PURCHASER TO BRING PROCEEDINGS AGAINST THE
COMPANY OR PURCHASER IN THE COURTS OF ANY OTHER JURISDICTION.
3.12 Trial. THE COMPANY, PURCHASER AND STOCKHOLDER HEREBY WAIVES SUCH
PARTY'S RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THE PARTIES HERETO
RELATING TO THE SUBJECT MATTER HEREOF. THE COMPANY, PURCHASER AND STOCKHOLDER
ALSO WAIVES ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR
THIS WAIVER, BE REQUIRED OF ANY PARTY TO THIS AGREEMENT WITH RESPECT TO ANY
ACTION COMMENCED BY ONE OF THEM AGAINST THE OTHER OF THEM. THE SCOPE OF THIS
WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE
FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION,
INCLUDING WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THE COMPANY, PURCHASER
AND STOCKHOLDER ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER
INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN
ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER
IN THEIR RELATED FUTURE DEALINGS. THE COMPANY,
10
<PAGE>
PURCHASER AND STOCKHOLDER FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS
REVIEWED THIS WAIVER WITH SUCH PARTY'S LEGAL COUNSEL, AND THAT SUCH PARTY
KNOWINGLY AND VOLUNTARILY WAIVES SUCH PARTY'S JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
IN WITNESS WHEREOF, Stockholder, Samstock and the Company have executed
this Agreement as of the date first above written.
SAMSTOCK, L.L.C.
Donald J. Liebentritt
________________________________
By: Donald J. Liebentritt, Vice President
DANIELSON HOLDING CORPORATION
By: David Barse
__________________________
David Barse
President
Martin J. Whitman
__________________________
Martin J. Whitman
11
ASSIGNMENT AND CONSENT TO ASSIGNMENT OF
INVESTMENT AGREEMENT
ASSIGNMENT AND CONSENT TO ASSIGNMENT OF INVESTMENT AGREEMENT, dated May
7, 1999 (this "Assignment and Consent"), by and among Samstock, L.L.C., a
Delaware limited liability company ("Samstock"), Danielson Holding Corporation,
a Delaware corporation (the "Company"), Martin J. Whitman ("Whitman") and SZ
Investments, L.L.C., a Delaware limited liability company ("SZ"), relating to
the Investment Agreement (the "Investment Agreement"), dated as of April 14,
1998, by and among Samstock, Whitman and the Company. All capitalized terms not
otherwise defined herein shall have the meanings given such terms in the
Investment Agreement.
WHEREAS, Samstock is controlled by SZ, its sole limited liability
company member;
WHEREAS, Samstock desires to assign to SZ (the "Assignment"), and SZ
desires to assume from Samstock (the "Assumption"), all of Samstock's rights,
duties, obligations and interest arising under the Investment Agreement; and
WHEREAS, the Company desires to consent to the Assignment and the
Assumption pursuant to Section 3.10 of the Investment Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Assignment and Assumption. Samstock hereby assigns to SZ all of its
rights, obligations, duties, liabilities and interests arising under or relating
to the Investment Agreement, and SZ hereby accepts this Assignment from
Samstock. Samstock shall be released from, and SZ shall assume as its direct
obligations as if SZ were the original party to the Investment Agreement with
the Company and Whitman, all of Samstock's rights, obligations, duties,
liabilities and interests arising under or relating to the Investment Agreement,
and agrees to perform and discharge all of Samstock's obligations, duties, and
liabilities thereunder. The Assignment and Assumption shall be effective as of
the date hereof.
2. Consent to Assignment and Assumption. The Company hereby consents,
pursuant to Section 3.10 of the Investment Agreement, to the Assignment and
Assumption as provided in the foregoing paragraph and agrees that wherever the
term "Samstock" appears in the Investment Agreement, it shall be deemed to read
and refer to SZ. The Company hereby fully, finally and forever waives, releases
and discharges Samstock from any and all claims, causes of action, demands,
suits, costs, liabilities,
1
<PAGE>
debts, expenses (including but not limited to reasonable attorneys' fees)
and damages, that it now may have, ever had, or hereafter may acquire of
whatsoever nature and kind, whether known or unknown, whether now existing
or hereafter arising, whether at law or in equity, in contract, tort or
otherwise, by statute or common law, arising out of the Investment
Agreement.
3. Miscellaneous.
(a) Counterparts. This Assignment and Consent may be executed
in one or more counterparts, each of which shall be deemed an original but both
of which together will constitute one and the same instrument.
(b) Headings. The section headings contained in this
Assignment and Consent are inserted for convenience only and shall not affect in
any way the meaning or interpretation of this Assignment and Consent.
(c) Governing Law; Jurisdiction; Process. This Assignment and
Consent shall be governed by and construed in accordance with the internal laws
(and not the laws of conflicts) of the State of Delaware.
(d) Parties in Interest. This Assignment and Consent shall be
binding upon and inure to the benefit of the parties hereto and their respective
legal representatives, successors and assigns.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
and Consent to Assignment of Investment Agreement as of the date first above
written.
SAMSTOCK, L.L.C.
By: Donald J. Liebentritt
_______________________________
Name: Donald J. Liebentritt
Title: Vice President
SZ INVESTMENTS, L.L.C.
By: Donald J. Liebentritt
_______________________________
Name: Donald J. Liebentritt
Title: Vice President
DANIELSON HOLDING CORPORATION
By: David Barse
_______________________________
Name: David Barse
Title: President and
Chief Operating Officer
Martin J. Whitman
_______________________________
MARTIN J. WHITMAN
3
[LETTERHEAD OF EQUITY GROUP INVESTMENTS, L.L.C.]
April 14, 1999
Board of Directors
Danielson Holding Corporation
767 Third Avenue
New York, NY 10017-2023
Attention: Martin J. Whitman
Chairman and Chief Executive Officer
Ladies and Gentlemen:
This letter will confirm our understanding of the basis on which Equity
Group Investments, L.L.C. ("EGI") will provide, on a non-exclusive basis,
certain advisory services to Danielson Holding Corporation (together with its
affiliates and subsidiaries, the "Company") in connection with potential
business acquisitions by the Company, whether by purchase of capital stock or
other assets or by merger, joint venture or otherwise ("Acquisition
Transactions").
1. Services. To the extent requested by the Company and deemed
appropriate by EGI, EGI shall assist the Company in identifying and evaluating
candidates for Acquisition Transactions, assist the Company in evaluating and
responding to inquiries and proposals that may be received by the Company
regarding potential Acquisition Transactions, assist the Company in negotiations
in respect of Acquisition Transactions and consult with and assist counsel and
accountants in the structuring and execution of Acquisition Transactions.
2. Transaction Fee. In consideration of our services as described
herein, the Company agrees to pay EGI, at the closing of any Acquisition
Transaction in respect of which the Acquisition Committee of the Company's
Board of Directors (or the Board of Directors in the event there is no
Acquisition Committee) has determined, by the affirmative vote of a majority
of its members, that EGI has provided material services as contemplated by this
letter, a transaction fee in cash in the amount of 1% of the Aggregate
Consideration (as hereinafter defined) in the Acquisition Transaction.
"Aggregate Consideration" means the sum of the value of all cash, securities
(whether debt or equity) and other property paid or payable or otherwise to be
distributed (including, without limitation, by exchange of securities) by
the Company to the selling party or its equity owners, plus the amount of
indebtedness, preferred stock or similar items assumed or remaining
outstanding, in connection with an Acquisition Transaction.
3. Reimbursement of Expenses. In addition to the fee described above
and whether or not any proposed Acquisition Transaction is consummated, the
Company agrees to periodically reimburse EGI, upon request: (i) EGI's travel and
other out-of-pocket expenses, provided, however, that in the event such expenses
exceed $5,000 in the aggregate with respect to any single proposed Acquisition
Transaction, EGI shall first obtain the Company's consent before incurring
additional reimbursable expenses, and (ii) provided the Company's prior consent
to their engagement with respect to any particular proposed Acquisition
<PAGE>
Board of Directors April 14, 1999
Danielson Holding Corporation Page 2
Transaction is obtained, all reasonable fees and disbursements of counsel
(including, without limitation, the law firm of Rosenberg & Liebentritt, P.C.),
accountants and other professionals, incurred from and after the date hereof in
connection with EGI's services under this letter. The Company agrees that, in
lieu of reimbursing EGI for such expenses, EGI may forward to the Company
invoices for the same, and the Company shall promptly pay such invoices directly
to the payee.
4. Indemnification; No Liability. In consideration of our services as
described herein, the Company agrees to indemnify and hold harmless EGI, its
direct and indirect affiliates and each of their respective directors, officers,
agents, employees, representatives, shareholders, partners, members and other
affiliated persons (each of the foregoing an "Indemnified Party) against any and
all losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) relating to or arising out of this letter agreement or EGI's provision
of services hereunder and will reimburse each Indemnified Party for reasonable
attorneys', accountants', investigators', and experts' fees and expenses and
other out-of-pocket fees and expenses incurred in connection with investigating
or defending any such loss, claim, damage, liability, action or proceeding,
whether or not in connection with pending or threatened litigation in which any
Indemnified Party is a party; provided, however, that the Company will not be
liable in any such case for losses, claims, damages, liabilities or expenses
that a court of competent jurisdiction shall have determined in a final
unapealable judgment to have arisen primarily from the gross negligence, bad
faith or willful misconduct of the Indemnified Party seeking indemnification. In
addition, neither EGI nor any other Indemnified Party shall have any liability
(whether direct or indirect, in contract, tort or otherwise) related to or
arising from this letter agreement or EGI's provision of services hereunder,
except for liability for losses, claims, damages and expenses that a court of
competent jurisdiction shall have determined in a final unapealable judgment to
have arisen primarily from EGI's gross negligence, bad faith or willful
misconduct. The Company expressly acknowledges and agrees that each Indemnified
Party is an intended third party beneficiary of this paragraph 4, and that each
Indemnified Party shall have the right individually to enforce the terms and
provisions of this paragraph 4.
5. This letter agreement (a) shall be governed by, and construed in accordance
with, the laws of the State of Illinois without regard to the principles of
conflicts of law, (b) contains the complete and entire understanding and
agreement of EGI and the Company with respect to the specific subject matter
hereof, and supersedes all unperformed prior understandings, conditions and
agreements, oral or written, express or implied, respecting EGI's provision of
services in connection with any contemplated Acquisition Transaction and the
other subject matter specifically addressed herein, and (c) may be amended or
modified in a writing duly executed by both of the parties hereto and not by any
course of conduct, course of dealing or purported oral amendment or
modification. The waiver by either party of a breach of any provision of this
letter agreement by the other party shall not operate or be construed as a
waiver of any subsequent breach of that provision or any other provision hereof.
6. Neither EGI nor the Company may assign or delegate their rights or
obligations under this letter agreement without the express written consent of
the other party hereto, which consent shall not be unreasonably withheld, except
that (i) EGI may assign any and all of its rights under this letter agreement to
receive payment of fees and reimbursement of EGI's expenses as provided in this
letter agreement, and (ii) the Company's rights and obligations hereunder may be
assigned and delegated by operation of law pursuant to any merger,
reorganization or similar business combination. This letter agreement and all
the obligations and
<PAGE>
Board of Directors April 14, 1999
Danielson Holding Corporation Page 3
benefits hereunder shall be binding upon and shall inure to the successors and
permitted assigns of the parties.
If the foregoing accurately sets forth our understanding, please so signify by
signing and returning to us the enclosed duplicate hereof.
Very truly yours,
EQUITY GROUP INVESTMENTS, L.L.C.
By: /s/ Donald J. Liebentritt
________________________________
Vice President
Accepted and agreed
to as of the date first
above written:
DANIELSON HOLDING CORPORATION
By: /s/ David Barse
___________________
President
June 2, 1999
Board of Directors
Danielson Holding Corporation
767 Third Avenue
New York, NY 10017-2023
Attention: Martin J. Whitman
Chairman and Chief Executive Officer
Ladies and Gentlemen:
Reference is made to that certain Letter Agreement ("Letter
Agreement"), dated April 14, 1999, by and between Equity Group Investments,
L.L.C. ("EGI") and Danielson Holding Corporation (the "Company") pursuant to
which the Company and EGI agreed to the terms and conditions under which EGI may
provide certain advisory services to the Company.
Pursuant to Section 5(c) of the Letter Agreement, and for good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, EGI and the Company hereby agree that the first full paragraph of
the Letter Agreement is hereby deleted in its entirety and replaced with the
following:
"This letter will confirm our understanding of the basis on which
Equity Group Investments, L.L.C. ("EGI") will provide, on a
non-exclusive basis, certain advisory services to Danielson Holding
Corporation (the "Company") in connection with potential business
acquisitions by the Company, whether by purchase of capital stock or
other assets or by merger, joint venture or otherwise ("Acquisition
Transactions")."
Except as expressly modified hereby, the Company and EGI hereby
reaffirm each and every provision set forth in the Letter Agreement and, except
as modified hereby, the Company and EGI acknowledge and agree that each
provision and obligation therein continues in full force and effect.
Very Truly Yours,
Equity Group Investments, L.L.C.
By: Donald Liebentritt
________________________
Accepted and Agreed
to as of the date first
above written:
Danielson Holding Corporation
By: /s/ David Barse
______________________
EMPLOYMENT AGREEMENT
By and Between
DANIELSON HOLDINGS CORPORATION
and
DAVID BARSE
April 14, 1999
<PAGE>
TABLE OF CONTENTS
Page
1. Employment..................................................1
2. Duties and Responsibilities of Employee.....................1
3. Non-Exclusivity of Service ................................2
4. Compensation; Bonus.........................................2
5. Benefits....................................................2
6. Term of Employment..........................................3
7. Confidentiality.............................................3
8. Non-Competition; Non-Solicitation...........................4
9. Termination.................................................5
(a) Cause. ............................................5
(b) Incapacity. ......................................5
(c) Death. ............................................6
(d) Termination Without Cause. ........................6
(e) Release; Sole Remedy...............................6
10. ............................................................7
11. Specific Performance; Damages...............................7
12. Notices.....................................................7
13. Waivers.....................................................8
14. Preservation of Intent......................................8
15. Entire Agreement............................................8
16. Inurement; Assignment.......................................8
17. Amendment...................................................9
18. Headings....................................................9
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19. Counterparts................................................9
20. Governing Law...............................................9
ii
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EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") dated as of April 14th, 1999,
by and between DANIELSON HOLDINGS CORPORATION, a Delaware corporation having an
office at 767 Third Avenue, New York, New York 10017 ("Employer" or the
"Company"), and DAVID BARSE an individual residing at 230 Osborn Road, Harrison,
New York 10528("Employee").
W I T N E S S E T H:
WHEREAS, Employer desires to engage Employee as an employee and
Employee desires to provide his non-exclusive services to Employer in connection
with Employer's business; and
WHEREAS, both parties desire to clarify and specify the rights and
obligations which each have with respect to the other in connection with
Employee's employment.
NOW, THEREFORE, in consideration of the agreements and covenants herein
set forth, the parties hereby agree as follows:
1. Employment
Employer hereby employs Employee as the President of
Employer, and Employee hereby accepts such employment and agrees to render his
non-exclusive services as an employee of Employer, for the term of this
Agreement (as set forth in Section 6 hereof), all subject to and on the terms
and conditions herein set forth.
2. Duties and Responsibilities of Employee
(a) Employee shall be employed as the President of Employer,
subject to the other provisions of this Section 2 and Section 3 below.
(b) Employee shall be employed in the business of Employer and
his duties and responsibilities shall be commensurate with those of a President
of a company engaged in the business engaged in by Employer. As such, Employee
shall be primarily responsible for the direction and management of the current
and future affairs and business of Employer as presently constituted and as same
may from time to time hereafter change. Accordingly, Employee shall be primarily
responsible for the overall direction of the Company, its day-to-day operations
and management of the Company's business, personnel (hiring and firing) and
affairs in general. In the performance of his duties and responsibilities,
Employee shall report to the Board of Directors of the Employer (the "Board").
Employee shall use his best efforts to maintain and enhance the business and
reputation of Employer and shall perform such other duties commensurate with his
position as may, from time to time, be designated to Employee by the
Board or its designees.
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3. Non-Exclusivity of Service
Employee agrees to devote his business time, effort and
attention as needed to the business and affairs of the Company on an
non-exclusive basis. Employee shall be entitled to render his services from any
location and shall not be required to be located at the Company's offices
wherever located, although Employee shall be required to travel from time to
time in connection with the performance of his duties hereunder.
4. Compensation; Bonus
(a). In consideration for his services to be performed under this
Agreement and as compensation therefor, Employee shall receive, in addition to
all other benefits provided for in this Agreement, a base salary (the "Base
Salary") at the rate of Seventy-Five Thousand ($75,000) Dollars per annum. All
payments of Base Salary shall be payable in semi-monthly installments or
otherwise in accordance with Employer's policies. Increases in Base Salary shall
be reviewed annually by the Board in its sole discretion.
(b). In addition to the Base Salary that Employee is to receive,
Employee may also receive an annual discretionary performance bonus, payable at
the end of each fiscal year, at the discretion of the Compensation Committee of
the Board (the "Discretionary Bonus").
(c). In addition to the Base Salary that Employee is to receive
and the Discretionary Bonus that Employee may receive, Employee may also be
granted stock options, at the discretion of the Compensation Committee of the
Board (the "Discretionary Options").
5. Benefits
In addition to the Base Salary, Discretionary Bonus and
Discretionary Options provided for in Section 4 hereof, Employee shall be
entitled to the following benefits during and in respect of the term of this
Agreement:
(a) Employer shall reimburse an affiliated entity of Employer an
appropriate, pro rata share of Employee's hospitalization, medical and dental
insurance coverage and all other benefits in accordance with past practices,
which is approximately, at present, $6,000 per calendar year.
(b) Employee shall be entitled to four (4) weeks paid vacation
to be taken by Employee at times mutually and reasonably agreed upon by Employer
and Employee in addition to all other holidays established as part of Employer's
standard practices.
(c) Employee shall be entitled to reimbursement for all
reasonable travel, entertainment and other reasonable expenses incurred in
connection with Employer's business,
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provided that such expenses are adequately documented and vouchered in
accordance with Employer's policies.
(d) All other benefits afforded similarly situated executive
employees of Employer.
6. Term of Employment
The term of Employee's employment hereunder shall be from the
date hereof for a period of two years (the "Term") or terminated prior thereto
in accordance with Section 9 hereof.
7. Confidentiality
(a) Employee agrees and covenants that, at any time
during employment by Employer (which, for purposes of this Section 7 shall
include Employer's subsidiaries and affiliates) or thereafter, he will not
(without first obtaining the express permission of Employer) (i) at any
time during employment by Employer and for a period of two (2) years thereafter,
divulge to any person or entity, nor use (either himself or in
connection with any business) any "Confidential Information" (as hereinafter
defined in Section 7(c) hereof) and (ii) at any time during employment by
Employer and for a period of two (2) years thereafter, divulge to any person
or entity, nor use (either himself or in connection with any business) any
"Trade Secrets" (as hereinafter defined in Section 7(c) hereof) to which he
may have had access or which had been revealed to him during the course of his
employment unless such disclosure is pursuant to a court order, disclosure in
litigation involving the Employer or in any reports or applications required by
law to be filed with any governmental agency after prior consultation with
Employer, if practicable.
(b) Any interest in patents, patent applications,
inventions, copyrights, developments, innovations, methods, processes,
analyses, drawings, and reports ("Inventions") which Employee now or hereafter
during the period he is employed under this Agreement or otherwise may own or
develop relating to the fields in which the Employer may then be engaged shall
belong to the Employer; and Employee shall disclose the inventions to
Employer and forthwith upon request of the Employer, Employee shall execute
all such assignments and other documents and take all such other action as the
Employer may reasonably request in order to vest in the Employer all right,
title, and interest in and to the Inventions free and clear of all liens,
charges, and encumbrances.
(c) As used in this Agreement, the term
"Confidential Information" shall mean and include all information and data
in respect of Employer's operations, financial condition, products,
customers and business (including, without limitation, artwork,
photographs, specifications, facsimiles, samples, business, marketing or
promotional plans, creative written material and information relating to
characters, concepts, names, trademarks and copyrights) which may be
communicated to Employee or to which Employee may have access in the course of
Employee's employment by Employer. Notwithstanding the foregoing, the term
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"Confidential Information" shall not include information which:
(i) is, at the time of the disclosure, a part of the
public domain through no act or omission by Employee;
or
(ii) is hereafter lawfully disclosed to Employee by a
third party who or which did not acquire the
information under an obligation of confidentiality to
or through Employer.
As used in this Agreement, the term "Trade Secrets" shall
mean and include information, without regard to form, including, but not limited
to, technical or non-technical data, a formula, a pattern, a compilation, a
program, a device, a method, a technique, a drawing, a process, financial data,
financial plans, product plans, or a list of actual or potential customers or
suppliers which is not commonly known by or available to the public and which
information (i) derives economic value, actual or potential, from not being
known to, and not being readily ascertainable by proper means by, other persons
who can obtain economic value from its disclosure or use; and (ii) is the
subject of efforts that are reasonable under the circumstances to maintain its
secrecy. In addition, the term "trade secrets" includes all information
protectible as "trade secrets" under applicable law.
Nothing in this Section 7 shall limit any protection,
definition or remedy provided to Employer under any law, statute or legal
principle relating to Confidential Information or Trade Secrets.
8. Non-Competition; Non-Solicitation
(a) Employee hereby agrees and covenants that for a period of one
year following his employment with Employer that he will not directly or
indirectly engage in or become interested (whether as an owner, principal,
agent, stockholder, member, partner, trustee, venturer, lender or other
investor, director, officer, employee, consultant or through the agency of any
corporation, limited liability company, partnership, association or agent or
otherwise) in any business or enterprise that shall, at the time, be in whole or
in substantial part competitive with any part of the business conducted by
Employer during the period of Employee's employment with Employer (except that
ownership of not more than 5% of the outstanding securities of any class of any
entity that are listed on a national securities exchange or traded in the
over-the-counter market shall not be considered a breach of this Section 8(a)).
(b) Employee agrees and covenants that for a period of one year
following his employment with Employer he will not (without first obtaining the
written permission of Employer) directly or indirectly participate in the
solicitation of any business of any type conducted by Employer during the period
of Employee's employment with Employer from any person or entity which was a
client or customer of Employer during the period of Employee's employment with
Employer, or was a prospective customer of Employer from which Employee
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solicited business or for which a proposal for submission was prepared during
the period of Employee's employment with Employer.
(c) Employee agrees and covenants that for a period of one year
following his employment with Employer he will not (without first obtaining the
written permission of Employer) directly or indirectly, hire, recruit for
employment, or induce or seek to cause such person to terminate his or his
employment with Employer, any person who then is an employee of Employer or was
an employee of Employer within six months prior to such hiring or solicitation.
9. Termination
(a) Cause. Notwithstanding the terms of this Agreement,
Employer may, upon the unanimous vote of the Board of Directors, discharge
Employee and terminate this Agreement for cause ("Cause") in the event (i) of
Employee's willful refusal to materially perform his duties hereunder with
reasonable diligence or to follow, after written notice and an opportunity
to cure, a lawful directive of the Board, (ii) Employee's commission of an
act involving fraud, embezzlement, or theft against the property or
personnel of the Company, (iii) Employee's engagement in gross reckless
conduct that the Board in good faith determines will have a material adverse
affect on the business, assets, properties, results of operations or financial
condition of Employer, or (iv) Employee shall be convicted of a felony or (v)
Employee engages in other criminal conduct that substantially jeopardizes
the Employer's business. In the event Employee is discharged pursuant to
this Section 9(a), (i) Employee's Base Salary and Discretionary Bonus and
all benefits under Section 5 hereof shall terminate immediately upon such
discharge (subject to applicable law such as COBRA), (ii) all unvested
options, including but not limited to unvested Discretionary Options,
shall immediately expire, and all vested options, including but not limited
to vested Discretionary Options, may be exercised by Employee until six (6)
months after the date of termination under this Section 9(a), or for the
remainder of their term, whichever is sooner, and (iii) Employer shall have no
further obligations to Employee except for payment and reimbursement to Employee
for any monies due to Employee which right to payment or reimbursement accrued
prior to such discharge. Notwithstanding anything set forth herein, prior to
Employer having the right to discharge Employee pursuant to clauses (i) or (iii)
above, Employer shall first be required to give Employee at least thirty (30)
days' prior written notice of any alleged breach under Section 9(a)(i) or
9(a)(iii) above (the "Notice"), and for such Notice to be effective it must
specify in reasonable detail the nature of, and facts and circumstances relative
to, such alleged Cause, and Employee shall have a reasonable opportunity to cure
any such alleged improper actions within such thirty (30) day period (and in the
event Employee actually cures any such alleged improper actions within such
thirty (30) day period, the Notice shall automatically be deemed withdrawn).
(b) Incapacity. Should Employee, in the reasonable judgment of a
physician chosen by the Board, become incapacitated to the extent he is
unable to perform his material duties pursuant to this Agreement for a
period of six (6) consecutive months by reason of illness,
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disability or other incapacity, Employer may terminate this Agreement
upon one month's notice after said six (6) month period. Employer shall
have no further obligations to Employee or his legal representatives except to
pay to Employee the balance of his Base Salary for the remainder of the Term of
the Agreement and to pay to Employee the Discretionary Bonus, if any, for the
year prior to Employee's incapacity. Upon Employee's termination under this
Section 9(b) all unvested options, including but not limited to unvested
Discretionary Options, shall automatically vest, and all of Employee's options,
including but not limited to Discretionary Options, may be exercised by
Employee, or Employee's legal guardian or representative, until one (1) year
after the date of Employee's termination under this Section 9(b), or for the
remainder of their term, whichever is sooner.
(c) Death. This Agreement shall terminate immediately upon the
death of Employee, in which case Employer shall have no further obligations to
Employee or his legal representatives; provided, however, that in the event
that Employee's death occurs in connection with Employee's performance of his
duties hereunder, Employer shall pay to Employee's legal representatives the
balance of Employee's Base Salary for the remainder of the Term of the
Agreement and to pay to Employee's legal representatives, within sixty (60)
days of Employee's death, the Discretionary Bonus, if any, for the year prior
to Employee's death. Upon Employee's death, all unvested options, including
but not limited to unvested Discretionary Options, shall vest and all of
Employee's options, including but not limited to Discretionary Options,
may be exercised by Employee's estate until one (1) year from the date of
Employee's death, or for the remainder of their term, whichever is sooner.
(d) Termination Without Cause. In the event that Employee is
discharged and this Agreement is terminated without Cause (Cause being
defined as a reason for termination as set forth in Section 9(a) above) or for
reason other than as set forth in Sections 9(b) or 9(c) hereof, Employee
shall receive upon such termination or resignation: (A) the balance of his
Base Salary for the remainder of the Term of the Agreement; (B) in the event
that any bonus was actually paid to Employee under Section 4 above for the
immediately preceding fiscal year, including but not limited to the
Discretionary Bonus, Employee shall receive an identical bonus (or
pro-rated portion thereof) with respect to the fiscal year of
termination; and (C) all benefits under Section 5 hereof for the remaining Term,
as applicable. In addition, upon Employee's termination under this Section 9(d)
any unvested options, including but not limited to unvested Discretionary
Options, shall automatically vest and all of Employee's options, including but
not limited to Discretionary Options, may be exercised by Employee until one (1)
year after the date of Employee's termination under this Section 9(d), or for
the remainder of their term, whichever is sooner. All amounts due Employee under
this Section 9(d) shall be paid to Employee without offset for any amounts
earned by Employee in any other employment or from any other source.
(e) Release; Sole Remedy. Notwithstanding anything to the
contrary in this Agreement, the amounts, if any, payable, and the provision
of benefits, if any, to Employee, required under the applicable provisions of
this Section 9 in connection with the termination of Employee's employment,
voluntarily or involuntarily, for any or no reason, shall be: (i) the only
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remedy, legal or equitable, available to Employee in connection with such
termination, and the payment of such amounts and the provision of such benefits
shall constitute liquidated damages; and (ii) as a condition precedent to
Employer's obligations to pay any such amounts or provide any such benefits,
Employee shall have first executed and delivered to Employer the form of
Release attached hereto as Exhibit A, and the seven day revocation period
provided in said Release shall have expired without revocation of said Release
by Employee.
10. Violation of Other Agreements
Employee represents and warrants to Employer that he is
legally able to enter into this Agreement and accept employment with Employer;
that Employee is not prohibited by the terms of any agreement, understanding or
policy from entering into this Agreement; that the terms hereof will not and do
not violate or contravene the terms of any agreement, understanding or policy to
which Employee is or may be a party, or by which Employee may be bound; and that
Employee is under no physical or mental disability that would hinder the
performance of his duties under this Agreement. Employee agrees that, as it is a
material inducement to Employer that Employee make the foregoing representations
and warranties and that they be true in all respects, Employee shall forever
indemnify and hold Employer harmless from and against all liability, costs or
expenses (including attorney's fees and disbursements) on account of the
foregoing representations being untrue.
11. Specific Performance; Damages
In the event of a breach or threatened breach of the
provisions of Sections 7 and 8 hereof, Employee agrees that the injury which
could be suffered by Employer would be of a character which could not be fully
compensated for solely by a recovery of monetary damages. Accordingly, Employee
agrees that in the event of a breach or threatened breach of Sections 7 and 8
hereof, in addition to and not in lieu of any damages sustained by Employer and
any other remedies which Employer may pursue hereunder or under any applicable
law, Employer shall have the right to seek equitable relief, including issuance
of a temporary or permanent injunction, by any court of competent jurisdiction
against the commission or continuance of any such breach or threatened breach,
without the necessity of proving any actual damages or posting of any bond or
other surety therefor. In addition to, and not in limitation of the foregoing,
Employee understands and confirms that, in the event of a breach or threatened
breach of Sections 7 and 8 hereof, Employee may be held financially liable to
Employer for any loss suffered by Employer as a result.
12. Notices
Any and all notices, demands or requests required or
permitted to be given under this Agreement shall be given in writing and sent,
by registered or certified U.S. mail, return receipt requested, by hand, or by
overnight courier, addressed to the parties hereto at their addresses set forth
above or such other addresses as they may from time-to-time designate by written
notice,
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given in accordance with the terms of this Section, together with copies
thereof as follows:
In the case of Employer, with a copy to:
Zukerman Gore & Brandeis, LLP
900 Third Avenue
New York, New York 10022-4728
Attention: Andrew M. Chonoles, Esq.
Notice given as provided in this Section shall be deemed effective:
(i) on the date hand delivered, (ii) on the first business day following the
sending thereof by overnight courier, and (iii) on the seventh calendar day (or,
if it is not a business day, then the next succeeding business day thereafter)
after the depositing thereof into the exclusive custody of the U.S. Postal
Service.
13. Waivers
No waiver by any party of any default with respect to any
provision, condition or requirement hereof shall be deemed to be a waiver of any
other provision, condition or requirement hereof; nor shall any delay or
omission of any party to exercise any right hereunder in any manner impair the
exercise of any such right accruing to it thereafter.
14. Preservation of Intent
Should any provision of this Agreement be determined by a court
having jurisdiction in the premises to be illegal or in conflict with any laws
of any state or jurisdiction or otherwise unenforceable, Employer and
Employee agree that such provision shall be modified to the extent legally
possible so that the intent of this Agreement may be legally carried out.
15. Entire Agreement
This Agreement sets forth the entire and only agreement or
understanding between the parties relating to the subject matter hereof and
supersedes and cancels all previous agreements, negotiations, letters of intent,
correspondence, commitments and representations in respect thereof among them,
and no party shall be bound by any conditions, definitions, warranties or
representations with respect to the subject matter of this Agreement except as
provided in this Agreement.
16. Inurement; Assignment
The rights and obligations of Employer under this Agreement
shall inure to the benefit of and shall be binding upon any successor of
Employer or to the business of Employer, subject to the provisions hereof.
Employer may assign this Agreement to any person, firm or corporation
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controlling, controlled by, or under common control with Employer. Neither this
Agreement nor any rights or obligations of Employee hereunder shall be
transferable or assignable by Employee.
17. Amendment
This Agreement may not be amended in any respect except by an
instrument in writing signed by the parties hereto.
18. Headings
The headings in this Agreement are solely for convenience of
reference and shall be given no effect in the construction or interpretation of
this Agreement.
19. Counterparts
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which when taken together
shall constitute one and the same instrument.
20. Governing Law
This Agreement shall be governed by, construed and enforced in
accordance with the internal laws of the State of New York, without giving
reference to principles of conflict of laws. Each of the parties hereto
irrevocably consents to the venue and jurisdiction of the federal and state
courts located in the State of New York, County of New York.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
EMPLOYEE:
/s/ David Barse
__________________________
DAVID BARSE
EMPLOYER:
DANIELSON HOLDINGS CORPORATION
By: /s/ Martin J. Whitman
___________________________
Name: Martin J. Whitman
Title: Chairman
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Exhibit A
RELEASE
1. Pursuant to the terms of the Employment Agreement made as of ___ ,
1999, between Danielson Holdings Corporation, a Delaware corporation (the
"Company"), and the undersigned (the "Agreement"), and in consideration of the
payments made to me and other benefits to be received by me pursuant thereto, I,
____________ , being of lawful age, do hereby release, and forever discharge,
the Company, its subsidiaries and affiliates and their respective directors,
officers, shareholders, subsidiaries, agents, employees and affiliates, from any
and all actions, causes of action, claims, or demands for general, special or
punitive damages, attorney's fees, expenses, or other compensation, which in any
way relate to or arise out of my employment with the Company or any of its
subsidiaries or the termination of such employment (but not for actions, causes
of action, claims or demands not directly related to such employment or
termination of employment, even if arising at the time of termination), which I
may now or hereafter have under any federal, state or local law, regulation or
order, including without limitation, under the Age Discrimination in Employment
Act, as amended, through and including the date of this Release; provided,
however, that this Release shall not release the Company's obligations with
respect to (a) payment of the severance payments and compliance with the other
provisions of Section 9 of the Agreement, and (b) paragraph 2 of this Release.
2. The Company agrees that, from and after the date hereof, if asked
about the undersigned's separation from the Company, except as otherwise
required by applicable law, the Company will not make any public statement
regarding such separation other than that the undersigned has left the Company
to pursue other interests. From and after the date hereof, the Company will not
intentionally make any defamatory or disparaging statements about the
undersigned or the undersigned's performance for the Company. For purposes of
this paragraph 2 only, the Company shall mean only the directors and executive
officers of the Company (as long as the foregoing persons are still directly or
indirectly affiliated with the Company), and shall specifically include David
Barse, Harold Drachman, Michael Carney and Ian Kirschner (as long as the
foregoing persons are still directly or indirectly affiliated with the
Company).
3. I agree that, from and after the date hereof, if asked about my
separation from the Company, except as otherwise required by applicable law, I
will not make any public statement regarding such separation other than that I
have left the Company to pursue other interests. From and after the date hereof,
I will not intentionally make any defamatory or disparaging statements about the
Company, its subsidiaries or affiliates or their products, services, directors,
officers, shareholders, employees, agents, customers or business relationships.
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4. I further state that I have read this Release and the Agreement
referred to herein, that I know the contents of both and that I have executed
the same as my own free act.
WITNESS my hand this ___ day of ______________ , ____.
_________________________
[Employee]
AGREED AND ACKNOWLEDGED
THIS ______ DAY OF ___________ , ______
DANIELSON HOLDINGS CORPORATION
By: _________________________
EMPLOYMENT AGREEMENT
By and Between
DANIELSON HOLDINGS CORPORATION
and
MICHAEL CARNEY
April 14, 1999
<PAGE>
TABLE OF CONTENTS
Page
1. Employment..................................................1
2. Duties and Responsibilities of Employee.....................1
3. Non-Exclusivity of Service ................................2
4. Compensation; Bonus.........................................2
5. Benefits....................................................2
6. Term of Employment..........................................3
7. Confidentiality............................ ................3
8. Non-Competition; Non-Solicitation...........................4
9. Termination.................................................5
(a) Cause. ............................................5
(b) Incapacity. ......................................5
(c) Death. ............................................6
(d) Termination Without Cause. ........................6
(e) Release; Sole Remedy...............................6
10. ............................................................7
11. Specific Performance; Damages...............................7
12. Notices.....................................................7
13. Waivers.....................................................8
14. Preservation of Intent......................................8
15. Entire Agreement............................................8
16. Inurement; Assignment.......................................8
17. Amendment...................................................9
18. Headings....................................................9
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19. Counterparts................................................9
20. Governing Law...............................................9
ii
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EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement") dated as of April 14th, 1999,
by and between DANIELSON HOLDINGS CORPORATION, a Delaware corporation having an
office at 767 Third Avenue, New York, New York 10017 ("Employer" or the
"Company"), and MICHAEL CARNEY an individual residing at 401 East 34th Street,
Apt. 34E, New York, NY 10016 ("Employee").
W I T N E S S E T H:
WHEREAS, Employer desires to engage Employee as an employee and
Employee desires to provide his non-exclusive services to Employer in connection
with Employer's business; and
WHEREAS, both parties desire to clarify and specify the rights and
obligations which each have with respect to the other in connection with
Employee's employment.
NOW, THEREFORE, in consideration of the agreements and covenants herein
set forth, the parties hereby agree as follows:
1. Employment
Employer hereby employs Employee as the Chief Financial
Officer of Employer, and Employee hereby accepts such employment and agrees to
render his non-exclusive services as an employee of Employer, for the term of
this Agreement (as set forth in Section 6 hereof), all subject to and on the
terms and conditions herein set forth.
2. Duties and Responsibilities of Employee
(a) Employee shall be employed as the Chief Financial Officer of
Employer, subject to the other provisions of this Section 2 and Section 3 below.
(b) Employee shall be employed in the business of Employer and
his duties and responsibilities shall be commensurate with those of a Chief
Financial Officer of a company engaged in the business engaged in by Employer.
As such, Employee shall be primarily responsible for the oversight of all
financial matters relative to the Company. In the performance of his duties and
responsibilities, Employee shall report to David Barse, in his capacity as
President of the Company, and the Board of Directors of the Employer (the
"Board"). Employee shall use his best efforts to maintain and enhance the
business and reputation of Employer and shall perform such other duties
commensurate with his position as may, from time to time, be designated to
Employee by the Board or its designees.
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3. Non-Exclusivity of Service
Employee agrees to devote his business time, effort and
attention as needed to the business and affairs of the Company on an
non-exclusive basis. Employee shall be entitled to render his services from any
location and shall not be required to be located at the Company's offices
wherever located, although Employee shall be required to travel from time to
time in connection with the performance of his duties hereunder.
4. Compensation; Bonus
(a) In consideration for his services to be performed under this
Agreement and as compensation therefor, Employee shall receive, in addition to
all other benefits provided for in this Agreement, a base salary (the "Base
Salary") at the rate of Seventy-Five Thousand ($75,000) Dollars per annum. All
payments of Base Salary shall be payable in semi-monthly installments or
otherwise in accordance with Employer's policies. Increases in Base Salary shall
be reviewed annually by the Board in its sole discretion.
(b) In addition to the Base Salary that Employee is to receive,
Employee may also receive an annual discretionary performance bonus, payable at
the end of each fiscal year, at the discretion of the Compensation Committee of
the Board (the "Discretionary Bonus").
(c) In addition to the Base Salary that Employee is to receive
and the Discretionary Bonus that Employee may receive, Employee may also be
granted stock options, at the discretion of the Compensation Committee of the
Board (the "Discretionary Options").
5. Benefits
In addition to the Base Salary, Discretionary Bonus and
Discretionary Options provided for in Section 4 hereof, Employee shall be
entitled to the following benefits during and in respect of the term of this
Agreement:
(a) Employer shall reimburse an affiliated entity of Employer an
appropriate, pro rata share of Employee's hospitalization, medical and dental
insurance coverage and all other benefits in accordance with past practices,
which is approximately, at present, $6,000 per calendar year.
(b) Employee shall be entitled to four (4) weeks paid vacation to
be taken by Employee at times mutually and reasonably agreed upon by Employer
and Employee in addition to all other holidays established as part of Employer's
standard practices.
(c) Employee shall be entitled to reimbursement for all
reasonable travel, entertainment and other reasonable expenses incurred in
connection with Employer's business, provided that such expenses are adequately
documented and vouchered in accordance with Employer's policies.
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(d) All other benefits afforded similarly situated executive
employees of Employer.
6. Term of Employment
The term of Employee's employment hereunder shall be from the
date hereof for a period of two years (the "Term") or terminated prior thereto
in accordance with Section 9 hereof.
7. Confidentiality
(a) Employee agrees and covenants that, at any time during
employment by Employer (which, for purposes of this Section 7 shall include
Employer's subsidiaries and affiliates) or thereafter, he will not (without
first obtaining the express permission of Employer) (i) at any time during
employment by Employer and for a period of two (2) years thereafter, divulge to
any person or entity, nor use (either himself or in connection with any
business) any "Confidential Information" (as hereinafter defined in Section 7(c)
hereof) and (ii) at any time during employment by Employer and for a period of
two (2) years thereafter, divulge to any person or entity, nor use (either
himself or in connection with any business) any "Trade Secrets" (as hereinafter
defined in Section 7(c) hereof) to which he may have had access or which had
been revealed to him during the course of his employment unless such disclosure
is pursuant to a court order, disclosure in litigation involving the Employer or
in any reports or applications required by law to be filed with any governmental
agency after prior consultation with Employer, if practicable.
(b) Any interest in patents, patent applications, inventions,
copyrights, developments, innovations, methods, processes, analyses, drawings,
and reports ("Inventions") which Employee now or hereafter during the period he
is employed under this Agreement or otherwise may own or develop relating to the
fields in which the Employer may then be engaged shall belong to the Employer;
and Employee shall disclose the inventions to Employer and forthwith upon
request of the Employer, Employee shall execute all such assignments and other
documents and take all such other action as the Employer may reasonably request
in order to vest in the Employer all right, title, and interest in and to the
Inventions free and clear of all liens, charges, and encumbrances.
(c) As used in this Agreement, the term "Confidential
Information" shall mean and include all information and data in respect of
Employer's operations, financial condition, products, customers and business
(including, without limitation, artwork, photographs, specifications,
facsimiles, samples, business, marketing or promotional plans, creative written
material and information relating to characters, concepts, names, trademarks and
copyrights) which may be communicated to Employee or to which Employee may have
access in the course of Employee's employment by Employer. Notwithstanding the
foregoing, the term "Confidential Information" shall not include information
which
3
<PAGE>
(i) is, at the time of the disclosure, a part of the public
domain through no act or omission by Employee; or
(ii) is hereafter lawfully disclosed to Employee by a
third party who or which did not acquire the
information under an obligation of confidentiality to
or through Employer.
As used in this Agreement, the term "Trade Secrets" shall mean and
include information, without regard to form, including, but not limited to,
technical or non-technical data, a formula, a pattern, a compilation, a
program, a device, a method, a technique, a drawing, a process, financial data,
financial plans, product plans, or a list of actual or potential customers or
suppliers which is not commonly known by or available to the public and which
information (i) derives economic value, actual or potential, from not being
known to, and not being readily ascertainable by proper means by, other persons
who can obtain economic value from its disclosure or use; and (ii) is the
subject of efforts that are reasonable under the circumstances to maintain its
secrecy. In addition, the term "trade secrets" includes all information
protectible as "trade secrets" under applicable law.
Nothing in this Section 7 shall limit any protection,
definition or remedy provided to Employer under any law, statute or legal
principle relating to Confidential Information or Trade Secrets.
8. Non-Competition; Non-Solicitation
(a) Employee hereby agrees and covenants that for a period of one
year following his employment with Employer that he will not directly or
indirectly engage in or become interested (whether as an owner, principal,
agent, stockholder, member, partner, trustee, venturer, lender or other
investor, director, officer, employee, consultant or through the agency of any
corporation, limited liability company, partnership, association or agent or
otherwise) in any business or enterprise that shall, at the time, be in whole or
in substantial part competitive with any part of the business conducted by
Employer during the period of Employee's employment with Employer (except that
ownership of not more than 5% of the outstanding securities of any class of any
entity that are listed on a national securities exchange or traded in the
over-the-counter market shall not be considered a breach of this Section 8(a)).
(b) Employee agrees and covenants that for a period of one year
following his employment with Employer he will not (without first obtaining the
written permission of Employer) directly or indirectly participate in the
solicitation of any business of any type conducted by Employer during the period
of Employee's employment with Employer from any person or entity which was a
client or customer of Employer during the period of Employee's employment with
Employer, or was a prospective customer of Employer from which Employee
solicited business or for which a proposal for submission was prepared during
the period of Employee's employment with Employer.
4
<PAGE>
(c). Employee agrees and covenants that for a period of one year
following his employment with Employer he will not (without first obtaining the
written permission of Employer) directly or indirectly, hire, recruit for
employment, or induce or seek to cause such person to terminate his or his
employment with Employer, any person who then is an employee of Employer or was
an employee of Employer within six months prior to such hiring or solicitation.
9. Termination
(a) Cause. Notwithstanding the terms of this Agreement, Employer
may, upon the unanimous vote of the Board of Directors, discharge Employee and
terminate this Agreement for cause ("Cause") in the event (i) of Employee's
willful refusal to materially perform his duties hereunder with reasonable
diligence or to follow, after written notice and an opportunity to cure, a
lawful directive of the Board, (ii) Employee's commission of an act involving
fraud, embezzlement, or theft against the property or personnel of the
Company, (iii) Employee's engagement in gross reckless conduct that the
Board in good faith determines will have a material adverse affect on the
business, assets, properties, results of operations or financial condition of
Employer, or (iv) Employee shall be convicted of a felony or (v) Employee
engages in other criminal conduct that substantially jeopardizes the
Employer's business. In the event Employee is discharged pursuant to this
Section 9(a), (i) Employee's Base Salary and Discretionary Bonus and all
benefits under Section 5 hereof shall terminate immediately upon such
discharge (subject to applicable law such as COBRA), (ii) all unvested
options, including but not limited to unvested Discretionary Options,
shall immediately expire, and all vested options, including but not limited
to vested Discretionary Options, may be exercised by Employee until six (6)
months after the date of termination under this Section 9(a), or for the
remainder of their term, whichever is sooner, and (iii) Employer shall have no
further obligations to Employee except for payment and reimbursement to Employee
for any monies due to Employee which right to payment or reimbursement accrued
prior to such discharge. Notwithstanding anything set forth herein, prior to
Employer having the right to discharge Employee pursuant to clauses (i) or (iii)
above, Employer shall first be required to give Employee at least thirty (30)
days' prior written notice of any alleged breach under Section 9(a)(i) or
9(a)(iii) above (the "Notice"), and for such Notice to be effective it must
specify in reasonable detail the nature of, and facts and circumstances relative
to, such alleged Cause, and Employee shall have a reasonable opportunity to cure
any such alleged improper actions within such thirty (30) day period (and in the
event Employee actually cures any such alleged improper actions within such
thirty (30) day period, the Notice shall automatically be deemed withdrawn).
(b) Incapacity. Should Employee, in the reasonable judgment of a
physician chosen by the Board, become incapacitated to the extent he is
unable to perform his material duties pursuant to this Agreement for a
period of six (6) consecutive months by reason of illness, disability or
other incapacity, Employer may terminate this Agreement upon one month's
notice after said six (6) month period. Employer shall have no further
obligations to Employee or his
5
<PAGE>
legal representatives except to pay to Employee the balance of his Base Salary
for the remainder of the Term of the Agreement and to pay to Employee the
Discretionary Bonus, if any, for the year prior to Employee's incapacity.
Upon Employee's termination under this Section 9(b) all unvested options,
including but not limited to unvested Discretionary Options, shall
automatically vest, and all of Employee's options, including but not limited to
Discretionary Options, may be exercised by Employee, or Employee's legal
guardian or representative, until one (1) year after the date of Employee's
termination under this Section 9(b), or for the remainder of their term,
whichever is sooner.
(c) This Agreement shall terminate immediately upon the death of
Employee, in which case Employer shall have no further obligations to
Employee or his legal representatives; provided, however, that in the event
that Employee's death occurs in connection with Employee's performance of his
duties hereunder, Employer shall pay to Employee's legal representatives the
balance of Employee's Base Salary for the remainder of the Term of the
Agreement and to pay to Employee's legal representatives, within sixty (60)
days of Employee's death, the Discretionary Bonus, if any, for the year prior
to Employee's death. Upon Employee's death, all unvested options, including
but not limited to unvested Discretionary Options, shall vest and all of
Employee's options, including but not limited to Discretionary Options, may
be exercised by Employee's estate until one (1) year from the date of
Employee's death, or for the remainder of their term, whichever is sooner.
(d) Termination Without Cause. In the event that Employee is
discharged and this Agreement is terminated without Cause (Cause being defined
as a reason for termination as set forth in Section 9(a) above) or for reason
other than as set forth in Sections 9(b) or 9(c) hereof, Employee shall
receive upon such termination or resignation: (A) the balance of his Base
Salary for the remainder of the Term of the Agreement; (B) in the event that
any bonus was actually paid to Employee under Section 4 above for the
immediately preceding fiscal year, including but not limited to the
Discretionary Bonus, Employee shall receive an identical bonus (or
pro-rated portion thereof) with respect to the fiscal year of termination;
and (C) all benefits under Section 5 hereof for the remaining Term, as
applicable. In addition, upon Employee's termination under this Section 9(d)
any unvested options, including but not limited to unvested Discretionary
Options, shall automatically vest and all of Employee's options, including
but not limited to Discretionary Options, may be exercised by Employee until
one (1) year after the date of Employee's termination under this Section 9(d),
or for the remainder of their term, whichever is sooner. All amounts due
Employee under this Section 9(d) shall be paid to Employee without
offset for any amounts earned by Employee in any other employment or from any
other source.
(e) Release; Sole Remedy. Notwithstanding anything to the contrary
in this Agreement, the amounts, if any, payable, and the provision of benefits,
if any, to Employee, required under the applicable provisions of this Section
9 in connection with the termination of Employee's employment, voluntarily or
involuntarily, for any or no reason, shall be: (i) the only remedy, legal or
equitable, available to Employee in connection with such termination, and the
payment of such amounts and the provision of such benefits shall constitute
liquidated damages;
6
<PAGE>
and (ii) as a condition precedent to Employer's obligations to pay any such
amounts or provide any such benefits, Employee shall have first executed and
delivered to Employer the form of Release attached hereto as Exhibit A, and
the seven day revocation period provided in said Release shall have expired
without revocation of said Release by Employee.
10. Violation of Other Agreements
Employee represents and warrants to Employer that he is legally
able to enter into this Agreement and accept employment with Employer; that
Employee is not prohibited by the terms of any agreement, understanding or
policy from entering into this Agreement; that the terms hereof will not and do
not violate or contravene the terms of any agreement, understanding or policy to
which Employee is or may be a party, or by which Employee may be bound; and that
Employee is under no physical or mental disability that would hinder the
performance of his duties under this Agreement. Employee agrees that, as it is a
material inducement to Employer that Employee make the foregoing representations
and warranties and that they be true in all respects, Employee shall forever
indemnify and hold Employer harmless from and against all liability, costs or
expenses (including attorney's fees and disbursements) on account of the
foregoing representations being untrue.
11. Specific Performance; Damages
In the event of a breach or threatened breach of the
provisions of Sections 7 and 8 hereof, Employee agrees that the injury which
could be suffered by Employer would be of a character which could not be fully
compensated for solely by a recovery of monetary damages. Accordingly, Employee
agrees that in the event of a breach or threatened breach of Sections 7 and 8
hereof, in addition to and not in lieu of any damages sustained by Employer and
any other remedies which Employer may pursue hereunder or under any applicable
law, Employer shall have the right to seek equitable relief, including issuance
of a temporary or permanent injunction, by any court of competent jurisdiction
against the commission or continuance of any such breach or threatened breach,
without the necessity of proving any actual damages or posting of any bond or
other surety therefor. In addition to, and not in limitation of the foregoing,
Employee understands and confirms that, in the event of a breach or threatened
breach of Sections 7 and 8 hereof, Employee may be held financially liable to
Employer for any loss suffered by Employer as a result.
12. Notices
Any and all notices, demands or requests required or
permitted to be given under this Agreement shall be given in writing and sent,
by registered or certified U.S. mail, return receipt requested, by hand, or by
overnight courier, addressed to the parties hereto at their addresses set forth
above or such other addresses as they may from time-to-time designate by written
notice, given in accordance with the terms of this Section, together with copies
thereof as follows:
7
<PAGE>
In the case of Employer, with a copy to:
Zukerman Gore & Brandeis, LLP
900 Third Avenue
New York, New York 10022-4728
Attention: Andrew M. Chonoles, Esq.
Notice given as provided in this Section shall be deemed effective: (i) on the
date hand delivered, (ii) on the first business day following the sending
thereof by overnight courier, and (iii) on the seventh calendar day (or, if it
is not a business day, then the next succeeding business day thereafter) after
the depositing thereof into the exclusive custody of the U.S. Postal
Service.
13. Waivers
No waiver by any party of any default with respect to any
provision, condition or requirement hereof shall be deemed to be a waiver of any
other provision, condition or requirement hereof; nor shall any delay or
omission of any party to exercise any right hereunder in any manner impair the
exercise of any such right accruing to it thereafter.
14. Preservation of Intent
Should any provision of this Agreement be determined by a court
having jurisdiction in the premises to be illegal or in conflict with any laws
of any state or jurisdiction or otherwise unenforceable, Employer and
Employee agree that such provision shall be modified to the extent legally
possible so that the intent of this Agreement may be legally carried out.
15. Entire Agreement
This Agreement sets forth the entire and only agreement or
understanding between the parties relating to the subject matter hereof and
supersedes and cancels all previous agreements, negotiations, letters of intent,
correspondence, commitments and representations in respect thereof among them,
and no party shall be bound by any conditions, definitions, warranties or
representations with respect to the subject matter of this Agreement except as
provided in this Agreement.
16. Inurement; Assignment
The rights and obligations of Employer under this Agreement
shall inure to the benefit of and shall be binding upon any successor of
Employer or to the business of Employer, subject to the provisions hereof.
Employer may assign this Agreement to any person, firm or corporation
controlling, controlled by, or under common control with Employer. Neither this
Agreement nor any rights or obligations of Employee hereunder shall be
transferable or assignable by Employee.
8
<PAGE>
17. Amendment
This Agreement may not be amended in any respect except by an
instrument in writing signed by the parties hereto.
18. Headings
The headings in this Agreement are solely for convenience of
reference and shall be given no effect in the construction or interpretation of
this Agreement.
19. Counterparts
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which when taken together shall
constitute one and the same instrument.
20. Governing Law
This Agreement shall be governed by, construed and enforced in
accordance with the internal laws of the State of New York, without giving
reference to principles of conflict of laws. Each of the parties hereto
irrevocably consents to the venue and jurisdiction of the federal and state
courts located in the State of New York, County of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
EMPLOYEE:
/s/ Michael Carney
_______________________________
MICHAEL CARNEY
EMPLOYER:
DANIELSON HOLDINGS CORPORATION
By: /s/ David Barse
___________________________
Name: David Barse
Title: President
9
<PAGE>
Exhibit A
RELEASE
1. Pursuant to the terms of the Employment Agreement made as of ___ ,
1999, between Danielson Holdings Corporation, a Delaware corporation (the
"Company"), and the undersigned (the "Agreement"), and in consideration of the
payments made to me and other benefits to be received by me pursuant thereto, I,
____________ , being of lawful age, do hereby release, and forever discharge,
the Company, its subsidiaries and affiliates and their respective directors,
officers, shareholders, subsidiaries, agents, employees and affiliates, from any
and all actions, causes of action, claims, or demands for general, special or
punitive damages, attorney's fees, expenses, or other compensation, which in any
way relate to or arise out of my employment with the Company or any of its
subsidiaries or the termination of such employment (but not for actions, causes
of action, claims or demands not directly related to such employment or
termination of employment, even if arising at the time of termination), which I
may now or hereafter have under any federal, state or local law, regulation or
order, including without limitation, under the Age Discrimination in Employment
Act, as amended, through and including the date of this Release; provided,
however, that this Release shall not release the Company's obligations with
respect to (a) payment of the severance payments and compliance with the other
provisions of Section 9 of the Agreement, and (b) paragraph 2 of this Release.
2. The Company agrees that, from and after the date hereof, if asked
about the undersigned's separation from the Company, except as otherwise
required by applicable law, the Company will not make any public statement
regarding such separation other than that the undersigned has left the Company
to pursue other interests. From and after the date hereof, the Company will not
intentionally make any defamatory or disparaging statements about the
undersigned or the undersigned's performance for the Company. For purposes of
this paragraph 2 only, the Company shall mean only the directors and executive
officers of the Company (as long as the foregoing persons are still directly or
indirectly affiliated with the Company), and shall specifically include David
Barse, Harold Drachman, Michael Carney and Ian Kirschner (as long as the
foregoing persons are still directly or indirectly affiliated with the Company).
3. I agree that, from and after the date hereof, if asked about my
separation from the Company, except as otherwise required by applicable law, I
will not make any public statement regarding such separation other than that I
have left the Company to pursue other interests. From and after the date hereof,
I will not intentionally make any defamatory or disparaging statements about the
Company, its subsidiaries or affiliates or their products, services, directors,
officers, shareholders, employees, agents, customers or business relationships.
11
<PAGE>
4. I further state that I have read this Release and the Agreement
referred to herein, that I know the contents of both and that I have executed
the same as my own free act.
WITNESS my hand this ___ day of _______________________ , ____.
__________________________
[Employee]
AGREED AND ACKNOWLEDGED
THIS ______ DAY OF ___________ , ______
DANIELSON HOLDINGS CORPORATION
By: _________________________
12
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000225648
<NAME> DANIELSON HOLDING CORPORATION
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 110,752
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 18,519
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 133,767
<CASH> 54
<RECOVER-REINSURE> 23,285 <F1>
<DEFERRED-ACQUISITION> 2,612
<TOTAL-ASSETS> 177,052
<POLICY-LOSSES> 90,987
<UNEARNED-PREMIUMS> 15,010
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 189
<NOTES-PAYABLE> 0
0
0
<COMMON> 1559
<OTHER-SE> 60,438 <F2>
<TOTAL-LIABILITY-AND-EQUITY> 177,052
24,843
<INVESTMENT-INCOME> 3,783
<INVESTMENT-GAINS> (154)
<OTHER-INCOME> 425
<BENEFITS> 16,903
<UNDERWRITING-AMORTIZATION> 4,641
<UNDERWRITING-OTHER> 6,604
<INCOME-PRETAX> 389
<INCOME-TAX> 23
<INCOME-CONTINUING> 366
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 366
<EPS-BASIC> 0.02 <F3>
<EPS-DILUTED> 0.02 <F4>
<RESERVE-OPEN> 77,466
<PROVISION-CURRENT> 16,903
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 6,722
<PAYMENTS-PRIOR> 17,079
<RESERVE-CLOSE> 70,568
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1> INCLUDES REINSURANCE RECOVERABLES ON UNPAID LOSSES OF 20,419
AND REINSURANCE RECOVERABLES ON PAID LOSSES OF 2,866.
<F2> INCLUDES TREASURY STOCK OF 66.
<F3> REPRESENTS EARNINGS PER SHARE-BASIC.
<F4> REPRESENTS EARNINGS PER SHARE-DILUTED.
</FN>
</TABLE>
