SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of earliest event
reported: September 22, 1994
THE CONTINENTAL CORPORATION
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(Exact name of registrant as specified in its charter)
New York 1-5686 13-2610607
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(State of (Commission File Number) (IRS Employer
Incorporation) Identification No.)
180 Maiden Lane New York, New York 10038
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(Address of principal executive offices) (Zip Code)
(212) 440-3000
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(Registrant's telephone number)
Page 1 of Pages
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Exhibit Index on Page
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Item 5. Other Events.
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On October 13, 1994, The Continental Corporation
issued the following press release:
CONTINENTAL ANNOUNCES NEW CAPITAL INFUSION, NEW CEO,
AND RESERVE STRENGTHENING
Insurance Partners, LP To Invest $200 Million in Preferred Stock
Haverland Named to Succeed Mascotte as Continental's
Chairman and CEO
$400 Million in Reserves Established for IBNR
Environmental Claims
New York, N.Y., October 13, 1994 -- The Continental
Corporation (NYSE: CIC) today announced that it has entered
into a definitive agreement to sell $200 million in
preferred stock, convertible into about 19.9% of its
currently outstanding common stock, to Insurance Partners,
L.P.
Continental also announced that its board of directors
has elected Richard M. Haverland vice chairman and a
director of Continental Corporation. Upon completion of the
proposed transaction, which is expected by year-end,
Haverland will be named chairman and chief executive
officer, succeeding John P. Mascotte, who will resign.
Continental announced that it will strengthen its
reserves by $400 million pre-tax by establishing, for the
first time, loss reserves for incurred but not reported
asbestos-related, environmental pollution and other toxic-
tort claims. The company also announced that it will take
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an additional pre-tax charge of $164 million for reinsurance
recoverables and other assets. These charges will be
reflected in its third quarter results, which the company
expects to report on November 2.
In a separate agreement, Insurance Partners and related
parties have agreed to buy for about $35 million the
operations of Continental Asset Management, the company's
investment management subsidiary.
Insurance Partners, L.P. is a $540 million investment
partnership formed in February 1994 to sponsor acquisitions,
recapitalizations, demutualizations, and other structured
transactions in the property/casualty and life insurance
industries in the U.S. and abroad. Principal partners
include Centre Reinsurance Holdings Ltd.; Keystone, Inc.
(formerly the Robert M. Bass Group); and the Chase Manhattan
Corporation. Insurance Partners Advisors, L.P., of New York
City, is the partnership's advisor.
"The capital infusion, reserve strengthening and sales
of assets, together with the actions taken by the company in
recent months to reduce expenses, exposure to catastrophes
and operating leverage, will all help to restore Continental
to its pre-eminent position in the property/casualty
industry," said Mr. Haverland. "I am looking forward to
leading that effort."
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"This strategic agreement will strengthen our capital
base and protect the value of Continental's franchise in the
property/casualty insurance market," said Mr. Mascotte.
"After two months of intensive review of the company,
we've developed great confidence in the fundamental strength
and value of Continental's operating franchise," said Daniel
Doctoroff, managing partner of Insurance Partners Advisors,
LP.
According to the agreement, Insurance Partners will
acquire for cash $200 million in liquidation value of two
series of cumulative preferred stock, each series paying an
annual cash dividend of 9.75%, along with an option to
acquire $125 million in liquidation preference of another
series of non-convertible preferred stock. Of the $200
million, about $165 million will be for a series of
convertible preferred stock, convertible into about 19.9% of
Continental's currently outstanding common shares, at a
conversion price of $15.00 a share. The balance, about $35
million, would be for a series of nonconvertible preferred
stock that would be redeemable under certain circumstances
at a price reflecting any increase in the per share price of
the common stock over $15.00. The two preferred issues will
mature in 15 years, but may be redeemed by the company after
seven years. The option and its underlying preferred stock
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will be redeemable under certain circumstances at a price
reflecting any increase in the per share price of the common
stock over $17.00.
Following the purchase of the preferred stock,
Insurance Partners will be entitled to nominate up to four
directors to serve on Continental's board. Continental has
agreed that it will continue not paying dividends on its
common stock for three years from the time the preferred
stock is sold.
The agreement also contemplates that, following the
investment by Insurance Partners, Continental will further
strengthen its capital base by raising $100 million to be,
at the company's option, in nonconvertible preferred stock
or debt.
The proposed transaction is subject to satisfaction of
closing conditions under the agreement, including regulatory
approvals and expiration of the Hart-Scott-Rodino act
waiting period. If the agreement is terminated by
Continental in order to enter into an agreement for a merger
or similar transaction, Insurance Partners would be paid a
termination fee of $17.5 million, or if higher, 1.875% of
the aggregate value of the other transaction.
Continental also announced that a number of actuarial
and analytical studies on environmental claims have enabled
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the company to develop a reasonable estimate of loss
reserves for IBNR (incurred but not reported) asbestos,
environmental pollution, and other toxic tort claims. The
company has historically posted reserves for known
environmental claims, but did not establish IBNR reserves,
due to the difficulty in estimating their future financial
impact. The company noted that its new $400 million IBNR
reserves, when combined with its current case reserves of
$200 million for known environmental claims, would comprise
approximately nine times its average annual paid loss for
such claims, a ratio which the company believes is well
above the industry average.
Also, Continental will conduct its regular annual in-
depth review of its core (non-environmental) reserves at
year-end. This review could result in substantial
additional reserve strengthening.
In a separate agreement, Insurance Partners and related
parties have agreed to buy the operations of Continental
Asset Management for about $35 million. Under the terms of
this agreement, Continental has an option to purchase a 20%
interest in these operations, and CAM will continue to
provide asset management services to Continental. The
proposed transaction is subject to satisfaction of closing
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conditions, including financing and applicable regulatory
approvals.
Continental Asset Management is an investment advisory
firm which manages Continental's investment portfolio and
provides investment management services for outside clients,
including property/casualty insurance companies.
Haverland, the CEO-designate of Continental, has almost
25 years of experience in the insurance business. For the
past three years, he has been Executive Vice President -
Insurance Operations of American Premier Underwriters, Inc.,
which wrote $1.4 billion in premiums in 1993. From 1984 to
1991, he was executive vice president of Great American
Insurance Company, and from 1970 to 1983, he was with the
Progressive Corporation, where he was president and chief
operating officer, beginning in 1979.
Continental has over the last six months undertaken a
series of actions to improve its profitability and financial
position. These actions include a dramatic reduction in
commercial and personal package insurance writings to
improve profitability and to lower the company's potential
exposure to catastrophe losses; transferring $40 million of
capital from the parent company into its domestic insurance
operations; entering into a personal lines quota-share
arrangement with an outside reinsurer to lower its operating
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leverage; cutting pre-tax annual expenses by over $100
million by eliminating 2,300 positions in the company, and,
most recently, reaching agreements to sell its Canadian
operations and Casualty Insurance unit. The company
announced that it had also increased its U.S. statutory
surplus by redeploying over $200 million to its domestic
insurance operations. These actions are expected to reduce
Continental's premium to surplus ratio from a high of about
3:1 earlier this year to below 2:1 in 1995.
The Continental Corporation is a property/casualty
insurance organization headquartered in New York City. Its
subsidiaries are leading writers of commercial and personal
package policies and select specialty coverages through
major independent agents and brokers.
* * *
On October 11, 1994, The Continental Corporation
issued the following press release:
CONTINENTAL TO SELL CASUALTY UNIT FOR $250 MILLION
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New York, N.Y., October 11, 1994 -- The Continental
Corporation (NYSE:CIC) announced today that it has agreed to
sell its Casualty Insurance unit to Fremont General
Corporation for $250 million in cash.
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Earlier in the year, Continental announced its intent
to sell Casualty Insurance as part of a multi-faceted effort
to strengthen Continental's capital base.
Casualty Insurance, based in Chicago, is the leading
writer of workers' compensation insurance in Illinois. The
unit also has facilities operating in Wisconsin, Indiana,
Michigan and California. In 1993, Casualty wrote $362
million in premiums, overwhelmingly in the midwest.
The proposed transaction is subject to completion of a
definitive agreement, regulatory approvals, and satisfaction
of other closing conditions under the agreement.
Fremont General Corporation is a diversified insurance
and financial services holding company. In 1993, its
California-based subsidiary Fremont Compensation Insurance
Company generated $431 million in direct voluntary workers'
compensation premiums in California and Arizona.
The Continental Corporation, headquartered in New York
City, is a property/casualty insurance organization with
about $4 billion in annual revenues. Its subsidiaries are
leading writers of commercial and personal package policies
and select specialty coverages through major independent
agents and brokers.
A Purchase Agreement was entered into on October 12,
1994, between The Continental Insurance Company of Canada, The
Dominion Insurance Corporation and Firemen's Insurance Company of
Newark, New Jersey and Continental Reinsurance Corporation and
Continental Reinsurance Corporation International Limited and The
Continental Corporation and Fairfax Financial Holdings Limited,
for the sale of the Continental Canada unit.
* * *
On September 22, 1994, The Continental Corporation
adopted an Executive Termination Program.
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Item 7. Exhibits
Exhibit 10(a) Securities Purchase Agreement, dated October
13, 1994 ("Securities Purchase Agreement"),
between The Continental Corporation and
TCC-PS Limited Partnership, a Delaware
limited partnership, with Schedule 1 and
Exhibits A through E.
Exhibit 10(b) Asset Purchase Agreement, dated October
13, 1994, among CAM Investment Management,
L.P., as Purchaser, The Continental
Corporation and Continental Asset Management
Corp., with Exhibits A through H.
Exhibit 10(c) Employment Agreement, dated as of October
13, 1994, by and between The Continental
Corporation and Mr. Richard M. Haverland.
Exhibit 10(d) Agreement in Principle, dated October 10,
1994, among Fremont Compensation Insurance
Company, Fremont General Corporation, The
Buckeye Union Insurance Company and The
Continental Corporation.
Exhibit 10(e) Executive Termination Program.
Exhibit 10(f) Purchase Agreement dated October 12, 1994 between
The Continental Insurance Company of Canada, The
Dominion Insurance Corporation and Firemen's
Insurance Company of Newark, New Jeresy and
Continental Reinsurance Corporation and
Continental Reinsurance Corporation International
Limited and the Continental Corporation and
Fairfax Financial Holdings Limited.
* * *
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SIGNATURE
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
hereunto duly authorized.
Dated: October 18, 1994
THE CONTINENTAL CORPORATION
By /s/ William F. Gleason, Jr.
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William F. Gleason, Jr.
Senior Vice President,
General Counsel and
Secretary
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Exhibit Index
Sequentially
Numbered
Page
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Exhibit 10(a) Securities Purchase Agreement, dated
October 13, 1994 ("Securities
Purchase Agreement"), between The
Continental Corporation and TCC-PS
Limited Partnership, a Delaware
limited partnership, with Schedule 1
and Exhibits A through E.
Exhibit 10(b) Asset Purchase Agreement, dated
October 13, 1994, among CAM
Investment Management, L.P., as
Purchaser, The Continental
Corporation and Continental Asset
Management Corp., with Exhibits A
through H.
Exhibit 10(c) Employment Agreement, dated as of
October 13, 1994, by and between The
Continental Corporation and Mr.
Richard M. Haverland.
Exhibit 10(d) Agreement in Principle, dated
October 10, 1994, among Fremont
Compensation Insurance Company,
Fremont General Corporation, The
Buckeye Union Insurance Company and
The Continental Corporation.
Exhibit 10(e) Executive Termination Program.
Exhibit 10(f) Purchase Agreement dated October 12,
1994 between The Continental Insurance
Company of Canada, The Dominion Insurance
Corporation and Firemen's Insurance Company
of Newark, New Jeresy and Continental
Reinsurance Corporation and Continental
Reinsurance Corporation International
Limited and the Continental Corporation and
Fairfax Financial Holdings Limited.
F-1
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SECURITIES PURCHASE AGREEMENT
BETWEEN
THE CONTINENTAL CORPORATION
AND
TCC-PS LIMITED PARTNERSHIP
Dated as of October 13, 1994
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<PAGE>
TABLE OF CONTENTS
Page
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1. DEFINITIONS: CERTAIN REFERENCES . . . . . . . . . 1
2. CLOSING . . . . . . . . . . . . . . . . . . . . . 6
2.1 Time and Place of the Closing . . . . . . . 6
2.2 Transactions at the Closing . . . . . . . . 7
2.3 Fees . . . . . . . . . . . . . . . . . . . . 7
3. CONDITIONS TO THE CLOSING . . . . . . . . . . . . 7
3.1 Conditions Precedent to the Obligations of
the Purchaser . . . . . . . . . . . . . . . 7
3.1.1 Compliance by the Company . . . . . . 7
3.1.2 No Legal Action . . . . . . . . . . . 7
3.1.3 Election of Officer. . . . . . . . . 8
3.1.4 Certificate of Amendment . . . . . . 8
3.1.5 Stock Exchange Listing . . . . . . . 8
3.1.6 Regulatory Matters . . . . . . . . . 8
3.1.7 Legal Opinions . . . . . . . . . . . 9
3.1.8 Registration Rights Agreement . . . . 9
3.1.9 Option . . . . . . . . . . . . . . . 9
3.1.10 Other . . . . . . . . . . . . . . . . 9
3.1.11 Hart-Scott-Rodino . . . . . . . . . . 9
3.1.12 Exemption from Special Voting
Requirements . . . . . . . . . . . . 10
3.1.13 Change of Control . . . . . . . . . . 10
3.1.14 Amendments to Loan Agreements . . . . 10
3.1.15 Credit Agreement Amendment and
Waiver; Relationship with Lenders . . 10
3.1.16 Confirmation of A.M. Best . . . . . . 11
3.1.17 Absence of Material Adverse Effect . 11
3.1.18 Board of Directors; Amendment to
By-laws . . . . . . . . . . . . . . . 11
3.1.19 Tax Sharing Agreements . . . . . . . 13
3.1.20 Reserves . . . . . . . . . . . . . . 13
3.2 Conditions Precedent to Obligations of the
Company . . . . . . . . . . . . . . . . . . . 13
3.2.1 Compliance by the Purchaser . . . . . 13
3.2.2 No Legal Action . . . . . . . . . . . 13
3.2.3 Regulatory Matters . . . . . . . . . 13
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Page
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3.2.4 Certificate of Amendment . . . . . . 14
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . 14
4.1 Organization, Good Standing, Power,
Authority, Etc. . . . . . . . . . . . . . . 14
4.2 Capitalization of the Company . . . . . . . 15
4.3 Registration Rights . . . . . . . . . . . . 16
4.4 SEC Documents . . . . . . . . . . . . . . . 16
4.5 Authority and Qualification of the Company . 17
4.6 Subsidiaries . . . . . . . . . . . . . . . . 17
4.7 Outstanding Securities . . . . . . . . . . . 18
4.8 No Contravention, Conflict, Breach, Etc. . . 18
4.9 Consents . . . . . . . . . . . . . . . . . . 19
4.10 No Existing Violation, Default, Etc. . . . . 19
4.11 Licenses and Permits . . . . . . . . . . . . 20
4.12 Title to Properties . . . . . . . . . . . . 20
4.13 Environmental Matters . . . . . . . . . . . 21
4.14 Taxes . . . . . . . . . . . . . . . . . . . 22
4.15 Litigation . . . . . . . . . . . . . . . . . 22
4.16 Labor Matters . . . . . . . . . . . . . . . 22
4.17 Contracts . . . . . . . . . . . . . . . . . 23
4.18 Finder's Fees . . . . . . . . . . . . . . . 23
4.19 Financial and Statutory Statements . . . . . 23
4.20 Employee Benefits . . . . . . . . . . . . . 24
4.21 Contingent Liabilities . . . . . . . . . . . 25
4.22 No Material Adverse Change . . . . . . . . . 25
4.23 Investment Company . . . . . . . . . . . . . 26
4.24 Exemption from Registration; Restrictions
on Offer and Sale of Same or Similar
Securities . . . . . . . . . . . . . . . . . 26
4.25 Use of Proceeds . . . . . . . . . . . . . . 26
4.26 Information with Respect to Reserves . . . . 27
4.27 No Bank Regulatory Oversight . . . . . . . . 27
5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER . 27
5.1 Organization, Good Standing, Power,
Authority, Etc. . . . . . . . . . . . . . . 27
5.2 No Conflicts; No Consents . . . . . . . . . 27
5.3 Acquisition for Own Account . . . . . . . . 28
5.4 Available Funds . . . . . . . . . . . . . . 28
6. COVENANTS OF THE PARTIES . . . . . . . . . . . . . 29
6.1 Restrictions on Transfer . . . . . . . . . . 29
6.2 Certificates for Shares and Conversion
Shares To Bear Legends . . . . . . . . . . . 30
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Page
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6.3 Removal of Legends . . . . . . . . . . . . . 32
6.4 Voting of Shares. . . . . . . . . . . . . 32
6.5 Pre-Closing Activities . . . . . . . . . . . 33
6.6 No Inconsistent Agreements . . . . . . . . . 35
6.7 Information . . . . . . . . . . . . . . . . 35
6.8 Hart-Scott-Rodino . . . . . . . . . . . . . 36
6.9 Acquisition Proposals . . . . . . . . . . . 36
6.10 Permitted Disposition . . . . . . . . . . . 37
6.11 Access . . . . . . . . . . . . . . . . . . . 38
6.12 Publicity . . . . . . . . . . . . . . . . . 39
6.13 Restricted Payments. . . . . . . . . . . . 39
6.14 Reservation of Shares . . . . . . . . . . . 39
6.15 Issuance of New Preferred Stock or New
Senior Notes . . . . . . . . . . . . . . . . 39
6.16 Shareholders Rights Plan . . . . . . . . . . 40
6.17 Board Representation . . . . . . . . . . . . 40
6.18 Specified Corporate Action . . . . . . . . . 44
6.19 Regulatory Approvals . . . . . . . . . . . . 44
6.20 Regulatory Documents . . . . . . . . . . . . 45
7. STANDSTILL . . . . . . . . . . . . . . . . . . . . 45
7.1 Prohibited Activities. . . . . . . . . . . . 45
7.2 Voting and Other Rights. . . . . . . . . . 48
7.3 Standstill Period. . . . . . . . . . . . . 48
8. INDEMNIFICATION . . . . . . . . . . . . . . . . . 51
8.1 Indemnification by the Company . . . . . . . 51
8.2 Notification . . . . . . . . . . . . . . . . 52
8.3 Registration Rights Agreement . . . . . . . 53
9. TERMINATION . . . . . . . . . . . . . . . . . . . 53
9.1 Termination . . . . . . . . . . . . . . . . 53
9.2 Effect of Termination. . . . . . . . . . . . 54
10. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS . . . . . . . . . . . . . . . . . . . . 54
11. PERFORMANCE; WAIVER . . . . . . . . . . . . . . . 54
12. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . 55
13. MISCELLANEOUS . . . . . . . . . . . . . . . . . . 55
13.1 Notices . . . . . . . . . . . . . . . . . . 55
13.2 Expenses . . . . . . . . . . . . . . . . . . 56
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Page
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13.3 Governing Law . . . . . . . . . . . . . . . 57
13.4 Severability . . . . . . . . . . . . . . . . 57
13.5 Headings; Interpretation . . . . . . . . . . 57
13.6 Entire Agreement . . . . . . . . . . . . . . 57
13.7 Counterparts . . . . . . . . . . . . . . . . 58
13.8 Letter Agreement. . . . . . . . . . . . . . 58
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SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT ("AGREEMENT") dated
as of October __, 1994, between THE CONTINENTAL CORPORATION,
a New York corporation (including its successors and
permitted assigns, the "Company"), and TCC-PS LIMITED
PARTNERSHIP, a Delaware limited partnership (including its
successors and permitted assigns, the "Purchaser").
WHEREAS, the Company desires to sell to the
Purchaser, and the Purchaser desires to purchase, an
aggregate of (A) such number of shares of the Company's
Cumulative Convertible Preferred Stock, Series E, par value
$4.00 per share ("Series E Preferred Stock"), as shall be
convertible on the Closing Date into 19.9% of the Common
Stock outstanding on the Closing Date and (B) such number of
shares of the Company's Cumulative Preferred Stock,
Series F, par value $4.00 per share ("Series F Preferred
Stock"), having an aggregate liquidation preference equal to
$200,000,000 less the aggregate liquidation preference of
the Series E Preferred Stock (collectively, the "Shares"),
for the consideration and upon the terms and subject to the
conditions set forth herein. The Company also desires to
grant to the Purchaser an option to purchase 1,250,000
shares (the "Option Shares") of the Company's Cumulative
Preferred Stock, Series G, par value $4.00 per share (the
"Series G Preferred Stock").
NOW, THEREFORE, in consideration of the premises
and of the respective representations, warranties,
covenants, agreements and conditions contained herein, each
of the Company and the Purchaser agrees as follows:
1. DEFINITIONS: CERTAIN REFERENCES.
The terms defined in this Section 1, whenever
used in this Agreement, shall have the following meanings
for all purposes of this Agreement:
<PAGE>
"Act" means the Securities Act of 1933, as
amended, and the rules and regulations promulgated
thereunder.
"Affiliate" has the meaning set forth in
Rule 12b-2 under the Exchange Act.
"Annual Report" means the Company's Annual Report
on Form 10-K for the year ended December 31, 1993, as filed
with the SEC.
"Bank Regulatory Arrangements" has the meaning set
forth in Section 6.19.
"CAM" means Continental Asset Management Corp.
"CAM Agreement" means the Asset Purchase
Agreement, dated as of the date hereof, by and among CAM
Investment Management, L.P., CAM and the Company.
"Casualty" means Casualty Insurance Company, an
Illinois corporation.
"Certificate of Amendment" means the Certificate
of Amendment of the Certificate of Incorporation of the
Company to be filed by the Company with the Department of
State of the State of New York on or prior to the date and
time of the Closing, substantially in the form attached as
Exhibit A hereto.
"Certificate of Incorporation" means the Certifi-
cate of Incorporation of the Company as filed for record by
the Department of State of the State of New York, as amended
through the date hereof.
"Change of Control" means: (A) the sale or other
disposition, directly or indirectly, by the Company or any
of its Subsidiaries (other than any sale or other disposi-
tion by the Company or any of its Subsidiaries to the
Company or any of its wholly owned Subsidiaries) in one or a
series of related transactions of (i) 30% or more of the
gross premiums written by the Company and its Subsidiaries
in the four immediately preceding fiscal quarters (whether
by reinsurance, the sale of assets, the sale of securities
of entities holding the same, or otherwise), calculated in a
manner consistent with the Company's historical financial
practices, (ii) Marine Office of America Corporation (or all
or substantially all of its assets), (iii) 50% or more of
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the Company's Commercial Lines business (whether by the sale
of assets, the sale of securities of entities holding the
same, or otherwise) or (iv) 40% or more of the Company's
Special Operations Group (whether by the sale of assets, the
sale of securities of entities holding the same, or other-
wise); or (B) the occurrence of a Specified Corporate
Action.
"Closing" has the meaning set forth in Section 2.1
of this Agreement.
"Closing Date" has the meaning set forth in
Section 2.1 of this Agreement.
"Common Stock" means the common stock, par value
$1.00 per share, of the Company.
"Company" has the meaning set forth in the first
recital of this Agreement.
"Conversion Price" shall have the meaning
specified in the Certificate of Amendment.
"Conversion Shares" means the shares of Common
Stock issuable or issued upon conversion of the Series E
Preferred Stock pursuant to the terms of this Agreement and
the Certificate of Amendment.
"Encumbrance" has the meaning set forth in
Section 4.6 of this Agreement.
"Environmental Laws" has the meaning set forth in
Section 4.13 of this Agreement.
"ERISA" has the meaning set forth in Section 4.20
of this Agreement.
"Exchange Act" means the Securities Exchange Act
of 1934, as amended, and the rules and regulations
promulgated thereunder.
"Exchange Notes" means, collectively, the
Convertible Subordinated Notes of the Company issuable or
issued in exchange for the Series E Preferred Stock, the
Subordinated Notes of the Company issuable or issued in
exchange for the Series F Preferred Stock and the
Subordinated Notes of the Company issuable or issued in
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exchange for the Series G Preferred Stock, in each case
pursuant to the Certificate of Amendment.
"Initial Purchaser" means, collectively, the
original purchaser or purchasers of the Shares and any
Affiliate thereof, any limited liability company of which
Insurance Partners, L.P and/or Insurance Partners Offshore
(Bermuda), L.P. is a member or any partner of Insurance
Partners, L.P. or Insurance Partners Offshore (Bermuda),
L.P. to which it transfers any Shares, Option Shares,
Conversion Shares or Exchange Notes or any portion of the
Option.
"Initial Purchaser Representative" means Insurance
Partners Advisors, L.P. or any other single Affiliate of the
Initial Purchaser designated as Initial Purchaser
Representative by written notice from the Initial Purchaser
to the Company.
"Licenses" has the meaning set forth in
Section 4.11 of this Agreement.
"Mandatory Redemption Date" has the meaning set
forth in the Certificate of Amendment.
"Material Adverse Effect" means a material adverse
effect on the assets, results of operations, business,
prospects or condition (financial or otherwise) of the
Company and its Subsidiaries, taken as a whole.
"Material Subsidiaries" means those Subsidiaries
of the Company set forth on Schedule 1 hereto.
"New Preferred Stock" has the meaning set forth in
the Certificate of Amendment.
"New Senior Notes" has the meaning set forth in
the Certificate of Amendment.
"Nominating Committee" has the meaning set forth
in Section 3.1.18.
"Operating Committee" means the Operating
Committee of the Board of Directors of the Company, which
shall be composed of the person identified in Section 3.1.3,
the Chief Executive Officer of the Company and the President
of the Company.
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<PAGE>
"Option" means the Stock Option to be dated as of
the Closing delivered by the Company to the Purchaser
substantially in the form of Exhibit B hereto, as amended,
supplemented and modified form time to time in accordance
with the terms thereof.
"Option Shares" has the meaning set forth in the
first recital of this Agreement.
"Permitted Dividend" shall have the meaning
specified in the Certificate of Amendment.
"Purchase Price" means $200,000,000.
"Purchaser" has the meaning set forth in the first
recital of this Agreement.
"Purchaser Designee" shall have the meaning
specified in Section 3.1.18.
"Purchaser Group" means the original purchaser or
purchasers of the Shares, Insurance Partners, L.P.,
Insurance Partners Offshore (Bermuda), L.P., Keystone, Inc.,
Centre Reinsurance Holdings Limited and any entity that any
of the foregoing has the power to direct or cause the
direction of the management or policies of which (whether
through the ownership of voting securities, by contract or
otherwise).
"Quarterly Reports" means the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1994 and
the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994, each as filed with the SEC.
"Registrable Securities" shall have the meaning
specified in the Registration Rights Agreement.
"Registration Rights Agreement" means the
Registration Rights Agreement to be dated as of the date of
the Closing between the Company and the Initial Purchaser,
substantially in the form attached as Exhibit C hereto, as
amended, supplemented and modified from time to time in
accordance with the terms thereof.
"Restricted Payment" shall have the meaning
specified in the Certificate of Amendment.
5
<PAGE>
"Restricted Securities" has the meaning set forth
in Section 7.1 of this Agreement.
"SEC" means the Securities and Exchange
Commission.
"SEC Documents" means all documents filed by the
Company with the SEC since January 1, 1993.
"Series E Preferred Stock" has the meaning set
forth in the first recital of this Agreement.
"Series F Preferred Stock" has the meaning set
forth in the first recital of this Agreement.
"Series G Preferred Stock" has the meaning set
forth in the first recital of this Agreement.
"Shares" has the meaning set forth in the first
recital of this Agreement.
"Specified Corporate Action" shall have the
meaning specified in the Certificate of Amendment.
"Standstill Period" has the meaning set forth in
Section 7.3 of this Agreement.
"Subsidiary" means, with respect to any person,
any corporation, limited or general partnership, joint
venture, association, joint stock company, trust, unincor-
porated organization, or other entity analogous to any of
the foregoing of which a majority of the equity ownership
(whether voting stock or comparable interest) is, at the
time, owned, directly or indirectly by such person.
"Transaction Documents" means the Certificate of
Amendment, the Option and the Registration Rights Agreement.
"Transaction Expenses" means the expenses of the
Purchaser, the Initial Purchaser, CAM Investment Manage-
ment, L.P., Insurance Partners, L.P., Insurance Partners
Offshore (Bermuda), L.P. or any of their respective
Affiliates (whether or not incurred prior to the date
hereof), including without limitation, the fees, disburse-
ments and other expenses of lawyers, accountants, actuaries,
investment bankers and any other advisors thereto, arising
out of, relating to or incidental to the discussion, evalua-
tion, negotiation, documentation and closing or potential
6
<PAGE>
closing of the transactions contemplated hereby (and, as
used in Section 6.10, the transactions contemplated by the
CAM Agreement and the potential acquisition by an Affiliate
of the Purchaser of Casualty), and shall mean and include,
with respect to fees of professionals based on hourly rates,
such fees to the extent they are based on the standard
hourly rates of such professionals.
"Transfer" means, with respect to any Share,
Conversion Share or Exchange Note issued with respect to the
Shares, any sale, assignment, transfer, disposition by gift,
including without limitation, any distribution in liquida-
tion or otherwise by a corporation or partnership; provided,
--------
however, that "Transfer" does not mean, with respect to any
-------
such Share, Conversion Share or Exchange Note, any pledge,
mortgage, hypothecation or grant of a security interest
therein or a transfer thereof through the granting of
participation rights.
2. CLOSING.
2.1 Time and Place of the Closing. The
-----------------------------
Closing (the "Closing") shall take place at the offices of
Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the
Americas, New York, New York 10019-6064, at 10:00 A.M., New
York time, on the fifth business day following the first
date on which the conditions to Closing set forth in each of
Section 3.1.6 and Section 3.2.3 have first been satisfied or
waived; provided, however, that the Closing Date shall be
-------- -------
extended until no later than February 28, 1995 if (A) any of
the other conditions to the Closing have not been satisfied
or waived as of such date, (B) the applicable party is using
its best efforts to satisfy such condition or conditions and
(C) such condition or conditions may reasonably be satisfied
on or prior to February 28, 1995. The Company shall give to
the Purchaser two business days' prior written notice of the
date the Closing is scheduled to occur. The "Closing Date"
shall be the date the Closing occurs.
2.2 Transactions at the Closing. At the
---------------------------
Closing, subject to the terms and conditions of this Agree-
ment, the Company shall issue and sell to the Purchaser, and
the Purchaser shall purchase, the Shares. At the Closing,
the Company shall deliver to the Purchaser certificates
representing the Shares, each registered in the name of the
Purchaser or its nominee against payment of the Purchase
Price with respect thereto by wire transfer of immediately
7
<PAGE>
available funds to an account or accounts previously desig-
nated by the Company.
2.3 Fees. At the Closing, subject to the
----
terms and provisions of this Agreement, the Company shall
pay to an Affiliate or Affiliates of the Purchaser desig-
nated by the Purchaser (A) a funding fee of $4,000,000 and
(B) a consulting fee of $2,000,000, in each case by wire
transfer of immediately available funds to an account or
accounts previously designated by the Purchaser.
3. CONDITIONS TO THE CLOSING.
3.1 Conditions Precedent to the Obligations
---------------------------------------
of the Purchaser. The obligations of the Purchaser to be
----------------
discharged under this Agreement on or prior to the Closing
are subject to satisfaction of the following conditions at
or prior to the Closing (unless expressly waived in writing
by the Purchaser at or prior to the Closing):
3.1.1 Compliance by the Company. All
-------------------------
of the terms, covenants and conditions of this Agreement to
be complied with and performed by the Company at or prior to
the Closing shall have been complied with and performed by
it in all material respects, and the representations and
warranties made by the Company in this Agreement shall be
true and correct in all material respects at and as of the
Closing, with the same force and effect as though such
representations and warranties had been made at and as of
the Closing, except for changes expressly contemplated by
this Agreement and except for representations and warranties
that are made as of a specific time, which shall be true and
correct in all material respects only as of such time.
3.1.2 No Legal Action. No action,
---------------
suit, investigation or other proceeding shall have been
instituted or threatened before any court or by any govern-
mental authority or body (A) relating to the transactions
contemplated hereby that presents a substantial risk of the
restraint or prohibition of the transactions contemplated
hereby or the obtaining of material damages or other
material relief in connection therewith or (B) that, after
consultation between the parties, presents a substantial
risk of causing a Material Adverse Effect.
3.1.3 Election of Officer. Richard M.
-------------------
Haverland shall have been elected Chairman and Chief
Executive Officer of the Company, the Company and such
8
<PAGE>
person shall have executed an employment agreement and such
agreement shall be in full force and effect and no default
shall have occurred thereunder.
3.1.4 Certificate of Amendment. The
------------------------
Certificate of Amendment shall have been filed by the
Department of State of the State of New York and shall have
become effective.
3.1.5 Stock Exchange Listing. The
----------------------
Conversion Shares shall have been approved for listing,
subject to notice of issuance, by the New York Stock
Exchange, Inc. and each other securities exchange on which
the Common Stock is listed.
3.1.6 Regulatory Matters.
------------------
(A) The Purchaser shall be
satisfied that there shall have been received, and
shall be in full force and effect without conditions or
limitations reasonably unacceptable to the Purchaser,
all requisite approvals under the statutes and
regulations of each jurisdiction (x) in the United
States of America or any state, territory or possession
thereof and (y) each other jurisdiction wherever
located that is material to the conduct of the business
conducted by the Company and its Subsidiaries, taken as
a whole, in each case with respect to the purchase and
holding by the Purchaser of the Shares, the Option, the
Option Shares, the Conversion Shares and the Exchange
Notes (including the receipt of such approvals or
advice from regulatory authorities with respect thereto
as the Purchaser may reasonably determine).
(B) The Purchaser shall be
satisfied that there shall have been received, and
shall be in full force and effect without conditions or
limitations unacceptable to the Purchaser, all
requisite approvals under the statutes and regulations
of each jurisdiction (x) in the United States of
America or any state, territory or possession thereof
and (y) each other jurisdiction wherever located that
is material to the conduct of the business conducted by
the Company and its Subsidiaries, taken as a whole, in
each case with respect to certain transactions to be
entered into by the Company and certain of its
Affiliates in the third and fourth calendar quarters of
1994 pursuant to which capital contributions shall be
9
<PAGE>
made to The Buckeye Union Insurance Company, The
Fidelity & Casualty Company of New York, The
Continental Insurance Company and Fireman's Insurance
Company of Newark, New Jersey. All short-term notes
issued in connection with such transactions shall have
been repaid by the earlier of (i) November 15, 1994 and
(ii) the Closing Date; provided, however, that
-------- -------
$20,000,000 of such notes may remain outstanding after
November 15, 1994, but shall in any event be repaid
prior to the earlier of (A) December 31, 1994 and
(B) the Closing Date. Without limiting the generality
of the foregoing, the Purchaser shall be satisfied that
there shall have been received, and shall be in full
force and effect, written approvals by all applicable
insurance regulatory authorities of the proposed
accounting treatment of such transactions, which
written approvals shall be satisfactory to the
Purchaser.
3.1.7 Legal Opinions.
--------------
(A) The Company shall have
furnished to the Purchaser on the Closing Date the
opinion of William F. Gleason, Jr., Senior Vice
President, General Counsel and Secretary of the
Company, dated the Closing Date, substantially in the
form of Exhibit D hereto.
(B) The Company shall have
furnished to the Purchaser on the Closing Date the
opinion of Debevoise & Plimpton, special counsel for
the Company, dated the Closing Date, substantially in
the form of Exhibit E hereto.
3.1.8 Registration Rights Agreement.
-----------------------------
The Company shall have executed and delivered at the Closing
for the benefit of the Purchaser the Registration Rights
Agreement.
3.1.9 Option. The Company shall have
------
executed and delivered at the Closing the Option.
3.1.10 Other. The Company shall have
-----
furnished to the Purchaser such executed and conformed
copies of such other opinions and such certificates, letters
and documents as the Purchaser may reasonably request and as
are customary for transactions such as those contemplated by
this Agreement.
10
<PAGE>
3.1.11 Hart-Scott-Rodino. The waiting
-----------------
period under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 shall have expired or been terminated, to the
extent applicable.
3.1.12 Exemption from Special Voting
-----------------------------
Requirements. The Board of Directors of the Company shall
------------
have irrevocably taken all action necessary under
Section 912 of the Business Corporation Law of the State of
New York to exempt future transactions between the Company
and its Subsidiaries, on the one hand, and the Purchaser and
its "affiliates" and "associates" (each as defined in such
Section 912) that are members of the Purchaser Group, on the
other hand, from the provisions of such Section 912
(provided, however, that such exemption shall be applicable
-------- -------
only if the Purchaser and such "affiliates" and "associates"
shall have become "interested stockholders" (as defined in
such Section 912) as a result of the acquisition of securi-
ties of the Company in a manner and to an extent not pro-
hibited by this Agreement) and the Purchaser shall have
received evidence reasonably satisfactory to it that such
action shall have been taken.
3.1.13 Change of Control. No Change of
-----------------
Control shall have occurred on or after the date of this
Agreement and on or prior to the Closing; provided, however,
-------- -------
that a temporary reinsurance program that would otherwise be
within the meaning of clause (A) of the definition of
"Change of Control," the duration of which cannot exceed 180
days and that would not have, or could not reasonably be
expected to have, a Material Adverse Effect, shall not
constitute a Change of Control for the purposes of this
Section 3.1.13.
3.1.14 Amendments to Loan Agreements.
-----------------------------
All amendments to any loan agreement or other debt
instrument to which the Company or any Subsidiary of the
Company is party necessary to allow the Company to effect
the transactions contemplated hereby, including, without
limitation, the payment in full of all cash dividends on the
Shares and the Option Shares (except upon a default or event
of default thereunder or if the payment of such dividend
would cause a default or event of default thereunder) or
issuance of the Conversion Shares, shall have been effected
and the form and substance of such amendments shall be
reasonably acceptable to the Purchaser.
11
<PAGE>
3.1.15 Credit Agreement Amendment and
------------------------------
Waiver; Relationship with Lenders.
---------------------------------
(A) (i) The Third Amendment, dated as of
September 29, 1994, to the Credit Agreement (the "Credit
Agreement"), dated as of December 30, 1993, among the
Company, the several lenders from time to time parties
thereto (the "Lenders"), Chemical Bank and Citibank, N.A.,
as Co-Agents and Chemical Bank, as Administrative Agent,
which, among other things, amends the Credit Agreement so as
to (1) increase the revolving credit commitments thereunder
to $210,000,000 and (2) extend the termination date thereof
to December 31, 1995 shall be in full force and effect and
(ii) the Company shall have obtained from the Lenders (w) a
waiver or further amendment of the Credit Agreement
reducing, until June 30, 1995, the amount specified in Sec-
tion 6.1(a) of the Credit Agreement to $1,400,000,000, (x) a
waiver of the application of, or a confirmation of the
inapplicability of, clause (i)(A) of Section 7(j) of the
Credit Agreement with respect to the acquisition of the
Shares by the Purchaser, (y) a confirmation that the Shares
and the Option Shares would be included within Consolidated
Capital (as defined in the Credit Agreement) and (z) a
waiver or further amendment of the Credit Agreement
reducing, until June 30, 1995, the percentage specified in
clause (ii)(A) of Section 6.1(b) of the Credit Agreement to
43%.
(B) The Purchaser shall be reasonably
satisfied that, after giving effect to the transactions
contemplated by this Agreement, no Event of Default (as
defined in the Credit Agreement) shall have occurred under
the Credit Agreement and that any actions with respect to
reserves described in the press release issued by the
Company in connection with the announcement of the
transactions contemplated by this Agreement and as
contemplated by Section 3.1.20 shall not cause an Event of
Default to occur under the Credit Agreement.
3.1.16 Confirmation of A.M. Best. The
-------------------------
Company shall have received confirmation from A.M. Best &
Co. (which confirmation may be delivered orally) that the
Subsidiaries of the Company engaged in the insurance
business will maintain a pooled rating of at least "A-"
after giving effect to the transactions contemplated by this
Agreement and such confirmation shall be reasonably
satisfactory to the Purchaser (taking into account any
conditions to which such confirmation may be subject).
12
<PAGE>
3.1.17 Absence of Material Adverse
---------------------------
Effect. There shall not have occurred after June 30, 1994
------
any Material Adverse Effect.
3.1.18 Board of Directors; Amendment to
--------------------------------
By-laws.
-------
(A) The Company shall have taken all actions
necessary to provide that (i) the Board of Directors of the
Company shall consist of no less than thirteen or more than
seventeen members, (ii) the Nominating Committee of the
Board of Directors (the "Nominating Committee") shall con-
sist of either three or five members and (iii) the number of
members of the Board of Directors may be increased in
accordance with the Certificate of Amendment.
(B) The Company shall have caused (i) if the
Company's Board of Directors consists of thirteen or four-
teen members, three persons designated by the Initial
Purchaser ("Purchaser Designees") to be appointed thereto or
(ii) if the Company's Board of Directors consists of
fifteen, sixteen or seventeen members, four Purchaser
Designees to be appointed thereto, which appointment shall
be effective upon the Closing; provided, however, that if,
-------- -------
after customary investigation of any Purchaser Designee's
qualifications, the Board of Directors reasonably determines
in good faith that any Purchaser Designee is not qualified
or acceptable under standards applied fairly and equally to
all nominees to the Board of Directors, the Initial
Purchaser shall designate another person that meets such
standards.
(C) The Company shall have caused (i) (x) if
the Nominating Committee is composed of three members, one
Purchaser Designee to be appointed thereto or (y) if the
Nominating Committee is composed of five members, two
Purchaser Designees to be appointed thereto and (ii) such
number (which number shall be at least one and shall be
rounded to the nearest whole number) of Purchaser Designees
to be appointed to each other committee of the Board of
Directors equal to the product of the total number of
persons on such committee (including Purchaser Designees)
and a fraction the numerator of which is the number of
shares of Common Stock into which the shares of Series E
Preferred Stock to be issued at the Closing are convertible
and the denominator of which is the total number of out-
standing securities of the Company entitled to vote
generally in the election of directors (assuming conversion
13
<PAGE>
of such shares of Series E Preferred Stock), with all such
appointments to be effective upon the Closing.
(D) The Board of Directors of the Company
shall have amended the By-laws of the Company to provide
that (A) the Board of Directors shall consist of no less
than thirteen or more than seventeen members, subject to
clause (C) below, (B) the Nominating Committee shall consist
of three or five members, (C) the number of members of the
Board of Directors may be increased in accordance with the
Certificate of Amendment and (D) so long as the Initial
Purchaser has the right to nominate at least one director,
none of the foregoing provisions of the Company's By-laws,
nor the provision contained in Section 8 of the Company's
By-laws providing that each committee of the Board of
Directors shall consist of no fewer than three members, may
be amended by the Board of Directors of the Company absent
the affirmative vote of 95% of the members of the Board of
Directors.
3.1.19 Tax Sharing Agreements. The
----------------------
Company shall have supplied to the Purchaser copies of the
tax sharing agreements to which it or any of its Subsidi-
aries are party and such agreements shall not have been
amended in any manner.
3.1.20 Reserves. Any actions or
--------
inactions, in total, taken by the Company in the fourth
quarter of 1994 with respect to reserves shall be acceptable
to the Purchaser.
3.2 Conditions Precedent to Obligations of
--------------------------------------
the Company. The obligations of the Company to be dis-
-----------
charged under this Agreement on or prior to the Closing are
subject to satisfaction of the following conditions at or
prior to the Closing (unless waived by the Company at or
prior to the Closing):
3.2.1 Compliance by the Purchaser. All
---------------------------
of the terms, covenants and conditions of this Agreement to
be complied with and performed by the Purchaser at or prior
to the Closing shall have been complied with and performed
by the Purchaser in all material respects, and the represen-
tations and warranties made by the Purchaser in this Agree-
ment shall be true and correct in all material respects at
and as of the Closing, with the same force and effect as
though such representations and warranties had been made at
14
<PAGE>
and as of the Closing, except for changes contemplated by
this Agreement.
3.2.2 No Legal Action. No action,
---------------
suit, investigation or other proceeding relating to the
transactions contemplated hereby shall have been instituted
before any court or instituted or threatened by any govern-
mental body that presents a substantial risk of the
restraint or prohibition of the transactions contemplated
hereby or the obtaining of material damages or other
material relief in connection therewith.
3.2.3 Regulatory Matters.
------------------
(A) The Company shall be satisfied
that there shall have been received, and shall be in
full force and effect without conditions or limitations
reasonably unacceptable to the Company, all requisite
approvals under the statutes and regulations of each
jurisdiction (x) in the United States of America or any
state, territory or possession thereof and (y) each
other jurisdiction wherever located that is material to
the conduct of the business conducted by the Company
and its Subsidiaries, taken as a whole, in each case
with respect to the purchase and holding by the
Purchaser of the Shares, the Option, the Option Shares,
the Conversion Shares and the Exchange Notes (including
the receipt of such approvals or advice from regulatory
authorities with respect thereto as the Company may
reasonably determine).
(B) The Company shall be satisfied
that there shall have been received, and shall be in
full force and effect without conditions or limitations
unacceptable to the Company, all requisite approvals
under the statutes and regulations of each jurisdiction
(x) in the United States of America or any state,
territory or possession thereof and (y) each other
jurisdiction wherever located that is material to the
conduct of the business conducted by the Company and
its Subsidiaries, taken as a whole, in each case with
respect to certain transactions to be entered into by
the Company and certain of its Affiliates in the third
and fourth calendar quarters of 1994 pursuant to which
capital contributions shall be made to The Buckeye
Union Insurance Company, The Fidelity & Casualty
Company of New York, The Continental Insurance Company
and Fireman's Insurance Company of Newark, New Jersey
15
<PAGE>
(including the receipt of such approvals or advice from
regulatory authorities with respect thereto as the
Company may determine).
3.2.4 Certificate of Amendment. The
------------------------
Certificate of Amendment shall have been filed by the
Department of State of the State of New York and shall have
become effective.
4. REPRESENTATIONS AND WARRANTIES OF THE
COMPANY.
The Company hereby represents and warrants to the
Purchaser that, except as specifically disclosed in the
single writing from the Company to the Purchaser that is
identified as such and is dated the date hereof (the
"Disclosure Letter"):
4.1 Organization, Good Standing, Power,
-----------------------------------
Authority, Etc. The Company is a corporation duly
---------------
organized, validly existing and in good standing under the
laws of the State of New York. The Company has the full
corporate power and authority to execute and deliver this
Agreement and each Transaction Document and to perform its
obligations under this Agreement and each Transaction
Document. The Company has taken all action required by law,
the Certificate of Incorporation, its By-Laws or otherwise
required to be taken by it to authorize the execution,
delivery and performance by it of this Agreement and each
Transaction Document. This Agreement is, and after the
Closing each Transaction Document will be, a valid and
binding obligation of the Company, enforceable against the
Company in accordance with their respective terms. True and
complete copies of the Certificate of Incorporation and the
By-Laws of the Company as in effect on the date hereof have
been provided by the Company to the Purchaser. No approval
or authorization of the shareholders and no further approval
of the Board of Directors of the Company will be required
under applicable law, Company's Certificate of Incorporation
or By-laws or the rules of the New York Stock Exchange, Inc.
for the execution and delivery of this Agreement and the
Transaction Documents by the Company and the consummation by
the Company of the transactions contemplated by this Agree-
ment and each of the Transaction Documents, other than such
as have been obtained or made and are in full force and
effect. As of the Closing Date, future transactions between
the Company and its Subsidiaries, on the one hand, and the
Purchaser and its "affiliates" and "associates" (each as
16
<PAGE>
defined in Section 912 of the Business Corporation Law of
the State of New York) that are members of the Purchaser
Group, on the other hand, shall be exempted from the provi-
sions of such Section 912; provided, however, that such
-------- -------
exemption shall be applicable only if the Purchaser and such
"affiliates" and "associates" shall have become "interested
stockholders" (as defined in such Section 912) as a result
of the acquisition of securities of the Company in a manner
and to an extent not prohibited by this Agreement.
4.2 Capitalization of the Company. After
-----------------------------
giving effect to the Certificate of Amendment, the
authorized capital stock of the Company will at the Closing
consist of: (A) 100,000,000 shares of Common Stock, par
value $1.00 per share, 55,467,995 of which shares are out-
standing on the date hereof; and (B) 10,000,000 shares of
preferred stock, par value $4.00 per share, of which
(i) 2,750,000 shares have been designated as $2.50
Cumulative Convertible Preferred Stock, Series A, 27,997 of
which shares are outstanding on the date hereof,
(ii) 1,094,096 shares have been designated $2.50 Cumulative
Preferred Stock, Series B, 25,563 of which shares are out-
standing on the date hereof, (iii) 20,500 shares were
designated $150 Cumulative Convertible Preferred Stock,
Series C, all of which shares have been redeemed and are not
outstanding, (iv) 40,000 shares were designated Cumulative
Preferred Stock, Series D, all of which shares have been
redeemed and are not outstanding, (v) such number of shares
as are described in clause (A) of the first recital of this
Agreement will be designated Series E Preferred Stock, all
of which shares will be issued and outstanding at the
Closing, (vi) such number of shares as are described in
clause (B) of the first recital of this Agreement will be
designated Series F Preferred Stock, all of which shares
will be issued and outstanding at the Closing and
(vii) 1,250,000 shares will be designated Series G Preferred
Stock, all of which shares will be reserved for issuance
pursuant to the Option. No other capital stock of the
Company is, or at the Closing will be, authorized and no
other capital stock is issued. Since June 30, 1994, the
Company has only issued shares of Common Stock in accordance
with the terms of its employee benefit plans as in existence
on June 30, 1994, in all cases in the ordinary course of
business and in a manner and in amounts consistent with past
practice. At the Closing, all of the Shares will be duly
authorized and, when issued in accordance with this Agree-
ment, will be validly issued, fully paid and nonassessable
and entitled to the benefits of, and have the terms and
17
<PAGE>
conditions set forth in, the Certificate of Amendment. At
the Closing, all of the Option Shares will be duly
authorized and, when issued in accordance with the Option,
will be validly issued, fully paid and nonassessable and
entitled to the benefits of, and have the terms and condi-
tions set forth in, the Certificate of Amendment. The
Conversion Shares are duly authorized and, when issued in
accordance with the Certificate of Amendment, will be
validly issued, fully paid and nonassessable. All outstand-
ing shares of capital stock of the Company have been duly
authorized, are validly issued, fully paid and nonassessable
and have been issued in compliance with applicable federal
and state securities laws. The shareholders of the Company
have no preemptive or similar rights with respect to the
securities of the Company.
4.3 Registration Rights. The Purchaser
-------------------
shall, by virtue of its purchase of Shares hereunder, be
entitled to the rights of a holder under the Registration
Rights Agreement.
4.4 SEC Documents.
-------------
(A) The Company has delivered to the Purchaser
true and complete copies of: (i) the Annual Report and its
Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, as filed with the SEC, (ii) the Quarterly
Reports, (iii) its Current Reports on Form 8-K filed with
the SEC since January 1, 1993, (iv) its proxy or information
statements relating to meetings of, or actions without a
meeting by, the stockholders of the Company held since
January 1, 1993 and (v) all other SEC Documents.
(B) As of its filing date, each SEC Document
(including all exhibits and schedules thereto and documents
incorporated by reference therein) referred to in clauses
(A)(i) through (v) filed, and each SEC Document (including
all exhibits and schedules thereto and documents incor-
porated by reference therein) that will be filed by the
Company prior to the Closing Date, as amended or supple-
mented, if applicable, pursuant to the Exchange Act
(i) complied or will comply in all material respects with
the applicable requirements of the Exchange Act and (ii) did
not or will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order
to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
18
<PAGE>
(C) Each such final registration statement
(including all exhibits and schedules thereto and documents
incorporated by reference therein) referred to in clause
(A)(v) filed, and each final registration statement
(including all exhibits and schedules thereto and documents
incorporated by reference therein) that will be filed by the
Company prior to the Closing Date, as amended or supple-
mented, if applicable, pursuant to the Act, as of the date
such statement or amendment became or will become effective
(i) complied or will comply in all material respects with
the applicable requirements of the Act and (ii) did not or
will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading (in the case of any prospectus, in light of the
circumstances under which they were made).
(D) The Company has (i) delivered to the
Purchaser true and complete copies of all correspondence
between the SEC and the Company or its legal counsel,
accountants or other advisors since January 1, 1993, and
(ii) disclosed to the Purchaser in writing the content of
all material discussions between the SEC and the Company or
its legal counsel, accountants or other advisors concerning
the adequacy or form of any SEC Document filed with the SEC
since January 1, 1993. The Company is not aware of any
issues raised by the SEC with respect to any of the SEC
Documents, other than those disclosed to the Purchaser
pursuant to clause (i) or (ii) of this Section 4.4(D).
4.5 Authority and Qualification of the
----------------------------------
Company. The Company has the corporate power and authority
-------
to own, lease and operate its properties and to conduct its
business as described in the SEC Documents and as currently
owned or leased and conducted. The Company is duly
qualified to transact business as a foreign corporation and
is in good standing (if applicable) in each jurisdiction in
which the conduct of its business or its ownership, leasing
or operation of property requires such qualification, other
than any failure to be so qualified or in good standing as
would not singly or in the aggregate with all such other
failures reasonably be expected to have a Material Adverse
Effect.
4.6 Subsidiaries. Exhibit 21 to the Annual
------------
Report is a true, accurate and correct statement of all of
the information required to be set forth therein by the
regulations of the SEC. Each Subsidiary of the Company has
19
<PAGE>
been duly incorporated or organized and is validly existing
as a corporation or other legal entity in good standing
under the laws of the jurisdiction of its incorporation or
formation, has the corporate or other power and authority to
own, lease and operate its properties and to conduct its
business as described in the SEC Documents and as currently
owned or leased and conducted and is duly qualified to
transact business as a foreign corporation or other legal
entity and is in good standing (if applicable) in each
jurisdiction in which the conduct of its business or its
ownership, leasing or operation of property requires such
qualification, other than any failure to be so qualified or
in good standing as would not singly or in the aggregate
with all such other failures reasonably be expected to have
a Material Adverse Effect. Except as disclosed in the SEC
Documents filed with the SEC prior to the date of this
Agreement, all of the outstanding capital stock of each
Subsidiary of the Company has been duly authorized and
validly issued, is fully paid and nonassessable and is owned
by the Company, directly or through other Subsidiaries of
the Company (other than directors' qualifying shares), free
and clear of any mortgage, pledge, lien, security interest,
restrictions upon voting or transfer, claim or encumbrance
of any kind ("Encumbrance") (other than such transfer
restrictions as may exist under federal and state securities
laws or any Encumbrances between or among the Company and/or
any Subsidiary of the Company), and there are no rights
granted to or in favor of any third party (whether acting in
an individual, fiduciary or other capacity), other than the
Company or any Subsidiary of the Company, to acquire any
such capital stock, any additional capital stock or any
other securities of any such Subsidiary. There exists no
restriction, other than those pursuant to applicable law or
regulation, on the payment of cash dividends by any Material
Subsidiary.
4.7 Outstanding Securities. Except as set
----------------------
forth in the SEC Documents filed with the SEC prior to the
date of this Agreement and except as contemplated by this
Agreement, there are no outstanding (A) securities or
obligations of the Company convertible into or exchangeable
for any capital stock of the Company, (B) warrants, rights
or options to subscribe for or purchase from the Company any
such capital stock or any such convertible or exchangeable
securities or obligations or (C) obligations of the Company
to issue such shares, any such convertible or exchangeable
securities or obligations, or any such warrants, rights or
options.
20
<PAGE>
4.8 No Contravention, Conflict, Breach, Etc.
----------------------------------------
The execution, delivery and performance of each of this
Agreement and each of the Transaction Documents by the
Company and the consummation of the transactions herein and
therein contemplated will not (A) conflict with or result in
a breach or violation of any of the terms and provisions of,
or constitute a default under, or result in the creation or
imposition of any Encumbrance upon any assets or properties
of it or of any of its Subsidiaries under any statute, rule,
regulation, order or decree of any governmental agency or
body or any court having jurisdiction over it or any such
Subsidiary or any of its or their respective properties,
assets or operations, or any indenture, mortgage, loan
agreement, note or other agreement or instrument for
borrowed money, any guarantee of any agreement or instrument
for borrowed money or any lease, permit, license or other
agreement or instrument to which it or any of such
Subsidiaries is a party or by which it or any such Subsidi-
ary is bound or to which any of the properties, assets or
operations of it or any such Subsidiary is subject, which
conflict, breach, violation, default, creation or imposition
has, or will have, individually or in the aggregate, a
Material Adverse Effect or (B) contravene any provision of
the Certificate of Incorporation, By-Laws or other organiza-
tional documents of it or of any of its Subsidiaries.
4.9 Consents. No consent, approval,
--------
authorization, order, registration, filing or qualification
of or with any (A) court, (B) government agency or body,
(C) stock exchange on which the securities of the Company
are traded or (D) other third party (whether acting in an
individual, fiduciary or other capacity) is required to be
made or obtained by the Company or any of its Subsidiaries
for the consummation of the transactions contemplated by
this Agreement or by any of the Transaction Documents,
except such as may be required under the Act and state
securities laws in connection with the performance by the
Company of its obligations under the Registration Rights
Agreement.
4.10 No Existing Violation, Default, Etc.
------------------------------------
Neither the Company nor any of its Subsidiaries is in
violation of (A) its Certificate of Incorporation, By-Laws
or other organization documents or (B) any applicable law,
ordinance, administrative, governmental or stock exchange
rule or regulation, which violation has or could reasonably
be expected to have a Material Adverse Effect or (C) any
order, decree or judgment of any court or governmental
21
<PAGE>
agency or body having jurisdiction over the Company or any
such Subsidiary, which violation has or could reasonably be
expected to have a Material Adverse Effect. Except as set
forth in SEC Documents filed with the SEC prior to the date
of this Agreement, no event of default or event that, but
for the giving of notice or the lapse of time or both, would
constitute an event of default exists or, upon the consumma-
tion by the Company of the transactions contemplated by this
Agreement or any of the Transaction Documents, will exist
under any indenture, mortgage, loan agreement, note or other
agreement or instrument for borrowed money, any guarantee of
any agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which the Company or any
such Subsidiary is bound or to which any of the properties,
assets or operations of the Company or any such Subsidiary
is subject, which event of default, or event that, but for
the giving of notice or the lapse of time or both, would
constitute an event of default, has or could reasonably be
expected to have a Material Adverse Effect.
4.11 Licenses and Permits. The Company and
--------------------
its Subsidiaries have such certificates, permits, licenses,
franchises, consents, approvals, orders, authorizations and
clearances from appropriate governmental agencies and bodies
("Licenses") as are necessary to own, lease or operate their
properties and to conduct their businesses in the manner
described in the SEC Documents and as currently owned or
leased and conducted and all such Licenses are valid and in
full force and effect except such licenses that the failure
to have or to be in full force and effect individually or in
the aggregate do not have, and are not reasonably expected
to have, a Material Adverse Effect. Neither the Company nor
any of its Subsidiaries has received any written notice that
any violations are being or have been alleged in respect of
any such License and no proceeding is pending or, to the
best of the Company's knowledge, after due inquiry,
threatened, to suspend, revoke or limit any such License.
To the best of the Company's knowledge, after due inquiry,
the Company and its Subsidiaries are in compliance in all
material respects with their respective obligations under
such Licenses, with such exceptions as individually or in
the aggregate do not have, and are not reasonably expected
to have, a Material Adverse Effect, and no event has
occurred that allows, or after notice or lapse of time would
allow, revocation, suspension, limitation or termination of
such Licenses, except such events as would have not have, or
could not reasonably be expected to have, a Material Adverse
Effect.
22
<PAGE>
4.12 Title to Properties. The Company and
-------------------
its Subsidiaries have sufficient title to all material
properties (real and personal) owned by the Company and any
such Subsidiary that are necessary for the conduct of the
business of the Company and such Subsidiaries as described
in the SEC Documents and as currently conducted, free and
clear of any Encumbrance that may materially interfere with
the conduct of the business of the Company and such Subsidi-
aries, taken as a whole, and to the best of the Company's
knowledge, after due inquiry, all material properties held
under lease by the Company or the Subsidiaries are held
under valid, subsisting and enforceable leases.
4.13 Environmental Matters. Neither the
---------------------
Company nor any of its Subsidiaries is the subject of any
federal, state, local or foreign investigation, and neither
the Company nor any of its Subsidiaries has received any
notice or claim (or is aware of any facts that would form a
reasonable basis for any claim), nor entered into any
negotiations or agreements with any third party, relating to
any material liability or remedial action or potential
material liability or remedial action under Environmental
Laws (as defined below) (other than in respect of or related
to insurance policies issued by or of the Company or any of
its Subsidiaries), except such liability or remedial action
as has not had, or could not reasonably be expected to have,
a Material Adverse Effect, nor are there any pending,
reasonably anticipated or, to the best knowledge of the
Company, threatened actions, suits or proceedings against or
affecting the Company, any of the Subsidiaries or their
properties, assets or operations in connection with any such
Environmental Laws (other than in respect of or related to
insurance policies issued by or of the Company or any of its
Subsidiaries), except such actions, suits or proceedings as
have not had, or could not reasonably be expected to have, a
Material Adverse Effect. The properties, assets and
operations of the Company and its Subsidiaries are in
compliance in all material respects with all applicable
federal, state, local and foreign laws, rules and regula-
tions, orders, decrees, judgments, permits and licenses
relating to public and worker health and safety and to the
protection and clean-up of the natural environment and
activities or conditions related thereto, including, without
limitation, those relating to the generation, handling,
disposal, transportation or release of hazardous materials
(collectively, "Environmental Laws"), other than any such
failure to be in compliance as would not singly or in the
aggregate with all such other failures have a Material
23
<PAGE>
Adverse Effect. With respect to such properties, assets and
operations, including any previously owned, leased or
operated properties, assets or operations, to the best
knowledge of the Company, after due inquiry, there are no
past, present or reasonably anticipated future events,
conditions, circumstances, activities, practices, incidents,
actions or plans of the Company or any of its Subsidiaries
that may interfere with or prevent compliance or continued
compliance in all material respects with applicable
Environmental Laws, other than any such interference or
prevention as would not singly or in the aggregate with any
such other interference or prevention reasonably be expected
to have a Material Adverse Effect. The term "hazardous
materials" shall mean those substances that are regulated by
or form the basis for liability under any applicable
Environmental Laws.
4.14 Taxes. The Company and its
-----
Subsidiaries have filed or caused to be filed, or have
properly filed extensions for, all income tax returns that
are required to be filed and have paid or caused to be paid
all taxes as shown on said returns and on all assessments
received by it to the extent that such taxes have become
due, except taxes the validity or amount of which is being
contested in good faith by appropriate proceedings and with
respect to which adequate reserves, in accordance with
generally accepted accounting principles, have been set
aside. The Company and its Subsidiaries have paid or caused
to be paid, or have established reserves that the Company or
such Subsidiaries reasonably believes to be adequate in all
material respects, for all income tax liabilities applicable
to the Company and its Subsidiaries for all fiscal years
that have not been examined and reported on by the taxing
authorities (or closed by applicable statutes). United
States Federal income tax returns of the Company and its
Subsidiaries have been examined and closed through the
fiscal year ended December 31, 1978.
4.15 Litigation. Except as set forth in SEC
----------
Documents filed with the SEC prior to the date of this
Agreement, there are no pending actions, suits, proceedings,
arbitrations or investigations against or affecting the
Company or any of its Subsidiaries or any of their respec-
tive properties, assets or operations, or with respect to
which the Company or any such Subsidiaries is responsible by
way of indemnity or otherwise, that are required under the
Exchange Act to be described in such SEC Documents, that
questions the validity of this Agreement or any of the
24
<PAGE>
Transaction Documents or any action to be taken pursuant to
this Agreement or any of the Transaction Documents, or that
would singly, or in the aggregate, taken net of claims
reserves established and after giving effect to reinsurance,
with all such other actions, suits, investigations or
proceedings, reasonably be expected to have, a Material
Adverse Effect or a Material Adverse Effect on the ability
of the Company to perform its obligations under this
Agreement or any of the Transaction Documents; and, to the
best knowledge of the Company, after due inquiry, except as
set forth in SEC Documents filed with the SEC prior to the
date of this Agreement, no such actions, suits, proceedings
or investigations are threatened or contemplated and there
is no basis for any such action, suit, proceeding or
investigation.
4.16 Labor Matters. No labor disturbance by
-------------
the employees of the Company or any of its Subsidiaries that
has had or that is reasonably expected to have a Material
Adverse Effect exists or, to the best knowledge of the
Company, after due inquiry, is threatened.
4.17 Contracts. All of the material con-
---------
tracts of the Company or any of its Subsidiaries that are
required to be described in the SEC Documents or to be filed
as exhibits thereto are described in the SEC Documents or
filed as exhibits thereto and are in full force and effect.
True and complete copies of all such material contracts have
been delivered by the Company to the Purchaser. Neither the
Company nor any of its Subsidiaries nor, to the best know-
ledge of the Company, any other party is in breach of or in
default under any such contract except for such breaches and
defaults as in the aggregate have not had and are not
reasonably expected to have a Material Adverse Effect.
Except as described in the Disclosure Letter, no contract or
agreement to which the Company or any Material Subsidiary is
a party contains any restriction with respect to, or any
provision that could restrict, the payment of cash dividends
on the Shares or the Option Shares.
4.18 Finder's Fees. No broker, finder or
-------------
other party is entitled to receive from the Company, any of
its Subsidiaries or any other person any brokerage or
finder's fee or any other fee, commission or payment as a
result of the transactions contemplated by this Agreement
for which the Purchaser would have any liability or
responsibility.
25
<PAGE>
4.19 Financial and Statutory Statements.
----------------------------------
(A) The audited consolidated financial
statements and related schedules and notes included in the
SEC Documents comply in all material respects with the
requirements of the Exchange Act and the Act and the rules
and regulations of the SEC thereunder, were prepared in
accordance with generally accepted accounting principles
consistently applied throughout the period involved and
fairly present the financial condition, results of opera-
tions, cash flows and changes in stockholders' equity of the
Company and its Subsidiaries at the dates and for the
periods presented. The unaudited quarterly consolidated
financial statements and the related notes included in the
SEC Documents present fairly the financial condition,
results of operations and cash flows of the Company and its
Subsidiaries at the dates and for the periods to which they
relate, subject to year-end audit adjustments (consisting
only of normal recurring accruals), have been prepared in
accordance with generally accepted accounting principles
applied on a consistent basis except as otherwise stated
therein and have been prepared on a basis consistent with
that of the audited financial statements referred to above
except as otherwise stated therein.
(B) The Company has heretofore
delivered to the Purchaser true and complete copies of the
Annual Statements and Quarterly Statements of each of the
Subsidiaries of the Company engaged in the insurance
business as filed with the applicable insurance regulatory
authority for the years ended December 31, 1992 and
December 31, 1993 and for the quarterly periods ended
March 31, 1994 and June 30, 1994, including all exhibits,
interrogatories, notes, schedules and any actuarial
opinions, affirmations or certifications or other supporting
documents filed in connection therewith (collectively, the
"Statutory Statements"). The Statutory Statements were
prepared in conformity with statutory accounting practices
prescribed or permitted by the applicable insurance regula-
tory authority consistently applied for the periods covered
thereby and present fairly the statutory financial position
of such Subsidiary as at the respective dates thereof and
the results of operations of such Subsidiary for the respec-
tive periods then ended. The Statutory Statements complied
in all material respects with all applicable laws, rules and
regulations when filed, and no material deficiency has been
asserted with respect to any Statutory Statements by the
applicable insurance regulatory body or any other govern-
26
<PAGE>
mental agency or body. The statutory balance sheets and
income statements included in the Statutory Statements have
been audited by KPMG Peat Marwick, and the Company has
delivered to the Buyer true and complete copies of all audit
opinions related thereto.
4.20 Employee Benefits. Except for the
-----------------
plans set forth in the Disclosure Letter (the "Benefit
Plans"), there are no employee benefit plans or arrangements
of any type (including, without limitation, plans described
in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended and the regulations thereunder
("ERISA")), under which the Company or any of its Subsidi-
aries has or in the future could have directly, or indi-
rectly through a Commonly Controlled Entity (within the
meaning of Sections 414(b), (c), (m) and (o) of the Internal
Revenue Code of 1986, as amended (the "Code")), any lia-
bility with respect to any current or former employee of the
Company, any of its Subsidiaries, or any Commonly Controlled
Entity. No such Benefit Plan is a "multiemployer plan"
(within the meaning of ERISA Section 4001(a)(3)). With
respect to each Benefit Plan the Company has delivered or
made available to the Purchaser complete and accurate copies
of (A) all plan texts and agreements, (B) all material
employee communications (including summary plan descrip-
tions), (C) the most recent annual report, (D) the most
recent annual and periodic accounting of plan assets, (E)
the most recent determination letter received from the
Internal Revenue Service and (F) the most recent actuarial
valuation. With respect to each Benefit Plan: (i) such
Benefit Plan has been maintained and administered at all
times in material compliance with its terms and applicable
law and regulation; (ii) no event has occurred and there
exists no circumstance under which the Company or any of its
Subsidiaries could directly, or indirectly through a Com-
monly Controlled Entity, incur any material liability under
ERISA, the Code or otherwise (other than routine claims for
benefits and other liabilities arising in the ordinary
course pursuant to the normal operation of such Benefit
Plan); (iii) there are no actions, suits or claims (other
than routine claims for benefits) pending or, to the knowl-
edge of the Company, threatened, with respect to any Benefit
Plan or against the assets of any Benefit Plan; (iv) all
contributions and premiums due and owing have been made or
paid on a timely basis; and (v) all contributions made under
any Benefit Plan have met the requirements for deductibility
under the Code, and all contributions that have not been
made have been properly recorded on the books of the Company
27
<PAGE>
or a Commonly Controlled Entity thereof in accordance with
generally accepted accounting principles.
4.21 Contingent Liabilities. Except as
----------------------
fully reflected or reserved against in the financial state-
ments included in the Annual Report or the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1994, or disclosed in the footnotes contained in such finan-
cial statements, the Company and its Subsidiaries had no
liabilities (including tax liabilities) at the date of such
financial statements, absolute or contingent, that were
material either individually or in the aggregate to the
Company and its Subsidiaries taken as a whole.
4.22 No Material Adverse Change. Since the
--------------------------
latest date as of which information is given in the SEC
Documents filed prior to the date immediately preceding the
date hereof: (A) the Company and its Subsidiaries have not
incurred any material liability or obligation (indirect,
direct or contingent), or entered into any material oral or
written agreement or other transaction, that is not in the
ordinary course of business or that could reasonably be
expected to result in a Material Adverse Effect; (B) the
Company and its Subsidiaries have not sustained any loss or
interference with its business or properties from fire,
flood, windstorm, accident or other calamity (whether or not
covered by insurance) that has had or that could reasonably
be expected to have a Material Adverse Effect; (C) there has
been no material change in the indebtedness of the Company
and its Subsidiaries (except as contemplated by Sec-
tion 3.1.15 and except for changes relating to intercompany
indebtedness of the Company and/or its Subsidiaries), no
change in the stock of the Company, except for the issuance
of shares of Common Stock pursuant to options or conversion
rights in existence at the date of this Agreement, and no
dividend or distribution of any kind declared, paid or made
by the Company or any of its Subsidiaries (other than
dividends or distributions declared, paid or made by a
wholly owned Subsidiary of the Company or First Insurance
Company of Hawaii, Ltd. on any class of its stock;
(D) neither the Company nor any of its Subsidiaries has made
(nor does it propose to make) (i) any material change in its
accounting or reserving methods or practices or (ii) any
material change in the depreciation or amortization policies
or rates adopted by it, in either case, except as may be
required by law or applicable accounting standards; and (E)
there has been no event causing a Material Adverse Effect,
nor any development that could, singly or in the aggregate,
28
<PAGE>
reasonably be expected to result in a Material Adverse
Effect.
4.23 Investment Company. The Company is not
------------------
an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
4.24 Exemption from Registration; Restric-
-------------------------------------
tions on Offer and Sale of Same or Similar Securities.
-----------------------------------------------------
Assuming the representations and warranties of the Purchaser
set forth in Section 5.3 hereof are true and correct in all
material respects, the offer and sale of the Shares made
pursuant to this Agreement, the offer and sale of the Option
and the issuance and sale of the Option Shares will be
exempt from the registration requirements of the Act.
Neither the Company nor any person acting on its behalf has,
in connection with the offering of the Shares, the Option or
the Option Shares, engaged in (A) any form of general
solicitation or general advertising (as those terms are used
within the meaning of Rule 502(c) under the Act), (B) any
action involving a public offering within the meaning of
Section 4(2) of the Act, or (C) any action that would
require the registration under the Act of the offering and
sale of the Shares pursuant to this Agreement, the offering
and sale of the Option or the issuance and sale of the
Option Shares or that would violate applicable state
securities or "blue sky" laws. The Company has not made and
will not make, directly or indirectly, any offer or sale of
Shares or shares of Series G Preferred Stock or of
securities of the same or a similar class as the Shares or
the Option Shares if as a result the offer and sale of the
Shares contemplated hereby or the offer and sale of the
Option could fail to be entitled to exemption from the
registration requirements of the Act. As used herein, the
terms "offer" and "sale" have the meanings specified in
Section 2(3) of the Act.
4.25 Use of Proceeds. The net proceeds of
---------------
the sale of the Shares will be used by the Company and its
Subsidiaries for general corporate purposes, which may
include, without limitation, contribution to the common
equity of one or more of the Company's Subsidiaries.
4.26 Information with Respect to Reserves.
------------------------------------
The Company has supplied to the Purchaser all material
information in the possession of the Company with respect to
the Company's or its Subsidiaries' reserves for losses,
losses incurred but not reported and loss adjustment
29
<PAGE>
expenses and the collectibility of reinsurance receivables
or recoverables.
4.27 No Bank Regulatory Oversight. Upon the
----------------------------
taking of the actions described in Section 6.19 and the
consummation of the transactions contemplated by this
Agreement, neither the Purchaser nor any of its Affiliates
shall, as the result of the consummation of the transactions
contemplated by this Agreement, be subject to regulation or
oversight by any federal or state bank regulatory authority
nor will the approval of any such regulatory authority be
required to be obtained by the Company, any Subsidiary of
the Company, the Purchaser or any Affiliate thereof in order
to consummate the transactions contemplated by this
Agreement, except in accordance with the Bank Regulatory
Arrangements.
5. REPRESENTATIONS AND WARRANTIES OF THE
PURCHASER.
The Purchaser hereby represents and warrants to
the Company that:
5.1 Organization, Good Standing, Power,
-----------------------------------
Authority, Etc. The Purchaser has the full power and
---------------
authority to execute and deliver this Agreement and the
Registration Rights Agreement, and to perform its obliga-
tions under this Agreement and the Registration Rights
Agreement. The Purchaser has taken all action required by
law, its organizational documents or otherwise required to
be taken by it to authorize the execution and delivery of
this Agreement and the Registration Rights Agreement and the
consummation of the transactions contemplated to be per-
formed by it hereby and thereby. Each of this Agreement and
the Registration Rights Agreement is a valid and binding
agreement of the Purchaser, enforceable against the
Purchaser in accordance with their respective terms.
5.2 No Conflicts; No Consents. Neither the
-------------------------
execution and delivery of this Agreement and the Registra-
tion Rights Agreement nor the consummation by the Purchaser
of the purchase contemplated hereby will (A) conflict with,
or result in a breach of, any provision of its organiza-
tional documents or (B) violate any statute or law or any
judgment, order, writ, injunction, decree, rule or regula-
tion applicable to the Purchaser. No consent, authorization
or approval of, or declaration, filing or registration with,
or exemption by, any governmental or regulatory authority is
30
<PAGE>
required in connection with the execution and delivery of,
and the performance by the Purchaser of its obligations
under, this Agreement or the Registration Rights Agreement
or the consummation by the Purchaser of the transactions to
be performed by it as contemplated hereby and thereby,
except such as will have been obtained and made and will be
in full force and effect as of the Closing.
5.3 Acquisition for Own Account. The Shares
---------------------------
to be acquired by the Purchaser pursuant to this Agreement
and the Option are being acquired by it for its own account
and with no intention of distributing or reselling the
Shares, the Option or the Option Shares or any part thereof
in any transaction that would be in violation of the Act or
the securities laws of any state, without prejudice, how-
ever, to the rights of the Purchaser at all times to sell or
otherwise dispose of all or any part of the Shares, the
Option, the Option Shares, the Conversion Shares or the
Exchange Notes under an effective registration statement
under the Act, under an exemption from such registration
available under the Act or pursuant to the Certificate of
Amendment, and subject, nevertheless, to the disposition of
the Purchaser's property being at all times within its
control. The Purchaser (A) has such knowledge, sophistica-
tion and experience in business and financial matters that
it is capable of evaluating the merits and risks of an
investment in the Shares, (B) fully understands the nature,
scope and duration of the limitations on transfer contained
in this Agreement and (C) can bear the economic risk of an
investment in the Shares and can afford a complete loss of
such investment. The Purchaser acknowledges receipt of the
SEC Documents and that it has been afforded the opportunity
to ask such questions as it deemed necessary, and to receive
answers from, representatives of the Company concerning the
merits and risks of investing in the Shares, the Option and
the Option Shares and to obtain such additional information
that the Company possesses or can acquire without unreason-
able effort or expense that is necessary to verify the
accuracy and completeness of the information contained in
the SEC Documents. Notwithstanding the foregoing, nothing
contained in this Section 5.3 shall affect or be deemed to
modify any representation or warranty made by the Company.
5.4 Available Funds. The Purchaser will at
---------------
the Closing have available to it sufficient funds to
Purchase the Shares pursuant to this Agreement. Each of
Insurance Partners, L.P., Insurance Partners Offshore
(Bermuda), L.P., Insurance GenPar, L.P., Insurance GenPar
31
<PAGE>
(Bermuda), L.P. and each other Affiliate of the Purchaser
whose consent is necessary to consummate the transactions
contemplated by this Agreement has the full legal right and
power and all corporate or partnership authority and
approvals required to consummate the transactions contem-
plated by this Agreement, and no further corporate or part-
nership action on the part of any of such entities is
required for this purpose.
6. COVENANTS OF THE PARTIES.
6.1 Restrictions on Transfer. The Purchaser
------------------------
agrees that it will not effect any Transfer (including any
Transfer upon foreclosure of a pledge or other security
interest), pledge, mortgage, hypothecation or grant of a
security interest of or in the Shares, the Conversion Shares
or the Exchange Notes issued with respect to the Shares that
under applicable law requires prior regulatory approval
until such regulatory approval has been obtained. The
Purchaser agrees with the Company that the Purchaser will
not Transfer, pledge, mortgage, hypothecate or grant a
security interest in any of the Shares, Conversion Shares or
Exchange Notes issued with respect to the Shares (unless,
with respect to such Conversion Shares or Exchange Notes,
such Conversion Shares or Exchange Notes were previously
issued pursuant to an effective registration statement under
the Act) except pursuant to (A) an effective registration
statement under the Act or (B) an applicable exemption from
registration under the Act. In connection with any Transfer
by the Purchaser pursuant to clause (B) of the immediately
preceding sentence, the Purchaser shall furnish to the
Company an opinion of counsel reasonably satisfactory to the
Company to the effect that the proposed Transfer would not
be in violation of the Act. The Purchaser further agrees
that, during the period (the "Restricted Period") ending
upon the earliest to occur of (i) the third anniversary of
the Closing Date, (ii) a Change of Control, (iii) a breach
by the Company of any of its obligations under any of
Sections 6.6, 6.13, 6.14, 6.16, 6.17 or 6.18 or any of its
material obligations under the Registration Rights
Agreement, and (iv) the date on which the full amount of
dividends payable on the Series E Preferred Stock, the
Series F Preferred Stock or the Series G Preferred Stock for
any two quarterly dividend periods shall not have been paid,
the Purchaser will not Transfer any of the Shares,
Conversion Shares or Exchange Notes issued with respect to
the Shares, except (1) to an Affiliate of the Purchaser or a
partner of Insurance Partners, L.P. or Insurance Partners
32
<PAGE>
Offshore (Bermuda), L.P., in each case who agrees to be
bound by the restrictions of this Section 6.1 (and, in the
case of a transferee who is an Initial Purchaser, agrees to
be bound by the restrictions of Section 6.4), (2) to a
person or entity who agrees to be bound by the restrictions
of this Section 6.1 and Section 6.4, the Transfer to whom
has been approved in advance by the Board of Directors of
the Company, (3) to a person or entity who after such
Transfer will beneficially own (to the knowledge of the
Purchaser, based solely on the representation and warranty
of such person or entity, and knowledge available from a
review of publicly available filings made by such person or
entity with respect to the beneficial ownership of Common
Stock under Section 13 of the Exchange Act) less than 5% of
the Common Stock of the Company on a fully diluted basis,
(4) pursuant to Rule 144 under the Act, (5) in a public
offering registered under the Act pursuant to which, if such
offering is not an underwritten offering, no one person or
entity obtains (to the knowledge of the Purchaser, based
solely on the representation and warranty of such person or
entity, and knowledge available from a review of publicly
available filings made by such person or entity with respect
to the beneficial ownership of Common Stock under Section 13
of the Exchange Act) more than 5% of the Common Stock of the
Company on a fully diluted basis or (6) pursuant to a tender
offer (a) commenced by the Company or (b) commenced by any
other person or entity with respect to which the Board of
Directors of the Company shall send to shareholders a state-
ment that the Board of Directors (x) recommends approval of
such tender offer, or (y) is neutral with respect to such
tender offer. Nothing contained in this Section 6.1 shall
restrict or prohibit the Purchaser from pledging, mortgag-
ing, hypothecating or granting a security interest in, or
granting participation rights in, the Shares, the Conversion
Shares or the Exchange Notes issued with respect to the
Shares; provided, however, that if a pledgee, mortgagee or
-------- -------
holder of such security interest forecloses on such Shares,
Conversion Shares or Exchange Notes, it may do so only if
such pledgee, mortgagee or holder of such security interest
agrees to be bound by the restrictions of this Section 6.1
and Section 6.4. Notwithstanding the foregoing, if none of
the events specified in any of clauses (ii), (iii) or (iv)
above has occurred (whether before or after termination of
the Restricted Period), then the Purchaser shall not, prior
to the fifth anniversary of the Closing Date, Transfer any
Shares, Conversion Shares or Exchange Notes issued with
respect to the Shares to any person or entity who after such
Transfer will own (to the knowledge of the Purchaser, based
33
<PAGE>
solely on the representation and warranty of such person or
entity, and knowledge available from a review of publicly
available filings made by such person or entity with respect
to the beneficial ownership of Common Stock under Section 13
of the Exchange Act) more than 5% of the Common Stock of the
Company on a fully diluted basis, unless such person or
entity agrees to be bound by the terms and restrictions of
Sections 6.4 and 7 and this final sentence of this
Section 6.1.
6.2 Certificates for Shares and Conversion
--------------------------------------
Shares To Bear Legends. (A) So long as the Shares are
----------------------
Registrable Securities, they shall be subject to a
stop-transfer order and the certificates therefor shall bear
the following legend by which each holder thereof shall be
bound:
"THE SHARES REPRESENTED BY THIS CERTIFICATE
AND ANY SECURITIES ISSUABLE UPON CONVERSION OR
EXCHANGE HEREOF MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, OR
(ii) AN APPLICABLE EXEMPTION FROM REGISTRATION
THEREUNDER. ANY SALE PURSUANT TO CLAUSE (ii) OF
THE PRECEDING SENTENCE MUST BE ACCOMPANIED BY AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
ISSUER OF THESE SECURITIES TO THE EFFECT THAT SUCH
SALE IS NOT IN VIOLATION OF THE ACT. IN ADDITION,
THE VOTING, SALE OR TRANSFER OF THE SHARES
REPRESENTED BY THIS CERTIFICATE IS FURTHER SUBJECT
TO RESTRICTIONS WHICH ARE CONTAINED IN A
SECURITIES PURCHASE AGREEMENT DATED AS OF
OCTOBER 13, 1994, A COPY OF WHICH IS ON FILE WITH
THE ISSUER OF THESE SECURITIES AND WILL BE
FURNISHED BY THE ISSUER OF THESE SECURITIES TO THE
STOCKHOLDER ON REQUEST AND WITHOUT CHARGE."
(B) So long as the Conversion Shares
are Registrable Securities, they shall, unless
previously issued pursuant to an effective registration
statement under the Act, be subject to a stop-transfer
order and the certificates representing any such
Conversion Shares shall bear the following legend by
which each holder thereof shall be bound:
"THE SHARES REPRESENTED BY THIS CERTIFICATE
AND ANY SHARES OR OTHER SECURITIES ISSUABLE UPON
EXCHANGE HEREOF MAY NOT BE OFFERED OR SOLD EXCEPT
34
<PAGE>
PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATE-
MENT UNDER THE SECURITIES ACT OF 1933, OR (ii) AN
APPLICABLE EXEMPTION FROM REGISTRATION THEREUNDER.
ANY SALE PURSUANT TO CLAUSE (ii) OF THE PRECEDING
SENTENCE MUST BE ACCOMPANIED BY AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE ISSUER OF
THESE SECURITIES TO THE EFFECT SUCH SALE IS NOT IN
VIOLATION OF THE ACT. IN ADDITION, THE SALE OR
TRANSFER OF THE SHARES REPRESENTED BY THIS
CERTIFICATE IS FURTHER SUBJECT TO RESTRICTIONS
WHICH ARE CONTAINED IN A SECURITIES PURCHASE
AGREEMENT DATED AS OF OCTOBER 13, 1994, A COPY OF
WHICH IS ON FILE WITH THE ISSUER OF THESE
SECURITIES AND WILL BE FURNISHED BY THE ISSUER OF
THESE SECURITIES TO THE STOCKHOLDER ON REQUEST AND
WITHOUT CHARGE."
(C) So long as the Exchange Notes
issued with respect to the Shares are Registrable
Securities, they shall be subject to a stop-transfer
order and such Exchange Notes shall bear the following
legend by which each holder thereof shall be bound:
"THESE NOTES MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, OR
(ii) AN APPLICABLE EXEMPTION FROM REGISTRATION
THEREUNDER. ANY SALE PURSUANT TO CLAUSE (ii) OF
THE PRECEDING SENTENCE MUST BE ACCOMPANIED BY AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
ISSUER OF THESE SECURITIES TO THE EFFECT THAT SUCH
EXEMPTION FROM REGISTRATION IS AVAILABLE IN
CONNECTION WITH SUCH SALE. IN ADDITION, THE SALE
OR TRANSFER OF THESE NOTES IS FURTHER SUBJECT TO
RESTRICTIONS WHICH ARE CONTAINED IN A SECURITIES
PURCHASE AGREEMENT DATED AS OF OCTOBER 13, 1994, A
COPY OF WHICH IS ON FILE WITH THE ISSUER OF THESE
SECURITIES AND WILL BE FURNISHED BY THE
CORPORATION TO THE HOLDER ON REQUEST AND WITHOUT
CHARGE."
6.3 Removal of Legends. After termination
------------------
of the requirement that all or part of such legend be placed
upon a certificate, the Company shall, upon receipt by the
Company of evidence reasonably satisfactory to it that such
requirement has terminated and upon the written request of
the holders of the Shares, Conversion Shares or Exchange
Notes issued with respect to the Shares, issue certificates
35
<PAGE>
for such Shares or Conversion Shares or Exchange Notes, as
the case may be, that do not bear such legend.
6.4 Voting of Shares. If the holders of
----------------
Series E Preferred Stock, Series F Preferred Stock or
Series G Preferred Stock are entitled pursuant to applicable
law to vote separately as a single class with respect to the
approval of any transaction that constitutes a Specified
Corporate Action and at the time of such vote (A) the
Company has sufficient funds legally available to it (after
giving effect to such transaction) to redeem at the then
applicable price all outstanding shares of Series E
Preferred Stock, Series F Preferred Stock and Series G
Preferred Stock pursuant to the Certificate of Amendment,
(B) such redemption shall not be prohibited by any agreement
to which the Company or any of its Subsidiaries is a party,
by applicable law or otherwise, (C) the Board of Directors
of the Company, including a majority of the directors who
are not officers or employees of the Company, shall have
adopted a resolution confirming that such funds are avail-
able and that the holders of Series E Preferred Stock,
Series F Preferred Stock and Series G Preferred Stock have
the right to require such redemption and (D) the Company has
set aside sufficient funds to redeem through the Mandatory
Redemption Date all the Shares held by such holders (except
that no funds need be set aside with respect to such Shares
held by any such holder who has theretofore notified the
Company that it will not require redemption of such shares),
then the Initial Purchaser hereby agrees that in the
separate class vote of the shares of Series E Preferred
Stock, Series F Preferred Stock or Series G Preferred Stock
it will vote the shares of Series E Preferred Stock,
Series F Preferred Stock or Series G Preferred Stock held by
it in the same proportion as the votes cast by the holders
of Common Stock and all other holders (including holders of
Series E Preferred Stock) voting as a single class with the
Common Stock entitled to vote with respect to such trans-
action. The Initial Purchaser or any other person or entity
subject to this Section 6.4 may vote the shares of Series E
Preferred Stock held by it in any manner when voting as a
single class with the Common Stock. So long as the Initial
Purchaser shall have the right to designate any Purchaser
Designee pursuant to Section 6.17, each Initial Purchaser
will, at each meeting of shareholders of the Company to
elect directors, vote any and all the shares of Series E
Preferred Stock or Conversion Shares held by it to elect as
directors of the Company the slate of nominees that includes
the Purchaser Designees.
36
<PAGE>
6.5 Pre-Closing Activities. From and after
----------------------
the date of this Agreement until the Closing, each of the
Company and the Purchaser shall act with good faith towards,
and shall use its reasonable efforts to consummate, the
transactions contemplated by this Agreement and the CAM
Agreement, and neither the Company nor the Purchaser will
take any action (other than as permitted under Section 6.10)
that would prohibit or impair its ability to consummate the
transactions contemplated by this Agreement or the CAM
Agreement. From the date hereof until the Closing, the
Company shall conduct the business of it and its
Subsidiaries in the ordinary course and shall use all
reasonable efforts to preserve intact its business organiza-
tions and relationships with third parties and, except as
otherwise provided herein, to keep available the services of
the present directors, officers and key employees. Without
limiting the generality of the foregoing, from the date
hereof until the Closing, except as contemplated by this
Agreement:
(A) without the Purchaser's prior written
consent:
(i) the Company shall not adopt or propose
(or agree to commit to) any change in the Certificate
of Incorporation or its By-Laws, except as contemplated
hereby or as required to effect the transactions
hereunder;
(ii) the Company shall, and shall cause
each of its Subsidiaries to, not take or agree to
commit to take any action that would make any
representation or warranty of the Company hereunder
required to be true at and as of the Closing as a
condition to the Purchaser's obligations to consummate
the transactions contemplated hereby inaccurate in any
material respect at the Closing; or
(iii) the Company shall, and shall cause
each of its Subsidiaries to, not enter into or agree or
commit to enter into any agreement that would impose
any limitation on the payment of dividends on the
Shares or the Option Shares or the payment of cash
dividends by any Material Subsidiary.
(B) without the prior approval of the Operating
Committee, the Company shall, and shall cause each of its
Subsidiaries to, not take any of the following actions (it
37
<PAGE>
being understood that the term "material," as used in this
Section 6.5(B), shall mean "material to the Company and its
Subsidiaries, taken as a whole"):
(1) (i) make any material change in its
investment policies, underwriting standards, rates or
reinsurance arrangements; or (ii) make any material
change in its accounting methods, principles or
practices (including any material change with respect
to the establishment of reserves for unearned premiums,
losses (including incurred but not reported losses) and
loss adjustment expenses or any change in depreciation
or amortization policies or rates adopted by it), in
either case except as may be required by law or
applicable accounting standards;
(2) (i) grant to any employee any material
increase in salary or other remuneration or any
increase in severance or termination pay not consistent
with past practices; (ii) grant or approve any general
increase in salaries of all or a substantial portion of
its employees not consistent with past practices;
(iii) pay or award any material bonus, incentive,
compensation, service award or other like benefit for
or to the credit of any employee except in accordance
with written policy or consistent with past practice;
or (iv) enter into any material employment contract or
severance arrangement with any employee except in
accordance with written policy or consistent with past
practices or adopt or amend in any material respect any
of its employee benefit plans; or (v) change in any
material respect the compensation (whether in respect
of terms or method) of its agents;
(3) except as contemplated by
Section 3.1.15, (i) enter into any loan or other
agreement pursuant to which the Company or such
Subsidiary incurs indebtedness for borrowed money in
excess of $25,000,000 (other than any such agreement
among the Company and its wholly owned Subsidiaries or
among the Company's wholly owned Subsidiaries) or
(ii) amend in any material respect any such existing
agreement;
(4) other than as permitted by Section 6.9
or Section 6.10, sell any of the assets of the Company
or any of its Subsidiaries (or the securities of
38
<PAGE>
entities holding the same) the total consideration for
which exceeds $10,000,000;
(5) enter into any new quota share or
reinsurance transaction pursuant to which $50,000,000
or more in gross written premiums are ceded by
Subsidiaries of the Company; or
(6) agree or commit to do any of the
foregoing.
6.6 No Inconsistent Agreements. Subject to
--------------------------
Section 6.10, neither the Company nor any of its
Subsidiaries shall enter into any loan or other agreement,
or enter into any amendment or other modification to any
currently existing agreement, that by its terms restricts or
prohibits the ability of the Company to issue Common Stock
upon the conversion of the Series E Preferred Stock or to
issue Common Stock upon conversion of the Exchange Notes
issued upon the exchange of the Series E Preferred Stock, in
each case in accordance with the Certificate of Amendment
and this Agreement.
6.7 Information. So long as any of the
-----------
Shares, the Option Shares, the Conversion Shares or the
Exchange Notes are outstanding or any portion of the Option
is outstanding, the Company shall file with the SEC the
annual reports and quarterly reports and the information,
documents and other reports that are required to be filed
with the SEC pursuant to Sections 13 and 15 of the Exchange
Act, whether or not the Company has or is required to have a
class of securities registered under the Exchange Act and
whether or not the Company is then subject to the reporting
requirements of the Exchange Act, at the time the Company is
or would be required to file the same with the SEC and,
promptly after the Company is or would be required to file
such reports, information or documents with the SEC, to mail
copies of such reports, information and documents to the
holders of the Shares, the Option Shares, the Conversion
Shares and the Exchange Notes and the holders of any portion
of the Option at their addresses set forth in the register
maintained by the transfer agent therefor.
6.8 Hart-Scott-Rodino. To the extent
-----------------
applicable, the Company and the Purchaser shall make all
filings and furnish all information required with respect to
the transactions contemplated by this Agreement by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and
39
<PAGE>
shall use their best efforts to obtain the early termination
of the waiting period thereunder; provided, however, that
-------- -------
neither the Company nor the Purchaser shall be required to
agree to dispose of or hold separate any portion of its
business or assets (except immaterial businesses or assets).
6.9 Acquisition Proposals. Subject to
---------------------
Section 6.10, prior to the Closing, the Company agrees that
neither the Company nor any of its Subsidiaries nor any of
the respective officers and directors of the Company or any
of its Subsidiaries shall, and the Company shall direct and
use its best efforts to cause its employees, agents and
representatives (including, without limitation, any invest-
ment banker, attorney or accountant retained by the Company
or any of its Subsidiaries) not to, initiate, solicit or
encourage, directly or indirectly, any inquiries or the
making of any proposal or offer (including, without limita-
tion, any proposal or offer to stockholders of the Company)
with respect to a merger, consolidation or similar trans-
action involving, or any purchase of any of the equity
securities of, the Company, any purchase of any of the
assets of the Company or any of its Subsidiaries (or the
securities of entities holding the same) the total con-
sideration for which would exceed $50,000,000, or purchase
of any of the assets or equity securities of CAM (other than
pursuant to the CAM Agreement) (any such proposal or offer
being hereinafter referred to as an "Acquisition Proposal,"
except that "Acquisition Proposal" shall not include any
such transaction among the Company and its wholly owned
Subsidiaries or among the Company's wholly owned
Subsidiaries or engage in any negotiations concerning, or
provide any confidential information or data to, or have any
discussions with, any person relating to an Acquisition
Proposal, or otherwise facilitate directly or indirectly any
effort or attempt to make or implement an Acquisition
Proposal. The Company will immediately cease and cause to
be terminated any existing activities, discussions or
negotiations with any parties conducted heretofore with
respect to any of the foregoing. The Company will take the
necessary steps to inform the individuals or entities
referred to in the first sentence hereof of the obligations
undertaken in this Section 6.9. The Company will promptly
notify the Purchaser if any such inquiries or proposals are
received by, any such information is requested from, or any
such negotiations or discussions are sought to be initiated
or continued with the Purchaser. Nothing contained in this
Agreement shall prohibit the Company, its Subsidiaries and
its directors from (A) doing any of the foregoing with
40
<PAGE>
respect to asset sales or sales of securities in the
ordinary course or (B) making to the stockholders any recom-
mendation and related filing with the SEC, as required by
Rules 14e-2 and 14d-9 under the Exchange Act, with respect
to any tender offer. Notwithstanding the foregoing, the
Company shall be entitled to sell or otherwise dispose of
all or any substantial portion of the capital stock of
Casualty, The Continental Insurance Company of Canada or
Lombard Insurance Company Limited, may have and continue
negotiations with respect thereto and may provide informa-
tion with regard thereto.
6.10 Permitted Disposition. Notwithstanding
---------------------
Section 6.9, prior to the Closing, the Company may continue
to solicit offers or proposals for a merger, consolidation
or business combination that would result in a change in
ownership of more than 50% of the securities of the Company
entitled to vote generally in the election of directors, to
sell all or substantially all of the Company's assets or to
sell more than 50% of the outstanding securities of the
Company entitled to vote generally in the election of
directors (each a "Control Transaction"). The Company will
promptly inform the Purchaser if any inquiries or proposals
with respect to a Control Transaction are received by it,
but will not be required to inform the Purchaser of the
identity of the person or entity that makes such inquiry or
proposal or the terms of such Control Transaction. The
Company or the Purchaser may at any time prior to the
Closing elect to terminate this Agreement if the Company has
entered into a definitive agreement with respect to a
Control Transaction, at which time neither party shall have
any further obligations hereunder (other than the repre-
sentation set forth in Section 4.18 and the covenants and
agreements set forth in this Section 6.10, Section 6.12,
Section 8, Section 13.1 or Section 13.2, which shall survive
any such termination), except that upon such termination,
the Company shall promptly (A) pay to the Purchaser a fee
equal to the greater of (i) $17.5 million or (ii) (1) 1-7/8%
multiplied by (2) the Applicable Consideration (as herein-
after defined) and (B) reimburse the Purchaser, the Initial
Purchaser, Insurance Partners, L.P., Insurance Partners
Offshore (Bermuda), L.P., CAM Investment Management, L.P.,
and any of their respective Affiliates for all Transaction
Expenses (including any costs of collection of such expenses
or the fee payable pursuant to clause (A)), not to exceed
(a) $6,000,000 with respect to any such expenses incurred on
or prior to the date hereof and (b) $4,000,000 with respect
to any such expenses incurred after the date hereof (of
41
<PAGE>
which no more than $2,000,000 shall be expenses incurred in
connection with the potential acquisition by an Affiliate of
the Purchaser of Casualty. For the purposes of calculating
the Transaction Expenses reimbursable pursuant to clause (B)
of the immediately preceding sentence, the aggregate amount
of investment banking fees to be reimbursed shall be deemed
to be an amount equal to $250,000 for each weekly period (or
portion thereof) commencing on August 30, 1994 to (and
including) the date on which this Agreement is terminated
pursuant to this Section 6.10 (rounded up to the nearest
whole number) and shall in no event exceed (x) $1,000,000
with respect to any such investment banking fees incurred
prior to the date hereof and (y) $1,000,000 with respect to
any such investment banking fees incurred after the date
hereof. "Applicable Consideration" means (I) in the case of
the sale of the assets of the Company, the amount of the
cash and the Fair Market Value of any securities or other
property received by the Company as consideration for such
assets, plus the value of any assets not sold by the Company
(such value to be calculated utilizing the same multiple of
the book value that was used to determine the consideration
paid for the assets sold by the Company) and (II) in the
case of a sale of more than 50% of the securities of the
Company entitled to vote generally in the election of
directors or a merger, consolidation or business combination
of the Company, the product of (A) the amount of the cash
and the Fair Market Value of any securities or other
property received by the holders of Common Stock, in each
case calculated on a per share basis for each share sold or
exchanged in such transaction, and (B) the number of shares
of Common Stock outstanding on September 9, 1994. For the
purposes of clause (II), if the same consideration is not
received with respect to all shares of Common Stock sold or
exchanged in such transaction, then the Applicable
Consideration will be calculated on the basis of the
weighted average of the per share consideration received
with respect to all shares of Common Stock sold or exchanged
in such transaction. "Fair Market Value" means, with
respect to securities or other property, the fair market
value of such securities or other property as determined in
good faith by the Board of Directors of the Company.
6.11 Access. Upon reasonable notice prior
------
to the Closing, the Company shall (and shall cause each of
its Subsidiaries to) afford the officers, employees,
counsel, accountants and other authorized representatives of
the Purchaser or any of its Affiliates ("Representatives")
reasonable access during normal business hours to its
42
<PAGE>
properties, books, contracts and records and personnel and
advisors (who will be instructed by the Company to cooper-
ate) and the Company shall (and shall cause each of the
Subsidiaries to) furnish promptly to the Purchaser all
information concerning its business, properties and per-
sonnel as the Purchaser or its Representatives may reason-
ably request, provided that any review will be conducted in
a way that will not interfere unreasonably with the conduct
of the Company's business, and provided, further, that no
review pursuant to this Section 6.11 shall affect or be
deemed to modify any representation or warranty made by the
Company. The Purchaser will keep all information and
documents obtained pursuant to this Section 6.11 on a
confidential basis in accordance with the Letter Agreement
referred to in Section 13.8.
6.12 Publicity. Except as required by law,
---------
regulation or stock exchange requirements, neither (A) the
Company or any of its Affiliates nor (B) the Purchaser or
any of its Affiliates shall, without the consent of the
other, make any public announcement or issue any press
release with respect to the transactions contemplated by
this Agreement. In no event will either (i) the Company or
any of its Affiliates or (ii) the Purchaser or any of its
Affiliates make any public announcement or issue any press
release without consulting with the other party, to the
extent possible, as to the content of such public
announcement or press release.
6.13 Restricted Payments. The Company shall
-------------------
not declare or make any Restricted Payment.
6.14 Reservation of Shares. The Company
---------------------
shall at all times reserve and keep available, out of its
authorized and unissued stock, solely for the purpose of
effecting the conversion of Series E Preferred Stock or the
Exchange Notes issued in exchange thereof, such number of
shares of Common Stock free of preemptive rights as shall
from time to time be sufficient to effect the conversion of
all shares of Series E Preferred Stock from time to time.
6.15 Issuance of New Preferred Stock or New
--------------------------------------
Senior Notes. Within 45 days of the Closing, the Company
------------
will deliver to the Purchaser a draft of either a Private
Placement Memorandum or Registration Statement on Form S-3
(if the Company is then eligible to use Form S-3) with
respect to the offering and sale of the New Preferred Stock
or the New Senior Notes pursuant to which the Company will
43
<PAGE>
receive gross proceeds of at least $100,000,000. If the
Company shall propose to sell the New Preferred Stock or the
New Senior Notes, as applicable, in a public offering, such
Registration Statement on Form S-3 (if the Company is then
eligible to use Form S-3) shall be filed with the SEC within
30 days of the Closing Date. The Company shall use its best
efforts to consummate such private placement or public
offering within 210 days of the Closing. Notwithstanding
the foregoing, if the Company shall fail to perform any of
its obligations under this Section 6.15, the Purchaser's
sole remedy shall be the increase in the dividend rate on
the Shares and the Option Shares in accordance with the
Certificate of Amendment or the increase in the interest
rate of the Exchange Notes in accordance with the Exchange
Notes.
6.16 Shareholders Rights Plan. The Company
------------------------
shall not adopt a shareholders right plan, poison pill or
similar arrangement unless such plan or arrangement shall
provide that (A) each holder of a share of Series E
Preferred Stock shall be entitled to receive thereunder,
upon conversion of a share of Series E Preferred Stock (in
accordance with the terms of the Certificate of Amendment)
prior to the earlier to occur of either the date of redemp-
tion of the rights issued under such plan or the date of
expiration of the rights issued under the plan, rights for
each Conversion Share issued upon conversion of such share
of Series E Preferred Stock in an amount equal to the amount
of rights issued with respect to each outstanding share of
Common Stock pursuant to such plan, (B) holders of
Conversion Shares shall be paid the redemption price of any
rights issued thereunder when such rights are redeemed
(unless the Conversion Price with respect to such Conversion
Shares shall have been adjusted as a result of such
redemption as contemplated by the Certificate of Amendment)
and (C) the acquisition, ownership, voting or other exercise
of rights and privileges with respect thereto by members of
the Purchaser Group of Shares, Option Shares, Exchange
Notes, shares of Common Stock, the Option or any other
security of the Company or any of its Subsidiaries not
prohibited by this Agreement will not trigger any
distribution pursuant to such plan or otherwise cause the
Purchaser or the members of the Purchaser Group to be
treated in a manner differently from shareholders of the
Company generally. The provisions of clauses (A) and (B) of
this Section 6.16 shall inure to the benefits of all holders
of Series E Preferred Stock or Conversion Shares, whether or
not the Initial Purchaser.
44
<PAGE>
6.17 Board Representation.
--------------------
(A) The Purchaser Designees appointed
to the Company's Board of Directors effective as of the
Closing Date (as contemplated by Section 3.1.18) shall be
appointed to serve until the next succeeding annual meeting
of shareholders of the Company to be held after such elec-
tion. Commencing with such annual meeting of shareholders
of the Company and at each annual meeting of shareholders of
the Company thereafter, the Initial Purchaser shall be
entitled to nominate to the Company's Board of Directors (in
addition to any rights granted to the holders of Shares or
Option Shares as set forth in the Certificate of Amendment)
(i) if the Company's Board of Directors consists of thirteen
or fourteen members, three directors or (ii) if the
Company's Board of Directors consists of fifteen, sixteen or
seventeen members, four directors. The Company shall cause
such Purchaser Designees (unless, after customary investiga-
tion of any Purchaser Designee's qualifications, the Board
of Directors reasonably determines in good faith that such
person is not qualified or acceptable under standards
applied fairly and equally to all nominees, in which event
the Initial Purchaser shall designate another person that
meets the foregoing standards) to be included in the slate
of nominees recommended by the Board of Directors or the
Nominating Committee to the Company's shareholders for
election as directors, and the Company shall use its best
efforts to cause the election of such designees, including
voting all shares for which the Company holds proxies
(unless otherwise directed by the shareholder submitting
such proxy) or is otherwise entitled to vote, in favor of
the election of such persons. Notwithstanding the fore-
going, the Initial Purchaser's right to nominate members of
the Board of Directors shall be reduced as follows, if, but
only if, the Initial Purchaser has Transferred shares of
Series E Preferred Stock, Conversion Shares or Exchange
Notes issued with respect to the Series E Preferred Stock
and as a result no longer holds at least 75% of the Original
Investment:
If the Board of Directors is composed of 15, 16 or
--------------------------------------------------
17 members:
----------
Number of Board
Members the
Percentage of Original Initial Purchaser
Investment Not Transferred Shall Have Right
by the Initial Purchaser to Designate
-------------------------- -----------------
45
<PAGE>
Less than 75%,
but more than
50% 3
Less than 50%,
but more than
25% 2
Less than 25%,
but more than
10% 1
10% or less 0
If the Board of Directors is composed of 13 or
----------------------------------------------
14 members:
-----------
Number of Board
Members the
Original Investment Initial Purchaser
Not Transferred by the Shall Have Right
Initial Purchaser to Designate
---------------------- -----------------
Less than 66%,
but more than
33% 2
Less than 33%,
but more than
10% 1
10% or less 0
"Original Investment" shall mean the aggregate number of
shares of Series E Preferred Stock issued at the Closing,
the aggregate number of Conversion Shares into which such
shares could be converted, the aggregate principal amount of
Exchange Notes for which such shares could be exchanged, or
any combination of the foregoing; provided, however, that in
-------- -------
determining the amount of the Original Investment at any
time remaining, no shares of Series E Preferred Stock shall
be included to the extent that such Shares have been
converted into Conversion Shares or exchanged for Exchange
Notes and no Exchange Notes shall be included to the extent
that such Exchange Notes have been converted into Conversion
Shares.
46
<PAGE>
(B) For so long as the Initial
Purchaser has the right to nominate at least one director,
commencing with the annual meeting of the Board of Directors
of the Company next succeeding the Closing, and at each
annual meeting of the Board of Directors thereafter, the
Initial Purchaser shall be entitled to such number of
Purchaser Designees to be appointed to each committee of the
Board of Directors (including the Nominating Committee) as
follows: (A) (i) if the Nominating Committee is composed
of three members, one Purchaser Designee shall be appointed
thereto or (ii) if the Nominating Committee is composed of
five members, two Purchaser Designees shall be appointed
thereto; and (B) such number (which number shall be at least
one and shall be rounded to the nearest whole number) of
Purchaser Designees shall be appointed to each other
committee of the Board of Directors equal to the product of
the total number of persons on such committee (including
Purchaser Designees) and a fraction the numerator of which
is the sum of (1) the number of shares of Common Stock the
shares of Series E Preferred Stock owned by the Initial
Purchaser are convertible into and (2) the number of
Conversion Shares owned by the Initial Purchaser and the
denominator of which is the total number of outstanding
securities of the Company entitled to vote generally in the
election of directors (assuming conversion of the outstand-
ing shares of Series E Preferred Stock). If the Initial
Purchaser holds Exchange Notes issued with respect to the
Series E Preferred Stock, the foregoing fraction shall be
calculated assuming conversion of such Exchange Notes. If
the Initial Purchaser Transfers shares of Series E Preferred
Stock, Conversion Shares or Exchange Notes issued with
respect to the Series E Preferred Stock and as a result no
longer holds all of the Original Investment, its right to
have Purchaser Designees appointed to the committees (other
than the Nominating Committee) of the Board of Directors
shall be reduced so that such number of Purchaser Designees
on each such committee equals the product of the total
number of persons on such committee (including Purchaser
Designees) and a fraction the numerator of which is the sum
of (a) the number of shares of Common Stock the shares of
Series E Preferred Stock owned by the Initial Purchaser are
convertible into and (b) the number of Conversion Shares
owned by the Initial Purchaser and the denominator of which
is the total number of outstanding securities of the Company
entitled to vote generally in the election of directors
(assuming conversion of the outstanding shares of Series E
Preferred Stock) rounded to the nearest whole number. If
the Initial Purchaser holds Exchange Notes issued with
47
<PAGE>
respect to the Series E Preferred Stock, the foregoing
fraction shall be calculated assuming conversion of such
Exchange Notes. The number of Purchaser Designees that the
Initial Purchaser shall be entitled to have appointed to the
Nominating Committee shall be reduced only to the extent
such that such number does not exceed the number of
Purchaser Designees that the Initial Purchaser shall have
the right to nominate to the Board of Directors.
(C) In the event any Purchaser Designee
shall cease to serve as a director for any reason (other
than by reason of a reduction of the number of Purchaser
Designees entitled to be members of the Board of Directors)
the Company shall cause the vacancy resulting thereby to be
filled by another Purchaser Designee. If a Purchaser
Designee ceases to serve on a committee of the Board of
Directors (other than by reason of a reduction of the number
of Purchaser Designees entitled to be members of such com-
mittee), such Purchaser Designee shall be replaced by
another Purchaser Designee.
(D) So long as the Initial Purchaser
retains the right pursuant to this Section 6.17 to designate
one or more Purchaser Designees, the Board of Directors
shall be composed of no less than thirteen or more than
seventeen members (except if additional members are elected
in accordance with the Certificate of Amendment or pursuant
to the terms of the New Preferred Stock) and the size of the
Nominating Committee shall be either three or five members,
except, in either case, on account of vacancies caused by
the resignations of members.
(E) The Initial Purchaser shall appoint
the Initial Purchaser Representative to act on its behalf,
vis-a-vis the Company, concerning the designation of
nominees to the Company's Board of Directors and the Company
shall be entitled to conclusively rely upon any instructions
given to it by the Initial Purchaser Representative pursuant
to this Section 6.17.
6.18 Specified Corporate Action. The
--------------------------
Company will not consummate, or agree to consummate, any
transaction that would constitute a Specified Corporate
Action unless at the time of the consummation of such
transaction (A) the Company has sufficient funds legally
available to it (after giving effect to such transaction) to
redeem at the then applicable price all outstanding shares
of Series E Preferred Stock, Series F Preferred Stock and
48
<PAGE>
Series G Preferred Stock pursuant to the Certificate of
Amendment, (B) such redemption shall not be prohibited by
any agreement to which the Company or any of its
Subsidiaries is a party, by applicable law or otherwise,
(C) the Board of Directors of the Company, including a
majority of the directors who are not officers or employees
of the Company, shall have adopted a resolution confirming
that such funds are available and that the holders of
Series E Preferred Stock, Series F Preferred Stock and
Series G Preferred Stock have the right to require such
redemption and (D) the Company has set aside sufficient
funds through the Mandatory Redemption Date to redeem the
shares of Series E Preferred Stock, Series F Preferred Stock
and Series G Preferred Stock held by such holders (except
that no funds need be set aside with respect to such Shares
held by any such holder who has thereto fore notified the
Company that it will not require redemption of such shares).
6.19 Regulatory Approvals. The Company
--------------------
shall take all steps necessary, and the Purchaser and its
Affiliates shall reasonably cooperate therein, such that no
approvals by any federal or state bank regulatory authority
will be required to be obtained by the Company, any
Subsidiary of the Company, the Purchaser or any Affiliate
thereof in order to consummate the transactions contemplated
by this Agreement, other than as may be provided in certain
agreed upon arrangements with such authorities, which shall
be reasonably satisfactory to the Purchaser and the Company
(the "Bank Regulatory Arrangements"). Notwithstanding
anything contained in this Section 6.19, the Purchaser shall
not be required to take any actions, or enter into any
arrangements that will subject the Purchaser or any of its
Affiliates to regulation or oversight by any federal or
state bank regulatory authority or impose any restrictions
upon the operations of the Purchaser or any of its
Affiliates (other than restrictions on any banking or non-
banking transactions between the Purchaser and its
Affiliates and California Central Bank Trust Corporation
(the "Bank") and restrictions on the Purchaser and its
Affiliates seeking to direct the management or policies of
the Bank).
6.20 Regulatory Documents. The Purchaser
--------------------
49
<PAGE>
shall not include in any Forms A or similar information
statements filed by it with any insurance regulatory
authority in connection with seeking the approval of such
authority of the transactions contemplated by this Agreement
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to
make the statements therein not misleading; provided,
--------
however, that the foregoing shall not apply to any informa-
-------
tion supplied by the Company or any of its representatives
or Affiliates to the Purchaser for inclusion in any such
statement and included by the Purchaser in any such
statement.
7. STANDSTILL.
7.1 Prohibited Activities. The Purchaser
---------------------
hereby agrees that during the Standstill Period (hereinafter
defined) it will not, nor will it permit any member of the
Purchaser Group to, directly or indirectly, unless in any
such case specifically requested in advance to do so by the
Board of Directors of the Company:
(A) acquire, offer to acquire, or
agree to acquire by purchase or by joining a part-
nership, limited partnership, syndicate or other
"group" (as such term is used in Section 13(d)(3)
of the Exchange Act, hereinafter referred to as
"13D Group"), any securities of the Company
entitled to vote generally in the election of
directors, or securities convertible into or
exercisable or exchangeable for such securities
(collectively, "Restricted Securities") or any
material portion of the assets or businesses of
the Company and its Subsidiaries; provided,
--------
however, that nothing contained herein shall
-------
prohibit any member of the Purchaser Group from
(x) consummating the transactions contemplated by
the CAM Agreement or (y) acquiring any Restricted
Securities (i) upon conversion of convertible
securities of the Company currently owned by the
Purchaser Group or acquired pursuant to this
Agreement or upon exercise of the Option, (ii) as
a result of a stock split, stock dividend or
similar recapitalization by the Company,
(iii) upon the execution of unsolicited buy orders
by any member of the Purchaser Group that is a
registered broker-dealer for the bona fide account
of accounts managed by it that are unaffiliated
50
<PAGE>
and not acting in concert with any member of the
Purchaser Group, or (iv) pursuant to the exercise
of any warrant, option or other right to acquire
Restricted Securities ("Rights") that it receives
directly from the Company pursuant to a distri-
bution to stockholders or from acquiring such
Rights directly from the Company; provided
--------
further, that if during the Standstill Period, as
-------
a result of a business combination transaction
between the Company or an affiliate of the Company
and any other entity which is not an affiliate of
any member of the Purchaser Group (an "Other
Entity"), any one or more members of the Purchaser
Group shall acquire beneficial ownership (within
the meaning of Rule 13d-3 of the Exchange Act) of
Restricted Securities in such business combina-
tion, such members may continue to own bene-
ficially such Restricted Securities so acquired by
such members and such Restricted Securities shall
continue to be subject to the provisions of this
Section;
(B) participate in, or encourage,
the formation of any 13D Group which owns or seeks
to acquire beneficial ownership of, or otherwise
acts in respect of, Restricted Securities;
(C) make, or in any way
participate in, directly or indirectly, any
"solicitation" of "proxies" (as such terms are
defined or used in Regulation 14A under the
Exchange Act) or become a "participant" in any
"election contest" (as such terms are defined or
used in Rule 14a-11 under the Exchange Act) with
respect to the Company, or initiate, propose or
otherwise solicit stockholders for the approval of
one or more stockholder proposals with respect to
the Company or induce or attempt to induce any
other person to initiate any stockholder proposal,
provided, however, that the limitation contained
in this paragraph (C) shall not apply to any
matter to be voted on by the Company's stock-
holders that is not initiated or proposed by any
member of the Purchaser Group or any Affiliate
thereof or the solicitation by any member of the
Purchaser Group of proxies for the election to the
Board of Directors of the Company of any Purchaser
Designee;
51
<PAGE>
(D) except as permitted by the
Certificate of Amendment or this Agreement, call
or seek to have called any meeting of the stock-
holders of the Company; or
(E) otherwise act, directly or
indirectly, alone or in concert with others, to
seek to control the management, Board of
Directors, policies or affairs of the Company, or
solicit, propose, seek to effect or negotiate with
the Company or any other person with respect to
any form of business combination transaction with
the Company or any affiliate thereof (other than
an Other Entity with respect to which any member
of the Purchaser Group or any affiliate thereof
shall have filed a Schedule 13D with the SEC with
respect to any class of equity securities of such
Other Entity prior to the public announcement of
the Company's intent to consummate a business
transaction with such Other Entity) or any
restructuring, recapitalization or similar trans-
action with respect to the Company or any affi-
liate thereof (except as aforesaid), or solicit,
make or propose or encourage or negotiate with any
other person with respect to, or announce an
intent to make, any tender offer or exchange offer
for any Restricted Securities (other than an
exchange of shares of Series E Preferred Stock for
Conversion Shares or the exchange of Shares or
Option Shares for Exchange Notes as contemplated
by the Certificate of Amendment) or disclose an
intent, purpose, plan or proposal with respect to
the Company or any Restricted Securities inconsis-
tent with the provisions of this Section 7.1,
including an intent, purpose, plan or proposal
that is conditioned on or would require the
Company to waive the benefit of, or amend, any
provisions of this Section 7.1, or assist, parti-
cipate in, facilitate, encourage or solicit any
effort or attempt by any person to do or seek to
do any of the foregoing; provided, however, that
-------- -------
it is agreed that nothing herein shall affect the
right of any Purchaser Designee (i) to act as a
member of the Board of Directors of the Company or
any committee thereof and (ii) to take any action
necessary or advisable to carry out his obliga-
tions as a director of the Company.
52
<PAGE>
Notwithstanding the foregoing, if any breach of Sec-
tion 7.1(A) caused by an acquisition of a non-material
amount of Restricted Securities shall have been cured within
30 days after the Purchaser becomes aware of such breach,
then no breach of this Section 7.1 shall be deemed to have
occurred.
7.2 Voting and Other Rights. Nothing in
-----------------------
this Section 7 shall preclude members of the Purchaser
Group, (A) from exercising the voting and other rights
granted to the Purchasers pursuant to this Agreement or any
of the Transaction Documents or (B) in the case of any
proposed merger, sale of assets or similar transaction that
under the Certificate of Amendment requires a vote of the
holders of Restricted Securities and has been approved or
recommended by the Board of Directors of the Company, or in
the case of a tender or exchange offer made without
encouragement by or the participation of the Purchaser or
any of its affiliates (if the Board of Directors of the
Company shall send to shareholders a statement that the
Board of Directors (i) recommends approval of such tender or
exchange offer, or (ii) is neutral with respect to such
tender or exchange offer) from making an offer to the Board
of Directors of the Company, in respect of such transaction,
upon terms more favorable to the Company or its stockholders
than those of the other transaction, as proposed.
7.3 Standstill Period. As used herein, the
-----------------
term "Standstill Period" shall mean the period from the date
that the Closing occurs until the earliest to occur of (each
a "Termination Event"):
(A) the date that is the fifth
anniversary of the Closing Date;
(B) the designation of any date as
the termination date of the Standstill Period by a
majority of the directors of the Company (exclud-
ing any Purchaser Designees and any directors
elected by the holders of Shares or Option Shares
pursuant to the Certificate of Amendment) at a
duly convened meeting thereof or by all of the
directors of the Company by written consent;
(C) the Company's breach of any of
its material obligations contained in the
Registration Rights Agreement;
53
<PAGE>
(D) default in the payment of
principal or interest when due (whether at
maturity, upon acceleration or otherwise) after
the expiration of any grace periods applicable
thereto with respect to indebtedness of the
Company or any of its Subsidiaries for money
borrowed having an aggregate outstanding principal
amount of $25,000,000 or more;
(E) the date on which the full
amount of dividends payable on the Series E
Preferred Stock, the Series F Preferred Stock or
the Series G Preferred stock for any two quarterly
dividend periods shall not have been paid;
provided, however, that this paragraph (E) shall
-------- -------
not be a Termination Event with respect to any
provision of Section 7.1 except the provisions
contained therein prohibiting the Purchaser or its
Affiliates from making a tender offer for all the
outstanding shares of Common Stock or entering
into an agreement of merger or consolidation
(including soliciting, making, proposing or
negotiating with respect thereto, or announcing an
interest to make such a tender offer or to
consummate such a merger or consolidation);
(F) the date on which the full
amount of dividends payable on the Series E
Preferred Stock, the Series F Preferred Stock or
the Series G Preferred Stock for any six quarterly
dividend periods shall not have been paid;
(G) the Company or any of its
Subsidiaries shall commence a voluntary case
concerning itself under Title 11 of the United
States Code entitled "Bankruptcy" as now or
hereafter in effect, or any successor thereto (the
"Bankruptcy Code") that, in the case of a
Subsidiary of the Company, has had or would have a
Material Adverse Effect; or an involuntary case is
commenced against the Company or any of its
Subsidiaries and the petition not controverted
within 10 days, or is not dismissed within 60 days
after commencement of the case, which, in the case
of a Subsidiary of the Company, has had or would
have a Material Adverse Effect; or a custodian (as
defined in the Bankruptcy Code) is appointed for,
or takes charge of, all or any substantial part of
54
<PAGE>
the property of the Company or any of its
Subsidiaries, which, in the case of a Subsidiary
of the Company, has had or would have a Material
Adverse Effect; or the Company or any of its
Subsidiaries commences any other proceeding under
any reorganization, arrangement, adjustment of
debt, relief of debtors, rehabilitation, dissolu-
tion, insolvency or liquidation or similar law of
any jurisdiction, whether now or hereafter in
effect, relating to the Company or such
Subsidiary, or there is commenced against the
Company or any of its Subsidiaries any such
proceeding which remains undismissed for a period
of 60 days, which, in the case of a Subsidiary of
the Company, has had or would have a Material
Adverse Effect; or the Company or any of its
Subsidiaries is adjudicated insolvent or bankrupt,
which, in the case of a Subsidiary of the Company,
has had or would have a Material Adverse Effect;
or any order of relief or other order approving
any such case or proceeding is entered, which, in
the case of a Subsidiary of the Company, has had
or would have a Material Adverse Effect; or the
Company or any of its Subsidiaries suffers any
appointment of any custodian or the like for it or
any substantial part of its property to continue
undischarged or unstayed for a period of 60 days,
which, in the case of a Subsidiary of the Company,
has had or would have a Material Adverse Effect;
or the Company or any of its Subsidiaries makes a
general assignment for the benefit of creditors,
which, in the case of a Subsidiary of the Company,
has had or would have a Material Adverse Effect;
or the Company shall fail to pay, or shall state
that it is unable to pay, or shall be unable to
pay, its debts, generally as they become due,
which, in the case of a Subsidiary of the Company,
has had or would have a Material Adverse Effect;
or the Company or any of its Subsidiaries shall
call a general meeting of its creditors with a
view to arranging a composition or adjustment of
its debts, which, in the case of a Subsidiary of
the Company, has had or would have a Material
Adverse Effect; or any corporate action is taken
by the Company or any of its Subsidiaries for the
purpose of effecting any of the foregoing, which,
in the case of a Subsidiary of the Company, has
had or would have a Material Adverse Effect;
55
<PAGE>
(H) without encouragement by or
the participation of the Purchaser or any of its
Affiliates, the acquisition by any person or 13D
Group (other than members of the Purchaser Group
or Affiliates thereof) of, the commencement of a
tender offer by such person or 13D Group for, or
the public announcement of an intention to
acquire, Restricted Securities which, if added to
the Restricted Securities (if any) already owned
by such person or 13D Group, would represent
thirty percent (30%) or more of the total voting
power (including rights to acquire voting power)
of the Company's Restricted Securities, or the
receipt by such person or 13D Group of the
Company's agreement or consent to make such
acquisition; provided, however, that such a public
-------- -------
announcement or commencement of a tender offer
shall end the Standstill Period only if such
person or 13D Group shall have received the
Company's agreement or consent to make such
intended acquisition, and such a tender offer
shall terminate the Standstill Period only if and
when the Board of Directors of the Company shall
send to shareholders a statement that the Board of
Directors (i) recommends approval of such tender
offer or (ii) is neutral with respect to such
tender offer; or
(I) the failure of any of the
Purchaser Designees to be elected to the Board of
Directors of the Company or to be appointed to any
committee thereof in accordance with Section 6.17.
Notwithstanding the foregoing, if, in accordance with
Section 6.1, a transferee of the Purchaser is required to
agree to be bound by the provisions of this Section 7.1,
such agreement shall also provide that the events described
in paragraph (E), (F) or (I) shall not be a Termination
Event with respect to such transferee and its Affiliates.
8. INDEMNIFICATION.
8.1 Indemnification by the Company. In
------------------------------
addition to all other sums due hereunder or provided for in
this Agreement, the Company agrees to indemnify and hold
harmless the Initial Purchaser and its Affiliates and their
respective officers, directors, agents, employees,
subsidiaries, partners and controlling persons (each, an
56
<PAGE>
"indemnified party") to the fullest extent permitted by law
from and against any and all losses, claims, damages,
expenses (including reasonable fees, disbursements and other
charges of counsel) or other liabilities ("Liabilities")
resulting from any breach of any covenant, agreement,
representation or warranty of the Company in this Agreement
or any legal, administrative or other actions brought by any
person or entity, proceedings or investigations (whether
formal or informal), or written threats thereof, based upon,
relating to or arising out of this Agreement, any
Transaction Document, the transactions contemplated hereby
or thereby, or any indemnified person's role therein or in
the transactions contemplated hereby or thereby; provided,
--------
however, that the Company shall not be liable under this
-------
Section 8.1: (i) for any amount paid in settlement of
claims without the Company's consent (which consent shall
not be unreasonably withheld) or (ii) to the extent that it
is finally judicially determined that such Liabilities
resulted primarily from a breach by the Purchaser of any
representation, warranty, covenant or agreement of the
Purchaser contained in this Agreement or the willful
misconduct of the Purchaser; provided further, that if and
-------- -------
to the extent that such indemnification is unenforceable for
any reason, the Company shall make the maximum contribution
to the payment and satisfaction of such indemnified
liability that shall be permissible under applicable laws.
In connection with the obligation of the Company to
indemnify for Liabilities as set forth above, the Company
further agrees to reimburse each indemnified party for all
such expenses (including reasonable fees, disbursements and
other charges of counsel) as they are incurred by such
indemnified party.
8.2 Notification. Each indemnified party
------------
under this Section 8 will, promptly after the receipt of
notice of the commencement of any action or other proceeding
against such indemnified party in respect of which indemnity
may be sought from the Company under this Section 8, notify
the Company in writing of the commencement thereof. The
omission of any indemnified party so to notify the Company
of any such action shall not relieve the Company from any
liability that it may have to such indemnified party
(A) other than pursuant to this Section 8 or (B) under this
Section 8 unless, and only to the extent that, such omission
results in the Company's forfeiture of substantive rights or
defenses. In case any such action or other proceeding shall
be brought against any indemnified party and it shall notify
the Company of the commencement thereof, the Company shall
57
<PAGE>
be entitled to participate therein and, to the extent that
it may wish, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party; provided,
--------
however, that any indemnified party may, at its own expense,
-------
retain separate counsel to participate in such defense.
Notwithstanding the foregoing, in any action or proceeding
in which both the Company and an indemnified party is, or is
reasonably likely to become, a party, such indemnified party
shall have the right to employ separate counsel at the
Company's expense and to control its own defense of such
action or proceeding if, in the reasonable opinion of
counsel to such indemnified party, (i) there are or may be
legal defenses available to such indemnified party or to
other indemnified parties that are different from or
additional to those available to the Company or (ii) any
conflict or potential conflict exists between the Company
and such indemnified party that would make such separate
representation advisable; provided, however, that (1) any
-------- -------
such separate counsel employed by the indemnified party at
the Company's expense shall be reasonably satisfactory to
the Company, (2) the indemnified party will not, without the
prior written consent of the Company, settle, compromise or
consent to the entry of any judgment in such action or
proceeding unless such settlement, compromise or consent
includes an unconditional release of the Company from all
liability arising or that may arise out of such action or
proceeding relating to any matter subject to indemnification
hereunder and (3) in no event shall the Company be required
to pay fees and expenses under this Section 8 for more than
one firm of attorneys representing the indemnified parties
in any jurisdiction in any one legal action or group of
related legal actions. The Company agrees that the Company
will not, without the prior written consent of the
Purchaser, settle, compromise or consent to the entry of any
judgment in any pending or threatened claim, action or pro-
ceeding relating to any matter subject to indemnification
hereunder unless such settlement, compromise or consent
includes an unconditional release of the Purchaser and each
other indemnified party from all liability arising or that
may arise out of such claim, action or proceeding. The
rights accorded to indemnified parties hereunder shall be in
addition to any rights that any indemnified party may have
at common law, by separate agreement or otherwise.
8.3 Registration Rights Agreement. Notwith-
-----------------------------
standing anything to the contrary in this Section 8, the
indemnification and contribution provisions of the
Registration Rights Agreement shall govern any claim made
58
<PAGE>
with respect to registration statements filed pursuant
thereto or sales made thereunder.
9. TERMINATION.
9.1 Termination. This Agreement may be
-----------
terminated at any time prior to the Closing:
(A) by mutual written consent of the Company and
the Purchaser;
(B) by the Company or the Purchaser, if the
Closing shall not have occurred on or before February 28,
1995; provided, however, that the right to terminate this
-------- -------
Agreement under this clause (B) shall not be available to
any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure
of the closing to occur on or before such date;
(C) by the Company or the Purchaser, if any
judgment, injunction, order or decree enjoining the Pur-
chaser or the Company from consummating this Agreement is
entered and such judgment, injunction, order or decree shall
become final and nonappealable; provided, however, that the
-------- -------
party seeking to terminate this Agreement pursuant to this
clause (C) shall have used all reasonable efforts to remove
such judgment, injunction, order or decree;
(D) by the Company or the Purchaser if the
Company has entered into a definitive agreement with respect
to a Control Transaction;
(E) by the Purchaser if there has been a material
breach of any representation, warranty or material covenant
or agreement of the Company which is incurable, or which is
not cured on or prior to the Closing Date;
(F) by the Company if there has been a material
breach of any representation, warranty, or material covenant
or agreement of the Purchaser contained in this Agreement,
which breach is incurable or has not been cured on or prior
to the Closing Date;
9.2 Effect of Termination. If this Agreement is
---------------------
terminated pursuant to Section 9.1, this Agreement shall
become void and of no effect with no liability on the part
of any party hereto, except (A) to the extent such termina-
tion results from the breach by a party hereto of any of its
59
<PAGE>
representations, warranties, covenants or agreements set
forth in this Agreement and (B) that the representation
contained in Section 4.18 and the covenants and agreements
contained in Sections 6.10, 6.12, 8, 13.1 and 13.2 shall
survive the termination hereof.
10. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS.
Notwithstanding any right of the Purchaser fully
to investigate the affairs of the Company and notwithstand-
ing any knowledge of facts determined or determinable by the
Purchaser pursuant to such investigation or right of inves-
tigation, the Purchaser has the right to rely fully upon the
representations, warranties, covenants and agreements of the
Company contained in this Agreement. All such representa-
tions, warranties, covenants and agreements shall survive
the execution and delivery of this Agreement and the Closing
hereunder, except that the representations and warranties
shall survive only for a period of two years from the
Closing.
11. PERFORMANCE; WAIVER.
The provisions of this Agreement (including this
Section 11) may be modified or amended, and waivers and
consents to the performance and observance of the terms
hereof may be given by written instrument executed and
delivered by the Company and (A) prior to the Closing, by
the Purchaser and (B) after the Closing by the holder or
holders of the Shares representing 66-2/3% of the aggregate
outstanding Shares, including Conversion Shares (if Exchange
Notes issued with respect to the Shares are outstanding such
percentage shall be calculated on the basis of the aggregate
principal amount of such Exchange Notes). The failure at
any time to require performance of any provision hereof
shall in no way affect the full right to require such
performance at any time thereafter (unless performance
thereof has been waived in accordance with the terms hereof
for all purposes and at all times by the parties to whom the
benefit of such performance is to be rendered). The waiver
by any party to this Agreement of a breach of any provision
hereof shall not be taken or held to be a waiver of any
succeeding breach of such provision of any other provision
or as a waiver of the provision itself.
60
<PAGE>
12. SUCCESSORS AND ASSIGNS.
All covenants and agreements contained in this
Agreement by or on behalf of the parties hereto shall bind,
and inure the benefit of, the respective successors and
assigns of the parties hereto; provided, however, that the
-------- -------
rights and obligations of either party hereto may not be
assigned without the prior written consent of the other
parties except that (A) prior to the Closing, the Purchaser
may assign all or any portion of its right to purchase the
Shares (and the corresponding obligations) to one or more
Affiliates of Insurance Partners, L.P. or Insurance Partners
(Bermuda), L.P., in which event the Purchaser will be
relieved of its obligations hereunder to the extent so
assumed by such Affiliate or Affiliates and such Affiliate
or Affiliates will be considered to be included within each
of the term "Purchaser" and "Initial Purchaser" for all
purposes of this Agreement and (B) assignments of all or a
portion of the Purchaser's rights and obligations hereunder
may be made by the Purchaser in connection with transfers
permitted under clause (1) or (2) of Section 6.1, in which
event the assigning Purchaser shall be relieved of its
obligations to the extent so assigned by the transferee.
Each such assignment shall be made by such assignee and
assignor, as the case may be, and the Company executing an
Assignment Agreement pursuant to which the assignee shall
expressly agree to become a party to this Agreement and to
be bound by the terms of this Agreement.
13. MISCELLANEOUS.
13.1 Notices. All notices or other
-------
communications given or made hereunder shall be validly
given or made if in writing and delivered by facsimile
transmission or in person at, mailed by registered or
certified mail, return receipt requested, postage prepaid,
or sent by a reputable overnight courier to, the following
addresses (and shall be deemed effective at the time of
receipt thereof).
If to the Company:
The Continental Corporation
180 Maiden Lane
New York, New York 10038
Telecopy: (212) 440-3857
Attention: Chief Executive Officer
61
<PAGE>
with a copies to:
The Continental Corporation
180 Maiden Lane
New York, New York 10038
Telecopy: (212) 440-3857
Attention: General Counsel
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Telecopy: (212) 909-6836
Attention: Edward A. Perell
If to the Purchaser:
TCC-PS Limited Partnership
c/o Insurance Partners Advisors, L.P.
One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Telecopy: (212) 898-8720
Attention: Daniel L. Doctoroff
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Marilyn Sobel, Esq.
or to such other address as the party to whom notice is to
be given may have previously furnished notice in writing to
the other in the manner set forth above.
13.2 Expenses. Whether or not the Shares
--------
are sold to the Purchaser or this Agreement is terminated,
the Company agrees to pay all Transaction Expenses (whether
or not incurred prior to the date hereof); provided,
--------
however, that (A) if this Agreement is terminated pursuant
-------
to Section 9.1(D), then the provisions of Section 6.10 (and
not this Section 13.2) shall apply and (B) the Company shall
have no obligation to pay any Transaction Expenses if (i)
the Purchaser fails to close the transactions contemplated
hereby upon satisfaction of its closing conditions set forth
in Section 3.1 hereof or (ii) the Company terminates this
Agreement pursuant to Section 9.1(F). Notwithstanding the
foregoing, the Company will not be required to pay any
62
<PAGE>
Transaction Expenses with respect to any advisor of the
Purchaser or its Affiliates engaged thereby after the date
hereof unless the Company has consented to such engagement
(which consent shall not be unreasonably withheld). Whether
or not the Shares are sold to the Purchaser or this
Agreement is terminated, the Company shall pay all of the
fees and expenses of its advisors, attorneys, accountants,
and investment bankers incurred in connection with the
transactions contemplated hereby.
13.3 Governing Law. THIS AGREEMENT SHALL BE
-------------
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND
PERFORMED ENTIRELY WITHIN SUCH STATE. EACH OF THE PARTIES
HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE STATE AND
FEDERAL COURTS IN THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
13.4 Severability. If any term, provision,
------------
covenant or restriction of this Agreement is held by a court
of competent jurisdiction to be invalid, void or unenforce-
able, each of the Company and the Purchaser directs that
such court interpret and apply the remainder of this
Agreement in the manner that it determines most closely
effectuates their intent in entering into this Agreement,
and in doing so particularly take into account the relative
importance of the term, provision, covenant or restriction
being held invalid, void or unenforceable.
13.5 Headings; Interpretation. The index
------------------------
and section headings herein are for convenience only and
shall not affect the construction hereof. References to
sections means sections of this Agreement unless the context
otherwise requires. References to herein or hereof mean
this Agreement.
13.6 Entire Agreement. This Agreement
----------------
embodies the entire agreement between the parties relating
to the subject matter hereof and any and all prior oral or
written agreements, representations or warranties, con-
tracts, understandings, correspondence, conversations, and
memoranda, whether written or oral, between the Company and
the Purchaser, or between or among any agents, representa-
tives, parents, Subsidiaries, Affiliates, predecessors in
interest or successors in interest, with respect to the
subject matter hereof.
63
<PAGE>
13.7 Counterparts. This Agreement may be
------------
executed in counterparts, each of which shall be deemed to
be an original and both of which together shall be deemed to
be one and the same instrument.
13.8 Letter Agreement. Upon consummation of
----------------
the purchase of the Shares as contemplated hereby, the
Letter Agreement dated June 30, 1994 between Insurance
Partners Advisors, L.P. and the Company shall automatically
terminate and be of no further force and effect.
IN WITNESS WHEREOF, the parties hereto have
executed this Agreement.
THE CONTINENTAL CORPORATION
By:/s/ John P. Mascotte
-----------------------------------
Name: John P. Mascotte
Title: Chairman
TCC-PS LIMITED PARTNERSHIP
By: TCC-PS GENPAR, INC., its
General Partner
By: /s/ Daniel L. Doctoroff
-----------------------------------
Name: Daniel L. Doctoroff
Title: President
64
<PAGE>
Schedule 1
----------
Material Subsidiaries
---------------------
With respect to the definition of "Material
Subsidiary" in Section 1 of the Stock Purchase Agreement,
between The Continental Corporation (the "Company") and TCC-
PS Limited Partnership, dated as of October 13, 1994, the
following Subsidiaries of the Company shall be included:
Boston Old Colony Insurance Company
The Buckeye Union Insurance Company
Casualty Insurance Company
Commercial Insurance Company of Newark, N.J.
The Continental Insurance Company
The Continental Insurance Company of New Jersey
the Continental Insurance Company of Puerto Rico
Continental Reinsurance Corporation
Continental Reinsurance Corporation International Limited
East River Insurance Company, Ltd.
East River Insurance Company (Bermuda) Ltd.
The Fidelity and Casualty Company of New York
Firemen's Insurance Company of Newark, New Jersey
Hong Kong Fire Insurance Company Limited
The Glens Falls Insurance Company
Kansas City Fire and Marine Insurance Company
The Mayflower Insurance Company, Ltd.
National-Ben Franklin Insurance Company of Illinois
Niagara Fire Insurance Company
Pacific Insurance Company
Workers' Compensation and Indemnity Company of California
<PAGE>
EXHIBIT A
CERTIFICATE OF AMENDMENT OF
THE CERTIFICATE OF INCORPORATION
OF THE CONTINENTAL CORPORATION
UNDER SECTION 805 OF THE BUSINESS
CORPORATION LAW
---------------------------------
The undersigned, being the President and the Secretary, respectively,
of The Continental Corporation, hereby certify and set forth:
1. The name of the corporation is THE CONTINENTAL CORPORATION (the
"Corporation").
2. The certificate of incorporation of the Corporation was filed by
the Department of State on the 15th day of May, 1968.
3. The certificate of incorporation of the Corporation is hereby
amended, pursuant to section 502 of the Business Corporation Law, by the
addition of a provision stating the number, designation, relative rights,
preferences and limitations of the shares of (i) a series of Cumulative
Convertible Preferred Stock, Series E (the "Series E Preferred Stock"), (ii) a
series of Cumulative Preferred Stock, Series F (the "Series F Preferred Stock")
and (iii) a series of Cumulative Preferred Stock, Series G (the "Series G
Preferred Stock"). Each of the Series E Preferred Stock, the Series F Preferred
Stock and the Series G Preferred Stock was established by a resolution adopted
by a majority vote of the board of directors of The Continental Corporation at a
meeting of the board duly called and held on ________________. The text of that
resolution is set forth below:
RESOLVED that, pursuant to the authority vested in the Board of
Directors of the Corporation in accordance with the provisions of Article 5 of
the Certificate of Incorporation, three series of the class of authorized
Preferred Stock, par value $4.00 per share, of the Corporation are hereby
created and that the number of shares and the designations, relative rights
preferences and limitations of
<PAGE>
the shares of each such series, and the qualifications, limitations and restric-
tions thereof are as follows:
Article 1 Series E Preferred Stock.
------------------------
Section 1 Designation and Number.
----------------------
(a) The shares of such series shall be designated as "Cumulative
Convertible Preferred Stock, Series E" (the "Series E Preferred Stock"). The
number of shares initially constituting the Series E Preferred Stock shall be
________,1/ which number may be decreased (but not increased) by the Board of
-
Directors without a vote of stockholders; provided, however, that such number
-------- -------
may not be decreased below the number of then outstanding shares of Series E
Preferred Stock.
(b) The Series E Preferred Stock shall, with respect to dividend
rights and rights on liquidation, dissolution or winding up, rank pari passu
---- -----
with the Corporation's $2.50 Cumulative Convertible Preferred Stock, Series A
(the "Series A Preferred Stock"), $2.50 Cumulative Preferred Stock, Series B
(the "Series B Preferred Stock"), Cumulative Preferred Stock, Series F (the
"Series F Preferred Stock"), Cumulative Preferred Stock, Series G (the "Series G
Preferred Stock") and the New Preferred Stock (if any) (the Series A Preferred
Stock, Series B Preferred Stock, Series F Preferred Stock, Series G Preferred
Stock and New Preferred Stock (if any) are collectively defined for the purposes
of this Article 1 as the "Other Preferred Stock") and prior to all other classes
and series of capital stock of the Corporation now or hereafter authorized
including, without limitation, the Common Stock, par value $1.00 per share, of
the Corporation (the "Common Stock").
(c) Capitalized terms used herein and not otherwise defined shall
have the meanings set forth in Article 4 below.
--------------------
1/ Such number so that on the date of issue the shares of
-
Series E Preferred Stock shall be convertible into
19.9% of the outstanding Common Stock determined in
accordance with New York Stock Exchange Rules.
2
<PAGE>
Section 2 Dividends and Distributions.
---------------------------
(a) The holders of shares of Series E Preferred Stock, in preference
to the holders of shares of Common Stock and of any shares of other capital
stock of the Corporation other than the Other Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors, out of the
assets of the Corporation at the time legally available therefor, cumulative
cash dividends at an annual rate on the Liquidation Preference thereof equal to
9.75% (subject to increase pursuant to Section 2(b)), calculated on the basis of
a 360-day year consisting of twelve 30-day months, accruing and payable in equal
quarterly payments, in immediately available funds, on the Business Day
immediately preceding the last day of March, June, September and December in
each year (each such date being referred to herein as a "Quarterly Dividend
Payment Date") commencing on the Business Day immediately preceding [December
31, 1994];2/ provided, however, that with respect to such first Quarterly
- -------- -------
Dividend Payment Date, the holders of shares of Series E Preferred Stock shall
be entitled to receive, when, as and if declared by the Board of Directors, out
of the assets of the Corporation at the time legally available therefor, a
cumulative cash dividend in respect of each share of Series E Preferred Stock in
the amount of (i) 9.75% (or the then effective annual rate) of the Liquidation
Preference multiplied by (ii) a fraction equal to (A) the number of days from
(and including) the Issue Date to (but excluding) such Quarterly Dividend Pay-
ment Date divided by (B) 360. No interest shall be payable in respect of any
dividend payment on the Series E Preferred Stock that may be in arrears.
(b) If (i) within 45 days of the Issue Date, the Corporation has not
delivered to each holder of shares of Series E Preferred Stock a Private
Placement Memorandum or a Registration Statement on Form S-3 (if the Corporation
is then eligible to use Form S-3) with respect to the private placement or
public offering of the New Preferred Stock or the New Senior Notes, (ii) the
Corporation shall have delivered to the holder a draft of a Registration
Statement on Form S-3 (if the Corporation is then eligible to use Form S-3)
pursuant to clause (i), and such Registration Statement shall not have been
filed with the Securities and Exchange
- --------------------
2/ Assumes closing on or prior to December 31, 1994; otherwise date(s) will be
- -
appropriately adjusted.
3
<PAGE>
Commission within 30 days after the Issue Date, (iii) a private placement or
public offering of the New Preferred Stock or the New Senior Notes, pursuant to
which the Corporation shall receive at least $100,000,000 in gross proceeds is
not consummated within 210 days after the Issue Date or (iv) the annual dividend
rate on the New Preferred Stock or the annual interest rate on the New Senior
Notes, as applicable, exceeds 13%, then the annual rate of the cumulative cash
dividends shall be increased to a rate of 11.75%, effective (w) in the case of
clause (i), the date that is forty-five days after the Issue Date, (x) in the
case of clause (ii), the date that is 30 days after the Issue Date, (y) in the
case of clause (iii), the date that is 210 days after the Issue Date and (z) in
the case of clause (iv), the date of the issuance of the New Preferred Stock or
the New Senior Notes, as applicable. If on any date (A) all of the Purchaser
Designees shall not have been elected to the Corporation's Board of Directors or
any such Purchaser Designees shall not have been appointed to the committees of
the Corporation's Board of Directors, in accordance with the provisions of
Section 6.17 of the Securities Purchase Agreement, (B) the Corporation shall
have failed to declare, or shall have failed to pay, the full amount of
dividends payable on the Series E Preferred Stock for six quarterly dividend
periods, (C) the Corporation shall have failed to satisfy its obligation to
convert shares of Series E Preferred Stock pursuant to Section 10 or (D) a
breach of any of the Material Provisions of the Securities Purchase Agreement or
any of the Corporation's material obligations under the Registration Rights
Agreement shall have occurred then, effective as of the date of such failure or
breach, the annual rate of the cumulative cash dividends shall be increased to a
rate of 11.75% and shall remain at such rate until such time as (1) the
Purchaser Designees shall have been elected to the Corporation's Board of
Directors and appointed to the committees of the Corporation's Board of
Directors in accordance with the provisions of Section 6.17 of the Securities
Purchase Agreement, (2) all dividends accrued to date on the Series E Preferred
Stock shall have been declared and paid in full, (3) any conversion obligation
provided in Section 10 that has become due shall have been fully satisfied or
(4) there shall exist no breach of any of the Material Provisions of the
Securities Purchase Agreement or any of the Corporation's material obligations
under the Registration Rights Agreement, as the case may be, at which time the
annual rate of the cumulative cash dividends shall be reduced to a rate of
9.75%, subject to being increased to a rate of 11.75% in the
4
<PAGE>
event of each and every subsequent event of the character indicated above.
(c) Dividends payable pursuant to Section 2(a) shall begin to accrue
and be cumulative from the Issue Date, and shall accrue on a daily basis, in
each case whether or not declared. Dividends paid on the shares of Series E
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a share-
by-share basis among all such shares of Series E Preferred Stock at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series E Preferred Stock entitled to receive payment of
a dividend declared thereon, which record date shall be no more than 60 days or
less than 10 days prior to the date fixed for the payment thereof. Accumulated
but unpaid dividends for any past quarterly dividend periods may be declared and
paid at any time, without reference to any regular Quarterly Dividend Payment
Date, to holders of record on such date, not more than 60 nor less than 10 days
preceding the payment date thereof, as may be fixed by the Board of Directors.
(d) The holders of shares of Series E Preferred Stock shall not be
entitled to receive any dividends or other distributions except as provided
herein.
Section 3 Voting Rights.
-------------
In addition to any voting rights provided by law, the holders of
shares of Series E Preferred Stock shall have the following voting rights:
(a) Except as otherwise required by applicable law so long as the
Series E Preferred Stock is outstanding, each share of Series E Preferred Stock
shall entitle the holder thereof to vote, in person or by proxy, at a special or
annual meeting of stockholders, on all matters voted on by holders of Common
Stock voting together as a single class with other shares entitled to vote
thereon. With respect to any such vote, each share of Series E Preferred Stock
shall entitle the holder thereof to cast that number of votes per share as is
equal to the number of votes that such holder would be entitled to cast had such
holder converted his shares of Series E Preferred Stock into Common Stock on the
record date for determining the stockholders of the Corporation eligible to vote
on any such matters.
5
<PAGE>
(b) Unless the consent or approval of a greater number of shares
shall then be required by law, the affirmative vote of the holders of at least
66-2/3% of the outstanding shares of Series E Preferred Stock, voting separately
as a single class, in person or by proxy, at a special or annual meeting of
stockholders called for the purpose, shall be necessary to (i) authorize, adopt
or approve an amendment to the Certificate of Incorporation that would increase
or decrease the par value of the shares of Series E Preferred Stock, or alter or
change the powers, preferences or special rights of the shares of Series E
Preferred Stock, (ii) amend, alter or repeal the Certificate of Incorporation so
as to affect the shares of Series E Preferred Stock adversely or (iii) effect
the voluntary liquidation, dissolution, winding up, recapitalization or
reorganization of the Corporation, or the consolidation or merger of the
Corporation with or into any other Person, or the sale or other distribution to
another Person of all or substantially all of the assets of the Corporation;
provided, however, that no separate vote of the holders of Series E Preferred
- -------- -------
Stock shall be required to effect any of the transactions described in clause
(iii) above unless such transaction would either require a class vote pursuant
to clause (i) or (ii) above or would require a vote by any shareholders of the
Corporation; provided further, that no separate vote of the holders of the
-------- -------
Series E Preferred Stock as a class shall be required in the case of a
recapitalization, reorganization, consolidation or merger of, or sale by, the
Corporation if (A)(a) such recapitalization, reorganization, consolidation,
merger or sale constitutes a Specified Corporate Action, (b) the Corporation has
sufficient funds legally available to it (after giving effect to such
transaction) to redeem, at the then applicable price hereunder and pursuant to
the terms hereof, all the outstanding shares of Series E Preferred Stock,
(c) such redemption shall not be prohibited by any agreement to which the
Corporation or any of its Subsidiaries is a party, by applicable law or
otherwise, (d) the Board of Directors of the Corporation, including a majority
of the directors who are not officers or employees of the Corporation, shall
have adopted a resolution confirming that such funds are available and that the
holders of Series E Preferred Stock have the right to require such redemption
and (e) the Corporation shall have set aside sufficient funds to redeem through
the Mandatory Redemption Date the shares of Series E Preferred Stock held by
such holders (except that no funds need be set aside with respect to such shares
held by any such holder who has theretofore notified
6
<PAGE>
the Corporation (whether pursuant to Section 6(c) or otherwise) that it will not
require redemption of such shares) or (B) (1) the Corporation shall be the
resulting or surviving corporation, (2) the resulting or surviving corporation
will have after such recapitalization, reorganization, consolidation or merger
no Senior Stock or Parity Stock either authorized or outstanding (except such
Parity Stock of the Corporation as may have been authorized or outstanding
immediately preceding such consolidation or merger) or such stock of the
resulting or surviving corporation (having the same powers, preferences and
special rights of any such Parity Stock) as may be issued in exchange therefor),
(3) each holder of shares of Series E Preferred Stock immediately preceding such
recapitalization, reorganization, consolidation or merger will receive in
exchange therefor the same number of shares of stock, with the same preferences,
rights and powers, of the resulting or surviving corporation, (4) after such
recapitalization, reorganization, consolidation or merger the resulting or
surviving corporation shall not be in breach of any of the terms hereof, any of
the Material Provisions of the Securities Purchase Agreement or any of its
material obligations under the Registration Rights Agreement and (5) all or
substantially all the holders of the outstanding shares of capital stock of the
Corporation immediately prior to such consolidation or merger are entitled to
receive shares representing 50% or more of the then outstanding shares of
capital stock of the resulting or surviving corporation entitled to vote
generally in the election of directors.
(c) If on any date (i) the Corporation shall have failed to declare,
or shall have failed to pay, the full amount of dividends payable on the
Series E Preferred Stock, Series F Preferred Stock or Series G Preferred Stock
for six quarterly dividend periods or (ii) a breach of any of the Material
Provisions of the Securities Purchase Agreement or any of the Corporation's
material obligations under the Registration Rights Agreement shall have
occurred, then the number of directors constituting the Board of Directors
shall, without further action, be increased by two and the holders of shares of
Series E Preferred Stock shall have, in addition to the other voting rights set
forth herein with respect to the Series E Preferred Stock, the exclusive right,
together with the holders of Series F Preferred Stock and Series G Preferred
Stock, voting separately as a single class together with the holders of Series F
Preferred Stock and Series G Preferred Stock, to elect two directors of the
Corporation to fill such newly created directorship, by
7
<PAGE>
written consent as provided herein, or at a special meeting of such holders
called as provided herein. Any such additional directors shall continue as
directors (subject to reelection or removal as provided in Section 3(d)(ii)) and
the holders of Series E Preferred Stock shall have such additional voting rights
until such time as (A) dividends then payable on the Series E Preferred Stock,
Series F Preferred Stock and Series G Preferred Stock shall have been declared
and paid in full or (B) there shall exist no breach of any of the Material
Provisions of the Securities Purchase Agreement or any of the Corporation's
material obligations under the Registration Rights Agreement, as the case may
be, at which time such additional directors shall cease to be directors, the
number of directors constituting the Board of Directors shall be reduced by two
and such additional voting rights of the holders of Series E Preferred Stock,
Series F Preferred Stock and Series G Preferred Stock shall terminate, subject
to revesting in the event of each and every subsequent event of the character
indicated above.
(d) (i) The foregoing right of holders of shares of Series E
Preferred Stock to take any action as provided in Section 3(c) may be exercised
at any annual meeting of stockholders or at a special meeting of holders of
shares of Series E Preferred Stock, Series F Preferred Stock and Series G
Preferred Stock, held for such purpose as hereinafter provided or at any
adjournment thereof, or by the written consent, delivered to the Secretary of
the Corporation, of the holders of the minimum number of shares required to take
such action.
So long as such right to vote continues (and unless such right has
been exercised by written consent of the minimum number of shares required to
take such action), the President of the Corporation may call, and upon the
written request of holders of record of at least 5% of the aggregate outstanding
shares of Series E Preferred Stock, Series F Preferred Stock and Series G
preferred Stock, addressed to the Secretary of the Corporation at the principal
office of the Corporation, shall call, a special meeting of the holders of
shares entitled to vote as provided herein. Such meeting shall be held within
30 days after delivery of such request to the Secretary, at the place and upon
the notice provided by law and in the by-laws of the Corporation for the holding
of meetings of stockholders.
8
<PAGE>
(ii) At each meeting of stockholders at which the holders of
shares of Series E Preferred Stock shall have the right, voting separately as a
single class together with the holders of Series F Preferred Stock and Series G
Preferred Stock, to elect two directors of the Corporation as provided in Sec-
tion 3(c) or to take any action, the presence in person or by proxy of the
holders of record of one-third of the total aggregate number of shares of
Series E Preferred Stock, Series F Preferred Stock and Series G Preferred Stock,
in each case then outstanding and entitled to vote on the matter shall be
necessary and sufficient to constitute a quorum. At any such meeting or at any
adjournment thereof:
(A) the absence of a quorum of the holders of shares of Series E
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock,
shall not prevent the election of directors other than those to be elected
by the holders of shares of Series E Preferred Stock, Series F Preferred
Stock and Series G Preferred Stock, and the absence of a quorum of the
holders of shares of any other class or series of capital stock shall not
prevent the election of directors to be elected by the holders of shares of
Series E Preferred Stock, Series F Preferred Stock and Series G Preferred
Stock, or the taking of any action as provided in Section 3(c); and
(B) in the absence of a quorum of the holders of shares of
Series E Preferred Stock, Series F Preferred Stock and Series G Preferred
Stock, a majority of the holders of such shares present in person or by
proxy shall have the power to adjourn the meeting as to the actions to be
taken by the holders of shares of Series E Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock, from time to time and place
to place without notice other than announcement at the meeting until a
quorum shall be present.
For taking of any action as provided in Section 3(b) or Section 3(c)
by the holders of shares of Series E Preferred Stock, each such holder shall
have one vote for each share of such stock standing in his name on the transfer
books of the Corporation as of any record date fixed for such purpose or, if no
such date be fixed, at the close of business on the Business Day next preceding
the day on which notice is given, or if notice is waived, at the close of
business on the Business Day next preceding the day
9
<PAGE>
on which the meeting is held; provided, however, that shares of Series E
-------- -------
Preferred Stock, Series F Preferred Stock or Series G Preferred Stock held by
the Corporation or any Subsidiary of the Corporation shall not be deemed to be
outstanding for purposes of taking any action as provided in this Section 3.
Each director elected by the holders of shares of Series E Preferred
Stock, Series F Preferred Stock and Series G Preferred Stock, as provided in
Section 3(c) shall, unless his term shall expire earlier in accordance with the
provisions thereof, hold office until the annual meeting of stockholders next
succeeding his election or until his successor, if any, is elected and
qualified.
If any director so elected by the holders of Series E Preferred Stock,
Series F Preferred Stock and Series G Preferred Stock shall cease to serve as a
director before his term shall expire (except by reason of the termination of
the voting rights accorded to the holders of Series E Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock, in accordance with Section 3(c)),
the holders of the Series E Preferred Stock, Series F Preferred Stock and
Series G Preferred Stock then outstanding and entitled to vote for such director
may, by written consent as provided herein, or at a special meeting of such
holders called as provided herein, elect a successor to hold office for the
unexpired term of the director whose place shall be vacant.
Any director elected by the holders of shares of Series E Preferred
Stock, Series F Preferred Stock and Series G Preferred Stock, voting together as
a separate class, may be removed from office with or without cause by the vote
or written consent of the holders of at least a majority of the aggregate
outstanding shares of Series E Preferred Stock, Series F Preferred Stock and
Series G Preferred Stock at the time of removal. A special meeting of the
holders of shares of Series E Preferred Stock and Series F Preferred Stock and
Series G Preferred Stock, may be called in accordance with the procedures set
forth in Section 3(d)(i).
Section 4 Certain Restrictions.
--------------------
(a) So long as any shares of Series E Preferred Stock remain
outstanding, the Corporation shall not declare or make any Restricted Payment.
10
<PAGE>
(b) Whenever quarterly dividends payable on shares of Series E
Preferred Stock as provided in Section 2(a) are not paid in full, at such time
and thereafter until all unpaid dividends payable, whether or not declared, on
the outstanding shares of Series E Preferred Stock shall have been paid in full
or declared and set apart for payment, or whenever the Corporation shall not
have converted shares of Series E Preferred Stock at a time required by Section
10, at such time and thereafter until all conversion obligations provided in
Section 10 that have come due shall have been satisfied or all necessary funds
have been set apart for payment, or whenever the Corporation shall not have paid
the Optional Redemption Price, the Mandatory Redemption Price or the Maturity
Redemption Price when due, at such time and thereafter until all such amounts
have been paid in full or set apart for payment, the Corporation shall not:
(A) declare or pay dividends, or make any other distributions, on any shares of
Junior Stock, or (B) declare or pay dividends, or make any other distributions,
on any shares of Parity Stock, except dividends or distributions paid ratably on
the Series E Preferred Stock and all Parity Stock on which dividends are payable
and in arrears, in proportion to the total amounts to which the holders of all
shares of the Series E Preferred Stock and Parity Stock are then entitled.
(c) Whenever dividends payable on shares of Series E Preferred Stock
as provided in Section 2 are not paid in full, at such time and thereafter until
all unpaid dividends payable, whether or not declared, on the outstanding shares
of Series E Preferred Stock shall have been paid in full or declared and set
apart for payment, or whenever the Corporation shall not have converted shares
of Series E Preferred Stock at a time required by Section 10, at such time and
thereafter until all conversion obligations provided in Section 10 that have
come due shall have been satisfied or all necessary funds have been set apart
for payment, or whenever the Corporation shall not have paid the Optional
Redemption Price, the Mandatory Redemption Price or the Maturity Redemption
Price when due, at such time and thereafter until all such amounts have been
paid in full or set apart for payment, the Corporation shall not redeem,
purchase or otherwise acquire for consideration any shares of Junior Stock or
Parity Stock; provided, however, that (A) the Corporation may accept shares of
-------- -------
Parity Stock or Junior Stock for conversion into Junior Stock and (B) the
Corporation may at any time redeem, purchase or otherwise acquire shares of
Parity Stock pursuant to any mandatory
11
<PAGE>
redemption, put, sinking fund or other similar obligation contained in such
Parity Stock, pro rata with the Series E Preferred Stock in proportion to the
total amount then required to be applied by the Corporation to redeem,
repurchase, or otherwise acquire shares of Series E Preferred Stock and shares
of such Parity Stock.
(d) The Corporation shall not permit any Subsidiary of the
Corporation, or cause any other Person, to purchase or otherwise acquire for
consideration any shares of capital stock of the Corporation unless the
Corporation could, pursuant to Section 4(c), purchase such shares at such time
and in such manner.
Section 5 Optional Redemption.
-------------------
(a) (i) The Corporation shall not have any right to redeem any
shares of Series E Preferred Stock prior to __________, 20013/. Thereafter,
-
so long as shares of Common Stock shall have traded on the New York Stock
Exchange (or another national securities exchange or on Nasdaq) on each trading
day during a 30-consecutive trading day period (each of which trading days shall
be after _________, 20013/ and no more than 5 Business Days prior to the date
-
notice is given of an Optional Redemption (as defined below)) and had a Closing
Price on at least 20 of such trading days in excess of 150% of the Conversion
Price in effect on such trading day, subject to the restrictions contained in
Section 4, the Corporation shall have the right, at its sole option and
election, to redeem (the "Optional Redemption") all or a portion of the shares
of Series E Preferred Stock, on not more than 45 nor less than 30 days' notice
of the date of redemption (any such date an "Optional Redemption Date") at a
price per share (the "Optional Redemption Price") equal to (A) the following
prices per share (stated as a percentage of the Liquidation Preference of such
share) plus (B) an amount per share equal to all accrued and unpaid dividends
thereon, whether or not declared or payable, to the applicable Optional
Redemption Date, in immediately available funds:
- --------------------
3/ Assumes closing on or prior to December 31, 1994; otherwise date(s) will be
- -
appropriately adjusted.
12
<PAGE>
Optional Redemption Price
If Redeemed as a Percentage of
During the Period3/: Liquidation Preference
------------------ ----------------------
__________, 2001 to 102.775%
__________, 2002
__________, 2002 to 101.850%
__________, 2003
__________, 2003 to 100.925%
__________, 2004
__________, 2004 and 100%
thereafter
(ii) If the Corporation shall determine to redeem less than all
the shares of Series E Preferred Stock then outstanding pursuant to
paragraph (i), the shares to be redeemed shall be selected pro rata (as nearly
as may be) so that the number of shares redeemed from each holder shall be the
same proportion of all the shares to be redeemed that the total number of shares
of Series E Preferred Stock then held by such holder bears to the total number
of shares of Series E Preferred Stock then outstanding.
(iii) Notwithstanding the foregoing, any shares of Series E
Preferred Stock redeemed pursuant to this Section 5(a) at a time when the
Corporation would be required to redeem the shares of Series E Preferred Stock
pursuant to Section 6 shall be redeemed at a price equal to the price to be paid
pursuant to Section 6.
(b) Notice of any Optional Redemption shall specify the Optional
Redemption Date, the Optional Redemption Price, the place or places of payment,
that payment will be made upon presentation and surrender of the shares of
Series E Preferred Stock, that on and after the date of such Optional Redemption
dividends will cease to accrue on such shares, the then effective Conversion
Price and that the right of holders to convert shares of Series E Preferred
Stock shall terminate at the close of business on the Business Day immediately
preceding the Optional Redemption Date (unless the Corporation defaults in the
payment of the Optional Redemption Price) and be given by publication in a
newspaper of general circulation in the Borough of
13
<PAGE>
Manhattan, The City of New York (if such publication shall be required by
applicable law, rule, regulation or securities exchange requirement), not less
than 30, nor more than 45, days prior to the Optional Redemption Date; and, in
any case, a similar notice shall be mailed at least 30, but not more than 45,
days prior to the Optional Redemption Date to each holder of shares of Series E
Preferred Stock, at such holder's address as it appears on the transfer books of
the Corporation. In order to facilitate the redemption of shares of Series E
Preferred Stock, the Board of Directors may fix a record date for the
determination of shares of Series E Preferred Stock to be redeemed, or may cause
the transfer books of the Corporation for the Series E Preferred Stock to be
closed, not more than 60 days or less than 45 days prior to the Optional
Redemption Date.
(c) On the date of any Optional Redemption that is specified in a
notice given pursuant to Section 5(b), the Corporation shall, and at any time
after such notice shall have been mailed and before the Optional Redemption Date
the Corporation may, deposit for the benefit of the holders of shares of
Series E Preferred Stock the funds necessary for such redemption with a bank or
trust company in the Borough of Manhattan, The City of New York, having a
capital and surplus of at least $100,000,000. Any moneys so deposited by the
Corporation and unclaimed at the end of two years from the Optional Redemption
Date shall revert to the general funds of the Corporation. After such
reversion, any such bank or trust company shall, upon demand, pay over to the
Corporation such unclaimed amounts and thereupon such bank or trust company
shall be relieved of all responsibility in respect thereof and any holder of
shares of Series E Preferred Stock to be redeemed shall look only to the
Corporation for the payment of the Optional Redemption Price. In the event that
moneys are deposited pursuant to this Section 5(c) in respect of shares of
Series E Preferred Stock that are converted in accordance with the provisions of
Section 10, such moneys shall, upon such conversion, revert to the general funds
of the Corporation and, upon demand, such bank or trust company shall pay over
to the Corporation such moneys and shall be relieved of all responsibilities to
the holders of such converted shares in respect thereof. Any interest accrued
on funds deposited pursuant to this Section 5(c) shall be paid from time to time
to the Corporation for its own account.
(d) Notice of redemption having been given as aforesaid, upon the
deposit of funds pursuant to Sec-
14
<PAGE>
tion 5(c) in respect of shares of Series E Preferred Stock to be redeemed
pursuant to Section 5(a), notwithstanding that any certificates for such shares
shall not have been surrendered for cancellation, from and after the Optional
Redemption Date (i) the shares represented thereby shall no longer be deemed
outstanding, (ii) the rights to receive dividends thereon shall cease to accrue,
and (iii) all rights of the holders of shares of Series E Preferred Stock to be
redeemed shall cease and terminate, excepting only the right to receive the
Optional Redemption Price therefor and the right to convert such shares into
shares of Common Stock until the close of business on the Business Day
immediately preceding the Optional Redemption Date (and to receive accrued and
unpaid dividends thereon), in accordance with Section 10; provided, however,
-------- -------
that if the Corporation shall default in the payment of the Optional Redemption
Price the shares of Series E Preferred Stock shall thereafter be deemed to be
outstanding and the holders thereof shall have all of the rights of a holder of
Series E Preferred Stock until such time as such default shall no longer be
continuing or shall have been waived by holders of at least 66-2/3% of the then
outstanding shares of Series E Preferred Stock.
(e) Any notice that is mailed as herein provided shall be
conclusively presumed to have been duly given, whether or not the holder of
shares of Series E Preferred Stock receives such notice, and failure to give
such notice by mail, or any defect in such notice, to the holders of any shares
designated for redemption shall not affect the validity of the proceedings for
the redemption of any other shares of Series E Preferred Stock. On or after the
Optional Redemption Date, each holder of the shares called for redemption,
subject to their right to convert shares of Series E Preferred Stock as provided
in section 10, shall surrender the certificate evidencing such shares to the
Corporation at the place designated in such notice and shall thereupon be
entitled to receive payment of the Optional Redemption Price. If less than all
the shares evidenced by any such surrendered certificate are redeemed, a new
certificate shall be issued evidencing the unredeemed shares.
Section 6 Mandatory Redemption at the Option of the Holder.
------------------------------------------------
(a) If one or more events constituting a Specified Corporate Action
shall occur, each holder of shares of the Series E Preferred Stock shall have
the right, on the date specified in Section 6(b) (the "Mandatory
15
<PAGE>
Redemption Date"), to require the Corporation to redeem (a "Mandatory
Redemption") all or any part of the shares of Series E Preferred Stock then held
by such holder as such holder may elect at a price per share (the "Mandatory
Redemption Price") equal to (A) the following prices per share (stated as a
percentage of the Liquidation Preference of such share) plus (B) an amount per
share equal to all accrued and unpaid dividends thereon, whether or not declared
or payable, to the applicable Mandatory Redemption Date, in immediately
available funds:
If the Mandatory Mandatory Redemption Price
Redemption Date as a Percentage of
Occurs During the Liquidation Preference
----------------- --------------------------
Period4/:
-------
__________, 1994 to 110.4%
__________, 1995
__________, 1995 to 116.8%
__________, 1995
__________, 1995 to 126.7%
__________, 1996
__________, 1996 and there- 138.0%
after
(b) The date fixed for each Mandatory Redemption shall be fixed by
the Corporation and shall be no less than 60 days or more than 90 days following
the occurrence of the Specified Corporate Action giving rise thereto (or, in the
case of a Specified Corporate Action described in clause (iii) of the definition
of "Specified Corporate Action," no less than 60 days or more than 90 days
following the date on which the Corporation obtains actual knowledge of such
Specified Corporate Action). The Corporation shall, within 5 days of the
occurrence of a Specified Corporate Action (or, in the case of a Specified
Corporate Action described in clause (iii) of the definition of "Specified
Corporate Action," within 5 days of the date on which the Corporation obtains
actual knowledge of such Specified Corporate Action), give notice thereof by
publication in a newspaper of general circulation in the Borough of Manhattan,
The City
- --------------------
4/ Assumes closing on or prior to December 31, 1994; otherwise dates will be
- -
appropriately adjusted.
16
<PAGE>
of New York (if such publication shall be required by applicable law, rule,
regulation or securities exchange requirement), and, in any case, a similar
notice shall be mailed to each holder of shares of the Series E Preferred Stock,
at such holder's address as it appears on the transfer books of the Corporation.
Each such notice shall specify the Specified Corporate Action that has occurred
and the date of such occurrence, the place or places of payment, the then
effective Mandatory Redemption Price and Conversion Price and the date the right
of such holder to require a Mandatory Redemption shall terminate.
(c) If the notice sent by the Corporation pursuant to Section 6(b)
shall contain (i) a form inquiring as to whether a holder of shares of Series E
Preferred Stock intends to surrender the certificate(s) representing such shares
for redemption pursuant to this Section 6 and (ii) a stamped self-addressed
envelope for return of such form to the Corporation or its designee, within ten
Business Days of such notice, each holder shall return such inquiry form to the
Corporation and shall indicate in such form the proportion of such holder's
shares of Series E Preferred Stock that will be surrendered for redemption
pursuant to this Section 6. If such notice shall indicate that if a holder does
not respond prior to ten Business Days after the date of such notice that such
holder will be deemed to have notified the Corporation that it will not require
the redemption of the shares of Series E Preferred Stock held by such holder for
purposes of Section 3(b) and such holder does not respond to the Corporation's
inquiry prior to ten Business Days after the date of such notice, such holder
will be deemed to have notified the Corporation that it will not require the
redemption of the shares of Series E Preferred Stock held by such holder for
purposes of Section 3(b). Nothing contained in this Section 6(c) shall affect
the right of a holder of Series E Preferred Stock to require the Corporation to
redeem such shares pursuant to Section 6(a).
(d) On the date fixed for any Mandatory Redemption, each holder of
shares of Series E Preferred Stock who elects to have shares of Series E
Preferred Stock held by it redeemed shall surrender the certificate representing
such shares to the Corporation at the place designated in such notice together
with an election to have such redemption made and shall thereupon be entitled to
receive payment therefor provided in this Section 6. If less than all the
shares represented by any such surrendered certificate are
17
<PAGE>
redeemed, a new certificate shall be issued representing the unredeemed shares.
From and after the date of such redemption (i) the rights to receive dividends
thereon shall cease to accrue and (ii) all rights of the holders of shares of
Series E Preferred Stock so redeemed shall cease and terminate, excepting only
the right to receive the Mandatory Redemption Price therefor; provided, however,
-------- -------
that if the Corporation shall default in the payment of the Mandatory Redemption
Price the shares of Series E Preferred Stock that were to be redeemed shall
thereafter be deemed to be outstanding and the holders thereof shall have all of
the rights of a holder of Series E Preferred Stock until such time as such
default shall no longer be continuing or shall have been waived by holders of at
least 66-2/3% of the then outstanding shares of Series E Preferred Stock.
Section 7 Redemption Upon Maturity.
------------------------
(a) On __________, 20095/ (the "Maturity Date"), the Corporation
-
shall redeem (the "Maturity Redemption") the remaining outstanding shares of the
Series E Preferred Stock at a price per share (the "Maturity Redemption Price")
equal to (A) 100% of the Liquidation Preference per share plus (B) an amount
equal to accrued and unpaid dividends thereon, whether or not declared or
payable, to the Maturity Date, in immediately available funds.
(b) Notice of the Maturity Redemption shall be given by publication
in a newspaper of general circulation in the Borough of Manhattan, The City of
New York (if such publication shall be required by applicable law, rule,
regulation or securities exchange requirement), not less than 30, nor more than
60, days prior to the Maturity Date and, in any case, a similar notice shall be
mailed at least 30, but not more than 60, days prior to the Maturity Date to
each holder of shares of Series E Preferred Stock, at such holder's address as
it appears on the transfer books of the Corporation.
(c) On the Maturity Date, the Corporation shall, and at any time
after such notice shall have been mailed and before the Maturity Date the
Corporation may, deposit for the benefit of the holders of shares of Series E
Preferred Stock the funds necessary for such redemption with a bank or
- --------------------
5/ Assumes closing on or prior to December 31, 1994; otherwise dates will be
- -
appropriately adjusted.
18
<PAGE>
trust company in the Borough of Manhattan, The City of New York, having a
capital and surplus of at least $100,000,000. Any moneys so deposited by the
Corporation and unclaimed at the end of two years from the date designated for
such redemption shall revert to the general funds of the Corporation. After
such reversion, any such bank or trust company shall, upon demand, pay over to
the Corporation such unclaimed amounts and thereupon such bank or trust company
shall be relieved of all responsibility in respect thereof and any holder of
shares of Series E Preferred Stock to be redeemed shall look only to the
Corporation for the payment of the Maturity Redemption Price. In the event that
moneys are deposited pursuant to this Section 7(c) in respect of shares of
Series E Preferred Stock that are converted in accordance with the provisions of
Section 10, such moneys shall, upon such conversion, revert to the general funds
of the Corporation and, upon demand, such bank or trust company shall pay over
to the Corporation such moneys and shall be relieved of all responsibilities to
the holders of such converted shares in respect thereof. Any interest accrued
and unpaid on funds deposited pursuant to this Section 5(c) shall be paid from
time to time to the Corporation for its own account.
(d) Notice of redemption having been given as aforesaid, upon the
deposit of funds pursuant to Section 7(c) in respect of shares of Series E
Preferred Stock to be redeemed pursuant to Section 7(a), notwithstanding that
any certificates for such shares shall not have been surrendered for
cancellation, from and after the Maturity Date, (i) the rights to receive
dividends thereon shall cease to accrue and (ii) all rights of the holders of
shares of Series E Preferred Stock shall cease and terminate, excepting only the
right to receive the Maturity Redemption Price therefor; provided, however, that
-------- -------
if the Corporation shall default in the payment of the Maturity Redemption
Price, the shares of Series E Preferred Stock that were to be redeemed shall
thereafter be deemed to be outstanding and the holders thereof shall have all of
the rights of a holder of Series E Preferred Stock until such time as such
default shall no longer be continuing.
Section 8 Acquired Shares.
---------------
Any shares of Series E Preferred Stock converted, exchanged, redeemed,
purchased or otherwise acquired by the Corporation or any of its Subsidiaries in
any manner whatsoever shall be retired and cancelled promptly after the
19
<PAGE>
acquisition thereof. All such shares of Series E Preferred Stock shall upon
their cancellation become authorized but unissued shares of preferred stock, par
value $4.00 per share, of the Corporation and, upon the filing of an appropriate
certificate with the Department of State of the State of New York, may be
reissued as part of another series of preferred stock, par value $4.00 per
share, of the Corporation subject to the conditions or restrictions on issuance
set forth herein, but in any event may not be reissued as shares of Series E
Preferred Stock or Parity Stock unless all of the shares of Series E Preferred
Stock issued on the Issue Date shall have already been redeemed, converted or
exchanged.
Section 9 Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) If the Corporation shall commence a voluntary case under the
United States bankruptcy laws or any applicable bankruptcy, insolvency or
similar law of any other country, or consent to the entry of an order for relief
in an involuntary case under any such law or to the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property, or make
an assignment for the benefit of its creditors, or admit in writing its
inability to pay its debts generally as they become due (any such event, a
"Voluntary Liquidation Event"), or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the United States bankruptcy laws or any applicable
bankruptcy, insolvency or similar law of any other country, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and on account of any
such event the Corporation shall liquidate, dissolve or wind up, or if the
Corporation shall otherwise liquidate, dissolve or wind up, no distribution
shall be made (i) to the holders of shares of Junior Stock unless, prior
thereto, the holders of shares of Series E Preferred Stock, subject to Section
10, shall have received (A) if a Voluntary Liquidation Event shall have
occurred, the Optional Redemption Price with respect to each share and (B) if a
Voluntary Liquidation Event shall not have occurred, the Liquidation Preference,
plus all accrued and unpaid dividends, whether or not declared or currently
payable, to the date of
20
<PAGE>
distribution, with respect to each share, or (ii) to the holders of shares of
Parity Stock, except distributions made ratably on the Series E Preferred Stock
and all Parity Stock in proportion to the total amounts to which the holders of
all shares of the Series E Preferred Stock (which amounts are set forth in
clauses (A) and (B) above) and Parity Stock are entitled upon such liquidation,
dissolution or winding up.
(b) Neither the consolidation or merger of the Corporation with or
into any other Person nor the sale or transfer of all or any part of the
Corporation's assets for cash, securities or other property shall be deemed to
be a liquidation, dissolution or winding up of the Corporation for purposes of
this Section 9.
Section 10 Conversion.
----------
(a) Any holder of Series E Preferred Stock shall have the right, at
its option, at any time and from time to time prior to the Maturity Date (but
subject to the provisions of Section 10(b)) to convert, subject to the terms and
provisions of this Section 10, each share of Series E Preferred Stock into such
number of fully paid and non-assessable shares of Common Stock (calculated as to
each conversion to the nearest 1/100th of a share of Common Stock) for each full
share of Series E Preferred Stock as is equal, subject to Section 10(g), to the
quotient of (i) the Liquidation Preference divided by (ii) the Conversion Price
(as defined below) then in effect, except that with respect to any share that
shall be called for redemption, such right shall terminate at the close of
business on the date of redemption for such share, unless in any such case the
Corporation shall default in performance or payment due upon redemption thereof.
The Conversion Price shall be $15.00. The Conversion Price shall be subject to
adjustment as set forth in Section 10(d). Such conversion right shall be
exercised by the surrender of the shares of Series E Preferred Stock to be
converted to the Corporation at any time during usual business hours at its
principal place of business to be maintained by it, accompanied by written
notice that the holder elects to convert such shares and specifying the name or
names (with addresses) in which a certificate or certificates for shares of
Common Stock are to be issued and (if so required by the Corporation) by a
written instrument or instruments of transfer in form reasonably satisfactory to
the Corporation duly executed by
21
<PAGE>
the holder or its duly authorized legal representative and transfer tax stamps
or funds therefor, if required pursuant to Section 10(k). All shares of
Series E Preferred Stock surrendered for conversion shall be delivered to the
Corporation for cancellation and cancelled by it and no shares shall be issued
in lieu thereof.
(b) As promptly as practicable after the surrender, as herein
provided, of any shares of Series E Preferred Stock for conversion pursuant to
Section 10(a), the Corporation shall deliver to or upon the written order of the
holder of the shares so surrendered a certificate or certificates representing
the number of fully paid and non-assessable shares of Common Stock into which
such shares may be or have been converted in accordance with the provisions of
this Section 10. Subject to the following provisions of this paragraph and of
Section 10(d), such conversion shall be deemed to have been made immediately
prior to the close of business on the date that such shares shall have been
surrendered in satisfactory form for conversion, and the Person or Persons
entitled to receive the Common Stock deliverable upon conversion of such shares
shall be treated for all purposes as having become the record holder or holders
of such Common Stock at such appropriate time, and such conversion shall be at
the Conversion Price in effect at such time; provided, however, that no
-------- -------
surrender shall be effective to constitute the Person or Persons entitled to
receive the Common Stock deliverable upon such conversion as the record holder
or holders of such Common Stock while the share transfer books of the
Corporation shall be closed (but not for any period in excess of five days), but
such surrender shall be effective to constitute the Person or Persons entitled
to receive such Common Stock as the record holder or holders thereof for all
purposes immediately prior to the close of business on the next succeeding day
on which such share transfer books are open, and such conversion shall be deemed
to have been made at, and shall be made at the Conversion Price in effect at,
such time on such next succeeding day. In case of any Optional Redemption or
Maturity Redemption of any shares of Series E Preferred Stock, the right of
conversion shall cease and terminate, as to the shares to be redeemed, at the
close of business on (A) the Business Day immediately preceding the Optional
Redemption Date, in the case of an Optional Redemption or (B) on the Business
Day immediately preceding the Maturity Date, in the case of a Maturity
Redemption, unless the Corporation shall default in the payment of the
applicable redemption price for the shares to be redeemed.
22
<PAGE>
If the last day for the exercise of the conversion right shall not be
a Business Day, then such conversion right may be exercised on the next
preceding Business Day.
(c) To the extent permitted by law, when shares of Series E Preferred
Stock are converted, all dividends accrued and unpaid (whether or not declared
or currently payable) on the Series E Preferred Stock so converted to the date
of conversion shall be immediately due and payable and must accompany the shares
of Common Stock issued upon such conversion; provided, however, that if shares
-------- -------
being converted are held by a Person other than the original holder or any of
its Affiliates and such shares are not "restricted securities" (as defined in
Rule 144 under the Securities Act of 1933, as amended), then no such accrued and
unpaid dividends shall be payable when such shares are converted.
(d) The Conversion Price shall be subject to adjustment as follows:
(i) In case the Corporation shall at any time or from time to
time (A) pay a dividend or make a distribution on the outstanding shares of
Common Stock in Common Stock (other than pursuant to a dividend reinvestment
plan approved by the Corporation's Board of Directors), (B) subdivide the
outstanding shares of Common Stock into a larger number of shares, (C) combine
the outstanding shares of Common Stock into a smaller number of shares or
(D) issue any shares of its capital stock in a reclassification of the Common
Stock, then, and in each such case, the Conversion Price in effect immediately
prior to such event shall be adjusted (and any other appropriate actions shall
be taken by the Corporation) so that the holder of any share of Series E
Preferred Stock thereafter surrendered for conversion shall be entitled to
receive the number of shares of Common Stock or other securities of the
Corporation that such holder would have owned or would have been entitled to
receive upon or by reason of any of the events described above, had such share
of Series E Preferred Stock been converted immediately prior to the occurrence
of such event. An adjustment made pursuant to this Section 10(d)(i) shall
become effective retroactively (A) in the case of any such dividend or
distribution, to the opening of business on the day immediately following the
close of business on the record date for the determination of holders of Common
Stock entitled to receive such dividend or distribution or (B) in the case of
any such subdivision, combination or
23
<PAGE>
reclassification, to the close of business on the day upon which such corporate
action becomes effective.
(ii) In case the Corporation shall at any time or from time to
time issue or sell shares of Common Stock (or securities convertible into or
exchangeable for shares of Common Stock, or any options, warrants or other
rights to acquire shares of Common Stock (other than (x) options granted to any
employee or director of the Corporation pursuant to a stock option plan approved
by the shareholders of the Corporation or (y) rights issued pursuant to a
shareholder rights plan, "poison pill" or similar arrangement that complies with
Section 10(k))) for a consideration per share less than the Conversion Price
then in effect at the record date or issuance date, as the case may be (the
"Date") referred to in the following sentence (treating the price per share of
any security convertible or exchangeable or exercisable into Common Stock as
equal to (A) the sum of the price for such security convertible, exchangeable or
exercisable into Common Stock plus any additional consideration payable (without
regard to any anti-dilution adjustments) upon the conversion, exchange or
exercise of such security into Common Stock divided by (B) the number of shares
of Common Stock initially underlying such convertible, exchangeable or
exercisable security), other than issuances or sales for which an adjustment is
made pursuant to another paragraph of this Section 10(d), then, and in each such
case, the Conversion Price then in effect shall be adjusted by dividing the
Conversion Price in effect on the day immediately prior to the Date by a
fraction (x) the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the Date plus the number of
additional shares of Common Stock issued or to be issued (or the maximum number
into which such convertible or exchangeable securities initially may convert or
exchange or for which such options, warrants or other rights initially may be
exercised) and (y) the denominator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to the Date plus the number
of shares of Common Stock that the aggregate consideration (if any of such
aggregate consideration is other than cash, as valued by the Board of Directors
including a majority of the Directors who are not officers or employees of the
Corporation or any of its Subsidiaries, which determination shall be conclusive
and described in a resolution of the Board of Directors) for the total number of
such additional shares of Common Stock so issued (or into which such
24
<PAGE>
convertible or exchangeable securities may convert or exchange or for which such
options, warrants or other rights may be exercised plus the aggregate amount of
any additional consideration initially payable upon conversion, exchange or
exercise of such security) would purchase at the Conversion Price. Such
adjustment shall be made whenever such shares, securities, options, warrants or
other rights are issued, and shall become effective retroactively to a date
immediately following the close of business (i) in the case of issuance to
stockholders of the Corporation, as such, on the record date for the
determination of stockholders entitled to receive such shares, securities,
options, warrants or other rights and (ii) in all other cases, on the date
("issuance date") of such issuance; provided, however, that the determination as
-------- -------
to whether an adjustment is required to be made pursuant to this Section
10(d)(ii) shall only be made upon the issuance of such shares or such
convertible or exchangeable securities, options, warrants or other rights, and
not upon the issuance of the security into which such convertible or
exchangeable security converts or exchanges, or the security underlying such
option, warrants or other right; provided, further, that if any convertible or
-------- -------
exchangeable securities, options, warrants or other rights (or any portions
thereof) that shall have given rise to an adjustment pursuant to this Section
10(d)(ii) shall have expired or terminated without the exercise thereof and/or
if by reason of the terms of such convertible or exchangeable securities,
options, warrants or other rights there shall have been an increase or
increases, with the passage of time or otherwise, in the price payable upon the
exercise or conversion thereof, then the Conversion Price hereunder shall be
readjusted (but to no greater extent than originally adjusted) on the basis of
(x) eliminating from the computation any additional shares of Common Stock cor-
responding to such convertible or exchangeable securities, options, warrants or
other rights as shall have expired or terminated, (y) treating the additional
shares of Common Stock, if any, actually issued or issuable pursuant to the
previous exercise of such convertible or exchangeable securities, options,
warrants or other rights as having been issued for the consideration actually
received and receivable therefor and (z) treating any of such convertible or
exchangeable securities, options, warrants or other rights that remain
outstanding as being subject to exercise or conversion on the basis of such
exercise or conversion price as shall be in effect at the time.
25
<PAGE>
(iii) In case the Corporation shall at any time or from time to
time distribute to all holders of shares of its Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Corporation is the resulting or surviving corporation and the Common Stock is
not changed or exchanged or a redemption of any rights or other securities
issued pursuant to a shareholder rights plan, "poison pill" or similar
arrangement) cash, evidences of indebtedness of the Corporation or another
issuer, securities of the Corporation or another issuer or other assets
(excluding (A) Permitted Dividends described in clause (B) of the definition
thereof and (B) securities for which adjustment is made under Section 10(d)(i)
or Section 10(d)(ii)), then, and in each such case, the Conversion Price then in
effect shall be adjusted by dividing the Conversion Price in effect immediately
prior to the date of such distribution by a fraction (x) the numerator of which
shall be the Current Market Price of the Common Stock on the record date
referred to below and (y) the denominator of which shall be such Current Market
Price of the Common Stock less the then Fair Market Value (as determined by the
Board of Directors of the Corporation, which determination shall be conclusive)
of the portion of the cash, evidences of indebtedness, securities or other
assets so distributed or of such subscription rights or warrants applicable to
one share of Common Stock (but such denominator not to be less than one);
provided, however, that no adjustment shall be made with respect to any
- -------- -------
distribution of rights to purchase securities of the Corporation if the holder
of shares of Series E Preferred Stock would otherwise be entitled to receive
such rights upon conversion at any time of shares of Series E Preferred Stock
into Common Stock unless such rights are subsequently redeemed by the
Corporation, in which case such redemption shall be treated for purposes of this
Section 10(d)(iii) as a dividend on the Common Stock. Such adjustment shall be
made whenever any such distribution is made and shall become effective
retroactively to a date immediately following the close of business on the
record date for the determination of stockholders entitled to receive such
distribution.
(iv) In the case the Corporation at any time or from time to
time shall take any action affecting its Common Stock, other than an action
described in any of Section 10(d)(i) through Section 10(d)(iii), inclusive, or
Section 10(h), then, the Conversion Price shall be adjusted in such manner and
at such time as the Board of Directors of the Corporation (other than Purchaser
Designees or directors
26
<PAGE>
elected pursuant to Section 3(c)) in good faith determines to be equitable in
the circumstances (such determination to be evidenced in a resolution, a
certified copy of which shall be mailed to the holders of the Series E Preferred
Stock).
(v) The Corporation may make such reductions in the Conversion
Price, in addition to those required by subparagraphs (i), (ii), (iii) and (iv)
of this Section 10(d), as the Board of Directors considers to be advisable in
order to avoid or to diminish any income tax to holders of Common Stock or
rights to purchase Common Stock resulting from any dividend or distribution of
stock (or rights to acquire stock) or from any event treated as such for income
tax purposes.
(vi) Notwithstanding anything herein to the contrary, no
adjustment under this Section 10(d) need be made to the Conversion Price unless
such adjustment would require an increase or decrease of at least 1% of the Con-
version Price then in effect. Any lesser adjustment shall be carried forward
and shall be made at the time of and together with the next subsequent
adjustment, which, together with any adjustment or adjustments so carried
forward, shall amount to an increase or decrease of at least 1% of such
Conversion Price. Any adjustment to the Conversion Price carried forward and
not theretofore made shall be made immediately prior to the conversion of any
shares of Series E Preferred Stock pursuant hereto; provided, however, that any
-------- -------
such adjustment shall in any event be made no later than three years after the
occurrence of the event giving rise to such adjustment.
(e) If the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution, and shall thereafter and before the distribution to stockholders
thereof legally abandon its plan to pay or deliver such dividend or
distribution, then thereafter no adjustment in the Conversion Price then in
effect shall be required by reason of the taking of such record.
(f) Upon any increase or decrease in the Conversion Price, then, and
in each such case, the Corporation promptly shall deliver to each registered
holder of Series E Preferred Stock at least 10 Business Days prior to effecting
any of the foregoing transactions a certificate, signed by the President or a
Vice President and by the Treasurer or an
<PAGE> 27
28
Assistant Treasurer or the Secretary or an Assistant Secretary of the
Corporation, setting forth in reasonable detail the event requiring the
adjustment and the method by which such adjustment was calculated and specifying
the increased or decreased Conversion Price then in effect following such
adjustment.
(g) No fractional shares or scrip representing fractional shares
shall be issued upon the conversion of any shares of Series E Preferred Stock.
If more than one share of Series E Preferred Stock shall be surrendered for
conversion at one time by the same holder, the number of full shares of Common
Stock issuable upon conversion thereof shall be computed on the basis of the
aggregate Liquidation Preference of the shares of Series E Preferred Stock so
surrendered. If the conversion of any share or shares of Series E Preferred
Stock results in a fraction, an amount equal to such fraction multiplied by the
Current Market Price of the Common Stock on the Business Day preceding the day
of conversion shall be paid to such holder in cash by the Corporation on the
date of issuance of the certificates representing the shares issued by the
Corporation upon such conversion.
(h) In case of any capital reorganization or reclassification or
other change of outstanding shares of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value), or
in case of any consolidation or merger of the Corporation with or into another
Person (other than a consolidation or merger in which the Corporation is the
resulting or surviving Person and which does not result in any reclassification
or change of outstanding Common Stock), or in case of any sale or other
disposition to another Person of all or substantially all of the assets of the
Corporation (any of the foregoing, a "Transaction"), the Corporation, or such
successor or purchasing Person, as the case may be, shall execute and deliver to
each holder of Series E Preferred Stock at least 10 Business Days prior to
effecting any of the foregoing Transactions a certificate that the holder of
each share of Series E Preferred Stock then outstanding shall have the right
thereafter to convert such share of Series E Preferred Stock into the kind and
amount of shares of stock or other securities (of the Corporation or another
issuer) or property or cash receivable upon such Transaction by a holder of the
number of shares of Common Stock into which such share of Series E Preferred
Stock could have been converted immediately prior to such Transaction. Such
28
<PAGE>
certificate shall provide for adjustments that shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 10. If, in
the case of any such Transaction, the stock, other securities, cash or property
receivable thereupon by a holder of Common Stock includes shares of stock or
other securities of a Person other than the successor or purchasing Person and
other than the Corporation, which controls or is controlled by the successor or
purchasing Person or which, in connection with such Transaction, issues stock,
securities, other property or cash to holders of Common Stock, then such
certificate also shall be executed by such Person, and such Person shall, in
such certificate, specifically acknowledge the obligations of such successor or
purchasing Person and acknowledge its obligations to issue such stock,
securities, other property or cash to the holders of Series E Preferred Stock
upon conversion of the shares of Series E Preferred Stock as provided above.
The provisions of this Section 10(h) and any equivalent thereof in any such
certificate similarly shall apply to successive Transactions. The provisions of
this Section 10(h) and any equivalent thereof in any such certificate are and
shall be in addition to, and not in lieu of, the requirements with respect to a
Mandatory Redemption.
(i) In case at any time or from time to time:
(A) the Corporation shall declare a dividend (or any other
distribution) on its Common Stock (other than a Permitted Dividend);
(B) the Corporation shall authorize the granting to the holders
of its Common Stock of rights or warrants to subscribe for or purchase any
shares of stock of any class or of any other rights or warrants;
(C) there shall be any reclassification of the Common Stock
(other than a subdivision or combination of the outstanding Common Stock, or a
change in par value, or from par value to no par value, or from no par value to
par value), or any consolidation or merger to which the Corporation is a party
and for which approval of any shareholders of the Corporation is required, or
any sale or other disposition of all or substantially all of the assets of the
Corporation; or
(D) the voluntary or involuntary dissolution, liquidation or
winding up of the Corporation;
29
<PAGE>
then the Corporation shall mail to each holder of shares of Series E Preferred
Stock at such holder's address as it appears on the transfer books of the
Corporation, as promptly as possible but in any event at least ten days prior to
the applicable date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution or
rights or warrants or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend, distribution
or rights are to be determined, or (y) the date on which such reclassification,
consolidation, merger, sale, conveyance, dissolution, liquidation or winding up
is expected to become effective; provided that in the case of any event to which
--------
Section 10(h) applies, the Corporation shall give at least 10 days' prior
written notice as aforesaid. Such notice also shall specify the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange their Common Stock for shares of stock or other securities or property
or cash deliverable upon such reclassification, consolidation, merger, sale,
conveyance, dissolution, liquidation or winding up.
(j) The Corporation shall at all times reserve and keep available for
issuance upon the conversion of the Series E Preferred Stock, such number of its
authorized but unissued shares of Common Stock as will from time to time be
sufficient to permit the conversion of all outstanding shares of Series E
Preferred Stock, and shall take all action required to increase the authorized
number of shares of Common Stock if at any time there shall be insufficient
authorized but unissued shares of Common Stock to permit such reservation or to
permit the conversion of all outstanding shares of Series E Preferred Stock.
(k) The Corporation shall not adopt a shareholders right plan,
"poison pill" or similar arrangement unless such plan or arrangement shall
provide that (i) each holder of a share of Series E Preferred Stock shall be
entitled to receive thereunder, upon conversion of a share of Series E Preferred
Stock (in accordance with the terms hereof) prior to the earlier to occur of
either the date of redemption of the rights issued under such plan or the date
of expiration of the rights issued under such plan, rights for each share of
Common Stock issued upon conversion of such share of Series E Preferred Stock in
an amount equal to the amount of rights issued with respect to each outstanding
share of Common Stock pursuant to such plan and
30
<PAGE>
(ii) if such rights are redeemed prior to the conversion of any share of
Series E Preferred Stock into Common Stock, then upon conversion of such share
of Series E Preferred Stock the holder thereof shall receive an amount in cash
equal to the amount in cash that such holder would have received had he
converted such share of Series E Preferred Stock prior to such redemption
(unless prior to such conversion the Conversion Price applicable to such share
of Series E Preferred Stock shall have been adjusted pursuant to
Section 10(d)(iii) as a result of such redemption).
(l) The issuance or delivery of certificates for Common Stock upon
the conversion of shares of Series E Preferred Stock shall be made without
charge to the converting holder of shares of Series E Preferred Stock for such
certificates or for any tax in respect of the issuance or delivery of such
certificates or the securities represented thereby, and such certificates shall
be issued or delivered in the respective names of, or in such names as may be
directed by, the holders of the shares of Series E Preferred Stock converted;
provided, however, that the Corporation shall not be required to pay any tax
- -------- -------
that may be payable in respect of any transfer involved in the issuance and
delivery of any such certificate in a name other than that of the holder of the
shares of Series E Preferred Stock converted, and the Corporation shall not be
required to issue or deliver such certificate unless or until the Person or
Persons requesting the issuance or delivery thereof shall have paid to the
Corporation the amount of such tax or shall have established to the reasonable
satisfaction of the Corporation that such tax has been paid.
Section 11 Exchange.
--------
(a) Subject to the provisions of this Section 11, the Corporation
shall have the right, with the consent of the holders of all of the outstanding
shares of Series E Preferred Stock (which consent may be withheld for any reason
whatsoever), at any time but on only one occasion, to exchange all (but not less
than all) of the shares of Series E Preferred Stock for Convertible Subordinated
Notes of the Corporation ("Convertible Notes"), at a price per share equal to
the Liquidation Preference per share, with the Convertible Notes valued for such
purpose at their face value. Simultaneously with such exchange the Corporation
shall pay to each holder of Series E Preferred Stock an amount per share in cash
equal to all accrued and unpaid dividends thereon, whether or not declared or
currently
31
<PAGE>
payable, to the date fixed for exchange thereof. The Convertible Notes shall
have an annual interest rate equal to the annual dividend rate on Series E
Preferred Stock and shall contain other terms substantially similar to the
Series E Preferred Stock, including the date of maturity thereof and the right
to convert such notes into shares of Common Stock.
(b) Notice of an exchange of shares of Series E Preferred Stock
pursuant to Section 11(a) shall be given by publication in a newspaper of
general circulation in the Borough of Manhattan, The City of New York (if such
publication shall be required by applicable law, rule, regulation or securities
exchange requirement), not less than 30, nor more than 60, days prior to the
date fixed for exchange; and, in any case, a similar notice shall be mailed at
least 30, but not more than 60, days prior to the date fixed for exchange to
each holder at such holder's address as it appears on the transfer books of the
Corporation. In order to facilitate the exchange of shares of Series E
Preferred Stock hereunder the Board of Directors may fix a record date for the
determination of shares of Series E Preferred Stock to be exchanged, or may
cause the transfer books of the Corporation for the Series E Preferred Stock to
be closed, not more than 60 days or less than 30 days prior to the date fixed
for exchange.
(c) On the date of any exchange being made pursuant to Section 11(a)
that is specified in a notice given pursuant to Section 11(b) and is not deemed
terminated pursuant to Section 11(b), the Corporation shall, and at any time
after the date that is 10 days prior to the date of exchange the Corporation
may, deposit for the benefit of the holders of shares of Series E Preferred
Stock to be exchanged (i) the Convertible Notes necessary for such exchange and
(ii) an amount in cash equal to all dividends payable with respect thereto upon
such exchange with a bank or trust company in the Borough of Manhattan, The City
of New York, having a capital and surplus of at least $100,000,000. Any
Convertible Notes so deposited by the Corporation and unclaimed at the end of
two years from the date designated for such exchange shall revert to the Corpo-
ration. After such reversion, any such bank or trust company shall, upon
demand, return to the Corporation such unclaimed Convertible Notes and thereupon
such bank or trust company shall be relieved of all responsibility in respect
thereof and any holder of shares of Series E Preferred Stock to be exchanged
shall look only to the Corporation for the
32
<PAGE>
delivery of the Convertible Notes. In the event that Convertible Notes and
moneys are deposited pursuant to this Section 11(c) in respect of shares of
Series E Preferred Stock that are converted in accordance with the provisions of
Section 10, such Convertible Notes and moneys shall, upon such conversion,
revert to the Corporation and, upon demand, such bank or trust company shall
return to the Corporation such Convertible Notes and moneys and shall be
relieved of all responsibilities to the holders of such converted shares in
respect thereof. Any interest accrued on Convertible Notes deposited pursuant
to this Section 11(c) shall accrue for the accounts of, and be payable to, the
holders of shares of Series E Preferred Stock to be exchanged therefor.
(d) Notice of exchange having been given as aforesaid and not having
been deemed terminated as aforesaid, upon the deposit of Convertible Notes
pursuant to clause (i) of Section 11(c) and the deposit of the cash referred to
in clause (ii) of Section 11(c) in respect of shares of Series E Preferred Stock
to be exchanged pursuant to Section 11(a), notwithstanding that any certificates
for such shares shall not have been surrendered for cancellation, from and after
the date of exchange designated in the notice of exchange (i) the shares
represented thereby shall no longer be deemed outstanding, (ii) the rights to
receive dividends thereon (except as provided in paragraph (b) above) shall
cease to accrue, and (iii) all rights of the holders of shares of Series E
Preferred Stock to be exchanged shall cease and terminate, excepting only the
right to receive the Convertible Notes therefor, the right to receive the
dividends described in paragraph (b) above and the right to convert such shares
into shares of Common Stock until the close of business on the Business Day
preceding the date of exchange, in accordance with Section 10; provided,
--------
however, that if the Corporation shall default in the execution and delivery of
- -------
the Convertible Notes, the shares of Series E Preferred Stock that were to be
exchanged shall thereafter be deemed to be outstanding and the holders thereof
shall have all of the rights of a holder of Series E Preferred Stock until such
time as such default shall no longer be continuing or shall have been waived by
holders of at least 66-2/3% of the then outstanding shares of Series E Preferred
Stock.
Article 2 Series F Preferred Stock.
------------------------
Section 1 Designation and Number.
----------------------
33
<PAGE>
(a) The shares of such series shall be designated as "Cumulative
Preferred Stock, Series F" (the "Series F Preferred Stock"). The number of
shares initially constituting the Series F Preferred Stock shall be
________,6/ which number may be decreased (but not increased) by the Board of
-
Directors without a vote of stockholders; provided, however, that such number
-------- -------
may not be decreased below the number of then outstanding shares of Series F
Preferred Stock.
(b) The Series F Preferred Stock shall, with respect to dividend
rights and rights on liquidation, dissolution or winding up, rank pari passu
---- -----
with the Corporation's $2.50 Cumulative Convertible Preferred Stock, Series A
(the "Series A Preferred Stock"), $2.50 Cumulative Preferred Stock, Series B
(the "Series B Preferred Stock"), Cumulative Convertible Preferred Stock,
Series E (the "Series E Preferred Stock"), Cumulative Preferred Stock, Series G
(the "Series G Preferred Stock") and the New Preferred Stock (if any) (the
Series A Preferred Stock, Series B Preferred Stock, Series E Preferred Stock,
Series G Preferred Stock and New Preferred Stock (if any) are collectively
defined for the purposes of this Article 2 as the "Other Preferred Stock") and
prior to all other classes and series of capital stock of the Corporation now or
hereafter authorized including, without limitation, the Common Stock, par value
$1.00 per share, of the Corporation (the "Common Stock").
(c) Capitalized terms used herein and not otherwise defined shall
have the meanings set forth in Article 4 below.
Section 2 Dividends and Distributions.
---------------------------
(a) The holders of shares of Series F Preferred Stock, in preference
to the holders of shares of Common Stock and of any shares of other capital
stock of the Corporation other than the Other Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors, out of the
assets of the Corporation at the time legally available therefor, cumulative
cash dividends at an annual rate on the Liquidation Preference thereof
- --------------------
6/ Such number having an aggregate Liquidation Value equal to $200,000,000
- -
less the aggregate Liquidation Value of the Series E Preferred Stock.
34
<PAGE>
equal to 9.75% (subject to increase pursuant to Section 2(b)), calculated on the
basis of a 360-day year consisting of twelve 30-day months, accruing and payable
in equal quarterly payments, in immediately available funds, on the Business Day
immediately preceding the last day of March, June, September and December in
each year (each such date being referred to herein as a "Quarterly Dividend
Payment Date") commencing on the Business Day immediately preceding [December
31, 1994]7/; provided, however, that with respect to such first Quarterly
- -------- -------
Dividend Payment Date, the holders of shares of Series F Preferred Stock shall
be entitled to receive, when, as and if declared by the Board of Directors, out
of the assets of the Corporation at the time legally available therefor, a
cumulative cash dividend in respect of each share of Series F Preferred Stock in
the amount of (i) 9.75% (or the then effective annual rate) of the Liquidation
Preference multiplied by (ii) a fraction equal to (A) the number of days from
(and including) the Issue Date to (but excluding) such Quarterly Dividend Pay-
ment Date divided by (B) 360. No interest shall be payable in respect of any
dividend payment on the Series F Preferred Stock that may be in arrears.
(b) If (i) within 45 days of the Issue Date, the Corporation has not
delivered to each holder of shares of Series F Preferred Stock a Private
Placement Memorandum or a Registration Statement on Form S-3 (if the Corporation
is then eligible to use Form S-3) with respect to the private placement or
public offering of the New Preferred Stock or the New Senior Notes, (ii) the
Corporation shall have delivered to the holder a draft of a Registration
Statement on Form S-3 (if the Corporation is then eligible to use Form S-3)
pursuant to clause (i), and such Registration Statement shall not have been
filed with the Securities and Exchange Commission within 30 days after the Issue
Date, (iii) a private placement or public offering of the New Preferred Stock or
the New Senior Notes, pursuant to which the Corporation shall receive at least
$100,000,000 in gross proceeds is not consummated within 210 days after the
Issue Date or (iv) the annual dividend rate on the New Preferred Stock or the
annual interest rate on the New Senior Notes, as applicable, exceeds 13%, then
the annual rate of the cumulative cash dividends shall be increased to a rate of
11.75%, effective (w) in the case of clause (i), the date
- --------------------
7/ Assumes closing on or prior to December 31, 1994; otherwise date(s) will be
- -
appropriately adjusted.
35
<PAGE>
that is forty-five days after the Issue Date, (x) in the case of clause (ii),
the date that is 30 days after the Issue Date, (y) in the case of clause (iii),
the date that is 210 days after the Issue Date and (z) in the case of clause
(iv), the date of the issuance of the New Preferred Stock or the New Senior
Notes, as applicable. If on any date (A) all of the Purchaser Designees shall
not have been elected to the Corporation's Board of Directors or any such
Purchaser Designees shall not have been appointed to the committees of the
Corporation's Board of Directors, in accordance with the provisions of
Section 6.17 of the Securities Purchase Agreement, (B) the Corporation shall
have failed to declare, or shall have failed to pay, the full amount of
dividends payable on the Series F Preferred Stock for six quarterly dividend
periods, (C) the Corporation shall have failed to satisfy its obligation to
convert shares of Series E Preferred Stock pursuant to Article 1, Section 10 or
(D) a breach of any of the Material Provisions of the Securities Purchase
Agreement or any of the Corporation's material obligations under the
Registration Rights Agreement shall have occurred then, effective as of the date
of such failure or breach, the annual rate of the cumulative cash dividends
shall be increased to a rate of 11.75% and shall remain at such rate until such
time as (1) the Purchaser Designees shall have been elected to the Corporation's
Board of Directors and appointed to the committees of the Corporation's Board of
Directors in accordance with the provisions of Section 6.17 of the Securities
Purchase Agreement, (2) all dividends accrued to date on the Series F Preferred
Stock shall have been declared and paid in full, (3) any conversion obligation
provided in Article 1, Section 10 that has become due shall have been fully
satisfied or (4) there shall exist no breach of any of the Material Provisions
of the Securities Purchase Agreement or any of the Corporation's material
obligations under the Registration Rights Agreement, as the case may be, at
which time the annual rate of the cumulative cash dividends shall be reduced to
a rate of 9.75%, subject to being increased to a rate of 11.75% in the event of
each and every subsequent event of the character indicated above.
(c) Dividends payable pursuant to Section 2(a) shall begin to accrue
and be cumulative from the Issue Date, and shall accrue on a daily basis, in
each case whether or not declared. Dividends paid on the shares of Series F
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro rata on a share-
by-share basis
36
<PAGE>
among all such shares of Series F Preferred Stock at the time outstanding. The
Board of Directors may fix a record date for the determination of holders of
shares of Series F Preferred Stock entitled to receive payment of a dividend
declared thereon, which record date shall be no more than 60 days or less than
10 days prior to the date fixed for the payment thereof. Accumulated but unpaid
dividends for any past quarterly dividend periods may be declared and paid at
any time, without reference to any regular Quarterly Dividend Payment Date, to
holders of record on such date, not more than 60 nor less than 10 days preceding
the payment date thereof, as may be fixed by the Board of Directors.
(d) The holders of shares of Series F Preferred Stock shall not be
entitled to receive any dividends or other distributions except as provided
herein.
Section 3 Voting Rights.
-------------
In addition to any voting rights provided by law, the holders of
shares of Series F Preferred Stock shall have the following voting rights:
(a) Unless the consent or approval of a greater number of shares
shall then be required by law, the affirmative vote of the holders of at least
66-2/3% of the outstanding shares of Series F Preferred Stock, voting separately
as a single class, in person or by proxy, at a special or annual meeting of
stockholders called for the purpose, shall be necessary to (i) authorize, adopt
or approve an amendment to the Certificate of Incorporation that would increase
or decrease the par value of the shares of Series F Preferred Stock, or alter or
change the powers, preferences or special rights of the shares of Series F
Preferred Stock, (ii) amend, alter or repeal the Certificate of Incorporation so
as to affect the shares of Series F Preferred Stock adversely or (iii) effect
the voluntary liquidation, dissolution, winding up, recapitalization or
reorganization of the Corporation, or the consolidation or merger of the
Corporation with or into any other Person, or the sale or other distribution to
another Person of all or substantially all of the assets of the Corporation;
provided, however, that no separate vote of the holders of Series F Preferred
- -------- -------
Stock shall be required to effect any of the transactions described in clause
(iii) above unless such transaction would either require a class vote pursuant
to clause (i) or (ii) above or would require a vote by any
37
<PAGE>
shareholders of the Corporation; provided further, that no separate vote of the
-------- -------
holders of the Series F Preferred Stock as a class shall be required in the case
of a recapitalization, reorganization, consolidation or merger of, or sale by,
the Corporation if (A)(a) such recapitalization, reorganization, consolidation,
merger or sale constitutes a Specified Corporate Action, (b) the Corporation has
sufficient funds legally available to it (after giving effect to such
transaction) to redeem, at the then applicable price hereunder and pursuant to
the terms hereof, all the outstanding shares of Series F Preferred Stock,
(c) such redemption shall not be prohibited by any agreement to which the
Corporation or any of its Subsidiaries is a party, by applicable law or
otherwise, (d) the Board of Directors of the Corporation, including a majority
of the directors who are not officers or employees of the Corporation, shall
have adopted a resolution confirming that such funds are available and that the
holders of Series F Preferred Stock have the right to require such redemption
and (e) the Corporation shall have set aside sufficient funds through the
Specified Corporation Action Redemption Date to redeem the shares of Series F
Preferred Stock held by such holders (except that no funds need be set aside
with respect to such shares held by any such holder who has theretofore notified
the Corporation (whether pursuant to Section 6(a)(iii) or otherwise) that it
will not require redemption of such shares) or (B) (1) the Corporation shall be
the resulting or surviving corporation, (2) the resulting or surviving
corporation will have after such recapitalization, reorganization, consolidation
or merger no Senior Stock or Parity Stock either authorized or outstanding
(except such Parity Stock of the Corporation as may have been authorized or
outstanding immediately preceding such consolidation or merger) or such stock of
the resulting or surviving corporation (having the same powers, preferences and
special rights of any such Parity Stock) as may be issued in exchange therefor),
(3) each holder of shares of Series F Preferred Stock immediately preceding such
recapitalization, reorganization, consolidation or merger will receive in
exchange therefor the same number of shares of stock, with the same preferences,
rights and powers, of the resulting or surviving corporation, (4) after such
recapitalization, reorganization, consolidation or merger the resulting or
surviving corporation shall not be in breach of any of the terms hereof, any of
the Material Provisions of the Securities Purchase Agreement or any of its
material obligations under the Registration Rights Agreement and (5) all or
substantially all the holders of
38
<PAGE>
the outstanding shares of capital stock of the Corporation immediately prior to
such consolidation or merger are entitled to receive shares representing 50% or
more of the then outstanding shares of capital stock of the resulting or
surviving corporation entitled to vote generally in the election of directors.
(b) If on any date (i) the Corporation shall have failed to declare,
or shall have failed to pay, the full amount of dividends payable on the
Series F Preferred Stock, Series E Preferred Stock or Series G Preferred Stock
for six quarterly dividend periods or (ii) a breach of any of the Material
Provisions of the Securities Purchase Agreement or any of the Corporation's
material obligations under the Registration Rights Agreement shall have
occurred, then the number of directors constituting the Board of Directors
shall, without further action, be increased by two and the holders of shares of
Series F Preferred Stock shall have, in addition to the other voting rights set
forth herein with respect to the Series F Preferred Stock, the exclusive right,
together with the holders of Series E Preferred Stock and Series G Preferred
Stock, voting separately as a single class together with the holders of Series E
Preferred Stock and Series G Preferred Stock, to elect two directors of the
Corporation to fill such newly created directorship, by written consent as
provided herein, or at a special meeting of such holders called as provided
herein. Any such additional directors shall continue as directors (subject to
reelection or removal as provided in Section 3(c)(ii)) and the holders of
Series F Preferred Stock shall have such additional voting rights until such
time as (A) dividends then payable on the Series F Preferred Stock, Series E
Preferred Stock and Series G Preferred Stock shall have been declared and paid
in full or (B) there shall exist no breach of any of the Material Provisions of
the Securities Purchase Agreement or any of the Corporation's material
obligations under the Registration Rights Agreement, as the case may be, at
which time such additional directors shall cease to be directors, the number of
directors constituting the Board of Directors shall be reduced by two and such
additional voting rights of the holders of Series F Preferred Stock, Series E
Preferred Stock and Series G Preferred Stock shall terminate, subject to
revesting in the event of each and every subsequent event of the character
indicated above.
(c) (i) The foregoing right of holders of shares of Series F
Preferred Stock to take any action as provided in Section 3(b) may be exercised
at any annual meeting of
39
<PAGE>
stockholders or at a special meeting of holders of shares of Series F Preferred
Stock, Series E Preferred Stock and Series G Preferred Stock, held for such
purpose as hereinafter provided or at any adjournment thereof, or by the written
consent, delivered to the Secretary of the Corporation, of the holders of the
minimum number of shares required to take such action.
So long as such right to vote continues (and unless such right has
been exercised by written consent of the minimum number of shares required to
take such action), the President of the Corporation may call, and upon the
written request of holders of record of at least 5% of the aggregate outstanding
shares of Series F Preferred Stock, Series E Preferred Stock and Series G
Preferred Stock, addressed to the Secretary of the Corporation at the principal
office of the Corporation, shall call, a special meeting of the holders of
shares entitled to vote as provided herein. Such meeting shall be held within
30 days after delivery of such request to the Secretary, at the place and upon
the notice provided by law and in the by-laws of the Corporation for the holding
of meetings of stockholders.
(ii) At each meeting of stockholders at which the holders of
shares of Series F Preferred Stock shall have the right, voting separately as a
single class together with the holders of Series E Preferred Stock and Series G
Preferred Stock, to elect two directors of the Corporation as provided in Sec-
tion 3(b) or to take any action, the presence in person or by proxy of the
holders of record of one-third of the total aggregate number of shares of
Series F Preferred Stock, Series E Preferred Stock and Series G Preferred Stock,
in each case then outstanding and entitled to vote on the matter shall be
necessary and sufficient to constitute a quorum. At any such meeting or at any
adjournment thereof:
(A) the absence of a quorum of the holders of shares of Series F
Preferred Stock, Series E Preferred Stock and Series G Preferred Stock,
shall not prevent the election of directors other than those to be elected
by the holders of shares of Series F Preferred Stock, Series E Preferred
Stock and Series G Preferred Stock, and the absence of a quorum of the
holders of shares of any other class or series of capital stock shall not
prevent the election of directors to be elected by the holders of shares of
40
<PAGE>
Series F Preferred Stock, Series E Preferred Stock and Series G Preferred
Stock, or the taking of any action as provided in Section 3(b); and
(B) in the absence of a quorum of the holders of shares of
Series F Preferred Stock, Series E Preferred Stock and Series G Preferred
Stock, a majority of the holders of such shares present in person or by
proxy shall have the power to adjourn the meeting as to the actions to be
taken by the holders of shares of Series F Preferred Stock, Series E
Preferred Stock and Series G Preferred Stock, from time to time and place
to place without notice other than announcement at the meeting until a
quorum shall be present.
For taking of any action as provided in Section 3(a) or Section 3(b)
by the holders of shares of Series F Preferred Stock, each such holder shall
have one vote for each share of such stock standing in his name on the transfer
books of the Corporation as of any record date fixed for such purpose or, if no
such date be fixed, at the close of business on the Business Day next preceding
the day on which notice is given, or if notice is waived, at the close of
business on the Business Day next preceding the day on which the meeting is
held; provided, however, that shares of Series F Preferred Stock, Series E
-------- -------
Preferred Stock or Series G Preferred Stock held by the Corporation or any
Subsidiary of the Corporation shall not be deemed to be outstanding for purposes
of taking any action as provided in this Section 3.
Each director elected by the holders of shares of Series F Preferred
Stock, Series E Preferred Stock and Series G Preferred Stock, as provided in
Section 3(b) shall, unless his term shall expire earlier in accordance with the
provisions thereof, hold office until the annual meeting of stockholders next
succeeding his election or until his successor, if any, is elected and
qualified.
If any director so elected by the holders of Series F Preferred Stock,
Series E Preferred Stock and Series G Preferred Stock shall cease to serve as a
director before his term shall expire (except by reason of the termination of
the voting rights accorded to the holders of Series F Preferred Stock, Series E
Preferred Stock and Series G Preferred Stock, in accordance with Section 3(b)),
the holders of the Series F Preferred Stock, Series E Preferred Stock and
Series G Preferred Stock then
41
<PAGE>
outstanding and entitled to vote for such director may, by written consent as
provided herein, or at a special meeting of such holders called as provided
herein, elect a successor to hold office for the unexpired term of the director
whose place shall be vacant.
Any director elected by the holders of shares of Series F Preferred
Stock, Series E Preferred Stock and Series G Preferred Stock, voting together as
a separate class, may be removed from office with or without cause by the vote
or written consent of the holders of at least a majority of the aggregate
outstanding shares of Series F Preferred Stock, Series E Preferred Stock and
Series G Preferred Stock at the time of removal. A special meeting of the
holders of shares of Series F Preferred Stock, Series E Preferred Stock and
Series G Preferred Stock, may be called in accordance with the procedures set
forth in Section 3(c)(i).
Section 4 Certain Restrictions.
--------------------
(a) So long as any shares of Series F Preferred Stock remain
outstanding, the Corporation shall not declare or make any Restricted Payment.
(b) Whenever quarterly dividends payable on shares of Series F
Preferred Stock as provided in Section 2(a) are not paid in full, at such time
and thereafter until all unpaid dividends payable, whether or not declared, on
the outstanding shares of Series F Preferred Stock shall have been paid in full
or declared and set apart for payment at such time and thereafter until all
necessary funds have been set apart for payment, or whenever the Corporation
shall not have paid the Optional Redemption Price, the Specified Corporate
Action Redemption Price, the Conversion Redemption Price or the Maturity
Redemption Price when due, at such time and thereafter until all such amounts
have been paid in full or set apart for payment, the Corporation shall not:
(A) declare or pay dividends, or make any other distributions, on any shares of
Junior Stock, or (B) declare or pay dividends, or make any other distributions,
on any shares of Parity Stock, except dividends or distributions paid ratably on
the Series F Preferred Stock and all Parity Stock on which dividends are payable
and in arrears, in proportion to the total amounts to which the holders of all
shares of the Series F Preferred Stock and Parity Stock are then entitled.
42
<PAGE>
(c) Whenever dividends payable on shares of Series F Preferred Stock
as provided in Section 2 are not paid in full, at such time and thereafter until
all unpaid dividends payable, whether or not declared, on the outstanding shares
of Series F Preferred Stock shall have been paid in full or declared and set
apart for payment, at such time and thereafter until all necessary funds have
been set apart for payment, or whenever the Corporation shall not have paid the
Optional Redemption Price, the Specified Corporate Action Redemption Price, the
Conversion Redemption Price or the Maturity Redemption Price when due, at such
time and thereafter until all such amounts have been paid in full or set apart
for payment, the Corporation shall not redeem, purchase or otherwise acquire for
consideration any shares of Junior Stock or Parity Stock; provided, however,
-------- -------
that (A) the Corporation may accept shares of any Parity Stock or Junior Stock
for conversion into Junior Stock and (B) the Corporation may at any time redeem,
purchase or otherwise acquire shares of any Parity Stock pursuant to any manda-
tory redemption, put, sinking fund or other similar obligation contained in such
Parity Stock, pro rata with the Series F Preferred Stock in proportion to the
total amount then required to be applied by the Corporation to redeem,
repurchase, or otherwise acquire shares of Series F Preferred Stock and shares
of such Parity Stock.
(d) The Corporation shall not permit any Subsidiary of the
Corporation, or cause any other Person, to purchase or otherwise acquire for
consideration any shares of capital stock of the Corporation unless the
Corporation could, pursuant to Section 4(c), purchase such shares at such time
and in such manner.
Section 5 Optional Redemption.
-------------------
(a) (i) The Corporation shall not have any right to redeem any
shares of Series F Preferred Stock prior to __________, 20018/. Thereafter,
-
(A) if any shares of Series E Preferred Stock remain outstanding, the
Corporation will simultaneously elect to redeem (in accordance with the terms of
Article 1, Section 5) the same percentage of the outstanding shares of Series F
Preferred Stock as the percentage of shares of Series E Preferred Stock (or
aggregate principal amount of Convertible Notes) the
- --------------------
8/ Assumes closing on or prior to December 31, 1994; otherwise date will be
- -
appropriately adjusted.
43
<PAGE>
Corporation is electing to redeem under Article 1, Section 5 or (B) if no shares
of the Series E Preferred Stock remain outstanding, so long as shares of Common
Stock shall have traded on the New York Stock Exchange (or another national
securities exchange or on Nasdaq) on each trading day during a 30-consecutive
trading day period (each of which trading days shall be after _________, 20018/
-
and no more than 5 Business Days prior to the date notice is given of an
Optional Redemption (as defined below)) and had a Closing Price on at least 20
of such trading days in excess of 150% of the Conversion Amount in effect on
such trading day as determined pursuant to Section 11, subject to the
restrictions contained in Section 4, the Corporation shall have the right, at
its sole option and election, to redeem (the "Optional Redemption") (I) in the
case of clause (A), such percentage of the shares of Series F Preferred Stock
specified in such clause and (II) in the case of clause (B), all or a portion of
the shares of Series F Preferred Stock, on not more than 45 nor less than 30
days' notice of the date of redemption (any such date an "Optional Redemption
Date") at a price per share (the "Optional Redemption Price") equal to the sum
of (A) the following prices per share (stated as a percentage of the Liquidation
Preference of such share), (B) an amount per share equal to all accrued and
unpaid dividends thereon, whether or not declared or payable, to the applicable
Optional Redemption Date and (C) the Additional Amount (as defined in Section
11), in immediately available funds:
44
<PAGE>
Optional Redemption Price
If Redeemed as a Percentage of
During the Period9/: Liquidation Preference
------------------ ----------------------
__________, 2001 to 102.775%
__________, 2002
__________, 2002 to 101.850%
__________, 2003
__________, 2003 to 100.925%
__________, 2004
__________, 2004 and 100%
thereafter
(ii) If the Corporation shall have the right to, or shall
determine to, redeem less than all the shares of Series F Preferred Stock then
outstanding pursuant to paragraph (i), the shares to be redeemed shall be
selected pro rata (as nearly as may be) so that the number of shares redeemed
from each holder shall be the same proportion of all the shares to be redeemed
that the total number of shares of Series F Preferred Stock then held by such
holder bears to the total number of shares of Series F Preferred Stock then
outstanding.
(iii) Notwithstanding the foregoing, any shares of Series F
Preferred Stock redeemed pursuant to this Section 5(a) at a time when the
Corporation would be required to redeem the shares of Series F Preferred Stock
pursuant to Section 6 shall be redeemed at a price equal to the price to be paid
pursuant to Section 6.
(b) Notice of any Optional Redemption shall specify the Optional
Redemption Date fixed for redemption, the Optional Redemption Price, the place
or places of payment, that payment will be made upon presentation and surrender
of the shares of Series F Preferred Stock and that on and after the date of such
Optional Redemption dividends will cease to accrue on such shares and be given
by publication in a newspaper of general circulation in the
- --------------------
9/ Assumes closing on or prior to December 31, 1994; otherwise dates will be
- -
appropriately adjusted.
45
<PAGE>
Borough of Manhattan, The City of New York (if such publication shall be
required by applicable law, rule, regulation or securities exchange
requirement), not less than 30, nor more than 45, days prior to the Optional
Redemption Date; and, in any case, a similar notice shall be mailed at least 30,
but not more than 45, days prior to the Optional Redemption Date to each holder
of shares of Series F Preferred Stock, at such holder's address as it appears on
the transfer books of the Corporation. In order to facilitate the redemption of
shares of Series F Preferred Stock, the Board of Directors may fix a record date
for the determination of shares of Series F Preferred Stock to be redeemed, or
may cause the transfer books of the Corporation for the Series F Preferred Stock
to be closed, not more than 60 days or less than 45 days prior to the Optional
Redemption Date.
(c) On the date of any Optional Redemption that is specified in a
notice given pursuant to Section 5(b), the Corporation shall, and at any time
after such notice shall have been mailed and before the Optional Redemption Date
the Corporation may, deposit for the benefit of the holders of shares of
Series F Preferred Stock the funds necessary for such redemption with a bank or
trust company in the Borough of Manhattan, The City of New York, having a
capital and surplus of at least $100,000,000. Any moneys so deposited by the
Corporation and unclaimed at the end of two years from the Optional Redemption
Date shall revert to the general funds of the Corporation. After such
reversion, any such bank or trust company shall, upon demand, pay over to the
Corporation such unclaimed amounts and thereupon such bank or trust company
shall be relieved of all responsibility in respect thereof and any holder of
shares of Series F Preferred Stock to be redeemed shall look only to the
Corporation for the payment of the Optional Redemption Price. Any interest
accrued on funds deposited pursuant to this Section 5(c) shall be paid from time
to time to the Corporation for its own account.
(d) Notice of redemption having been given as aforesaid, upon the
deposit of funds pursuant to Section 5(c) in respect of shares of Series F
Preferred Stock to be redeemed pursuant to Section 5(a), notwithstanding that
any certificates for such shares shall not have been surrendered for
cancellation, from and after the Optional Redemption Date (i) the shares
represented thereby shall no longer be deemed outstanding, (ii) the rights to
receive dividends thereon shall cease to accrue, and (iii) all
46
<PAGE>
rights of the holders of shares of Series F Preferred Stock to be redeemed shall
cease and terminate, excepting only the right to receive the Optional Redemption
Price therefor; provided, however, that (A) if the Corporation shall default in
-------- -------
the payment of the Optional Redemption Price or (B) if the Corporation is
obligated under Section 5(a)(i)(A) to simultaneously redeem shares of Series E
Preferred Stock (or Convertible Notes) and the Corporation has failed to
simultaneously redeemed such shares (or notes), the shares of Series F Preferred
Stock shall thereafter be deemed to be outstanding and the holders thereof shall
have all of the rights of a holder of Series F Preferred Stock until such time
as such default or failure shall no longer be continuing or shall have been
waived by holders of at least 66-2/3% of the then outstanding shares of Series F
Preferred Stock.
(e) Any notice that is mailed as herein provided shall be
conclusively presumed to have been duly given, whether or not the holder of
shares of Series F Preferred Stock receives such notice, and failure to give
such notice by mail, or any defect in such notice, to the holders of any shares
designated for redemption shall not affect the validity of the proceedings for
the redemption of any other shares of Series F Preferred Stock. On or after the
Optional Redemption Date fixed for redemption as stated in such notice, each
holder of the shares called for redemption shall surrender the certificate
evidencing such shares to the Corporation at the place designated in such notice
and shall thereupon be entitled to receive payment of the Optional Redemption
Price. If less than all the shares evidenced by any such surrendered
certificate are redeemed, a new certificate shall be issued evidencing the
unredeemed shares.
Section 6 Mandatory Redemption at the Option of the
-----------------------------------------
Holder.
------
(a) (i) If one or more events constituting a Specified Corporate
Action shall occur, each holder of shares of the Series F Preferred Stock shall
have the right, at such holder's option on the date specified in Section
6(a)(ii) (the "Specified Corporate Action Redemption Date"), to require the
Corporation to redeem (a "Specified Corporate Action Redemption") all or any
part of the shares of Series F Preferred Stock then held by such holder as such
holder may elect at a price per share equal to the greater of (I) the sum of (A)
the following prices per share (stated
47
<PAGE>
as a percentage of the Liquidation Preference of such share) and (B) an amount
per share equal to all accrued and unpaid dividends thereon, whether or not
declared or payable, to the applicable Specified Corporate Action Redemption
Date
If the Specified Specified Corporate
Corporate Action Action Redemption Price
Redemption Date as a Percentage of
Occurs During the Liquidation Preference
----------------- --------------------------
Period10/:
--------
__________, 1994 to 110.4%
__________, 1995
__________, 1995 to 116.8%
__________, 1995
__________, 1995 to 126.7%
__________, 1996
__________, 1996 and there- 138.0%
after
and (II) the sum of (x) 100% of the Liquidation Preference of such share, (y) an
amount per share equal to all accrued and unpaid dividends thereon whether or
not declared or payable to the Specified Corporate Action Redemption Date and
(z) the Additional Amount, in either case in immediately available funds (the
"Specified Corporate Action Redemption Price").
(ii) The date fixed for each Specified Corporate Action Redemption
shall be fixed by the Corporation and shall be no less than 60 days or more than
90 days following the occurrence of the Specified Corporate Action giving rise
thereto (or, in the case of a Specified corporate Action as described in clause
(iii) of the definition of "Specified Corporate Action," no less than 60 days or
more than 90 days following the date on which the Corporation obtains actual
knowledge of such Specified Corporate Action). The Corporation shall, within 5
days of the occurrence of a Specified Corporate Action (or, in the case of a
Specified Corporate Action described in clause (iii) of the definition of
"Specified Corporate Action," within 5 days of the date
- --------------------
10/ Assumes closing on or prior to December 31, 1994; otherwise dates will be
- --
appropriately adjusted.
48
<PAGE>
on which the Corporation obtains actual knowledge of such Specified Corporate
Action), give notice thereof by publication in a newspaper of general
circulation in the Borough of Manhattan, The City of New York (if such
publication shall be required by applicable law, rule, regulation or securities
exchange requirement), and, in any case, a similar notice shall be mailed to
each holder of shares of the Series F Preferred Stock, at such holder's address
as it appears on the transfer books of the Corporation. Each such notice shall
specify the Specified Corporate Action that has occurred and the date of such
occurrence, the place or places of payment, the then effective Specified
Corporate Action Redemption Price and the date the right of such holder to
require a Specified Corporate Action Redemption shall terminate.
(iii) If the notice sent by the Corporation pursuant to Section
6(a)(ii) shall contain (i) a form inquiring as to whether a holder of shares of
Series F Preferred Stock intends to surrender the certificate(s) representing
such shares for redemption pursuant to this Section 6(a) and (ii) a stamped
self-addressed envelope for return of such form to the Corporation or its
designee, within ten Business Days of such notice, each holder shall return such
inquiry form to the Corporation and shall indicate in such form the proportion
of such holder's shares of Series F Preferred Stock that will be surrendered for
redemption pursuant to this Section 6(a). If such notice shall indicate that if
a holder does not respond prior to ten Business Days after the date of such
notice that such holder will be deemed to have notified the Corporation that it
will not require the redemption of the shares of Series F Preferred Stock held
by such holder for purposes of Section 3(b) and such holder does not respond to
the Corporation's inquiry prior to ten Business Days after the date of such
notice, such holder will be deemed to have notified the Corporation that it will
not require the redemption of the shares of Series F Preferred Stock held by
such holder for purposes of Section 3(b). Nothing contained in this
Section 6(a)(iii) shall affect the right of a holder of Series F Preferred Stock
to require the Corporation to redeem such shares pursuant to Section 6(a)(i).
(b) (i) If at any time shares of Series E Preferred Stock are
converted into Common Stock pursuant to Article 1, Section 10 (the date of any
such conversion being the "Conversion Date"), then each holder of shares of the
Series F Preferred Stock shall have the right, at such
49
<PAGE>
holder's option exercisable on the date specified in Section 6(b)(ii) (the
"Conversion Redemption Date"), to require the Corporation to redeem (a
"Conversion Redemption") such holder's Pro Rata Portion (as hereinafter defined)
of shares of Series F Preferred Stock then held by such holder at a price per
share (the "Conversion Redemption Price") equal to the sum of (A) 100% of the
Liquidation Preference of such shares, (B) an amount per share equal to all
accrued and unpaid dividends thereon, whether or not declared or payable, to the
applicable Conversion Redemption Date and (C) the Additional Amount, in
immediately available funds. "Pro Rata Portion" with respect to any holder of
Series F Preferred Stock shall mean, on any Conversion Redemption Date, the
number of shares of Series F Preferred Stock equal to the product of (x) a
fraction the numerator of which is the number of shares of Series E Preferred
Stock (or aggregate principal amount of Convertible Notes) converted to Common
Stock on the relevant Conversion Date and the denominator of which is the total
number of shares of Series E Preferred Stock (or aggregate principal amount of
Convertible Notes) outstanding immediately prior to such Conversion Date and (y)
the total number of shares of Series F Preferred Stock held by such holder as of
such Conversion Date.
(ii) The date fixed for each Conversion Redemption shall be fixed by
the Corporation and shall be no less than 60 days or more than 90 days following
the occurrence of the Conversion Date giving rise thereto. The Corporation
shall, within 5 days of the occurrence of a Conversion Date, give notice thereof
by publication in a newspaper of general circulation in the Borough of
Manhattan, the City of New York (if such publication shall be required by
applicable law, rule, regulation or securities exchange requirement), and, in
any case, a similar notice shall be mailed to each holder of shares of the
Series F Preferred Stock, at such holder's address as it appears on the transfer
books of the Corporation. Each such notice shall state that a Conversion Date
has occurred and the date of such occurrence, the place or places of payment,
the number of shares of Series E Preferred Stock (or the aggregate principal
amount of Convertible Notes) converted in such Conversion Date, the number of
shares of Series E Preferred Stock (or aggregate principal amount of Convertible
Notes) outstanding immediately prior to the Conversion Date, the total number of
shares of Series F Preferred Stock the Corporation would be required to redeem
form each holder electing to have redeemed all the shares of
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<PAGE>
Series F Preferred Stock that it is entitled to have redeemed, the then
effective Conversion Redemption Price and the date the right of such holder to
require a Conversion Redemption shall terminate.
(c) On the date fixed for any Specified Corporate Action Redemption
or on the Conversion Redemption Date, each holder of shares of Series F
Preferred Stock who elects to have shares of Series F Preferred Stock held by it
redeemed shall surrender the certificate representing such shares to the
Corporation (i) at the place designated in such notice in the case of a
Specified Corporate Action Redemption or (ii) at the Corporation's principal
place of business to be maintained by it, in the case of a Conversion
Redemption, together with an election to have such redemption made and shall
thereupon be entitled to receive payment therefor provided in this Section 6.
If less than all the shares represented by any such surrendered certificate are
redeemed, a new certificate shall be issued representing the unredeemed shares.
From and after the date of such redemption (i) the rights to receive dividends
thereon shall cease to accrue and (ii) all rights of the holders of shares of
Series F Preferred Stock so redeemed shall cease and terminate, excepting only
the right to receive the Specified Corporate Action Redemption Price or
Conversion Redemption Price therefor, as applicable; provided, however, that if
-------- -------
the Corporation shall default in the payment of the applicable redemption price
the shares of Series F Preferred Stock that were to be redeemed shall thereafter
be deemed to be outstanding and the holders thereof shall have all of the rights
of a holder of Series F Preferred Stock until such time as such default shall no
longer be continuing or shall have been waived by holders of at least 66-2/3% of
the then outstanding shares of Series F Preferred Stock.
Section 7 Redemption Upon Maturity.
------------------------
(a) On __________, 200911/ (the "Maturity Date"), the Corporation
--
shall redeem (the "Maturity Redemption") the remaining outstanding shares of the
Series F Preferred Stock at a price per share (the "Maturity Redemption Price")
equal to the sum of (A) 100% of the Liquidation Preference per share, (B) an
amount equal to accrued and unpaid dividends
- --------------------
11/ Assumes closing on or prior to December 31, 1994; otherwise date will be
- --
appropriately adjusted.
51
<PAGE>
thereon, whether or not declared or payable, to the Maturity Date and (C) the
Additional Amount, determined as of the date immediately prior to the Maturity
Date, in immediately available funds.
(b) Notice of the Maturity Redemption shall be given by publication
in a newspaper of general circulation in the Borough of Manhattan, The City of
New York (if such publication shall be required by applicable law, rule,
regulation or securities exchange requirement), not less than 30, nor more than
60, days prior to the Maturity Date and, in any case, a similar notice shall be
mailed at least 30, but not more than 60, days prior to the Maturity Date to
each holder of shares of Series F Preferred Stock, at such holder's address as
it appears on the transfer books of the Corporation.
(c) On the Maturity Date, the Corporation shall, and at any time
after such notice shall have been mailed and before the Maturity Date the
Corporation may, deposit for the benefit of the holders of shares of Series F
Preferred Stock the funds necessary for such redemption with a bank or trust
company in the Borough of Manhattan, The City of New York, having a capital and
surplus of at least $100,000,000. Any moneys so deposited by the Corporation
and unclaimed at the end of two years from the date designated for such
redemption shall revert to the general funds of the Corporation. After such
reversion, any such bank or trust company shall, upon demand, pay over to the
Corporation such unclaimed amounts and thereupon such bank or trust company
shall be relieved of all responsibility in respect thereof and any holder of
shares of Series F Preferred Stock to be redeemed shall look only to the
Corporation for the payment of the Maturity Redemption Price. Any interest
accrued and unpaid on funds deposited pursuant to this Section 5(c) shall be
paid from time to time to the Corporation for its own account.
(d) Notice of redemption having been given as aforesaid, upon the
deposit of funds pursuant to Section 7(c) in respect of shares of Series F
Preferred Stock to be redeemed pursuant to Section 7(a), notwithstanding that
any certificates for such shares shall not have been surrendered for
cancellation, from and after the Maturity Date, (i) the rights to receive
dividends thereon shall cease to accrue and (ii) all rights of the holders of
shares of Series F Preferred Stock shall cease and terminate, excepting only the
right to receive the Maturity Redemption Price therefor; provided, however, that
-------- -------
if the Corporation
52
<PAGE>
shall default in the payment of the Maturity Redemption Price, the shares of
Series F Preferred Stock that were to be redeemed shall thereafter be deemed to
be outstanding and the holders thereof shall have all of the rights of a holder
of Series F Preferred Stock until such time as such default shall no longer be
continuing.
Section 8 Acquired Shares.
---------------
Any shares of Series F Preferred Stock exchanged, redeemed, purchased
or otherwise acquired by the Corporation or any of its Subsidiaries in any
manner whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares of Series F Preferred Stock shall upon their
cancellation become authorized but unissued shares of preferred stock, par value
$4.00 per share, of the Corporation and, upon the filing of an appropriate
certificate with the Department of State of the State of New York, may be
reissued as part of another series of preferred stock, par value $4.00 per
share, of the Corporation subject to the conditions or restrictions on issuance
set forth herein, but in any event may not be reissued as shares of Series F
Preferred Stock or Parity Stock unless all of the shares of Series F Preferred
Stock issued on the Issue Date shall have already been redeemed or exchanged.
Section 9 Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) If the Corporation shall commence a voluntary case under the
United States bankruptcy laws or any applicable bankruptcy, insolvency or
similar law of any other country, or consent to the entry of an order for relief
in an involuntary case under any such law or to the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property, or make
an assignment for the benefit of its creditors, or admit in writing its
inability to pay its debts generally as they become due (any such event, a
"Voluntary Liquidation Event"), or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the United States bankruptcy laws or any applicable
bankruptcy, insolvency or similar law of any other country, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and on account of
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<PAGE>
any such event the Corporation shall liquidate, dissolve or wind up, or if the
Corporation shall otherwise liquidate, dissolve or wind up, no distribution
shall be made (i) to the holders of shares of Junior Stock unless, prior
thereto, the holders of shares of Series F Preferred Stock shall have received
(A) if a Voluntary Liquidation Event shall have occurred, the Optional Redemp-
tion Price with respect to each share and (B) if a Voluntary Liquidation Event
shall not have occurred, the Liquidation Preference and all accrued and unpaid
dividends, whether or not declared or currently payable, to the date of
distribution, with respect to each share, or (ii) to the holders of shares of
Parity Stock, except distributions made ratably on the Series F Preferred Stock
and all Parity Stock in proportion to the total amounts to which the holders of
all shares of the Series F Preferred Stock (which amounts are set forth in
clauses (A) and (B) above) and Parity Stock are entitled upon such liquidation,
dissolution or winding up.
(b) Neither the consolidation or merger of the Corporation with or
into any other Person nor the sale or transfer of all or any part of the
Corporation's assets for cash, securities or other property shall be deemed to
be a liquidation, dissolution or winding up of the Corporation for purposes of
this Section 9.
Section 10 Exchange.
--------
(a) Subject to the provisions of this Section 10, the Corporation
shall have the right, with the consent of the holders of all of the outstanding
shares of Series F Preferred Stock (which consent may be withheld for any reason
whatsoever), at any time but on only one occasion, to exchange all (but not less
than all) of the shares of Series F Preferred Stock for Subordinated Notes of
the Corporation ("Subordinated Notes"), at a price per share equal to the
Liquidation Preference per share, with the Subordinated Notes valued for such
purpose at their face value. Simultaneously with such exchange the Corporation
shall pay to each holder of Series F Preferred Stock an amount per share in cash
equal to all accrued and unpaid dividends thereon, whether or not declared or
currently payable, to the date fixed for exchange thereof. The Subordinated
Notes shall have an annual interest rate equal to the annual dividend rate on
Series F Preferred Stock and shall contain other terms substantially similar to
the Series F Preferred Stock, including the date of maturity thereof.
54
<PAGE>
(b) Notice of an exchange of shares of Series F Preferred Stock
pursuant to Section 10(a) shall be given by publication in a newspaper of
general circulation in the Borough of Manhattan, The City of New York (if such
publication shall be required by applicable law, rule, regulation or securities
exchange requirement), not less than 30, nor more than 60, days prior to the
date fixed for exchange; and, in any case, a similar notice shall be mailed at
least 30, but not more than 60, days prior to the date fixed for exchange to
each holder at such holder's address as it appears on the transfer books of the
Corporation. In order to facilitate the exchange of shares of Series F
Preferred Stock hereunder the Board of Directors may fix a record date for the
determination of shares of Series F Preferred Stock to be exchanged, or may
cause the transfer books of the Corporation for the Series F Preferred Stock to
be closed, not more than 60 days or less than 30 days prior to the date fixed
for exchange.
(c) On the date of any exchange being made pursuant to Section 10(a)
that is specified in a notice given pursuant to Section 10(b) and is not deemed
terminated pursuant to Section 10(b), the Corporation shall, and at any time
after the date that is 10 days prior to the date of exchange the Corporation
may, deposit for the benefit of the holders of shares of Series F Preferred
Stock to be exchanged (i) the Subordinated Notes necessary for such exchange and
(ii) an amount in cash equal to all dividends payable with respect thereto upon
such exchange with a bank or trust company in the Borough of Manhattan, The City
of New York, having a capital and surplus of at least $100,000,000. Any
Subordinated Notes so deposited by the Corporation and unclaimed at the end of
two years from the date designated for such exchange shall revert to the Corpo-
ration. After such reversion, any such bank or trust company shall, upon
demand, return to the Corporation such unclaimed Subordinated Notes and
thereupon such bank or trust company shall be relieved of all responsibility in
respect thereof and any holder of shares of Series F Preferred Stock to be
exchanged shall look only to the Corporation for the delivery of the
Subordinated Notes. Any interest accrued on Subordinated Notes deposited
pursuant to this Section 10(c) shall accrue for the accounts of, and be payable
to, the holders of shares of Series F Preferred Stock to be exchanged therefor.
(d) Notice of exchange having been given as aforesaid and not having
been deemed terminated as afore-
55
<PAGE>
said, upon the deposit of Subordinated Notes pursuant to clause (i) of Section
10(c) and the deposit of the cash referred to in clause (ii) of Section 10(c) in
respect of shares of Series F Preferred Stock to be exchanged pursuant to
Section 10(a), notwithstanding that any certificates for such shares shall not
have been surrendered for cancellation, from and after the date of exchange
designated in the notice of exchange (i) the shares represented thereby shall no
longer be deemed outstanding, (ii) the rights to receive dividends thereon
(except as provided in paragraph (b) above) shall cease to accrue, and (iii) all
rights of the holders of shares of Series F Preferred Stock to be exchanged
shall cease and terminate, excepting only the right to receive the Subordinated
Notes therefor and the right to receive the dividends described in paragraph (b)
above; provided, however, that if the Corporation shall default in the execution
-------- -------
and delivery of the Convertible Notes, the shares of Series F Preferred Stock
that were to be exchanged shall thereafter be deemed to be outstanding and the
holders thereof shall have all of the rights of a holder of Series F Preferred
Stock until such time as such default shall no longer be continuing or shall
have been waived by holders of at least 66-2/3% of the then outstanding shares
of Series F Preferred Stock.
Section 11 Additional Amount.
-----------------
(a) For the purposes of this Article 2, "Additional Amount" shall
mean an amount per share equal to the product of (i) the excess of the sum of
(1) the Market Price of a share of Common Stock and (2) if the Corporation shall
have issued a right or rights with respect to its outstanding shares of Common
Stock pursuant to a shareholder rights plan, "poison pill" or similar
arrangement, during the period commencing on the "distribution date" of such
right or rights (i.e., the date on which such right or rights commence to trade
----
separately from the Common Stock) and ending on the "triggering date" of such
right or rights (i.e., the date on which such right or rights commence to be
----
exercisable), the Market Price of such right or rights over the Conversion
Amount, in effect as hereinafter determined and (ii) (x) the Liquidation
Preference divided by (y) such Conversion Amount, in all cases calculated as of
the applicable determination date. The Additional Amount shall in no event be
less than zero. The Conversion Amount shall be $15.00, subject to adjustment as
set forth in Section 11(b). For the purpose of calculating the Additional
Amount in connection with an Optional Redemption,
56
<PAGE>
Specified Corporate Action Redemption or Conversion Redemption, the Market Price
of the Common Stock and, if applicable, rights shall be the average of the
Market Price of such securities on the five trading days immediately preceding
and the five trading days immediately following the date of notice of such
redemption.
(b) The Conversion Amount shall be subject to adjustment as follows:
(i) In case the Corporation shall at any time or from time to
time (A) pay a dividend or make a distribution on the outstanding shares of
Common Stock in Common Stock (other than pursuant to a dividend reinvestment
plan approved by the Corporation's Board of Directors), (B) subdivide the
outstanding shares of Common Stock into a larger number of shares, (C) combine
the outstanding shares of Common Stock into a smaller number of shares or (D)
issue any shares of its capital stock in a reclassification of the Common Stock,
then, and in each such case, the Conversion Amount in effect immediately prior
to such event shall be adjusted so that if the holder of any share of Series F
Preferred Stock were entitled to convert such share into such number of shares
of Common Stock as equals the Liquidation Preference divided by the Conversion
Amount and such holder thereafter surrendered such share for conversion, such
holder would be entitled to receive the number of shares of Common Stock or
other securities of the Corporation that such holder would have owned or would
have been entitled to receive upon or by reason of any of the events described
above had such share of Series F Preferred Stock been converted immediately
prior to the occurrence of such event. An adjustment made pursuant to this
Section 11(b)(i) shall become effective retroactively (A) in the case of any
such dividend or distribution, to the opening of business on the day immediately
following the close of business on the record date for the determination of
holders of Common Stock entitled to receive such dividend or distribution or (B)
in the case of any such subdivision, combination or reclassification, to the
close of business on the day upon which such corporate action becomes effective.
(ii) In case the Corporation shall at any time or from time to
time issue or sell shares of Common Stock (or securities convertible into or
exchangeable for shares of Common Stock, or any options, warrants or other
rights to acquire shares of Common Stock (other than options granted to any
employee or director of the Corporation
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<PAGE>
pursuant to a stock option plan approved by the shareholders of the
Corporation)) for a consideration per share less than the Conversion Amount then
in effect at the record date or issuance date, as the case may be (the "Date")
referred to in the following sentence, including, without limitation, upon
exercise of rights issued pursuant to a shareholder rights plan, "poison pill"
or similar arrangement (treating the price per share of any security convertible
or exchangeable or exercisable into Common Stock as equal to (A) the sum of the
price for such security convertible, exchangeable or exercisable into Common
Stock plus any additional consideration payable (without regard to any anti-
dilution adjustments) upon the conversion, exchange or exercise of such security
into Common Stock divided by (B) the number of shares of Common Stock initially
underlying such convertible, exchangeable or exercisable security), other than
issuances or sales for which an adjustment is made pursuant to another paragraph
of this Section 11(b), then, and in each such case, the Conversion Amount then
in effect shall be adjusted by dividing the Conversion Amount in effect on the
day immediately prior to the Date by a fraction (x) the numerator of which shall
be the sum of the number of shares of Common Stock outstanding immediately prior
to the Date plus the number of additional shares of Common Stock issued or to be
issued (or the maximum number into which such convertible or exchangeable
securities initially may convert or exchange or for which such options, warrants
or other rights initially may be exercised) and (y) the denominator of which
shall be the sum of the number of shares of Common Stock outstanding immediately
prior to the Date plus the number of shares of Common Stock that the aggregate
consideration (if any of such aggregate consideration is other than cash, as
valued by the Board of Directors including a majority of the Directors who are
not officers or employees of the Corporation or any of its Subsidiaries, which
determination shall be conclusive and described in a resolution of the Board of
Directors) for the total number of such additional shares of Common Stock so
issued (or into which such convertible or exchangeable securities may convert or
exchange or for which such options, warrants or other rights may be exercised
plus the aggregate amount of any additional consideration initially payable upon
conversion, exchange or exercise of such security) would purchase at the
Conversion Amount. Such adjustment shall be made whenever such shares,
securities, options, warrants or other rights are issued, and shall become
effective retroactively to a date immediately following the close of business
(i) in the case of issuance to stockholders of the Corporation, as such, on the
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record date for the determination of stockholders entitled to receive such
shares, securities, options, warrants or other rights and (ii) in all other
cases, on the date ("issuance date") of such issuance; provided, however, that
-------- -------
the determination as to whether an adjustment is required to be made pursuant to
this Section 11(b)(ii) shall only be made upon the issuance of such shares or
such convertible or exchangeable securities, options, warrants or other rights,
and not upon the issuance of the security into which such convertible or
exchangeable security converts or exchanges, or the security underlying such
option, warrants or other right; provided, further, that if any convertible or
-------- -------
exchangeable securities, options, warrants or other rights (or any portions
thereof) that shall have given rise to an adjustment pursuant to this Section
11(b)(ii) shall have expired or terminated without the exercise thereof and/or
if by reason of the terms of such convertible or exchangeable securities,
options, warrants or other rights there shall have been an increase or
increases, with the passage of time or otherwise, in the price payable upon the
exercise or conversion thereof, then the Conversion Amount hereunder shall be
readjusted (but to no greater extent than originally adjusted) on the basis of
(x) eliminating from the computation any additional shares of Common Stock cor-
responding to such convertible or exchangeable securities, options, warrants or
other rights as shall have expired or terminated, (y) treating the additional
shares of Common Stock, if any, actually issued or issuable pursuant to the
previous exercise of such convertible or exchangeable securities, options,
warrants or other rights as having been issued for the consideration actually
received and receivable therefor and (z) treating any of such convertible or
exchangeable securities, options, warrants or other rights that remain
outstanding as being subject to exercise or conversion on the basis of such
exercise or conversion price as shall be in effect at the time.
(iii) In case the Corporation shall at any time or from time to
time distribute to all holders of shares of its Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Corporation is the resulting or surviving corporation and the Common Stock is
not changed or exchanged or a redemption of any rights or other securities
issued pursuant to a shareholder rights plan, "poison pill" or similar
arrangement) cash, evidences of indebtedness of the Corporation or another
issuer, securities of the Corporation or another issuer or other assets
(excluding (A) Permitted
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Dividends described in clause (B) of the definition thereof and (B) securities
for which adjustment is made under Section 11(b)(i) or Section 11(b)(ii)), then,
and in each such case, the Conversion Amount then in effect shall be adjusted by
dividing the Conversion Amount in effect immediately prior to the date of such
distribution by a fraction (x) the numerator of which shall be the Current
Market Price of the Common Stock on the record date referred to below and (y)
the denominator of which shall be such Current Market Price of the Common Stock
less the then Fair Market Value (as determined by the Board of Directors of the
Corporation, which determination shall be conclusive) of the portion of the
cash, evidences of indebtedness, securities or other assets so distributed or of
such subscription rights or warrants applicable to one share of Common Stock
(but such denominator not to be less than one). Such adjustment shall be made
whenever any such distribution is made and shall become effective retroactively
to a date immediately following the close of business on the record date for the
determination of stockholders entitled to receive such distribution.
(iv) In the case the Corporation at any time or from time to
time shall take any action affecting its Common Stock, other than an action
described in any of Section 11(b)(i) through Section 11(b)(iii), inclusive,
then, the Conversion Amount shall be adjusted in such manner and at such time as
the Board of Directors of the Corporation (other than Purchaser Designees or
directors elected pursuant to Section 3(b)) in good faith determines to be
equitable in the circumstances (such determination to be evidenced in a
resolution, a certified copy of which shall be mailed to the holders of the
Series F Preferred Stock).
(v) The Corporation may make such reductions in the Conversion
Amount, in addition to those required by subparagraphs (i), (ii), (iii) or (iv)
of this Section 11(b), as the Board of Directors considers to be advisable in
order to avoid or to diminish any income tax to holders of Common Stock or
rights to purchase Common Stock resulting from any dividend or distribution of
stock (or rights to acquire stock) or from any event treated as such for income
tax purposes.
(vi) Notwithstanding anything contained in this Section 11(b),
no adjustment to the Conversion Amount shall be made with respect to any rights
issued pursuant to
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a shareholder rights plan, "poison pill" or similar arrangement unless the
"triggering date" (i.e. the date on which such rights commence to be
----
exercisable) shall have occurred or such rights shall have been redeemed, in
which event adjustments under clause (ii) and clause (iii), respectively, shall
be made.
(c) If the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution, and shall thereafter and before the distribution to stockholders
thereof legally abandon its plan to pay or deliver such dividend or
distribution, then thereafter no adjustment in the Conversion Amount then in
effect shall be required by reason of the taking of such record.
(d) Upon any increase or decrease in the Conversion Amount, then, and
in each such case, the Corporation promptly shall deliver to each registered
holder of Series F Preferred Stock at least 10 Business Days prior to effecting
any of the foregoing transactions a certificate, signed by the President or a
Vice President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary of the Corporation, setting forth in reasonable detail
the event requiring the adjustment and the method by which such adjustment was
calculated and specifying the increased or decreased Conversion Amount then in
effect following such adjustment.
Article 3 Series G Preferred Stock.
------------------------
Section 1 Designation and Number.
----------------------
(a) The shares of such series shall be designated as "Cumulative
Preferred Stock, Series G" (the "Series G Preferred Stock"). The number of
shares initially constituting the Series G Preferred Stock shall be 1,250,000,
which number may be decreased (but not increased) by the Board of Directors
without a vote of stockholders; provided, however, that such number may not be
-------- -------
decreased below the number of then outstanding shares of Series G Preferred
Stock.
(b) The Series G Preferred Stock shall, with respect to dividend
rights and rights on liquidation, dissolution or winding up, rank pari passu
---- -----
with the Corporation's $2.50 Cumulative Convertible Preferred Stock, Series A
(the "Series A Preferred Stock"), $2.50 Cumulative
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Preferred Stock, Series B (the "Series B Preferred Stock"), Cumulative
Convertible Preferred Stock, Series E (the "Series E Preferred Stock") and
Cumulative Preferred Stock, Series F (the "Series F Preferred Stock") and the
New Preferred Stock (if any) (the Series A Preferred Stock, Series B Preferred
Stock, Series E Preferred Stock, Series F Preferred Stock and New Preferred
Stock (if any) are collectively defined for the purposes of this Article 2 as
the "Other Preferred Stock") and prior to all other classes and series of
capital stock of the Corporation now or hereafter authorized including, without
limitation, the Common Stock, par value $1.00 per share, of the Corporation (the
"Common Stock").
(c) Capitalized terms used herein and not otherwise defined shall
have the meanings set forth in Article 4 below.
Section 2 Dividends and Distributions.
---------------------------
(a) The holders of shares of Series G Preferred Stock, in preference
to the holders of shares of Common Stock and of any shares of other capital
stock of the Corporation other than the Other Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors, out of the
assets of the Corporation at the time legally available therefor, cumulative
cash dividends at an annual rate on the Liquidation Preference thereof equal to
9.75% (subject to increase pursuant to Section 2(b)), calculated on the basis of
a 360-day year consisting of twelve 30-day months, accruing and payable in equal
quarterly payments, in immediately available funds, on the Business Day
immediately preceding the last day of March, June, September and December in
each year (each such date being referred to herein as a "Quarterly Dividend
Payment Date") commencing on the Business Day immediately preceding the date of
the issuance of such shares of Series G Preferred Stock; provided, however, that
-------- -------
with respect to such first Quarterly Dividend Payment Date with respect to any
shares of Series G Preferred Stock, the holders of shares of Series G Preferred
Stock shall be entitled to receive, when, as and if declared by the Board of
Directors, out of the assets of the Corporation at the time legally available
therefor, a cumulative cash dividend in respect of each share of Series G
Preferred Stock in the amount of (i) 9.75% (or the then effective annual rate)
of the Liquidation Preference multiplied by (ii) a fraction equal to (A) the
number of days from (and including) the date of the issuance
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of such shares of Series G Preferred Stock to (but excluding) such Quarterly
Dividend Payment Date divided by (B) 360. No interest shall be payable in
respect of any dividend payment on the Series G Preferred Stock that may be in
arrears.
(b) If (i) within 45 days of the Issue Date, the Corporation has not
delivered to each holder of shares of Series G Preferred Stock a Private
Placement Memorandum or a Registration Statement on Form S-3 (if the Corporation
is then eligible to use Form S-3) with respect to the private placement or
public offering of the New Preferred Stock or the New Senior Notes, (ii) the
Corporation shall have delivered to the holder a draft of a Registration
Statement on Form S-3 (if the Corporation is then eligible to use Form S-3)
pursuant to clause (i), and such Registration Statement shall not have been
filed with the Securities and Exchange Commission within 30 days after the Issue
Date, (iii) a private placement or public offering of the New Preferred Stock or
the New Senior Notes, pursuant to which the Corporation shall receive at least
$100,000,000 in gross proceeds is not consummated within 210 days after the
Issue Date or (iv) the annual dividend rate on the New Preferred Stock or the
annual interest rate on the New Senior Notes, as applicable, exceeds 13%, then
the annual rate of the cumulative cash dividends shall be increased to a rate of
11.75%, effective (w) in the case of clause (i), the date that is forty-five
days after the Issue Date, (x) in the case of clause (ii), the date that is 30
days after the Issue Date, (y) in the case of clause (iii), the date that is 210
days after the Issue Date and (z) in the case of clause (iv), the date of the
issuance of the New Preferred Stock or the New Senior Notes, as applicable. If
on any date (A) all of the Purchaser Designees shall not have been elected to
the Corporation's Board of Directors or any such Purchaser Designees shall not
have been appointed to the committees of the Corporation's Board of Directors,
in accordance with the provisions of Section 6.17 of the Securities Purchase
Agreement, (B) the Corporation shall have failed to declare, or shall have
failed to pay, the full amount of dividends payable on the Series G Preferred
Stock for six quarterly dividend periods, (C) the Corporation shall have failed
to satisfy its obligation to convert shares of Series E Preferred Stock pursuant
to Article 1, Section 10 or (D) a breach of any of the Material Provisions of
the Securities Purchase Agreement or any of the Corporation's material
obligations under the Registration Rights Agreement shall have occurred then,
effective as of
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the date of such failure or breach, the annual rate of the cumulative cash
dividends shall be increased to a rate of 11.75% and shall remain at such rate
until such time as (1) the Purchaser Designees shall have been elected to the
Corporation's Board of Directors and appointed to the committees of the Corpora-
tion's Board of Directors in accordance with the provisions of Section 6.17 of
the Securities Purchase Agreement, (2) all dividends accrued to date on the
Series G Preferred Stock shall have been declared and paid in full, (3) any
conversion obligation provided in Article 1, Section 10 that has become due
shall have been fully satisfied or (4) there shall exist no breach of any of the
Material Provisions of the Securities Purchase Agreement or any of the
Corporation's material obligations under the Registration Rights Agreement, as
the case may be, at which time the annual rate of the cumulative cash dividends
shall be reduced to a rate of 9.75%, subject to being increased to a rate of
11.75% in the event of each and every subsequent event of the character
indicated above.
(c) Dividends payable on a share of Series G Preferred Stock pursuant
to Section 2(a) shall begin to accrue and be cumulative from the date of
issuance of such share of Series G Preferred Stock, and shall accrue on a daily
basis, in each case whether or not declared. Dividends paid on the shares of
Series G Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be allocated pro
rata on a share-by-share basis among all such shares of Series G Preferred Stock
at the time outstanding. The Board of Directors may fix a record date for the
determination of holders of shares of Series G Preferred Stock entitled to
receive payment of a dividend declared thereon, which record date shall be no
more than 60 days or less than 10 days prior to the date fixed for the payment
thereof. Accumulated but unpaid dividends for any past quarterly dividend
periods may be declared and paid at any time, without reference to any regular
Quarterly Dividend Payment Date, to holders of record on such date, not more
than 60 nor less than 10 days preceding the payment date thereof, as may be
fixed by the Board of Directors.
(d) The holders of shares of Series G Preferred Stock shall not be
entitled to receive any dividends or other distributions except as provided
herein.
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<PAGE>
Section 3 Voting Rights.
-------------
In addition to any voting rights provided by law, the holders of
shares of Series G Preferred Stock shall have the following voting rights:
(a) Unless the consent or approval of a greater number of shares
shall then be required by law, the affirmative vote of the holders of at least
66-2/3% of the outstanding shares of Series G Preferred Stock, voting separately
as a single class, in person or by proxy, at a special or annual meeting of
stockholders called for the purpose, shall be necessary to (i) authorize, adopt
or approve an amendment to the Certificate of Incorporation that would increase
or decrease the par value of the shares of Series G Preferred Stock, or alter or
change the powers, preferences or special rights of the shares of Series G
Preferred Stock, (ii) amend, alter or repeal the Certificate of Incorporation so
as to affect the shares of Series G Preferred Stock adversely or (iii) effect
the voluntary liquidation, dissolution, winding up, recapitalization or
reorganization of the Corporation, or the consolidation or merger of the
Corporation with or into any other Person, or the sale or other distribution to
another Person of all or substantially all of the assets of the Corporation;
provided, however, that no separate vote of the holders of Series G Preferred
- -------- -------
Stock shall be required to effect any of the transactions described in clause
(iii) above unless such transaction would either require a class vote pursuant
to clause (i) or (ii) above or would require a vote by any shareholders of the
Corporation; provided further, that no separate vote of the holders of the
-------- -------
Series G Preferred Stock as a class shall be required in the case of a
recapitalization, reorganization, consolidation or merger of, or sale by, the
Corporation if (A)(a) such recapitalization, reorganization, consolidation,
merger or sale constitutes a Specified Corporate Action, (b) the Corporation has
sufficient funds legally available to it (after giving effect to such
transaction) to redeem, at the then applicable price hereunder and pursuant to
the terms hereof, all the outstanding shares of Series G Preferred Stock,
(c) such redemption shall not be prohibited by any agreement to which the
Corporation or any of its Subsidiaries is a party, by applicable law or
otherwise, (d) the Board of Directors of the Corporation, including a majority
of the directors who are not officers or employees of the Corporation, shall
have adopted a resolution confirming that such funds are available and that the
holders of Series G
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<PAGE>
Preferred Stock have the right to require such redemption and (e) the
Corporation shall have set aside sufficient funds through the Specified
Corporation Action Redemption Date to redeem the shares of Series G Preferred
Stock held by such holders (except that no funds need be set aside with respect
to such shares held by any such holder who has theretofore notified the
Corporation (whether pursuant to Section 6(a)(iii) or otherwise) that it will
not require redemption of such shares) or (B) (1) the Corporation shall be the
resulting or surviving corporation, (2) the resulting or surviving corporation
will have after such recapitalization, reorganization, consolidation or merger
no Senior Stock or Parity Stock either authorized or outstanding (except such
Parity Stock of the Corporation as may have been authorized or outstanding
immediately preceding such consolidation or merger) or such stock of the
resulting or surviving corporation (having the same powers, preferences and
special rights of any such Parity Stock) as may be issued in exchange therefor),
(3) each holder of shares of Series G Preferred Stock immediately preceding such
recapitalization, reorganization, consolidation or merger will receive in
exchange therefor the same number of shares of stock, with the same preferences,
rights and powers, of the resulting or surviving corporation, (4) after such
recapitalization, reorganization, consolidation or merger the resulting or
surviving corporation shall not be in breach of any of the terms hereof, any of
the Material Provisions of the Securities Purchase Agreement or any of its
material obligations under the Registration Rights Agreement and (5) all or
substantially all the holders of the outstanding shares of capital stock of the
Corporation immediately prior to such consolidation or merger are entitled to
receive shares representing 50% or more of the then outstanding shares of
capital stock of the resulting or surviving corporation entitled to vote
generally in the election of directors.
(b) If on any date (i) the Corporation shall have failed to declare,
or shall have failed to pay, the full amount of dividends payable on the
Series G Preferred Stock, Series E Preferred Stock or Series F Preferred Stock
for six quarterly dividend periods or (ii) a breach of any of the Material
Provisions of the Securities Purchase Agreement or any of the Corporation's
material obligations under the Registration Rights Agreement shall have
occurred, then the number of directors constituting the Board of Directors
shall, without further action, be increased by two and the holders of shares of
Series G Preferred Stock shall have, in
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<PAGE>
addition to the other voting rights set forth herein with respect to the
Series G Preferred Stock, the exclusive right, together with the holders of
Series E Preferred Stock and Series F Preferred Stock, voting separately as a
single class together with the holders of Series E Preferred Stock and Series G
Preferred Stock, to elect two directors of the Corporation to fill such newly
created directorship, by written consent as provided herein, or at a special
meeting of such holders called as provided herein. Any such additional
directors shall continue as directors (subject to reelection or removal as
provided in Section 3(c)(ii)) and the holders of Series G Preferred Stock shall
have such additional voting rights until such time as (A) dividends then payable
on the Series G Preferred Stock, Series E Preferred Stock and Series F Preferred
Stock shall have been declared and paid in full or (B) there shall exist no
breach of any of the Material Provisions of the Securities Purchase Agreement or
any of the Corporation's material obligations under the Registration Rights
Agreement, as the case may be, at which time such additional directors shall
cease to be directors, the number of directors constituting the Board of
Directors shall be reduced by two and such additional voting rights of the
holders of Series G Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock shall terminate, subject to revesting in the event of each and
every subsequent event of the character indicated above.
(c) (i) The foregoing right of holders of shares of Series G
Preferred Stock to take any action as provided in Section 3(b) may be exercised
at any annual meeting of stockholders or at a special meeting of holders of
shares of Series G Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock, held for such purpose as hereinafter provided or at any
adjournment thereof, or by the written consent, delivered to the Secretary of
the Corporation, of the holders of the minimum number of shares required to take
such action.
So long as such right to vote continues (and unless such right has
been exercised by written consent of the minimum number of shares required to
take such action), the President of the Corporation may call, and upon the
written request of holders of record of at least 5% of the aggregate outstanding
shares of Series G Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock, addressed to the Secretary of the Corporation at the principal
office of the Corporation, shall call, a special meeting of the holders of
shares entitled to vote as
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<PAGE>
provided herein. Such meeting shall be held within 30 days after delivery of
such request to the Secretary, at the place and upon the notice provided by law
and in the by-laws of the Corporation for the holding of meetings of
stockholders.
(ii) At each meeting of stockholders at which the holders of
shares of Series G Preferred Stock shall have the right, voting separately as a
single class together with the holders of Series E Preferred Stock and Series F
Preferred Stock, to elect two directors of the Corporation as provided in Sec-
tion 3(b) or to take any action, the presence in person or by proxy of the
holders of record of one-third of the total aggregate number of shares of
Series G Preferred Stock, Series E Preferred Stock and Series F Preferred Stock,
in each case then outstanding and entitled to vote on the matter shall be
necessary and sufficient to constitute a quorum. At any such meeting or at any
adjournment thereof:
(A) the absence of a quorum of the holders of shares of Series G
Preferred Stock, Series E Preferred Stock and Series F Preferred Stock,
shall not prevent the election of directors other than those to be elected
by the holders of shares of Series G Preferred Stock, Series E Preferred
Stock and Series F Preferred Stock, and the absence of a quorum of the
holders of shares of any other class or series of capital stock shall not
prevent the election of directors to be elected by the holders of shares of
Series G Preferred Stock, Series E Preferred Stock and Series F Preferred
Stock, or the taking of any action as provided in Section 3(b); and
(B) in the absence of a quorum of the holders of shares of
Series G Preferred Stock, Series E Preferred Stock and Series F Preferred
Stock, a majority of the holders of such shares present in person or by
proxy shall have the power to adjourn the meeting as to the actions to be
taken by the holders of shares of Series G Preferred Stock, Series E
Preferred Stock and Series F Preferred Stock, from time to time and place
to place without notice other than announcement at the meeting until a
quorum shall be present.
For taking of any action as provided in Section 3(a) or Section 3(b)
by the holders of shares of Series G Preferred Stock, each such holder shall
have one
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<PAGE>
vote for each share of such stock standing in his name on the transfer books of
the Corporation as of any record date fixed for such purpose or, if no such date
be fixed, at the close of business on the Business Day next preceding the day on
which notice is given, or if notice is waived, at the close of business on the
Business Day next preceding the day on which the meeting is held; provided,
--------
however, that shares of Series G Preferred Stock, Series E Preferred Stock or
- -------
Series F Preferred Stock held by the Corporation or any Subsidiary of the
Corporation shall not be deemed to be outstanding for purposes of taking any
action as provided in this Section 3.
Each director elected by the holders of shares of Series G Preferred
Stock, Series E Preferred Stock and Series F Preferred Stock, as provided in
Section 3(b) shall, unless his term shall expire earlier in accordance with the
provisions thereof, hold office until the annual meeting of stockholders next
succeeding his election or until his successor, if any, is elected and
qualified.
If any director so elected by the holders of Series G Preferred Stock,
Series E Preferred Stock and Series F Preferred Stock shall cease to serve as a
director before his term shall expire (except by reason of the termination of
the voting rights accorded to the holders of Series G Preferred Stock, Series E
Preferred Stock and Series F Preferred Stock, in accordance with Section 3(b)),
the holders of the Series G Preferred Stock, Series E Preferred Stock and
Series F Preferred Stock then outstanding and entitled to vote for such director
may, by written consent as provided herein, or at a special meeting of such
holders called as provided herein, elect a successor to hold office for the
unexpired term of the director whose place shall be vacant.
Any director elected by the holders of shares of Series G Preferred
Stock, Series E Preferred Stock and Series F Preferred Stock, voting together as
a separate class, may be removed from office with or without cause by the vote
or written consent of the holders of at least a majority of the aggregate
outstanding shares of Series G Preferred Stock, Series E Preferred Stock and
Series F Preferred Stock at the time of removal. A special meeting of the
holders of shares of Series G Preferred Stock, Series E Preferred Stock and
Series F Preferred Stock, may be called in accordance with the procedures set
forth in Section 3(c)(i).
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<PAGE>
Section 4 Certain Restrictions.
--------------------
(a) So long as any shares of Series G Preferred Stock remain
outstanding, the Corporation shall not declare or make any Restricted Payment.
(b) Whenever quarterly dividends payable on shares of Series G
Preferred Stock as provided in Section 2(a) are not paid in full, at such time
and thereafter until all unpaid dividends payable, whether or not declared, on
the outstanding shares of Series G Preferred Stock shall have been paid in full
or declared and set apart for payment at such time and thereafter until all
necessary funds have been set apart for payment, or whenever the Corporation
shall not have paid the Optional Redemption Price, the Specified Corporate
Action Redemption Price, the Conversion Redemption Price, the Holder's Election
Redemption Price or the Maturity Redemption Price when due, at such time and
thereafter from and until all such amounts have been paid in full or set apart
for payment, the Corporation shall not: (A) declare or pay dividends, or make
any other distributions, on any shares of Junior Stock, or (B) declare or pay
dividends, or make any other distributions, on any shares of Parity Stock,
except dividends or distributions paid ratably on the Series G Preferred Stock
and all Parity Stock on which dividends are payable and in arrears, in
proportion to the total amounts to which the holders of all shares of the
Series G Preferred Stock and Parity Stock are then entitled.
(c) Whenever dividends payable on shares of Series G Preferred Stock
as provided in Section 2 are not paid in full, at such time and thereafter until
all unpaid dividends payable, whether or not declared, on the outstanding shares
of Series G Preferred Stock shall have been paid in full or declared and set
apart for payment, at such time and thereafter until all necessary funds have
been set apart for payment, or whenever the Corporation shall not have paid the
Optional Redemption Price, the Specified Corporate Action Redemption Price, the
Conversion Redemption Price, the Holder's Election Redemption Price or the
Maturity Redemption Price when due, at such time and thereafter from and until
all such amounts have been paid in full or set apart for payment, the
Corporation shall not redeem, purchase or otherwise acquire for consideration
any shares of Junior Stock or Parity Stock; provided, however, that (A) the
-------- -------
Corporation may accept shares of any Parity Stock or Junior Stock for conversion
into Junior Stock and (B) the Corporation may at any time redeem, purchase or
otherwise
70
<PAGE>
acquire shares of any Parity Stock pursuant to any mandatory redemption, put,
sinking fund or other similar obligation contained in such Parity Stock, pro
rata with the Series G Preferred Stock in proportion to the total amount then
required to be applied by the Corporation to redeem, repurchase, or otherwise
acquire shares of Series G Preferred Stock and shares of such Parity Stock.
(d) The Corporation shall not permit any Subsidiary of the
Corporation, or cause any other Person, to purchase or otherwise acquire for
consideration any shares of capital stock of the Corporation unless the
Corporation could, pursuant to Section 4(c), purchase such shares at such time
and in such manner.
Section 5 Optional Redemption.
-------------------
(a) (i) The Corporation shall not have any right to redeem any
shares of Series G Preferred Stock prior to __________, 200112/. Thereafter,
--
(A) if any shares of Series E Preferred Stock remain outstanding, the
Corporation will simultaneously elect to redeem (in accordance with the terms of
Article 1, Section 5) the same percentage of the outstanding shares of Series G
Preferred Stock as the percentage of shares of Series E Preferred Stock (or
aggregate principal amount of Convertible Notes) the Corporation is electing to
redeem under Article 1, Section 5 or (B) if no shares of the Series E Preferred
Stock remain outstanding, so long as shares of Common Stock shall have traded on
the New York Stock Exchange (or another national securities exchange or on
Nasdaq) on each trading day during a 30-consecutive trading day period (each of
which trading days shall be after _________, 200112/ and no more than 5 Business
--
Days prior to the date notice is given of an Optional Redemption (as defined
below)) and had a Closing Price on at least 20 of such trading days in excess of
150% of the Conversion Amount in effect on such trading day as determined
pursuant to Section 11, subject to the restrictions contained in Section 4, the
Corporation shall have the right, at its sole option and election, to redeem
(the "Optional Redemption") (I) in the case of clause (A), such percentage of
the shares of Series G Preferred Stock specified in such clause and (II) in the
case of clause (B), all or a portion of the shares of Series G Preferred Stock,
- --------------------
12/ Assumes closing on or prior to December 31, 1994; otherwise date will be
- --
appropriately adjusted.
71
<PAGE>
on not more than 45 nor less than 30 days' notice of the date of redemption (any
such date an "Optional Redemption Date") at a price per share (the "Optional
Redemption Price") equal to the sum of (A) the following prices per share
(stated as a percentage of the Liquidation Preference of such share), (B) an
amount per share equal to all accrued and unpaid dividends thereon, whether or
not declared or payable, to the applicable Optional Redemption Date and (C) the
Additional Amount (as defined in Section 11), in immediately available funds:
Optional Redemption Price
If Redeemed as a Percentage of
During the Period13/: Liquidation Preference
------------------- ----------------------
__________, 2001 to 102.775%
__________, 2002
__________, 2002 to 101.850%
__________, 2003
__________, 2003 to 100.925%
__________, 2004
__________, 2004 and 100%
thereafter
(ii) If the Corporation shall have the right to, or shall
determine to, redeem less than all the shares of Series G Preferred Stock then
outstanding pursuant to paragraph (i), the shares to be redeemed shall be
selected pro rata (as nearly as may be) so that the number of shares redeemed
from each holder shall be the same proportion of all the shares to be redeemed
that the total number of shares of Series G Preferred Stock then held by such
holder bears to the total number of shares of Series G Preferred Stock then
outstanding.
(iii) Notwithstanding the foregoing, any shares of Series G
Preferred Stock redeemed pursuant to this Section 5(a) at a time when the
Corporation would be required to redeem the shares of Series G Preferred Stock
- --------------------
13/ Assumes closing on or prior to December 31, 1994; otherwise dates will be
- --
appropriately adjusted.
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<PAGE>
pursuant to Section 6 shall be redeemed at a price equal to the price to be paid
pursuant to Section 6.
(b) Notice of any Optional Redemption shall specify the Optional
Redemption Date fixed for redemption, the Optional Redemption Price, the place
or places of payment, that payment will be made upon presentation and surrender
of the shares of Series G Preferred Stock and that on and after the date of such
Optional Redemption dividends will cease to accrue on such shares and be given
by publication in a newspaper of general circulation in the Borough of
Manhattan, The City of New York (if such publication shall be required by
applicable law, rule, regulation or securities exchange requirement), not less
than 30, nor more than 45, days prior to the Optional Redemption Date; and, in
any case, a similar notice shall be mailed at least 30, but not more than 45,
days prior to the Optional Redemption Date to each holder of shares of Series G
Preferred Stock, at such holder's address as it appears on the transfer books of
the Corporation. In order to facilitate the redemption of shares of Series G
Preferred Stock, the Board of Directors may fix a record date for the
determination of shares of Series G Preferred Stock to be redeemed, or may cause
the transfer books of the Corporation for the Series G Preferred Stock to be
closed, not more than 60 days or less than 45 days prior to the Optional
Redemption Date.
(c) On the date of any Optional Redemption that is specified in a
notice given pursuant to Section 5(b), the Corporation shall, and at any time
after such notice shall have been mailed and before the Optional Redemption Date
the Corporation may, deposit for the benefit of the holders of shares of
Series G Preferred Stock the funds necessary for such redemption with a bank or
trust company in the Borough of Manhattan, The City of New York, having a
capital and surplus of at least $100,000,000. Any moneys so deposited by the
Corporation and unclaimed at the end of two years from the Optional Redemption
Date shall revert to the general funds of the Corporation. After such
reversion, any such bank or trust company shall, upon demand, pay over to the
Corporation such unclaimed amounts and thereupon such bank or trust company
shall be relieved of all responsibility in respect thereof and any holder of
shares of Series G Preferred Stock to be redeemed shall look only to the
Corporation for the payment of the Optional Redemption Price. Any interest
accrued on funds deposited pursuant to
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<PAGE>
this Section 5(c) shall be paid from time to time to the Corporation for its own
account.
(d) Notice of redemption having been given as aforesaid, upon the
deposit of funds pursuant to Section 5(c) in respect of shares of Series G
Preferred Stock to be redeemed pursuant to Section 5(a), notwithstanding that
any certificates for such shares shall not have been surrendered for
cancellation, from and after the Optional Redemption Date (i) the shares
represented thereby shall no longer be deemed outstanding, (ii) the rights to
receive dividends thereon shall cease to accrue, and (iii) all rights of the
holders of shares of Series G Preferred Stock to be redeemed shall cease and
terminate, excepting only the right to receive the Optional Redemption Price
therefor; provided, however, that (A) if the Corporation shall default in the
-------- -------
payment of the Optional Redemption Price or (B) if the Corporation is obligated
under Section 5(a)(i)(A) to simultaneously redeem shares of Series E Preferred
Stock (or Convertible Notes) and the Corporation has failed to simultaneously
redeemed such shares (or notes), the shares of Series G Preferred Stock shall
thereafter be deemed to be outstanding and the holders thereof shall have all of
the rights of a holder of Series G Preferred Stock until such time as such
default or failure shall no longer be continuing or shall have been waived by
holders of at least 66-2/3% of the then outstanding shares of Series G Preferred
Stock.
(e) Any notice that is mailed as herein provided shall be
conclusively presumed to have been duly given, whether or not the holder of
shares of Series G Preferred Stock receives such notice, and failure to give
such notice by mail, or any defect in such notice, to the holders of any shares
designated for redemption shall not affect the validity of the proceedings for
the redemption of any other shares of Series G Preferred Stock. On or after the
Optional Redemption Date fixed for redemption as stated in such notice, each
holder of the shares called for redemption shall surrender the certificate
evidencing such shares to the Corporation at the place designated in such notice
and shall thereupon be entitled to receive payment of the Optional Redemption
Price. If less than all the shares evidenced by any such surrendered
certificate are redeemed, a new certificate shall be issued evidencing the
unredeemed shares.
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<PAGE>
Section 6 Mandatory Redemption at the Option of the
-----------------------------------------
Holder.
------
(a) (i) If one or more events constituting a Specified Corporate
Action shall occur, each holder of shares of the Series G Preferred Stock shall
have the right, at such holder's option on the date specified in Section
6(a)(ii) (the "Specified Corporate Action Redemption Date"), to require the
Corporation to redeem (a "Specified Corporate Action Redemption") all or any
part of the shares of Series G Preferred Stock then held by such holder as such
holder may elect at a price per share equal to the greater of (I) the sum of (A)
the following prices per share (stated as a percentage of the Liquidation
Preference of such share) and (B) an amount per share equal to all accrued and
unpaid dividends thereon, whether or not declared or payable, to the applicable
Specified Corporate Action Redemption Date
If the Specified Specified Corporate
Corporate Action Action Redemption Price
Redemption Date as a Percentage of
Occurs During the Liquidation Preference
----------------- --------------------------
Period14/:
--------
__________, 1994 to 110.4%
__________, 1995
__________, 1995 to 116.8%
__________, 1995
__________, 1995 to 126.7%
__________, 1996
__________, 1996 and there- 138.0%
after
and (II) the sum of (x) 100% of the Liquidation Preference of such share, (y) an
amount per share equal to all accrued and unpaid dividends thereon, whether or
not declared or payable, to the Specified Corporate Action Redemption Date and
(z) the Additional Amount, in either case in immediately available funds (the
"Specified Corporate Action Redemption Price"); provided, however, that the
-------- -------
holder of any share of Series G Preferred Stock that was not outstanding for at
- --------------------
14/ Assumes closing on or prior to December 31, 1994; otherwise date will be
- --
appropriately adjusted.
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<PAGE>
least ten Business Days prior to the date of the notice of the Specified
Corporate Action shall only be entitled to receive upon such Specified Corporate
Action Redemption the amount specified in clause (II) above.
(ii) The date fixed for each Specified Corporate Action Redemption
shall be fixed by the Corporation and shall be no less than 60 days or more than
90 days following the occurrence of the Specified Corporate Action giving rise
thereto (or, in the case of a Specified corporate Action as described in clause
(iii) of the definition of "Specified Corporate Action," no less than 60 days or
more than 90 days following the date on which the Corporation obtains actual
knowledge of such Specified Corporate Action). The Corporation shall, within 5
days of the occurrence of a Specified Corporate Action (or, in the case of a
Specified Corporate Action described in clause (iii) of the definition of
"Specified Corporate Action," within 5 days of the date on which the Corporation
obtains actual knowledge of such Specified Corporate Action), give notice
thereof by publication in a newspaper of general circulation in the Borough of
Manhattan, The City of New York (if such publication shall be required by
applicable law, rule, regulation or securities exchange requirement), and, in
any case, a similar notice shall be mailed to each holder of shares of the
Series G Preferred Stock, at such holder's address as it appears on the transfer
books of the Corporation. Each such notice shall specify the Specified
Corporate Action that has occurred and the date of such occurrence, the place or
places of payment, the then effective Specified Corporate Action Redemption
Price and the date the right of such holder to require a Specified Corporate
Action Redemption shall terminate.
(iii) If the notice sent by the Corporation pursuant to Section
6(a)(ii) shall contain (i) a form inquiring as to whether a holder of shares of
Series G Preferred Stock intends to surrender the certificate(s) representing
such shares for redemption pursuant to this Section 6(a) and (ii) a stamped
self-addressed envelope for return of such form to the Corporation or its
designee, within ten Business Days of such notice, each holder shall return such
inquiry form to the Corporation and shall indicate in such form the proportion
of such holder's shares of Series G Preferred Stock that will be surrendered for
redemption pursuant to this Section 6. If such notice shall indicate that if a
holder does not respond prior to
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<PAGE>
ten Business Days after the date of such notice that such holder will be deemed
to have notified the Corporation that it will not require the redemption of the
shares of Series G Preferred Stock held by such holder for purposes of Section
3(b) and such holder does not respond to the Corporation's inquiry prior to
ten Business Days after the date of such notice, such holder will be deemed to
have notified the Corporation that it will not require the redemption of the
shares of Series G Preferred Stock held by such holder for purposes of Sec-
tion 3(b). Nothing contained in this Section 6(a)(iii) shall affect the right
of a holder of Series G Preferred Stock to require the Corporation to redeem
such shares pursuant to Section 6(a)(i).
(b) At any time after , 1995,15/ the holder of any shares
--------- --
of Series G Preferred Stock shall have the right, at such holder's option
exercisable at any time upon 30 days notice to the Corporation, to require the
Corporation to redeem (a "Holder's Election Redemption") all or any part of the
shares of Series G Preferred Stock then held by such holder at a price per share
(the "Holder's Election Redemption Price") equal to the sum of (A) 100% of the
Liquidation Preference of such share, (B) an amount per share equal to all
accrued and unpaid dividends thereon, whether or not declared or payable, to the
date specified for such Holder's Election Redemption and (C) the Additional
Amount, in immediately available funds. Notwithstanding the foregoing, if the
redemption of any portion of such shares would (i) cause any two of Standard's &
Poor's ("S&P"), Moody's Investor Services ("Moody's") and A.M. Best & Co. ("A.M.
Best") to downgrade the rating of (a) the Corporation's securities, in the case
of S&P or Moody's or (b) the pooled rating of the Subsidiaries of the
Corporation engaged in the insurance business, in the case of A.M. Best or (ii)
in the reasonable judgment of the Board of Directors of the Corporation have a
material adverse effect on the financial condition of the Corporation, then the
Corporation may elect to deliver with respect to such shares in lieu of cash
senior nonconvertible notes of the Corporation ("Notes") (x) having a final
maturity date no later than December 31, 2006, and (y) having such other terms
and conditions as shall result in a determination that such Notes have a fair
market value as of the date of their proposed issuance at least equal to the sum
of (1) the Holder's Election Redemption Price with respect to such
- --------------------
15/ First anniversary of Closing Date.
- --
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<PAGE>
shares and (2) customary underwriting discounts and commissions payable with
respect to the sale of securities of a type comparable to the Notes; provided,
--------
however, that if the issuance of senior nonconvertible notes would cause the
- -------
event described in clause (i) above or in the reasonable judgment of the Board
of Directors of the Corporation have a material adverse effect on the financial
condition of the Corporation, then the Corporation may elect to issue
subordinated nonconvertible notes (in which case the term "Notes" shall mean
such subordinated nonconvertible notes) or shares of nonconvertible preferred
stock ("Redemption Preferred Stock") in each case having the terms and
conditions described in clauses (x) and (y) in lieu of senior nonconvertible
notes. The Corporation shall use its best efforts to cause the Notes or the
Redemption Preferred Stock to be registered for immediate resale pursuant to an
effective registration statement under the Securities Act prior to the issuance
thereof. If such registration statement is not effective within 60 days of the
date of such issuance then the annual interest rate of the Notes or the annual
dividend rate of the Redemption Preferred Stock, as applicable, shall be
increased by 0.5% per annum until such securities are sold pursuant to an
effective registration statement under the Securities Act. For purposes of this
Section 6(b), "fair market value" shall mean the fair market value of the Notes
or Redemption Preferred Stock, as the case may be, as determined by an
investment banking firm of national standing selected by the Corporation and
reasonably acceptable to the holders of a majority of the shares of Series G
Preferred Stock electing to effect such Holder's Election Redemption. In the
case that the Corporation shall be entitled to deliver either subordinated
nonconvertible notes or Redemption Preferred Stock, it shall be the election of
the Corporation whether to deliver such Notes or Redemption Preferred Stock,
except that, if, the sale of the security to be delivered by the Corporation to
effect a Holder's Election Redemption would give rise to an additional liability
on the part of such holder upon the sale thereof and it shall so notify the
Corporation in writing, the Corporation shall deliver to such holder the other
type of security specified in such notice.
(c) On the date fixed for any Specified Corporate Action Redemption
or Holder's Election Redemption, each holder of shares of Series G Preferred
Stock who elects to have shares of Series G Preferred Stock held by it redeemed
shall surrender the certificate representing such shares to
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the Corporation (i) at the place designated in such notice in the case of a
Specified Corporate Action Redemption or (ii) at the Corporation's principal
place of business to be maintained by it, in the case of a Holder's Election
Redemption, together with an election to have such redemption made and shall
thereupon be entitled to receive payment therefor provided in this Section 6.
If less than all the shares represented by any such surrendered certificate are
redeemed, a new certificate shall be issued representing the unredeemed shares.
From and after the date of such redemption (i) the rights to receive dividends
thereon shall cease to accrue and (ii) all rights of the holders of shares of
Series G Preferred Stock so redeemed shall cease and terminate, excepting only
the right to receive the Specified Corporate Action Redemption Price or Holder's
Election Redemption Price therefor, as applicable; provided, however, that if
-------- -------
the Corporation shall default in the payment of the applicable redemption price
or, in the case of a Holder's Election Redemption, elect to postpone payment
thereof in accordance with Section 6(b), the shares of Series G Preferred Stock
that were to be redeemed shall thereafter be deemed to be outstanding and the
holders thereof shall have all of the rights of a holder of Series G Preferred
Stock until such time as such default shall no longer be continuing or shall
have been waived by holders of at least 66-2/3% of the then outstanding shares
of Series G Preferred Stock or, in the case of a Holder's Election Redemption,
so postponed, the date on which the Holder's Election Redemption Price is paid.
Section 7 Redemption Upon Maturity.
------------------------
(a) On __________, 200916/ (the "Maturity Date"), the Corporation
--
shall redeem (the "Maturity Redemption") the remaining outstanding shares of the
Series G Preferred Stock at a price per share (the "Maturity Redemption Price")
equal to the sum of (A) 100% of the Liquidation Preference per share, (B) an
amount equal to accrued and unpaid dividends thereon, whether or not declared or
payable, to the Maturity Date and (C) the Additional Amount, determined as of
the date immediately prior to the Maturity Date, in immediately available funds.
- --------------------
16/ Assumes closing on or prior to December 31, 1994; otherwise date will be
- --
appropriately adjusted.
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(b) Notice of the Maturity Redemption shall be given by publication
in a newspaper of general circulation in the Borough of Manhattan, The City of
New York (if such publication shall be required by applicable law, rule,
regulation or securities exchange requirement), not less than 30, nor more than
60, days prior to the Maturity Date and, in any case, a similar notice shall be
mailed at least 30, but not more than 60, days prior to the Maturity Date to
each holder of shares of Series G Preferred Stock, at such holder's address as
it appears on the transfer books of the Corporation.
(c) On the Maturity Date, the Corporation shall, and at any time
after such notice shall have been mailed and before the Maturity Date the
Corporation may, deposit for the benefit of the holders of shares of Series G
Preferred Stock the funds necessary for such redemption with a bank or trust
company in the Borough of Manhattan, The City of New York, having a capital and
surplus of at least $100,000,000. Any moneys so deposited by the Corporation
and unclaimed at the end of two years from the date designated for such
redemption shall revert to the general funds of the Corporation. After such
reversion, any such bank or trust company shall, upon demand, pay over to the
Corporation such unclaimed amounts and thereupon such bank or trust company
shall be relieved of all responsibility in respect thereof and any holder of
shares of Series G Preferred Stock to be redeemed shall look only to the
Corporation for the payment of the Maturity Redemption Price. Any interest
accrued and unpaid on funds deposited pursuant to this Section 5(c) shall be
paid from time to time to the Corporation for its own account.
(d) Notice of redemption having been given as aforesaid, upon the
deposit of funds pursuant to Section 7(c) in respect of shares of Series G
Preferred Stock to be redeemed pursuant to Section 7(a), notwithstanding that
any certificates for such shares shall not have been surrendered for
cancellation, from and after the Maturity Date, (i) the rights to receive
dividends thereon shall cease to accrue and (ii) all rights of the holders of
shares of Series G Preferred Stock shall cease and terminate, excepting only the
right to receive the Maturity Redemption Price therefor; provided, however, that
-------- -------
if the Corporation shall default in the payment of the Maturity Redemption
Price, the shares of Series G Preferred Stock that were to be redeemed shall
thereafter be deemed to be outstanding and the holders thereof shall have all of
the rights of a holder
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of Series G Preferred Stock until such time as such default shall no longer be
continuing.
Section 8 Acquired Shares.
---------------
Any shares of Series G Preferred Stock exchanged, redeemed, purchased
or otherwise acquired by the Corporation or any of its Subsidiaries in any
manner whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares of Series G Preferred Stock shall upon their
cancellation become authorized but unissued shares of preferred stock, par value
$4.00 per share, of the Corporation and, upon the filing of an appropriate
certificate with the Department of State of the State of New York, may be
reissued as part of another series of preferred stock, par value $4.00 per
share, of the Corporation subject to the conditions or restrictions on issuance
set forth herein, but in any event may not be reissued as shares of Series G
Preferred Stock or Parity Stock unless all of the issued and outstanding shares
of Series G Preferred Stock shall have already been redeemed or exchanged.
Section 9 Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) If the Corporation shall commence a voluntary case under the
United States bankruptcy laws or any applicable bankruptcy, insolvency or
similar law of any other country, or consent to the entry of an order for relief
in an involuntary case under any such law or to the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property, or make
an assignment for the benefit of its creditors, or admit in writing its
inability to pay its debts generally as they become due (any such event, a
"Voluntary Liquidation Event"), or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the United States bankruptcy laws or any applicable
bankruptcy, insolvency or similar law of any other country, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and on account of any
such event the Corporation shall liquidate, dissolve or wind up, or if the
Corporation shall otherwise liquidate, dissolve or wind up, no distribution
shall be made (i) to the holders of shares of Junior Stock unless, prior
thereto,
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the holders of shares of Series G Preferred Stock shall have received (A) if a
Voluntary Liquidation Event shall have occurred, the Optional Redemption Price
with respect to each share and (B) if a Voluntary Liquidation Event shall not
have occurred, the Liquidation Preference and all accrued and unpaid dividends,
whether or not declared or currently payable, to the date of distribution, with
respect to each share, or (ii) to the holders of shares of Parity Stock, except
distributions made ratably on the Series G Preferred Stock and all Parity Stock
in proportion to the total amounts to which the holders of all shares of the
Series G Preferred Stock (which amounts are set forth in clauses (A) and (B)
above) and Parity Stock are entitled upon such liquidation, dissolution or
winding up.
(b) Neither the consolidation or merger of the Corporation with or
into any other Person nor the sale or transfer of all or any part of the
Corporation's assets for cash, securities or other property shall be deemed to
be a liquidation, dissolution or winding up of the Corporation for purposes of
this Section 9.
Section 10 Exchange.
--------
(a) Subject to the provisions of this Section 10, the Corporation
shall have the right, with the consent of the holders of all of the outstanding
shares of Series G Preferred Stock (which consent may be withheld for any reason
whatsoever), at any time but on only one occasion, to exchange all (but not less
than all) of the shares of Series G Preferred Stock for Subordinated Notes of
the Corporation ("Subordinated Notes"), at a price per share equal to the
Liquidation Preference per share, with the Subordinated Notes valued for such
purpose at their face value. Simultaneously with such exchange the Corporation
shall pay to each holder of Series G Preferred Stock an amount per share in cash
equal to all accrued and unpaid dividends thereon, whether or not declared or
currently payable, to the date fixed for exchange thereof. The Subordinated
Notes shall have an annual interest rate equal to the annual dividend rate on
Series G Preferred Stock and shall contain other terms substantially similar to
the Series G Preferred Stock, including the date of maturity thereof.
(b) Notice of an exchange of shares of Series G Preferred Stock
pursuant to Section 10(a) shall be given by publication in a newspaper of
general circulation in the
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Borough of Manhattan, The City of New York (if such publication shall be
required by applicable law, rule, regulation or securities exchange
requirement), not less than 30, nor more than 60, days prior to the date fixed
for exchange; and, in any case, a similar notice shall be mailed at least 30,
but not more than 60, days prior to the date fixed for exchange to each holder
at such holder's address as it appears on the transfer books of the Corporation.
In order to facilitate the exchange of shares of Series G Preferred Stock
hereunder the Board of Directors may fix a record date for the determination of
shares of Series G Preferred Stock to be exchanged, or may cause the transfer
books of the Corporation for the Series G Preferred Stock to be closed, not more
than 60 days or less than 30 days prior to the date fixed for exchange.
(c) On the date of any exchange being made pursuant to Section 10(a)
that is specified in a notice given pursuant to Section 10(b) and is not deemed
terminated pursuant to Section 10(b), the Corporation shall, and at any time
after the date that is 10 days prior to the date of exchange the Corporation
may, deposit for the benefit of the holders of shares of Series G Preferred
Stock to be exchanged (i) the Subordinated Notes necessary for such exchange and
(ii) an amount in cash equal to all dividends payable with respect thereto upon
such exchange with a bank or trust company in the Borough of Manhattan, The City
of New York, having a capital and surplus of at least $100,000,000. Any
Subordinated Notes so deposited by the Corporation and unclaimed at the end of
two years from the date designated for such exchange shall revert to the Corpo-
ration. After such reversion, any such bank or trust company shall, upon
demand, return to the Corporation such unclaimed Subordinated Notes and
thereupon such bank or trust company shall be relieved of all responsibility in
respect thereof and any holder of shares of Series G Preferred Stock to be
exchanged shall look only to the Corporation for the delivery of the
Subordinated Notes. Any interest accrued on Subordinated Notes deposited
pursuant to this Section 10(c) shall accrue for the accounts of, and be payable
to, the holders of shares of Series G Preferred Stock to be exchanged therefor.
(d) Notice of exchange having been given as aforesaid and not having
been deemed terminated as aforesaid, upon the deposit of Subordinated Notes
pursuant to clause (i) of Section 10(c) and the deposit of the cash referred to
in clause (ii) of Section 10(c) in respect of
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shares of Series G Preferred Stock to be exchanged pursuant to Section 10(a),
notwithstanding that any certificates for such shares shall not have been
surrendered for cancellation, from and after the date of exchange designated in
the notice of exchange (i) the shares represented thereby shall no longer be
deemed outstanding, (ii) the rights to receive dividends thereon (except as
provided in paragraph (b) above) shall cease to accrue, and (iii) all rights of
the holders of shares of Series G Preferred Stock to be exchanged shall cease
and terminate, excepting only the right to receive the Subordinated Notes
therefor and the right to receive the dividends described in paragraph (b)
above; provided, however, that if the Corporation shall default in the execution
-------- -------
and delivery of the Convertible Notes, the shares of Series G Preferred Stock
that were to be exchanged shall thereafter be deemed to be outstanding and the
holders thereof shall have all of the rights of a holder of Series G Preferred
Stock until such time as such default shall no longer be continuing or shall
have been waived by holders of at least 66-2/3% of the then outstanding shares
of Series G Preferred Stock.
Section 11 Additional Amount.
-----------------
(a) For the purposes of this Article 3, "Additional Amount" shall
mean an amount per share equal to the product of (i) the excess of the sum of
(1) the Market Price of a share of Common Stock and (2) if the Corporation shall
have issued a right or rights with respect to its outstanding shares of Common
Stock pursuant to a shareholder rights plan, "poison pill" or similar
arrangement, during the period commencing on the "distribution date" of such
right or rights (i.e., the date on which such right or rights commence to trade
----
separately from the Common Stock) and ending on the "triggering date" of such
right or rights (i.e., the date on which such right or rights commence to be
----
exercisable), the Market Price of such right or rights over the Conversion
Amount, in effect as hereinafter determined and (ii) (x) the Liquidation
Preference divided by (y) such Conversion Amount, in all cases calculated as of
the applicable determination date. The Additional Amount shall in no event be
less than zero. The Conversion Amount shall be $17.00, subject to adjustment as
set forth in Section 11(b). For the purpose of calculating the Additional
Amount in connection with an Optional Redemption, Specified Corporate Action
Redemption or Holder's Election Redemption, the Market Price of the Common Stock
and, if applicable, rights shall be the average of the Market Price
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of such securities on the five trading days immediately preceding and the five
trading days immediately following the date of notice of such redemption.
(b) The Conversion Amount shall be subject to adjustment as follows:
(i) In case the Corporation shall at any time or from time to
time (A) pay a dividend or make a distribution on the outstanding shares of
Common Stock in Common Stock (other than pursuant to a dividend reinvestment
plan approved by the Corporation's Board of Directors), (B) subdivide the
outstanding shares of Common Stock into a larger number of shares, (C) combine
the outstanding shares of Common Stock into a smaller number of shares or (D)
issue any shares of its capital stock in a reclassification of the Common Stock,
then, and in each such case, the Conversion Amount in effect immediately prior
to such event shall be adjusted so that if the holder of any share of Series G
Preferred Stock were entitled to convert such share into such number of shares
of Common Stock as equals the Liquidation Preference divided by the Conversion
Amount and such holder thereafter surrendered such share for conversion, such
holder would be entitled to receive the number of shares of Common Stock or
other securities of the Corporation that such holder would have owned or would
have been entitled to receive upon or by reason of any of the events described
above had such share of Series G Preferred Stock been converted immediately
prior to the occurrence of such event. An adjustment made pursuant to this
Section 11(b)(i) shall become effective retroactively (A) in the case of any
such dividend or distribution, to the opening of business on the day immediately
following the close of business on the record date for the determination of
holders of Common Stock entitled to receive such dividend or distribution or (B)
in the case of any such subdivision, combination or reclassification, to the
close of business on the day upon which such corporate action becomes effective.
(ii) In case the Corporation shall at any time or from time to
time issue or sell shares of Common Stock (or securities convertible into or
exchangeable for shares of Common Stock, or any options, warrants or other
rights to acquire shares of Common Stock (other than options granted to any
employee or director of the Corporation pursuant to a stock option plan approved
by the shareholders of the Corporation)) for a consideration per share less than
the Conversion Amount then in effect at the record date or
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issuance date, as the case may be (the "Date") referred to in the following
sentence, including, without limitation, upon exercise of rights issued pursuant
to a shareholder rights plan, "poison pill" or similar arrangement (treating the
price per share of any security convertible or exchangeable or exercisable into
Common Stock as equal to (A) the sum of the price for such security convertible,
exchangeable or exercisable into Common Stock plus any additional consideration
payable (without regard to any anti-dilution adjustments) upon the conversion,
exchange or exercise of such security into Common Stock divided by (B) the
number of shares of Common Stock initially underlying such convertible,
exchangeable or exercisable security), other than issuances or sales for which
an adjustment is made pursuant to another paragraph of this Section 11(b), then,
and in each such case, the Conversion Amount then in effect shall be adjusted by
dividing the Conversion Amount in effect on the day immediately prior to the
Date by a fraction (x) the numerator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to the Date plus the number
of additional shares of Common Stock issued or to be issued (or the maximum
number into which such convertible or exchangeable securities initially may
convert or exchange or for which such options, warrants or other rights initi-
ally may be exercised) and (y) the denominator of which shall be the sum of the
number of shares of Common Stock outstanding immediately prior to the Date plus
the number of shares of Common Stock that the aggregate consideration (if any of
such aggregate consideration is other than cash, as valued by the Board of
Directors including a majority of the Directors who are not officers or
employees of the Corporation or any of its Subsidiaries, which determination
shall be conclusive and described in a resolution of the Board of Directors) for
the total number of such additional shares of Common Stock so issued (or into
which such convertible or exchangeable securities may convert or exchange or for
which such options, warrants or other rights may be exercised plus the aggregate
amount of any additional consideration initially payable upon conversion,
exchange or exercise of such security) would purchase at the Conversion Amount.
Such adjustment shall be made whenever such shares, securities, options,
warrants or other rights are issued, and shall become effective retroactively to
a date immediately following the close of business (i) in the case of issuance
to stockholders of the Corporation, as such, on the record date for the
determination of stockholders entitled to receive such shares, securities,
options, warrants or other rights and
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(ii) in all other cases, on the date ("issuance date") of such issuance;
provided, however, that the determination as to whether an adjustment is
- -------- -------
required to be made pursuant to this Section 11(b)(ii) shall only be made upon
the issuance of such shares or such convertible or exchangeable securities,
options, warrants or other rights, and not upon the issuance of the security
into which such convertible or exchangeable security converts or exchanges, or
the security underlying such option, warrants or other right; provided, further,
-------- -------
that if any convertible or exchangeable securities, options, warrants or other
rights (or any portions thereof) that shall have given rise to an adjustment
pursuant to this Section 11(b)(ii) shall have expired or terminated without the
exercise thereof and/or if by reason of the terms of such convertible or
exchangeable securities, options, warrants or other rights there shall have been
an increase or increases, with the passage of time or otherwise, in the price
payable upon the exercise or conversion thereof, then the Conversion Amount
hereunder shall be readjusted (but to no greater extent than originally
adjusted) on the basis of (x) eliminating from the computation any additional
shares of Common Stock corresponding to such convertible or exchangeable
securities, options, warrants or other rights as shall have expired or termi-
nated, (y) treating the additional shares of Common Stock, if any, actually
issued or issuable pursuant to the previous exercise of such convertible or
exchangeable securities, options, warrants or other rights as having been issued
for the consideration actually received and receivable therefor and (z) treating
any of such convertible or exchangeable securities, options, warrants or other
rights that remain outstanding as being subject to exercise or conversion on the
basis of such exercise or conversion price as shall be in effect at the time.
(iii) In case the Corporation shall at any time or from time to
time distribute to all holders of shares of its Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Corporation is the resulting or surviving corporation and the Common Stock is
not changed or exchanged a redemption of any rights pursuant to a shareholder
rights plan, "poison pill" or similar arrangement) cash, evidences of
indebtedness of the Corporation or another issuer, securities of the Corporation
or another issuer or other assets (excluding (A) Permitted Dividends described
in clause (B) of the definition thereof and (B) securities for which adjustment
is made under Section 11(b)(i) or Section
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11(b)(ii)), then, and in each such case, the Conversion Amount then in effect
shall be adjusted by dividing the Conversion Amount in effect immediately prior
to the date of such distribution by a fraction (x) the numerator of which shall
be the Current Market Price of the Common Stock on the record date referred to
below and (y) the denominator of which shall be such Current Market Price of the
Common Stock less the then Fair Market Value (as determined by the Board of
Directors of the Corporation, which determination shall be conclusive) of the
portion of the cash, evidences of indebtedness, securities or other assets so
distributed or of such subscription rights or warrants applicable to one share
of Common Stock (but such denominator not to be less than one). Such adjustment
shall be made whenever any such distribution is made and shall become effective
retroactively to a date immediately following the close of business on the
record date for the determination of stockholders entitled to receive such
distribution.
(iv) In the case the Corporation at any time or from time to
time shall take any action affecting its Common Stock, other than an action
described in any of Section 11(b)(i) through Section 11(b)(iii), inclusive,
then, the Conversion Amount shall be adjusted in such manner and at such time as
the Board of Directors of the Corporation (other than Purchaser Designees or
directors elected pursuant to Section 3(b)) in good faith determines to be
equitable in the circumstances (such determination to be evidenced in a
resolution, a certified copy of which shall be mailed to the holders of the
Series G Preferred Stock).
(v) The Corporation may make such reductions in the Conversion
Amount, in addition to those required by subparagraphs (i), (ii), (iii) or (iv)
of this Section 11(b), as the Board of Directors considers to be advisable in
order to avoid or to diminish any income tax to holders of Common Stock or
rights to purchase Common Stock resulting from any dividend or distribution of
stock (or rights to acquire stock) or from any event treated as such for income
tax purposes.
(vi) Notwithstanding anything contained in this Section 11(b),
no adjustment to the Conversion Amount shall be made with respect to any rights
issued pursuant to a shareholder rights plan, "poison pill" or similar
arrangement unless the "triggering date" (i.e. the date on which such rights
----
commence to be exercisable) shall have
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occurred or such rights shall have been redeemed, in which event adjustments
under clause (ii) and clause (iii), respectively, shall be made.
(c) If the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution, and shall thereafter and before the distribution to stockholders
thereof legally abandon its plan to pay or deliver such dividend or
distribution, then thereafter no adjustment in the Conversion Amount then in
effect shall be required by reason of the taking of such record.
(d) Upon any increase or decrease in the Conversion Amount, then, and
in each such case, the Corporation promptly shall deliver to each registered
holder of Series G Preferred Stock at least 10 Business Days prior to effecting
any of the foregoing transactions a certificate, signed by the President or a
Vice President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary of the Corporation, setting forth in reasonable detail
the event requiring the adjustment and the method by which such adjustment was
calculated and specifying the increased or decreased Conversion Amount then in
effect following such adjustment.
Article 4 Definitions.
-----------
For the purposes of this Certificate of Amendment of Certificate of
Incorporation, the following terms shall have the meanings indicated:
"Affiliate" shall have the meaning ascribed to such term in Rule 12b-2
of the General Rules and Regulations under the Exchange Act.
"Business Day" shall mean any day other than a Saturday, Sunday or
other day on which commercial banks in the City of New York are authorized or
required by law or executive order to close.
"Closing Price" on any day shall mean the closing sale price of the
Common Stock regular way on such day or, in case no such sale takes place on
such day, the average of the reported closing bid and asked prices of the Common
Stock regular way, in each case on the New York Stock Exchange or, if the Common
Stock is not listed or admitted to trading on such exchange, on the principal
national
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securities exchange on which it is then traded or, if the Common Stock is not
listed or admitted to trading on such an exchange, on Nasdaq.
"Current Market Price" per share shall mean, on any date specified
herein for the determination thereof, (a) the average daily Market Price of the
Common Stock for those days during the period of 30 days, ending on such date,
on which the national securities exchanges were open for trading, and (b) if the
Common Stock is not then listed or admitted to trading on any national
securities exchange or quoted in the over-counter market, the Market Price on
such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Securities and Exchange Commission
thereunder.
"Fair Market Value" shall mean the amount that a willing buyer would
pay a willing seller in an arm's-length transaction.
"Issue Date" shall mean , 199417/.
------------ --
"Junior Stock" shall mean any capital stock of the Corporation ranking
junior (either as to dividends or upon liquidation, dissolution or winding up)
(a) for the purposes of Article 1, to the Series E Preferred Stock, (b) for the
purposes of Article 2, to the Series F Preferred Stock or (c) for the purposes
of Article 3, to the Series G Preferred Stock.
"Liquidation Preference" with respect to a share of Series E Preferred
Stock, a share of Series F Preferred Stock or a share of Series G Preferred
Stock shall mean $100.
"Market Price" shall mean, per share of Common Stock, on any date
specified herein: (a) the closing price per share of the Common Stock on such
date published in The Wall Street Journal or, if no such closing price on such
date is published in The Wall Street Journal, the average of the closing bid and
asked prices on such date, as officially reported on the principal national
securities exchange on
- --------------------
17/ Assumes closing on or prior to December 31, 1994; otherwise date will be
- --
appropriately adjusted.
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which the Common Stock is then listed or admitted to trading; or (b) if the
Common Stock is not then listed or admitted to trading on any national
securities exchange but is designated as a national market system security by
the NASD, the last trading price of the Common Stock on such date; or (c) if
there shall have been no trading on such date or if the Common Stock is not so
designated, the average of the reported closing bid and asked prices of the
Common Stock, on such date as shown by Nasdaq and reported by any member firm of
the New York Stock Exchange selected by the Corporation; or (d) if none of (a),
(b) or (c) is applicable, a market price per share determined at the
Corporation's expense by an appraiser chosen by the holders of a majority of the
shares of Series E Preferred Stock or, if such calculations shall also be
utilized in connection with the Series F Preferred Stock or Series G Preferred
Stock, the holders of a majority of the aggregate shares of Series E Preferred
Stock and, as applicable, Series F Preferred Stock and Series G Preferred Stock
or, if no such appraiser is so chosen more than twenty Business Days after
notice of the necessity of such calculation shall have been delivered by the
Corporation to the holders of Series E Preferred Stock or, if such calculation
shall also be utilized in connection with the Series F Preferred Stock or
Series G Preferred Stock, the holders of Series E Preferred Stock and, as
applicable, Series F Preferred Stock and Series G Preferred Stock, then by an
appraiser chosen by the Corporation.
"Material Provision of the Securities Purchase Agreement" shall mean
any of the provisions contained in any of Sections 6.6, 6.13, 6.14, 6.16, 6.17
or 6.18 of the Securities Purchase Agreement.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Nasdaq" shall mean the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotations System.
"New Preferred Stock" means nonconvertible, non-exchangeable shares of
Preferred Stock to be issued by the Corporation within 210 days of the Issue
Date that have an aggregate liquidation preference not exceeding $100,000,000.
"New Senior Notes" means senior notes to be issued by the Corporation
within 210 days of the Issue Date that
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have an aggregate principal amount not exceeding $100,000,000.
"Parity Stock" shall mean with respect to the Series E Preferred
Stock, Series F Preferred Stock or Series G Preferred Stock, as the case may be,
any capital stock of the Corporation, including the Series E Preferred Stock (in
the case of the Series F Preferred Stock or Series G Preferred Stock), the
Series F Preferred Stock (in the case of the Series E Preferred Stock and
Series G Preferred Stock), and Series G Preferred Stock (in the case of the
Series E Preferred Stock and Series F Preferred Stock), the Other Preferred
Stock and the New Preferred Stock (if any), ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the Series G
Preferred Stock or the Series E Preferred Stock, as the case may be.
"Permitted Dividend" shall mean (A) a dividend on the Common Stock
payable solely in shares of Junior Stock or (B) a dividend on the Common Stock
payable solely in cash that has been declared by the Board of Directors
subsequent to the third anniversary of the Issue Date; provided, however, that
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if at the time of the declaration of such dividend the (i) Series E Preferred
Stock, Series F Preferred Stock, Series G Preferred Stock or Parity Stock is not
rated at least BBB- by Standard & Poor's and at least Baa-3 by Moody's Investor
Services or (ii) the Corporation has received written notice from either such
rating agency that (x) the rating issued thereby with respect to any such
capital stock is likely to be downgraded by such rating agency or (y) such
rating agency has placed the Corporation on credit watch with negative
implications of a downgrade of the rating issued with respect to any such
capital stock by Standard & Poor's to below BBB- or by Moody's Investor Services
to below Baa-3 (the time during which such minimum ratings are not in effect or
such time after the Corporation has received such written notice until such time
as the Corporation has received written notice from such rating agency that it
no longer intends to downgrade such rating or that the Corporation has been
removed from such credit watch shall be referred to as the "Dividend Maximum
Period"), then the aggregate per share amount of cash dividends on the Common
Stock that may thereafter be declared or paid in such fiscal year and each
fiscal year thereafter during the Dividend Maximum Period (including cash
dividends declared or paid prior to the commencement of the Dividend Maximum
Period) shall not exceed an amount equal to 25% of the
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<PAGE>
average of consolidated net operating income of the Corporation and its
Subsidiaries (excluding capital gains or loss either realized or unrealized) per
share of Common Stock (as determined in accordance with generally accepted
accounting principles) for the two immediately preceding fiscal years (the
"Dividend Maximum Amount") provided further, that (x) if in any fiscal year in
-------- -------
which there is a Dividend Maximum Period cash dividends in excess of the
Dividend Maximum Amount (the "Excess Amount") shall have been paid prior to the
commencement of the Dividend Maximum Period, such dividends shall nevertheless
be considered Permitted Dividends so long as (I) no other cash dividends shall
have been declared or paid during the portion of such fiscal year that was a
Dividend Maximum Period and (II) in the next succeeding fiscal year, if a
Dividend Maximum Period exists the aggregate per share amount of cash dividends
on the Common Stock shall not exceed the excess of the Dividend Maximum Amount
for such year over the Excess Amount.
----
"Person" shall mean any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, government (or an agency or political subdivision thereof) or other
entity of any kind, and shall include any successor (by merger or otherwise) of
such entity.
"Preferred Stock" shall mean preferred stock, par value $4.00 per
share, of the Corporation.
"Purchaser Designee" shall have the meaning specified in the
Securities Purchase Agreement.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement, dated as of the Issue Date, between the Corporation and [the original
holders of the Series E and Series F Preferred Stock and the option to purchase
the shares of Series G Preferred Stock], as the same may be amended from time to
time.
"Restricted Payment" shall mean any dividend payment (other than a
Permitted Dividend) or other distribution of assets, properties, cash, rights,
obligations or securities by the Corporation on account of any shares of Common
Stock or any other class of Junior Stock or the purchase, redemption or other
acquisition for value by the Corporation or any Subsidiary of the Corporation of
any shares of Common Stock or any other class of Junior Stock or
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<PAGE>
any warrants, rights or options to acquire such shares, now or hereafter
outstanding.
"Securities Purchase Agreement" shall mean the Securities Purchase
Agreement, dated as of October __, 1994, between the Corporation and TCC-PS
Limited Partnership as the same may be amended from time to time.
"Senior Stock" shall mean any capital stock of the Corporation
ranking senior (either as to dividends or upon liquidation, dissolution or
winding up) (a) for the purposes of Article 1, to the Series E Preferred Stock,
(b) for the purposes of Article 2, to the Series F Preferred Stock and (c) for
the purposes of Article 3, to the Series G Preferred Stock.
"Specified Corporate Action" shall mean such time as: (i) the
Corporation shall consent or agree to the acquisition of, or the commencement of
a tender offer for, or the Board of Directors of the Corporation shall make a
statement that the Board of Directors recommends, or is neutral with respect to,
a tender offer for, "beneficial ownership" (as defined in Rule 13d-3 under the
Exchange Act) by any "Person" or "group" (within the meaning of Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) other than TCC-PS Limited Partnership and its Affiliates, of securities
of the Corporation entitled to vote generally in the election of directors, or
securities convertible into, exchangeable for or exercisable into such
securities (collectively, "Designated Securities"), representing, when added to
the Designated Securities already owned by any such Person or group, thirty
percent (30%) or more of such Designated Securities; (ii) the Board of Directors
of the Corporation shall take any action under Section 912 of the Business
Corporation Law of the State of New York to exempt from the provisions of
Section 912 of the Business Corporation Law of the State of New York any
transaction between the Corporation and any of its Subsidiaries, on the one
hand, and any Person or group (other than TCC-PS Limited Partnership and its
Affiliates or any transferee thereof), or any Affiliates of any such Person or
group, on the other hand, who (A) acquire, own or hold beneficial ownership of
Designated Securities representing thirty percent (30%) or more of such
Designated Securities or (B) acquire, own or hold beneficial ownership of
Designated Securities representing ten percent (10%) or more of such Designated
Securities unless such other Person or group, or any Affiliate of such Person or
94
<PAGE>
group, enters into a standstill agreement with the Corporation limiting the
acquisition of Designated Securities by such other Person or group, or any
Affiliates of such Person or group, to less than thirty percent (30%) of the
Designated Securities and such standstill agreement remains in full force and
effect; (iii) any Person or group (other than TCC-PS Limited Partnership and its
Affiliates or any transferee thereof) shall acquire, or shall have the then
contractual right to acquire through conversion, exercise of warrants or
otherwise, more than thirty percent (30%) of the Designated Securities; (iv) the
Corporation shall agree to merge or consolidate with or into any Person, (other
than TCC-PS Limited Partnership and its Affiliates or any transferee thereof) or
shall agree to sell all or substantially all its assets to any such Person other
than (a) a merger or consolidation of one Subsidiary of the Corporation into
another or the Corporation, or (b) a merger or consolidation immediately
subsequent to which all or substantially all the holders of the outstanding
shares of capital stock immediately prior to such consolidation or merger are
entitled to receive shares representing 50% or more of the then outstanding
shares of capital stock of the resulting or surviving corporation entitled to
vote generally in the election of directors; or (v) a majority of the Board of
Directors of the Corporation shall consist of Persons other than Continuing
Directors. The term "Continuing Director" shall mean any member of the Board of
Directors on the Issue Date and any directors elected pursuant to
Sections 3.1.18 and 6.17 of the Securities Purchase Agreement and any other
member of the Board of Directors who shall be recommended or elected to succeed
a Continuing Director by a majority of Continuing Directors who are then members
of the Board of Directors.
"Subsidiary" of any Person shall mean any corporation or other entity
of which a majority of the voting power of the voting equity securities or
equity interest is owned, directly or indirectly, by such Person.
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<PAGE>
Article 5 Preemptive Rights.
-----------------
None of the holders of Series E Preferred Stock, the holders of
Series F Preferred Stock or the holders of Series G Preferred Stock shall be
entitled to any preemptive or subscription rights in respect of any securities
of the Corporation.
IN WITNESS WHEREOF, we have signed this certificate on this ____ day
of _______, 1994.
--------------------------------------------------
Name:
Title: President
--------------------------------------------------
Name:
Title: Secretary
i
<PAGE>
EXHIBIT B
THIS OPTION AND SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, OR (ii) AN APPLICABLE
EXEMPTION FROM REGISTRATION THEREUNDER. ANY SALE PURSUANT TO CLAUSE
(ii) OF THE PRECEDING SENTENCE MUST BE ACCOMPANIED BY AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE ISSUER OF THIS OPTION TO THE
EFFECT THAT SUCH SALE IS NOT IN VIOLATION OF THE ACT.
STOCK OPTION
------------
1. Grant of Option. Pursuant to the Securities Purchase
---------------
Agreement, dated as of October ___, 1994 (the "Securities Purchase
Agreement"), between The Continental Corporation, a New York corporation (the
"Corporation"), and TCC-PS Limited Partnership, a Delaware limited
partnership (the "Optionee"), the Corporation hereby grants to the Optionee,
for the period beginning on [the Closing Date] and ending at midnight (New
York Time) on [seventh anniversary of the Closing Date] (the "Expiration
Date"), the exclusive and irrevocable right and option (this "Option") to
purchase from the Corporation for cash in an amount equal to
<PAGE>
$125,000,000.00 (the "Exercise Price") a total of 1,250,000 shares (the
"Shares") of Cumulative Preferred Stock, Series G (the "Series G Preferred
Stock"), par value $4.00 per share, of the Corporation, as such Series G
Preferred Stock is designated in the Certificate of Incorporation of the
Corporation. Accordingly, the exercise price per Share shall be $100.00 (the
"Exercise Price Per Share").
2. Defined Terms. Capitalized terms used but not defined herein
-------------
shall have the meanings specified in the Securities Purchase Agreement.
3. Exercise of Option. This Option may be exercised in whole or
------------------
in part by the Optionee from time to time between [the Closing Date] and the
Expiration Date. Upon any partial exercise of this Option, the remainder of
this Option shall remain in effect and may be exercised at any time or times
thereafter until the Expiration Date. If the Optionee wishes to exercise
this Option, the Optionee shall send a written notice to the Corporation
specifying its intention to exercise this Option and setting forth a date
(not less than 5 business days and not more than 10 business days from the
date of such notice), time and place for the closing of such purchase. The
place specified in
2
<PAGE>
3
such notice shall be the offices of the Corporation unless otherwise agreed
to by the Optionee and the Corporation. The date on which the notice is sent
to the Corporation by a means provided for in Section 8.3 hereof shall be
deemed to be the exercise date with respect to such purchase and is referred
to herein as the "Exercise Date." The Option may be exercised only with
respect to full shares of Series G Preferred Stock. No fractional shares of
Series G Preferred Stock shall be issued.
4. Payment and Delivery of Certificates.
------------------------------------
4.1 Delivery of Funds and the Acknowledgement. Upon any
-----------------------------------------
exercise of all or any part of this Option, the Optionee shall on the
Exercise Date (i) deliver to the Corporation an Election to Exercise in the
form of Exhibit A hereto and (ii) make payment to the Corporation of the
aggregate Exercise Price Per Share for the Shares being purchased by delivery
of a certified or bank check or by wire transfer of immediately available
funds to a bank designated by the Corporation.
4.2 Delivery of the Shares. Upon payment (or deemed payment
----------------------
in accordance with Section 4.1) of the Exercise Price Per Share for the
Shares being purchased, the
3
<PAGE>
Corporation shall deliver to the Optionee certificates representing the
number of Shares being purchased by the Optionee from the Corporation,
registered in the name of the Optionee. The issuance of any Shares upon the
exercise of this Option and the delivery of certificates representing such
Shares shall be made without charge to the Holder for any tax or other charge
in respect of such issuance.
4.3 Put Option. At any time that the Optionee would be
----------
entitled to cause the redemption of any Shares pursuant to Article 3, Section
6 of the Certificate of Amendment if it were the holder of such Shares, in
lieu of exercising all or any part of this Option, the Optionee may, at any
time (except with respect to a Holder's Election Redemption only after the
[first anniversary of the Closing Date]) instead require the Corporation to
repurchase this Option (or any portion thereof) for cash at a price equal to
the Value (as hereinafter defined for purposes of this Section 4.3) of this
Option. For purposes of this Section 4.3, the Value of this Option (or such
portion) shall equal the product of (i) the number of Shares for which this
Option (or such portion) is exercisable, multiplied by (ii) the excess, if
any, of (A) the applicable redemption price
4
<PAGE>
per Share at such time pursuant to Article 3, Section 6 of the Certificate of
Amendment (which will be, in each case hereunder, the sum of (x) 100% of the
Liquidation Preference of such share and (y) the Additional Amount), over (B)
the Exercise Price Per Share. Notwithstanding the foregoing, if the
applicable redemption price is the Holder's Election Redemption Price and the
redemption of any portion of this Option would (i) cause any two of
Standard's & Poor's ("S&P"), Moody's Investor Services ("Moody's") and A.M.
Best & Co. ("A.M. Best") to downgrade the rating of (a) the Corporation's
securities, in the case of S&P or Moody's or (b) the pooled rating of the
Subsidiaries of the Corporation engaged in the insurance business, in the
case of A.M. Best or (ii) in the reasonable judgment of the Board of
Directors of the Corporation have a material adverse effect on the financial
condition of the Corporation, then the Corporation may elect to deliver with
respect to such portion of this Option in lieu of cash senior nonconvertible
notes of the Corporation ("Notes") (x) having a final maturity date no later
than December 31, 2006, and (y) having such other terms and conditions as
shall result in a determination that such Notes have a fair market value as
of the date of their
5
<PAGE>
proposed issuance at least equal to the sum of (1) the Value of this Option
(or such portion) and (2) customary underwriting discounts and commissions
payable with respect to the sale of securities of a type comparable to the
Notes; provided, however, that if the issuance of senior nonconvertible notes
-------- -------
would cause the event described in clause (i) above or in the reasonable
judgment of the Board of Directors of the Corporation have a material adverse
effect on the financial condition of the Corporation, then the Corporation
may elect to issue, in lieu of senior nonconvertible notes, subordinated
nonconvertible notes (in which case the term "Notes" shall mean such
subordinated nonconvertible notes) or shares of nonconvertible preferred
stock ("Redemption Preferred Stock"), in each case having the terms and
conditions described in clauses (x) and (y) above. The Corporation shall use
its best efforts to cause the Notes or the Redemption Preferred Stock to be
registered for immediate resale pursuant to an effective registration under
the Act prior to the issuance thereof. If such registration statement is not
effective within 60 days of the date of such issuance then the annual
interest rate of the Notes or the annual dividend rate of the Redemption
6
<PAGE>
Preferred Stock, as applicable, shall be increased by 0.5% per annum until
such securities are sold pursuant to an effective registration statement
under the Act. For purposes of this Section 4.3 "fair market value" shall
mean the fair market value of the Notes or Redemption Preferred Stock, as the
case may be, as determined by an investment banking firm of national standing
selected by the Corporation and reasonably acceptable to the Optionees
electing to effect such Holder's Election Redemption. In the case that the
Corporation shall be entitled to deliver either subordinated nonconvertible
notes or Redemption Preferred Stock, it shall be the election of the
Corporation whether to deliver such Notes or Redemption Preferred Stock,
except that, if the sale of the security to be delivered by the Corporation
pursuant to the terms hereof would give rise to an additional liability on
the part of the Optionee and it shall so notify the Corporation in writing,
the Corporation shall deliver the type of security specified in such notice.
5. Transfer.
--------
5.1 Restrictions on Transferability. The Optionee will not
-------------------------------
effect any sale, assignment, transfer,
7
<PAGE>
disposition by gift or distribution in liquidation or otherwise ("Transfer")
(including any Transfer upon foreclosure of a pledge or other security
interest), pledge, mortgage, hypothecation or grant of a security interest of
or in this Option or any of the Shares or any Subordinated Notes issued upon
exchange for the Shares (the "Exchange Notes") that under applicable law
requires prior regulatory approval until such regulatory approval has been
obtained. The Optionee will not Transfer, pledge, mortgage, hypothecate or
grant a security interest in this Option, any of the Shares or Exchange Notes
(unless, with respect to such Shares or Exchange Notes, such Shares or
Exchange Notes were previously issued pursuant to an effective registration
statement under the Securities Act of 1933, as amended (the "Act")) except
pursuant to (A) an effective registration statement under the Act or (B) an
applicable exemption from registration under the Act. In connection with any
Transfer by the Optionee pursuant to clause (B) of the immediately preceding
sentence, the Optionee shall furnish to the Corporation an opinion of counsel
reasonably satisfactory to the Corporation to the effect that the proposed
transfer or conveyance would not be in violation of the Act. The
8
<PAGE>
Optionee may not, during the period (the "Restricted Period") ending upon the
earliest to occur of (i) the first anniversary of the date hereof, (ii) a
Change of Control, (iii) a breach by the Corporation of any of its
obligations under any of Sections 6.6, 6.13, 6.14, 6.16, 6.17 or 6.18 of the
Securities Purchase Agreement or any of its material obligations under the
Registration Rights Agreement, and (iv) the date on which the full amount of
dividends payable on the Series E Preferred Stock, Series F Preferred Stock
or the Series G Preferred Stock for any two quarterly dividend periods shall
not have been paid, the Optionee will not Transfer any portion of the Option,
the Shares or the Exchange Notes except (1) to an Affiliate of the Purchaser
or a partner of Insurance Partners, L.P. or Insurance Partners Offshore
(Bermuda), L.P., in each case who agrees to be bound by the restrictions of
this Section 5.1 (and, in the case of a transferee who is an Initial
Purchaser, agrees to be bound by the restrictions of Section 6.4 of the
Securities Purchase Agreement), (2) to a person or entity who agrees to be
bound by the restrictions of this Section 5.1 and Section 6.4 of the
Securities Purchase Agreement, the Transfer to whom has been approved in
advance
9
<PAGE>
by the Board of Directors of the Corporation, (3) to a person or entity who
after such Transfer will beneficially own (to the knowledge of the Optionee,
based solely on the representation and warranty of such person or entity, and
knowledge available from a review of publicly available filings made by such
person or entity with respect to the beneficial ownership of Common Stock
under Section 13 of the Exchange Act) less than 5% of the Common Stock on a
fully diluted basis, or (4) pursuant to a tender offer (a) commenced by the
Corporation or (b) commenced by any other person or entity with respect to
which the Board of Directors of the Corporation shall send to shareholders a
statement that the Board of Directors (x) recommends approval of such tender
offer, or (y) is neutral with respect to such tender offer. Other than as
set forth in the first sentence of this Section 5.1, nothing contained in
this Section 5.1 shall restrict or prohibit the Purchaser from pledging,
mortgaging, hypothecating or granting a security interest in, or granting
participation rights in, the Option, the Shares or the Exchange Notes;
provided, however, that if a pledgee, mortgagee or holder of such security
-------- -------
interest forecloses on the Option, the Shares or
10
<PAGE>
the Exchange Notes during the Restricted Period, it may do so only if such
pledgee, mortgagee or holder of such security interest agrees to be bound by
the restrictions of this Section 5.1 and Section 6.4 of the Securities
Purchase Agreement.
5.2 Restrictive Legend. Until such time as (i) a
------------------
registration statement with respect to the sale of this Option shall have
become effective under the Act and the Option shall have been disposed of in
accordance with such registration statement, (ii) this Option shall have been
sold as permitted by Rule 144 under the Act and the purchaser thereof does
not receive "restricted securities" as defined in Rule 144 or (iii) this
Option shall have been otherwise transferred, a new Option not bearing a
legend restricting further transfer shall have been delivered by the
Corporation and subsequent public distribution of this Option shall not in
the opinion of counsel to the Optionee require registration under the Act,
this Option shall be subject to a stop-transfer order and shall bear the
legend set forth hereon. So long as the Shares or Exchange Notes are
Registrable Securities, the Shares or Exchange Notes shall be subject to a
stop-transfer order and shall bear the
11
<PAGE>
following legend by which each holder thereof shall be bound:
"[THE SHARES REPRESENTED BY THIS CERTIFICATE AND ANY SHARES OR
OTHER SECURITIES ISSUABLE UPON EXCHANGE HEREOF] [THIS NOTE] MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933 OR (ii) AN APPLICABLE
EXEMPTION FROM REGISTRATION THEREOF. ANY SALE PURSUANT TO CLAUSE (ii)
OF THE PRECEDING SENTENCE MUST BE ACCOMPANIED BY AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE ISSUER OF THESE SECURITIES TO THE EFFECT
SUCH SALE IS NOT IN VIOLATION OF THE ACT."
5.3 Removal of Legends. After termination of the requirement
------------------
that all or part of such legend be placed upon this Option, a certificate
representing the Shares or an Exchange Note, the Corporation shall, upon
receipt by the Corporation of evidence reasonably satisfactory to it that
such requirement has terminated and upon the written request of the holder of
this Option, such Shares or such Exchange Note, issue a new Option,
certificate for such Shares or Exchange Note that does not bear such legend.
5.4 Transfer of Option. Subject to Section 5.1, this Option
-------------------
shall be transferable, in whole or in part, upon delivery thereof to the
Corporation accompanied by an Assignment substantially in the form of
Exhibit B hereto duly endorsed by the Optionee. Upon any
12
<PAGE>
registration of transfer, the Corporation shall deliver a new Option to the
person entitled thereto. This Option may be exchanged, at the option of the
Optionee, for another Option, or other Options of different denominations, of
like tenor and representing in the aggregate the right to purchase a like
number of Shares upon surrender to the Corporation.
6. Reservation of Shares. The Corporation shall retain and
----------------------
reserve a sufficient number of shares of Series G Preferred Stock in order to
meet its obligation hereunder. The Corporation agrees not to issue, sell,
assign, pledge, hypothecate, transfer or otherwise dispose of any shares of
Series G Preferred Stock except in accordance with this Option.
7. Amendment of Certificate of Amendment. Prior to the issuance
-------------------------------------
of any Shares upon exercise of this Option, without the prior written consent
of the Optionee, the Corporation will not (i) alter or repeal the Certificate
of Incorporation so as to affect the holders of Series G Preferred Stock
adversely or (ii) authorize, adopt or approve an amendment to the Certificate
of Incorporation that would increase or decrease the par value of the
13
<PAGE>
Series G Preferred Stock, or alter or change the powers, preference or
special rights of the Series G Preferred Stock. Notwithstanding the
foregoing, nothing in this Section 7 shall prohibit the Corporation from
effecting a recapitalization, reorganization, consolidation or merger of, or
sale by, the Corporation if (A)(a) such recapitalization, reorganization,
consolidation, merger or sale constitutes a Specified Corporate Action,
(b) the Corporation has sufficient funds legally available to it (after
giving effect to such transaction) to redeem, at the then applicable price
under Section 4.3 pursuant to the terms hereof, the Option, (c) such
redemption shall not be prohibited by any agreement to which the Corporation
or any of its Subsidiaries is a party, by applicable law or otherwise,
(d) the Board of Directors of the Corporation, including a majority of the
directors who are not officers or employees of the Corporation, shall have
adopted a resolution confirming that such funds are available and that the
Optionee (pursuant to Section 4.3) has the right to require such redemption
and (e) the Corporation shall have set aside sufficient funds to meet the
applicable redemption payments through the Specified Corporate Action
Redemption
14
<PAGE>
Date (except that no funds need be set aside with respect to any portion of
the Option if the Optionee has notified the Corporation that it will not
require redemption of such portion under Section 4.3) or (B) (1) the
Corporation shall be the resulting or surviving corporation, (2) the
resulting or surviving corporation will have after such recapitalization,
reorganization, consolidation or merger no Senior Stock or Parity Stock (each
as defined in the Certificate of Amendment) either authorized or outstanding
(except such Parity Stock of the Corporation as may have been authorized or
outstanding immediately preceding such consolidation or merger) or such stock
of the resulting or surviving corporation (having the same powers,
preferences and special rights of any such Parity Stock) as may be issued in
exchange therefor), (3) the Optionee will receive in exchange for this Option
an option to purchase the same number of shares of stock, with the same
preferences, rights and powers, of the resulting or surviving corporation,
(4) after such recapitalization, reorganization, consolidation or merger the
resulting or surviving corporation shall not be in breach of any of the terms
hereof, any of the Material Provisions of the Securities Purchase Agreement
(as defined
15
<PAGE>
in the Certificate of Amendment) or any of its material obligations under the
Registration Rights Agreement and (5) all or substantially all the holders of
the outstanding shares of capital stock of the Corporation immediately prior
to such consolidation or merger are entitled to receive shares representing
50% or more of the then outstanding shares of capital stock of the resulting
or surviving corporation entitled to vote generally in the election of
directors.
8. Miscellaneous.
-------------
8.1 Binding Effect and Assignment. This Option and all of
-----------------------------
the provisions hereof shall be binding upon and inure to the benefit of the
Optionee and the Corporation and their respective successors and assigns.
8.2 Amendments and Modifications. This Option may not be
----------------------------
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the parties hereto.
8.3 Notices. All notices or other communications given or
-------
made hereunder shall be validly given or made if in writing and delivered by
facsimile transmission or in person at, mailed by registered or
16
<PAGE>
certified mail, return receipt requested, postage prepaid, or sent by a
reputable overnight courier to, the following addresses (and shall be deemed
effective at the time of receipt thereof).
If to the Corporation:
The Continental Corporation
180 Maiden Lane
New York, New York 10038
Telecopy: (212) 440-3857
Attention: Chief Executive Officer
with copies to:
The Continental Corporation
180 Maiden Lane
New York, New York 10038
Telecopy: (212) 440-3857
Attention: General Counsel
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Telecopy: (212) 909-6836
Attention: Edward A. Perell, Esq.
If to the Optionee:
TCC-PS Limited Partnership
c/o Insurance Partners Advisors, L.P.
One Chase Manhattan Plaza
44th Floor
New York, New York 10005
Telecopy: (212) 898-8720
Attention: Daniel L. Doctoroff
17
<PAGE>
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Marilyn Sobel, Esq.
or to such other address as the person or entity to whom notice is to be
given may have previously furnished notice in writing to the other in the
manner set forth above.
8.4 Lost Options. Upon receipt of evidence satisfactory to
-------------
the Corporation of the loss, theft, destruction or mutilation of this Option
and upon reimbursement of the Corporation's reasonable incidental expenses,
the Corporation shall execute and deliver to the Optionee a new Option of
like date, tenor and denomination.
8.5 No Rights of a Shareholder. The Optionee shall not have,
--------------------------
solely on account of such status, any rights of a shareholder of the
Corporation, either at law or in equity, or to any notice of meetings of
shareholders or of any other proceedings of the Corporation. No adjustment
shall be made for dividends or other rights for which the record date is
prior to the issuance of a certificate or certificates for Shares upon each
exercise of this Option.
18
<PAGE>
8.6 Entire Agreement. This Option, together with the
----------------
Securities Purchase Agreement and the Certificate of Amendment, contains the
entire understanding of the Optionee and the Corporation in respect of the
subject matter hereof, and supersedes all prior negotiations and
understandings between the parties with respect to such subject matter.
Subsequent to exercise of this Option into Shares, all rights and preferences
of such Shares shall be as specified in the Certificate of Amendment.
8.7 Governing Law. The validity, construction, enforcement
-------------
and interpretation of this Option shall be governed by the laws of the State
of New York applicable to agreements made and to be performed entirely within
such State.
8.8 Captions. The captions, headings and arrangements used
--------
in this Option are for convenience only and do not in any way affect, limit,
amplify or modify the terms and provisions hereof.
19
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
duly executed on the ___ day of _____________, 1994.
THE CONTINENTAL CORPORATION
By:____________________________
Name:
Title:
Attest:
___________________________
Name:
Title:
20
<PAGE>
Exhibit A
---------
FORM OF ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to purchase
______ shares of Cumulative Preferred Stock, Series G ("Series G Preferred
Stock"), par value $4.00 per share, of The Continental Corporation covered by
the within Option and tenders payment herewith in the amount of $_____ in
accordance with the terms thereof, and requests that certificates for such
securities be issued in the name of, and delivered to:
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of shares of Series G Preferred Stock shall not be all
the shares of Series G Preferred Stock covered by the within Option, that a
new Option for the balance of the shares of Series G Preferred Stock covered
by the within Option be registered in the name of, and delivered to, the
undersigned at the address stated below.
Dated: ___________________
Signature:__________________________
Witness: __________________
21
<PAGE>
EXHIBIT B
---------
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, ___________________ hereby sells, assigns, and
transfers unto ______________________ an Option to purchase __________ shares
of Cumulative Preferred Stock, Series G, par value $4.00 per share, of The
Continental Corporation, together with all right, title and interest therein,
and does hereby irrevocable constitute and appoint _____________ attorney to
transfer such Option on the books of the Corporation, with full power of
substitution.
Dated: ___________________
Signature ________________________
Witness: ____________________
<PAGE>
EXHIBIT C
=============================================================================
=
REGISTRATION RIGHTS AGREEMENT
between
THE CONTINENTAL CORPORATION
and
The Original Holders of
the Series E Preferred Stock,
the Series F Preferred Stock and the Option
_______________________________________
Dated: _______________
_______________________________________
=============================================================================
=
<PAGE>
TABLE OF CONTENTS
Page
----
1. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Registration Under Securities Act, etc. . . . . . . . . . . . . . . 1
2.1 Shelf Registration . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Incidental Registration . . . . . . . . . . . . . . . . . . . . 3
2.3 Registration Procedures . . . . . . . . . . . . . . . . . . . . 4
2.4 Underwritten Offerings . . . . . . . . . . . . . . . . . . . . 8
2.5 Preparation; Reasonable Investigation . . . . . . . . . . . . . 10
2.6 Limitations, Conditions and Qualifications
to Obligations under Registration Covenants . . . . . . . . . . 11
2.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 12
3. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4. Rule 144 and Rule 144A . . . . . . . . . . . . . . . . . . . . . . . 19
5. Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . 19
6. Nominees for Beneficial Owners . . . . . . . . . . . . . . . . . . . 19
7. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9. Calculation of Percentage Interests in Registrable Securities . . . 21
10. No Inconsistent Agreements . . . . . . . . . . . . . . . . . . . . . 21
11. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
12. Certain Distributions . . . . . . . . . . . . . . . . . . . . . . . 21
13. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
14. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 22
15. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
16. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
17. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
i
<PAGE>
REGISTRATION RIGHTS AGREEMENT, dated ____________, between THE
CONTINENTAL CORPORATION, a New York corporation (the "Company"), and the
original holders of the Series E Preferred Stock, the Series F Preferred
Stock and the Option (each as defined in Section 1) set forth on the
signature pages hereof (the "Purchaser").
1. Background. Pursuant to a Securities Purchase Agreement,
----------
dated as of October __, 1994, between the Company and the Purchaser (the
"Purchase Agreement"), the Purchaser has agreed to purchase from the Company,
and the Company has agreed to issue to the Purchaser, (i) ____ shares of the
Company's Cumulative Convertible Preferred Stock, Series E (the "Series E
Preferred Stock") and (ii) ______ shares of the Company's Cumulative
Preferred Stock, Series F (the "Series F Preferred Stock"), each of a par
value of $4.00 per share. Pursuant to an Option (the "Option") dated as of
the date hereof, the Company has granted to the Purchaser an option (the
"Option") to purchase up to 1,250,000 shares of Cumulative Preferred Stock,
Series G (the "Series G Preferred Stock" and, together with the Series E
Preferred Stock and the Series F Preferred Stock, the "Preferred Stock"), par
value $4.00 per share. The Series E Preferred Stock may be converted at the
election of the holders thereof into shares of the Company's Common Stock,
par value $1.00 per share. The Series E Preferred Stock may be exchanged for
Convertible Subordinated Notes ("Convertible Subordinated Notes") and the
Series F Preferred Stock and the Series G Preferred Stock may be exchanged
for Subordinated Notes ("Subordinated Notes"), in each case upon the election
of the Company with the consent of all the holders of the applicable series
of Preferred Stock. Capitalized terms used herein but not otherwise defined
shall have the meanings given them in Section 3.
2. Registration Under Securities Act, etc.
---------------------------------------
2.1 Shelf Registration.
------------------
(a) Filing and Effectiveness of Shelf Registration. If
----------------------------------------------
the Original Purchaser or the holders of
<PAGE>
50% of the Registrable Securities shall so request, on or before [eleven
months after Closing Date], the Company shall file a "shelf" registration
statement with respect to the Registrable Securities (as defined below) and
pursuant to Rule 415 under the Securities Act (the "Shelf Registration");
provided, however, that if the Company has at the time of such request filed
-------- -------
the Shelf Registration pursuant to the penultimate sentence of this Section
2.1(a), the Company may instead amend such Shelf Registration to register
such Registrable Securities. The Shelf Registration shall be on Form S-3 (or
any successor form) if the Company is then eligible to use Form S-3 (or such
successor form). The Company shall use its best efforts to have the Shelf
Registration declared effective as soon as reasonably practicable after such
filing, and shall use its best efforts to keep the Shelf Registration
continuously effective, subject to Section 2.6(a), from the date such Shelf
Registration is declared effective until such time as all of the Registrable
Securities shall cease to be Registrable Securities. Notwithstanding the
foregoing, upon the request of any holder of Registrable Securities that has
acquired such Registrable Securities upon foreclosure upon a security
interest granted in such Registrable Securities by the Original Purchaser,
the Company shall promptly file the Shelf Registration with respect to such
Registrable Securities, whether or not such request shall be made prior to
[eleven months after Closing Date], and use its best efforts to have the
Shelf Registration declared effective as soon as reasonably practicable after
such filing; provided, however, that if such Registrable Securities are not
-------- -------
shares of Common Stock, such Shelf Registration shall only be required to
cover the shares of Common Stock (if any) issuable upon conversion of such
Registrable Securities. The filing of the Shelf Registration in accordance
with the immediately preceding sentence shall not relieve the Company of any
of its other obligations under this Section 2.1(a).
(b) Supplements and Amendments; Expenses. The Company
------------------------------------
shall supplement or amend, if necessary, the Shelf Registration, as required
by the registration form utilized by the Company or by the instructions
applicable to such registration form or by the Securities Act or as
reasonably required by the Original Purchaser or the holder or holders of (or
any underwriter for) a majority of the Registrable Securities and the Company
shall furnish to the holders of the Registrable Securities to which the Shelf
Registration relates copies of any such supplement or amendment prior to its
being used
2
<PAGE>
and/or filed with the Commission. The Company shall pay all Registration
Expenses in connection with the Shelf Registration, whether or not it becomes
effective, and whether all, none or some of the Registrable Securities are
sold pursuant to the Shelf Registration. In no event shall the Shelf
Registration include securities other than Registrable Securities, unless the
Initial Purchaser consents to such inclusion.
(c) Underwriting Procedures. If the Original Purchaser
-----------------------
so elects or, in the event the Original Purchaser does not hold 50% of the
Registrable Securities, if the holders of a majority of the Registrable
Securities so elect, the offering of all or a portion of such Registrable
Securities pursuant to the Shelf Registration shall be in the form of an
underwritten offering and the managing underwriter or underwriters selected
for such offering shall be selected by the Original Purchaser or such
holders, as the case may be, and reasonably acceptable to the Company. The
Original Purchaser or such holders shall provide the Company with notice of
the identity of the managing underwriter or underwriters it or they have
selected a reasonable time prior to the commencement of any such underwritten
offering.
2.2 Incidental Registration.
-----------------------
(a) Right to Include Registrable Securities. If at any
---------------------------------------
time subsequent to the [first anniversary of Closing Date] the Company at any
time proposes to register any of its Common Stock under the Securities Act by
registration on any form other than Form S-4 or S-8, whether or not for sale
for its own account, it will each such time give prompt written notice to all
registered holders of Registrable Securities of its intention to do so and of
such holders' rights under this Section 2.2. Upon the written request of any
such holder (a "Requesting Holder") made as promptly as practicable and in
any event within 20 days after the receipt of any such notice (10 days if the
Company states in such written notice or gives telephonic or telecopied
notice to all registered holders of Registrable Securities, with written
confirmation to follow promptly thereafter, stating that (i) such
registration will be on Form S-3 and (ii) such shorter period of time is
required because of a planned filing date) (which request shall specify the
Registrable Securities intended to be disposed of by such Requesting Holder
and the intended method of disposition), the Company will use its reasonable
best efforts
3
<PAGE>
to effect the registration under the Securities Act of all Registrable
Securities that the Company has been so requested to register by the
Requesting Holders thereof to the extent required to permit the disposition
of such Registrable Securities in accordance with the intended methods
thereof described as aforesaid; provided, however, that prior to the
-------- -------
effective date of the registration statement filed in connection with such
registration, immediately upon notification to the Company from the managing
underwriter of the price at which such securities are to be sold, if such
price is below the price which any Requesting Holder shall have indicated to
be acceptable to such Requesting Holder, the Company shall so advise such
Requesting Holder of such price, and such Requesting Holder shall then have
the right to withdraw its request to have its Registrable Securities included
in such registration statement; provided further, that if, at any time after
-------- -------
giving written notice of its intention to register any securities and prior
to the effective date of the registration statement filed in connection with
such registration, the Company shall determine for any reason not to register
or to delay registration of such securities, the Company may, at its
election, give written notice of such determination to each Requesting Holder
of Registrable Securities and (i) in the case of a determination not to
register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from any obligation
of the Company to pay the Registration Expenses in connection therewith),
without prejudice, however, to the rights of any holder or holders of
Registrable Securities under Section 2.1, and (ii) in the case of a
determination to delay registering, shall be permitted to delay registering
any Registrable Securities, for the same period as the delay in registering
such other securities. No registration effected under this Section 2.2 shall
relieve the Company of its obligations under Section 2.1. Notwithstanding
the foregoing, if the Shelf Registration is effective at the time the Company
proposes to effect a registration subject to this Section 2.2(a), the Company
shall have no obligation to notify the holders of Registrable Securities or
effect the registration of any such securities under this Section 2.2(a)
unless the securities to be registered by the Company are to be disposed of
in an underwritten offering.
(b) Priority in Incidental Registrations. If the
------------------------------------
managing underwriter of any underwritten offering shall inform the Company by
letter that, in its opinion, the number or type of Registrable Securities
4
<PAGE>
requested to be included in such registration would adversely affect such
offering, and the Company has so advised the Requesting Holders in writing,
then the Company will include in such registration, to the extent of the
number and type that the Company is so advised can be sold in (or during the
time of) such offering, first, all securities proposed by the Company to be
-----
sold for its own account, second, such Registrable Securities requested to be
------
included in such registration pursuant to this Agreement, pro rata among such
Requesting Holders on the basis of the estimated proceeds from the sale
thereof and, third, all other securities proposed to be registered.
-----
(c) Expenses. The Company will pay all Registration
--------
Expenses in connection with any registration effected pursuant to this
Section 2.2.
2.3 Registration Procedures. If and when-ever the Company is
-----------------------
required to effect the registration of any Registrable Securities under the
Securities Act as provided in Sections 2.1 and 2.2, the Company will, as
expeditiously as possible:
(i) prepare and file with the Commission the requisite
registration statement to effect such registration and thereafter use
its best efforts to cause such registration statement to become
effective; provided, however, that the Company may discontinue any
-------- -------
registration of its securities that are not Registrable Securities (and,
under the circumstances specified in Section 2.2(a), its securities that
are Registrable Securities) at any time prior to the effective date of
the registration statement relating thereto;
(ii) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used
in connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the disposition of all Registrable Securities
covered by such registration statement until such time as all of such
Registrable Securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof set
forth in such registration statement; provided, however, that in the
-------- -------
case of a registration statement filed pursuant to Sec-
5
<PAGE>
tion 2.2(a), not later than 135 days after the effective date thereof;
(iii) furnish to each selling holder of Registrable
Securities covered by such registration statement, such number of
conformed copies of such registration statement and of each such
amendment and supplement thereto (in each case including all exhibits,
appropriately redacted in the case of those exhibits filed on a
confidential basis), and so long as the Company is required to keep such
registration statement effective pursuant to subdivision (ii) such
number of copies of the prospectus contained in such registration
statement (including each preliminary prospectus and any summary
prospectus) and any other prospectus filed under Rule 424 under the
Securities Act, in conformity with the requirements of the Securities
Act, and such other documents, as such selling holder may reasonably
request;
(iv) use its best efforts (x) to register or qualify all
Registrable Securities and other securities covered by such registration
statement under such other securities or blue sky laws of such States of
the United States of America where an exemption is not available and as
the selling holder of Registrable Securities covered by such
registration statement shall reasonably request, (y) to keep such
registration or qualification in effect for so long as such registration
statement remains in effect and (z) to take any other action that may be
necessary or advisable to enable such selling holders to consummate the
disposition in such jurisdictions of the securities to be sold by such
selling holders, except that the Company shall not for any such purpose
be required to (a) qualify generally to do business as a foreign
corporation in any jurisdiction wherein it would not, but for the
requirements of this subdivision (iv), be obligated to be so qualified,
(b) become subject to taxation in any jurisdiction where it would not
then so subject or (c) take any action that would subject it to general
service of process in any such jurisdiction;
(v) use its reasonable best efforts to cause all
Registrable Securities covered by such registration statement to be
registered with or approved by such other federal or state governmental
agencies or authorities as may be necessary in the opinion of
6
<PAGE>
counsel to the Company and counsel to the selling holder or selling
holders of Registrable Securities to enable the seller or sellers
thereof to consummate the disposition of such Registrable Securities;
(vi) furnish at the effective date of such registration
statement and the date of closing of the sale of the Registrable
Securities (whether or not such sale is underwritten), to each selling
holder of Registrable Securities, and each such selling holder's
underwriters, if any, a signed counterpart of:
(x) an opinion of counsel for the Company, dated
the effective date of such registration statement (or such date of
sale, as applicable), and
(y) a "comfort" letter signed by the independent
public accountants who have certified the Company's financial
statements included or incorporated by reference in such
registration statement,
covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the
case of the accountants' comfort letter, with respect to events
subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' comfort
letters delivered to the underwriters in underwritten public offerings
of securities;
(vii) notify each selling holder of Registrable Securities
covered by such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Securities Act,
upon discovery that, or upon the happening of any event known to the
Company as a result of which, the prospectus included in such registra-
tion statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, in
the light of the circumstances under which they were made, and, subject
to Section 2.6(a), promptly prepare and, at the request of any such
selling holder, furnish to it a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so
7
<PAGE>
that, as thereafter delivered to the purchasers of such securities, such
prospectus shall not include an untrue statement of a material fact or
omit 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 under which they were made;
(viii) otherwise use its reasonable best efforts to comply
with all applicable rules and regulations of the Commission, and, if
required, make available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at least
twelve months, but not more than eighteen months, beginning with the
first full calendar month after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 promulgated thereunder,
and promptly furnish to each such selling holder of Registrable
Securities a copy of any amendment or supplement to such registration
statement or prospectus;
(ix) provide and cause to be maintained a transfer agent
and registrar (which, in each case, may be the Company) for all
Registrable Securities covered by such registration statement from and
after a date not later than the effective date of such registration; and
(x) use its best efforts to list all Registrable
Securities covered by such registration statement on The New York Stock
Exchange.
The Company may require each selling holder of Registrable Securities as to
which any registration is being effected to furnish the Company such
information regarding such selling holder and the distribution of such
securities as the Company may from time to time reasonably request in
writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of
the happening of any event of the kind described in subdivision (vii) of this
Section 2.3, such holder will forthwith discontinue such holder's disposition
of Registrable Securities pursuant to the registration statement relating to
such Registrable Securities until such holder's receipt of the copies of the
8
<PAGE>
supplemented or amended prospectus contemplated by subdivision (vii) of this
Section 2.3 and, if so directed by the Company, will deliver to the Company
(at the Company's expense) all copies, other than permanent file copies, then
in such holder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
2.4 Underwritten Offerings.
----------------------
(a) Requested Underwritten Offerings. If requested by
--------------------------------
the underwriters for any underwritten offering by holders of Registrable
Securities pursuant to the Shelf Registration Statement, the Company will use
all reasonable efforts to enter into an underwriting agreement with such
underwriters for such offering, such agreement to be reasonably satisfactory
in substance and form to the Company, the Original Holder (or, if the
Original Holder does not hold 50% of the Registrable Securities to be
included in such underwritten offering, the holders of a majority of the
Registrable Securities to be included in such underwritten offering) and the
underwriters and to contain such representations and warranties by the
Company and such other terms as are customary in agreements of that type,
including, without limitation, indemnities to the effect and to the extent
provided in Section 2.7. The holders of the Registrable Securities proposed
to be sold by such underwriters will reasonably cooperate with the Company in
the negotiation of the underwriting agreement. Such holders of Registrable
Securities to be sold by such underwriters shall be parties to such
underwriting agreement and may, at their option, require that any or all of
the representations and warranties by, and the other agreements on the part
of, the Company to and for the benefit of such underwriters shall also be
made to and for the benefit of such holders of Registrable Securities and
that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to the
obligations of such holders of Registrable Securities. No holder of
Registrable Securities shall be required to make any representations or
warranties to or agreements with the Company other than representations,
warranties or agreements regarding such holder, such holder's Registrable
Securities and such holder's intended method of distribution or any other
representations required by applicable law.
9
<PAGE>
(b) Incidental Underwritten Offerings. If the Company
---------------------------------
proposes to register any of its securities under the Securities Act as
contemplated by Section 2.2 and such securities are to be distributed by or
through one or more underwriters, the Company will, if requested by any
Requesting Holder of Registrable Securities in the notice given to the
Company by such Requesting Holder under Section 2.2(a), use its reasonable
best efforts to arrange for such underwriters to include all the Registrable
Securities to be offered and sold by such Requesting Holder among the
securities of the Company to be distributed by such underwriters, subject to
the provisions of Section 2.2(b). The holders of Registrable Securities to
be distributed by such underwriters shall be parties to the underwriting
agreement between the Company and such underwriters and may, at their option,
require that any or all of the representations and warranties by, and the
other agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such holders of
Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be
conditions precedent to the obligations of such holders of Registrable
Securities. Any such Requesting Holder of Registrable Securities shall not
be required to make any representations or warranties to or agreements with
the Company or the underwriters other than representations, warranties or
agreements regarding such Requesting Holder, such Requesting Holder's
Registrable Securities and such Requesting Holder's intended method of
distribution or any other representations required by applicable law. The
holders of Registrable Securities, if requested by the managing underwriter
or underwriters of such underwritten offering, shall not, except as part of
such underwritten offering, effect any public sale or distribution of
Registrable Securities of the same class as any securities included in such
underwritten offering (including a sale pursuant to Rule 144) during the
10-day period prior to, and during the 90-day period beginning on, the
closing date of such underwritten offering, to the extent timely notified in
writing by the Company or the managing underwriter or underwriters. No
holder of Registrable Securities may participate in any such underwritten
offering unless such holder (i) agrees to sell such holder's Registrable
Securities on the basis provided in the underwriting agreement and
(ii) completes and executes all questionnaires, powers of attorney, and other
documents reasonably required under the terms of the underwriting agreement.
10
<PAGE>
(c) Underwriting Discounts and Commissions. The holders
--------------------------------------
of Registrable Securities sold in any offering pursuant to Section 2.4(a) or
Section 2.4(b) shall pay all underwriting discounts and commissions of the
underwriter or underwriters with respect to the Registrable Securities sold
thereby.
2.5 Preparation; Reasonable Investigation. In connection with
-------------------------------------
the preparation and filing of each registration statement under the
Securities Act pursuant to this Agreement, the Company will give the holders
of Registrable Securities registered under such registration statement, their
underwriters, if any, and their respective counsel the opportunity to
participate in the preparation of such registration statement, each
prospectus included therein or filed with the Commission, and each amendment
thereof or supplement thereto, and will give each of them such reasonable
access to its books and records and such opportunities to discuss the
business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be
necessary, in the opinion of such holders' and such underwriters' respective
counsel, to conduct a reasonable investigation within the meaning of the
Securities Act; provided, however, that each such holder, underwriter or
-------- -------
counsel shall receive such information only if such holder, underwriter or
counsel and their respective agents and representatives shall have expressly
agreed that any information that is designated in writing by the Company, in
good faith, as confidential at the time of delivery of such information,
shall be kept confidential by such holder, underwriters, counsel, agent or
representative and not be used for any purpose other than in connection with
the review by such holder, underwriter, counsel, agent or representative of
the registration statement except to the extent (i) disclosure of such
information is required by court or administrative order or applicable law,
(ii) disclosure of such information, in the opinion of counsel to such
holder, underwriter, counsel, agent or representative is necessary to avoid
or correct a misstatement or omission of a material fact in the registration
statement, prospectus or any supplement or post-effective amendment thereto,
(iii) disclosure of such information is in the opinion of counsel for any
such holder, underwriter, counsel, agent or representative necessary or
advisable in connection with any action, claim, suit or proceeding, directly
or indirectly, involving or potentially involving such holder, underwriter,
counsel, agent or representative and arising out of, or based upon, relating
to or involving this Agreement or any
11
<PAGE>
of the transactions contemplated hereunder or (iv) such information becomes
generally available to the public other than as a result of a disclosure or
failure to safeguard by such holder, underwriter, counsel, agent or
representative. Each selling holder of such Registrable Securities further
agrees that it will, upon learning that disclosure of any such information is
sought pursuant to a court or administrative order, give prompt notice
thereof to the Company and allow the Company, at the Company's expense, to
undertake appropriate action to prevent disclosure of the information deemed
confidential. The Company shall promptly notify the holders of Registrable
Securities and their counsel of any stop order issued or threatened by the
Commission and take all reasonable actions required to prevent the entry of
such stop order or to remove it if entered.
2.6 Limitations, Conditions and Qualifications to Obligations
---------------------------------------------------------
under Registration Covenants.
----------------------------
(a) Limitation on Requirement to File or Amend
------------------------------------------
Registration Statement. Anything in this Agreement to the contrary
----------------------
notwithstanding, it is understood and agreed that the Company shall not be
required to file a Registration Statement, amendment or post-effective amend-
ment thereto or prospectus supplement or to supplement or amend any
Registration Statement if the Company is then involved in discussions
concerning, or otherwise engaged in, an acquisition, disposition, financing
or other material transaction and the Company determines in good faith that
the making of such a filing, supplement or amendment at such time would
materially adversely effect or interfere with such transaction so long as the
Company shall, as soon as practicable thereafter (but in no event more than
90 days thereafter) make such filing, supplement or amendment. The Company
shall promptly give the holders of Registrable Securities written notice of
such postponement, containing a general statement of the reasons for such
postponement and an approximation of the anticipated delay, provided,
--------
however, that nothing herein shall require the Company to disclose any terms
-------
of any such transaction or the identity of any party thereto. Upon receipt
by a holder of notice of an event of the kind described in this Section
2.6(a), such holder shall forthwith discontinue such holder's disposition of
Registrable Securities until such holder's receipt of notice from the Company
that such disposition may continue and of any supplemented or amended
prospectus indicated in such notice.
12
<PAGE>
(b) Provision of Information by Holder. Each selling
----------------------------------
holder of Registrable Securities as to which any registration is being
effected agrees, as a condition to the registration obligations with respect
to such selling holder provided herein, to furnish promptly to the Company
such information regarding the selling holder and the distribution of such
Registrable Securities as the Company may, from time to time, reasonably
request in writing to comply with the Securities Act and other applicable
law. The Company may exclude from such registration the Registrable
Securities of any selling holder who unreasonably fails to furnish such
information within a reasonable time after receiving such request. If the
identity of a selling holder of Registrable Securities is to be disclosed in
a registration statement, such selling holder shall be permitted to include
all information regarding such selling holder as it shall reasonably request.
(c) Discontinuation of Offering. Each holder of
---------------------------
Registrable Securities agrees that, upon receipt of written notice from the
Company of (i) the issuance by the Commission of a stop order suspending the
effectiveness of a registration statement or of any order preventing or
suspending the use of any preliminary prospectus or the initiation of any
proceedings for that purpose or (ii) the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of a registration statement or any Registrable Securities
covered thereby for offer or sale in any jurisdiction or the initiation of
any proceeding for such purpose, such holder shall forthwith discontinue the
disposition of such Registrable Securities covered by such registration
statement or prospectus (but in the case of clause (ii), solely in the
applicable jurisdiction) until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by the Company, or until it
is advised in writing by the Company that the use of the applicable
prospectus may be resumed, and has received copies of any amendments or
supplements thereto, and, if so directed by the Company, such holder will
deliver to the Company all copies, other than permanent file copies, then in
such holder's possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice.
13
<PAGE>
2.7 Indemnification.
---------------
(a) Indemnification by the Company. The Company will,
------------------------------
and hereby does, indemnify and hold harmless, in the case of any registration
statement filed pursuant to Section 2.1 or 2.2, each holder of any Regis-
trable Securities covered by such registration statement, and each other
Person who participates as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls such holder or any
such underwriter within the meaning of Section 15 of the Securities Act, and
their respective directors, officers, partners, agents and affiliates,
against any losses, claims, damages or liabilities, joint or several, to
which such holder or underwriter or any such director, officer, partner,
agent, affiliate or controlling person may become subject under the
Securities Act or otherwise, including, without limitation, the fees and
expenses of legal counsel, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any
material fact contained in any registration statement filed by the Company
under which such securities were registered under the Securities Act, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein in light of the circumstances in
which they were made not misleading, and the Company will reimburse such
holder or underwriter and each such director, officer, partner, employee,
agent, affiliate and controlling Person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding; provided, however, that
-------- -------
the Company shall not be liable in any such case to the extent that any such
loss, claim, damage, liability (or action or proceeding in respect thereof)
or expense arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in such registration
statement, preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such holder,
underwriter, director, officer, partner, employee, agent, affiliate or
controlling Person, as the case may be, expressly for use in the preparation
thereof; provided further, that the Company shall not be liable in any such
-------- -------
14
<PAGE>
case to the extent that any such loss, claim, damage, liability or expense
arises out of or is based upon an untrue statement or alleged untrue
statement of any material fact contained in any such registration statement,
preliminary prospectus, final prospectus or summary prospectus contained
therein or any omission to state therein a material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances in which they were made not misleading in a prospectus or pros-
pectus supplement, if (i) such untrue statement or omission is completely
corrected in an amendment or supplement to such prospectus or prospectus
supplement, the seller of the Registrable Securities has an obligation under
the Securities Act to deliver a prospectus or prospectus supplement in
connection with such sale of Registrable Securities and the seller of
Registrable Securities thereafter fails to deliver such prospectus or
prospectus supplement as so amended or supplemented prior to or concurrently
with the sale of Registrable Securities to the person asserting such loss,
claim, damage or liability after the Company has furnished such seller with a
sufficient number of copies of the same or (ii) if the seller received
written notice from the Company of the existence of such an untrue statement
or such an omission and the seller continued to dispose of Registrable
Securities prior to the time of the receipt of either (a) an amended or
supplemented prospectus or prospectus supplement that completely corrected
the untrue statement or the omission or (b) a notice from the Company that
the use of the existing prospectus or prospectus supplement may be resumed.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such seller or any such director,
officer, partner, employee, agent, affiliate or controlling person and shall
survive the transfer of such securities by such seller.
(b) Indemnification by the Sellers. As a condition to
------------------------------
including any Registrable Securities in any registration statement, the
Company shall have received an undertaking satisfactory to it from the
prospective seller of such Registrable Securities, to indemnify and hold
harmless (in the same manner and to the same extent as set forth in Section
2.7(a)) the Company, and each director of the Company, each officer of the
Company and each other Person, if any, who participates as an underwriter in
the offering or sale of such securities and each other Person who controls
the Company or any such underwriter within the meaning of the Securities Act,
with respect to any statement
15
<PAGE>
or alleged statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement thereto,
if such statement or alleged statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company by such seller expressly for use in the preparation of such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement; provided, however, that (A) the
-------- -------
indemnifying party shall not be liable in any such case to the extent that
any such statement or omission is completely corrected (x) in the final
prospectus, in the case of a preliminary prospectus, or (y) in an amendment
or supplement to a prospectus or prospectus supplement (provided, however,
-------- -------
that nothing in this clause (y) shall limit the indemnifying party's liabi-
lity with respect to sales made prior to the receipt by the Company from the
indemnifying party of written notice of such an untrue statement or such an
omission) and (B) the liability of such indemnifying party under this Section
2.7(b) shall be limited to the amount of proceeds received by such indem-
nifying party in the offering giving rise to such liability. Such indemnity
shall remain in full force and effect, regardless of any investigation made
by or on behalf of the Company or any such director, officer or controlling
person and shall survive the transfer of such securities by such holder.
(c) Notices of Claims, etc. Promptly after receipt by
-----------------------
an indemnified party of notice of the commencement of any action or
proceeding involving a claim referred to in Section 2.7(a) or (b), such
indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the commencement
of such action; provided, however, that the failure of any indemnified party
-------- -------
to give notice as provided herein shall not relieve the indemnifying party of
its obligations under the preceding subdivisions of this Section 2.7, except
to the extent that the indemnifying party is materially prejudiced by such
failure to give notice. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it may wish, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party; provided,
--------
however, that (i) if the indemnified party reasonably believes that it is
-------
advisable for it to be represented by
16
<PAGE>
separate counsel because there exists or may exist a conflict of interest
between its interests and those of the indemnifying party with respect to
such claim, or there exist defenses available to such indemnified party that
may not be available to the indemnifying party, or (ii) if the indemnifying
party shall fail to assume responsibility for such defense, the indemnified
party may retain counsel satisfactory to it and, in the case of clause (i),
reasonably satisfactory to the indemnifying party, and the indemnifying party
shall pay all fees and expenses of such counsel; provided further, that the
-------- -------
indemnifying party shall not be deemed to have failed to assume
responsibility for such defense if the indemnifying party has not received
notice of such claim pursuant to this Section 2.7(c). In the event an
indemnifying party elects not to assume, or shall not be entitled to assume
because of a conflict of interest between its interests and those of the
indemnified party, the defense of a claim, such indemnifying party shall not
be obligated to pay the fees and expenses of more than one counsel or firm of
counsel in any jurisdiction in any one legal action or group of related legal
actions for all parties indemnified by such indemnifying party in respect of
such claim, unless in the reasonable judgment of any such indemnified party a
conflict of interest may exist between such indemnified party and any other
of such indemnified parties in respect of such claim. No indemnifying party
shall be liable for any settlement of any action or proceeding effected
without its written consent, which consent shall not be unreasonably withheld
or delayed. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation or that requires action
other than the payment of money by the indemnifying party.
(d) Contribution. If the indemnification provided for
------------
in this Section 2.7 shall for any reason be held by a court to be unavailable
to an indemnified party under Section 2.7(a) or (b) hereof in respect of any
loss, claim, damage or liability, or any action in respect thereof, then, in
lieu of the amount paid or payable under Section 2.7(a) or (b), the
indemnified party and the indemnifying party under Section 2.7(a) or (b)
shall contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in
17
<PAGE>
connection with investigating the same), (i) in such proportion as is
appropriate to reflect the relative fault of the Company and the prospective
sellers of Registrable Securities covered by the registration statement that
resulted in such loss, claim, damage or liability, or action or proceeding in
respect thereof, with respect to the statements or omissions which resulted
in such loss, claim, damage or liability, or action or proceeding in respect
thereof, as well as any other relevant equitable considerations or (ii) if
the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as shall be appropriate to reflect the relative
benefits received by the Company and such prospective sellers from the
offering of the securities covered by such registration statement; provided,
--------
however, that for purposes of this clause (ii), the relative benefits
-------
received by the prospective sellers shall be deemed not to exceed the amount
of proceeds received by such prospective sellers. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. Such prospective sellers'
obligations to contribute as provided in this Section 2.7(d) are several in
proportion to the relative value of their respective Registrable Securities
covered by such registration statement and not joint. In addition, no Person
shall be obligated to contribute hereunder any amounts in payment for any
settlement of any action or claim effected without such Person's consent,
which consent shall not be unreasonably withheld.
(e) Other Indemnification. Indemnification and
---------------------
contribution similar to that specified in the preceding subdivisions of this
Section 2.7 (with appropriate modifications) shall be given by the Company
and each holder of Registrable Securities with respect to any required regis-
tration or other qualification of securities under any federal or state law
or regulation of any governmental authority other than the Securities Act.
(f) Indemnification Payments. The indemnification and
------------------------
contribution required by this Section 2.7 shall be made by periodic payments
of the amount thereof during the course of the investigation or defense, as
and when bills are received or expense, loss, damage or liability is
incurred.
18
<PAGE>
3. Definitions. As used herein, unless the context otherwise
-----------
requires, the following terms have the following respective meanings:
"Commission" means the Securities and Exchange Commission or any
----------
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean and include the Common Stock, par value
------------
$1.00 per share, of the Company and each other class of capital stock of the
Company that does not have a preference over any other class of capital stock
of the Company as to dividends or upon liquidation, dissolution or winding up
of the Company and, in each case, shall include any other class of capital
stock of the Company into which such stock is reclassified or reconstituted.
"Conversion Shares" means the shares of Common Stock issued or
-----------------
issuable upon conversion of the Series E Preferred Stock or the Convertible
Subordinated Notes pursuant to the terms of the Certificate of Amendment (as
defined in the Purchase Agreement).
"Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
Reference to a particular section of the Securities Exchange Act of 1934, as
amended, shall include a reference to the comparable section, if any, of any
such similar Federal statute.
"Exchange Notes" means, collectively, the Convertible Subordinated
--------------
Notes and the Subordinated Notes.
"Original Purchaser" means the initial purchaser or purchasers of
------------------
the Series E Preferred Stock, the Series F Preferred Stock and the Option.
"Person" means any individual, firm, corporation, partnership,
------
trust, incorporated or unincorporated association, joint venture, joint stock
company, government (or an agency or political subdivision thereof) or other
entity of any kind.
"Registrable Securities" means (i) any Conversion Shares and any
----------------------
Related Registrable Securities (ii) any Exchange Notes and any Related
Registrable Securities and (iii) any shares of the Preferred Stock and any
Related
19
<PAGE>
Registrable Securities. As to any particular Registrable Securities, once
issued, such securities shall cease to be Registrable Securities when (a) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (b) they shall
have been sold as permitted by Rule 144 and the purchaser thereof does not
receive "restricted securities" as defined in Rule 144, (c) they shall have
been otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent public distribution of them shall not in the opinion of counsel to
the holders, require registration of them under the Securities Act or (d)
they shall have ceased to be outstanding. All references to percentages of
Registrable Securities shall be calculated pursuant to Section 9.
"Registration Expenses" means all expenses incident to the
---------------------
Company's performance of or compliance with Section 2, including, without
limitation, all registration and filing fees, all fees of the New York Stock
Exchange, Inc., other applicable national securities exchanges or the
National Association of Securities Dealers, Inc., all fees and expenses of
complying with securities or blue sky laws, all word processing, duplicating
and printing expenses, messenger and delivery expenses, the fees and
disbursements of counsel for the Company and of its independent public
accountants, including the expenses of "comfort" letters required by or
incident to such performance and compliance, any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities (excluding
any underwriting discounts or commissions with respect to the Registrable
Securities) and the reasonable fees and expenses of one special counsel
retained by the selling holders (selected by selling holders representing a
majority of the Registrable Securities covered by such registration);
provided, however, that in the event the Company shall determine, in
-------- -------
accordance with Section 2.2(a) or Section 2.6, not to register any securities
with respect to which it had given written notice of its intention to so
register to holders of Registrable Securities, all of the costs of the type
set forth in this definition and incurred by Requesting Holders in connection
with such registration on or prior to the date on which the Company notifies
the Requesting Holders of such determination shall be deemed Registration
Expenses.
20
<PAGE>
"Related Registrable Securities" means with respect to Conversion
------------------------------
Shares, Exchange Notes, Preferred Stock or Common Stock, any securities of
the Company issued or issuable with respect to any Conversion Shares,
Exchange Notes, Preferred Stock or Common Stock by way of a dividend or stock
split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise.
"Requesting Holder" is defined in Section 2.2.
-----------------
"Rule 144" means Rule 144 under the Securities Act, as such Rule
--------
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission.
"Securities Act" means the Securities Act of 1933, as amended, or
--------------
any similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. References to a
particular section of the Securities Act of 1933, as amended, shall include a
reference to the comparable section, if any, of any such similar Federal
statute.
4. Rule 144 and Rule 144A. The Company shall take all actions
----------------------
reasonably necessary to enable holders of Registrable Securities to sell such
securities without registration under the Securities Act within the
limitation of the provisions of (a) Rule 144 under the Securities Act, as
such Rule may be amended from time to time, (b) Rule 144A under the
Securities Act, as such Rule may be amended from time to time, or (c) any
similar rules or regulations hereafter adopted by the Commission. Upon the
request of any holder of Registrable Securities, the Company will deliver to
such holder a written statement as to whether it has complied with such
requirements.
5. Amendments and Waivers. This Agreement may be amended with
----------------------
the consent of the Company and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company shall have obtained the written consent to such
amendment, action or omission to act, of the holder or holders of at least
50% of the Registrable Securities affected by such amendment, action or
omission to act. Each holder of any Registrable Securities at the time or
thereafter outstanding shall be bound by any consent authorized
21
<PAGE>
by this Section 5, whether or not such Registrable Securities shall have been
marked to indicate such consent.
6. Nominees for Beneficial Owners. In the event that any
------------------------------
Registrable Securities are held by a nominee for the beneficial owner
thereof, the beneficial owner thereof may, at its election in writing
delivered to the Company, be treated as the holder of such Registrable
Securities for purposes of any request or other action by any holder or
holders of Registrable Securities pursuant to this Agreement or any
determination of any number or percentage of shares of Registrable Securities
held by any holder or holders of Registrable Securities contemplated by this
Agreement. If the beneficial owner of any Registrable Securities so elects,
the Company may require assurances reasonably satisfactory to it of such
owner's beneficial ownership of such Registrable Securities.
7. Notices. All notices, demands and other communications
-------
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested,
telecopier, courier service or personal delivery:
(a) if to the Purchaser, addressed to it in the manner
set forth in the Purchase Agreement, or at such other address as it shall
have furnished to the Company in writing in the manner set forth herein;
(b) if to any other holder of Registrable Securities, at
the address that such holder shall have furnished to the Company in writing
in the manner set forth herein, or, until any such other holder so furnishes
to the Company an address, then to and at the address of the last holder of
such Registrable Securities who has furnished an address to the Company; or
(c) if to the Company, addressed to it in the manner set
forth in the Purchase Agreement, or at such other address as the Company
shall have furnished to each holder of Registrable Securities at the time
outstanding in the manner set forth herein.
All such notices and communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; when delivered
to a courier, if delivered by overnight courier service; two business days
22
<PAGE>
after being deposited in the mail, postage prepaid, if mailed; and when
receipt is acknowledged, if telecopied.
8. Assignment. This Agreement shall be binding upon and inure to
----------
the benefit of and be enforceable by the parties hereto and, with respect to
the Company, its respective successors and permitted assigns and, with
respect to the Purchaser, any holder of any Registrable Securities, subject
to the provisions respecting the minimum numbers of percentages of shares of
Registrable Securities required in order to be entitled to certain rights, or
take certain actions, contained herein. Except by operation of law, this
Agreement may not be assigned by the Company without the prior written
consent of the holders of 50% of the Registrable Securities at the time such
consent is requested.
9. Calculation of Percentage Interests inRegistrable Securities.
------------------------------------------------------------
For purposes of this Agreement, all references to a percentage of the
Registrable Securities shall be calculated as follows: such percentage of
each of the total number of Conversion Shares and shares of Preferred Stock
outstanding at the time such calculation is made and such percentage of the
outstanding principal amount of Exchange Notes outstanding at such time.
10. No Inconsistent Agreements. The Company will not hereafter
--------------------------
enter into any agreement with respect to its securities that is inconsistent
with the rights granted to the holders of Registrable Securities in this
Agreement. Without limiting the generality of the foregoing, the Company
will not hereafter enter into any agreement with respect to its securities
that grants, or modify any existing agreement with respect to its securities
to grant, to the holder of its securities in connection with an incidental
registration of such securities equal or higher priority to the rights
granted to the Purchasers under this Section 2.2(b).
11. Remedies. Each holder of Registrable Securities, in addition
--------
to being entitled to exercise all rights granted by law, including recovery
of damages, will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
23
<PAGE>
12. Certain Distributions. The Company shall not at any time make
---------------------
a distribution on or with respect to the Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the resulting or surviving corporation and such Registrable
Securities are not changed or exchanged) of securities of another issuer if
holders of Registrable Securities are entitled to receive such securities in
such distribution as holders of Registrable Securities and any of the
securities so distributed are registered under the Securities Act, unless the
securities to be distributed to the holders of Registrable Securities are
also registered under the Securities Act.
13. Severability. In the event that any one or more of the
------------
provisions contained herein, or the application thereof in any circumstances,
is held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any
way impaired thereby, it being intended that all of the rights and privileges
of the Purchaser shall be enforceable to the fullest extent permitted by law.
14. Entire Agreement. This Agreement, together with the Purchase
----------------
Agreement (including the exhibits and schedules thereto), the Option and the
Preferred Stock, is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
and therein. This Agreement, the Purchase Agreement (including the exhibits
and schedules thereto) and the Preferred Stock supersede all prior agreements
and understandings between the parties with respect to such subject matter.
15. Headings. The headings in this Agreement are for convenience
--------
of reference only and shall not limit or otherwise affect the meaning hereof.
16. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State.
24
<PAGE>
17. Counterparts. This Agreement may be executed by the parties
------------
hereto in separate counterparts, each of which when so executed shall be
deemed an original and both of which taken together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed and delivered by their respective representatives hereunto
duly authorized as of the date first above written.
THE CONTINENTAL CORPORATION
By:______________________________
Name:
Title:
[Original Purchasers]
_________________________________
_________________________________
_________________________________
<PAGE>
Exhibit D
Opinion of General Counsel
--------------------------
(i) The Company and each of its
Material Subsidiaries (i) has been duly
incorporated and is validly existing as a
corporation in good standing under the laws of the
jurisdiction in which it is chartered or
organized, with full corporate power and authority
to own its properties and conduct its business as
described in the Annual Report, and (ii) is duly
organized as a foreign corporation, licensed and
in good standing under the laws of each
jurisdiction where the conduct of its business or
its ownership, leasing or operation of property
requires such qualification (with such exceptions
as shall not individually or in the aggregate have
a Material Adverse Effect);
(ii) Exhibit 21 of the Annual Report
is a true, accurate and correct statement of all
the information required to be set forth therein
by the regulations of the SEC; all the outstanding
shares of stock of each Material Subsidiary have
been duly and validly authorized and issued and
are fully paid and nonassessable and all
outstanding shares (except for directors'
qualifying shares) of capital stock of the
Material Subsidiaries are owned by the Company
either directly or through wholly-owned
Subsidiaries of the Company free and clear of any
perfected security interest and, to the best of
Mr. Gleason's knowledge, any other Encumbrances
(other than such Encumbrances that may exist under
federal and state securities law or any
Encumbrances between or among the Company and/or
any Subsidiary of the Company), and there are no
rights granted to or in favor of any third party
(whether acting in an individual, fiduciary or
other capacity), other than the Company or any
Subsidiary of the Company, to acquire any such
capital stock, any additional capital stock or any
other securities of any Material Subsidiary,
except where the failure to so own the stock of a
Material Subsidiary would not have a Material
Adverse Effect;
(iii) Neither the Company nor any of
the Material Subsidiaries is in violation of any
term or provision of (A) its Certificate of
Incorporation or By-laws or (B) any judgment,
decree or order applicable to the Company or such
<PAGE>
2
Material Subsidiary, or any applicable statute,
rule or regulation, except with respect to clause
(B) of this paragraph such violations that would
not individually or in the aggregate have a
Material Adverse Effect;
(iv) To Mr. Gleason's actual
knowledge, except as set forth in the SEC
Documents filed with the SEC before the date
hereof, no event of default exists, and no event
has occurred that with notice, lapse of time, or
both, would constitute an event of default or,
upon the consummation by the Company of the
transactions contemplated by the Agreement or any
of the Transaction Documents, will exist in the
due performance and observance of any term,
covenant or condition of any indenture, mortgage,
loan agreement, note or other agreement of
instrument for borrowed money, any guarantee of
any agreement for borrowed money, any guarantee of
any agreement or instrument to which the Company
or any of the Material Subsidiaries is a party or
by which it or any of them is bound or to which
any of the properties, assets or operations of the
Company or any of the Material Subsidiaries is
subject, except such events of default that would
not individually or in the aggregate have a
Material Adverse Effect;
(v) To Mr. Gleason's actual
knowledge, there is no pending or threatened
action or suit or proceeding before any court or
governmental authority or body or any arbitrator
involving the Company or any of its Subsidiaries
that could reasonably be expected to have a
Material Adverse Effect;
(vi) To Mr. Gleason's actual
knowledge, there is no pending or threatened
action, suit or proceeding before any court or
governmental agency or body or any arbitrator to
which the Company or any Subsidiary is or is
threatened to be made a party that questions the
validity of the Agreement or the Transaction
Documents or any action to be taken pursuant
thereto;
(vii) The Company's authorized equity
capitalization is as set forth in Section 4.2 of
the Agreement; the outstanding shares of capital
stock of the Company have been duly authorized,
are validly issued, fully paid and nonassessable
and have been issued in compliance with applicable
<PAGE>
3
federal and state securities law; and the holders
of outstanding shares of stock of the Company are
not entitled pursuant to the Certificate of
Incorporation or the By-laws of the Company or any
agreement to preemptive or similar rights with
respect to the securities of the Company;
(viii) The Company has all requisite
corporate power and authority to execute and
deliver the Agreement and the Transaction
Documents and has taken all requisite action
required by applicable law, the Certificate of
Incorporation, its By-Laws or otherwise required
to be taken by it to authorize the execution,
delivery and performance by it of the Agreement
and the Transaction Documents, to carry out the
provisions and conditions of the Agreement and the
Transaction Documents and the transactions
contemplated in the Agreement and the Transaction
Documents, to issue and sell the Shares, the
Option, the Option Shares and the Conversion
Shares and to otherwise perform its obligations
contemplated in the Agreement and the Transaction
Documents;
(ix) The issuance and sale of the
Shares and the Option and the issuance of the
Option Shares and the Conversion Shares, the
execution, delivery and performance by the Company
of the Agreement and the Transaction Documents and
the consummation of any other transaction
contemplated in the Agreement and the Transaction
Documents will not (A) contravene the Certificate
of Incorporation or the By-laws of the Company or
the organizational documents of any of its
Material Subsidiaries, (B) conflict with, or
result in a breach or violation of any of the
terms and provisions of, or constitute a default
under, or result in the creation or imposition of
any Encumbrance upon any assets or properties of
it or any of its Subsidiaries, of any indenture,
mortgage, loan agreement, note or other agreement
or instrument for borrowed money, any guarantee of
any agreement or instrument for borrowed money or
any lease, permit, license or other agreement or
instrument to which the Company or any of its
Material Subsidiaries is a party or by which it or
any of them is bound or to which any of the
properties, assets or operations of it or any such
Subsidiary is subject or (C) any statute, rule,
regulation, order or decree of any court,
regulatory body, administrative agency,
governmental body or arbitrator having
<PAGE>
4
jurisdiction over the Company or any of its
Material Subsidiaries, except with respect to
clause (B) or (C) of this paragraph such
conflicts, breaches, violations, defaults
creations or impositions that would not,
individually or in the aggregate, have a Material
Adverse Effect;
(x) All consents, approvals, authori-
zations, orders, registrations, and qualifications
of or with any court, government agency or body,
stock exchange on which the securities of the
Company are traded or other third party required
to be obtained or taken by the Company for or in
connection with the delivery of the Shares, the
Option, the Option Shares and the Conversion
Shares and for the consummation of the
transactions contemplated by the Agreement and the
Transaction Documents have been validly and
sufficiently obtained and are in full force and
effect;
(xi) Those provisions of any contract
or agreement that are described in the Annual
Report conform in all material respects to the
description thereof contained in the Annual
Report;
(xii) The Company is not an "investment
Company" within the meaning of the Investment
Company Act of 1940, as amended; and
(xiii) The Company has filed all
documents required to be filed by it with the SEC
under the Exchange Act since January 1, 1993; to
the best of Mr. Gleason's knowledge, all SEC
Documents complied as to form in all material
respects with the applicable requirement of the
Act or the Exchange Act, as applicable.
In rendering such opinion, Mr. Gleason may rely as
to matters of fact, to the extent Mr. Gleason deems proper,
on certificates of responsible officers of the Company and
public officials. For purposes of this opinion, the term
"Material Subsidiary" does not include any Subsidiary of the
Company organized under the laws of any jurisdiction outside
the United States.
<PAGE>
Exhibit E
Opinion of Debevoise & Plimpton
-------------------------------
(i) To the actual knowledge of such
counsel, there is no pending or threatened action,
suit or proceeding before any court, or
governmental agency or body or any arbitrator to
which the Company is or is threatened to be made a
party that questions the validity of the Agreement
or the Transaction Documents or any action to be
taken pursuant thereto;
(ii) The certificates representing the
Shares are in valid and sufficient form; the
holders of outstanding shares of stock of the
Company are not entitled pursuant to the
Certificate of Incorporation or the Company's By-
laws to preemptive or other rights as shareholders
to subscribe for the Series E Preferred Stock, the
Series F Preferred Stock, the Series G Preferred
Stock or the Conversion Shares;
(iii) The Shares, the Option, the
Option Shares and the Certificate of Amendment
have been duly authorized and (a) the Shares, when
issued and delivered in accordance with the terms
of the Agreement and (b) the Option Shares when
issued and delivered in accordance with the terms
of the Option, will be validly issued, fully paid
and nonassessable;
(iv) Upon due execution, issuance and
delivery in accordance with the Agreement and the
Certificate of Amendment, the Shares of Series E
Preferred Stock will be convertible into the
Conversion Shares in accordance with the terms
specified therein; the Conversion Shares issuable
upon such conversion or exchange have been duly
authorized and validly reserved for issuance upon
conversion or exchange and, when so issued upon
conversion or exchange in accordance with the
terms of the Certificate of Amendment, will be
validly issued, fully paid, and nonassessable; the
holders of shares of Series E Preferred Stock,
Series F Preferred Stock, Series G Preferred Stock
or the Conversion Shares will not be subject to
personal liability for obligations of the Company
by reason of being such holders (with respect to
any liability under Section 630 of the Business
Corporation Law of the State of New York, on the
assumption that the Common Stock is then trading
on the New York Stock Exchange); all consents,
approvals, authorizations, orders, registrations
<PAGE>
2
and qualifications of or with any New York any
federal court or governmental agency or body, if
any, or the New York Stock Exchange, Inc. and all
corporate approvals and authorizations required to
be obtained or taken by the Company for or in
connection with the authorization, issuance and
delivery of the Shares, the Option, the Option
Shares and the Conversion Shares and for the
consummation of the transactions contemplated in
the Agreement and the Transaction Documents have
been obtained or taken and are in full force and
effect;
(v) This Agreement and the
Transaction Documents have been duly authorized,
executed and delivered by the Company and,
assuming due authorization, execution and delivery
thereof by the other party thereto, are the valid
and binding obligations of the Company, subject to
applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and subject,
as to enforceability, to general principles of
equity (regardless of whether enforcement is
sought in a proceeding in equity or at law),
except insofar as (A) the indemnification and
contribution provisions contained in the
Registration Rights Agreement and (B) indemnifi-
cation pursuant to the Securities Purchase
Agreement for liabilities under the Act, the
Exchange Act or state securities laws may be
limited by applicable law;
(vi) The Certificate of Amendment has
been filed by the New York Department of State and
has become effective in accordance with the
Business Corporation Law of the State of New York;
(vii) The issuance of the Shares, the
Option, the Option Shares and the Conversion
Shares, the execution, delivery and performance by
the Company of the Agreement and the Transaction
Documents and the consummation of any other of the
transactions contemplated in the Agreement or the
Transaction Documents and the performance, as of
the Closing Date if performed on such date, by the
Company of the obligations under the Certificate
of Amendment will not conflict with, result in a
violation or breach of, or constitute a default
under (A) the Certificate of Incorporation or the
By-laws of the Company or (B) any United States
federal or New York statute, rule or regulation or
stock exchange rule or regulation applicable to
the Company or any of the Material Subsidiaries,
<PAGE>
3
except with respect to clause (B) of this
paragraph, such conflicts, breaches, violations or
defaults that would not have a Material Adverse
Effect;
(viii) The Company is not an "investment
company" within the meaning of the Investment
Company Act of 1940, as amended;
(ix) No approvals by any federal or
state bank regulatory authority are required to be
obtained by the Company or any Subsidiary of the
Company or the Purchaser in order to consummate
the transactions contemplated by the Agreement;
and upon the consummation of the transactions
contemplated by the Agreement neither the
Purchaser nor any of its Affiliates shall, as a
result of the consummation of the transactions
contemplated by the Agreement, be subject to
regulation or oversight of any federal or state
bank regulatory authority (other than restrictions
on any banking or non-banking transactions between
the Purchaser and its Affiliates and the Bank and
restrictions on the Purchaser and its Affiliates
seeking to direct the management or policies of
the Bank); and
(x) In connection with the purchase
of the Shares and the Option and the delivery of
the certificates representing the Shares to be
delivered on such Closing Date by the Company to
the Purchaser pursuant to the Agreement, and
assuming the correctness of all representations
and warranties made by the Purchaser in
Section 5.3 and by the Company in Section 4.24 of
the Agreement, it is not necessary to register the
offer or sale of the Shares or the Option under
the Act or the General Business Law of the State
of New York.
In rendering such opinion, Debevoise & Plimpton
may rely as to matters of fact, to the extent Debevoise &
Plimpton deems proper, on certificates of responsible
officers of the Company and public officials.
Execution Copy
============================================================
ASSET PURCHASE AGREEMENT
by and among
CAM INVESTMENT MANAGEMENT, L.P.,
THE CONTINENTAL CORPORATION
and
CONTINENTAL ASSET MANAGEMENT CORP.
relating to
CONTINENTAL ASSET MANAGEMENT CORP.
____________________________
Dated as of October 13, 1994
____________________________
============================================================
<PAGE>
TABLE OF CONTENTS
Page
----
1. Transfer of Assets and Liabilities . . . . . . . . 2
1.1 Assets to be Sold . . . . . . . . . . . . . 2
1.2 Excluded Assets . . . . . . . . . . . . . . 4
1.3 Liabilities to be Assumed . . . . . . . . . 5
1.4 Excluded Liabilities . . . . . . . . . . . 6
2. Sale and Purchase of Purchased Assets . . . . . . 8
2.1 Purchased Assets to be Sold . . . . . . . . 8
2.2 Assumption of Liabilities . . . . . . . . . 8
2.3 Purchase Price . . . . . . . . . . . . . . 8
2.4 Payment of the Purchase Price . . . . . . . 10
3. Closing; Closing Date . . . . . . . . . . . . . . 10
4. Representations and Warranties of the Seller and
Continental . . . . . . . . . . . . . . . . . . . 11
4.1 Due Incorporation and Qualification . . . . 11
4.2 Title to Assets; Adequacy of Purchased
Assets . . . . . . . . . . . . . . . . . . 12
4.3 Authority to Execute and Perform
Agreements; Enforceability . . . . . . . . 13
4.4 Subsidiaries, Affiliates and Other Persons 13
4.5 Certificates of Incorporation and By-laws . 14
4.6 Financial Statements; Investment
Performance Reports . . . . . . . . . . . . 14
4.7 No Material Adverse Change . . . . . . . . 17
4.8 Tax Matters . . . . . . . . . . . . . . . . 17
4.9 Compliance with Laws . . . . . . . . . . . 19
4.10 No Breach . . . . . . . . . . . . . . . . . 23
4.11 Claims and Proceedings . . . . . . . . . . 25
4.12 Contracts . . . . . . . . . . . . . . . . . 26
4.13 Real Estate . . . . . . . . . . . . . . . . 29
4.14 Accounts Receivable . . . . . . . . . . . . 29
4.15 Tangible Property . . . . . . . . . . . . . 29
4.16 Intellectual Property . . . . . . . . . . . 31
4.17 Liabilities . . . . . . . . . . . . . . . . 32
4.18 Clients . . . . . . . . . . . . . . . . . . 33
4.19 Employee Benefits . . . . . . . . . . . . . 35
4.20 Employee Relations . . . . . . . . . . . . 38
4.21 Insurance . . . . . . . . . . . . . . . . . 38
4.22 Business; Policies and Procedures . . . . . 40
4.23 Officers, Directors and Employees . . . . . 41
4.24 Operations of the Business . . . . . . . . 42
4.25 Potential Conflicts of Interest . . . . . . 46
4.26 Transactions with Continental and its
Affiliates . . . . . . . . . . . . . . . . 47
4.27 Derivatives . . . . . . . . . . . . . . . . 48
4.28 Securities Portfolio . . . . . . . . . . . 48
i
<PAGE>
Page
----
4.29 Banks, Brokers and Proxies . . . . . . . . 48
4.30 Full Disclosure . . . . . . . . . . . . . . 49
5. Representations and Warranties of the Buyer . . . 49
5.1 Due Organization . . . . . . . . . . . . . 49
5.2 Authority to Execute and Perform
Agreements . . . . . . . . . . . . . . . . 50
5.3 Buyer's Business . . . . . . . . . . . . . 51
5.4 Litigation . . . . . . . . . . . . . . . . 52
5.5 Capitalization of the Buyer . . . . . . . . 52
5.6 Financing . . . . . . . . . . . . . . . . . 52
5.7 Qualification as Investment Adviser . . . . 52
6. Covenants and Agreements . . . . . . . . . . . . . 53
6.1 Conduct of Business . . . . . . . . . . . . 53
6.2 Insurance . . . . . . . . . . . . . . . . . 53
6.3 Litigation . . . . . . . . . . . . . . . . 54
6.4 Corporate Examinations and Investigations . 54
6.5 Consent to Jurisdiction and Service of
Process . . . . . . . . . . . . . . . . . . 57
6.6 Expenses . . . . . . . . . . . . . . . . . 58
6.7 Indemnification of Brokerage . . . . . . . 60
6.8 Further Assurance . . . . . . . . . . . . . 61
6.9 Sublease; Services Agreement . . . . . . . 62
6.10 Consents . . . . . . . . . . . . . . . . . 63
6.11 Form ADV . . . . . . . . . . . . . . . . . 66
6.12 Non-Competition Agreement . . . . . . . . . 67
6.13 Option Agreement . . . . . . . . . . . . . 67
6.14 Management of Continental's Investment
Assets . . . . . . . . . . . . . . . . . . 68
6.15 Certain Tax Matters . . . . . . . . . . . . 71
6.16 Employees and Benefit Plans . . . . . . . . 75
6.17 Definitive Capitalization of the Buyer . . 79
6.18 Bulk Sales Compliance . . . . . . . . . . . 80
6.19 Limited Use of Logo . . . . . . . . . . . . 80
6.20 Change and Use of the Seller's Name . . . . 81
6.21 Certified Copies of Organizational
Documents of the Buyer . . . . . . . . . . 81
6.22 Certified Copies of Certain Contracts . . . 82
6.23 Dividends . . . . . . . . . . . . . . . . . 82
6.24 Soft Dollar Contracts . . . . . . . . . . . 82
6.25 September Balance Sheet . . . . . . . . . . 82
6.26 Certain Payments to Continental . . . . . . 83
6.27 Verified Investment Performance Reports . . 83
7. Purchase Price and Other Adjustments . . . . . . . 84
7.1 Reduction of Note A . . . . . . . . . . . . 84
7.2 Adjustments . . . . . . . . . . . . . . . . 85
7.3 Arbitration . . . . . . . . . . . . . . . . 89
ii
<PAGE>
Page
----
8. Conditions Precedent to the Obligation of the
Buyer to Close . . . . . . . . . . . . . . . . . . 91
8.1 Representations and Covenants . . . . . . . 92
8.2 Consents and Approvals . . . . . . . . . . 92
8.3 Opinion of Counsel to Continental and the
Seller . . . . . . . . . . . . . . . . . . 94
8.4 Resignations . . . . . . . . . . . . . . . 94
8.5 Litigation . . . . . . . . . . . . . . . . 94
8.6 Hart-Scott-Rodino . . . . . . . . . . . . . 94
8.7 Financing . . . . . . . . . . . . . . . . . 95
8.8 Related Transactions . . . . . . . . . . . 95
8.9 No Material Adverse Change . . . . . . . . 95
8.10 New Sublease . . . . . . . . . . . . . . . 95
8.11 Services Agreement . . . . . . . . . . . . 96
8.12 Non-Competition Agreement . . . . . . . . . 96
8.13 Bill of Sale and Instrument of Assignment
and Other Conveyance Documents . . . . . . 96
8.14 Registration as Investment Adviser . . . . 96
9. Conditions Precedent to the Obligation of the
Seller to Close . . . . . . . . . . . . . . . . . 96
9.1 Representations and Covenants . . . . . . . 97
9.2 Opinion of Counsel to the Buyer . . . . . . 97
9.3 Litigation . . . . . . . . . . . . . . . . 97
9.4 Hart-Scott-Rodino . . . . . . . . . . . . . 98
9.5 Related Transactions . . . . . . . . . . . 98
9.6 Consents and Approvals . . . . . . . . . . 98
9.7 Instrument of Assumption . . . . . . . . . 98
9.8 Registration as Investment Advisor . . . . 98
10. Survival of Representations and Warranties of the
Seller . . . . . . . . . . . . . . . . . . . . . . 99
11. Indemnification . . . . . . . . . . . . . . . . . 100
11.1 Obligation of Continental and the Seller to
Indemnify . . . . . . . . . . . . . . . . . 100
11.2 Obligation of the Buyer to Indemnify . . . 101
11.3 Notice to Indemnifying Party . . . . . . . 101
11.4 Limitations of Indemnification . . . . . . 104
11.5 Note B . . . . . . . . . . . . . . . . . . 105
12. Termination of Agreement . . . . . . . . . . . . . 106
12.1 Termination . . . . . . . . . . . . . . . . 106
12.2 Survival . . . . . . . . . . . . . . . . . 106
13. Miscellaneous . . . . . . . . . . . . . . . . . . 107
13.1 Certain Definitions . . . . . . . . . . . . 107
13.2 Glossary . . . . . . . . . . . . . . . . . 110
13.3 Publicity . . . . . . . . . . . . . . . . . 114
13.4 Notices . . . . . . . . . . . . . . . . . . 114
13.5 Entire Agreement . . . . . . . . . . . . . 115
iii
<PAGE>
Page
----
13.6 Waivers and Amendments; Non-Contractual
Remedies; Preservation of Remedies . . . . 116
13.7 Governing Law . . . . . . . . . . . . . . . 117
13.8 Binding Effect; No Assignment . . . . . . . 117
13.9 Variations in Pronouns . . . . . . . . . . 117
13.10 Counterparts . . . . . . . . . . . . . . . 117
13.11 Exhibits . . . . . . . . . . . . . . . . . 118
13.12 Headings . . . . . . . . . . . . . . . . . 118
13.13 Interpretation . . . . . . . . . . . . . . 118
13.14 Severability of Provisions . . . . . . . . 118
13.15 No Third Party Beneficiaries . . . . . . . 119
iv
<PAGE>
Exhibits
A: Form of Bill of Sale and Instrument
of Assignment
B: Form of Assumption of Liabilities
C: Form of Note A
D: Form of Note B
E: New Sublease Term Sheet
F: Services Agreement Term Sheet
G: Form of Non-Competition Agreement
H: Option Term Sheet
v
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
AGREEMENT dated as of October 13, 1994, among CAM
INVESTMENT MANAGEMENT, L.P., a Delaware limited partnership
(the "Buyer"), THE CONTINENTAL CORPORATION, a New York
corporation ("Continental"), and CONTINENTAL ASSET
MANAGEMENT CORP., a New York corporation and a wholly-owned
indirect subsidiary of Continental (the "Seller").
The Seller and Continental Asset Management
(Bermuda) Ltd., a Bermuda company and a wholly-owned
subsidiary of the Seller (the "Subsidiary"), are engaged in
the business of financial asset management, and, more
specifically, the design of investment programs and the
management and supervision of investments in equity, debt
and other financial securities and instruments for property
and casualty insurance companies, pension funds,
corporations and other financial institutions (collectively,
the "Business"). The Seller wishes to sell, and the Buyer
wishes to purchase, the Business and all of the Purchased
Assets (as defined below) and the Buyer will assume all of
the Assumed Liabilities (as defined below), all upon the
terms and subject to the conditions of this Agreement.
The respective locations in this Agreement of the
definitions of the capitalized terms used in this Agreement
are set forth in Section 13.2.
<PAGE>
2
Accordingly, the parties agree as follows:
1. Transfer of Assets and Liabilities.
----------------------------------
1.1 Assets to be Sold. Except as otherwise
-----------------
provided in Section 1.2, at the Closing provided for in
Section 3, the Seller shall sell, assign, transfer and
convey to the Buyer all of the Seller's right, title and
interest in and to all of the Seller's assets, properties
and rights of every type and description, whether real,
personal or mixed, tangible or intangible, known or unknown,
fixed or unfixed, accrued, absolute, contingent or other-
wise, wherever located and whether or not reflected on the
books and records of the Seller or specifically referred to
in this Agreement (other than the Excluded Assets),
including, without limitation, all of the Seller's right,
title and interest in and to the following (all of such
assets, properties and rights being sometimes collectively
referred to herein as the "Purchased Assets"):
(a) all Contracts (including all
deposits underlying such Contracts) related to the Business
or the Purchased Assets;
(b) all Tangible Property and Tangible
Property Agreements utilized by the Seller in the Business;
(c) all Intellectual Property relating
to or used in connection with the Business (other than,
except to the extent provided in Section 6.19, the Logo),
including, without limitation, all Intellectual Property
listed in Section 4.16 of the Disclosure Statement other
<PAGE>
3
than in Part II of such Section 4.16 of the Disclosure
Statement and, subject to Section 6.19, all advertising,
sales and promotional materials, fee schedules, lists of
Clients and catalogues;
(d) any cash, cash equivalents and
other short-term investments on hand or in bank, brokerage,
custodial or other depository accounts of the Seller on the
Closing Date;
(e) all accounts receivable of the
Seller accrued as of the Closing Date, including, but not
limited to, any contractual rights which the Seller shall
have accrued, or shall have been entitled to accrue under
GAAP as a receivable, whether in cash or in kind, or by way
of set off or otherwise, as of such date;
(f) all prepaid expenses of the Seller
arising from the operations of the Business;
(g) all of the Seller's files and
records, to the extent relating to the operations of the
Business, including, without limitation, accounting records,
correspondence with Governmental Bodies, personnel and
payroll records and such other books and records relating to
the internal organization or operation of the Business;
(h) all of the outstanding capital
stock of the Subsidiary and the corporate minute books and
stock ledgers of the Subsidiary;
(i) all of the Seller's right, title
and interest in assets held under, or in connection with,
<PAGE>
4
any Benefit Plan, but only to the extent provided in Sec-
tion 6.16(b) hereof;
(j) all of the Seller's right, title
and interest in or to any Claim, demand, action, or cause of
action, contingent or otherwise, known or unknown, against
any third party, including without limitation, insurance
companies, relating to any of the Purchased Assets or the
operations of the Business (other than any such claim,
demand, action or cause of action relating to any Excluded
Asset); and
(k) to the extent not otherwise
specifically listed above, all of the assets of the Seller
on the Closing Date, including, without limitation, any
goodwill connected therewith or appertaining thereto.
Notwithstanding the foregoing, in the event that any of the
Tangible Property currently utilized by the Seller in the
Business is not owned by the Seller, but is owned by
Continental or any Affiliate of Continental, Continental
shall, and shall cause each such Affiliate to, transfer any
such Tangible Property to the Buyer at the Closing Date, at
no additional expense to the Buyer (such assets shall
hereinafter be referred to as the "Other Assets").
1.2 Excluded Assets. Anything in Section
---------------
1.1 to the contrary notwithstanding, there shall be excluded
from the Purchased Assets the following assets of the Seller
(collectively, the "Excluded Assets") which shall not be
sold and transferred to the Buyer on the Closing Date:
<PAGE>
5
(a) all of the capital stock, corporate
minute books and stock ledgers of the Seller;
(b) subject to Section 6.19 hereof, all
of the Seller's right, title and interest in and to the logo
associated with the name "Continental" and used by the
Seller (the "Logo");
(c) all of the Seller's right, title
and interest in assets held under, or in connection with,
any Benefit Plan, except as otherwise provided in
Section 6.16(b);
(d) all refunds of any Taxes that are
Excluded Liabilities;
(e) any and all current or deferred Tax
assets or reserves or accruals for Taxes;
(f) deposits of the Seller with the
Internal Revenue Service or any other Taxing authority
(including, without limitation, Tax deposits, prepayments
and estimated payments and all rights in such deposits and
all interest upon such deposits) relating to Taxes; and
(g) the Tax Allocation Agreement, dated
October 22, 1981, between the Seller and Continental.
1.3 Liabilities to be Assumed. Subject to
-------------------------
the terms and conditions of this Agreement and except as
otherwise provided in Section 1.4, in partial consideration
of the transfer, conveyance and assignment to the Buyer of
the Purchased Assets, the Buyer shall assume, as of the
Closing Date, all Liabilities of the Seller subject to the
<PAGE>
6
Buyer's right of indemnification as set forth in Sec-
tion 11.1, including without limitation all of the following
(collectively, the "Assumed Liabilities"):
(a) Liabilities reflected or included
on or reserved against on the Audited Balance Sheet, or
incurred or accrued between the Balance Sheet Date and the
Closing Date;
(b) the performance of, and the
Liabilities arising out of, each of the Contracts that is
assigned to the Buyer as of the Closing Date as contemplated
hereunder; and
(c) Liabilities arising under, or
relating to, Benefit Plans, but only to the extent provided
in Section 6.16(b) hereof.
1.4 Excluded Liabilities. Anything in this
--------------------
Agreement to the contrary notwithstanding, the Buyer shall
not assume, or in any way be liable or responsible for, and
the Seller shall retain and be responsible for the payment,
performance and discharge of the following Liabilities of
the Seller (collectively, the "Excluded Liabilities"):
(a) all Liabilities with respect to the
Excluded Assets, whether outstanding and unpaid on the
Closing Date or accruing during the period subsequent to the
Closing Date;
(b) all Liabilities and expenses of any
kind or nature relating to Taxes (including, without limita-
tion, any Liabilities and expenses pursuant to any Tax
<PAGE>
7
sharing agreement, Tax indemnification or similar
arrangement);
(c) all Liabilities related to
compensation payable in respect of service with the Seller
on or prior to the Closing Date (other than compensation
accrued on the last balance sheet of the Seller prepared
prior to the Closing Date and any Liabilities in connection
with the termination of any Transferred Employee by the
Buyer after the Closing Date) and all Liabilities arising
under, or related to, any Benefit Plan except to the extent
provided in Section 6.16(b) hereof;
(d) Liabilities in connection with, arising
out of, or otherwise relating to, the matters and
circumstances underlying the litigation entitled ADS
---
Associates, Inc. v. The Continental Insurance Company and
---------------------------------------------------------
Continental Asset Management Corp. (N.Y. Sup. Ct., New York
----------------------------------
Co.), including, without limitation, any Liabilities for
settlement amounts or expenses arising out of, or otherwise
relating to, settlement negotiations, mediation or
alternative dispute resolution mechanisms; and
(e) Liabilities in connection with, arising
out of, or otherwise relating to, the matters and
circumstances underlying the proceeding pending in the New
York State Division of Human Rights entitled Alice Kennedy
-------------
v. Continental Asset Management Corp., SDHR No. 1A-E-O-94-
-------------------------------------
9000640-E, including, without limitation, any Liabilities
relating to, or arising out of, (i) any subsequent
<PAGE>
8
proceeding brought by the complainant with respect to such
matters or circumstances or otherwise relating to her
employment with the Seller, and (ii) any settlement amounts
or expenses arising out of, or otherwise relating to,
settlement negotiations, mediation or alternative dispute
resolution mechanisms.
2. Sale and Purchase of Purchased Assets.
-------------------------------------
2.1 Purchased Assets to be Sold. At the
---------------------------
Closing and upon the terms and subject to the conditions set
forth in this Agreement, the Seller shall, and Continental
shall cause the Seller to, sell, assign, transfer, grant,
convey and deliver to the Buyer, and the Buyer shall
purchase, all of the Purchased Assets. In confirmation of
the foregoing sale, assignment and transfer, the Seller
shall execute and deliver to the Buyer at the Closing, a
Bill of Sale and the Instrument of Assignment in the form of
Exhibit A (the "Bill of Sale and the Instrument of
Assignment").
2.2 Assumption of Liabilities. At the
-------------------------
Closing, the Buyer shall assume and agree to discharge in a
prompt and timely manner, on or prior to their respective
due dates, if any, the Assumed Liabilities. In confirmation
of the foregoing assumption, the Buyer shall execute and
deliver to the Seller at the Closing, an Assumption of
Liabilities in the form of Exhibit B (the "Assumption of
Liabilities").
<PAGE>
9
2.3 Purchase Price. The aggregate purchase
--------------
price (the "Purchase Price") for the Purchased Assets
and the Non-Competition Agreement shall consist of the
following:
(i) The issuance of a promissory note
("Note A") in an aggregate principal amount of $25,000,000,
subject to downward adjustment pursuant to Section 7.1 (the
principal amount thereof as so adjusted, the "Closing Prin-
cipal Amount"), substantially in the form of Exhibit C
hereto. Note A shall, at the election of the Seller within
thirty (30) days after the date hereof, (i) have a maturity
of six months and bear interest at a rate per annum equal to
six month LIBOR plus 0.5% or (ii) have a maturity of one
year and bear interest at a rate per annum equal to one year
LIBOR plus 1%. Interest shall be payable semi-annually as
set forth in Note A.
(ii) The issuance of a subordinated
promissory note ("Note B"), in an aggregate principal amount
of $10,000,000 and substantially in the form of Exhibit D
hereto (provided, that (a) the subordination provisions
--------
thereof shall be modified, if necessary, so that they are
reasonably satisfactory to the bank providing the senior
debt financing referred to in Section 8.7 (taking into
account the type and nature of the transactions contemplated
hereunder (the "Contemplated Transactions")) and (b) the
Seller will agree to other changes to Note B reasonably
requested by such bank so long as such changes do not
<PAGE>
10
(x) alter the principal amount, the maturity or the interest
rate, in each case as set forth in Note B or (y) result in
terms that diminish the economic value of Note B.
(iii) The assumption by the Buyer of the
Assumed Liabilities hereunder.
2.4 Payment of the Purchase Price. At the
-----------------------------
Closing, the Purchase Price shall be paid by the Buyer in
accordance with paragraphs (i) and (ii) below.
(i) The Buyer shall issue, execute and
deliver to the Seller Note A, dated the Closing Date,
in the amount of the Closing Principal Amount, together
with a standby letter of credit (the "Letter of
Credit") issued by a bank or other financial
institution for the benefit of the Seller in an amount
not to exceed the Closing Principal Amount (plus
interest thereon) which shall entitle the Seller to
draw under such Letter of Credit in the event that the
Buyer shall fail to pay, when due, the principal of and
accrued but unpaid interest on Note A and such Letter
of Credit shall contain other terms and conditions
mutually satisfactory to the Buyer and the Seller. Any
fees related to the Letter of Credit shall be borne by
the Buyer.
(ii) The Buyer shall issue, execute and
deliver to the Seller Note B, dated the Closing Date,
in the aggregate principal amount of $10,000,000.
<PAGE>
11
3. Closing; Closing Date. The Closing of the
---------------------
sale and purchase of the Purchased Assets contemplated
hereby shall take place at the offices of Paul, Weiss,
Rifkind, Wharton & Garrison, 1285 Avenue of the Americas,
New York, New York 10019, at 10:00 a.m. local time, on the
fifth business day following the first date on which the
conditions to closing set forth in Section 8 (Conditions
Precedent to the Obligations of the Buyer to Close) have
first been satisfied or waived, or at such other time or
date as the Buyer and the Seller may agree in writing. The
time and date upon which the Closing occurs is herein called
the "Closing Date."
4. Representations and Warranties of the Seller
--------------------------------------------
and Continental. The Seller and Continental, jointly and
---------------
severally, represent and warrant to the Buyer as follows:
4.1 Due Incorporation and Qualification.
-----------------------------------
Each of the Seller and Continental is a corporation duly
organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to own, lease and
operate its assets, properties and business and to carry on
its business as now being conducted. The Seller is duly
qualified or otherwise authorized as a foreign corporation
to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its
ownership, leasing or operation of property requires such
qualification, other than any failure to be so qualified or
<PAGE>
12
in good standing as would not individually or in the
aggregate with all such other failures have a Material
Adverse Effect.
4.2 Title to Assets; Adequacy of Purchased
--------------------------------------
Assets.
------
(a) The Seller is the owner of the
Purchased Assets, has good title to all the Purchased
Assets, including those acquired after the Balance Sheet
Date, in each case free and clear of any Lien, except for
(i) Liens securing Taxes, assessments, governmental charges
or levies, or the claims of materialmen, carriers, landlords
and like Persons, all of which are not yet due and payable
or are being contested in good faith by appropriate
proceedings and which have been accrued or reserved against
as Liabilities in accordance with GAAP, (ii) minor Liens of
a character that do not, individually or in the aggregate,
have a Material Adverse Effect, and (iii) Liens set forth in
Section 4.2(a) of the Disclosure Statement (the Liens
referred to in clauses (i), (ii) and (iii) above are
hereinafter collectively referred to as "Permitted Liens").
(b) On the Closing Date, the Seller
shall own and have good title to all of the Purchased
Assets, in each case free and clear of any Liens other than
Permitted Liens, and shall convey the Purchased Assets to
the Buyer free and clear of all Liens and subject only to
the Assumed Liabilities, except for Permitted Liens and
Liens, if any, created by or through the Buyer.
<PAGE>
13
(c) The Purchased Assets, together with
the Excluded Assets and the Other Assets, include all of the
rights, properties and other assets currently utilized by
the Seller in the conduct of the Business.
4.3 Authority to Execute and Perform
--------------------------------
Agreements; Enforceability. Each of the Seller and
--------------------------
Continental has the full corporate power and authority and
approval required to execute and deliver this Agreement and
each other Transaction Document to which it is a party, and
to perform fully its obligations hereunder and thereunder.
This Agreement has been duly executed and delivered by the
Seller and Continental and is the valid and binding
obligation of each of the Seller and Continental enforceable
against each of them in accordance with its terms, and each
Transaction Document to which either the Seller or
Continental will be a party, upon execution and delivery by
such party will be duly executed and delivered by such
party, and will be a valid and binding obligation of such
party enforceable against such party in accordance with
their respective terms.
4.4 Subsidiaries, Affiliates and Other
----------------------------------
Persons. Section 4.4 of the Disclosure Statement sets forth
-------
(i) the date of incorporation and the percentage and number
of outstanding shares owned by the Seller of the Subsidiary
and (ii) the name of each partnership or joint venture or
other Person (other than the Subsidiary) in which the Seller
is the beneficial owner of an ownership interest, and the
<PAGE>
14
nature of such interest. The Subsidiary is a corporation
duly organized, validly existing and in good standing under
the laws of Bermuda and has all requisite corporate power
and authority to own, lease and operate its assets,
properties and business and to carry on its business as now
conducted. The Subsidiary is a newly organized Bermuda
corporation organized exclusively for the purpose of
conducting the Business solely in Bermuda. The Subsidiary
has, and on the Closing Date will have, no other assets
other than assets used in the operation of the Business.
The Subsidiary does not have, and on the Closing Date will
not have, any material Liabilities of any nature.
4.5 Certificates of Incorporation and By-
-------------------------------------
laws. The Seller has heretofore delivered to the Buyer true
----
and complete copies of the Certificates of Incorporation
(certified by the Secretary of State or other appropriate
officials of their respective jurisdictions of incorpora-
tion) and By-laws or comparable instruments (certified by
the Secretaries thereof) of the Seller and the Subsidiary as
in effect on the date hereof.
4.6 Financial Statements; Investment
--------------------------------
Performance Reports.
-------------------
4.6.1 Financial Statements.
--------------------
4.6.1.1 The audited balance sheets
of the Seller as at December 31, 1993, December 31, 1992 and
December 31, 1991, including the footnotes thereto,
certified by KPMG Peat Marwick, independent certified public
<PAGE>
15
accountants ("Peat Marwick"), all of which have been
delivered to the Buyer, fairly present the financial
condition of the Seller as at such dates in accordance with
generally accepted accounting principles ("GAAP")
consistently applied throughout the periods covered thereby.
The foregoing audited balance sheet of the Seller as at
December 31, 1993 is sometimes hereinafter referred to as
the "Audited Balance Sheet" and December 31, 1993 is
sometimes hereinafter referred to as the "Balance Sheet
Date."
4.6.1.2 The unaudited statements
of income, cash flow and shareholders' equity for the years
ended December 31, 1993 and December 31, 1992, certified by
the Controller of the Seller, all of which have been
delivered to the Buyer, fairly present the results of
operations of the Seller for such respective periods in
accordance with GAAP consistently applied throughout the
periods covered thereby (except as otherwise stated in the
footnotes thereto). The foregoing unaudited financial
statements of the Seller are sometimes hereinafter referred
to as the "Unaudited Financials."
4.6.1.3 The unaudited balance
sheet of the Seller as at June 30, 1994 and the related
statements of income, cash flow and shareholders' equity for
the six months then ended, certified by the Controller of
the Seller, all of which have been delivered to the Buyer,
fairly present the financial condition and results of
<PAGE>
16
operations of the Seller as at June 30, 1994 and for the six
months then ended (subject to year-end adjustments
consisting only of normal recurring accruals) in accordance
with GAAP (except as otherwise stated in the footnotes
thereto) applied on a basis consistent with, (x) in the case
of the unaudited balance sheet of the Seller as at June 30,
1994, that of the Audited Balance Sheet and (y) in the case
of such related statements of income, cash flow and
shareholders' equity for the periods covered thereby, that
of the Unaudited Financials. The foregoing unaudited
balance sheet of the Seller as at June 30, 1994 is sometimes
hereinafter referred to as the "Interim Balance Sheet" and
June 30, 1994 is sometimes hereinafter referred to as the
"Interim Balance Sheet Date."
4.6.1.4 The unaudited balanced
sheet of the Company as at September 30, 1994, including the
footnotes thereto, certified by the Controller of the Seller
(the "September Balance Sheet"), which will be delivered to
the Buyer in accordance with Section 6.25, will fairly
present the financial condition of the Seller as at such
date in accordance with GAAP consistently applied throughout
the period covered thereby.
4.6.2 Investment Performance Reports.
------------------------------
The investment performance reports of the Seller for each of
(i) The Pooling Company Portfolio and (ii) American Nuclear
Insurers as at December 31, 1993, December 31, 1992,
December 31, 1991, December 31, 1990 and December 31, 1989,
<PAGE>
17
reviewed and verified (Level II) by Deloitte & Touche, all
of which will be delivered to the Buyer in accordance with
Section 6.27, will fairly present the investment performance
of each Client's account for the respective periods covered
thereby in accordance with standards promulgated by the
Association for Investment Management and Research. The
foregoing investment performance reports are sometimes
hereinafter referred to as the "Verified Investment
Performance Reports." The investment performance reports of
the Seller for each Client as at June 30, 1994, which have
been delivered to the Buyer, fairly present the investment
performance of each Client's account for the six month
period ended June 30, 1994 in accordance with standards
promulgated by the Association for Investment Management and
Research.
4.7 No Material Adverse Change. Since the
--------------------------
Balance Sheet Date and except as set forth on Section 4.7 of
the Disclosure Statement, there has been no event, circum-
stance or change which, individually or in the aggregate,
has had or could reasonably be expected to have a material
adverse effect on the results of operations, prospects,
professional staff or condition (financial or otherwise) of
the Business or the Purchased Assets (a "Material Adverse
Effect").
4.8 Tax Matters.
-----------
(a) All federal, state, local, foreign
and other taxes, including, without limitation, income
<PAGE>
18
taxes, estimated taxes, excise taxes, sales taxes, use
taxes, gross receipts taxes, franchise taxes, employment and
payroll related taxes, property taxes and import duties,
whether or not measured in whole or in part by net income
and withholding taxes required to be withheld by the Seller,
the Subsidiary or any other Affiliate of the Seller, or any
other tax of any sort including interest, penalties and
additions to tax thereon and obligations under any tax
sharing, tax allocation or similar agreement to which the
Seller is a party (hereinafter, "Taxes" or, individually, a
"Tax") attributable to any period ending on or before the
Closing Date or any portion through and including the
Closing Date of any period that includes the Closing Date
that either (i) relate to the Seller's or the Subsidiary's
income, assets and operations, including the Business and
the Purchased Assets or (ii) may be chargeable as a Lien
against the Purchased Assets have either been paid or
appropriate reserves have been established therefor on the
appropriate books of the Seller or its Affiliate.
(b) The Seller has timely filed (or has
had filed on its behalf) or will cause to be timely filed
all material returns for Taxes relating to the Business or
the Purchased Assets required to be filed by the Seller (or
on its behalf) on or before the Closing Date. Except as set
forth on Schedule 4.8(b), there is no pending or threatened
Tax audit of any returns for Taxes relating to the Business
or the Purchased Assets filed by or on behalf of the Seller.
<PAGE>
19
Except as set forth in Section 4.8(b) of the Disclosure
Statement, no extensions of time with respect to any date on
which any return for Taxes relating to the Business or the
Purchased Assets was or is to be filed by the Seller is in
force, and no waiver or agreement by the Seller is in force
for the extension of time for the assessment or payment of
any such Tax.
4.9 Compliance with Laws.
--------------------
4.9.1 General. (i) Neither the Seller
-------
nor the Subsidiary is in violation of any applicable order,
judgment, injunction, award, decree or writ (collectively,
"Orders"), or any applicable law, statute, code, ordinance,
regulation or other requirement (collectively, "Laws")
(other than any securities or commodities Laws (including,
without limitation, the Advisers Act) or securities-related
or commodities-related Orders, as to which clause (ii) below
shall apply), of any government or political subdivision
thereof, whether federal, state, local or foreign, or any
agency or instrumentality of any such government or
political subdivision, or any self regulatory organization,
court or arbitrator (other than any Taxing authorities)
(collectively, "Governmental Bodies"), including, without
limitation, Laws relating to the pollution or protection of
the environment, employment, equal opportunity, nondiscrimi-
nation, immigration, wages, hours, benefits, and
occupational safety and health, in each case applicable to
the Seller, the Subsidiary, the Business or the Purchased
<PAGE>
20
Assets, except for any violations that, individually or in
the aggregate, have not had or could not reasonably be
expected to have a Material Adverse Effect, (ii) neither the
Seller nor the Subsidiary is in violation of any securities-
related or commodities-related Order applicable to the
Seller, the Subsidiary, the Business or the Purchased Assets
or any securities or commodities Laws of any Governmental
Body applicable to the Seller, the Subsidiary, the Business
or the Purchased Assets, including, without limitation, the
Advisers Act (including, without limitation, Section 206
thereunder) and (iii) neither Continental nor the Seller has
received written notice that any such violation is being or
may be alleged. Each of the Seller and the Subsidiary has
filed all material reports, documents or other information
required to be filed under all Laws applicable to it or to
the Business, and has not received any written notification
from any Governmental Body that it has not made any such
filing.
4.9.2 Governmental Registrations and
------------------------------
Permits. Section 4.9.2 of the Disclosure Statement sets
-------
forth each of the registrations, licenses, permits, orders
or approvals of any Governmental Body (collectively,
"Permits") that are material to the conduct of the Business.
The Permits described in Section 4.9.2 of the Disclosure
Statement have been duly obtained by the Seller, the
Subsidiary or their respective employees, as the case may
be, and such Permits are in full force and effect. No
<PAGE>
21
written notice of any violations have been received by
Continental, the Seller or the Subsidiary in respect of any
such Permit; no application in respect of such Permit nor
any amendment to any such application contains a "yes"
response to any question affirming on the part of the holder
thereof a past or current failure to comply with Laws or
that such holder is the subject of any Order; and no
proceeding is pending or, to the knowledge of the Seller,
threatened to revoke or limit, or that could have the effect
of revoking or limiting, any such Permit. Except as set
forth in Section 4.9.2 of the Disclosure Statement, no
action by Continental, the Seller, the Subsidiary or the
Buyer is required in order that all such Permits will remain
in full force and effect following the consummation of the
Contemplated Transactions.
4.9.3 No Practices in Violation of Law.
--------------------------------
To the knowledge of Continental and the Seller, no advisory
affiliate (as defined in Item 11 of Part I of Form ADV) of
the Seller or the Subsidiary has engaged in or is now
engaging in any act, conspiracy or course of conduct in
violation of any applicable Law or in violation of any
applicable standards promulgated by the Association for
Investment Management and Research, in each case, that would
require the Seller to respond "yes" to any question in
Parts A-G of Item 11 of Part I of Form ADV, and neither the
Seller nor, to its knowledge, any of its advisory affiliates
<PAGE>
22
has received written notice that it is now or has heretofore
been so engaged.
4.9.4 Investment Advisers Act. The
-----------------------
Seller is and has been since November 30, 1981 duly
registered as an investment adviser under the Advisers Act.
The Seller (i) is duly registered, licensed or qualified as
an investment adviser in each jurisdiction where the conduct
of its business requires such registration, licensing or
qualification and (ii) is in compliance with all Laws
requiring any such registration, licensing or qualification.
The Seller is not prohibited from acting as an investment
adviser or carrying on the Business as now conducted by any
applicable Orders, Laws, By-Laws or similar requirements.
Section 4.9.4 of the Disclosure Statement sets forth copies
of the Seller's initial Form ADV and current Forms ADV and
ADV-S as filed with the Securities and Exchange Commission
(the "Commission") under the Advisers Act and applicable
state forms, as filed under any similar state Law. Copies
of all current reports required to be maintained by the
Seller pursuant to the Advisers Act and such applicable
state Laws have been made available to the Buyer. The
information contained in such current forms and reports, as
amended or supplemented, is true and correct in all material
respects. All amendments and supplements to such forms and
reports required to be filed have been duly filed by the
Seller. None of the Seller or, to the knowledge of the
Seller, any of its "Associated Persons" (as such term is
<PAGE>
23
defined under Section 202(a)(17) of the Advisers Act) is
subject to any disqualification which would pursuant to
Section 203(e) of the Advisers Act be a basis for denial,
suspension or revocation of registration under the Advisers
Act of the Seller as an investment adviser. The Seller
represents to the Buyer the accuracy of the statement
contained in its current Form ADV as to the non-existence of
any "soft dollar" arrangements involving any Unaffiliated
Client.
4.9.5 Investment Company Act.
----------------------
(a) The Seller is not an
"investment company" within the meaning of the Investment
Company Act of 1940, as amended (the "Investment Company
Act"). The Seller is not a "broker" or "dealer" within the
meaning of the Securities Exchange Act of 1934, as amended.
(b) No Client of the Seller is, to
the knowledge of the Seller, an "investment company" within
the meaning of the Investment Company Act.
4.10 No Breach. The execution and delivery
---------
by the Seller and Continental of this Agreement and any
other Transaction Document to which the Seller or
Continental is a party, the consummation of the Contemplated
Transactions (including, without limitation, the sale,
transfer and assignment of each of the Purchased Assets to
the Buyer on the Closing Date), the performance by the
Seller and Continental of this Agreement and any Transaction
Document to which it is a party in accordance with their
<PAGE>
24
respective terms and conditions, and the continuation (by
assignment, novation or otherwise) in full force and effect
of the Contracts comprising the Purchased Assets following
the consummation of the Contemplated Transactions will not
(i) violate any provision of the Certificate of Incorpora-
tion or By-laws (or comparable governing or organizational
documents) of the Seller, the Subsidiary or Continental;
(ii) require the Seller, the Subsidiary or Continental to
obtain any consent, approval or action of, or make any
filing with or give any notice to, any Governmental Body or
any other Person, except as set forth in Section 4.10 of the
Disclosure Statement (the "Required Consents"); (iii) if the
Required Consents are obtained, (A) violate, conflict with
or result in the breach of any of the terms of, result in a
material modification of the effect of, otherwise give any
other contracting party the right to terminate, or consti-
tute (or with notice or lapse of time or both constitute) a
default under any Contract to which the Seller, the
Subsidiary or Continental is a party or by or to which any
of them or any of their properties (including the Purchased
Assets) may be bound or subject; (B) violate any Order of
any Governmental Body against, or binding upon, the Seller,
the Subsidiary, Continental, the Business or upon any of
their properties (including the Purchased Assets);
(C) violate or result in the revocation, suspension, non-
renewal or limitation of any Permit; (D) violate any Law;
(E) result in any Person having the right to require any
<PAGE>
25
successor to the Business to make any payment to such Person
other than in respect of any Assumed Liability, or
(iv) result in the creation of any Lien on any of the
Purchased Assets.
4.11 Claims and Proceedings. There are no
----------------------
outstanding Orders of any Governmental Body against or
involving the Business, any of the Purchased Assets or, to
the Seller's knowledge, any of the directors, officers or
professional employees of the Seller or the Subsidiary.
Except as set forth in Section 4.11 of the Disclosure
Statement, there are no actions, suits or claims or legal,
administrative or arbitral proceedings or investigations
(collectively, "Claims") (whether or not the defense thereof
or Liabilities in respect thereof are covered by insurance)
pending or, to the knowledge of Continental or the Seller,
threatened against or involving the Business, the Purchased
Assets or, to the Seller's knowledge, any of the directors,
officers or professional employees of the Seller or the
Subsidiary. None of the Claims set forth in Section 4.11 of
the Disclosure Statement, individually or together with any
other, will have a Material Adverse Effect. Except as set
forth in Section 4.11 of the Disclosure Statement, the
Seller has not received any written notice of investigation
or inquiry, including without limitation, any informal
request for information, from the Commission with respect to
the operations of the Business.
<PAGE>
26
4.12 Contracts.
---------
(a) Section 4.12(a) of the Disclosure
Statement sets forth all of the following Contracts relating
to the Business or any of the Purchased Assets to which the
Seller or the Subsidiary is a party (or to which the Seller
has any rights as transferee, assignee or successor in
interest) or by or to which any portion of the Business or
any of the Purchased Assets are bound or subject:
(i) investment management Contracts, investment advisory
Contracts and sub-advisory Contracts, including all memo-
randa referred to therein; (ii) Contracts with any current
or former officer, director, employee, solicitor,
consultant, agent or other representative other than
Contracts (x) terminable on 90 days' notice or less without
liability to the Seller or (y) with respect to which the
aggregate amount reasonably expected to be paid (including
bonus compensation) by the Seller in any 12-month period in
the future is less than $200,000; (iii) Contracts with any
labor union or association representing any employee;
(iv) Contracts for the purchase or sale of materials,
supplies, equipment, merchandise or services (including
management Contracts) that contain an escalation,
renegotiation or redetermination clause other than Contracts
(x) terminable on 90 days' notice or less without liability
to the Seller or (y) with respect to which the aggregate
amount reasonably expected to be paid by the Seller in any
12-month period in the future is less than $25,000; (v) Con
<PAGE>
27
tracts for the sale of any portion of the Business or any of
the Purchased Assets (other than in the ordinary course of
business) or for the grant to any Person of any preferential
rights to purchase any portion of the Business or any of the
Purchased Assets; (vi) partnership or joint venture Con-
tracts; (vii) Contracts under which it agrees to indemnify
any party or to share any Tax liability of any party;
(viii) Contracts with Clients or agents for the sharing of
fees, the rebating of charges or other similar arrangements;
(ix) Contracts containing covenants of the Seller not to
compete in any line of business or with any Person in any
geographical area or covenants of any other Person not to
compete with the Seller in any line of business or in any
geographical area; (x) Contracts relating to the acquisition
by the Seller of any operating business or, other than on
behalf of any Clients, the capital stock of any other
Person; (xi) options for the purchase of any asset, tangible
or intangible, for an aggregate purchase price of more than
$25,000; (xii) Contracts (other than with Affiliates)
relating to the borrowing of money; (xiii) Contracts
(whether or not the Seller is a party) relating to "soft
dollar" arrangements derived from commissions generated by
the Seller or directed brokerage; or (xiv) any other
Contract whether or not made in the ordinary course of
business pursuant to which the Seller or the Subsidiary is
obligated to make, or entitled to receive, payments in
excess of $100,000 in any 12-month period or $250,000 in the
<PAGE>
28
aggregate (other than any Contract terminable on 90 days'
notice or less without liability to the Seller or reflected
in Sections 4.15, 4.16 and 4.19 of the Disclosure
Statement).
(b) There have been delivered to the
Buyer true, correct and complete copies of all of the
Contracts (including all memoranda referred to therein) set
forth in clause (i) of Section 4.12(a) of the Disclosure
Statement, and there have been made available to the Buyer
true, correct and complete copies of all of the Contracts
set forth in Section 4.12(a) (other than clause (i) thereof)
of the Disclosure Statement. All of such Contracts are
legal, valid, subsisting, in full force and effect and
binding upon and enforceable against the parties thereto, or
upon the Seller or the Subsidiary, as the case may be, as a
transferee, assignee or successor in interest, in each case,
in accordance with their terms, and the Seller is not in
default in any material respect under any of them, nor does
any condition exist that with notice or lapse of time or
both would constitute a material default thereunder. To the
knowledge of the Seller and Continental, no other party to
any such Contract is in default thereunder in any material
respect nor does any condition exist that with notice or
lapse of time or both would constitute a material default
thereunder and no such other party has given written notice
to the Seller or Continental of termination or cancellation
of any such Contract.
<PAGE>
29
(c) To the knowledge of the Seller and
Continental, (i) each sub-advisor party to any investment
management or advisory Contract or sub-advisory Contract
with the Seller and any Client (each, a "Sub-Advisor") has
duly and timely delivered complete and accurate written
investment reports and account statements to the Client in
accordance with the terms and conditions of any such
Contract and (ii) no Sub-Advisor is in violation of any
applicable Order or any applicable Law, including without
limitation, the Advisers Act, of any Governmental Body, and
the Seller has not received written notice that any such
violation is being or may be alleged.
4.13 Real Estate. Neither the Seller nor the
-----------
Subsidiary owns any real property. Section 4.13 of the
Disclosure Statement sets forth true, correct and complete
copies of all leases or subleases, under which the Seller or
the Subsidiary uses or occupies or has the right to use or
occupy, now or in the future, any real property.
4.14 Accounts Receivable. All items which
-------------------
are required by GAAP to be reflected as accounts receivable
on the Audited Balance Sheet and on the books of the Seller
are so reflected and any reserve accounts relating thereto
have been established in accordance with GAAP applied in a
manner consistent with the Seller's past practice.
4.15 Tangible Property. Section 4.15 of the
-----------------
Disclosure Statement sets forth as of the respective dates
referred to therein, all interests owned by the Seller or
<PAGE>
30
the Subsidiary, as the case may be (including, without
limitation, options), in or to the plant, computer hardware
and software, machinery, equipment, furniture, leasehold
improvements, fixtures, vehicles, structures, any related
capitalized items and other tangible property material to
the Business, taken as a whole, and treated by the Seller as
depreciable or amortizable property (such property listed on
Section 4.15 of the Disclosure Statement and similar
property which has been fully depreciated is hereinafter
collectively referred to as "Tangible Property"). All
material leases, conditional sale contracts, franchises or
licenses pursuant to which the Seller or the Subsidiary may
hold or use any interest owned or claimed by the Seller or
the Subsidiary, respectively, (including, without limita-
tion, options) in or to Tangible Property (collectively,
"Tangible Property Agreements") have been delivered to the
Buyer. All of such Tangible Property Agreements are valid,
subsisting, in full force and effect and binding upon the
parties thereto in accordance with the terms thereof and,
with respect to the performance of the Seller or the
Subsidiary, as the case may be, there is no material default
nor does any condition exist that with notice or lapse of
time or both would constitute a material default thereunder.
The Tangible Property of the Seller and the Subsidiary is
sufficient to meet the operating needs of the Business and
is in good operating condition and repair, normal wear and
tear excepted. There has not been any material interruption
<PAGE>
31
of the operations of the Business due to inadequate
maintenance of the Tangible Property.
4.16 Intellectual Property. Section 4.16 of
---------------------
the Disclosure Statement sets forth all copyrights, trade-
marks, service marks, trade names, business names, logos,
franchises, trade secrets and databases, computer software
(other than commercially available software) and other
proprietary interests in intellectual property similar to
the foregoing, all applications for any of the foregoing,
and all Permits, consents, grants and licenses or other
rights or authorizations running to or from the Seller or
the Subsidiary relating to any of the foregoing that are
material to, or used in the conduct of, the Business (the
"Intellectual Property"). The Seller has all requisite
rights to use the name "Continental Asset Management" in
connection with the conduct of the Business. Except as set
forth in Section 4.16 of the Disclosure Statement, the
rights of the Seller and the Subsidiary in the property set
forth in Section 4.16 of the Disclosure Statement are in all
material respects in full force and effect and free and
clear of any Liens. Neither the Seller nor Continental has
knowledge that the use of the Intellectual Property by the
Seller or the Subsidiary, as the case may be, infringes any
copyright, trademark, service mark, trade name or other
proprietary interest of any other Person or has received
written notice of any claim of any such infringement, and
neither the Seller nor Continental knows of any basis for
<PAGE>
32
any such charge or claim. None of the items listed in
Section 4.16 of the Disclosure Statement is the subject of
any claim made by or on behalf of the Seller or the
Subsidiary, as the case may be, for infringement. The
Intellectual Property is sufficient for the operational
needs of the Business. All software programs owned or
leased by the Seller or the Subsidiary, as the case may be,
that are used in the operation of the Business are in good
working order and have the capacity to process the current
operations of the Business.
4.17 Liabilities. Except as set forth in
-----------
the Disclosure Statement, the Seller did not have any direct
or indirect indebtedness, liability, claim, loss, damage,
deficiency, obligation or responsibility, known or unknown,
fixed or unfixed, choate or inchoate, liquidated or unliqui-
dated, secured or unsecured, accrued, absolute, contingent
or otherwise, including, without limitation, liabilities on
account of Taxes, other governmental charges or lawsuits
brought, whether or not of a kind required by generally
accepted accounting principles to be set forth on a
financial statement or in the notes thereto ("Liabilities"),
other than (i) Liabilities adequately reflected or reserved
against in accordance with GAAP on the Audited Balance Sheet
and the Interim Balance Sheet or disclosed in the footnotes
to such balance sheets, (ii) Liabilities incurred since the
Interim Balance Sheet Date in the ordinary course of
<PAGE>
33
business and (iii) Liabilities that, in the aggregate, do
not exceed $100,000.
4.18 Clients.
-------
(a) Section 4.18(a) of the Disclosure
Statement sets forth (i) the name of each Client (each
separately identified as (x) an Affiliated Client, (y) an
Unaffiliated Client or (z) a Client as to which the Seller
receives no fees (incentive or otherwise) under its
respective investment advisory or management Contract (such
Clients shall hereinafter be referred to as "Non-Fee Paying
Clients")) as at the Balance Sheet Date and June 30, 1994;
(ii) as to each Client's investment advisory or management
Contract with the Seller, as at the Balance Sheet Date and
June 30, 1994, the fee schedule thereunder (including, any
incentive fee arrangements), if any, and the dollar amount
of the assets managed thereunder; (iii) the percentage
attributable to each Client (separately identified) of the
gross revenues of the Seller for the (A) six-month period
ended June 30, 1994 as set forth in the line item entitled
"Total Revenues" set forth on the unaudited statement of
income of the Seller for the six months ended June 30, 1994
and (B) year ended December 31, 1993 as set forth in the
line item entitled "Total Revenues" set forth on the
unaudited statement of income of the Seller for the year
ended December 31, 1993; and (iv) the percentage attribut-
able to each Unaffiliated Client of (X) the Unaffiliated
<PAGE>
34
June 30, 1994 Revenue and (Y) the Unaffiliated December 31,
1993 Revenue.
(b) Except as set forth in Sec-
tion 4.18(b) of the Disclosure Statement, no Client has, at
any time during the five (5) years prior to the date hereof,
cancelled or otherwise terminated, or threatened in writing
to cancel or otherwise indicated in writing to the Seller or
the Subsidiary its intention to terminate, its relationship
with the Seller or the Subsidiary, as the case may be, or
decreased materially, or threatened in writing to the Seller
to decrease materially, the amount of assets managed by the
Seller or the Subsidiary, as the case may be. Except as
heretofore communicated to the Buyer, neither the Seller nor
Continental has any knowledge that any Client intends to
cancel or to decrease materially its relationship with the
Seller or the Subsidiary, as the case may be.
(c) Each of the Seller and the
Subsidiary has fulfilled all of its obligations under its
investment advisory and management Contracts in accordance
with the terms and provisions of such Contracts and
applicable Law, including, without limitation, the Advisers
Act. During the prior five years, the Seller has timely
delivered accurate written investment reports and account
statements to its Clients in accordance with the terms and
conditions of each investment management or advisory
Contract to which it is a party. In the Seller's reports to
its Clients, the Seller marked to market assets under
<PAGE>
35
management under its investment advisory and management
Contracts in accordance with industry practice. All
marketing and sales materials, requests for proposals and
any other Documents used by the Seller and the Subsidiary to
solicit prospective and current Clients comply, to the
extent applicable, with Section 206 of the Advisers Act.
(d) Set forth in Section 4.18(d) of the
Disclosure Statement are true, correct and complete copies
of any notices delivered by the Seller to any Client
pursuant to the specific notice requirements of Section 206
of the Advisers Act.
4.19 Employee Benefits. Except for the
-----------------
plans and arrangements (the "Benefit Plans") set forth in
Section 4.19 of the Disclosure Statement, there are no
employee benefit plans or arrangements of any type
(including, without limitation, plans described in
section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended, and the regulations thereunder
("ERISA")), under which the Seller or the Subsidiary has or
in the future could have directly, or indirectly through an
entity (a "Commonly Controlled Entity") affiliated with the
Seller under section 414(b), (c), (m) or (o) of the Code,
any liability with respect to any current or former employee
of the Seller, the Subsidiary or any Commonly Controlled
Entity.
With respect to each Benefit Plan that covers
former or current employees of the Seller or the Subsidiary
<PAGE>
36
(where applicable): the Seller or Continental has delivered
to the Buyer complete and accurate copies of (i) all plan
texts and agreements and (ii) all material employee
communications (including summary plan descriptions).
With respect to the Continental Savings Plan, the
Seller or Continental has delivered complete and accurate
copies of (i) the most recent annual report); (ii) the most
recent annual and periodic accounting of plan assets;
(iii) the most recent determination letter received from the
Internal Revenue Service; and (iv) the most recent actuarial
valuation.
With respect to the Continental Savings Plan,
except as disclosed in Section 4.19 of the Disclosure
Statement: (i) it qualifies under section 401(a) of the
Code and its related trust is exempt from taxation under
section 501(a) of the Code; (ii) the Continental Savings
Plan has been maintained and administered at all times in
material compliance with its terms and applicable Law and
regulation; (iii) no event has occurred and there exists no
circumstance under which the Seller or the Subsidiary could
directly, or indirectly through a Commonly Controlled
Entity, incur Liability under ERISA, the Code or otherwise
(other than routine claims for benefits and other
Liabilities arising in the ordinary course pursuant to the
terms of the Continental Savings Plan); (iv) there are no
actions, suits or claims (other than routine claims for
benefits) pending or, to the knowledge of the Seller and
<PAGE>
37
Continental, threatened, with respect to the Continental
Savings Plan or against the assets of the Continental
Savings Plan; (v) no "accumulated funding deficiency" (as
defined in section 302 of ERISA) has occurred; (vi) neither
the Seller nor the Subsidiary has engaged in a non-exempt
"prohibited transaction" (as defined in section 406 of ERISA
or in section 4975 of the Code); (vii) all contributions and
premiums due have been made or paid on a timely basis; and
(ix) all contributions made meet the requirements for
deductibility under the Code, and all contributions that
have not been made have been properly recorded on the books
of the Seller or a Commonly Controlled Entity thereof in
accordance with GAAP.
With respect to each Benefit Plan that is subject
to Title IV of ERISA, except as disclosed in Section 4.19 of
the Disclosure Statement: neither the Seller nor the
Subsidiary has incurred, or is expected to incur, directly,
or indirectly through a Commonly Controlled Entity, any
Liability arising from the termination of such a Benefit
Plan.
With respect to each Benefit Plan that is a
"welfare plan" (as defined in section 3(1) of ERISA), except
as disclosed in Section 4.19 of the Disclosure Statement,
the Seller, the Subsidiary and each Commonly Controlled
Entity have complied with the requirements of section 4980B
of the Code.
<PAGE>
38
4.20 Employee Relations. The Seller has
------------------
approximately 75 employees. The Subsidiary has no
employees. Neither the Seller nor the Subsidiary is a party
to any collective bargaining agreement or other contractual
commitment or obligation with any labor organization and, to
the knowledge of Continental and the Seller, no union
organizing efforts have been conducted within the last five
years and no such activity is now being conducted. The
Seller has not at any time during the last five years had,
nor, to the knowledge of the Seller and Continental, is
there now threatened, a strike, picket, work stoppage, work
slowdown, or other similar occurrence that could reasonably
be expected to have a Material Adverse Effect. Except as
set forth in Section 4.20 of the Disclosure Statement, there
are no material controversies pending, or to the knowledge
of the Seller and Continental, threatened between the Seller
and the Subsidiary, on the one hand, and any of their
respective employees, on the other hand.
4.21 Insurance. Section 4.21 of the
---------
Disclosure Statement sets forth a list (specifying the
insurer and the policy number or covering note number with
respect to binders, describing each pending claim of the
Seller thereunder of more than $100,000 and setting forth
the aggregate amounts paid out to or on behalf of the Seller
under each such policy since January 1, 1992 through the
date hereof) of all policies or binders of fire, liability,
fidelity, errors and omissions, product liability, workmen's
<PAGE>
39
compensation, vehicular and other insurance held by or on
behalf of the Seller for its own account to insure against
its own liability and property loss that relate to the
Business or any of the Purchased Assets. Such policies and
binders are in all material respects valid and enforceable
in accordance with their terms, are in full force and
effect, and insure against risks and liabilities to the
extent and in the manner deemed appropriate and sufficient
by the Seller. The Seller is not in default in any material
respect with respect to any provision contained in any such
policy or binder and has not failed to give any notice or
present any material claim under any such policy or binder
in due and timely fashion. Except for claims set forth in
Section 4.21 of the Disclosure Statement, there are no
outstanding unpaid claims of the Seller under any such
policy or binder. Neither the Seller nor Continental has
received any notice of cancellation or non-renewal of any
such policy or binder. Neither the Seller nor Continental
has any knowledge of any inaccuracy in any application for
such policies or binders, any failure to pay premiums when
due or any similar state of facts that could reasonably form
the basis for termination of any such insurance. Neither
the Seller nor Continental has received any written notice
from any of their insurance carriers that any insurance
premiums or other amounts due under any such policy or
binder (or replacement coverage, including renewals) will or
may be materially increased in the future or that any
<PAGE>
40
insurance coverage listed in Section 4.21 of the Disclosure
Statement will or may not be available to Continental or the
Seller, as the case may be, in the future on reasonable
commercial terms.
4.22 Business; Policies and Procedures.
---------------------------------
(a) Neither the Seller nor the
Subsidiary conducts any business other than the Business and
that which is incidental thereto.
(b) Section 4.22(b) of the Disclosure
Statements lists all Documents setting forth all material
policies, procedures, codes of ethics and guidelines for
employees of the Seller and the Subsidiary (including any
Documents of Continental which apply to employees of the
Seller), true, correct and complete copies of which have
been heretofore provided to the Buyer. To the knowledge of
the Seller, the employees of the Seller have observed all
procedures with respect to "insider trading", purchases and
sales of securities, treatment of confidential and proprie-
tary information and conflicts of interest in accordance
with the applicable procedures set forth in the Documents
listed on Schedule 4.22(b) of the Disclosure Statement.
Senior management of the Seller supervises its employees
with respect to compliance with all applicable Laws,
including without limitation, the Advisers Act, and the
applicable policies, procedures, codes of ethics and
guidelines of Continental and the Seller.
<PAGE>
41
4.23 Officers, Directors and Employees.
---------------------------------
Section 4.23 of the Disclosure Statement sets forth (i) the
name and total annual compensation (including bonuses and
commissions) of each officer and director of the Seller and
the Subsidiary and of each other employee, consultant, agent
or other representative of the Seller whose current or
committed annual rate of compensation (including bonuses and
commissions) exceeds $200,000, (ii) all wage or salary
increases, bonuses and increases in any other direct or
indirect compensation received by such Persons since the
Balance Sheet Date, (iii) any payments or commitments to pay
any severance or termination pay to any such Persons,
(iv) any accrual for, or any commitment or agreement by the
Seller or the Subsidiary to pay, such increases, bonuses or
severance pay and (v) any commitments, agreements or
understandings to increase or to otherwise modify the terms
or conditions of employment of any such Persons. Except as
set forth on Section 4.23 of the Disclosure Statement, none
of such Persons has given written notice to the Seller or
the Subsidiary that he or she will cancel or otherwise
terminate such Person's relationship with the Seller or the
Subsidiary, as the case may be, by reason of the Contem-
plated Transactions or otherwise. Except as set forth on
Section 4.23 of the Disclosure Statement, no employee of the
Seller whose committed annual rate of compensation
(including bonuses and commissions) exceeded $100,000 has,
<PAGE>
42
at any time within the last five years, terminated his or
her relationship with the Seller.
4.24 Operations of the Business. Except as
--------------------------
set forth on Section 4.24 of the Disclosure Statement, since
the Interim Balance Sheet Date neither the Seller nor the
Subsidiary has:
(i) amended, or agreed to amend its
Certificate of Incorporation or By-laws (or comparable
instruments), or merged with or into or consolidated
with, or agreed to merge with or into or consolidate
with, any other Person, subdivided or in any way
reclassified any shares of its capital stock, or
changed or agreed to change in any manner the rights of
its outstanding capital stock;
(ii) issued or sold or purchased, or
issued options or rights (including without limitation,
any stock appreciation right, phantom stock or similar
right or instrument) to subscribe to, or entered into
any Contracts to issue or sell or purchase, any shares
of its capital stock or rights (including without
limitation, any stock appreciation right, phantom stock
or similar right or instrument) to acquire such capital
stock;
(iii) hired, or agreed to hire, any
Person for a current annual compensation (including
bonuses and commissions) in excess of $100,000, or
entered into or amended (so as to increase the annual
<PAGE>
43
compensation, including bonuses and commissions,
payable thereunder), or agreed to enter into or so
amend, any employment or consulting Contract which
provides for annual compensation (including bonuses and
commissions) in excess of $200,000; or entered into or
amended, or agreed to enter into or amend, any Benefit
Plan, made any material change in the actuarial methods
or assumptions used in funding any Benefit Plan, or
made any material change in the assumptions or factors
used in determining benefit equivalencies thereunder;
(iv) incurred any indebtedness for
borrowed money or guaranteed the indebtedness of other
Persons;
(v) declared or paid any dividends or
declared or made any other distributions of any kind to
its shareholders, or made any direct or indirect
redemption, retirement, purchase or other acquisition
of any shares of its capital stock or other securities
or options, warrants or other rights to acquire capital
stock;
(vi) reduced its cash or short term
investments or their equivalent, other than to meet
cash needs arising in the ordinary course of business,
consistent with past practices;
(vii) waived, or agreed to waive, any
right of material value to the Business;
<PAGE>
44
(viii) made, or agreed to make, any
material change in its accounting methods or practices
for Tax or accounting purposes or made, or agreed to
make, any material change in depreciation or
amortization policies or rates adopted by it for Tax or
accounting purposes;
(ix) materially changed, or agreed to
materially change, any of its business policies or
practices that relate to the Business, including,
without limitation, fee structure, interest rate
management, security selection, sales and marketing,
personnel, budget or product development policies;
(x) made any loan or advance to any of
its shareholders, officers, directors, employees,
consultants, agents or other representatives (other
than travel advances made in the ordinary course of
business), or made any other loan or advance otherwise
than in the ordinary course of business;
(xi) entered into, or agreed to enter
into, any lease (as lessor or lessee) concerning real
property of the Business; sold, abandoned or made any
other disposition of any of the material assets or
properties of the Business, except in the ordinary
course of business; granted or suffered, or agreed to
grant or suffer, any Lien (other than Permitted Liens)
on any of the Purchased Assets; entered into or
amended, or agreed to enter into or amend, any Contract
<PAGE>
45
pursuant to which the Purchased Assets or the Business
are bound or subject, pursuant to which it agrees to
indemnify any party on behalf of the Business or
pursuant to which it agrees to refrain from competing
with any party with respect to the Business;
(xii) except in the ordinary course of
business or in amounts less than $100,000 in each case,
incurred or assumed, or agreed to incur or assume, any
Liability (whether or not currently due and payable)
relating to the Business or any of the Purchased
Assets;
(xiii) except for equipment, materials and
supplies acquired in the ordinary course of business,
made any acquisition, other than on behalf of a Client,
of all or any part of the assets, properties, capital
stock or business of any other Person having a value in
excess of $10,000;
(xiv) paid, directly or indirectly, any
of its material Liabilities relating to the Business or
any of the Purchased Assets before the same became due
in accordance with its terms or otherwise than in the
ordinary course of business;
(xv) made any material change in its
overall investment strategy or mix of products;
(xvi) terminated, or agreed to terminate,
or to the knowledge of the Seller, failed to renew, or
received any written threat (that was not subsequently
<PAGE>
46
withdrawn) to terminate or fail to renew any Contract
with respect to any of the Purchased Assets or the
Business other than any such termination or failure to
renew that, individually or in the aggregate, has not
had or could not be reasonably expected to have a
Material Adverse Effect;
(xvii) entered into, or agreed to enter
into, any Contract with Continental or any of its
Affiliates; or
(xviii) except in the ordinary course of
business consistent with past practice, entered into or
amended, or agreed to enter into or amend, any other
material Contract or other material transaction
relating to the Business or the Purchased Assets.
4.25 Potential Conflicts of Interest.
-------------------------------
Except as set forth in Section 4.25 of the Disclosure
Statement, to the knowledge of Continental and the Seller,
no officer or director of the Seller or any entity
controlled by any such officer or director (i) owns,
directly or indirectly, any interest in (excepting not more
than 1% stock holdings for investment purposes in securities
of publicly held and traded companies), or is an officer,
director, employee or consultant of, any Person which is, or
is engaged in business as, a competitor, lessor, lessee,
Client or supplier of the Seller; (ii) owns, directly or
indirectly, in whole or in part, any Intellectual Property
which the Seller uses or the use of which is necessary for
<PAGE>
47
the Business; or (iii) has any cause of action or other
claim whatsoever against, or owes any amount to, the Seller
except for claims in the ordinary course of business, such
as for accrued vacation pay, accrued benefits under Benefit
Plans, and similar matters and agreements existing on the
date hereof.
4.26 Transactions with Continental and its
-------------------------------------
Affiliates. Section 4.26 of the Disclosure Statement
----------
(i) lists all Contracts (other than with respect to
arrangements or relationships that have no ongoing or
outstanding Liabilities) between the Seller or the
Subsidiary, on the one hand, and Continental and its
Affiliates, on the other hand, true, correct and complete
copies or, in the case of oral arrangements, descriptions of
which have heretofore been provided to the Buyer; (ii) lists
all investment management or investment advisory Contracts,
pursuant to which any financial assets of Continental or any
of its subsidiaries or Affiliates are managed by any
investment adviser other than the Seller, true, correct and
complete copies or, in the case of oral arrangements,
descriptions of which have heretofore been provided to the
Buyer; (iii) the fee arrangements and the assets under
management under any of the items listed pursuant to
clause (i) or (ii) above; and (iv) describes all material
services (including, without limitation, accounting,
insurance, human resources, legal and systems management)
<PAGE>
48
provided at any time during the last twelve (12) months by
Continental or any of its Affiliates to the Seller or the
Subsidiary in connection with the conduct of the Business.
4.27 Derivatives. The description of any
-----------
options, interest rate or currency SWAPs, futures or forward
Contracts or any other derivative instruments or hedging
devices used by the Seller as set forth in the "Derivative
Exposure Report for the Continental Corporation" prepared by
the Seller, heretofore provided to the Buyer, is accurate in
all material respects as of the date of its preparation and
the use of such derivative instruments or hedging devices by
the Seller in the operation of the Business has not changed
in any manner since the date of preparation of such report
which has had, or could reasonably be expected to have, a
Material Adverse Effect.
4.28 Securities Portfolio. Section 4.28 of
--------------------
the Disclosure Statement sets forth a true, correct and
complete list, as of September 30, 1994, the 12 largest
positions, on an aggregate basis, invested by the Seller on
behalf of Clients in (x) equity securities and (y) non-
investment grade debt securities.
4.29 Banks, Brokers and Proxies. Sec-
--------------------------
tion 4.29 of the Disclosure Statement sets forth (i) the
name of each bank, trust company, securities or other broker
or other financial institution with which the Seller or the
Subsidiary has an account, credit line or safe deposit box
or vault; (ii) the name of each Person authorized by the
<PAGE>
49
Seller to draw thereon or to have access to any safe deposit
box or vault; (iii) the purpose of each such account, safe
deposit box or vault; and (iv) the names of all Persons
authorized by proxies, powers of attorney or other
instruments to act on behalf of the Seller or the Subsidiary
in matters concerning its business or affairs.
4.30 Full Disclosure. This Agreement and
---------------
the Transaction Documents taken as a whole do not contain an
untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements made, in the context in which made, not
materially false or misleading.
5. Representations and Warranties of the Buyer.
-------------------------------------------
The Buyer represents and warrants to the Seller and
Continental as follows:
5.1 Due Organization.
----------------
(a) The Buyer is a limited partnership
duly organized, validly existing and in good standing under
the laws of the State of Delaware, and has all requisite
power and authority to own, lease and operate its assets,
properties and business and to carry on its business as now
being conducted. The Buyer is duly qualified or otherwise
authorized as a foreign limited partnership to transact
business and is in good standing in such jurisdiction set
forth in Section 5.1(a) of the Disclosure Statement, which
are the only jurisdictions in which such qualification or
authorization is required by Law.
<PAGE>
50
(b) The Buyer has heretofore delivered
to the Seller and Continental a true and complete copy of
the Certificate of Limited Partnership of the Buyer (certi-
fied by the Secretary of State of the State of Delaware) as
in effect on the date hereof. The copies of the Certificate
of Limited Partnership (certified by the Secretary of State
of the State of Delaware) of the Buyer and the Agreement of
Limited Partnership of the Buyer (certified by the General
Partner of the Buyer), which will be delivered to
Continental pursuant to Section 6.21, will be true and
complete copies of such documents, in each case as in effect
on the Closing Date.
5.2 Authority to Execute and Perform
--------------------------------
Agreements. The Buyer has the full power and authority and
----------
approvals required to execute and deliver this Agreement and
each other Transaction Document to which it is a party, and
to perform fully its obligations hereunder and thereunder,
and this Agreement has been duly executed and delivered by
the Buyer, and is a valid and binding obligation of the
Buyer enforceable in accordance with its terms, and each
Transaction Document, upon execution and delivery by the
Buyer, will be duly executed and delivered by the Buyer and
will be a valid and binding obligation of the Buyer enforce-
able against the Buyer in accordance with their respective
terms. Except as set forth in Section 5.2 of the Disclosure
Statement, the execution and delivery by the Buyer of this
Agreement, the consummation of the Contemplated Transactions
<PAGE>
51
and the performance by the Buyer of this Agreement and each
Transaction Document to which it is a party will not
(i) require any consent, approval or action of, or any
filing with, or notice to, any Governmental Body or any
other Person; (ii) conflict with or result in any breach or
violation of any of the terms and conditions of, or
constitute (or with notice or lapse of time or both
constitute) a default under its organizational documents,
any Law or Order of any Governmental Body applicable to the
Buyer, or any Contract to which the Buyer is a party or by
or to which the Buyer or any of its assets or properties is
bound or subject; or (iii) result in the creation of any
Lien on any of the assets or properties of the Buyer.
5.3 Buyer's Business. The Buyer is a newly
----------------
organized Delaware limited partnership organized exclusively
for the purpose of purchasing the Purchased Assets and
consummating the Contemplated Transactions. The Buyer has,
and immediately following the Closing, will have, no other
business or purpose other than the ownership of the
Purchased Assets and the conduct of the Business. The Buyer
does not have any material Liabilities of any nature, other
than under this Agreement and, when executed and delivered,
the Transaction Documents to which it is party, and under
any bank credit agreement relating to the bank financing
contemplated by Section 8.7.
<PAGE>
52
5.4 Litigation. There are no claims pending
----------
or, to the knowledge of the Buyer, threatened against the
Buyer with respect to any of its properties or assets.
5.5 Capitalization of the Buyer. It is the
---------------------------
present intention of the Buyer to capitalize the Buyer with
approximately $500,000 of equity; $4.5 million of junior
subordinated debt (or preferred partnership interests);
$10 million of subordinated debt; and $22 million of senior
bank debt (subject to the Letter of Credit facility). The
definitive capitalization of the Buyer as of the Closing
Date, which will be delivered to Continental pursuant to
Section 6.17, will be true and complete.
5.6 Financing. Each of Insurance Partners,
---------
L.P. and Oak Hill Partners, Inc. and each other Affiliate of
the Buyer whose consent is necessary to consummate the Con-
templated Transactions has the full legal right and power
and all partnership authority and approvals required to make
the equity investments required to capitalize the Buyer in
the manner described in Section 5.5 hereof.
5.7 Qualification as Investment Adviser.
-----------------------------------
Neither the Buyer nor, to the knowledge of the Buyer, any
"person associated with" the Buyer (as such term is defined
under Section 202(a)(17) of the Advisers Act) is subject to
any disqualification which would pursuant to Section 203(e)
of the Advisers Act be a basis for denial, suspension or
revocation of registration under the Advisers Act of the
Buyer as an investment adviser, and, to the knowledge of the
<PAGE>
53
Buyer, no other basis exists for the denial by the
Commission pursuant to Section 203(c) of the Advisers Act by
the Commission of the registration of the Buyer under the
Advisers Act as an investment adviser.
6. Covenants and Agreements. The parties hereto
------------------------
covenant and agree as follows:
6.1 Conduct of Business. From the date
-------------------
hereof through the Closing Date, the Seller agrees to
conduct the Business in the ordinary course and, without the
prior written consent of the Buyer (unless specifically
contemplated by this Agreement), not to undertake any of the
actions specified in Section 4.24 and the Seller shall
conduct the Business in such a manner so that the
representations and warranties contained in Section 4 shall
continue to be true and correct on and as of the Closing
Date as if made on and as of the Closing Date. The Seller
or Continental shall give the Buyer prompt notice of any
event, condition or circumstance occurring from the date
hereof through the Closing Date that would constitute a
violation or breach in any material respect of any represen-
tation or warranty contained in this Agreement, whether made
as of the date hereof or as of the Closing Date, or that
would constitute a violation or breach in any material
respect of any covenant of the Seller or Continental
contained in this Agreement.
6.2 Insurance. From the date hereof through
---------
the Closing Date, Continental shall, and where appropriate
<PAGE>
54
cause the Seller to, maintain in force (including necessary
renewals thereof) the insurance policies relating to the
Business or any of the Purchased Assets listed in the
Disclosure Statement, except to the extent that they may be
replaced with equivalent policies appropriate to insure the
assets, properties, business and operations of the Business
or any of the Purchased Assets to the same extent as
currently insured.
6.3 Litigation. From the date hereof
----------
through the Closing Date, Continental and the Seller shall
notify promptly the Buyer of (i) any Claims that are, to the
knowledge of the Seller, threatened or commenced against the
Seller or the Subsidiary or against any officer, director or
professional employee of the Seller or the Subsidiary
arising out of or relating to the affairs or conduct of the
Business or relating to any of the Purchased Assets and
(ii) any requests for additional information or documentary
materials by any Governmental Body pursuant to the HSR Act
and the rules and regulations promulgated thereunder.
6.4 Corporate Examinations and Investiga-
-------------------------------------
tions.
-----
(a) Prior to the Closing Date, the
Seller and Continental agree that the Buyer shall be
entitled, through its employees and representatives,
including, without limitation, Paul, Weiss, Rifkind,
Wharton & Garrison, Schulte Roth & Zabel, Putnam Lovell and
Arthur Andersen LLP, to make such investigation of the
<PAGE>
55
assets, properties, business and operations of the Business
and any of the Purchased Assets (and of Continental and its
Affiliates insofar as they relate to the operations of the
Business or any of the Purchased Assets), and such examina-
tion of the books, records and financial condition of the
Business (and of Continental and its Affiliates insofar as
they relate to the operations of the Business or any of the
Purchased Assets) as the Buyer may reasonably request. Any
such investigation and examination shall be conducted during
normal business hours, upon reasonable notice and under
reasonable circumstances and the Seller and Continental
shall cooperate reasonably therein. Prior to the Closing,
the Seller and Continental shall furnish promptly or make
available to the Buyer and its representatives all informa-
tion concerning the affairs of the Business or any of the
Assets (and of Continental or its Affiliates insofar as they
relate to the operations of the Business or the Purchased
Assets) as the Buyer or its representatives may reasonably
request, provided that any review will be conducted in a way
--------
that will not interfere unreasonably with the conduct of the
Business. No investigation by the Buyer shall affect or be
deemed to modify any of the representations, warranties,
covenants or agreements of the Seller and Continental con-
tained in this Agreement. The Buyer will keep, and will
cause its employees and Affiliates to keep, all information
and documents obtained pursuant to this Section 6.4(a)
confidential except as required by Law and except to the
<PAGE>
56
extent that the Buyer becomes the owner of such information
and documents as a result of the transfer thereof to the
Buyer pursuant to this Agreement. If disclosure is required
by Law, the party required to make such disclosure shall
give notice to the other party so that it may seek a protec-
tive order. Prior to the Closing Date, the Seller and
Continental shall use reasonable efforts to facilitate the
Buyer's introduction to the Clients and shall provide the
Buyer and its representatives with an opportunity to meet
with representatives of the Clients. Any such meetings
shall be conducted at reasonable times and under reasonable
circumstances and Continental and the Seller shall cooperate
reasonably therein.
(b) From and after the Closing Date,
the parties hereto shall reasonably cooperate with each
other with respect to actions required or requested to be
undertaken with respect to administrative or regulatory
actions or proceedings and litigations which may occur after
the Closing Date with respect to the conduct of the Business
on or prior to the Closing Date, and make available to each
other such corporate, accounting and other records as may be
reasonably requested in connection with such matters. Each
party will allow representatives of any other party access
to such records upon reasonable notice, during normal
business hours and under reasonable circumstances in such a
way that will not interfere unreasonably with the conduct of
the business of the party providing access, provided that
--------
<PAGE>
57
all information and documents obtained pursuant to this Sec-
tion 6.4(b) will be kept confidential except as required by
Law. If disclosure is required by Law, the party required
to make such disclosure shall give notice to the other party
so that it may seek a protective order. From and after the
Closing Date, each of the Seller and Continental agree that
it shall provide, upon reasonable notice, the Buyer and its
representatives such accounting information with respect to
allocations made through the Closing Date between the Seller
and the Subsidiary, on the one hand, and Continental, on the
other hand as may be reasonably requested. The parties
agree to retain, for a period of seven years after the
Closing Date, any and all books and records related to the
Purchased Assets, Liabilities and operations of the Business
for all periods through the Closing Date.
(c) From and after the date hereof, the
Seller and Continental shall keep, and will cause its
employees and Affiliates to keep, all information relating
to the Business (other than Excluded Liabilities) and the
Purchased Assets confidential except as required by Law or
regulatory reporting requirements or the defense of any
Claim against the Seller or Continental.
6.5 Consent to Jurisdiction and Service of
--------------------------------------
Process. Any legal action, suit or proceeding arising out
-------
of or relating to this Agreement or the Contemplated
Transactions may be instituted in any court of the State of
New York in New York County or the United States District
<PAGE>
58
Court for the Southern District of New York, and each party
agrees not to assert, by way of motion, as a defense, or
otherwise, in any such action, suit or proceeding, any claim
that it is not subject personally to the jurisdiction of
such court, that its property is exempt or immune from
attachment or execution, that the action, suit or proceeding
is brought in an inconvenient forum, that the venue of the
action, suit or proceeding is improper or that this
Agreement or the subject matter hereof may not be enforced
in or by such court. Each party further irrevocably submits
to the jurisdiction of any such court in any such action,
suit or proceeding. Any and all service of process and any
other notice in any such action, suit or proceeding shall be
effective against any party if given personally or by
registered or certified mail, return receipt requested, or
by any other means of mail that requires a signed receipt,
postage prepaid, mailed to such party as herein provided.
Nothing herein contained shall be deemed to affect the right
of any party to serve process in any manner permitted by law
or to commence legal proceedings or otherwise proceed
against any other party in any other jurisdiction.
6.6 Expenses. Whether or not this Agreement
--------
is terminated or the Contemplated Transactions are
consummated, Continental agrees to bear and pay all of the
Transaction Expenses (as defined below) incurred by or on
behalf of Continental and its Affiliates and all of the
Transaction Expenses incurred by or on behalf of the Buyer
<PAGE>
59
and its Affiliates; provided, however, that if this
-------- -------
Agreement is terminated pursuant to Section 12.1(i) by the
Seller, then Continental shall only be obligated to reim-
burse the Buyer and its Affiliates for Transaction Expenses
incurred by or on behalf of the Buyer and its Affiliates in
the manner provided in Section 6.10 of the Securities
Purchase Agreement; and provided further, that if the Buyer
-------- -------
fails to close the Contemplated Transactions upon the satis-
faction of the closing conditions set forth in Section 8, or
the Seller terminates this Agreement pursuant to Sec-
tion 12.1(iii), then Continental shall not be obligated to
reimburse the Buyer and its Affiliates for Transaction
Expenses incurred by or on behalf of the Buyer and its
Affiliates. Notwithstanding the foregoing, Continental will
not be required to pay any Transaction Expenses with respect
to any advisor of the Buyer or its Affiliates engaged
thereby after the date hereof unless Continental has con-
sented to such engagement (which consent shall not be
unreasonably withheld). "Transaction Expenses" shall mean,
with respect to any Person, the expenses of such Person
(whether or not incurred prior to the date hereof),
including, without limitation, the fees, disbursements and
other expenses of lawyers, accountants, actuaries,
investment bankers, risk management consultants, money
management consultants and any other advisors, arising out
of, relating to, or incidental to, the discussion,
evaluation, negotiation, documentation and Closing or poten-
<PAGE>
60
tial Closing of the Contemplated Transactions, including,
without limitation, this Agreement, and shall mean and
include with respect to fees of professionals based on
hourly rates, such fees to the extent they are based on
standard hourly rates of such professionals.
6.7 Indemnification of Brokerage. The Buyer
----------------------------
represents and warrants to the Seller and Continental that
except for Putnam Lovell, Inc. ("Putnam Lovell"), who have
acted as financial consultants to the Buyer and its
Affiliates in connection with the Contemplated Transactions,
no broker, finder, agent or similar intermediary (a
"Broker") has acted on behalf of the Buyer in connection
with this Agreement or the Contemplated Transactions, and
that, except for the fees and expenses of Putnam Lovell that
are payable by the Seller and Continental to the Buyer
pursuant to Section 6.6, there are no brokerage commissions,
finders' fees or similar fees or commissions payable in
connection therewith based on any agreement, arrangement or
understanding with the Buyer or any action taken by the
Buyer. Except for the fees and expenses of Putnam Lovell
that are payable by the Seller and Continental pursuant to
Section 6.6, the Buyer agrees to indemnify and save the
Seller, Continental and their Affiliates harmless from any
claim or demand for commission or other compensation by any
Broker claiming to have been employed by or on behalf of the
Buyer, and to bear the cost of legal expenses incurred in
defending against any such claim. Continental and the
<PAGE>
61
Seller, jointly and severally, represent and warrant to the
Buyer that except for Goldman Sachs & Co., who has acted as
financial advisor to Continental and the Seller and their
respective Affiliates in connection with the Contemplated
Transactions, no Broker has acted on behalf of Continental
or the Seller in connection with this Agreement or the
Contemplated Transactions, and that, except for any fees and
expenses payable to Goldman Sachs & Co. (the "Seller's
Fee"), there are no brokerage commissions, finders' fees or
similar fees or commissions payable in connection therewith
based on any agreement, arrangement or understanding with
Continental or the Seller, or any action taken by
Continental or the Seller. The Seller and Continental agree
to pay the Seller's Fee and, jointly and severally, agree to
indemnify and save the Buyer and its Affiliates harmless
from any claim or demand for commission or other
compensation by any Broker claiming to have been employed by
or on behalf of Continental or the Seller, and to bear the
cost of legal expenses incurred in defending against any
such claim.
6.8 Further Assurance. Each of the parties
-----------------
shall execute such documents and other papers and take such
further actions as may be reasonably requested to carry out
the provisions hereof and the Contemplated Transactions
(including, without limitation, the furnishing of
information and Documents as may be required by the
Commission or any state agency with respect to the Advisers
<PAGE>
62
Act or by the Department of Justice (the "DOJ") or the
Federal Trade Commission (the "FTC") under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), in a timely manner to obtain the requisite
regulatory approvals in order to consummate the Contemplated
Transactions). Subject to the terms and conditions set
forth herein, each of the parties hereto agrees to use its
reasonable efforts to take, or cause to be taken, all
action, and to do, or cause to be done, all things necessary
or advisable to consummate the Contemplated Transactions and
to effect any transfer and assignment of this Agreement made
pursuant to Section 6.14(vi).
6.9 Sublease; Services Agreement.
----------------------------
(i) From and after the Closing Date,
Continental shall provide the Buyer with the use and
enjoyment of the premises heretofore used and occupied by
the Seller in connection with the Business (and access to
all building amenities heretofore and hereinafter available
to employees of the Seller or other tenants of the building)
located at 180 Maiden Lane, New York, New York pursuant to a
Sublease (the "New Sublease") to be executed and delivered
by the Buyer and Continental on the Closing Date containing
the terms and conditions set forth on Exhibit E hereto and
other customary provisions satisfactory to the parties
thereto.
(ii) From and after the Closing Date,
Continental shall provide the Buyer with certain adminis-
<PAGE>
63
trative services as are required by the Buyer pursuant to a
services agreement (the "Services Agreement") to be executed
and delivered by the Buyer and Continental on the Closing
Date containing the terms and conditions set forth on
Exhibit F hereto and other customary provisions satisfactory
to the parties thereto.
6.10 Consents.
--------
(i) From and after the date hereof, the
Seller or Continental, as the case may be, shall consult
with the Buyer prior to obtaining any of the consents and
approvals described in Section 6.10(v) and, in connection
therewith, neither the Seller nor Continental shall take any
action to obtain such consents or approvals without the
prior consent of the Buyer as to the form and substance of
such consent or approval, which consent of the Buyer shall
not be unreasonably withheld.
(ii) Prior to the Closing Date, the
Seller and Continental shall use their reasonable efforts to
obtain all Required Consents from (x) parties to any of the
Seller's Contracts (other than any investment advisory or
management Contracts, as to which clause (v) below shall
apply) that relate to the Business or any of the Purchased
Assets as to the assignment of such Contracts to the Buyer
on the Closing Date and (y) Governmental Bodies that are
required in connection with the performance by the Seller of
its obligations under this Agreement, provided that neither
--------
the Seller nor Continental shall be required to pay or
<PAGE>
64
commit to pay any amount to (or incur any obligation in
favor of) any Person from whom any such Required Consent
shall be required. All such Required Consents shall be in
writing and executed counterparts thereof shall be delivered
to the Buyer at or prior to the Closing. The Seller shall
not consent to any modification of any Contract in the
course of obtaining any such Required Consent, without the
prior written approval of the Buyer.
(iii) To the extent that the approval,
consent or permission of any Governmental Body or other
Person is necessary or desirable for the Buyer to obtain in
connection with the conduct of the Business after the
Closing, including the issuance of such new Permits as may
be required for the Buyer to conduct said Business, the
Seller shall, at the Buyer's request, reasonably cooperate
with the Buyer in obtaining all such approvals, consents or
permissions; provided, that neither the Seller nor
--------
Continental shall be required to pay or commit to pay any
amount to (or incur any obligation in favor of) any Person
to whom any such approval, consent or permission may be
required.
(iv) In the event that the consent of
any Person (other than a Governmental Body) to the assign-
ment to the Buyer of any Contract (other than an investment
advisory or management Contract, as to which clause (v)
below shall apply) that is contemplated hereunder to consti-
tute a Purchased Asset is required but not obtained at or
<PAGE>
65
prior to the Closing (each, a "Non-Consented Contract"),
Continental and the Seller agree to reasonably cooperate
with the Buyer prior to the Closing and for a period of
12 months thereafter in subsequently seeking such consent
and, until and unless such consent is obtained, in any
reasonable arrangements designed to provide to the Buyer
after the Closing the benefits under any such Non-Consented
Contract, including by consenting to the enforcement (at the
Buyer's expense) by the Buyer, in the name of the Seller, of
any and all rights of the Seller against each other party
thereto, provided that neither the Seller nor Continental
--------
shall be required to pay or commit to pay any amount to (or
incur any obligation in favor of) any Person from whom any
such consent shall be required. To the extent that the
Buyer is provided the benefits, pursuant to this Sec-
tion 6.10(iv), of any such Non-Consented Contract, the Buyer
shall pay, honor and discharge when due all Liabilities of
the Seller thereunder or in connection therewith.
(v) The Seller and Continental shall
use their reasonable efforts to obtain the written consents
and approvals of all Clients with respect to the assignment
(as defined under the Advisers Act) of all investment
advisory and management Contracts in effect as of the
Closing Date, provided that neither the Seller nor
--------
Continental shall be required to pay any amount to (or incur
any obligation in favor of) any Person from whom any such
consent or approval shall be required. In connection there
<PAGE>
66
with, prior to the Closing, Continental or the Seller shall
deliver notices approved by the Buyer and its counsel (which
approval shall not be unreasonably withheld) of the proposed
"change of control" resulting from the Contemplated Transac-
tions to each of the Clients. Subject to Section 6.10(i)
above, the Seller and Continental shall take all reasonable
action to obtain such Clients' consent to the assignment (as
defined under the Advisers Act) of the Seller's investment
advisory or management Contracts (provided, that neither the
--------
Seller nor Continental shall be required to pay or commit to
pay any amount to (or incur any obligation in favor of) any
Person from whom any such consent shall be required) as
contemplated hereby, and the Seller shall provide written
notice to each such Client in a form approved by the Buyer
and its counsel (which approval shall not be unreasonably
withheld) notifying such Client (x) of the Contemplated
Transactions and the anticipated Closing Date, (y) that
control of its investment adviser will change at the Closing
Date and (z) requesting the consent of such Client to the
assignment (as defined under the Advisers Act) to the Buyer
of its investment advisory or management Contract upon the
consummation of the Contemplated Transactions.
6.11 Form ADV. Prior to the Closing, the
--------
parties hereto shall cooperate and consult with each other
in the preparation and filing of all forms and amendments to
forms, including, without limitation, Form ADV and other
forms required to be filed with Governmental Bodies,
<PAGE>
67
including, without limitation, the Commission, and self-
regulatory organizations and state securities commissions,
and all other documents required to be filed or delivered
under any applicable Laws, including, without limitation,
the Advisers Act and applicable related state acts and
insurance Laws, as a result of the consummation of the
Contemplated Transactions. The Buyer will make its Form ADV
available to the Seller in connection with obtaining
consents under Section 6.10(v) above.
6.12 Non-Competition Agreement. On the
-------------------------
Closing Date, Continental and the Buyer shall execute and
deliver a Non-Competition Agreement with a term of seven
years, substantially in the form of Exhibit G hereto (the
"Non-Competition Agreement").
6.13 Option Agreement.
----------------
(i) On the Closing Date, Continental
and partners of the Buyer shall execute and deliver an
Option Agreement (the "Option Agreement") containing the
terms and conditions set forth on Exhibit H hereto and other
provisions satisfactory to the parties thereto.
(ii) In the event that Continental
exercises the option granted to it pursuant to the Option
Agreement, Continental shall have the right, commencing at
the time of such exercise, to designate such number of
representatives to the Board of Directors (or similar
supervisory body) of the General Partner of the Buyer as is
equal to the product of (x) the total number of representa-
<PAGE>
68
tives constituting the Board of Directors (or similar super-
visory body) of the General Partner of the Buyer and
(y) 19.9% (subject to adjustment as provided in the Option
Agreement and rounding upward to another representative if
such product is not a whole number and includes a fraction
of one-half or greater).
6.14 Management of Continental's Investment
--------------------------------------
Assets.
------
(i) It is the current intention of
Continental that the Buyer will manage, consistent with past
practice, the investment assets of Continental, its
subsidiaries and each of its Affiliates where Continental
controls investment decisions (Continental together with
such subsidiaries and Affiliates shall hereinafter be
referred to as the "Continental Parties"); provided,
--------
however, that the Board of Directors of Continental (or its
-------
specifically authorized designee) may elect otherwise at any
time.
(ii) Continental shall, and shall cause
each of the other Continental Parties that are a party to an
investment advisory or management Contract with the Seller
to, consent to the "assignment" (as defined under the
Advisers Act) of their respective Contracts to the Buyer
upon the consummation of the Contemplated Transactions.
Such parties are listed on Section 6.14(ii) of the
Disclosure Statement. During the Designated Period, the
Buyer will maintain the ability to manage asset classes of
<PAGE>
69
the type listed on Section 6.14(ii) of the Disclosure
Statement (collectively, the "Designated Asset Classes") in
addition to any other asset classes that it may so elect.
The Buyer will continue to provide consulting with respect
to the asset classes listed on Section 6.14(ii)(b) of the
Disclosure Statement.
(iii) During the period from and after
the Closing Date and for a period of seven years thereafter
(the "Designated Period"), the Board of Directors of
Continental (or its specifically authorized designee) may
request the Buyer or its Affiliates to manage asset classes
other than the Designated Asset Classes (such asset classes
shall hereinafter be referred to as "Non-Designated Asset
Classes"). Management by the Buyer of Non-Designated Asset
Classes of the Continental Parties shall be subject to
investment advisory or management Contracts providing for
terms satisfactory to the parties thereto.
(iv) During the Designated Period, the
Board of Directors of Continental (or its specifically
authorized designee) shall have the right to select an
investment advisor other than the Buyer to manage
Continental's Non-Designated Asset Classes and, in
connection therewith, the Buyer shall have the obligation,
at the request of the Board of Directors of Continental (or
its specifically authorized designee), (x) to consult with
the Board of Directors of Continental (or its specifically
authorized designee) to discuss the selection of such
<PAGE>
70
advisor and the proposed investment advisory arrangements
and (y) after the selection of such Person by the Board of
Directors of Continental (or its specifically authorized
designee), to act as a non-exclusive financial advisor in
negotiating arrangements for and monitoring the performance
of such Person's investment advisory services for
Continental.
(v) Prior to the Closing Date, the
investment advisory and management Contracts of the
Continental Parties shall be amended to provide (a) mutually
agreeable fee schedules, subject to mutual review quarterly,
and (b) for any modifications required to comply with and to
respond to any comments of the Staff of the Commission as a
result of its most recent compliance report. In no event
shall the aggregate quarterly fees paid in any quarter to
the Buyer by the Continental Parties for the management of
assets in the Designated Asset Classes exceed $3.85 million.
(vi) The Buyer agrees that it will not
assign this Agreement (including any of the Buyer's rights
and remedies hereunder) through the second anniversary of
the Closing Date without the consent of Continental. After
the second anniversary of the Closing Date, the Buyer may
assign this Agreement (including all of the Buyer's rights
and remedies hereunder) with the consent of Continental,
which consent shall not be unreasonably withheld, but only
if (a) such Person manages in excess of $7.5 billion in
fixed income assets before such transfer and (b) such Person
<PAGE>
71
has, or will have after giving effect to the relevant
transaction, the capacity to manage and service the
investment assets of the Continental Parties in a manner and
at a level substantially similar to that of the Buyer at the
time of the transaction.
(vii) On or prior to the fifth
anniversary of the Closing Date, Continental shall give the
Buyer a non-binding written indication of its request, if
any, to extend the Designated Period.
6.15 Certain Tax Matters.
-------------------
(a) Allocations. No later than the
-----------
later of (i) 90 days following the Closing Date and
(ii) 90 days before the due date for the filing of any Tax
return or report by the Seller (or any of its Affiliates) or
the Buyer reflecting the Contemplated Transactions (the "Due
Date"), the Buyer shall provide to the Seller a proposed
allocation of the Purchase Price and the Assumed Liabilities
among the Purchased Assets. The Seller shall advise the
Buyer at or before the Closing Date of the Due Date
(determined solely with respect to the Seller). The Seller
and the Buyer shall thereafter consult in good faith in
determining a final allocation of such purchase price, which
shall be the Buyer's proposed allocation to the extent that
there is a reasonable basis for such proposed allocation
under applicable Law (the "Final Allocation"). The parties
agree to file all tax reports, returns and claims and other
statements consistent with the Final Allocation (and in
<PAGE>
72
particular to report the information required by sec-
tion 1060(b) of the Code) and shall not without the consent
of the other party make any inconsistent written statement
or take any inconsistent position on any returns, in any
refund claim, during the course of any Internal Revenue
Service or other tax audit, for any financial or regulatory
purpose, so long as there exists a reasonable basis in law
to maintain such position; provided that no party hereto
--------
shall be required to commence any judicial proceeding with
respect to any such allocation. Each party shall notify the
other party if it receives notice that the Internal Revenue
Service proposes any allocation different from Buyer's
allocation.
(b) Prorations. All personal property
----------
Taxes and all rents, utilities and other charges against, or
payable by the owner of, any of the Purchased Assets
relating to a time period beginning prior to, and ending
after, the Closing shall be prorated (based on the most
recent available tax statement, latest tax valuation and
latest bills) as of the Closing Date. If the Closing Date
occurs before the tax rate is fixed for the then current
fiscal or calendar year, whichever is applicable, the
proration of the corresponding Taxes shall be on the basis
of the tax rate for the last preceding year applied to the
latest assessed valuation.
(c) The Seller and the Buyer shall
(i) provide the other with such assistance as may be reason
<PAGE>
73
ably requested by either of them in connection with the
preparation of any Tax return, audit or examination by any
taxing authority or judicial or administrative proceeding
relating to liability for Taxes and (ii) retain (or deliver
to the other party) any material records or information
which may be relevant to such Tax return, audit or examina-
tion, proceeding or determination until the applicable
statute of limitations (including any extensions) has
expired for all Tax periods ending before or including the
Closing Date.
(d) Each of the Buyer and the Seller
shall give to the other party written notice of any proposed
adjustment made by any Taxing authority that could give rise
to an indemnification obligation under this Agreement on the
part of such other party (including any threatened audit or
other governmental proceedings) within 10 days after becom-
ing aware of any such proposed adjustment or threatened
audit or other governmental proceedings. The Seller shall
conduct and control any such audit or other governmental
proceedings to the extent it relates to Taxes that are
Excluded Liabilities and the Buyer shall in good faith
cooperate with the Seller in the conduct of such audit or
other governmental proceedings; provided that notwithstand-
--------
ing such control, the Seller shall not settle, compromise or
accept any assessment or adjustment in connection with any
such audit or other governmental proceedings that would
purport to bind or is otherwise likely to affect the Buyer
<PAGE>
74
without the prior written consent of the Buyer (which
consent shall not be unreasonably withheld).
(e) If either party receives a refund
of or credit for any Tax for which the other is required to
indemnify it hereunder (whether a Tax that is an Excluded
Liability or otherwise), such recipient shall pay to the
other party such refund or an amount equal to such credit,
together with any interest allocable to such refund received
from or allowed as credit against any liability by such
taxing authority, promptly after receipt of such refund or
interest from such taxing authority or realization of the
benefit of such credit by filing the relevant Tax return or
otherwise.
(f) The Buyer shall, at its expense,
prepare and file all Tax returns and documentation in
connection with all sales, use, transfer, stamp and similar
Taxes, and all recording, filing or registration fees,
notarial fees and other similar charges arising from or in
connection with the purchase, sale and transfer of the
Purchased Assets hereunder, the assumption of the Assumed
Liabilities, this Agreement or the Contemplated Transactions
and shall pay all such Taxes, fees and charges.
6.16 Employees and Benefit Plans.
---------------------------
(a) Employees.
---------
(i) On the Closing Date, except as
otherwise agreed by the Buyer and the Seller and as set
forth in Section 6.16(a) of the Disclosure Statement (the
<PAGE>
75
"Excluded Employees"), the Buyer shall offer to employ all
Employees in comparable positions after the Closing. For
purposes of this Agreement, the term "Employees" shall mean
those employees of the Seller who, on the Closing Date, are
actively employed by the Seller, including those employees
who are absent from employment due to illness, injury,
military service, or other authorized absence and including
those employees who are "disabled" (within the meaning of
the short-term disability plans currently applicable to the
Seller, but excluding employees who are "disabled" (within
the meaning of the long-term disability plans applicable to
the Seller), former employees, retired employees, Excluded
Employees and employees otherwise not actively employed by
the Seller. Each Employee who accepts such offer of
employment with the Buyer shall be referred to herein as a
"Transferred Employee."
(ii) Notwithstanding any provision
of this Agreement to the contrary, no provision shall be
construed to prohibit the Buyer or any Affiliate thereof
from having the right to terminate the employment of any
Transferred Employee, with or without cause, or to amend or
to terminate any employee benefit plan, established,
maintained or contributed to by the Buyer or an Affiliate
thereof after the Closing.
(iii) Solely for purposes of
eligibility to participate and vesting, service by any
Transferred Employee with the Seller, Continental or any of
<PAGE>
76
their Affiliates prior to the Closing shall be recognized
under any benefit plan or arrangement established,
maintained or contributed to by the Buyer or any of their
Affiliates after the Closing for the benefit of any such
Transferred Employee.
(b) Defined Contribution Plan.
-------------------------
(i) The Incentive Savings Plan of
The Continental Corporation (the "Continental Savings Plan")
covers current and former employees of Continental and
certain of its Affiliates, including the Seller. Effective
as of the Closing Date, Continental shall take such action
as is necessary to cease all accruals of benefits in respect
of the Transferred Employees. Within ninety (90) days after
the Closing Date, the Buyer shall establish a plan (the
"Buyer Savings Plan") and submit such plan to the IRS with a
request for a favorable determination with respect to its
qualified status.
(ii) As soon as practicable
following the Closing Date, Continental shall cause to be
transferred from the Continental Savings Plan to the Buyer
Savings Plan, and the Buyer shall cause to be assumed by the
Buyer Savings Plan, all liabilities for the accrued benefits
relating to the Transferred Employees (the "Account
Balances"), determined as of and as soon as practicable
after the valuation date (the "Valuation Date") under the
Continental Savings Plan next succeeding the earlier of:
(i) the date the Buyer Savings Plan receives a favorable
<PAGE>
77
determination letter from the IRS, and (ii) the date
Continental has received an opinion of counsel for the
Buyer, in form and substance satisfactory to Continental,
that the form of the Buyer Savings Plan meets, in all
material respects, the requirements of Section 401(a) of the
Code.
(iii) As soon as practicable
following the Valuation Date, Continental shall cause the
trustee under the Continental Savings Plan to transfer to
the trustee under the Continental Savings Plan cash, or if
Continental shall so determine, such other assets as shall
be acceptable to the Buyer, in the amount agreed upon in
this Section 6.16(b) equal to the Account Balances;
provided, however, that the assets transferred shall include
-------- -------
any Transferred Employee's plan loan and any allocable
portion of any guaranteed investment contract or similar
investment vehicle reasonably acceptable to the Buyer.
(iv) The Buyer and Continental
agree that for the period from the Closing Date to the date
(the "Savings Transfer Date") of the actual transfer of
assets provided for under this Section 6.16(b), the
Continental Savings Plan shall be liable for any distribu-
tion that becomes due to a Transferred Employee under such
plan, and that after the transfer of assets provided for
under this Section 6.16(b), the Buyer Savings Plan shall be
liable for any distribution that becomes due to any
Transferred Employee. In the event that benefit payments
<PAGE>
78
are made when they become due from the Continental Savings
Plan to a Transferred Employee under this Section 6.16(b),
the amount of assets to be transferred from such plan shall
be reduced by an amount equal to such distribution. Upon
the transfer of cash or such other assets provided
hereunder, Continental shall have no further liability to
the applicable Transferred Employees or to the Buyer in
connection with the Account Balances.
(c) Welfare Plans. Transferred
-------------
Employees shall cease active participation in the Benefit
Plans maintained by the Seller, Continental, or any of their
Affiliates applicable to Transferred Employees prior to the
Closing that are "welfare plans" (as defined in Section 3(l)
of ERISA) as of the Closing Date ("Seller's Welfare Plans");
provided, however, that at the request of the Buyer made at
-------- -------
least thirty days prior to the Closing Date, the Seller will
use its reasonable best efforts to make available continued
coverage of the Transferred Employees under any or all of
the Seller's Welfare Plans pursuant to the Services
Agreement specified in such request for the period
commencing on the Closing Date and ending on the first
anniversary thereof. If the Buyer makes such request, and
such request is granted, the Buyer shall reimburse the
Seller on a monthly basis, within 10 business days of
notification by the Seller of the amount of such costs, for
the monthly costs incurred in providing such coverage. The
costs of coverage shall be determined by the Seller, subject
<PAGE>
79
to review by the Buyer's actuarial consultant, in accordance
with the same methods and procedures such costs of coverage
were determined immediately prior to the Closing Date;
provided, however, that such costs shall not include any
-------- -------
indirect cost component.
(d) Retiree Medical and Life.
------------------------
Continental covenants and agrees to provide retiree medical
and life insurance coverage to each Transferred Employee
(i) who meets the requirements for coverage (other than
actual retirement) under any Benefit Plan providing such
coverage on the Closing Date or (ii) who, on the later of
thirty days following the Closing Date and January 31, 1995,
would, with service credited with the Buyer or any Affiliate
thereof after the Closing, subsequently meet the require-
ments for such coverage (other than actual retirement) under
any such Benefit Plan.
6.17 Definitive Capitalization of the Buyer.
--------------------------------------
The Buyer shall, as soon as practicable after the date
hereof but in no event later than five (5) days prior to the
Closing, deliver to Continental a true and complete descrip-
tion of the definitive capitalization of the Buyer on the
Closing Date.
6.18 Bulk Sales Compliance. The Buyer
---------------------
hereby waives compliance with the provisions of any bulk
transfer Laws applicable to the Contemplated Transactions.
6.19 Limited Use of Logo. The parties
-------------------
acknowledge and agree that (a) a portion of the Purchased
<PAGE>
80
Assets (including, without limitation, letterhead and other
stationery, sales literature and investment reports) bear
the Logo (collectively, "Marked Materials") and (b) the Logo
constitutes an Excluded Asset and no rights therein are
acquired by the Buyer hereunder except as provided in this
Section 6.19. The Buyer may continue to use any Marked
Materials for a period of six months after the Closing Date
or, if earlier, until such Marked Materials are depleted,
provided that the Buyer will use such Marked Materials only
--------
in a manner consistent with prior practice and at the end of
such six-month period destroy any unused Marked Materials.
Notwithstanding anything to the contrary in this Sec-
tion 6.19, the Buyer shall be entitled to retain and use
solely for archival and records purposes (including as
necessary and consistent with such use, making copies
thereof) any Marked Materials which are in the files,
records and archives of the Seller that have been acquired
by the Buyer pursuant hereto. Notwithstanding the fore-
going, in the event that the Buyer is using any Marked
Materials in a manner reasonably deemed inappropriate by
Continental, the Buyer shall cease using such Marked
Materials in such manner.
6.20 Change and Use of the Seller's Name.
-----------------------------------
On or before the Closing Date, the Seller shall take or
cause to be taken such action as may be required to change
the corporate name of the Seller and the Subsidiary to a
name that is not the same as the Seller's or the
<PAGE>
81
Subsidiary's current corporate name, and promptly thereafter
the Seller shall deliver to the Buyer evidence that whatever
filings are necessary in those jurisdictions, if any, in
which the Seller or the Subsidiary is licensed or qualified
to do business to effect such name change have been made.
The Seller hereby agrees to permit the Buyer, directly or
through its Affiliates, to (a) change their respective
corporate or partnership names to include the name
"Continental Asset Management" and (b) do business under the
name "Continental Asset Management," and the Seller agrees
to execute such documents as may be necessary or otherwise
reasonably requested by the Buyer to enable the Buyer or any
of its Affiliates to take any such action.
6.21 Certified Copies of Organizational
----------------------------------
Documents of the Buyer. The Buyer shall, on the date
----------------------
hereof, deliver to Continental a true and complete copy of
the Certificate of Limited Partnership of the Buyer and, no
later than five (5) days prior to the Closing, the defini-
tive Agreement of Limited Partnership (certified by the
General Partner of the Buyer) as in effect on the Closing
Date.
6.22 Certified Copies of Certain Contracts.
-------------------------------------
On the Closing Date, the Buyer shall receive a certificate,
dated the Closing Date and executed by the President and the
Secretary of the Seller, attaching a true and complete copy
of each investment advisory or management Contract to which
<PAGE>
82
the Seller is a party as of the close of business on the day
immediately preceding the Closing Date.
6.23 Dividends. From the date hereof
---------
through the Closing Date, the Seller shall have the right to
declare and pay dividends in respect of its capital stock to
its stockholder in an aggregate amount not to exceed
$2,500,000.
6.24 Soft Dollar Contracts. On the Closing
---------------------
Date or as soon as practicable thereafter, the Seller shall
transfer to the Buyer all of its right to control "soft
dollar" arrangements related in any manner to the Business;
provided, however, that all such "soft dollar" arrangements
-------- -------
shall be consistent with the rules and regulations of the
Commission and shall materially comply with the safe harbor
provisions of Section 28(e) of the Advisers Act.
Continental shall have the right to review (on a
confidential basis) on a quarterly basis, with reasonable
notice, such "soft dollar" arrangements.
6.25 September Balance Sheet. The Seller
-----------------------
shall deliver the September Balance Sheet to the Buyer as
soon as practicable after the date hereof but in no event
later than 30 days after the date hereof.
6.26 Certain Payments to Continental. From
-------------------------------
the date hereof through the Closing Date, the Seller shall
not make, directly or indirectly, (x) any payment to
Continental or any of its Affiliates in respect of any
services provided by Continental or such Affiliate to the
<PAGE>
83
Seller or the Subsidiary or (y) any loan or advance to or
other investment in Continental or any of its Affiliates,
without the prior written consent of the Buyer; provided,
--------
however, that the Seller may pay all amounts due to
-------
Continental and its Affiliates accrued in an aggregate
amount not to exceed $1,500,000 for any one month period in
the ordinary course of business in accordance with past
practice for payroll and similar goods and services provided
to the Seller which would otherwise be a direct expense or
part of corporate overhead of the Seller consistent with
past practice. Such payments shall be reviewed semi-monthly
with the Buyer. The Buyer shall reimburse Continental or
any of its Affiliates for any expenses incurred by the
Seller prior to the Closing Date and paid prior to the
Closing Date through the twentieth day after the Closing
Date by Continental or any such Affiliate on behalf of the
Seller to any third party.
6.27 Verified Investment Performance Reports.
---------------------------------------
The Seller shall deliver the Verified Investment Performance
Reports to the Buyer as soon as practicable after the date
hereof but in no event later than 80 days after the date
hereof.
7. Purchase Price and Other Adjustments.
------------------------------------
7.1 Reduction of Note A. The principal
-------------------
amount of Note A shall be subject to downward adjustment in
accordance with the provisions set forth in this Sec-
tion 7.1.
<PAGE>
84
(a) Continental shall deliver to the
Buyer, two days prior to the Closing Date, a schedule, certi-
fied by the Chief Financial Officer of Continental, setting
forth as of such date, (i) a list of each Designated Unaffil-
iated Client and the respective amount of Designated Revenue
attributable to each such Designated Unaffiliated Client (the
"Designated Revenue Loss"), (ii) a list of each Non-Consenting
Unaffiliated Client (other than the Designated Unaffiliated
Clients) and the respective amount of Designated Revenue
attributable to each such Non-Consenting Unaffiliated
Client, and (iii) a list of each Consenting Unaffiliated
Client and the respective amount of Designated Revenue
attributable to each such Consenting Unaffiliated Client.
(b) The principal amount of Note A
shall be reduced by an amount equal to the product of
(x) the aggregate amount of Designated Revenue Losses and
(y) 2.5; provided, however, that the amount of such reduc-
-------- -------
tion shall not exceed $3,500,000.
(c) The capitalized terms set forth
below shall have the following meanings:
"Consenting Unaffiliated Client"
shall mean each Unaffiliated Client that has provided
written notice to the Seller or Continental setting forth
its consent to the "assignment (as defined in the Advisers
Act) to the Buyer of its investment advisory or management
Contract with the Seller upon the consummation of the Con-
<PAGE>
85
templated Transactions without any amendment, modification
or other alteration of the terms or provisions thereof.
"Designated Revenue" shall mean, as
to any Client, the amount invoiced by the Seller for the
management of assets under the investment advisory or
management Contracts for such Client for the 12-month period
ended September 30, 1994.
"Designated Unaffiliated Client"
shall mean any of (a) Cologne Reinsurance Company of
America, (b) Cologne Life Reinsurance Company, (c) Cologne
Reinsurance (Barbados), Ltd. or (d) Underwriters Reinsurance
Company to the extent that such Person has not consented to
the assignment of its investment advisory or management
Contract in connection with the Contemplated Transactions.
"Non-Consenting Unaffiliated
Client" shall mean any Unaffiliated Client that has not
consented to the assignment of its investment advisory or
management Contract in connection with the Contemplated
Transactions.
7.2 Adjustments.
-----------
(a) As soon as practicable after
the submission of bills to the Continental Parties for each
calendar quarter, the Buyer shall deliver to Continental a
certificate, certified by the Chief Financial Officer of the
Buyer (the "Revenue Statement"), setting forth an amount, if
any (the "Shortfall Amount"), equal to the difference
between $3.85 million (the "Specified Amount") and the
<PAGE>
86
amount payable to the Buyer for the management of assets in
the Designated Asset Classes for such calendar quarter.
Promptly following its receipt of each Revenue Statement
setting forth a Shortfall Amount, Continental shall pay in
cash to the Buyer an adjustment equal to such Shortfall
Amount.
(b) Buyer, Continental and the
other Continental Parties will, prior to the Closing Date,
develop a more detailed mechanism for billing and prompt
payment procedures, and for adjustments of any overpayment
or underpayment, to implement this understanding.
(c) On the Closing Date, the Buyer
and Continental shall establish the Designated Fund.
(d) As soon as practicable
following each Anniversary Date, the Buyer shall deliver a
certificate to Continental, certified by the Chief Financial
Officer of the Buyer (a "Performance Certificate"), setting
forth (i) the Benchmark Index for the twelve-month period
ending on such Anniversary Date and (ii) the Performance
Return of the Designated Fund for such twelve-month period.
(e) If the average of the
Performance Returns set forth on the Performance Certifi-
cates delivered with respect to 12-month periods ending on
any three consecutive Anniversary Dates is less than the
lower of (i) 92% of the average of the Benchmark Indices
applicable to each of such 12-month periods covered by such
Performance Certificates and (ii) the average of the
<PAGE>
87
Benchmark Indices applicable to each of such 12-month
periods covered by such Performance Certificates minus 60
basis points, then the Specified Amount under Section 7.2(a)
shall be reduced to $2.8875 million.
(f) If the average of the Perform-
ance Returns set forth on the Performance Certificates
delivered with respect to 12-month periods ending on either
(x) the two Anniversary Dates immediately following the
Closing Date or (y) any three consecutive Anniversary Dates
is less than the lower of (i) 90% of the average of the
Benchmark Indices applicable to each of such 12-month
periods covered by such Performance Certificates and
(ii) the average of the Benchmark Indices applicable to each
of such 12-month periods covered by such Performance
Certificates minus 75 basis points, then the provisions of
Section 7.2(a) shall no longer be given any force or effect.
(g) In the event that at any time
prior to the termination of the Designated Period, the Buyer
engages in (x) gross negligence or willful misconduct in the
management of the investment assets of the Continental
Parties or (y) the Buyer fails to execute in all material
respects the investment instructions set forth in the
written memorandum (which shall be attached as an exhibit to
such investment advisory or management Contract) delivered
in connection with such Contract and the Buyer's failure to
remedy such failure with new adequate procedures after
<PAGE>
88
written notice thereof, then Section 7.2(a) shall no longer
be given any force or effect.
(h) It is the intention of the
parties hereto that (i) the adjustments provided for in
Sections 7.2(e) and 7.2(f)(y) shall be based upon three year
rolling periods and (ii) there shall be no adjustment
pursuant to Sections 7.2(e) and 7.2(f) for the period ending
on the first Anniversary Date.
(i) The terms set forth below
shall have the following meanings for purposes of this Sec-
tion 7.2:
"Anniversary Date" shall mean the first anniver-
sary of the last day of the calendar quarter ending after
the Closing Date and each anniversary of such date
thereafter until the sixth anniversary thereof.
"Benchmark Index" shall mean, as to any twelve-
month period, the Lehman Brothers Aggregate Index, or such
other index as may mutually agreed upon by the Buyer and
Continental.
"Designated Fund" shall mean a "total return
account" (as such term is commonly understood in the asset
management industry) comprised of assets of the Continental
"pooled insurance companies" having at any time an aggregate
value of not less than two hundred million dollars to be
managed by the Buyer in domestic fixed income securities
pursuant to investment advisory or management Contracts with
the Buyer. The Designated Fund shall be a discretionary
<PAGE>
89
account and there shall be no constraints on the management
of the Designated Fund. The Designated Fund may be subject
to investment guidelines consistent with past practice for
similar accounts but in no event shall the guidelines be so
restrictive that the Buyer is unable to invest in securities
similar (of type and duration and other terms) to those
contained in the Benchmark Index.
"Performance Return" shall mean, as to any twelve-
month period, the aggregate rate of return earned with
respect to the Designated Fund.
7.3 Arbitration. Upon request made during
-----------
the ten day period following Continental's receipt of any of
(i) the Revenue Statement delivered pursuant to Sec-
tion 7.2(b) or (ii) the Performance Certificate delivered
pursuant to Section 7.2(d) (either of (i) or (ii), a
"Certified Buyer Statement"), Continental and its
representatives shall be permitted, until such time as such
Certified Buyer Statement shall become final during normal
business hours, to review the working papers of the Buyer
relevant to such Certified Buyer Statement. The Certified
Buyer Statement shall become final and binding upon the
parties upon the 30th day following receipt thereof by
Continental unless Continental gives written notice of its
disagreement (a "Notice of Disagreement") to the Buyer prior
to such date. Any Notice of Disagreement shall specify in
detail the nature of any disagreement so asserted and shall
be certified by the Chief Financial Officer of Continental.
<PAGE>
90
If a Notice of Disagreement is received by the Buyer in a
timely manner, then the Certified Buyer Statement (as
revised in accordance with clause (x) or (y) below) shall
become final and binding upon the parties on the earlier of
(x) the date the parties hereto resolve in writing any
differences they have with respect to any matter specified
in the Notice of Disagreement or (y) the date any disputed
matters are finally resolved in writing by the Arbitrator
(as defined below). During the twenty day period following
the delivery of a Notice of Disagreement, the Buyer and
Continental shall seek in good faith to resolve in writing
any differences which they may have with respect to any
matter specified in the Notice of Disagreement. If, at the
end of such twenty day period, the Buyer and Continental
have not reached agreement on such matters, the matters
which remain in dispute shall be submitted to an arbitrator
for review and resolution in accordance with the following
procedures. Within ten days after the expiration of the
twenty-day period, Continental shall (a) together with the
Buyer contact Coopers & Lybrand (or any other nationally
recognized independent public accounting firm agreed upon by
the Buyer and Continental) to arrange for the appointment of
a single arbitrator (the "Arbitrator") who shall be a senior
partner of the firm with no prior direct contact with either
party, and (b) serve upon the Buyer (and the Arbitrator as
soon as he or she is appointed) a Statement of Claim setting
forth in detail the matters in dispute including the
<PAGE>
91
evidentiary basis therefor. Within ten business days
thereafter, the Buyer shall serve upon Continental and the
Arbitrator a Response to the Statement of Claim setting
forth in detail the arguments in favor of the Buyer's
position and the evidentiary basis therefor. The Arbitrator
shall thereafter conduct such further proceedings as he or
she deems appropriate, including a hearing unless waived by
both parties, and shall render a final, binding and non-
appealable written decision within thirty days of the date
upon which the Buyer's Response is served upon Continental.
Any other matter relating to a disagreement with respect to
the payment of any sum pursuant to Section 7.1 or
Section 7.2 (other than Section 7.2(g)) shall also be
subject to arbitration by the Arbitrator in accordance with
the procedures set forth above. The fees of the Arbitrator
shall be borne 50% by each Party; provided, that the
--------
Arbitrator may apportion such fees and other costs of the
arbitration (including attorneys' fees) in his or her
discretion.
8. Conditions Precedent to the Obligation of the
---------------------------------------------
Buyer to Close. The obligation of the Buyer to enter into
--------------
and complete the Closing is subject, at its option, to the
fulfillment on or prior to the Closing Date of the following
conditions, any one or more of which (other than Sec-
tion 8.6) may be waived by the Buyer in its sole discretion:
8.1 Representations and Covenants. The
-----------------------------
representations and warranties of the Seller and Continental
<PAGE>
92
contained in this Agreement shall be true in all material
respects on and as of the Closing Date with the same force
and effect as though made on and as of the Closing Date.
Each of the Seller and Continental shall have performed and
complied in all material respects with all covenants and
agreements required by this Agreement to be performed or
complied with by the Seller or Continental on or prior to
the Closing Date. Each of the Seller and Continental shall
have executed and delivered to the Buyer a certificate,
dated the Closing Date, to the foregoing effect and stating
that all conditions to the Buyer's obligations hereunder
have been satisfied.
8.2 Consents and Approvals.
----------------------
8.2.1 General. All Required Consents
-------
(other than with respect to any investment advisory or
management Contracts, as to which Section 8.2.2 shall
apply), Permits from any Governmental Body or other Person
required for the lawful consummation of the Closing and
requisite approvals for the consummation of the Contemplated
Transactions from any Person (including, the Commission or
any other Governmental Body having jurisdiction over the
Business) shall have been obtained and be in full force and
effect (except that this condition shall be deemed satisfied
as to any Contract for which an arrangement of the type
described in Section 6.10(iv) is entered into). No such
Required Consents shall impose upon the Buyer or the
Business any conditions or other requirements imposing
<PAGE>
93
substantial additional costs or materially interfering with
the continued operation of the Business, and the Buyer shall
have been furnished with evidence reasonably satisfactory to
it of the granting of such consents and approvals (or of the
arrangements of the type described in Section 6.10(iv)).
8.2.2 Advisory Agreements.
-------------------
(a) The Seller and Continental
shall have obtained written notices from Unaffiliated
Clients (other than Cologne Reinsurance Company of America,
Cologne Life Reinsurance Company, Cologne Reinsurance
(Barbados), Ltd. and Underwriters Reinsurance Company) that
represented (as a result of investment advisory fees earned
by the Seller) in the aggregate no less than 90% of the
Unaffiliated Annualized Revenue (but excluding Unaffiliated
Annualized Revenue attributable to Cologne Reinsurance
Company of America, Cologne Life Reinsurance Company,
Cologne Reinsurance (Barbados), Ltd. and Underwriters
Reinsurance Company), which notices shall set forth such
Unaffiliated Clients' consents to the "assignment" (as
defined in the Advisers Act) to the Buyer of their
investment advisory Contracts, as in effect on the Closing
Date, upon the consummation of the Contemplated
Transactions.
(b) The Seller shall have obtained
written consents from Continental and each of the other
Continental Parties that are parties to any investment
advisory or management Contract with the Seller to the
<PAGE>
94
assignment (as defined in the Advisers Act) of their
respective Contracts as contemplated hereunder.
8.3 Opinion of Counsel to Continental and
-------------------------------------
the Seller. The Buyer shall have received the opinion of
----------
Debevoise & Plimpton, counsel to Continental and the Seller,
dated the Closing Date, addressed to the Buyer and in form
and substance satisfactory to the Buyer.
8.4 Resignations. All resignations of
------------
directors of the Subsidiary that have been previously
requested in writing by the Buyer shall have been delivered
to the Buyer.
8.5 Litigation. No action, suit or proceed-
----------
ing shall have been instituted before any court or
Governmental Body, or instituted or threatened by any
Governmental Body that presents a substantial risk of
restraining or preventing the consummation of the
Contemplated Transactions.
8.6 Hart-Scott-Rodino. Each Person required
-----------------
in connection with the Contemplated Transactions to file a
notification and report form with the FTC and the DOJ in
accordance with the HSR Act, and the rules and regulations
promulgated thereunder, shall have filed a complete and
accurate form, and the applicable waiting period with
respect to each such form (including any extension thereof
by reason of a request for additional information) shall
have expired or been terminated.
<PAGE>
95
8.7 Financing. The Buyer shall have
---------
obtained (x) no less than $22,000,000 in bank debt financing
to finance a portion of the Contemplated Transactions on
terms and conditions satisfactory to the Buyer in its sole
discretion and (y) the Letter of Credit facility on terms
and conditions satisfactory to the Buyer and the Seller.
8.8 Related Transactions. Continental shall
--------------------
have consummated on or prior to the Closing Date the
transactions contemplated under the Securities Purchase
Agreement in accordance with the terms thereof.
8.9 No Material Adverse Change. Since the
--------------------------
Balance Sheet Date, (i) there has been no event, circum-
stance or change which, individually or in the aggregate,
has had or could reasonably be expected to have a Material
Adverse Effect and (ii) neither the Seller nor Continental
knows of any such event, circumstance or change which is
threatened which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
Since the date hereof, the market value of the assets under
management under the investment advisory and management
Contracts of the Seller shall have not declined by more than
10% as a result of market conditions or otherwise.
8.10 New Sublease. Continental and the
------------
Buyer shall have executed and delivered the New Sublease
containing the terms and conditions set forth on Exhibit E
hereto and other customary provisions satisfactory to the
parties thereto.
<PAGE>
96
8.11 Services Agreement. Continental and
------------------
the Buyer shall have executed and delivered the Services
Agreement containing the terms and conditions set forth on
Exhibit F hereto and other customary provisions satisfactory
to the parties thereto.
8.12 Non-Competition Agreement. Continental
-------------------------
and the Buyer shall have executed and delivered the Non-
Competition Agreement.
8.13 Bill of Sale and Instrument of
------------------------------
Assignment and Other Conveyance Documents. The Seller shall
-----------------------------------------
have executed and delivered to the Buyer the Bill of Sale
and Instrument of Assignment in form of Exhibit A and such
further instruments of sale, transfer, conveyance and
assignment with respect to the Purchased Assets or any
portion thereof as the Buyer may reasonably require to
assure the full and effective sale, transfer, conveyance and
assignment to it of the Purchased Assets.
8.14 Registration as Investment Adviser.
----------------------------------
The Commission shall have issued an order pursuant to
Section 203(c) of the Advisers Act granting registration of
the Buyer under the Advisers Act as an investment adviser
and such order shall be in full force and effect.
9. Conditions Precedent to the Obligation of the
---------------------------------------------
Seller to Close. The obligation of the Seller to enter into
---------------
and complete the Closing is subject, at the option of the
Seller acting in accordance with the provisions of this
Agreement with respect to termination hereof, to the
<PAGE>
97
fulfillment of the following conditions, any one or more of
which (other than Section 9.4) may be waived by the Seller
in its sole discretion:
9.1 Representations and Covenants. The
-----------------------------
representations and warranties of the Buyer contained in
this Agreement shall be true in all material respects on and
as of the Closing Date with the same force and effect as
though made on and as of the Closing Date. The Buyer shall
have performed and complied in all material respects with
all covenants and agreements required by this Agreement to
be performed or complied with by it on or prior to the
Closing Date. The Buyer shall have delivered to Continental
and the Seller a certificate, dated the Closing Date and
signed by an officer of the Buyer, to the foregoing effect
and stating that all conditions to the Sellers' obligations
hereunder have been satisfied.
9.2 Opinion of Counsel to the Buyer. The
-------------------------------
Seller shall have received the opinion of Paul, Weiss,
Rifkind, Wharton & Garrison, counsel to the Buyer, dated the
Closing Date, addressed to the Seller and in form and
substance satisfactory to the Seller.
9.3 Litigation. No action, suit or
----------
proceeding shall have been instituted before any court or
Governmental Body, or instituted or threatened by any
Governmental Body, that presents a substantial risk of
restraining or preventing the consummation of the
Contemplated Transactions.
<PAGE>
98
9.4 Hart-Scott-Rodino. Each Person required
-----------------
in connection with the Contemplated Transactions to file a
notification and report form with the FTC and the DOJ in
accordance with the HSR Act, and the rules and regulations
promulgated thereunder, shall have filed a complete and
accurate form, and the applicable waiting period with
respect to each such form (including any extension thereof
by reason of a request for additional information) shall
have expired or been terminated.
9.5 Related Transactions. Continental shall
--------------------
have consummated on or prior to the Closing the transactions
contemplated under the Securities Purchase Agreement in
accordance with the terms thereof.
9.6 Consents and Approvals. All Required
----------------------
Consents from any Governmental Body shall have been obtained
and be in full force and effect.
9.7 Instrument of Assumption. The Buyer
------------------------
shall have executed and delivered to the Seller the
Assumption of Liabilities in the form of Exhibit B.
9.8 Registration as Investment Advisor. The
----------------------------------
Commission shall have issued an order pursuant to Sec-
tion 203(c) of the Advisers Act granting registration of the
Buyer under the Advisers Act as an investment adviser and
such order shall be in full force and effect.
10. Survival of Representations and Warranties of
---------------------------------------------
the Seller. Notwithstanding any right of the Buyer fully to
----------
investigate the affairs of the Seller, the Business and the
<PAGE>
99
Purchased Assets and notwithstanding any knowledge of facts
determined or determinable by the Buyer pursuant to such
investigation or right of investigation, the Buyer has the
right to rely fully upon the representations, warranties,
covenants and agreements of the Seller and Continental
contained in this Agreement or in any Transaction Documents.
All such representations, warranties, covenants and agree-
ments shall survive the execution and delivery hereof and
the Closing hereunder. Except as otherwise specifically
provided in this Agreement and except for the represen-
tations and warranties set forth in Section 4.3 (Authority
to Execute and Perform Agreements; Enforceability) and 4.8
(Tax Matters), all representations and warranties of the
Seller and Continental set forth in Section 4 and of the
Buyer set forth in Section 5 shall thereafter terminate and
expire (i) on June 30, 1997, with respect to any General
Claim (as defined below) based upon, arising out of or
otherwise in respect of any fact, circumstance, action or
proceeding of which the Buyer shall not have given notice on
or prior to such date to the Seller and Continental, and
(ii) with respect to any Tax Claim (as defined below), on
the later of (a) the date upon which the liability to which
any such Tax Claim may relate is barred by all applicable
statutes of limitations and (b) the date upon which any
claim for refund or credit related to such Tax Claim is
barred by all applicable statutes of limitations. As used
<PAGE>
100
in this Agreement, the following terms have the following
meanings:
(i) "General Claim" means any claim
-------------
(other than a Tax Claim) based upon, arising out of or
otherwise in respect of, any inaccuracy in or any
breach of any representation or warranty of the Seller
or Continental contained in this Agreement or in any
Transaction Document.
(ii) "Tax Claim" means any claim based
---------
upon, arising out of or otherwise in respect of, any
inaccuracy in or any breach of any representation or
warranty of the Seller or Continental contained in
Section 4.8 (Tax Matters).
11. Indemnification.
---------------
11.1 Obligation of Continental and the
---------------------------------
Seller to Indemnify. Subject to the limitations contained
-------------------
in Section 10 and Section 11.4, the Seller and Continental
jointly and severally agree to indemnify, defend and hold
harmless the Buyer (and its directors, representatives,
partners, officers, employees, Affiliates, successors and
assigns) from and against all losses, liabilities, damages,
deficiencies, demands, claims, actions, judgments or causes
of action, assessments, costs or expenses (including
interest, penalties and reasonable attorneys' fees (as
incurred), disbursements and other charges) (collectively,
"Losses") based upon, arising out of, or otherwise in
respect of, (i) any inaccuracy in or any breach of any
<PAGE>
101
representation, warranty, covenant or agreement of the
Seller and Continental contained in this Agreement or in any
Transaction Document and (ii) any Excluded Liability.
11.2 Obligation of the Buyer to Indemnify.
------------------------------------
The Buyer agrees to indemnify, defend and hold harmless the
Seller and Continental (and their respective directors,
officers, employees, Affiliates, successors and assigns)
from and against any Losses based upon, arising out of, or
otherwise in respect of, (i) any inaccuracy in or breach of
any representation, warranty, covenant or agreement of the
Buyer contained in this Agreement or in any Transaction
Document and (ii) any Assumed Liability.
11.3 Notice to Indemnifying Party. If any
----------------------------
party hereto (the "Indemnitee") receives written notice of
any third party claim or potential claim or the commencement
of any action or proceeding that could give rise to an
obligation on the part of any other party hereto to provide
indemnification (the "Indemnifying Party") pursuant to
Section 11.1 or 11.2, the Indemnitee shall promptly give the
Indemnifying Party notice thereof (the "Indemnification
Notice"); provided, however, that the failure to give the
-------- -------
Indemnification Notice promptly shall not impair the
Indemnitee's right to indemnification in respect of such
claim, action or proceeding unless, and only to the extent
that, the lack of prompt notice adversely affects the
ability of the Indemnifying Party to defend against or
diminish the Losses arising out of such claim, action or
<PAGE>
102
proceeding. The Indemnification Notice shall contain
factual information (to the extent known to the Indemnitee)
describing the asserted claim in reasonable detail and shall
include copies of any notice or other Document received from
any third party in respect of any such asserted claim. The
Indemnifying Party shall have the right to assume the
defense of a third party claim or suit described in this
Section 11.3 at its own cost and expense and with counsel of
its own choosing; provided, however, that the Indemnifying
-------- -------
Party acknowledges in writing (at the time it elects to
assume the defense of such claim or suit, which shall be not
later than 30 days after the date of the Indemnification
Notice) its obligation in accordance with this Section 11.3
to indemnify the Indemnitee with respect to such claim or
suit; such counsel is reasonably satisfactory to the
Indemnitee; the Indemnitee is kept fully informed of all
developments and is furnished copies of all papers; the
Indemnitee is given the opportunity, at its option and at
its own cost and expense and with counsel of its own
choosing (which shall be reasonably satisfactory to the
Indemnifying Party) to participate in (but not control) the
defense of such claim or suit. No settlement of any such
third party claim or suit shall be made by the Indemnifying
Party without the prior written consent of the Indemnitee
(which shall not be unreasonably withheld or delayed). No
settlement of any such third party claim or suit shall be
made by the Indemnitee if the Indemnifying Party shall have
<PAGE>
103
assumed the defense thereof and shall be in compliance with
its obligations with respect thereto as set forth above in
this Section 11.3. If the Indemnifying Party chooses to
defend any claim, the Indemnitee shall make available to the
Indemnifying Party, any books, records or other documents
within its control that are necessary or appropriate for
such defense. Notwithstanding the foregoing, the Indemnitee
shall have the right to employ separate counsel at the
Indemnifying Party's expense and to control its own defense
of such asserted liability if in the reasonable opinion of
counsel to such Indemnitee (i) there are or may be legal
defenses available to such Indemnitee or to other Indemni-
tees that are different from or additional to those
available to the Indemnifying Party or (ii) a conflict or
potential conflict exists between the Indemnifying Party and
such Indemnitee that would make such separate representation
advisable; provided that (a) any such separate counsel
--------
employed by the Indemnitee at the Indemnifying Party's
expense shall be reasonably satisfactory to the Indemnifying
Party, (b) the Indemnitee shall not settle such claim or
litigation without the written consent of the Indemnifying
Party, such consent not to be unreasonably withheld and
(c) the Indemnifying Party shall only be responsible for the
reasonable fees and expenses of one counsel (in addition to
local counsel) for all Indemnitees. The Seller and
Continental agree that they shall have an obligation to
manage any such Claim or litigation in consultation with the
<PAGE>
104
Buyer and cooperate to minimize to the extent practicable
any adverse effect upon the reputation of the Buyer as an
investment adviser and money manager. Notwithstanding the
foregoing, the provisions of Section 6.15 shall apply to any
Claim that is a Tax Claim or any Excluded Liability that is
a Tax and the provisions of this Section 11.3 shall not
apply to any such Claim.
11.4 Limitations of Indemnification. The
------------------------------
indemnification provided for in section 11.1 shall be
subject to the following limitations:
(i) The Seller and Continental shall
not be obligated to pay any amounts for indemnification
under Section 11.1(i), except those based upon, arising out
of, or otherwise in respect of, Sections 4.3 (Authority to
Execute and Perform Agreements; Enforceability), 4.8 (Tax
Matters), 6.6 (Expenses), 6.7 (Indemnification of Broker-
age), 6.15 (Certain Tax Matters) and 6.16 (Employees and
Benefit Plans) (collectively, the "Basket Exclusions"),
until the aggregate amounts for indemnification, exclusive
of those based on the Basket Exclusions, equals $500,000
(the "Basket Amount"), whereupon the Seller and Continental
shall be obligated to pay in full all such amounts for
indemnification, in excess of the Basket Amount.
(ii) The Seller and Continental shall
not be obligated to pay any amounts for indemnification
under Section 11.1(i) in excess of $15,000,000, except for
Losses based upon, arising out of, or otherwise in respect
<PAGE>
105
of, Sections 4.3 (Authority to Execute and Perform Agree-
ments; Enforceability) and 4.8 (Tax Matters), it being
understood that such limitation shall not in any way apply
to adjustments provided in Section 7 hereof; provided,
--------
however, that the first $12,500,000 of such indemnification
-------
payments shall be paid in cash by the Seller and Continental
to the Buyer and the balance thereof shall be applied as a
reduction in the principal amount of Note B.
(iii) Any claim for indemnification under
this Section 11 that is a Tax Claim must be asserted within
180 days of the expiration of all applicable statutes of
limitations (including any extensions thereof) of the Tax to
which such claim relates.
11.5 Note B. The obligations of the Seller
------
or Continental under Section 11.1 shall be satisfied in
cash, except that (a) in accordance with and subject to the
proviso to Section 11.4(ii) hereof, up to $2,500,000 of the
indemnification payments payable under Section 11.1(i) shall
be satisfied by set-off against Note B in accordance with
the provisions of Note B applicable thereto and (b) in the
event that the Seller or Continental shall be unable to
satisfy in cash any of the indemnification payments payable
under Section 11.1, such payments (including, without
limitation those payments referred to in clause (a) above)
may, at the Buyer's election, be satisfied by set-off
against Note B in accordance with the provisions of Note B
applicable thereto.
<PAGE>
106
12. Termination of Agreement.
------------------------
12.1 Termination. This Agreement may be
-----------
terminated as follows:
(i) at the election of the Buyer or the
Seller, if a Control Transaction (as defined in the
Securities Purchase Agreement) shall have been
consummated;
(ii) at the election of the Buyer, if
the Seller or Continental has committed a material
breach of this Agreement, which breach cannot be or is
not cured on or prior to the Closing Date;
(iii) at the election of the Seller, if
the Buyer has committed a material breach of this
Agreement, which breach cannot be or is not cured on or
prior to the Closing Date; or
(iv) at any time on or prior to the
Closing Date, by mutual written consent of the Seller,
Continental and the Buyer.
If this Agreement so terminates, it shall become null and
void and have no further force or effect, except as provided
in Section 12.2.
12.2 Survival. If this Agreement is termi-
--------
nated in accordance with Section 12.1 and the Contemplated
Transactions are not consummated, this Agreement shall
become void and of no further force and effect, except for
the provisions of Sections 6.5 (Consent to Jurisdiction and
Service of Process), 6.6 (Expenses), 6.7 (Indemnification of
<PAGE>
107
Brokerage), this Section 12.2 and 13.3 (Publicity);
provided, however, that none of the parties hereto shall
-------- -------
have any liability in respect of a termination of this
Agreement except to the extent that failure to satisfy the
conditions of Sections 8 or 9, as the case may be, results
from the intentional or willful violation of, or willful
misstatement contained in, the representations, warranties,
covenants or agreements of such party under this Agreement.
13. Miscellaneous.
-------------
13.1 Certain Definitions. As used in this
-------------------
Agreement, the following terms have the following meanings
unless the context otherwise requires:
"Advisers Act" means the Investment Advisers
------------
Act of 1940, as amended.
"Affiliate" with respect to any Person, means
---------
any other Person controlling, controlled by or under common
control with such Person and "control" means the possession,
-------
direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person,
whether through the ownership of voting securities, by
contract or otherwise.
"Affiliated Client" shall mean any Client
-----------------
that is controlled (as used in the definition of "Affiliate"
above) by Continental.
"Client" shall mean any Person party to a
------
Contract with the Seller or the Subsidiary pursuant to which
the Seller or the Subsidiary, as the case may be, shall
<PAGE>
108
provide investment management or advisory services to such
Person.
"Code" means the Internal Revenue Code of
----
1986, as amended.
"Contracts" means all contracts, agreements,
---------
understandings, indentures, notes, bonds, loans,
instruments, leases, mortgages, franchises, licenses,
commitments or other binding arrangements, express or
implied, oral or written.
"knowledge" means (a) with respect to
---------
Continental, knowledge (after due inquiry) of any of the
officers or directors of Continental and (b) with respect to
the Seller, knowledge (after due inquiry) of any of
(i) Walter J. Blassberg, (ii) Joseph Giasi, Jr., (iii) Brian
E. Hirsch, Esq., (iv) Michael R. Matarazzo, (v) Terence
Biggs or (vi) Catherine L. Waterworth.
"Lien" means any lien, pledge, mortgage,
----
security interest, claim, lease, charge, option, right of
first refusal, easement, servitude, transfer restriction
under any shareholder or similar agreement or other
encumbrance.
"Person" means any individual, corporation,
------
partnership, limited liability company, firm, joint venture,
association, joint-stock company, trust, unincorporated
organization, Governmental Body or other entity.
"property" means real, personal or mixed
--------
property, tangible or intangible.
<PAGE>
109
"Securities Purchase Agreement" means the
-----------------------------
Securities Purchase Agreement, dated as of the date hereof,
between Continental and the party named therein.
"Transaction Documents" means (i) Note A,
---------------------
(ii) Note B, (iii) the Non-Competition Agreement, (iv) the
Services Agreement, (v) the New Sublease, (vi) the Option
Agreement, (vii) any investment advisory or management
Contract between any Continental Party and the Buyer,
(viii) the Bill of Sale and (ix) the Assumption of
Liability.
"Unaffiliated Annualized Revenue" means the
-------------------------------
amount equal to the product of (x) Unaffiliated June 30,
1994 Revenue and (y) two.
"Unaffiliated Client" means any Client that
-------------------
is not an Affiliated Client.
"Unaffiliated December 31, 1993 Revenue"
--------------------------------------
means the amount equal to (x) the gross revenues of the
Seller for the year ended December 31, 1993 as set forth in
the line item entitled "Total Revenues" set forth on the
unaudited statement of income of the Seller for the year
ended December 31, 1993 minus (y) the sum of (i) the amount
-----
set forth in the line item entitled "Investment Advisory
fees - Affiliates" plus (ii) the amount set forth in the
line item entitled "Interest Income," each of (i) and (ii)
as set forth on the unaudited statement of income of the
Seller for the year ended December 31, 1993.
<PAGE>
110
"Unaffiliated June 30, 1994 Revenue" means
----------------------------------
the amount equal to (x) the gross revenues of the Seller for
the six-month period ended June 30, 1994 as set forth in the
line item entitled "Total Revenues" set forth on the
unaudited statement of income of the Seller for the six
months ended June 30, 1994 minus (y) the sum of (i) the
-----
amount set forth in the line item entitled "Investment
Advisory fees - Affiliates" plus (ii) the amount set forth
in the line item entitled "Interest Income," each of (i) and
(ii) as set forth on the unaudited statement of income of
the Seller for the six months ended June 30, 1994.
13.2 Glossary. The following capitalized
--------
terms are defined in the following Sections of this
Agreement:
Term Section
---- -------
Account Balances 6.16(b)(ii)
Advisers Act 13.1
Affiliate 13.1
Affiliated Client 13.1
Anniversary Date 7.2(i)
Arbitrator 7.3
Associated Persons 4.9.4
Assumed Liabilities 1.3
Assumption of Liabilities 2.2
Audited Balance Sheet 4.6.1.1
Balance Sheet Date 4.6.1.1
Basket Amount 11.4(i)
Basket Exclusions 11.4(i)
Benchmark Index 7.2(i)
Benefit Plans 4.19
<PAGE>
111
Term Section
---- -------
Bill of Sale 2.1
Broker 6.7
Business Preamble
Buyer Preamble
Buyer Savings Plan 6.16(b)(i)
Cash Purchase Price 2.3
Certified Buyer Statement 7.3
Claims 4.11
Client 13.1
Closing Date 3
Closing Principal Amount 2.3(i)
Code 13.1
Commission 4.9.4
Commonly Controlled Entity 4.19
Consenting Unaffiliated Client 7.1(c)
Contemplated Transactions 2.3
Continental Preamble
Continental Parties 6.14(i)
Continental Savings Plan 6.16(b)(i)
Contracts 13.1
Designated Asset Classes 6.14(ii)
Designated Fund 7.2(i)
Designated Period 6.14(iii)
Designated Revenue 7.1(c)
Designated Revenue Loss 7.1(a)
Designated Unaffiliated Client 7.1(c)
DOJ 6.8
Due Date 6.15(a)
ERISA 4.19
Excluded Assets 1.2
Excluded Employees 6.16(a)(i)
Excluded Liabilities 1.4
Final Allocation 6.15(a)
<PAGE>
112
Term Section
---- -------
FTC 6.8
GAAP 4.6.1.1
General Claim 10(i)
Governmental Bodies 4.9.1
HSR Act 6.8
Indemnification Notice 11.3
Indemnifying Party 11.3
Indemnitee 11.3
Intellectual Property 4.16
Interim Balance Sheet 4.6.1.3
Interim Balance Sheet Date 4.6.1.3
Investment Company Act 4.9.5(a)
knowledge 13.1
Laws 4.9.1
Letter of Credit 2.4(i)
Liabilities 4.17
Lien 13.1
Logo 1.2(b)
Losses 11.1
Marked Materials 6.19
Material Adverse Effect 4.7
New Sublease 6.9(i)
Non-Competition Agreement 6.12
Non-Consented Contract 6.10(iv)
Non-Consenting Unaffiliated Client 7.1(c)
Non-Designated Asset Classes 6.14(iii)
Non-Fee Paying Clients 4.18(a)
Note A 2.3(i)
Note B 2.3(ii)
Notice of Disagreement 7.3
Option Agreement 6.13(i)
Orders 4.9.1
Other Assets 1.4
<PAGE>
113
Term Section
---- -------
Peat Marwick 4.6.1.1
Performance Certificate 7.2(d)
Performance Return 7.2(i)
Permits 4.9.2
Permitted Liens 4.2(a)
Person 13.1
property 13.1
Purchase Price 2.3
Purchased Assets 1.1
Putnam Lovell 6.7
Required Consents 4.10
Revenue Statement 7.2(a)
Savings Transfer Date 6.16(b)(iv)
Securities Purchase Agreement 13.1
Seller Preamble
Seller's Fee 6.7
Seller's Welfare Plans 6.16(c)
September Balance Sheet 4.6.1.4
Services Agreement 6.9(ii)
Shortfall Amount 7.2(a)
Specified Amount 7.2(a)
Sub-Advisor 4.12(c)
Subsidiary Preamble
Tangible Property 4.15
Tangible Property Agreements 4.15
Tax 4.8(a)
Tax Claim 10(ii)
Transaction Documents 13.1
Transaction Expenses 6.6
Transferred Employee 6.16(a)(i)
Unaffiliated Annualized Revenue 13.1
Unaffiliated Client 13.1
Unaffiliated December 31, 1993 Revenue 13.1
<PAGE>
114
Term Section
---- -------
Unaffiliated June 30, 1994 Revenue 13.1
Unaudited Financials 4.6.1.2
Valuation Date 6.16(b)(ii)
Verified Investment Performance Reports 4.6.2
13.3 Publicity. Except as required by Law,
---------
regulation or stock exchange requirements, none of the
parties hereto shall, without the consent of the other
parties, make any public announcement or issue any press
release with respect to the Contemplated Transactions. In
no event will any party hereto make any public announcement
or issue any press release without consulting with the other
parties to the extent possible, as to the content of such
public announcement or press release, and in no event will
any party make any public announcement or issue any press
release concerning the identity of the other parties to the
Contemplated Transactions without the prior agreement of the
other parties. Any public announcement or press release
associated with the execution of this Agreement shall be
agreed by the parties prior to being made or released.
13.4 Notices. Any notice or other communi-
-------
cation required or permitted hereunder shall be in writing
and shall be delivered personally, telegraphed, telexed,
sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such
notice shall be deemed given when so delivered personally,
telegraphed, telexed or sent by facsimile transmission or,
<PAGE>
115
if mailed, five days after the date of deposit in the United
States mails, as follows:
(a) if to the Buyer, to:
CAM Investment Management, L.P.
c/o Oak Hill Partners, Inc.
65 East 55th Street
New York, New York 10022
Attention: Glenn R. August
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Matthew Nimetz, Esq.
Telecopier: (212) 757-3990
(b) if to the Seller or Continental, to:
The Continental Corporation
180 Maiden Lane
New York, New York 10038
Attention: President
Telecopier: (212) 440-3857
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: George E.B. Maguire, Esq.
Telecopier: (212) 909-6836
Any party may by notice given in accordance with this
Section 13.4 to the other parties designate another address
or Person for receipt of notices hereunder.
13.5 Entire Agreement. This Agreement
----------------
(including the Exhibits and the Disclosure Statement) and
the Documents executed in connection with the consummation
of the Contemplated Transactions contain the entire
<PAGE>
116
agreement among the parties with respect to the purchase of
the Shares, and supersedes all prior agreements, written or
oral, with respect thereto.
13.6 Waivers and Amendments; Non-Contractual
---------------------------------------
Remedies; Preservation of Remedies. This Agreement may be
----------------------------------
amended, superseded, cancelled, renewed or extended, and the
terms hereof may be waived, only by a written instrument
signed by the parties hereto or, in the case of a waiver, by
the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder
shall act as a waiver thereof. Nor shall any waiver on the
part of any party of any such right, power or privilege, nor
any single or partial exercise of any such right, power or
privilege, preclude any further exercise thereof or the
exercise of any other such right, power or privilege. The
rights and remedies herein provided are cumulative and are
not exclusive of any rights or remedies that any party may
otherwise have at law or in equity. The rights and remedies
of any party based upon, arising out of or otherwise in
respect of any inaccuracy in or breach of any representa-
tion, warranty, covenant or agreement contained in this
Agreement or in any document or other paper delivered
pursuant to this Agreement shall in no way be limited by the
fact that the act, omission, occurrence or other state of
facts upon which any claim of any such inaccuracy or breach
is based may also be the subject matter of any other
representation, warranty, covenant or agreement contained in
<PAGE>
117
this Agreement or in any document or other paper delivered
pursuant to this Agreement (or in any other agreement
between the parties) as to which there is no inaccuracy or
breach.
13.7 Governing Law. This Agreement shall be
-------------
governed and construed in accordance with the laws of the
State of New York applicable to agreements made and to be
performed entirely within such State.
13.8 Binding Effect; No Assignment. This
-----------------------------
Agreement shall be binding upon and inure to the benefit of
the parties and their respective successors and legal
representatives. Subject to Section 6.14(vi) hereof, this
Agreement is not assignable by the Seller or Continental
without the consent of the Buyer or by the Buyer without the
consent of the Seller and Continental. In the event that
any provision of this Agreement is held invalid, the parties
shall equitably adjust the economic terms hereof in a manner
such that each party receives the benefit of this Agreement
for which it bargained.
13.9 Variations in Pronouns. All pronouns
----------------------
and any variations thereof refer to the masculine, feminine
or neuter, singular or plural, as the context may require.
13.10 Counterparts. This Agreement may be
------------
executed by the parties hereto in separate counterparts,
each of which when so executed and delivered shall be an
original, but all such counterparts shall together consti-
tute one and the same instrument. Each counterpart may
<PAGE>
118
consist of a number of copies hereof each signed by less
than all, but together signed by all of the parties hereto.
13.11 Exhibits. The Exhibits and the
---------
Disclosure Statement shall be deemed a part of this Agree-
ment as if fully set forth herein. All references herein to
Sections and Exhibits shall be deemed references to such
parts of this Agreement or the Disclosure Statement, as the
case may be, unless the context shall otherwise require.
13.12 Headings. All headings and section
--------
titles contained in this Agreement or in any Exhibit or the
Disclosure Statement are for reference only, and shall not
affect the interpretation of this Agreement.
13.13 Interpretation. The parties
--------------
acknowledge and agree that: (i) each party and its counsel
reviewed and negotiated the terms and provisions of this
Agreement and have contributed to its revision; (ii) the
rule of construction to the effect that any ambiguities are
resolved against the drafting party shall not be employed in
the interpretation of this Agreement; and (iii) the terms
and provisions of this Agreement shall be construed fairly
as to all parties hereto, regardless of which party was
generally responsible for the preparation of this Agreement.
13.14 Severability of Provisions. If any
--------------------------
provision or any portion of any provision of this Agreement,
or the application of any such provision or any portion
thereof to any Person or circumstance, shall be held invalid
or unenforceable, the remaining portion of such provision
<PAGE>
119
and the remaining provisions of this Agreement, and the
application of such provision or portion of such provision
as is held invalid or unenforceable to Persons or
circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected hereby.
<PAGE>
120
13.15 No Third Party Beneficiaries. This
----------------------------
Agreement does not create, and shall not be construed to
create, any rights enforceable by any Person not a party to
this Agreement.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
BUYER:
CAM INVESTMENT MANAGEMENT, L.P.
By: CAM GP, INC.,
Its General Partner
By: /s/ Glenn R. August
--------------------------------
Name:
Title:
SELLER:
CONTINENTAL ASSET MANAGEMENT CORP.
By: /s/ Walter J.Blasberg
--------------------------------
Name:
Title:
THE CONTINENTAL CORPORATION
By: /s/ John P. Mascotte
--------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
---------
FORM OF
BILL OF SALE AND INSTRUMENT OF ASSIGNMENT
-----------------------------------------
THIS BILL OF SALE AND INSTRUMENT OF ASSIGNMENT,
made, executed and delivered this ____ day of _________,
1994 by CONTINENTAL ASSET MANAGEMENT CORP., a New York
corporation (the "Seller"), in favor of CAM INVESTMENT
MANAGEMENT, L.P., a Delaware limited partnership (the
"Buyer").
The Seller and the Buyer are parties to the Asset
Purchase Agreement, dated as of October 13, 1994 (the
"Purchase Agreement"), providing for, among other things,
the sale, assignment, transfer and delivery to the Buyer of
the Purchased Assets, as more fully described in the
Purchase Agreement, for consideration in the amount and on
the terms and conditions provided in the Purchase Agreement.
Capitalized terms used and not defined herein shall have the
same meaning as in the Purchase Agreement.
The parties now desire to carry out the intent and
purpose of the Purchase Agreement by the Seller's execution
and delivery to the Buyer of this instrument evidencing the
vesting in the Buyer of all Rights in and to all of the
Purchased Assets and Assumed Liabilities herein described.
NOW, THEREFORE, in consideration of the promises
and of other valuable consideration to the Seller in hand
paid by the Buyer, at or before the execution and delivery
hereof, the receipt and sufficiency of which by the Seller
is hereby acknowledged, the Seller has, effective from and
<PAGE>
2
after the date hereof and subject to Section 1.2 of the
Purchase Agreement, sold, assigned, transferred, conveyed,
granted, set-over, delivered and confirmed, and by this Bill
of Sale and Instrument of Assignment does, effective from
and after the date hereof, sell, assign, transfer, convey,
grant, set-over, deliver and confirm unto the Buyer, its
successors and assigns, all of the Seller's right, title and
interest in and to the following (other than any Excluded
Assets) (all of such assets, properties and rights being
sometimes collectively referred to herein as the "Purchased
Assets" as more particularly described in the Purchase
Agreement):
(a) all Contracts (including all
deposits underlying such Contracts) related to the Business
or the Purchased Assets;
(b) all Tangible Property and Tangible
Property Agreements utilized by the Seller in the Business;
(c) all Intellectual Property relating
to or used in connection with the Business (other than,
except to the extent provided in Section 6.19 of the
Purchase Agreement, the Logo), including, without
limitation, all Intellectual Property listed in Section 4.16
of the Disclosure Statement other than in Part II of such
Section 4.16 of the Disclosure Statement and, subject to
Section 6.19 of the Purchase Agreement, all advertising,
sales and promotional materials, fee schedules, lists of
Clients and catalogues;
<PAGE>
3
(d) any cash, cash equivalents and
other short-term investments on hand or in bank, brokerage,
custodial or other depository accounts of the Seller on the
Closing Date;
(e) all accounts receivable of the
Seller accrued as of the Closing Date, including, but not
limited to, any contractual rights which the Seller shall
have accrued, or shall have been entitled to accrue under
GAAP as a receivable, whether in cash or in kind, or by way
of set off or otherwise, as of such date;
(f) all prepaid expenses of the Seller
arising from the operations of the Business;
(g) all of the Seller's files and
records, to the extent relating to the operations of the
Business, including, without limitation, accounting records,
correspondence with Governmental Bodies, personnel and
payroll records and such other books and records relating to
the internal organization or operation of the Business;
(h) all of the outstanding capital
stock of the Subsidiary and the corporate minute books and
stock ledgers of the Subsidiary;
(i) all of the Seller's right, title
and interest in assets held under, or in connection with,
any Benefit Plan, but only to the extent provided in Sec-
tion 6.16(b) of the Purchase Agreement;
(j) all of the Seller's right, title
and interest in or to any Claim, demand, action, or cause of
<PAGE>
4
action, contingent or otherwise, known or unknown, against
any third party, including without limitation, insurance
companies, relating to any of the Purchased Assets or the
operations of the Business (other than any such claim,
demand, action or cause of action relating to any Excluded
Asset); and
(k) to the extent not otherwise
specifically listed above, all of the assets of the Seller
on the Closing Date, including, without limitation, any
goodwill connected therewith or appertaining thereto.
Notwithstanding the foregoing, the following shall
be excluded from the Purchased Assets (collectively, the
"Excluded Assets"):
(i) all of the capital stock, corporate
minute books and stock ledgers of the Seller;
(ii) subject to Section 6.19 of the
Purchase Agreement, all of the Seller's right, title and
interest in and to the logo associated with the name
"Continental" and used by the Seller (the "Logo");
(iii) all of the Seller's right, title
and interest in assets held under, or in connection with,
any Benefit Plan, except as otherwise provided in
Section 6.16(b) of the Purchase Agreement;
(iv) all refunds of any Taxes that are
Excluded Liabilities;
(v) any and all current or deferred Tax
assets or reserves or accruals for Taxes;
<PAGE>
5
(vi) deposits of the Seller with the
Internal Revenue Service or any other Taxing authority
(including, without limitation, Tax deposits, prepayments
and estimated payments and all rights in such deposits and
all interest upon such deposits) relating to Taxes; and
(vii) the Tax Allocation Agreement,
dated October 22, 1981, between the Seller and Continental.
TO HAVE AND TO HOLD all of the Purchased Assets
unto the Buyer, its successors and assigns to its and their
own use forever.
This Bill of Sale and Instrument of Assignment
shall be governed and construed in accordance with the laws
of the State of New York applicable to agreements made and
to be performed entirely within such State.
This instrument shall be binding upon the Seller
and the Buyer, their respective successors, assigns and
legal representatives, for the uses and purposes set forth
and referred to, effective immediately upon its delivery to
<PAGE>
6
the Buyer, and shall inure to the benefits of the Buyer, its
successors, assigns and legal representatives.
IN WITNESS WHEREOF, the Seller has caused this
Bill of Sale and Instrument of Assignment to be duly
executed as of the date first above written.
CONTINENTAL ASSET MANAGEMENT CORP.
By________________________
Name:
Title:
_____________________
(Corporate Seal)
<PAGE>
EXHIBIT B
---------
FORM OF
ASSUMPTION OF LIABILITIES
-------------------------
ASSUMPTION OF LIABILITIES made, executed and
delivered this ____ day of _______, 1994 by CAM INVESTMENT
MANAGEMENT, L.P., a Delaware limited partnership (the
"Buyer") in favor of CONTINENTAL ASSET MANAGEMENT CORP., a
New York corporation (the "Seller").
The Seller and the Buyer are parties to the Asset
Purchase Agreement, dated as of October 13, 1994 (the
"Purchase Agreement"), providing for, among other things,
the sale, assignment, transfer and delivery to the Buyer of
the Purchased Assets and the assumption by the Buyer of the
Assumed Liabilities, in each case, as more fully described
in the Purchase Agreement and upon the terms and conditions
set forth in the Purchase Agreement. Capitalized terms used
and not defined herein shall have the same meaning as in the
Purchase Agreement.
Concurrently herewith, the Seller has executed the
Bill of Sale, dated the date hereof, pursuant to which the
Seller shall have vested in the Buyer all of its right,
title and interest in and to the Purchased Assets described
therein.
The parties now desire to carry out the intent and
purpose of the Purchase Agreement by the Buyer's execution
and delivery to the Seller of this instrument evidencing the
<PAGE>
2
Buyer's assumption of the Assumed Liabilities herein
described.
Accordingly, the parties agree as follows:
Subject to the terms and conditions of the
Purchase Agreement and except as otherwise provided in
Section 1.4 thereof, in partial consideration of the
transfer, conveyance and assignment to the Buyer of the
Purchased Assets, the Buyer shall assume, as of the Closing
Date, all Liabilities of the Seller subject to the Buyer's
right of indemnification as set forth in Section 11.1 of the
Purchase Agreement, including without limitation all of the
following (collectively, the "Assumed Liabilities"):
(i) Liabilities reflected or included
on or reserved against on the Audited Balance Sheet, or
incurred or accrued between the Balance Sheet Date and the
Closing Date;
(ii) the performance of, and the
Liabilities arising out of, each of the Contracts that is
assigned to the Buyer as of the Closing Date as contemplated
by the Purchase Agreement; and
(iii) Liabilities arising under, or
relating to, Benefit Plans, but only to the extent provided
in Section 6.16(b) of the Purchase Agreement.
Notwithstanding the foregoing, the following shall
==================================================
be excluded from Assumed Liabilities:
=====================================
(a) all Liabilities with respect to the
============================================================
Excluded Assets, whether outstanding and unpaid on the
=======================================================
<PAGE>
3
Closing Date or accruing during the period subsequent to the
============================================================
Closing Date;
=============
(b) all Liabilities and expenses of any
============================================================
kind or nature relating to Taxes (including, without limita-
============================================================
tion, any Liabilities and expenses pursuant to any Tax
======================================================
sharing agreement, Tax indemnification or similar
=================================================
arrangement);
=============
(c) all Liabilities related to
===================================================
compensation payable in respect of service with the Seller
==========================================================
on or prior to the Closing Date (other than compensation
========================================================
accrued on the last balance sheet of the Seller prepared
========================================================
prior to the Closing Date and any Liabilities in connection
===========================================================
with the termination of any Transferred Employee by the
=======================================================
Buyer after the Closing Date) and all Liabilities arising
=========================================================
under, or related to, any Benefit Plan except to the extent
===========================================================
provided in Section 6.16(b) of the Purchase Agreement;
======================================================
(d) Liabilities in connection with,
========================================================
arising out of, or otherwise relating to, the matters and
=========================================================
circumstances underlying the litigation entitled ADS
---
====================================================
Associates, Inc. v. The Continental Insurance Company and
---------------------------------------------------------
=========================================================
Continental Asset Management Corp. (N.Y. Sup. Ct., New York
----------------------------------
===========================================================
Co.), including, without limitation, any Liabilities for
========================================================
settlement amounts or expenses arising out of, or otherwise
===========================================================
relating to, settlement negotiations, mediation or
==================================================
alternative dispute resolution mechanisms; and
==============================================
(e) Liabilities in connection with,
========================================================
arising out of, or otherwise relating to, the matters and
==========================================================
<PAGE>
4
circumstances underlying the proceeding pending in the New
==========================================================
York State Division of Human Rights entitled Alice Kennedy
-------------
==========================================================
v. Continental Asset Management Corp., SDHR No. 1A-E-O-94-
-------------------------------------
==========================================================
9000640-E, including, without limitation, any Liabilities
=========================================================
relating to, or arising out of, (i) any subsequent
==================================================
proceeding brought by the complainant with respect to such
==========================================================
matters or circumstances or otherwise relating to her
=====================================================
employment with the Seller, and (ii) any settlement amounts
===========================================================
or expenses arising out of, or otherwise relating to,
=====================================================
settlement negotiations, mediation or alternative dispute
=========================================================
resolution mechanisms.
======================
<PAGE>
5
The Buyer agrees that it will execute and deliver
any and all further instruments, documents or agreements as
may reasonably be necessary or desirable to complete and
assure the assumption by the Buyer of the obligations and
liabilities assumed hereby.
This Assumption of Liabilities shall be governed
and construed in accordance with the laws of the State of
New York applicable to agreements made and to be performed
entirely within such State.
This instrument shall inure to the benefits of,
and be binding upon, the Seller and the Buyer, their
respective successors, assigns and legal representatives,
for the uses and purposes set forth and referred to,
effective immediately upon its delivery to the Seller.
IN WITNESS WHEREOF, the Buyer has caused this
Assumption of Liabilities to be duly executed as of the date
first above written.
CAM INVESTMENT MANAGEMENT, L.P.
By: CAM GP, Inc.
Its General Partner
By:____________________________
Name:
Title:
_____________________
(Corporate Seal)
<PAGE>
EXHIBIT C
---------
FORM OF NOTE A
--------------
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY
NOT BE TRANSFERRED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS SUCH DISPOSITION IS IN ACCORDANCE WITH
THE TERMS HEREOF, AND (A) SUCH DISPOSITION IS PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (B) THE
HOLDER HEREOF SHALL HAVE DELIVERED TO THE MAKER AN OPINION
OF COUNSEL, WHICH OPINION AND COUNSEL SHALL BE REASONABLY
SATISFACTORY TO THE MAKER, TO THE EFFECT THAT SUCH
DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF
THE ACT.
$[25,000,000*] [CLOSING DATE]
New York, New York
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, CAM INVEST-
MENT MANAGEMENT, L.P., a limited partnership organized under
the laws of the State of Delaware (together with its succes-
sors and permitted assigns, "Maker"), hereby promises to pay
to the order of CONTINENTAL ASSET MANAGEMENT CORP., a New
York corporation (together with its successors and permitted
assigns, "Payee"), the principal sum of [TWENTY FIVE MILLION
Dollars ($25,000,000)*], together with interest on the
unpaid principal amount hereof from time to time outstanding
from the date hereof until such principal amount is paid in
full, in such currency of the United States of America as at
the time of payment shall be legal tender therein for the
payment of public and private debts, upon the terms and
subject to the conditions set forth herein.
--------------------
[* Subject to downward adjustment in accordance with
Section 7.1 of the Agreement.]
<PAGE>
2
Section 1. Payment Terms
-------------
1.1 Principal. On [date**] (the "Maturity
---------
Date"), the Maker shall pay to the Payee the entire unpaid
principal amount of this Note then outstanding together with
all accrued and unpaid interest thereon.
1.2 Interest. The unpaid principal amount
--------
of this Note shall bear interest at a rate per annum equal
to [rate***] computed on the basis of a 365-day year and
paid for the actual number of days elapsed. Such interest
shall be payable semi-annually, in arrears, commencing on
the date which is six months after the Closing Date, until
payment of this Note in full.
Section 2. Manner of Payment. Principal payments
-----------------
and interest payments on this Note shall be made in lawful
money of the United States of America by wire transfer of
immediately available funds to an account designated in
writing to Maker, so as to be received by Payee on the due
date of each such payment. If the date on which any such
payment is required to be made pursuant to the provisions of
this Note is not a Business Day (as defined below), such
payment shall be due and payable on the immediately succeed-
ing Business Day following such date. For purposes of this
--------------------
[** At the Seller's election, pursuant to Section 2.3(i) of
the Agreement, six months or one year after the Closing
Date.]
[*** If maturity is six months, six month LIBOR plus 0.5%;
if maturity is one year, one year LIBOR plus 1%.]
<PAGE>
3
Note, "Business Day" shall mean any day other than a
Saturday, Sunday or other day on which commercial banks in
New York are authorized to close.
Section 3. No Prepayments. This Note may not be
--------------
prepaid.
Section 4. Events of Default
-----------------
4.1 If any of the following events shall
occur, it shall constitute an "Event of Default":
(a) a default by Maker in the payment
of (i) principal of this Note when the same becomes due and
payable at its stated maturity, acceleration or otherwise or
(ii) interest on this Note within ten (10) days of when the
same becomes due and payable; or
(b) if Maker (i) makes a general
assignment for the benefit of its creditors, (ii) commences
any case, proceeding or other action under any existing or
future law of any jurisdiction, domestic or foreign, relat-
ing to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with
respect to it; or seeking to adjudicate it bankrupt or
insolvent; or seeking reorganization, arrangement, adjust-
ment, winding-up, liquidation, dissolution, composition or
other such relief with respect to it or its debts; or
seeking appointment of a receiver, trustee, custodian or
other similar official for it or for all or any substantial
part of its assets (a "Bankruptcy Action"); (iii) becomes
<PAGE>
4
the debtor named in any Bankruptcy Action which results in
the entry of an order for relief or any such adjudication or
appointment remains undismissed, undischarged or unbonded
for a period of ninety (90) days; or (iv) consents to take
any action in furtherance of, or indicates its consent to,
approval of, or acquiescence in, any of the acts set forth
in clause (i) or (ii) above.
If an Event of Default specified in Section 4.1(a)
occurs and is continuing, Payee may, without limiting any
other rights it may have at law or in equity, by written
notice to Maker declare the unpaid principal of and accrued
interest on this Note due and payable, whereupon the same
shall be immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which
Maker hereby expressly waives and Payee may proceed to
enforce payment of such amount or part thereof in such
manner as it may elect and exercise any rights under this
Note. If an Event of Default specified in Section 4.1(b)
occurs, the unpaid principal of and interest on this Note
shall become immediately due and payable without present-
ment, demand, protest or notice of any kind, all of which
are hereby expressly waived by Maker. Payee's notice to
Maker may rescind an acceleration and its consequences if
the rescission would not conflict with any judgment or
decree and if all existing Events of Default have been cured
or waived except nonpayment of principal or interest that
has become due solely because of acceleration.
<PAGE>
5
Section 5. Miscellaneous.
-------------
5.1 This Note, and the beneficial ownership
thereof, is freely assignable (i) to an Affiliate of the
Payee and (ii) subject to the following two sentences, to
any other Person. The Payee shall give the Maker prior
written notice (the "Transfer Notice") of its intention to
transfer or assign this Note to any Person other than an
Affiliate of the Payee. The Maker may elect to purchase
this Note from the Payee at the outstanding principal amount
thereof plus accrued interest through the date of purchase,
which election shall be evidenced by written notice
delivered to the Payee (the "Purchase Election Notice") on
or prior to the expiration of two full Business Days
following the Maker's receipt of the Transfer Notice;
provided, however, that if the Maker intends to finance the
-------- -------
purchase of this Note, the Purchase Election Notice shall
set forth that the Maker's proposed purchase is subject to
the Maker obtaining financing acceptable to the Maker in its
sole discretion. If (x) the Maker does not timely deliver
the Purchase Election Notice or (y) the purchase of this
Note by the Maker is not consummated prior to the expiration
of twenty business days following the Payee's receipt of the
Purchase Election Notice, the Payee shall have the right to
transfer or assign this Note to any other Person. In addi-
tion, this Note may be pledged to any Person. This Note may
be assigned or transferred by Maker in connection with any
assignment or transfer by Maker (referred to as the Buyer
<PAGE>
6
under the Asset Purchase Agreement) of the Asset Purchase
Agreement in accordance with Section 6.14(vi) of the Asset
purchase Agreement. All of the provisions of this Note
shall bind and inure to the benefit of Maker, Payee and
their respective successors and permitted assigns.
5.2 The observance of any provision of this
Note may be waived (either generally or in a particular
instance) only with the written consent of the party waiving
compliance. No failure on the part of the Holder to
exercise, and no delay in exercising and no course of
dealing with respect to, any right under this Note shall
operate as a waiver thereof; nor shall any single or partial
exercise by the Holder of any right under this Note preclude
any other or further exercise thereof or the exercise of any
other right. The rights granted to the Holder in this Note
are cumulative and are not exclusive of any other remedies
provided by law. Any term of this Note may be amended only
with the written consent of Maker and Payee.
5.3 Each of Maker and Payee intend that the
obligations evidenced by this Note conform strictly to all
applicable laws from time to time in effect. All agreements
between Maker and Payee, whether now existing or hereafter
created and whether oral or written, are hereby expressly
limited so that in no contingency or event whatsoever,
whether by acceleration of maturity hereof or otherwise,
shall the amount paid or agreed to be paid to Payee, or
collected by Payee, by or on behalf of Maker for the use,
<PAGE>
7
forbearance or detention of the money to be loaned to Maker
hereunder or otherwise, or for the payment or performance of
any covenant or obligation contained herein of Maker to
Payee, or in any other document evidencing, securing or
pertaining to such indebtedness evidenced hereby, exceed the
maximum amount permissible under applicable law. If, under
any circumstances whatsoever, fulfillment of any provision
hereof or of any other document, at the time performance of
such provisions shall be due, shall involve transcending the
limit of validity prescribed by law, then, ipso facto, the
---- -----
obligation to be fulfilled shall be reduced to the limit of
such validity; and if under any circumstances Payee ever
shall receive from or on behalf of Maker an amount deemed
interest, by applicable law, which would exceed the highest
lawful rate, such amount that would be excessive interest
under applicable law shall be applied to the reduction of
Maker's principal amount owing hereunder and not to the
payment of interest, or if such excessive interest exceeds
the unpaid balance of principal and such other indebtedness,
the excess shall be deemed to have been an inadvertent pay-
ment and shall be refunded to Maker or to any other Person
making such payment on Maker's behalf.
5.4 Any notice or other communication
required or permitted hereunder shall be in writing and
shall be delivered personally, telegraphed, telexed, sent by
facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be
<PAGE>
8
deemed given when so delivered personally, telegraphed,
telexed or sent by facsimile transmission or, if mailed,
five days after the date of deposit in the U.S. mails, as
follows:
(a) if to Maker, to:
CAM Investment Management, L.P.
c/o Oak Hill Partners, Inc.
55 East 65th Street
New York, New York 10022
Attention: Glenn R. August
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Matthew Nimetz, Esq.
Telecopier: (212) 757-3990
(b) if to Payee, to:
Continental Asset Management Corp.
c/o The Continental Corporation
180 Maiden Lane
New York, New York 10038
Attention: President
Telecopier: (212) 440-3857
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: George E.B. Maguire, Esq.
Telecopier: (212) 909-6836
Payee or Maker may by notice given in accordance with this
Section 5.4 to the other parties designate another address
or Person for receipt of notices hereunder.
<PAGE>
9
5.5 The Note shall be governed by and
construed in accordance with the laws of the State of New
York applicable to agreements made and to be performed
entirely within such State.
CAM INVESTMENT MANAGEMENT, L.P.
By: CAM GP, INC.,
Its General Partner
By:
-------------------------------------
Name:
Title:
<PAGE>
EXHIBIT D
---------
FORM OF NOTE B
--------------
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY
NOT BE TRANSFERRED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS SUCH DISPOSITION IS IN ACCORDANCE WITH
THE TERMS HEREOF, AND (A) SUCH DISPOSITION IS PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (B) THE
HOLDER HEREOF SHALL HAVE DELIVERED TO THE MAKER AN OPINION
OF COUNSEL, WHICH OPINION AND COUNSEL SHALL BE REASONABLY
SATISFACTORY TO THE MAKER, TO THE EFFECT THAT SUCH
DISPOSITION IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF
THE ACT.
$10,000,000 [CLOSING DATE]
New York, New York
SUBORDINATED PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, CAM INVEST-
MENT MANAGEMENT, L.P., a limited partnership organized under
the laws of the State of Delaware (together with its succes-
sors and permitted assigns, "Maker"), hereby promises to pay
to the order of CONTINENTAL ASSET MANAGEMENT CORP., a New
York corporation (together with its successors and permitted
assigns, "Payee"), the principal sum of TEN MILLION Dollars
($10,000,000), together with interest on the unpaid
principal amount hereof from time to time outstanding from
the date hereof until such principal amount is paid in full,
in such currency of the United States of America as at the
time of payment shall be legal tender therein for the
payment of public and private debts, upon the terms and
subject to the conditions set forth herein.
<PAGE>
2
Section 1. Payment Terms
-------------
1.1 Principal. On ________, [2004] [ten
---------
years from Closing Date] (the "Maturity Date"), the Maker
shall pay to the Payee the entire unpaid principal amount of
this Note then outstanding together with all accrued and
unpaid interest thereon.
1.2 Interest. The unpaid principal amount
--------
of this Note shall bear interest at a rate per annum equal
to __% [which shall be equal to the lesser of (x) twelve
percent (12%) and (y) the applicable federal rate in effect
on date of issuance as calculated in accordance with
Section 1274(d) of the Internal Revenue Code of 1986, as
amended] computed on the basis of a 365-day year and paid
for the actual number of days elapsed. Such interest shall
be payable semi-annually, in arrears, on the last day of
each June and December (each such date shall hereinafter be
referred to as an "Interest Payment Date"), commencing on
June 30, 1995 until payment of this Note in full. On each
Interest Payment Date from and including June 30, 1995
through and including December 31, 1999, the Maker may
elect, in its sole discretion, to pay any interest due on
such Interest Payment Date by the issuance to the Payee of a
new subordinated note (each, an "Interest Note"), in lieu of
any payment in cash, any such Interest Note shall mature on
the Maturity Date unless otherwise provided therein and any
such Interest Note shall be identical in all respects to
this Note except (i) the principal amount thereof shall be
<PAGE>
3
an amount equal to such interest that was not paid in cash
and (ii) such Interest Note shall be dated the date of
issuance thereof.
Section 2. Manner of Payment. Principal payments
-----------------
and cash interest payments on this Note shall be made in
lawful money of the United States of America by wire
transfer of immediately available funds to an account desig-
nated in writing to Maker, so as to be received by Payee on
the due date of each such payment. If the date on which any
such payment is required to be made pursuant to the provi-
sions of this Note is not a Business Day (as defined below),
such payment shall be due and payable on the immediately
succeeding Business Day following such date. If interest on
this Note shall be paid by the issuance of an Interest Note,
Maker shall issue such Interest Note and deliver such
Interest Note to Payee at the address specified in Sec-
tion 10.4. For purposes of this Note, "Business Day" shall
mean any day other than a Saturday, Sunday or other day on
which commercial banks in New York are authorized to close.
Section 3. Prepayments.
-----------
3.1 Prepayments. From and after the third
-----------
anniversary of the date hereof, Maker may, at its option,
prepay without penalty or premium, all or a portion of the
then outstanding principal amount of this Note upon one
Business Day's prior written notice stating the date of
prepayment and the principal amount to be prepaid on such
<PAGE>
4
date. After such notice of prepayment has been given, the
aggregate principal amount specified in such notice,
together with all accrued interest thereon as of the
prepayment date specified in such notice, shall become due
and payable on such date.
3.2 Notation of Prepayment. Upon the
----------------------
prepayment of any portion of this Note pursuant to Sec-
tion 3.1, Payee shall annotate this Note to indicate the
amount and date of such prepayment and provide a copy of
this Note so annotated to Maker at the address specified in
Section 10.4.
Section 4. Right of Offset. Reference is made to
---------------
the Asset Purchase Agreement dated as of October 13, 1994
among Maker, Payee and The Continental Corporation, a New
York corporation ("Continental") (as amended in accordance
with the terms thereof, the "Purchase Agreement"). Payee
acknowledges and agrees that, in accordance with and subject
to the proviso in the second paragraph of Section 11.4 of
the Purchase Agreement, up to $2,500,000 of the indemnifica-
tion payments payable by Payee and Continental pursuant to
Section 11.1(i) of the Purchase Agreement, may be effected,
enforced, satisfied and discharged by set off against this
Note in accordance with the following sentence and such
amount so set off shall discharge Maker's obligations under
this Note with respect to such amount so set off. Any such
set off shall be applied first against the principal amount
<PAGE>
5
of this Note, next against the principal amount of any out-
standing Interest Notes, next against accrued and unpaid
interest on this Note and finally against accrued and unpaid
interest on any outstanding Interest Notes. In the event
that Payee and Continental shall be unable to pay in cash
any other indemnification payment required pursuant to
Section 11.1 of the Purchase Agreement, such payment may, at
Maker's option, be effected, enforced, satisfied and
discharged by set off against this Note in accordance with
the immediately preceding sentence and such amount so set
off shall discharge Maker's obligations under this Note with
respect to such amount so set off.
Section 5. Covenants of Maker. Maker covenants
------------------
with Payee that until the entire principal of and interest
on this Note shall have been paid in full as provided
herein, Maker shall:
(a) deliver to Payee such financial data and
other information describing the financial condition of
Maker for quarterly and annual periods as it is required to
deliver to holders of the Senior Debt (as defined below)
pursuant to agreements then in effect with such holders, as
such agreements with respect to Senior Debt may be modified
from time to time;
(b) whether or not required pursuant to the
agreements between Maker and the holders of the Senior Debt,
deliver to Payee:
<PAGE>
6
(i) as soon as available, but not later
than 105 days after the close of each fiscal year of
Maker, audited financial statements of Maker for and as
at the end of such year, certified by independent
certified public accountants of recognized national
standing selected by Maker; and
(ii) as soon as available, but not later
than 45 days after the close of each fiscal quarter of
Maker commencing with the quarter beginning March 31,
1995, unaudited financial statements of Maker, certi-
fied by Maker's chief financial officer as prepared in
accordance with generally accepted accounting prin-
ciples and fairly presenting the financial position and
results of operations of Maker for such quarter;
(c) upon the occurrence of any Event of
Default (as defined below) or any act, event or occurrence
which, with the passage of time or notice or both, would be
an Event of Default, notify Payee forthwith in writing
thereof describing such Event of Default or such act, event
or occurrence in reasonable detail and what action, if any,
Maker is taking or proposing to take with respect thereto;
(d) provide to Payee contemporaneous copies
of all notices required to be sent by Maker to the holders
of the Senior Debt pursuant to the terms of the agreements
between Maker and the holders of the Senior Debt of any
actual or alleged event of default or any act, event or
occurrence which, with the passage of time or notice or
<PAGE>
7
both, would be such an event of default under the Senior
Debt;
(e) not consolidate with or merge with or
into, or convey, transfer or lease all or substantially all
of its assets to, any Person (as defined below), unless:
(i) the resulting, surviving or trans-
feree Person (if not Maker) shall be organized and
existing under the laws of the United Sates of America,
any State thereof or the District of Columbia and such
person shall expressly assume in a writing executed and
delivered to Payee, all the obligations of Maker under
this Note;
(ii) immediately after giving effect to
such transaction (and treating any Debt which becomes
an obligation of the resulting, surviving or transferee
Person as a result of such transaction as having been
incurred by such Person at the time of such trans-
action), no Event of Default shall have occurred and be
continuing; and
(iii) Maker shall have delivered to Payee
a certificate of its chief financial officer and an
opinion of counsel, each stating that such consolida-
tion, merger or transfer complies with the terms and
provisions of this Note.
Section 6. Confidentiality. By accepting this
---------------
Note, Payee agrees that all information and documents
<PAGE>
8
provided to Payee by Maker pursuant to this Note shall be
considered confidential and shall not be used for any
purpose by Payee or any of its Affiliates or any of their
respective employees, officers, directors, advisors or
representatives other than with respect to payment of
Maker's obligations hereunder. Payee shall not disclose or
provide such information or documents (or any portion
thereof) to any Person other than any of its Affiliates,
employees, officers, directors, advisors or representatives
who reasonably requires such information to advise Payee in
respect of matters pertaining to this Note, without notify-
ing Maker thereof in writing prior to so doing. Payee
shall, at the reasonable request of Maker, return all such
information and documents, and reproductions thereof, upon
payment in full of all of Maker's obligations hereunder.
Section 7. Events of Default
-----------------
7.1 If any of the following events shall
occur, it shall constitute an "Event of Default":
(a) a default by Maker in the payment
of (i) principal of this Note when the same becomes due and
payable at its stated maturity, acceleration or otherwise or
(ii) interest on this Note within ten (10) days of when the
same becomes due and payable;
(b) a default by Maker in the perform-
ance of or compliance with any covenant contained in this
Note which default continues unremedied for a period of 60
<PAGE>
9
days after written notice by Payee (which notice shall
specify the default, demand that it be remedied and state
that such notice is a "Notice of Default"); or
(c) if Maker (i) makes a general
assignment for the benefit of its creditors, (ii) commences
any case, proceeding or other action under any existing or
future law of any jurisdiction, domestic or foreign, relat-
ing to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with
respect to it; or seeking to adjudicate it bankrupt or
insolvent; or seeking reorganization, arrangement, adjust-
ment, winding-up, liquidation, dissolution, composition or
other such relief with respect to it or its debts; or
seeking appointment of a receiver, trustee, custodian or
other similar official for it or for all or any substantial
part of its assets (a "Bankruptcy Action"); (iii) becomes
the debtor named in any Bankruptcy Action which results in
the entry of an order for relief or any such adjudication or
appointment remains undismissed, undischarged or unbonded
for a period of ninety (90) days; or (iv) consents to take
any action in furtherance of, or indicates its consent to,
approval of, or acquiescence in, any of the acts set forth
in clause (i) or (ii) above.
If an Event of Default (other than an Event of
Default specified in Section 7.1(c)) occurs and is continu-
ing, subject to the provisions of Section 8 (Subordination),
Payee may, without limiting any other rights it may have at
<PAGE>
10
law or in equity, by written notice to Maker declare the
unpaid principal of and accrued interest on this Note due
and payable, whereupon the same shall be immediately due and
payable without presentment, demand, protest or other notice
of any kind, all of which Maker hereby expressly waives and
Payee may proceed to enforce payment of such amount or part
thereof in such manner as it may elect and exercise any
rights under this Note; provided that, in the case of an
--------
Event of Default specified in Section 7.1(c), the unpaid
principal of and interest on this Note shall become immedi-
ately due and payable without presentment, demand, protest
or notice of any kind, all of which are hereby expressly
waived by Maker. Payee's notice to Maker may rescind an
acceleration and its consequences if the rescission would
not conflict with any judgment or decree and if all existing
Events of Default have been cured or waived except nonpay-
ment of principal or interest that has become due solely
because of acceleration. All of the foregoing rights of
Payee are subject to the limitations set forth in Section 8
below.
Section 8. Subordination.
-------------
(a) Maker agrees, and Payee by accepting
this Note agrees, that the indebtedness evidenced by this
Note is subordinated and junior in right of payment, to the
extent and in the manner provided in this Section 8, to the
prior payment in full of all Senior Debt (as defined below)
<PAGE>
11
and that the provisions of this Section 8 are made for the
benefit of all present and future holders of Senior Debt and
shall be enforceable by them directly against the Holder.
(b) Upon any payment or distribution of the
assets of Maker to creditors upon a total or partial liqui-
dation or dissolution of Maker or in any Bankruptcy Action
relating to Maker or its property:
(i) holders of Senior Debt shall be
entitled to receive payment in full of all Senior Debt
before Payee shall be entitled to receive any payment
of principal of or interest on this Note; and
(ii) until all Senior Debt is paid in
full, any distribution to which Payee would be entitled
but for this Section 8 shall be made to holders of
Senior Debt as their interest may appear, except that
Payee may receive ownership interests of Maker and any
debt securities of Maker that are subordinated to
Senior Debt to at least the same extent as this Note.
(c) If a distribution is made to Payee in
respect of this Note that because of this Section 8 should
not have been made to Payee, Payee shall hold it in trust
for the holders of Senior Debt and pay it over to them as
their interests may appear.
(d) After all Senior Debt is paid in full
and until this Note is paid in full, Payee shall be subro-
gated to the rights of holders of the Senior Debt to receive
payments or distributions of assets of the Maker applicable
<PAGE>
12
to Senior Debt. A distribution made under this Section 8 to
holders of Senior Debt which otherwise would have been made
to Payee is not, as between Maker and Payee, a payment by
Maker on Senior Debt.
(e) No right of any holder of Senior Debt to
enforce the subordination of the indebtedness evidenced by
this Note shall be impaired by any act or failure to act by
Maker or by its failure to comply with this Note.
(f) Payee by accepting this Note acknow-
ledges and agrees that the foregoing subordination provi-
sions are, and are intended to be, an inducement and a
consideration to each holder of any Senior Debt, whether
such Senior Debt was created or acquired before or after the
issuance of this Note, to acquire and continue to hold, or
to continue to hold, such Senior Debt and such holder of
Senior Debt shall be deemed conclusively to have relied on
such subordination provisions in acquiring and continuing to
hold, or in continuing to hold, such Senior Debt.
(g) Prior to the payment in full of all
Senior Debt, and so long as any event of default under any
Senior Debt is continuing Payee shall not, without the prior
written consent of the holders of the Senior Debt, take any
action (including, without limitation, the acceleration of
the maturity of all or any part of this Note) toward the
collection of this Note or enforcement of any rights, powers
or remedies hereunder, or under other agreements entered
into pursuant to this Note or under applicable law, or file,
<PAGE>
13
join in or facilitate any petition or proceeding seeking the
involuntary bankruptcy of Maker upon the occurrence of any
Event of Default hereunder or any event, which with the
passage of time, or giving of notice, or both, would
constitute an Event of Default hereunder or on any other
basis or for any other reason.
Section 9. Certain Definitions.
-------------------
"Debt" means, with respect to any Person,
(i) any liability, contingent or otherwise,
(A) for borrowed money and (B) evidenced by a note, deben-
ture, bond, letter of credit or similar instrument for the
payment of which such Person is responsible or liable;
(ii) all capital lease obligations of such
Person;
(iii) all obligations of such Person issued or
assumed as the deferred purchase price of property, all
conditional sale obligations and all obligations under any
title retention agreement (but excluding trade accounts
payable arising in the ordinary course of business);
(iv) all monetary obligations of such Person
issued or contracted for as payment in consideration of the
purchase by such Person of the stock or substantially all of
the assets of other Persons or a merger or consolidation to
which such Person was a party;
(v) all obligations of such Person for the
reimbursement of any obligor on any letter of credit,
<PAGE>
14
banker's acceptance or similar credit transaction (other
than obligations with respect to letters of credit securing
obligations (other than obligations described in (i), (ii),
(iii) and (iv) above) entered into in the ordinary course of
business of such Person to the extent such letters of credit
are not drawn upon or, if and to the extent such letters of
credit are drawn upon such drawing is reimbursed no later
than the third business day following receipt by such person
of a demand for reimbursement following payment on the
letter of credit);
(vi) all obligations of the type referred to
in clauses (i) through (v) of other Persons for the payment
of which, in either case, such Person is responsible or
liable as obligor, guarantor or otherwise; and
(vii) all obligations of the type referred to
in clauses (i) through (vi) of other Persons secured by any
lien on any property or asset of such Person (whether or not
such obligation is assumed by such Person), the amount of
such obligation being deemed to be the lesser of the value
of such property or assets or the amount of the obligation
so secured.
"Person" means any individual, corporation,
partnership, limited liability company, firm, joint venture,
association, joint-stock company, trust, unincorporated
organization or other entity.
"Senior Debt" means (i) the principal of, and
interest on, all future and existing Debt to banks, other
<PAGE>
15
financial institutions, trade creditors or otherwise, and
(ii) all fees, costs and expenses and other obligations on
or arising with respect to Senior Debt as defined in clause
(i) above accrued to the date of payment.
Section 10. Miscellaneous.
-------------
10.1 This Note, and the beneficial ownership
thereof, is freely assignable (i) to an Affiliate of the
Payee and (ii) subject to the following two sentences, to
any other Person. The Payee shall give the Maker prior
written notice (the "Transfer Notice") of its intention to
transfer or assign this Note to any Person other than an
Affiliate of the Payee. The Maker may elect to purchase
this Note from the Payee at the outstanding principal amount
thereof plus accrued interest through the date of purchase,
which election shall be evidenced by written notice
delivered to the Payee (the "Purchase Election Notice") on
or prior to the expiration of two full Business Days
following the Maker's receipt of the Transfer Notice;
provided, however, that if the Maker intends to finance the
-------- -------
purchase of this Note, the Purchase Election Notice shall
set forth that the Maker's proposed purchase is subject to
the Maker obtaining financing acceptable to the Maker in its
sole discretion. If (x) the Maker does not timely deliver
the Purchase Election Notice or (y) the purchase of this
Note by the Maker is not consummated prior to the expiration
of twenty business days following the Payee's receipt of the
<PAGE>
16
Purchase Election Notice, the Payee shall have the right to
transfer or assign this Note to any other Person. In addi-
tion, this Note may be pledged to any Person. This Note may
be assigned or transferred by Maker in connection with any
assignment or transfer by Maker (referred to as the Buyer
under the Asset Purchase Agreement) of the Asset Purchase
Agreement in accordance with Section 6.14(vi) of the Asset
purchase Agreement. All of the provisions of this Note
shall bind and inure to the benefit of Maker, Payee and
their respective successors and permitted assigns.
10.2 The observance of any provision of this
Note may be waived (either generally or in a particular
instance) only with the written consent of the party waiving
compliance. No failure on the part of the Holder to
exercise, and no delay in exercising and no course of
dealing with respect to, any right under this Note shall
operate as a waiver thereof; nor shall any single or partial
exercise by the Holder of any right under this Note preclude
any other or further exercise thereof or the exercise of any
other right. The rights granted to the Holder in this Note
are cumulative and are not exclusive of any other remedies
provided by law. Any term of this Note may be amended only
with the written consent of Maker, Payee and the holders of
the Senior Debt.
10.3 Each of Maker and Payee intend that the
obligations evidenced by this Note conform strictly to all
applicable laws from time to time in effect. All agreements
<PAGE>
17
between Maker and Payee, whether now existing or hereafter
created and whether oral or written, are hereby expressly
limited so that in no contingency or event whatsoever,
whether by acceleration of maturity hereof or otherwise,
shall the amount paid or agreed to be paid to Payee, or
collected by Payee, by or on behalf of Maker for the use,
forbearance or detention of the money to be loaned to Maker
hereunder or otherwise, or for the payment or performance of
any covenant or obligation contained herein of Maker to
Payee, or in any other document evidencing, securing or
pertaining to such indebtedness evidenced hereby, exceed the
maximum amount permissible under applicable law. If, under
any circumstances whatsoever, fulfillment of any provision
hereof or of any other document, at the time performance of
such provisions shall be due, shall involve transcending the
limit of validity prescribed by law, then, ipso facto, the
---- -----
obligation to be fulfilled shall be reduced to the limit of
such validity; and if under any circumstances Payee ever
shall receive from or on behalf of Maker an amount deemed
interest, by applicable law, which would exceed the highest
lawful rate, such amount that would be excessive interest
under applicable law shall be applied to the reduction of
Maker's principal amount owing hereunder and not to the
payment of interest, or if such excessive interest exceeds
the unpaid balance of principal and such other indebtedness,
the excess shall be deemed to have been an inadvertent pay-
<PAGE>
18
ment and shall be refunded to Maker or to any other Person
making such payment on Maker's behalf.
10.4 Any notice or other communication
required or permitted hereunder shall be in writing and
shall be delivered personally, telegraphed, telexed, sent by
facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be
deemed given when so delivered personally, telegraphed,
telexed or sent by facsimile transmission or, if mailed,
five days after the date of deposit in the U.S. mails, as
follows:
(a) if to Maker, to:
CAM Investment Management, L.P.
c/o Oak Hill Partners, Inc.
55 East 65th Street
New York, New York 10022
Attention: Glenn R. August
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Matthew Nimetz, Esq.
Telecopier: (212) 757-3990
(b) if to Payee, to:
Continental Asset Management Corp.
c/o The Continental Corporation
180 Maiden Lane
New York, New York 10038
Attention: President
Telecopier: (212) 440-3857
<PAGE>
19
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: George E.B. Maguire, Esq.
Telecopier: (212) 909-6836
Payee or Maker may by notice given in accordance with this
Section 10.4 to the other parties designate another address
or Person for receipt of notices hereunder.
10.5 The Note shall be governed by and
construed in accordance with the laws of the State of New
York applicable to agreements made and to be performed
entirely within such State.
CAM INVESTMENT MANAGEMENT, L.P.
By: CAM GP, INC.,
Its General Partner
By:
-------------------------------------
Name:
Title:
<PAGE>
EXHIBIT E
---------
NEW SUBLEASE TERM SHEET
-----------------------
Space: Current space (entire 10th floor at 180
Maiden Lane, New York, NY)
Term: One year from Closing Date; option to
renew for one additional one-year term
Rent: 1st year: $690,0001/
-
2nd year (if applicable): same
Other: - Access to all amenities of the
building currently or hereafter
available to employees of the Seller
or other tenants of the building
- Buyer shall receive all services
currently or hereafter provided to
the Seller as a tenant of the
building
- Buyer to abide by all terms and
conditions of main lease
- Rent payable monthly in advance
- No assignment or sublease except
together with assignment of Asset
Purchase Agreement (as permitted
thereunder)
- Existing sublease to be cancelled on
the Closing Date
--------------------
1/ Rent to include all real property and similar such
-
taxes, and all building operating expenses, utilities
and electricity, common or public area maintenance
charges, so-called escalation charges, and all
additional rent or similar such rents or charges due
under the main lease.
<PAGE>
EXHIBIT F
---------
SERVICES AGREEMENT TERM SHEET
-----------------------------
I. Investment Accounting and Systems
---------------------------------
A. Description Investment accounting for current and
of future Unaffiliated Clients and systems
Services: used to service investment accounting
functions and portfolio management and
evaluation functions, in each case of
the type and in the manner provided to
the Seller prior to the Closing
B. Term: One year from Closing Date; options to
renew for two additional one-year terms
C. Fee: 1st year: $610,000
2nd year (if applicable): $671,000
- Buyer to pay for its own "front end"
systems
- Continental to pay for all PAM
systems and provide use of New York/
Cranberry data communication link
D. Other: - Option to assume Seller's arrangement
with Continental with respect to
maintenance of personal computers,
including previously existing payment
schedules and amounts
- Buyer to pay provider only for actual
services rendered to Buyer
II. Human Resources
---------------
A. Description Human resources services and related
of functions (excluding payroll processing)
Services: of the type and in the manner provided
to the Seller prior to the Closing
B. Term: Six months from Closing; option to renew
for an additional six months (such
option to be exercised within three
months after Closing); option to renew
for one additional one-year term
following initial six-month renewal
period
<PAGE>
2
C. Fee: 1st 6 months: $100,000
2nd 6 months (if applicable): $150,000
2nd year (if applicable): $275,000
D. Other: At Buyer's election, (i) Continental
will provide set-up (at Continental's
expense) and payroll processing for the
Buyer (such processing at an additional
charge equal to Continental's cost) or
(ii) Continental will pay the set-up
costs, not to exceed $12,000, of outside
party (or parties) to provide payroll
processing for the Buyer
III. Legal
-----
A. Description Legal services of the type and in the
of manner provided to the Seller prior to
Services: the Closing.
B. Term: Six months; option to renew for an
additional six months (such option to be
exercised within three months after
Closing); option to renew for one
additional one-year term following
initial six-month renewal period
C. Fee: 1st 6 months: $100,000
2nd 6 months (if applicable): $150,000
2nd year (if applicable): $275,000
IV. Insurance and
-------------
Benefits
--------
A. Description At Buyer's option, Continental will
of provide standard commercial "premises"
Services: package covering the business and assets
of the Seller (excluding directors and
officers insurance, fidelity, workers
compensation and other such insurance)
B. Term: One year from Closing Date; option to
renew for one additional one-year term;
Buyer option to terminate upon three
months prior written notice
C. Fee: Buyer to purchase at Continental's costs
(commercial rate less commission)
<PAGE>
3
V. Benefits
--------
A. Description Continental to use reasonable best
of efforts to obtain extension of existing
Services: welfare plans to Transferred Employees.
If this can not be done, Continental
will assist in design/establishment of
the Buyer's own plan
B. Term: One year from Closing Date; option to
renew for one additional one-year term;
Buyer option to terminate upon three
months prior written notice
C. Fee: No fee for efforts and assistance to
Buyer. Buyer to pay cost of product
obtained, if any
<PAGE>
EXHIBIT G
---------
FORM OF
INDUCEMENT AND NON-COMPETITION AGREEMENT
----------------------------------------
AGREEMENT dated as of __________ __, 1994, among
CAM INVESTMENT MANAGEMENT, L.P., a Delaware limited
partnership (the "Buyer"), THE CONTINENTAL CORPORATION, a
New York corporation ("Continental"), and CONTINENTAL ASSET
MANAGEMENT CORP., a New York corporation and an indirect
wholly-owned subsidiary of Continental (the "Seller").
In accordance with an Asset Purchase Agreement,
dated as of October 13, 1994, among the Buyer, the Seller
and Continental (the "Purchase Agreement"), the Seller
wishes to sell, and the Buyer wishes to purchase, the
Business (as defined below) and the Purchased Assets upon
the terms and subject to the conditions of the Purchase
Agreement.
As a condition to the closing (the "Closing") of
such sale (the "Transaction"), which is occurring on the
date hereof, the Buyer requires that the Seller and
Continental enter into an agreement pursuant to which the
Seller and Continental agree not to engage in the Business
for a period of time.
Capitalized terms used and not defined herein
shall have the same meaning as in the Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing,
and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, on the
<PAGE>
2
terms and subject to the conditions set forth herein, the
parties hereto agree as follows:
1. Covenants of Continental and the Seller.
---------------------------------------
1.1 Covenants Against Competition.
-----------------------------
Continental (for itself and the Seller) acknowledges that
(i) through the Closing, the Seller has been engaged in the
Business for property and casualty insurance companies,
pension funds, corporations and other financial institutions
throughout the United States; (ii) the agreements and
covenants contained in this Agreement are essential to
protect the business and goodwill purchased by the Buyer;
and (iii) the Buyer would not consummate the Transaction but
for such agreements and covenants. The "Business" is the
business of financial asset management, and, more
specifically, the design of investment programs and the
management and supervision of investments in equity, debt
and other financial securities and instruments for insurance
companies, pension funds, corporations and other
institutions. Accordingly, Continental covenants and agrees
on behalf of itself, its direct and indirect subsidiaries,
including, without limitation, the Seller, and other
Affiliates, as follows:
1.1.1 Non-Competition. For a period of
---------------
seven (7) years following the Closing (the "Restricted
Period"), Continental shall not, and shall cause its
subsidiaries and other Affiliates not to, directly or
<PAGE>
3
indirectly, (i) engage in the Business for clients other
than the Continental Parties; (ii) acquire ownership of any
shares of capital stock, partnership or other equity
interest in any Person (other than the Buyer or any of its
partners or any of their respective Affiliates that control
the Buyer or any of its partners) engaged in the Business
for clients other than the Continental parties; provided,
however, Continental, its subsidiaries and other Affiliates
may own, directly or indirectly, solely as an investment,
securities of any Person engaged in the Business if neither
Continental nor any of its subsidiaries or other Affiliates
is a controlling person of, or a member of a group which
controls, such person and does not, directly or indirectly,
own 5% or more of any class of securities of such person.
Subject to the Purchase Agreement and any investment
advisory or management Contracts, agreements or other
arrangements between Continental and the Buyer, nothing
herein shall limit the right of Continental to manage its
own financial assets and those of its subsidiaries and other
Affiliates.
1.1.2 Employees of the Buyer. During
----------------------
the Restricted Period, Continental and its subsidiaries and
other Affiliates shall not, without the prior written
consent of the Buyer, directly or indirectly, hire or
solicit any employee of the Buyer or its Affiliates or
encourage any such employee to leave such employment, except
<PAGE>
4
any such employee who has been involuntarily terminated by
the Buyer.
1.2 Rights and Remedies Upon Breach. If
-------------------------------
either Continental or the Seller breaches, or threatens to
commit a breach of, any of the provisions of Section 1.1
(the "Restrictive Covenants"), the Buyer shall have the
following rights and remedies, each of which rights and
remedies shall be independent of the others and severally
enforceable, and each of which is in addition to, and not in
lieu of, any other rights and remedies available to the
Buyer under law or in equity:
1.2.1 Specific Performance. The
--------------------
right and remedy to have the Restrictive Covenants
specifically enforced by any court of competent
jurisdiction, it being agreed that any breach of the
Restrictive Covenants would cause irreparable injury to the
Buyer and that money damages would not provide an adequate
remedy to the Buyer.
1.2.2 Accounting. The right and remedy
----------
to require Continental to account for and pay over to the
Buyer, all compensation, profits, monies, accruals,
increments or other benefits derived or received by
Continental and their respective affiliates as the result of
any transactions constituting a breach of the Restrictive
Covenants.
1.3 Blue-Pencilling. If any court
---------------
determines that any of the Restrictive Covenants, or any
<PAGE>
5
part thereof, is unenforceable because of the duration or
geographic scope of such provision, such court shall have
the power to reduce the duration or scope of such provision,
as the case may be, and, in its reduced form, such provision
shall then be enforceable.
1.4 Enforceability in Jurisdictions. The
-------------------------------
Buyer and Continental intend to and hereby confer
jurisdiction to enforce the Restrictive Covenants upon the
courts of any jurisdiction within the geographical scope of
such Covenants. If the courts of any one or more of such
jurisdictions hold the Restrictive Covenants unenforceable
by reason of the breadth of such scope or otherwise, it is
the intention of the Buyer and Continental that such
determination not bar or in any way affect the Buyer's right
to the relief provided above in the courts of any other
jurisdiction within the geographical scope of such
Covenants, as to breaches of such Covenants in such other
respective jurisdictions, such Covenants as they relate to
each jurisdiction being, for this purpose, severable into
diverse and independent covenants.
2. Miscellaneous.
-------------
2.1 Notices. Any notice or other
-------
communication required or permitted hereunder shall be in
writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by
certified, registered or express mail, postage prepaid. Any
such notice shall be deemed given when so delivered
<PAGE>
6
personally, telegraphed, telexed or sent by facsimile
transmission or, if mailed, five days after the date of
deposit in the United States mails, as follows:
(a) if to the Buyer, to:
CAM Investment Management, L.P.
c/o Oak Hill Partners, Inc.
65 East 55th Street
New York, New York 10022
Attention: Glenn R. August
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Matthew Nimetz, Esq.
Telecopier: (212) 757-3990
(b) if to the Seller or Continental, to:
The Continental Corporation
180 Maiden Lane
New York, New York 10038
Attention: President
Telecopier: (212) 440-3857
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: George E.B. Maguire, Esq.
Telecopier: (212) 909-6836
Any party may by notice given in accordance with this
Section 2.1 to the other parties designate another address
or Person for receipt of notices hereunder.
2.2 Entire Agreement. This Agreement
----------------
contains the entire agreement among the parties with respect
<PAGE>
7
to the subject matter herein, and supersedes all prior
agreements, written or oral, with respect thereto.
2.3 Waivers and Amendments; Non-Contractual
---------------------------------------
Remedies; Preservation of Remedies. This Agreement may be
----------------------------------
amended, superseded, cancelled, renewed or extended, and the
terms hereof may be waived, only by a written instrument
signed by the parties hereto or, in the case of a waiver, by
the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder
shall act as a waiver thereof. Nor shall any waiver on the
part of any party of any such right, power or privilege, nor
any single or partial exercise of any such right, power or
privilege, preclude any further exercise thereof or the
exercise of any other such right, power or privilege. The
rights and remedies herein provided are cumulative and are
not exclusive of any rights or remedies that any party may
otherwise have at law or in equity. The rights and remedies
of any party based upon, arising out of or otherwise in
respect of any inaccuracy in or breach of any representa-
tion, warranty, covenant or agreement contained in this
Agreement or in any document or other paper delivered
pursuant to this Agreement shall in no way be limited by the
fact that the act, omission, occurrence or other state of
facts upon which any claim of any such inaccuracy or breach
is based may also be the subject matter of any other
representation, warranty, covenant or agreement contained in
this Agreement or in any document or other paper delivered
<PAGE>
8
pursuant to this Agreement (or in any other agreement
between the parties) as to which there is no inaccuracy or
breach. In the event that Continental or any of its
subsidiaries or Affiliates breaches any of its obligations
under this Agreement, Continental shall bear all of the
Buyer's costs in connection with its enforcement of this
Agreement.
2.4 Governing Law. This Agreement shall be
-------------
governed and construed in accordance with the laws of the
State of New York applicable to agreements made and to be
performed entirely within such State.
2.5 Binding Effect; No Assignment. This
-----------------------------
Agreement shall be binding upon and inure to the benefit of
the parties and their respective successors and legal
representatives. This Agreement is not assignable except by
operation of law, except that the Buyer may assign its
rights hereunder to any of its successors, subsidiaries or
Affiliates.
2.6 Variations in Pronouns. All pronouns
----------------------
and any variations thereof refer to the masculine, feminine
or neuter, singular or plural, as the context may require.
2.7 Counterparts. This Agreement may be
------------
executed by the parties hereto in separate counterparts,
each of which when so executed and delivered shall be an
original, but all such counterparts shall together consti-
tute one and the same instrument. Each counterpart may
<PAGE>
9
consist of a number of copies hereof each signed by less
than all, but together signed by all of the parties hereto.
2.8 Headings. The headings in this
--------
Agreement are for reference only, and shall not affect the
interpretation of this Agreement.
2.9 Interpretation. The parties acknowledge
--------------
and agree that: (i) each party and its counsel reviewed and
negotiated the terms and provisions of this Agreement and
have contributed to its revision; (ii) the rule of
construction to the effect that any ambiguities are resolved
against the drafting party shall not be employed in the
interpretation of this Agreement; and (iii) the terms and
provisions of this Agreement shall be construed fairly as to
all parties hereto, regardless of which party was generally
responsible for the preparation of this Agreement.
2.10 Severability of Provisions.
--------------------------
Continental, on behalf of itself, its subsidiaries and its
other Affiliates (including, without limitation, the
Seller), and the Buyer, on behalf of itself, its
subsidiaries and its other Affiliates, acknowledge and agree
that the Restrictive Covenants are reasonable and valid in
geographical and temporal scope and in all other respects.
If any provision or any portion of any provision of this
Agreement (including, but not limited to, any Restrictive
Covenant or any portion of any Restrictive Covenant), or the
application of any such provision or any portion thereof to
any Person or circumstance, shall be held invalid or
<PAGE>
10
unenforceable, the remaining portion of such provision and
the remaining provisions of this Agreement, and the
application of such provision or portion of such provision
as is held invalid or unenforceable to Persons or
circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected hereby. In
the event that any provision of this Agreement is held
invalid, the parties shall equitably adjust the terms hereof
in a manner such that each party receives the economic
benefit of this Agreement for which it bargained.
2.11 Third Party Beneficiaries. This
-------------------------
Agreement does not create, and shall not be construed to
create, any rights enforceable by any Person not a party to
this Agreement.
<PAGE>
11
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
BUYER:
CAM INVESTMENT MANAGEMENT, L.P.
By: CAM GP, INC.
Its General Partner
By:
--------------------------------
Name:
Title:
SELLER:
CONTINENTAL ASSET MANAGEMENT CORP.
By:
--------------------------------
Name:
Title:
THE CONTINENTAL CORPORATION
By:
--------------------------------
Name:
Title:
<PAGE>
EXHIBIT H
---------
OPTION AGREEMENT TERM SHEET
---------------------------
I. OPTION FEATURES
---------------
PARTIES: Continental and each of the
partners of the Buyer.
OPTION: (i) 19.9% of (x) limited
partnership common equity interests
and (y) $4.5 million of 13% PIK
junior subordinated debt (or PIK
senior preferred partnership
interest with a preferred return
accruing at a rate of 13%)
calculated as if Continental
exercised on the Closing Date. The
initial common equity of the
limited partnership will be
$500,000.
TERM: 7 years, beginning on Closing Date.
EXERCISE PRICE: $100,000 plus $900,000 accreting at
a semi-annual compounded rate of
13.0%.
DILUTION: The Option will be diluted by (i)
any dilution incurred by the
original investor group on a pro
rata basis including, but not
limited to, the issuance of
management options and management
equity and (ii) any dilution as a
result of the issuance of equity
for fair market value. The Option
will be entitled to anti-dilution
protection for equity splits and
other similar actions.
II. LIMITED PARTNERSHIP FEATURES1/
-----------------------------
RIGHTS OF FIRST OFFER
AND FIRST REFUSAL: (i) If a partner wishes to
transfer, sell or otherwise dispose
--------------------
1/ Notwithstanding any provision set forth in this Term
-
Sheet, any transfer of a partnership interest shall
require the consent, in its sole discretion, of the
General Partner of the Buyer.
<PAGE>
2
of all or part of its limited
partnership interest in the Buyer
to any Person (other than an
Affiliate of such Person), such
selling partner shall offer such
interest first, to the General
-----
Partner of the Buyer, and second,
------
to each of the other partners on a
pro rata basis.
(ii) If a partner receives a bona
fide offer from a third party to
purchase all or part of its limited
partnership interests in the Buyer,
the General Partner of the Buyer
shall have the right to match such
offer. If the General Partner of
the Buyer does not exercise this
right, the other partners shall, on
a pro rata basis, have the right to
match such offer, so long as all of
the offered partnership interests
are acquired.
DRAG-ALONG RIGHTS: In the event that the General
Partner of the Buyer wishes to
accept a bona fide offer from a
third party offeror for the
purchase of the all of the
partnership interests of the Buyer,
or all or substantially all of the
assets comprising the Business, the
General Partner of the Buyer shall
have the right to require the other
partners of the Buyer to sell their
interests to such offeror at the
same price.
TAG-ALONG RIGHTS: In the event of a sale by any
partner or group of partners of 51%
or more of the partnership
interests (other than to
Affiliates), the other partners,
including Continental, shall have
the right to participate on a pro
rata basis in such sale.
OTHER RIGHTS: If the Buyer is converted from a
limited partnership into a
corporation, the above provisions
will be embodied in a shareholders'
agreement.
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated as of October 13, 1994,
by and between The Continental Corporation, a New York
corporation (the "Company"), and Richard M. Haverland ("Ex-
ecutive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company has entered into the Securi-
ties Purchase Agreement (the "Securities Purchase Agree-
ment") between the Company and TCC-PS Limited Partnership
(the "Partnership"), dated as of the date hereof, pursuant
to which the Partnership will purchase the number of shares
of the Company's Preferred Stock specified therein; and
WHEREAS, in connection with the execution of the
Securities Purchase Agreement and the consummation of the
transactions contemplated thereby, the Company desires to
secure the services of Executive and to enter into an agree-
ment embodying the terms of such employment (the "Agree-
ment"); and
WHEREAS, Executive desires to accept such employment
and enter into such Agreement;
NOW, THEREFORE, in consideration of the mutual cov-
enants herein contained, the Company and Executive hereby
agree as follows:
1. Employment.
----------
a. Agreement to Employ. Upon the terms and sub-
-------------------
ject to the conditions of this Agreement, the Company hereby
employs Executive and Executive hereby accepts employment by
the Company.
b. Term of Employment. Except as provided in
------------------
Paragraph 6(a), the Company shall employ Executive for the
period commencing on the date hereof (the "Commencement
Date") and ending on the fifth anniversary of the Commence-
ment Date. The period during which Executive is employed
pursuant to this Agreement shall be referred to as the "Em-
ployment Period".
<PAGE>
2. Position and Duties.
-------------------
From the Commencement Date to the date of the clos-
ing of the transactions contemplated by the Securities Pur-
chase Agreement, Executive shall serve as the Vice Chairman
of the Company. Thereafter during the Employment Period,
Executive shall serve as the Chairman of the Board of Direc-
tors of the Company (the "Board") and Chief Executive Offi-
cer of the Company and in such other position or positions
with the Company and its subsidiaries, consistent with his
positions as Chairman and Chief Executive Officer of the
Company, as the Board shall from time to time specify.
During the Employment Period, Executive shall have the
duties, responsibilities and obligations customarily as-
signed to individuals serving in the position or positions
in which Executive serves hereunder. Executive shall devote
substantially all his business time to the services required
of him hereunder, except for vacation time and reasonable
periods of absence due to sickness, personal injury or other
disability, and shall perform such services in a manner
consonant with the duties of his position. Subject to the
provisions of Paragraph 7(a), nothing herein shall preclude
Executive from (i) serving on the boards of directors of a
-
reasonable number of other corporations or the boards of a
reasonable number of trade associations and/or charitable
organizations, (ii) engaging in charitable activities and
--
community affairs, and (iii) managing his personal invest-
---
ments and affairs, provided that such activities do not
materially interfere with the proper performance of his
duties and responsibilities as the Company's Chairman and
Chief Executive Officer.
3. Compensation.
------------
a. Base Salary. During the Employment Period, the
-----------
Company shall pay Executive a base salary at the annual rate
of no less than $1,000,000. The base salary shall be re-
viewed no less frequently than annually for increase in the
discretion of the Board beginning with the base salary for
1997. The amount of annual base salary currently payable
under this Paragraph 3(a) shall be reduced, however, to the
extent Executive elects to defer such salary under the terms
of any deferred compensation or savings plan or arrangement
maintained or established by the Company or any of its sub-
sidiaries. Executive's annual base salary payable hereun-
der, including any increased annual base salary, without
reduction for any amounts deferred as described above, is
referred to herein as "Base Salary". The Company shall pay
Executive the portion of his Base Salary not deferred not
less frequently than in equal monthly installments.
2
<PAGE>
b. Incentive Compensation. During the term of the
----------------------
Employment Period, Executive shall participate in the Com-
pany's existing and future annual and long term incentive
compensation programs at a level commensurate with his posi-
tion at the Company and consistent with the Company's then
current policies and practices, provided that (i) Executive
-------- -
will receive a minimum guaranteed annual incentive bonus
equal to $800,000 for each of calendar years 1994 and 1995
and (ii) thereafter, Executive's target annual incentive
--
bonus shall be at least $800,000, each such bonus to be paid
no later than March 31 of the calendar year following the
calendar year for which such bonus is payable hereunder,
subject, in each such case, to Executive's continued employ-
ment with the Company through December 31 of the calendar
year for which such bonus is payable, except as otherwise
provided in Paragraph 6. The annual incentive compensation
payable currently under this Paragraph 3(b) shall be re-
duced, however, to the extent Executive elects to defer such
annual incentive compensation under the terms of the Annual
Management Incentive Plan of the Company.
c. Eligibility for Equity Awards. Notwithstanding
-----------------------------
any provision of this Agreement or of any compensation or
benefit plan, policy, program or agreement of the Company,
Executive shall not be entitled to receive any stock option,
performance share, performance unit or other equity based
award in or for calendar years 1994 or 1995 except to the
extent specifically provided in Paragraph 4 of this Agree-
ment. After 1995, Executive shall be entitled to partici-
pate in any stock option, performance share, performance
unit or other equity based award on the same basis as other
senior level executives at the Company.
d. Sign On Bonus. In order to compensate Execu-
-------------
tive for compensation that he will be required to forgo by
accepting employment with the Company and to induce him to
accept such employment, the Company shall pay Executive
$93,750 in cash as soon as practicable, but not later than
ten business days after the Commencement Date.
4. Stock Option Grant.
------------------
a. Grant. On the Commencement Date, the Company
-----
shall grant to Executive an option (the "Option") to pur-
chase 1,000,000 shares of Common Stock (the "Option
Shares"), pursuant to the terms of the Company's Long Term
Incentive Plan (the "LTIP").
3
<PAGE>
b. Exercise Price. The per share exercise price
--------------
for the first 500,000 Option Shares (the "First Tranche")
shall be $13.4375 per share. The per share exercise price
for the next 250,000 Option Shares (the "Second Tranche")
shall be $15.25 per share. The per share exercise price for
the remaining Option Shares (the "Third Tranche") shall be
$17.25 per share.
c. Exercisability. (i) The First Tranche shall
--------------
become exercisable in full on the six month anniversary of
the Commencement Date. The Second Tranche shall become
exercisable in two equal installments on the first and
second anniversaries of the Commencement Date and the Third
Tranche shall become exercisable in two equal installments
on the second and third anniversaries of the Commencement
Date.
(ii) Notwithstanding the provisions of subparagraph
(i), each of the First, Second and Third Tranches shall be-
come fully exercisable at such earlier time as is generally
provided under the terms of the LTIP.
(iii) Subject to shareholder approval of the amend-
ment to the LTIP described in Paragraph 4(c)(iv) below, fol-
lowing the termination of Executive's employment prior to
the fifth anniversary of the Commencement Date by reason of
Executive's death, a Termination due to Disability (as de-
fined in Paragraph 6(d)), a Termination Without Cause (as
defined in Paragraph 6(d)) or a Termination for Good Reason
(as defined in Paragraph 6(d)), the Option shall remain
exercisable, to the extent the Option is exercisable at the
time of such termination or thereafter becomes exercisable
as provided in Paragraph 6(b)(iv), until the later of the
fifth anniversary of the Commencement Date or the date the
Option would otherwise cease to be exercisable following
such termination under the generally applicable terms of the
LTIP.
(iv) The Company shall amend the LTIP, subject to
approval of such amendment by the Company's shareholders at
or before the Company's next annual meeting of shareholders,
to permit the Option to contain the terms relating to the
period of post-termination exercisability described in Para-
graph 4(c)(iii) above. The Company shall take all steps
necessary or appropriate to present the foregoing amendment
to the LTIP to the Company's shareholders for approval at or
before such next annual meeting.
4
<PAGE>
d. Option Agreement. The remaining terms and con-
----------------
ditions of the Option, to the extent consistent with this
Paragraph 4, shall be as provided in the LTIP and the agree-
ment relating to such grant, which shall provide Executive
with the same rights as are generally made available to
senior executive officers of the Company under the Company's
standard compensation practices.
5. Benefits, Perquisites and Expenses.
----------------------------------
a. Benefits. During the Employment Period, Execu-
--------
tive shall be eligible to participate in (i) each welfare
-
benefit plan sponsored or maintained by the Company for its
senior executive officers, including, without limitation,
each group life, hospitalization, medical, dental, health,
accident or disability insurance or similar plan or program
of the Company, and (ii) each pension, profit sharing, re-
--
tirement, deferred compensation or savings plan sponsored or
maintained by the Company for its senior executive officers,
in each case, whether now existing or established hereafter,
in accordance with the generally applicable provisions
thereof. To the extent there is a period of employment re-
quired as a condition for full benefit coverage under any
employee benefit program, other than a pension, profit shar-
ing, retirement, deferred compensation or savings plan that
is qualified under the Internal Revenue Code of 1986, Execu-
tive shall be deemed to have met such requirement. Without
Executive's prior written consent, the Company shall not
terminate or reduce any benefit enjoyed by Executive under
any of such plans unless the Company furnishes Executive
with a benefit that is substantially equivalent.
b. Perquisites. During the Employment Period,
-----------
Executive shall be entitled to receive such perquisites as
are generally provided to other senior executive officers of
the Company in accordance with the then current policies and
practices of the Company.
c. Business Expenses. During the Employment Per-
-----------------
iod, the Company shall pay or reimburse Executive for all
reasonable expenses incurred or paid by Executive in the
performance of Executive's duties hereunder, upon presenta-
tion of expense statements or vouchers and such other infor-
mation as the Company may require and in accordance with the
generally applicable policies and procedures of the Company.
5
<PAGE>
d. Company Car. During the Employment Period, the
-----------
Company shall provide Executive with the use of an automo-
bile and chauffeur commensurate with his status and position
and shall pay all costs of maintenance thereof and insurance
thereon, but shall not be responsible for any other expenses
which are not reimbursable in accordance with the Company's
usual polices regarding business expenses.
e. Company Apartment. During the Employment Per-
-----------------
iod, in addition to the period of exclusive use described in
Paragraph 5(f)(ii) below, the Company shall make available
to Executive for his use the Company's apartment located in
Manhattan (the "Apartment") on substantially the same basis
as the Apartment was made available to the Company's chief
executive officer in office immediately prior to Executive.
f. Relocation Arrangements.
-----------------------
(i) Relocation Expenses. The Company shall
-------------------
directly pay or reimburse Executive for reasonable moving,
house-search, travel, lodging and similar expenses incurred
by him in relocating Executive and his household effects to
the New York Metropolitan area, and the reasonable fees and
expenses associated with the purchase or lease by Executive
of a residence in the New York Metropolitan area and the
sale of his present residence. Without limiting the fore-
going, Executive shall be afforded the arrangements provided
under the Company's relocation policy but without reference
to the $400,000 limit with respect to his present residence
or his new residence. In addition, such payments or reim-
bursements shall be on a "tax grossed-up basis" so that
Executive will not be "out-of-pocket" on an after-tax basis
with respect to any such payment or reimbursement, it being
understood that there shall be no tax gross up with respect
to amounts that are deductible by Executive as a moving
expense.
(ii) Temporary Accommodations. Until the ear-
------------------------
lier of (x) the date Executive's primary residence in the
-
New York Metropolitan area is, in the reasonable judgment of
Executive, ready for occupancy and (y) the first anniversary
-
of the Commencement Date, the Company shall make the Apart-
ment available to the Executive, for his sole and exclusive
use.
6
<PAGE>
g. Retirement Benefits. The Company shall pay
-------------------
Executive an additional monthly retirement benefit pursuant
to the terms of this Agreement which shall be equal to the
excess of (i) the monthly retirement benefit which would be
-
payable to Executive under the terms of the Supplemental
Retirement Plan of the Company (the "SERP"), as in effect on
the date hereof, assuming that Executive were credited with
10.5 years of service in addition to his actual years of
service with the Company over (ii) the monthly retirement
--
benefit which is actually payable to Executive under the
SERP. In determining the amount of any offset as provided
in the preceding sentence, such amount shall be calculated
assuming the same frequency of payment, the same form of
annuity and the same commencement date of payment as the
benefits to be paid under this Paragraph 5(g). The
retirement benefit payable to or in respect of Executive
pursuant to this Paragraph 5(g) shall be fully vested at all
times, without regard to when or the manner in which
Executive's employment with the Company terminates, and
shall commence to be paid at the same time as Executive's
retirement benefit under the SERP, but in no event later
than the later to occur of (x) the termination of
-
Executive's employment and (y) his attainment of age 60. If
-
under the SERP as currently in effect, there would be an
actuarial reduction if the retirement benefits commenced on
the date provided in the preceding sentence, Executive may
elect to defer commencement of such benefits until the date
as of which retirement benefits may commence without
actuarial reduction. The retirement benefit payable to or
in respect of Executive pursuant to this Paragraph 5(g)
shall be paid in the form of a straight life annuity for his
lifetime or in such other alternative form of benefit
permitted under the terms of the SERP as currently in effect
as Executive may elect in accordance with the election
provisions applicable under the SERP. The Company shall (i)
-
establish a grantor trust, subject to the claims of its
creditors, as soon as practicable after the Commencement
Date and (ii) contribute to such trust the amounts necessary
--
to satisfy its obligations to Executive under this Paragraph
5(g) (which amount shall be determined using the same
actuarial assumptions that it uses for purposes of financial
accounting in accordance with FAS 87) over the period
between the Commencement Date and the last day of the month
in which Executive attains age 60.
h. Profit Sharing Account. If Executive forfeits
----------------------
all or any portion of the profit sharing account (the
"Profit Sharing Account") accrued on his behalf pursuant to
the terms of the profit sharing plans of the Prior Employer
7
<PAGE>
(the "Prior Employer Profit Sharing Plan") by reason of
Executive's termination of employment with the Prior Employ-
er to accept employment hereunder, the Company shall estab-
lish on its books a notional account on Executive's behalf
(the "Deferred Compensation Account") to which the Company
will credit an amount equal to the amount so forfeited.
Executive shall advise the Company of the amount, if any,
that is so forfeited. Interest shall be credited annually
to amounts credited to the Deferred Compensation Account, at
a rate equal to the long-term Applicable Federal Rate, com-
pounded annually, in effect on the Commencement Date, as
determined pursuant to section 1274(d) of the Internal Rev-
enue Code of 1986, as amended. Such interest shall be cred-
ited to the Deferred Compensation Account for the period
commencing on the date an amount is forfeited under the
Prior Employer Profit Sharing Plan and ending on the day
immediately preceding the day amounts credited to the De-
ferred Compensation Account are paid to Executive pursuant
to this Paragraph 5(h). The entire amount credited to the
Deferred Compensation Account shall be fully vested at all
times and shall become payable to Executive on the first
business day of the calendar year following the calendar
year in which Executive's employment with the Company termi-
nates for any reason.
i. Indemnification. (x) The Company agrees that
---------------
if Executive is made a party, or is threatened to be made a
party, to any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "Proceeding"),
by reason of the fact that he is or was a director, officer
or employee of the Company or is or was serving at the re-
quest of the Company as a director, officer, member, employ-
ee or agent of another corporation, partnership, joint ven-
ture, trust or other enterprise, including service with
respect to employee benefit plans, whether or not the basis
of such Proceeding is Executive's alleged action in an offi-
cial capacity while serving as a director, officer, member,
employee or agent, Executive shall be indemnified and held
harmless by the Company to the fullest extent legally per-
mitted or authorized by the Company's certificate of incor-
poration or bylaws or resolutions of the Board or, if
greater, by the laws of the State of New York, against all
cost, expense, liability and loss (including, without limi-
tation, attorney's fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by Executive in
connection therewith, and such indemnification shall con-
tinue as to Executive even if he has ceased to be a direc-
tor, officer, member, employee or agent of the Company or
other entity and shall inure to the benefit of Executive's
8
<PAGE>
heirs, executors and administrators. The Company shall
advance to Executive all reasonable costs and expenses
incurred by him in connection with a Proceeding within 20
days after receipt by the Company of a written request for
such advance. Such request shall include an undertaking by
Executive to repay the amount of such advance, plus interest
at the short term "Applicable Federal Rate", as then in
effect, under Section 1274(d) of the Internal Revenue Code
of 1986, as amended, if it shall ultimately be determined
that he is not entitled to be indemnified against such costs
and expenses.
(y) Neither the failure of the Company (including
its board of directors, independent legal counsel or stock-
holders) to have made a determination prior to the commence-
ment of any Proceeding concerning payment of amounts claimed
by Executive under Paragraph 5(i)(x) above that indemnifica-
tion of Executive is proper because he has met the appli-
cable standard of conduct, nor a determination by the Com-
pany (including the Board, independent legal counsel or
stockholders) that Executive has not met such applicable
standard of conduct, shall create a presumption that Exe-
cutive has not met the applicable standard of conduct.
(z) The Company agrees to continue and maintain a
directors' and officers' liability insurance policy covering
Executive to the extent the Company provides such coverage
for its other executive officers.
6. Termination of Employment.
-------------------------
a. Early Termination of the Employment Period.
------------------------------------------
Notwithstanding Paragraph 1(b), the Employment Period shall
end upon the earliest to occur of (i) a termination of Exec-
-
utive's employment on account of Executive's death, (ii) a
--
Termination due to Disability, (iii) a Termination for
---
Cause, (iv) a Termination Without Cause, (v) a Termination
-- -
for Good Reason or (vi) a Voluntary Termination.
--
b. Benefits Payable Upon Termination. (i) Fol-
---------------------------------
lowing the end of the Employment Period pursuant to Para-
graph 6(a), Executive (or, in the event of his death, his
surviving spouse, if any, or his estate or other benefici-
ary) shall be paid the type or types of compensation, bene-
fits and other payments determined to be payable in accor-
dance with the following table at the times established
9
<PAGE>
pursuant to Paragraph 6(c) or as provided in Paragraphs
6(b)(ii) and (iii):
Normal
Earned Vested Severance Additional
Compensation Benefits Benefits Payment
------------ -------- --------- ----------
Termination due Not
to Death Payable Payable Payable Payable
Termination due Not
to Disability Payable Payable Payable Payable
Termination for Not Not
Cause Payable Payable Payable Payable
Termination
Without Cause Payable Payable Payable Payable
Termination for
Good Reason Payable Payable Payable Payable
Voluntary Not Not
Termination Payable Payable Payable Payable
(ii) In the event of a Termination due to Disabil-
ity, a Termination Without Cause or a Termination for Good
Reason, Executive shall be entitled to continued participa-
tion in all medical, dental, hospitalization and life in-
surance coverage and in other employee benefit plans or
programs in which he was participating on the date of the
termination of his employment until the earlier of (A) 24
-
months following termination of his employment and (B) the
-
date, or dates, he receives equivalent coverage and benefits
under the plans and programs of a subsequent employer (such
coverages and benefits to be determined on a coverage-by-
coverage, or benefit-by-benefit basis); provided that if
Executive is precluded from continuing his participation in
any employee plan or program as provided in this Paragraph
6(b)(ii), he shall be provided with the economic equivalent
of the benefits provided under the plan or program in which
he is unable to participate. In the case of any welfare
benefit plan, the economic equivalent of any benefit fore-
gone shall be (x) deemed to be the lowest cost that would be
-
incurred by Executive in obtaining such benefit himself on
an individual basis and (y) shall be provided on a "tax
-
grossed-up basis" to the extent the economic equivalent is
taxable to Executive, but provision of the benefit to Execu-
tive while an employee was not taxable.
(iii) In the event of a termination of Executive's
employment for any reason, Executive or his estate or other
beneficiary shall be entitled to (A) any retirement benefit
-
10
<PAGE>
that is due pursuant to Paragraph 5(g), (B) any other
-
amounts accruing or owed to Executive but not yet paid under
Paragraph 5 and (C) the Vested Benefits.
-
(iv) In the event of (A) a Termination Without Cause
-
or a Termination for Good Reason occurring more than six
months after the Commencement Date, the Option shall immed-
iately become exercisable to the extent it would have become
exercisable pursuant to Paragraph 4(c) during the 24 months
following termination of Executive's employment and (B) a
-
termination of Executive's employment due to death or a
Termination due to Disability, the next installment of the
Option that would have become exercisable pursuant to Para-
graph 4(c) shall immediately become exercisable.
(v) The Normal Severance Benefits payable to Exe-
cutive (or, in the event of his death after the date the
Employment Period ends, his surviving spouse, if any, or his
estate or other beneficiary) in the event the Employment
Period ends pursuant to Paragraph 6(a) by reason of a Ter-
mination Without Cause or a Termination for Good Reason
shall consist of the following components:
(A) the Basic Payment,
(B) if the Employment Period ends at any time dur-
ing calendar year 1994 or 1995, the Earned
Guaranteed Bonus,
(C) if the Employment Period ends after calendar
year 1995, a pro-rated amount equal to the
product of (i) Executive's target bonus for the
-
calendar year in which the Employment Period
ends, multiplied by (ii) a fraction, the numer-
--
ator of which is equal to the number of days in
the calendar year in which the Employment
Period ends pursuant to Paragraph 6(a) which
have elapsed as of the date of such end of the
Employment Period and the denominator of which
is 365, and
(D) if the Employment Period ends on or before the
last day of the eighteenth full calendar month
commencing on or after the Commencement Date
(the "Supplemental Payment Period"), the Sup-
plemental Payment.
In addition, if, in the case of a Termination Without Cause
or a Termination for Good Reason, the Option is cancelled or
expires by its terms, in either case, not later than the
11
<PAGE>
last day of the three month period following the last day of
the Employment Period (the "Option Period"), the Additional
Payment shall be payable to Executive (or, in the event of
his death, his surviving spouse, if any, or his estate or
other beneficiary).
Notwithstanding the preceding paragraph, in the
event that the aggregate value of the severance compensation
and benefits payable to Executive under the terms of The
Executive Severance Plan of the Company (the "Executive
Severance Plan") is greater than the aggregate value of the
Normal Severance Benefits, then, in lieu of any payments
under this Paragraph 6, Executive shall receive the seve-
rance compensation and benefits payable to him under the
terms of the Executive Severance Plan. If Executive re-
ceives payment of the Normal Severance Benefits described in
this Paragraph 6 (other than under the Executive Severance
Plan, as described in the immediately preceding sentence),
Executive shall not be entitled to any severance benefits or
compensation under the terms of the Executive Severance Plan
or any other severance plan of the Company.
(vi) The Additional Payment shall be payable to
Executive (or, in the event of his death, his surviving
spouse, if any, or his estate or other beneficiary) in the
event the Employment Period ends by reason of Executive's
death or a Termination due to Disability, provided that, if
--------
the Option shall remain exercisable by its terms until the
fifth anniversary of the Commencement Date, then, notwith-
standing any provision hereof to the contrary, no Additional
Payment will be payable pursuant to this Agreement by reason
of Executive's death or a Termination due to Disability.
(vii) For purposes of this Paragraph 6(b) and Para-
graph 6(c), capitalized terms have the following meanings.
"Additional Payment" means the sum of the amounts,
determined separately with respect to each Option Share
subject to the Exercisable Option, equal to the excess of
(A) over (B), where
(A) is equal to (1) the Fair Market Value of an
-
Option Share on the earlier of (x) the fifth
-
anniversary of the Commencement Date or (y) if
-
applicable, the Designated Date (as defined
below), reduced by (2) the exercise price for
-
such Option Share, and
(B) is equal to the greater of (1)(x) the Fair Mar-
- -
ket Value of such Option Share on the date the
12
<PAGE>
Employment Period ends, reduced by (y) the ex-
-
ercise price for such Option Share, and (2)
-
zero,
provided that, if the Employment Period ends by reason of a
--------
Termination Without Cause or a Termination for Good Reason
during the Supplemental Payment Period, the amount of the
Additional Payment shall be reduced (but not below zero) by
the amount of the Supplemental Payment. Notwithstanding
anything else contained herein to the contrary, if Executive
(or Executive's surviving spouse, estate and/or other
beneficiaries, as the case may be) surrenders the
Exercisable Option to the Company within 10 business days
after the date his employment terminates, the Company shall
grant him (or Executive's surviving spouse, estate and/or
other beneficiaries, as the case may be) the right to
designate the date (the "Designated Date") as of which the
Fair Market Value of an Option Share for purposes for
subclause (A) above is determined by delivering to the
Company a written notice of such designation on or prior to
the date designated in such notice; provided that, if a
--------------
Termination Without Cause or a Termination for Good Reason
occurs six months or less after the Commencement Date
Executive shall be deemed to have surrendered the
Exercisable Option as of the date of his termination of
employment.
"Basic Payment" means an amount equal to two times
the sum of (a) the annual Base Salary payable to Executive
-
immediately prior to the end of the Employment Period (or in
the event a reduction in Base Salary is the basis for a Ter-
mination for Good Reason, then the Base Salary in effect
immediately prior to such reduction) and (b) (x) if the
- -
Employment Period ends prior to January 1, 1996, $800,000 or
(y) if the Employment Period ends after December 31, 1995,
-
the annual incentive compensation Executive would have been
entitled to receive under Paragraph 3(b) for the calendar
year in which the Employment Period ends pursuant to Para-
graph 6(a) had he remained employed by the Company for the
entire calendar year and assuming that all targets for such
calendar year had been met.
"Earned Compensation" means the sum of (a) any Base
-
Salary earned, but unpaid, for services rendered to the
Company on or prior to the date on which the Employment
Period ends pursuant to Paragraph 6(a) and (b) any annual
-
incentive compensation payable for services rendered in the
calendar year preceding the calendar year in which the Em-
ployment Period ends that has not been paid on or prior to
the date the Employment Period ends (other than (x) Base
-
13
<PAGE>
Salary deferred pursuant to Executive's election, as pro-
vided in Paragraph 3(a) and (y) annual incentive compensa-
-
tion deferred pursuant to Executive's election, as provided
in Paragraph 3(b)).
"Earned Guaranteed Bonus" means a pro-rated amount
equal to the product of (i) $800,000, multiplied by (ii) a
- --
fraction, the numerator of which is equal to the number of
days in the calendar year in which the Employment Period
ends pursuant to Paragraph 6(a) which have elapsed as of the
date of such end of the Employment Period and the denomina-
tor of which is 365.
"Exercisable Option" means the portion of the Option
that is exercisable as of the date the Employment Period
ends pursuant to Paragraph 6(a) or becomes exercisable pur-
suant to Paragraph 6(b)(iv). For the purpose of this defi-
nition of "Exercisable Option," in the event of a Termina-
tion Without Cause or a Termination for Good Reason occur-
ring six months or less after the Commencement Date, the Op-
tion shall nevertheless be deemed to become exercisable as
provided in Paragraph 6(b)(iv).
"Fair Market Value" means, on any date, the average
of the highest and the lowest sales prices for a share of
Common Stock, as reported on the New York Stock Exchange
Composite Tape for such date, or, if there were no sales on
such date, on the next preceding date on which there were
sales.
"Normal Severance Benefits" means the component
amounts described in Paragraphs 6(b)(v), which shall be
payable subject to the terms and conditions set forth there-
in.
"Option Period" has the meaning set forth in Para-
graph 6(b)(v).
"Separate Account" means a separate account under
the grantor trust established pursuant to Paragraph 5(g) to
which the contribution, if any, made pursuant to Paragraph
6(c) with respect to the Supplemental Payment shall be
credited.
"Supplemental Payment" means an amount equal to the
excess, if any, of
(a) (1) $6,000,000 plus
- -
14
<PAGE>
(2) in the event of a contribution to the
-
Separate Account, the amount (which may be
a negative number) equal to the remainder
of
(A) the fair market value of the assets
-
in the Separate Account at the date
the Supplemental Payment is due minus
(B) the amount actually contributed to
-
the Separate Account in respect of
the Supplemental Payment pursuant to
Paragraph 6(c), over
(b) the aggregate amount realized by Executive
-
(and, in the event of Executive's death prior
to payment of the Supplemental Payment, by
Executive's surviving spouse, estate and/or
other beneficiaries, as the case may be) upon
the exercise of all or a portion of the Option.
For this purpose, the "aggregate amount realized" shall be
the excess of (x) the fair market value of the shares pur-
-
chased upon exercise of the Option on the date of exercise
over (y) the exercise price of such shares.
-
"Supplemental Payment Period" has the meaning set
forth in Paragraph 6(b)(v)(C).
"Vested Benefits" means amounts which are vested or
which Executive is otherwise entitled to receive under the
terms of or in accordance with any plan, policy, practice or
program of, or any contract or agreement with, the Company
or any of its subsidiaries, at or subsequent to the date of
his termination without regard to the performance by Execu-
tive of further services or the resolution of a contingency,
provided that (i) Executive shall be entitled to receive
-
amounts under the Executive Severance Plan only if such
amounts are paid in lieu of all Normal Severance Benefits
otherwise payable to Executive under this Paragraph 6 and
(ii) Executive shall not be entitled to any benefits under
--
any other severance plan, policy or arrangement of the Com-
pany or any of its subsidiaries.
c. Timing of Payments. Earned Compensation and
------------------
the portion of any Normal Severance Benefits consisting of
the Earned Guaranteed Bonus or the pro rata bonus described
in Paragraph 6(b)(v)(C) and the Basic Payment shall be paid
in a single lump sum as soon as practicable, but in no event
15
<PAGE>
more than 15 days, following the end of the Employment Peri-
od.
The portion, if any, of the Normal Severance Bene-
fits consisting of the Supplemental Payment shall be paid in
a single lump sum, at whichever of the following times is
applicable:
(i) subject to the cancellation or expiration of
-
the Option on or before the last day of the
Option Period, on the 95th day following the
end of the Employment Period or
(ii) on the earlier of
--
(x) the earlier of
-
(A) the Designated Date or
-
(B) the fifth anniversary of the
-
Commencement Date and
(y) the fifteenth day following the date
-
Executive (and, in the event of
Executive's death prior to the payment of
the Supplemental Payment, Executive's
surviving spouse, estate and/or other
beneficiaries, as the case may be) exer-
cises the Exercisable Option in full.
If the Option would, by its terms, continue to be
outstanding following the last day of the Option Period,
Executive may elect to receive the Supplemental Payment at
the time described in clause (i) of the immediately preced-
ing sentence by agreeing, in writing, to the cancellation of
the Exercisable Option no later than the last day of the
Option Period.
Notwithstanding anything in this Agreement to the
contrary, if the Supplemental Payment is not paid to
Executive by the 95th day following the end of the Employ-
ment Period, the Company shall contribute the amount of the
Supplemental Payment into the Separate Account and shall
cause the terms of such trust to permit the investment of
the amounts held in the Separate Account to be managed by an
investment manager or other investment professional
designated by Executive and reasonably acceptable to the
Company; provided that as a condition to the Company's obli-
-------------
gation to make contributions to the Separate Account in
respect of the Supplemental Payment, Executive agrees that,
16
<PAGE>
if (x) at the time the Supplemental Payment would otherwise
-
be due, no amount is due Executive with respect to the
Supplemental Payment and (y) the amount actually contributed
-
to the Separate Account exceeds the fair market value of the
assets in the Separate Account at the time the Supplemental
Payment would otherwise be due, Executive shall pay to the
Company an amount equal to the excess, if any, of (i) over
-
(ii), where:
--
(i) is the excess of
-
(A) the amount actually contributed to the
-
Separate Account over
(B) the fair market value of the assets in the
-
Separate Account at the time the
Supplemental Payment would otherwise be
due; and
(ii) is the excess of
--
(A) $6,000,000 over
-
(B) the aggregate amount realized by Executive
-
(and, in the event of Executive's death
prior to payment of the Supplemental Pay-
ment, by Executive's surviving spouse,
estate and/or other beneficiaries, as the
case may be) upon the exercise of all or a
portion of the Option.
The Additional Payment shall be paid in a single
lump sum on the earlier of (x) the Designated Date, if
-
applicable, and (y) the fifth anniversary of the
-
Commencement Date.
Vested Benefits shall be payable in accordance with
the terms of the plan, policy, practice, program, contract
or agreement under which such benefits have accrued.
d. Additional Definitions. For purposes of Para-
----------------------
graphs 4 and 6, the following additional capitalized terms
have the following meanings:
"Termination for Cause" means a termination of Exec-
utive's employment by the Company due to (i) Executive's
-
conviction of a felony or the entering by Executive of a
plea of nolo contendere to a felony charge, (ii) Executive's
--
gross neglect, willful malfeasance or willful gross miscon-
duct in connection with his employment hereunder which has
17
<PAGE>
had a material adverse effect on the business of the Company
and its subsidiaries, unless Executive reasonably believed
in good faith that such act or nonact was in or not opposed
to the best interests of the Company, (iii) a substantial
---
and continual refusal by Executive in breach of this Agree-
ment to perform the duties, responsibilities or obligations
assigned to Executive pursuant to the terms hereof, provided
that such duties, responsibilities or obligations are con-
sistent with his positions as Chairman and Chief Executive
Officer and are otherwise lawful and appropriate or (iv) any
--
other material breach by Executive of any material provision
of this Agreement. A Termination for Cause shall not take
effect unless the following provisions are complied with.
Executive shall be given written notice by the Board of the
intention to terminate him for Cause, such notice (A) to
-
state in detail the particular act or acts or failure or
failures to act that constitute the grounds on which the
proposed Termination for Cause is based and (B) to be given
-
within six months of the Board learning of such act or acts
or failure or failures to act. Executive shall have 15 days
after the date that such written notice has been given to
Executive in which to cure such conduct, to the extent such
cure is possible. If he fails to cure such conduct, Execu-
tive shall then be entitled to a hearing before the Board.
Such hearing shall be held within 30 days of such notice to
Executive. If a majority of the members of the Board
(excluding Executive) do not confirm that the Company had
grounds for a "Cause" termination, Executive shall have the
option to treat his employment as not having terminated or
as having been terminated pursuant to a Termination Without
Cause.
"Termination due to Disability" means a termination
of Executive's employment by the Company because Executive
has been incapable of substantially fulfilling the posi-
tions, duties, responsibilities and obligations set forth in
this Agreement because of physical, mental or emotional
incapacity resulting from injury, sickness or disease for a
period of more than six consecutive months in any twelve
month period. Any question as to the existence, extent or
potentiality of Executive's disability upon which Executive
and the Company cannot agree shall be determined by a quali-
fied, independent physician jointly selected by the Company
and Executive. If the Company and Executive cannot agree on
the physician to make the determination, then the Company
and Executive shall each select a physician and those physi-
cians shall jointly select a third physician, who shall make
the determination. The determination of any such physician
shall be final and conclusive for all purposes of this
Agreement. Executive or his legal representative or any
adult
18
<PAGE>
member of his immediate family shall have the right to pre-
sent to such physician such information and arguments as to
Executive's disability as he, she or they deem appropriate,
including the opinion of Executive's personal physician.
"Termination for Good Reason" means a termination of
Executive's employment by Executive within six months fol-
lowing (i) a reduction in Executive's annual Base Salary or
-
incentive compensation opportunity or the termination or
reduction of any material employee benefit or perquisite
enjoyed by him without the substitution of another compar-
able benefit or perquisite or another benefit or perquisite
of comparable value, (ii) the failure to elect or reelect
--
Executive to any of the positions described in Section 2
above or removal of him from any such position, (iii) a
---
material reduction in Executive's duties and responsibili-
ties or the assignment to Executive of duties and responsi-
bilities which are materially inconsistent with his duties
or which materially impair Executive's ability to function
as the Chairman and Chief Executive Officer of the Company,
(iv) a material breach of any material provision of this
--
Agreement by the Company, (v) the failure of the Company and
-
the Partnership to consummate the transactions contemplated
by the Securities Purchase Agreement on or prior to March
31, 1995 or the termination or abandonment by the Company
and the Partnership of the Securities Purchase Agreement
prior to March 31, 1995, (vi) if any of the documents filed
--
by the Company with the SEC since January 1, 1993 and prior
to the Commencement Date or to be filed with the SEC with
respect to calendar year 1994, (x) failed or fails to comply
-
in all material respects with the applicable requirements of
the Securities Exchange Act of 1934, as amended, or (y)
-
contained or contains any untrue statements of a material
fact or omitted or omits to state any material fact
necessary in order to make the statements made therein, in
the light of the circumstances under which they were made,
not misleading, or (vii) the occurrence of an event that
---
would permit participants in the Executive Severance Plan to
terminate employment with the Company and receive payment of
severance compensation and benefits under the terms of the
Executive Severance Plan, assuming for this purpose that the
level of ownership by any person or group of the Company's
common stock necessary to constitute a Change of Control is
25% (instead of 30%) but excluding from the definition of a
Change of Control the acquisition by the Partnership (or any
group of which the Partnership is a member) of securities in
excess of that level of ownership. Notwithstanding the
foregoing, a termination shall not be treated as a Term-
ination for Good Reason (i) if Executive shall have
-
consented in writing to the occurrence of the event giving
19
<PAGE>
rise to the claim of Termination for Good Reason (other than
an event described in clause (vii) of this definition) or
(ii) unless Executive shall have delivered a written notice
--
to the Board within six months of his having actual knowl-
edge of the occurrence of one of such events stating that he
intends to terminate his employment for Good Reason and
specifying the factual basis for such termination, and such
event, if capable of being cured, shall not have been cured
within 30 days of the receipt of such notice.
"Termination Without Cause" means any termination of
Executive's employment by the Company other than (i) a Ter-
-
mination due to Disability or (ii) a Termination for Cause.
--
"Voluntary Termination" means any termination of
Executive's employment on his own initiative (other than a
termination due to death, a Termination due to Disability or
a Termination for Good Reason) after the second anniversary
of the Commencement Date and upon 60 days' advance written
notice to the Company of such termination.
e. Payment Following a Change in Control. In
-------------------------------------
the event that, in the case of a Termination Without Cause
or a Termination for Good Reason, the aggregate of all pay-
ments or benefits made or provided to the Executive under
this Paragraph 6 and under all other plans and programs of
the Company (the "Aggregate Payment") is determined to con-
stitute a Parachute Payment, as such term is defined in
Section 28OG(b)(2) of the Internal Revenue Code, the Company
shall pay to the Executive, prior to the time any excise tax
imposed by Section 4999 of the Internal Revenue Code ("Ex-
cise Tax") is payable with respect to such Aggregate Pay-
ment, an additional amount which, after the imposition of
all income and excise taxes thereon, is equal to the Excise
Tax on the Aggregate Payment. The determination of whether
the Aggregate Payment constitutes a Parachute Payment and,
if so, the amount to be paid to the Executive and the time
of payment pursuant to this Paragraph 6(e) shall be made by
an independent auditor (the "Auditor") jointly selected by
the Company and the Executive and paid by the Company. The
Auditor shall be a nationally recognized United States pub-
lic accounting firm which has not, during the two years
preceding the date of its selection, acted in any way on
behalf of (x) the Company or any affiliate thereof or (y)
- -
Executive. If the Executive and the Company cannot agree on
the firm to serve as the Auditor, then the Executive and the
Company shall each select one accounting firm and those two
firms shall jointly select the accounting firm to serve as
the Auditor.
20
<PAGE>
f. Full Discharge of Company Obligations. The
-------------------------------------
amounts payable to Executive pursuant to this Paragraph 6
following termination of his employment (including amounts
payable with respect to Vested Benefits) shall be in full
and complete satisfaction of Executive's rights under this
Agreement and any other claims he may have in respect of his
employment by the Company or any of its subsidiaries other
than claims for common law torts or under other contracts
between Executive and the Company or its subsidiaries. Such
amounts shall constitute liquidated damages with respect to
any and all such rights and claims and, upon Executive's
receipt of such amounts, the Company shall be released and
discharged from any and all liability to Executive in con-
nection with this Agreement or otherwise in connection with
Executive's employment with the Company and its subsidiar-
ies.
g. No Mitigation; No Offset. In the event of any
------------------------
termination of employment under this Paragraph 6, Executive
shall be under no obligation to seek other employment and
there shall be no offset against amounts due Executive under
this Agreement on account of any remuneration attributable
to any subsequent employment that he may obtain except as
specifically provided in this Paragraph 6.
7. Noncompetition and Confidentiality.
----------------------------------
a. Noncompetition. During the Employment Period
--------------
and, in the case of a Voluntary Termination, the Additional
Period, Executive shall not become associated with any enti-
ty, whether as a principal, partner, employee, consultant or
shareholder (other than as a holder of not in excess of 1%
of the outstanding voting shares of any publicly traded com-
pany), that is actively engaged in any geographic area in
any business which is in competition with a business con-
ducted by the Company at the time of the alleged competition
and, in the case of the Additional Period, at the date of
the Voluntary Termination. For the purpose of this Para-
graph 7, the "Additional Period" shall mean a period of 12
months following the Voluntary Termination. Notwithstanding
anything else contained herein to the contrary, in the event
that Executive voluntarily terminates his employment in a
termination which is not a Voluntary Termination (or a
Termination for Good Reason or a Termination for
Disability), the covenant contained in this Paragraph 7(a)
shall only continue in effect until the earlier of (i) the
-
end of the Employment Period or (ii) the later of (A) the
-- -
third anniversary of the Commencement Date or (B) the date
-
as of which the Additional Period would have ended had such
termination been a Voluntary Termination.
21
<PAGE>
b. Confidentiality. Without the prior written con-
---------------
sent of the Company, except (i) in the course of carrying
-
out his duties hereunder or (ii) to the extent required by
--
an order of a court having competent jurisdiction or under
subpoena from an appropriate government agency, Executive
shall not disclose any trade secrets, customer lists, draw-
ings, designs, information regarding product development,
marketing plans, sales plans, manufacturing plans, manage-
ment organization information (including data and other
information relating to members of the Board of Directors
and management), operating policies or manuals, business
plans, financial records, packaging design or other finan-
cial, commercial, business or technical information relating
to the Company or any of its subsidiaries or information
designated as confidential or proprietary that the Company
or any of its subsidiaries may receive belonging to suppli-
ers, customers or others who do business with the Company or
any of its subsidiaries (collectively, "Confidential Infor-
mation") to any third person unless such Confidential Infor-
mation has been previously disclosed to the public by the
Company or has otherwise become available to the public
(other than by reason of Executive's breach of this Para-
graph 7(b)).
c. Company Property. Promptly following Execu-
----------------
tive's termination of employment, Executive shall return to
the Company all property of the Company, and all copies
thereof in Executive's possession or under his control, ex-
cept that Executive may retain his personal notes, diaries,
Rolodexes, calendars and correspondence.
d. Non-Solicitation of Employees. During the Em-
-----------------------------
ployment Period and during the one year period following any
termination of Executive's employment, Executive shall not,
except in the course of carrying out his duties hereunder,
directly or indirectly induce any employee of the Company or
any of its subsidiaries to terminate employment with such
entity, and shall not directly or indirectly, either indi-
vidually or as owner, agent, employee, consultant or other-
wise, knowingly employ or offer employment to any person who
is or was employed by the Company or a subsidiary thereof
unless such person shall have ceased to be employed by such
entity for a period of at least 6 months.
e. Injunctive Relief with Respect to Covenants.
-------------------------------------------
Executive acknowledges and agrees that the covenants and
obligations of Executive with respect to noncompetition,
nonsolicitation, confidentiality and Company property relate
to special, unique and extraordinary matters and that a
violation of any of the terms of such covenants and obliga-
22
<PAGE>
tions may cause the Company irreparable injury for which
adequate remedies are not available at law. Therefore,
Executive agrees that the Company shall be entitled to seek
an injunction, restraining order or such other equitable
relief restraining Executive from committing any violation
of the covenants and obligations contained in this Paragraph
7. These injunctive remedies are cumulative and are in
addition to any other rights and remedies the Company may
have at law or in equity.
8. Miscellaneous.
-------------
a. Survival. Paragraphs 4 (relating to the stock
--------
option grant), 5(g) (relating to Executive's additional
retirement benefits), 5(h) (relating to Executive's profit
sharing account), 5(i) (relating to the Company's obligation
to indemnify Executive), 6 (relating to early termination),
7 (relating to noncompetition, nonsolicitation and confiden-
tiality) and 8(o) (relating to governing law) shall survive
the termination hereof, whether such termination shall be by
expiration of the Employment Period or an early termination
pursuant to Paragraph 6 hereof.
b. Binding Effect. This Agreement shall be binding
--------------
on, and shall inure to the benefit of, the Company and any
person or entity that succeeds to the interest of the Com-
pany (regardless of whether such succession does or does not
occur by operation of law) by reason of a merger, consolida-
tion or reorganization involving the Company or a sale of
all or substantially all of the assets of the Company, pro-
vided that the assignee or transferee is the successor to
all or substantially all of the assets of the Company and
such assignee or transferee assumes the liabilities, obli-
gations and duties of the Company, as contained in this
Agreement, either contractually or as a matter of law. The
Company further agrees that, in the event of a sale of as-
sets as described in the preceding sentence, it shall use
its reasonable best efforts to cause such assignee or trans-
feree to expressly assume the liabilities, obligations and
duties of the Company hereunder. This Agreement shall also
enure to the benefit of Executive's heirs, executors, admin-
istrators and legal representatives and beneficiaries as
provided in Paragraph 8(d).
c. Assignment. Except as provided under Paragraph
----------
8(b), neither this Agreement nor any of the rights or obli-
gations hereunder shall be assigned or delegated by any
party hereto without the prior written consent of the other
party.
23
<PAGE>
d. Beneficiaries/References. Executive shall be
------------------------
entitled, to the extent permitted under any applicable law
and the terms of any applicable plan, to select and change a
beneficiary or beneficiaries to receive any compensation or
benefit payable hereunder following Executive's death by
giving the Company written notice thereof. In the event of
Executive's death or a judicial determination of his
incompetence, reference in this Agreement to Executive shall
be deemed, where appropriate, to refer to his beneficiary,
estate or other legal representative.
e. Resolution of Disputes. Any disputes arising
----------------------
under or in connection with this Agreement shall, at the
election of Executive or the Company, be resolved by binding
arbitration, to be held in New York City in accordance with
the rules and procedures of the American Arbitration Asso-
ciation. Judgment upon the award rendered by the arbitra-
tor(s) may be entered in any court having jurisdiction
thereof. Costs of the arbitration shall be borne by the
Company. Unless the arbitrator determines that Executive
did not have a reasonable basis for asserting his position
with respect to the dispute in question, the Company shall
also reimburse Executive for his reasonable attorneys' fees
incurred with respect to any arbitration. Pending the reso-
lution of any arbitration or court proceeding, the Company
shall continue payment of all amounts due Executive under
this Agreement and all benefits to which Executive is
entitled at the time the dispute arises (other than the
amounts which are the subject of such dispute).
f. Entire Agreement. This Agreement constitutes
----------------
the entire agreement between the parties hereto with respect
to the matters referred to herein. No amendment to this
Agreement shall be binding between the parties unless it is
in writing and signed by the party against whom enforcement
is sought. There are no promises, representations, induce-
ments or statements between the parties other than those
that are expressly contained herein. Executive acknowledges
that he is entering into this Agreement of his own free will
and accord, and with no duress, that he has been represented
and fully advised by competent counsel in entering into this
Agreement, that he has read this Agreement and that he
understands it and its legal consequences.
g. Representations. Executive represents that his
---------------
employment hereunder and compliance by him with the terms
and conditions of this Agreement will not conflict with or
result in the breach of any agreement to which he is a party
or by which he may be bound. The Company is a corporation
duly organized, validly existing and in good standing under
24
<PAGE>
the laws of the State of New York. The Company has the full
corporate power and authority to execute and deliver this
Agreement. The Company has taken all action required by
law, the Certificate of Incorporation, its By-Laws or other-
wise required to be taken by it to authorize the execution,
delivery and performance by it of this Agreement. This
Agreement is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its
terms. The Company further represents that Executive's
employment hereunder and compliance by the Company with the
terms and conditions of this Agreement will not conflict
with or result in the breach of any agreement to which the
Company is a party or by which it may be bound.
h. Severability; Reformation. In the event that
-------------------------
one or more of the provisions of this Agreement shall become
invalid, illegal or unenforceable in any respect, the valid-
ity, legality and enforceability of the remaining provisions
contained herein shall not be affected thereby. In the
event any of Paragraph 7(a), (b) or (d) is not enforceable
in accordance with its terms, Executive and the Company
agree that such Paragraph shall be reformed to make such
Paragraph enforceable in a manner which provides the Company
the maximum rights permitted at law.
i. Waiver. Waiver by any party hereto of any
------
breach or default by the other party of any of the terms of
this Agreement shall not operate as a waiver of any other
breach or default, whether similar to or different from the
breach or default waived. No waiver of any provision of
this Agreement shall be implied from any course of dealing
between the parties hereto or from any failure by either
party hereto to assert its or his rights hereunder on any
occasion or series of occasions.
j. Notices. Any notice required or desired to be
-------
delivered under this Agreement shall be in writing and shall
be delivered personally, by courier service, by registered
mail, return receipt requested, or by telecopy and shall be
effective upon actual receipt when delivered or sent by
telecopy and upon mailing when sent by registered mail, and
shall be addressed as follows (or to such other address as
the party entitled to notice shall hereafter designate in
accordance with the terms hereof):
25
<PAGE>
If to the Company:
The Continental Corporation
180 Maiden Lane
New York, New York 10038
Attention: Secretary
Telecopy No.: (212) 440-3857
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Lawrence K. Cagney, Esq.
Telecopy No.: (212) 909-6836
If to Executive:
Richard M. Haverland
c/o The Continental Corporation
180 Maiden Lane
New York, New York 10038
Attention: Secretary
Telecopy No.: (212) 440-3857
with a copy to:
Law Offices of Joseph E. Bachelder
780 Third Avenue
New York, New York
Attention: Joseph E. Bachelder, Esq.
Telecopy No.: (212) 319-3070
k. Amendments. This Agreement may not be altered,
----------
modified or amended except by a written instrument signed by
each of the parties hereto.
l. Headings. Headings to paragraphs in this Agree-
--------
ment are for the convenience of the parties only and are not
intended to be part of or to affect the meaning or interpre-
tation hereof.
m. Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed an original but
all of which together shall constitute one and the same
instrument.
n. Withholding. Any payments provided for herein
-----------
shall be reduced by any amounts required to be withheld by
the Company from time to time under applicable federal,
26
<PAGE>
state or local income or employment tax laws or similar
statutes or other provisions of law then in effect.
o. Governing Law. This Agreement shall be gov-
-------------
erned by the laws of the State of New York, without refer-
ence to principles of conflicts or choice of law under which
the law of any other jurisdiction would apply.
IN WITNESS WHEREOF, the Company has caused this
Agreement to be executed by its duly authorized officer and
Executive has hereunto set his hand as of the day and year
first above written.
THE CONTINENTAL CORPORATION
WITNESS:
/s/ Lawrence K. Cagney By: /s/ John P. Mascotte
----------------------- ------------------------
John P. Mascotte
Chairman and Chief Executive
Officer
WITNESS:
/s/ Leonard Epstein /s/ Richard M. Haverland
---------------------- ----------------------------
Richard M. Haverland
27
AGREEMENT IN PRINCIPLE October 10, 1994
1. Agreement to Purchase. Fremont Compensation Insurance
-----------------------
Company ("Fremont Compensation"), an indirect subsidiary of
Fremont General Corporation ("Fremont General"), agrees to
acquire all of the issued and outstanding shares (the "Shares")
of capital stock of Casualty Insurance Company (the "Company")
from its parent, The Buckeye Union Insurance Company ("Buckeye"),
a subsidiary of The Continental Corporation ("Continental") (the
"Acquisition"). The assets of the Company will include all of the
issued and outstanding shares of capital stock of Workers'
Compensation and Indemnity Company of California ("WCIC"). Each
party has taken the appropriate corporate action to approve this
Agreement in Principle. The purchase of the Shares will occur
pursuant to the terms of a definitive Stock Purchase Agreement
and ancillary agreements (collectively the "Stock Purchase
Agreement"), which will conform to the terms of this Agreement in
Principle.
2. Purchase Price. The aggregate purchase price for the
----------------
Shares will be $250 million, all of which will be paid in cash at
the closing of the Acquisition (the "Closing"). The purchase
price will be funded from the assets of Fremont Compensation and
Fremont General. There is no financing contingency. The purchase
price will be subject to adjustment, as described in Section 7
below.
3. Other Business; Fronting Arrangements. The parties
---------------------------------------
agree that all liabilities not pertaining to the workers
compensation insurance business in California, Indiana, Illinois,
Wisconsin and Michigan (the "Acquired States") will be either
removed from the Company or be reinsured by a Continental
affiliate prior to the Closing, in a manner to be mutually agreed
upon by the parties. All fronting arrangements enabling the
Company to do business in the Acquired States will be continued
by one or more Continental affiliates for a mutually agreed
period of time following the Closing.
4. Reinsurance Recoverable.
------------------------
(a) Accord Re. At the Closing, Continental Insurance Company
-----------
will assume for the benefit of the Company the reinsurance
obligations of Accord Re with respect to the Workers'
compensation business in the Acquired States (the
<PAGE>
"Transferred Business"). Such assumption will not adversely
affect the equity of the Company.
(b) Reinsurance Recoverable from Continental and its
------------------------------------------------
Affiliates. The parties mutually agree that a portion of the
------------
total reinsurance obligations from Continental and its affiliates
to the Company will be either collateralized or supported by a
letter of credit.
5. Other Services. Continental and its affiliates will
----------------
continue to provide to the Company services currently performed
by Continental and its affiliates on behalf of the Company during
a transition period of up to one year from the Closing, at a
price of 115% of the cost of such services. The cost of such
services will be defined in the Stock Purchase Agreement as the
direct cost incurred by Continental and its affiliates.
Continental agrees that it will make all reasonable efforts to
transition to Fremont Compensation as soon as practicable the
services performed pursuant to this Section 5.
6. Reasonable Access.
------------------
(a) Continental and its affiliates will make available to the
authorized representatives of Fremont Compensation such books,
records and personnel of the Company, Buckeye, Continental and
their affiliates as are reasonably necessary to permit Fremont
Compensation to negotiate the Stock Purchase Agreement and
investigate the accuracy of representations and warranties made
to it in the Stock Purchase Agreement. The Confidentiality
Agreement, dated July 5, 1994, between Fremont General and
Continental will remain in effect and apply to Fremont
Compensation's continuing review.
(b) Fremont Compensation will at its expense cause its
auditors, Ernst & Young ("E & Y"), to perform agreed upon
procedures with respect to the Company's records, such procedures
to be specified in the Stock Purchase Agreement and completed
prior to the Closing (the "Preclosing E & Y Procedures). E & Y
will commence such procedures promptly after execution of this
Agreement in Principle. The Company, Buckeye, Continental and
their affiliates will cooperate with E & Y in its performance of
the Preclosing E & Y Procedures.
2
<PAGE>
7. Balance Sheets; Methodology; Purchase Price Adjustment.
-----------------------------------------------------------
(a) Prior to the signing of the Stock Purchase Agreement, the
parties will agree on the pro forma consolidated balance sheet of
the Company and WCIC as of June 30, 1994 (the "June 30 Balance
Sheet"), as if the depooling transactions referred to in Section
8 below had been effectuated.
(b) The parties will prepare the June 30 Balance Sheet using
the following assumptions:
(i) The portfolio assets (the "Portfolio Assets") to be
transferred to Fremont Compensation will consist exclusively
of cash, U.S. Treasury securities and accrued interest
receivable thereon, be reasonably acceptable to Fremont
Compensation and have a carrying value equal to their fair
market value.
(ii) Any deferred tax asset which is included in the
June 30 Balance Sheet shall be equal to an amount computed
using a tax rate of 35% and taking into account only items
that constitute temporary differences reflected in the June
30 Balance Sheet.
(iii) The amount of loss and loss adjustment expense
reserves ("Loss Reserves") shall be based on the following:
(A) Subject to verification of the accuracy of the
date provided to Milliman & Robertson, the report dated
June 27, 1994 prepared for the Company by Milliman &
Robertson is accepted by the parties to establish the
Company's ultimate voluntary business Loss Reserves for
accident years 1993 and prior.
(B) The proper analytical methodology to establish
the voluntary business Loss Reserved for accident year
1994, and if necessary, accident year 1995, shall be
mutually agreed and specified in the Stock Purchase
Agreement.
(C) The parties will agree to an amount necessary
to discharge the liabilities from business assumed from
the National Worker's Compensation Reinsurance Pool.
3
<PAGE>
(D) The parties will agree to methodology to
determine the loss adjustment expense reserves
necessary to discharge the Company's obligations for
business serviced on behalf of the National Worker's
Compensation Reinsurance Pool.
(iv) The provision for reinsurance recoverables,
statutory discount, policyholder dividend liabilities,
reserves for retrospective premium adjustments, reserves for
future audit premiums, any other accruals, and any other
assets and liabilities not described above will be
established on a basis mutually agreeable to the parties.
(c) The Company will prepare and deliver to Fremont
Compensation at least two weeks before the Closing an estimated
balance sheet as of the projected closing date, which will be
prepared on a basis consistent with the June 30 Balance Sheet.
Such estimated closing balance sheet will be "brought down" the
day before the Closing by marking the investment portfolio to
market as of such day. The parties will close on the basis of
such brought down estimated balance sheet (the "Closing Balance
Sheet"). Prior to the Closing, the assets and liabilities of the
Company will be adjusted by Continental as necessary so that the
Closing Balance Sheet reflects shareholders' equity of
$201,780,000.
(d) If the amount of Portfolio Assets set forth in the
Closing Balance Sheet is not in the range of $700,000,000 -
$740,000,000, the purchase price shall be decreased or increased
pursuant to a formula to be specified in the Stock Purchase
Agreement.
(e) Following the Closing, E & Y will perform an audit (the
"Acquisition Audit") of the Closing Balance Sheet at the expense
of Fremont Compensation. The assumptions determined as provided
in Section 7(b) above shall be used in the Acquisition Audit.
Continental, Buckeye and their affiliates will cooperate fully
with E & Y in the performance of the Acquisition Audit.
(f) If the parties do not agree on the results of the
Acquisition Audit, they will use their best efforts to resolve
any such dispute. If they are unable to agree, the dispute will
be finally determined by another independent accounting firm
chosen by the parties.
4
<PAGE>
(g) If the Acquisition Audit, as finally determined pursuant
to Section 7(f) above, shows that the amount of shareholders
equity (the "Actual Shareholders' Equity") was more than $250,000
greater or less than $201,780,000, then a post-closing adjustment
in the purchase price will be made by a cash payment by either
Fremont Compensation or Continental. In such event, Fremont
Compensation shall pay to Continental the amount by which the
Actual Shareholders' Equity exceeded $201,780,000 (the "Positive
Adjustment") or Continental shall pay to Fremont Compensation the
amount by which $201,780,000 exceeded the Actual Shareholders'
Equity. Provided, however, that if the Positive Adjustment is
more than $5,000,000, then Fremont Compensation will pay
$5,000,000 in cash and will return Portfolio Assets with a value
equal to the difference between the Positive Adjustment and
$5,000,000.
(h) In the Stock Purchase Agreement, Continental will make no
representation or warranty about, and provide no indemnity
concerning, the adequacy of the Company's Loss Reserves or the
collectibility of reinsurance recoverables (other than on
reinsurance provided by Continental or its affiliates) as those
matters will be addressed through the Preclosing E & Y Procedures
and the Acquisition Audit as described above.
8. Continental Pool. Prior to the Closing, the
------------------
Transferred Business will be fully unwound from the Continental
pool without adversely affecting the Company's ability to do
business in the Acquired States. Continental will indemnify the
Company fully with respect to any liabilities that do not relate
to the Transferred Business.
9. Tax Matters.
------------
(a) Continental will hold the Company harmless from any tax
liabilities with respect to periods ending on or prior to the
Closing Date that are not appropriately reflected in the Closing
Balance Sheet.
(b) None of the Purchase Price will be allocated to the
covenant not to compete described in Section 11 below except to
the extent mutually agreed by the parties.
(c) At Fremont Compensation's option, Continental and Fremont
Compensation shall jointly make an election pursuant to IRC
section 338(h)(10) (and any analogous provision of state, local
or foreign law) to have the purchase
5
<PAGE>
of the Company's stock treated for tax purposes as a "deemed
asset acquisition."
(d) Continental and Fremont Compensation will consult in good
faith to determine whether an alternative structure for the
transaction (i.e., an exchange described in section 351 of the
IRC) will provide either party with a material tax benefit. In
the event the parties mutually agree upon any such alternative
structure, the proposed agreement shall be converted to such
alternative structure, with only such modifications as are
necessary to give effect to the change in structure.
10. Conditions to Closing. Consummation of the Acquisition is
-----------------------
conditional upon the occurrence of the following:
(a) Negotiation and execution of the Stock Purchase
Agreement. The Stock Purchase Agreement will contain customary
representations and warranties to be brought down to Closing,
including representations with respect to the June 30 Balance
Sheet to be attached to the Stock Purchase Agreement. Subject to
Section 7(h) above, the representations and warranties made to
Fremont Compensation shall cover the accuracy of the Closing
Balance Sheet, and the Preclosing E & Y Procedures shall not
indicate that such representations and warranties are materially
incorrect. Any modifications in the assets and liabilities of the
Company required by Section 7(c) above shall have been completed.
(b) Review and approval of definitive documentation by the
Boards of Directors of Continental, Buckeye, the Company, Fremont
Compensation and Fremont General.
(c) Any requisite approvals from the Commissioners of
Insurance of the States of Illinois and California and of such
other states as needed, as well as compliance, if required, with
the Hart-Scott-Rodino Antitrust Improvements Act.
(d) No material adverse change in the operations, business,
financial condition, prospects or assets of the Company and WCIC,
taken as a whole. Provided, however, that the Stock Purchase
Agreement will exclude from the definition of a material adverse
change certain personnel losses in the California operations of
the Company due to the pendency of the Acquisition and any
downgrading in the claims
6
<PAGE>
paying rating of the Company provided by Moody's Investors
Services, Inc. or Standard & Poor's Corporation or in the rating
of the Company provided by A.M. Best Company, if such ratings
change has resulted from the pendency of the Acquisition and not
from changes in the ratings of Continental.
(e) Prior to the Closing Continental will supply audited
balance sheets as of December 31 in each of the years 1992 and
1993 and audited profit and loss statements for each of the years
ended on December 31, 1991, 1992 and 1993 in a form sufficient to
meet Fremont General's reporting requirements under Regulation S-
X.
11. Covenant Not to Compete. The Stock Purchase Agreement
-------------------------
will contain a non-competition covenant prohibiting Continental
and its affiliates from competing with the Company for a period
of three years in the Acquired States. Exceptions to the covenant
will be made for certain passive investments, acquisitions of
companies that have only a de minimus worker's compensation
insurance business, national accounts, package accounts and a
limited amount of unso-licited business in the Acquired States.
This covenant will also prohibit soliciting any employees of the
Company to leave the Company's employ, hiring any of certain key
employees of the Company to be specified in the Stock Purchase
Agreement (the "Specified Employees") or hiring in the aggregate
more than 10% of the employees of the Company who are not
Specified Employees.
12. No Shop. For 30 days from the date hereof, Continental,
---------
the Company and their directors, officers, employees, agents and
affiliates will not, without Fremont Compensation's written
consent, provide any information to or encourage, solicit or
negotiate with, any corporation, individual or other entity with
respect to any acquisition, merger, sale of stock or other
substantial assets or other such proposal concerning the Company
("Acquisition Proposal"); provided however, that at Fremont
Compensation's option, the foregoing 30 day period may be
extended to 48 days from the date hereof. The parties understand
that Continental, the Company and their affiliates are agreeing
to the terms of this Section 12 to induce Fremont Compensation
and Fremont General to enter into this Agreement in Principle,
and to enter into a Stock Purchase Agreement within the time
period described above.
7
<PAGE>
13. Costs. Each of the parties shall bear its own costs in
-------
connection with the Acquisition. All fees owned to Goldman, Sachs
& Co. in connection with the Acquisition will be paid by
Continental. All fees owed to Chase Manhattan Bank or Chase
Securities, Inc. in connection with the Acquisition will be paid
by Fremont Compensation.
14. Publicity. The parties agree that the execution and
-----------
delivery of this Agreement in Principle will be publicly
disclosed, but that the parties will release only a mutually
agreed upon text. Except as required by law, regulation or stock
exchange requirements, any other public announcement (including
the text thereof) of the proposed Acquisition may be made only
with the approval of both Continental and Fremont Compensation,
which approval shall not be unreasonably withheld.
15. Best Efforts. The parties will use their best efforts to
--------------
enter into the Stock Purchase Agreement and to consummate the
Acquisition.
16. Governing Law. This Agreement in Principle and the Stock
---------------
Purchase Agreement shall be governed by California law.
17. Conduct of Business. From the date hereof, the Company
---------------------
will not take action outside its ordinary course of business.
18. Termination. This Agreement in Principle shall be null
-------------
and void if not accepted and agreed to by the parties on or
before October 10, 1994, and shall terminate if the Stock
Purchase Agreement has not been executed within 45 days from the
date hereof.
FREMONT COMPENSATION INSURANCE
COMPANY
By /s/James C. Little
Title: President & CEO
FREMONT GENERAL CORPORATION
By /s/James A. McIntyre
Title: Chairman, President & CEO
8
<PAGE>
THE BUCKEYE UNION INSURANCE COMPANY
By /s/Wayne H. Fisher
Title: Senior Vice President
THE CONTINENTAL CORPORATION
By /s/Wayne H. Fisher
Title: Senior Executive
Vice President
9
THE CONTINENTAL CORPORATION
Executive Termination Program
-----------------------------
ARTICLE I
The Continental Corporation has maintained a
policy of providing severance benefits to senior executives
of the Corporation in the event of the involuntary termi-
nation of their employment other than for cause or upon
retirement. The Corporation currently maintains The
Executive Severance Plan, that provides termination benefits
following a Change of Control. In order to help assure a
continuing dedication by senior executives to their duties
to the Corporation in the absence of a Change of Control,
the Board of Directors of the Corporation desires to codify
its current severance policy and its policies relating to
reductions in force as they would be applied to senior
executives and provide that such policies will not be
changed in a manner adverse to any Executive prior to
January 1, 1997.
ARTICLE II
Definitions
-----------
2.1 "Board" means the Board of Directors of The
Continental Corporation.
2.2 "Change of Control" has the meaning given it by the
Executive Severance Plan.
2.3 "Committee means the Compensation Committee of the
Board.
2.4 "Corporation" means The Continental Corporation and
its successors and assigns and any corporation which
shall acquire substantially all of its assets.
2.5 "Deferred Retirement Date" means, with respect to an
Executive whose employment continues or is expected to
continue beyond his or her Normal Retirement Date, the
date specified by the Committee for purposes of this
Program on which such Executive's employment is
expected to terminate.
2.6 "Disability" means a disability qualifying an
Executive for benefits under the Long-Term Disability
<PAGE>
Plan of the Corporation, whether or not he or she
participates therein.
2.7 "Executive" means a senior executive of the
Corporation who has been selected as at September 1,
1994 or thereafter by the Committee to participate in
the Executive Severance Plan.
2.8 "Executive Severance Plan" means The Executive
Severance Plan of The Continental Corporation,
effective January 1, 1988.
2.9 "Normal Retirement Date" means an Executive's normal
retirement date under the terms of The Retirement Plan
of The Continental Corporation or any successor
retirement plans.
2.10 "Program" means this Executive Termination Program of
the Corporation.
2.11 "Subsidiary" means any corporation in which the
Corporation owns, directly or indirectly, stock
possessing 50% or more of the total combined voting
power.
ARTICLE III
Effective Date and Eligibility
------------------------------
3.1 This Program is effective September 1, 1994 and shall
continue in effect until terminated in accordance with
Article VI hereof.
3.2 An Executive shall be eligible to participate in this
Program upon his or her selection by the Committee and
such eligibility shall continue for the duration of
the Program.
ARTICLE IV
Compensation Upon Involuntary Termination
-----------------------------------------
4.1 In the event an Executive's employment with the
Corporation and its Subsidiaries is terminated
(a) by the Corporation prior to a Change in
Control other than (i) as a result of the
-
Executive's willful misconduct in the performance
2
<PAGE>
of such Executive's duties as an employee, or
(ii) by reason of retirement at or after his or
--
her Normal Retirement Date or Deferred Retirement
Date, if applicable, or (iii) by reason of
---
Executive's Disability, or
(b) by the Executive prior to a Change in
Control following a reduction in (i) the
-
Executive's grade level at the time such
Executive began participation in this Program by
more than one grade level or (ii) the Executive's
--
base salary at the time such Executive began
participation in this Program by more than 15%,
the Corporation shall pay to such Executive an amount
equal to twice the greater of the annualized base pay
the Executive is receiving from the Corporation and
its Subsidiaries on (a) the date the Executive began
-
participation in this Program, and (b) the date of
-
such termination of Employment, provided that if the
--------
termination of such Executive's employment occurs
within the twenty-four month period prior to such
Executive's Normal Retirement Date (or Deferred
Retirement Date, if applicable), the amount payable
hereunder will be reduced to an amount that bears the
same relationship to such payment as the number of
whole months included in the period commencing on the
date of such termination and ending on such
Executive's Normal Retirement Date (or Deferred
Retirement Date) bears to twenty four.
ARTICLE V
Payment Obligation Absolute
---------------------------
5.1 The Corporation's obligation to pay the Executive
hereunder shall be absolute and unconditional and
shall not be affected by any circumstances, including,
without limitation, any setoff, counterclaim,
recoupment, defense or other right which the
Corporation may have against him or her or anyone
else. The Executive shall not be required to mitigate
the amount of the payment provided herein by seeking
other employment or otherwise nor shall the amount of
a payment provided for herein be reduced by amounts
earned by the Executive from other employment or
otherwise. The amount payable hereunder shall be paid
without notice or demand. The payment hereunder by or
3
<PAGE>
on behalf of the Corporation shall be final and the
Corporation and its affiliates will not seek to
recover all or any part of such payment from the
Executive or from whomever.
ARTICLE VI
Amendment and Termination
-------------------------
6.1 The Board may amend or terminate this Program only
from and after January 1, 1997, and only if all
Executives have been given advance written notice of
such action. Notwithstanding the foregoing, no such
amendment or termination shall relieve the Corporation
of its obligation to pay any amount which an Executive
theretofore became entitled to receive hereunder.
ARTICLE VII
Miscellaneous
-------------
7.1 Effect on Other Benefits. Amounts that are vested
------------------------
benefits or that an Executive is otherwise entitled to
receive under any plan or program of the Corporation
or any of its Subsidiaries at or subsequent to the
date of his or her termination of employment will be
payable in accordance with such plan or program,
provided if the Executive becomes entitled to payment
--------
under the Executive Severance Plan, any amount paid
under this Program shall be deemed to be a Severance
Payment under the Executive Severance Plan and shall
reduce the amount otherwise due as a Severance Payment
under the Executive Severance Program by the amount
actually paid hereunder.
7.2 Withholding. The Corporation may withhold from any
-----------
amounts payable under this Program such Federal, state
or local taxes as may be required to be withheld
pursuant to any applicable law or regulation.
7.3 Limited Effect. It is understood that no term or
--------------
condition of this Program shall constitute or be
evidence of any understanding, express or implied, on
the part of the Corporation to employ any Executive
for any specific period.
4
<PAGE>
7.4 Inalienability of Interests. An Executive's interests
---------------------------
under this Program are not subject to alienation,
assignment, garnishment, or execution of levy of any
kind, and any attempt to cause benefits to be so
subjected shall not be recognized. Notwithstanding
the foregoing, interests may be transferred by will or
by the laws of descent and distribution.
7.5 Facility of Payment. In the event that the Committee
-------------------
finds that, at the time a payment is due under this
Program, an Executive is unable to care for his or her
affairs because of illness or accident, or otherwise,
the Committee may direct that any such payment be paid
to his or her duly appointed legal representative, or
if there be no duly appointed legal representative, to
his or her spouse, child, parent or other blood
relative or to any person deemed by the Committee to
have incurred expense for his or her benefit, and any
such payment so made shall be a complete discharge of
the liabilities under this Program therefor.
7.6 Arbitration. Any dispute or controversy arising under
-----------
or in connection with this Program shall be settled
exclusively by arbitration held in accordance with the
rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's
award in any court having jurisdiction. The
Corporation shall pay on a current basis all legal or
other professional fees and expenses incurred by any
Executive in connection with such arbitration
(regardless of the outcome thereof) and the entering
of such award.
7.7 Applicable law. The validity, interpretation,
--------------
construction and performance of this Program shall be
governed by the laws of the State of New York without
reference to principles of conflicts of laws.
5
Exhibit 10.(f)
FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY
CONTINENTAL REINSURANCE CORPORATION
CONTINENTAL REINSURANCE CORPORATION INTERNATIONAL LIMITED
- and -
THE CONTINENTAL CORPORATION
- and -
FAIRFAX FINANCIAL HOLDINGS LIMITED
- and -
THE CONTINENTAL INSURANCE COMPANY OF CANADA
THE DOMINION INSURANCE CORPORATION
-----------------------------------------------------------------
PURCHASE AGREEMENT
-----------------------------------------------------------------
October 12, 1994
Tory Tory DesLauriers & Binnington
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
INTERPRETATION
1.1 Definitions . . . . . . . . . . . . . . . . . . . 3
1.2 Schedules . . . . . . . . . . . . . . . . . . . 14
1.3 Headings and Table of Contents . . . . . . . . 14
1.4 Gender and Number . . . . . . . . . . . . . . . 15
1.5 Currency . . . . . . . . . . . . . . . . . . . 15
1.6 Generally Accepted Accounting Principles . . . 15
1.7 Invalidity of Provisions . . . . . . . . . . . 15
1.8 Entire Agreement, Waiver . . . . . . . . . . . 15
1.9 Governing Law . . . . . . . . . . . . . . . . . 16
1.10 Reorganization . . . . . . . . . . . . . . . . 16
1.11 Disclosure Generally . . . . . . . . . . . . . 18
ARTICLE 2
PURCHASE AND SALE
2.1 Agreement to Purchase and Sell the Purchased
Shares . . . . . . . . . . . . . . . . . . . . 18
2.2 Calculation and Payment of the Purchase Price
for the Purchased Shares . . . . . . . . . . . 19
2.3 Transfer of Excluded Business and Canadian
Branch Business . . . . . . . . . . . . . . . . 20
2.4 Effective Date . . . . . . . . . . . . . . . . 20
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 By the Vendors and Continental . . . . . . . . 21
3.1.1 Incorporation and Status of the Vendors,
Continental, Niagara and CIC. . . . . . 21
3.1.2 Corporate Power of the Vendors and
Continental and Due Authorization. . . 21
3.1.3 Incorporation and Status of the
Corporation and Subsidiaries. . . . . . 22
3.1.4 Power of the Corporation and the
Subsidiaries. . . . . . . . . . . . . . 22
3.1.5 Capital of the Corporation and
Subsidiaries. . . . . . . . . . . . . . 22
3.1.6 Subsidiaries. . . . . . . . . . . . . . 22
3.1.7 No Obligations to Issue Securities. . . 22
3.1.8 Title to and Right to Sell the Purchased
Shares and the Branch Businesses. . . . 22
3.1.9 No Dividends. . . . . . . . . . . . . . 23
3.1.10 Financial Statements and Pro Forma
Financial Statements. . . . . . . . . . 23
3.1.11 Tax Matters . . . . . . . . . . . . . . 23
3.1.12 Pension Plans . . . . . . . . . . . . . 24
3.1.13 Intellectual Property . . . . . . . . . 25
3.1.14 Reinsurance. . . . . . . . . . . . . . 25
3.1.15 Confidential Information Memorandum . . 26
3.1.16 Reinsurance Filings . . . . . . . . . . 26
3.2 By the Purchaser . . . . . . . . . . . . . . . 26
<PAGE>
- ii -
3.2.1 Incorporation and Status of the
Purchaser . . . . . . . . . . . . . . . 26
3.2.2 Corporate Power of the Purchaser and Due
Authorization . . . . . . . . . . . . . 26
3.2.3 Fairfax Note . . . . . . . . . . . . . 27
3.3 No Finder's Fees . . . . . . . . . . . . . . . 27
3.4 Survival of Covenants, Representations and
Warranties . . . . . . . . . . . . . . . . . . 27
ARTICLE 4
CONDITIONS
4.1 Conditions for the Benefit of the Purchaser . . 28
4.1.1 Accuracy of Representations of Vendors
and Continental and Compliance With
Covenants . . . . . . . . . . . . . . . 29
4.1.2 Opinion of Vendors' Counsel . . . . . . 29
4.1.3 No Action to Restrain . . . . . . . . . 29
4.1.4 Non-Competition . . . . . . . . . . . . 30
4.1.5 Consents and Approvals . . . . . . . . 30
4.1.6 Termination of Non-Arm's Length
Management Arrangements . . . . . . . . 30
4.1.7 Security Agreements . . . . . . . . . . 31
4.1.8 Transfer of Excluded Business and
Canadian Branch Business . . . . . . . 31
4.1.9 No Material Adverse Change . . . . . . 31
4.1.10Financing . . . . . . . . . . . . 31
4.2 Conditions for the Benefit of the Vendors . . . 32
4.2.1 Accuracy of Representations of Purchaser
and Compliance With Covenants . . . . . 32
4.2.2 Opinion of Purchaser's Counsel . . . . 33
4.2.3 No Action to Restrain . . . . . . . . . 33
4.2.4 Transfer of Excluded Business and
Canadian Branch Business . . . . . . . 33
4.2.5 Consents and Approvals . . . . . . . . 33
4.2.6 Non-Competition . . . . . . . . . . . . 33
ARTICLE 5
ADDITIONAL AGREEMENTS OF THE PARTIES
5.1 Access to Information . . . . . . . . . . . . . 34
5.2 No Solicitation . . . . . . . . . . . . . . . . 34
5.3 Conduct of Business Until Time of Closing . . . 35
5.4 Negative Covenant . . . . . . . . . . . . . . . 36
5.5 Corporate Action and Resignations . . . . . . . 36
5.6 Obtaining of Consents and Approvals . . . . . . 37
5.7 Restructuring . . . . . . . . . . . . . . . . . 37
5.8 Reinsurance Arrangements . . . . . . . . . . . 38
5.9 Cooperation . . . . . . . . . . . . . . . . . . 40
5.10 Retention of Tax Records and Returns . . . . . 40
5.11 Continuance of Business Relationships . . . . . 41
5.12 Access to Insurance Products . . . . . . . . . 41
5.13 Protection of Existing Relationships . . . . . 42
5.14 Software Licences . . . . . . . . . . . . . . . 42
<PAGE>
- iii -
5.15 Withholding Tax . . . . . . . . . . . . . . . . 43
5.16 Use of Continental Name and Registered Trade
Marks . . . . . . . . . . . . . . . . . . . . . 43
5.17 Financial Statements . . . . . . . . . . . . . 44
5.18 Chief Agent . . . . . . . . . . . . . . . . . . 44
5.19 NABT Reporting . . . . . . . . . . . . . . . . 44
5.20 Fairfax Note . . . . . . . . . . . . . . . . . 44
5.21 Pension Plan Assets . . . . . . . . . . . . . . 44
5.22 Reinsurance with Affiliates . . . . . . . . . . 45
5.23 Currency Protection on U.S. Claims . . . . . . 45
5.24 Settling U.S. and Canadian Claims . . . . . . . 46
5.25 Termination of Non-Arm's Length Arrangements . 46
5.26 Co-Operation in United States Tax Matters . . . 47
ARTICLE 6
INDEMNIFICATION AND
PAYMENT OF ADJUSTMENT AMOUNT
6.1 Indemnification and Adjustment Amount . . . . . 47
6.2 Notice of Claim for Indemnification . . . . . . 48
6.3 Procedure for Indemnification . . . . . . . . . 48
6.3.1 Purchaser's Claims . . . . . . . . . . 48
6.3.2 Third Party Claims . . . . . . . . . . 49
6.4 Additional Rules and Procedures for
Indemnification . . . . . . . . . . . . . . . . 49
6.5 Calculation of Adjustment Amount and Combined
Ratio Achieved . . . . . . . . . . . . . . . . 51
6.6 Payment of Indemnity and Adjustment Amount . . 52
6.7 Right of Inspection . . . . . . . . . . . . . . 52
6.8 Joint and Several Liability of the Vendors and
Continental . . . . . . . . . . . . . . . . . . 52
6.9 Indemnity by Purchaser . . . . . . . . . . . . 53
ARTICLE 7
CLOSING
7.1 Location and Time of the Closing . . . . . . . 53
7.2 Deliveries at and forthwith upon the Closing . 53
ARTICLE 8
GENERAL MATTERS
8.1 Confidentiality . . . . . . . . . . . . . . . . 54
8.2 Public Notices . . . . . . . . . . . . . . . . 54
8.3 Expenses . . . . . . . . . . . . . . . . . . . 55
8.4 Conveyance Taxes . . . . . . . . . . . . . . . 55
8.5 Specific Performance . . . . . . . . . . . . . 55
8.6 Assignment . . . . . . . . . . . . . . . . . . 55
8.7 Notices . . . . . . . . . . . . . . . . . . . . 56
8.8 Time of Essence . . . . . . . . . . . . . . . . 57
8.9 Further Assurances . . . . . . . . . . . . . . 57
8.10 Counterparts . . . . . . . . . . . . . . . . . 58
<PAGE>
PURCHASE AGREEMENT
------------------
THIS AGREEMENT is made as of the 12th day of October,
1994,
B E T W E E N:
THE CONTINENTAL INSURANCE COMPANY OF
CANADA, a corporation incorporated under
the laws of Canada
(the "Corporation")
- and -
THE DOMINION INSURANCE CORPORATION, a
corporation incorporated under the laws
of Canada
("Dominion")
- and -
FIREMEN'S INSURANCE COMPANY OF NEWARK,
NEW JERSEY, a corporation incorporated
under the laws of the State of New
Jersey
("Firemens")
- and -
CONTINENTAL REINSURANCE CORPORATION, a
corporation incorporated under the laws
of the State of California
("CRC")
- and -
CONTINENTAL REINSURANCE CORPORATION
INTERNATIONAL LIMITED, a corporation
incorporated under the laws of Bermuda
("CRCIL")
- and -
THE CONTINENTAL CORPORATION, a
corporation incorporated under the laws
of the State of New York
<PAGE>
- 2 -
("Continental")
- and -
FAIRFAX FINANCIAL HOLDINGS LIMITED, a
corporation incorporated under the laws
of Canada
(the "Purchaser")
RECITALS:
A. The Corporation and Dominion are in the process of
completing a corporate reorganization which is described in
Schedule 1.10 (the "Reorganization");
B. Upon completion of the Reorganization, including receipt of
all necessary regulatory approvals, the Corporation and
Dominion wish to sell all of the issued and outstanding
shares in the capital of New Continental and the Purchaser
wishes to purchase such shares, on and subject to the terms
and conditions of this Agreement;
C. If the Reorganization cannot be completed because all
necessary regulatory consents and approvals have not been
received by April 30, 1995, then the parties have agreed
that on April 30, 1995 Firemens, CRC and CRCIL
(collectively, the "Vendors") will sell and the Purchaser
will purchase all of the issued and outstanding shares in
the capital of the Corporation, on and subject to the terms
and conditions of this Agreement;
D. In addition, certain assets, liabilities and business of
Niagara and CIC are to be transferred to and assumed by the
Corporation and Dominion and vice versa as part of a
rationalization of the Canadian operation;
<PAGE>
- 3 -
E. Continental owns directly or indirectly all of the issued
and outstanding shares of the Vendors, the Corporation,
Dominion, CIC and Niagara and Continental wishes to assist
in the completion of the transactions contemplated in this
Agreement;
Therefore in consideration of the mutual covenants and agreements
contained in this Agreement and other good and valuable
consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto agree as follows:
ARTICLE 1
---------
INTERPRETATION
--------------
1.1 Definitions
-----------
In this Agreement,
"AAU" means Associated Aviation Underwriters;
"Adjustment Amount" means the greater of (A) zero and (B) an
amount equal to the lesser of (X) $30 million or, if the
Purchaser exercises its election under section 5.8, $40
million, and (Y) the following:
(a) the amount, positive or negative, which results when
the amount of Reserves for Unpaid Losses and Loss
Adjustment Expenses of Continental Canada as at
December 31, 1993 (such amount being $314.7 million or,
if the Purchaser exercises its election under section
5.8, $467.0 million) is subtracted from the sum of:
(i) Reserves for Unpaid Losses and Loss Adjustment
Expenses at the Determination Date, and
<PAGE>
- 4 -
(ii) the aggregate amount of all losses and allocated
loss adjustment expenses paid by Continental
Canada from January 1, 1994 to the Determination
Date,
in each case with respect only to losses, arising out
of events occurring on or before December 31, 1993,
under contracts of insurance or reinsurance entered
into by Continental Canada which are in effect before
January 1, 1994;
plus
(b) the sum of:
(i) Reserves for Uncollectible Reinsurance at the
Determination Date; and
(ii) the aggregate amount of Uncollectible Reinsurance
on paid claims written off, net of any recoveries
by Continental Canada with respect thereto, from
January 1, 1994 to the Determination Date, to the
extent that it does not increase the Reserves for
Unpaid Losses and Loss Adjustment Expenses at the
Determination Date;
in each case in respect of reinsurance agreements in
effect before January 1, 1994 with respect to insurance
policies in effect before January 1, 1994 and under
which a claim arises out of events occurring prior to
January 1, 1994;
"affiliate": a company shall be deemed to be an affiliate of
another company if one of them is the subsidiary of the
<PAGE>
- 5 -
other or if both are subsidiaries of the same company or if
each of them is controlled by the same Person;
"Agreement" means this agreement and all schedules attached
to this agreement, in each case as they may be amended or
supplemented from time to time, and the expressions
"hereof", "herein", "hereto", "hereunder", "hereby" and
similar expressions refer to this agreement; and unless
otherwise indicated, references to Articles and sections are
to Articles and sections in this agreement;
"Alternative Documents" has the meaning in section 1.10;
"Applicable Laws" means all federal, provincial, state or
local laws, rules or regulations of any applicable
jurisdiction and all orders, rulings, judgments and decrees
of any court or tribunal in any such jurisdiction, and the
rules, regulations and administrative guidelines and
policies of any governmental or non-governmental regulatory
authority;
"Assumed Liabilities" means all of the debts, liabilities,
obligations, commitments, provisions and duties of CIC and
Niagara in connection with the business and insurance
policies covered by the Continental-Phoenix Pooling
Agreement and in connection with the business known as the
Continental Run-off business, the CIRI (Canadian Industrial
Risk Insurers) business and the Department E business
covered by the Dominion-Continental Pooling Agreement,
including losses, allocated loss adjustment expenses,
unearned premiums and amounts payable;
"Auditors" means KPMG Peat Marwick, chartered accountants,
or any predecessor thereof;
<PAGE>
- 6 -
"Bermuda Trust" means the trust established pursuant to the
trust agreement dated December 31, 1981 between Continental
Reinsurance Corporation (Bermuda) Limited (now CRCIL) and
Canada Permanent Trust Company;
"Business" means the carrying on of the property and
casualty insurance business or other business carried on by
Continental Canada at or prior to the date of this
Agreement;
"Business Day" means any day, other than Saturday, Sunday or
any statutory holiday in the Province of Ontario;
"CIC" means The Continental Insurance Company;
"CIC Investments" means cash or marketable securities held
in Canada by CIC as shall be mutually agreed by the parties
hereto acting reasonably, with a value determined in
accordance with Schedule 2.3;
"Canadian Branch Assets" means all of the assets (including
CIC Investments and Niagara Investments) used or held by
Niagara and CIC in connection with the Assumed Liabilities;
"Canadian Branch Business" means the Canadian Branch Assets
and the Assumed Liabilities;
"Charge" means any security interest, lien, charge, pledge,
encumbrance, mortgage, adverse claim or title retention
agreement of any nature or kind;
"Claim" has the meaning attributed to such term in section
6.2;
<PAGE>
- 7 -
"Closing" means the completion of the transactions
contemplated pursuant to this Agreement;
"Closing Date" means January 1, 1995, or such earlier or
later date as may be mutually agreed upon in writing by the
parties;
"Closing Documents" has the meaning in section 1.10;
"Combined Ratio Achieved" means the simple average of the
combined ratios (calculated in the same manner utilized by
Continental Canada for its management information systems
for calculating its combined ratio for the 1993 calendar
year and for several years immediately prior thereto (which
calculation is based on the calendar year)) of the
Corporation and its Subsidiaries for each of the five
calendar years ending on December 31 from 1995 to 1999,
provided that the calculation of the combined ratio in each
such year shall include a management fee of $3 million
payable to the Purchaser regardless of the amount actually
paid or accrued;
"Confidential Information Memorandum" means the confidential
information memorandum concerning Continental Canada dated
June 1994 stated to have been prepared by Barclays Bank plc
acting through its BZW Division;
"Continental Canada" means the Corporation and its
Subsidiaries including the Canadian Branch Business and,
only if the Purchaser exercises its election under section
5.8, the assets, liabilities and business which are the
subject matter of the Retrocession Agreement, but in any
event excluding the Excluded Business;
<PAGE>
- 8 -
"Continental-Phoenix Pooling Agreement" means the
Continental-Phoenix Canadian Intercompany Pooling Agreement
dated December 31, 1983 among Dominion, CIC, Niagara, the
Corporation, Phoenix Assurance Company of Canada and The
Century Insurance Company of Canada;
"control": a company or a corporation shall be deemed to be
controlled by another Person or by two or more other Persons
acting together if,
(a) voting securities of the company carrying more than
fifty percent of the votes for the election of
directors are held, otherwise than by way of security
only, by or for the benefit of the other Person or by
or for the benefit of the other Persons; and
(b) the votes carried by such securities are entitled, if
exercised, to elect a majority of the board of
directors of the company;
"Determination Date" means December 31, 1998;
"Dominion" means The Dominion Insurance Corporation;
"Dominion-Continental Pooling Agreement" means the
Intercompany Pooling Agreement dated August 22, 1985 among
Dominion, CIC, Niagara and the Corporation;
"Escrow Agreement" has the meaning in section 1.10;
"Excluded Assets" means all of the assets (including
Excluded Investments) used or held by the Corporation and
the Subsidiaries in connection with the Excluded
Liabilities;
<PAGE>
- 9 -
"Excluded Business" means the Excluded Assets and the
Excluded Liabilities;
"Excluded Investments" means cash or marketable securities
held by the Corporation or the Subsidiaries as shall be
mutually agreed by the parties hereto acting reasonably,
with a value determined in accordance with Schedule 2.3;
"Excluded Liabilities" means all of the debts, liabilities,
obligations, commitments, provisions and duties of the
Corporation and the Subsidiaries (i) in connection with the
business and insurance policies covered by the Dominion-
Continental Pooling Agreement except the business covered by
such Pooling Agreement known as the Continental Run-off
business, the CIRI (Canadian Industrial Risk Insurers)
business and the Department E business, and (ii) related to
the December 28, 1983 reinsurance agreement between the
Corporation and CRCIL, including in both cases losses,
allocated loss adjustment expenses, unearned premiums and
amounts payable;
"Fairfax Note" means a 7 3/4% note due December 15, 2003 issued
by the Purchaser in the principal amount of $25 million with
terms and conditions identical to the terms of the
Purchaser's outstanding U.S. $100 million of 7 3/4% Notes due
December 15, 2003 publicly issued under a prospectus dated
December 8, 1993, except that the note would be redeemable
at par plus accrued interest at any time coincident with a
public or private debt issue by the Purchaser;
"Financial Statements" means the unconsolidated financial
statements of the Corporation and its Subsidiaries as at
December 31, 1993 (including the notes thereto), together
with the report of the Auditors thereon, copies of which
have been delivered to the Purchaser;
<PAGE>
- 10 -
"Investment Management Agreement" means the letter agreement
dated September 27, 1994 between the Purchaser and
Continental relating to the management of the investments of
Continental Canada by Hamblin Watsa Investment Counsel Ltd.;
"MOAC" means Marine Office of America Corporation;
"New Continental" has the meaning attributed thereto in
Schedule 1.10;
"New Dominion" has the meaning attributed thereto in
Schedule 1.10;
"Niagara" means Niagara Fire Insurance Company;
"Niagara Investments" means cash or marketable securities
held in Canada by Niagara as shall be mutually agreed by the
parties hereto acting reasonably, with a value determined in
accordance with Schedule 2.3;
"Non-Competition Agreement" means the non-competition
agreement between the Corporation, the Purchaser, the
Vendors and Continental in the form attached hereto as
Schedule 1.1;
"OSFI" means the Office of the Superintendent of Financial
Institutions Canada;
"Person" means any individual, partnership, limited
partnership, joint venture, syndicate, sole proprietorship,
company or corporation with or without share capital,
unincorporated association, trust, trustee, executor,
administrator or other legal personal representative,
regulatory body or agency, government or governmental
<PAGE>
- 11 -
agency, authority or entity however designated or
constituted;
"Policyholder" means a named insured under a policy to which
the Pooling Arrangements apply;
"Pooling Arrangements" means the pooling arrangements
effected pursuant to the Continental-Phoenix Pooling
Agreement and the Dominion-Continental Pooling Agreement;
"Portfolio" means (i) all bonds, debentures, treasury bills,
shares, evidences of indebtedness and other securities which
are ordinarily recorded as investments in the books and
records of the Corporation or a Subsidiary and which are
held by the Corporation or a Subsidiary and (ii) the Niagara
Investments and the CIC Investments;
"Pro Forma Financial Statements" means the pro forma balance
sheet of Continental Canada attached as Schedule 3.1.10;
"Purchase Price" has the meaning attributed to such term in
section 2.2;
"Purchased Shares" has the meaning attributed to such term
in section 2.1;
"Purchaser's Claim" has the meaning attributed to such term
in section 6.2;
"Purchaser's Counsel" means the firm of Tory Tory
DesLauriers & Binnington of Toronto, Ontario, or such other
counsel as the Purchaser may appoint with respect to this
Agreement and the matters contemplated hereby;
<PAGE>
- 12 -
"Quota Share Treaty" means the reinsurance agreement
currently in force pursuant to which Continental Canada
cedes certain portions of its business to CRCIL;
"Redundancy Amount" means, if the amount calculated in
accordance with the following is positive, zero, and if the
amount calculated in accordance with the following is
negative, the positive amount resulting from deleting the
minus sign therefrom:
(a) the amount, positive or negative, which results when
the amount of Reserves for Unpaid Losses and Loss
Adjustment Expenses of Continental Canada as at
December 31, 1993 (such amount being $314.7 million or,
if the Purchaser exercises its election under section
5.8, $467.0 million) is subtracted from the sum of:
(i) Reserves for Unpaid Losses and Loss Adjustment
Expenses at the Determination Date, and
(ii) the aggregate amount of all losses and allocated
loss adjustment expenses paid by Continental
Canada from January 1, 1994 to the Determination
Date,
in each case with respect only to losses, arising out
of events occurring on or before December 31, 1993,
under contracts of insurance or reinsurance entered
into by Continental Canada which are in effect before
January 1, 1994;
plus
(b) the sum of:
<PAGE>
- 13 -
(i) Reserves for Uncollectible Reinsurance at the
Determination Date; and
(ii) the aggregate amount of Uncollectible Reinsurance
on paid claims written off, net of any recoveries
by Continental Canada with respect thereto, from
January 1, 1994 to the Determination Date, to the
extent that it does not increase the Reserves for
Unpaid Losses and Loss Adjustment Expenses at the
Determination Date;
in each case in respect of reinsurance agreements in
effect before January 1, 1994 with respect to insurance
policies in effect before January 1, 1994 and under
which a claim arises out of events occurring prior to
January 1, 1994;
"Reorganization" has the meaning attributed thereto in
recital A;
"Reserves for Uncollectible Reinsurance" means an amount
equal to the provision, determined in accordance with
generally accepted accounting principles (applied on a basis
consistent with that used at December 31, 1993), in respect
of the consolidated financial position of Continental Canada
for Uncollectible Reinsurance;
"Reserves for Unpaid Losses and Loss Adjustment Expenses"
means an amount equal to the provision, determined in
accordance with generally accepted accounting principles
(applied on a basis consistent with that used at December
31, 1993), in respect of the consolidated financial position
of Continental Canada, for (a) case reserve estimates for
reported losses, plus (b) incurred but not reported claims
and allocated loss adjustment expenses, less (c) cash
<PAGE>
- 14 -
amounts that relate to salvage and subrogation recoveries,
net in all cases of applicable reinsurance recoverables;
"Retrocession Agreement" means the Retrocession Agreement
referred to in section 5.8;
"subsidiary": a company shall be deemed to be a subsidiary
of another company if
(a) it is controlled by,
(i) the other, or
(ii) that other and one or more companies, each of
which is controlled by that other, or
(iii) two or more companies, each of which is
controlled by that other; or
(b) it is a subsidiary of a company that is the other's
subsidiary;
"Subsidiaries Shares" means all of the issued and
outstanding shares in the capital of each of the
Subsidiaries, the details of which are set out in Schedule
3.1.5;
"Subsidiary" means each of Dominion and Continental
Insurance Management Ltd. and "Subsidiaries" means both such
corporations;
"Tax" or "Taxes" means any and all taxes, fees, levies,
duties, tariffs, imposts, and other charges of any kind
(together with any and all interest, penalties, additions to
tax and additional amounts imposed with respect thereto)
<PAGE>
- 15 -
imposed by any government or taxing authority, including,
without limitation, taxes or other charges on or with
respect to income, premiums, franchises, windfall or other
profits, gross receipts, property, sales, use, capital
stock, payroll, employment, social security, workers'
compensation, unemployment compensation, or net worth; taxes
or other charges in the nature of excise, withholding, ad
valorem, stamp, transfer, value added, or gains taxes;
license, registration and documentation fees; and customs
duties, tariffs, and similar charges;
"Third Party" has the meaning attributed to such term in
section 6.2;
"Third Party Claim" has the meaning attributed to such term
in section 6.2;
"Time of Closing" means 12:01 a.m., Toronto time, on the
Closing Date or such other time on the Closing Date as may
be agreed upon in writing by the parties;
"Uncollectible Reinsurance" means reinsurance recoverables
owed to Continental Canada by reinsurers (including without
limitation currently affiliated reinsurers) that have been
determined to be uncollectible (including any amount charged
as an expense in connection with commutation), in accordance
with generally accepted accounting principles (applied on a
basis consistent with that used at December 31, 1993);
"Vendors" has the meaning attributed thereto in recital C;
"Vendors' Counsel" means the firm of Blake, Cassels &
Graydon of Toronto, Ontario, or such other counsel as the
Vendors may appoint with respect to this Agreement and the
matters contemplated hereby.
<PAGE>
- 16 -
1.2 Schedules
---------
The following are the Schedules attached to this Agreement:
Schedule 1.1 - Non-Competition Agreement
Schedule 1.10 - Steps in the Reorganization
Schedule 2.3 - Terms of Transfer and Assumption
Agreements
Schedule 3.1.5 - Share Capital of the Corporation and
Subsidiaries
Schedule 3.1.10 - Pro Forma Balance Sheet
Schedule 3.1.13 - Intellectual Property
Schedule 5.11 - Business Relationships
1.3 Headings and Table of Contents
------------------------------
The inclusion of headings and a table of contents in this
Agreement is for convenience of reference only and shall not
affect the construction or interpretation hereof.
1.4 Gender and Number
-----------------
In this Agreement, unless the context otherwise requires,
words importing the singular include the plural and vice versa
and words importing gender include all genders.
1.5 Currency
--------
Except where otherwise expressly provided, all amounts in
this Agreement are stated and shall be paid in Canadian currency.
1.6 Generally Accepted Accounting Principles
----------------------------------------
In this Agreement, except to the extent otherwise expressly
provided, references to "generally accepted accounting
principles" mean, for all principles stated in the Handbook of
the Canadian Institute of Chartered Accountants, such principles
so stated, consistently applied.
1.7 Invalidity of Provisions
------------------------
Each of the provisions contained in this Agreement is
distinct and severable and a declaration of invalidity or
unenforceability of any such provision or part thereof by a court
<PAGE>
- 17 -
of competent jurisdiction shall not affect the validity or
enforceability of any other provision hereof.
1.8 Entire Agreement, Waiver
------------------------
This Agreement, the Investment Management Agreement and the
agreements to be delivered pursuant hereto constitute the entire
agreement between the parties pertaining to the subject matter of
this Agreement. There are no warranties, representations or
other agreements between the parties in connection with such
subject matter except as specifically set forth or referred to
therein. Except as expressly provided in this Agreement, no
amendment, waiver or termination of this Agreement shall be
binding unless executed in writing by the party to be bound
thereby. No waiver of any provision of this Agreement shall
constitute a waiver of any other provision nor shall any waiver
of any provision of this Agreement constitute a continuing waiver
unless otherwise expressly provided.
1.9 Governing Law
-------------
This Agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario and the laws
of Canada applicable therein.
1.10 Reorganization
--------------
The Purchaser acknowledges that the Corporation and Dominion
are in the process of completing the Reorganization, subject to
receiving all required approvals and consents. The Purchaser
acknowledges that it is satisfied with and consents to the
Reorganization. The parties hereto agree promptly after the date
hereof to execute and deliver, and to cause any relevant
subsidiary to execute and deliver, an amending agreement which
amends this Agreement so that this Agreement as so amended
provides for the transaction provided for hereunder in the
circumstances of the completed Reorganization and so that the
Purchaser and Continental will each have rights and obligations
<PAGE>
- 18 -
under the Agreement as so amended which are essentially
identical, based on the circumstances after the Reorganization is
completed, to the rights and obligations which they each have
under this Agreement. The additional costs incurred by the
Purchaser and Continental Canada in connection with or as a
result of the Reorganization (including without limitation the
costs of determining whether the Reorganization is neutral or
advantageous to the Purchaser and Continental Canada from a tax
point of view) shall be for the account of Continental. If the
Reorganization takes place, Continental, the Vendors, the
Corporation and Dominion shall jointly and severally indemnify
the Purchaser and save the Purchaser harmless for and from any
loss, damage, liability, expense or deficiency suffered by the
Purchaser, New Continental or New Dominion for Tax payable by any
of them in excess of the Tax that would have been payable by the
Purchaser, the Corporation and Dominion, respectively, if the
Reorganization had not taken place and the Purchaser had acquired
the shares of the Corporation instead of the shares of New
Continental.
If all approvals and consents required to effect the
Reorganization have not been received by the Closing Date, the
parties hereto agree to, at the Time of Closing, execute and
deliver in escrow pursuant to an escrow agreement described below
(the "Escrow Agreement") the portion of the Purchase Price
referred to in section 2.2.2.1, all other Closing deliveries and
documentation which would be required if the Reorganization
occurs by April 30, 1995 (such other Closing deliveries and
documentation being the "Closing Documents") and all other
Closing deliveries and documentation which would be required if
the Reorganization does not occur by April 30, 1995 (such other
deliveries and documentation being the "Alternative Documents").
<PAGE>
- 19 -
The Escrow Agreement shall contain the following material
provisions, and shall otherwise be satisfactory to the Purchaser
and Continental, each acting reasonably:
(i) the escrow agent shall hold all documents delivered as
provided in this section 1.10 until the earlier of
April 30, 1995 and the date on which it receives a
certificate of Continental and the Purchaser to the
effect that all regulatory approvals necessary to
permit the Reorganization to be completed have been
granted, each of the Purchaser and Continental agreeing
to provide such certificate upon the receipt of all
such regulatory approvals;
(ii) the escrow agent shall invest the Purchase Price in
accordance with the terms of the Escrow Agreement, the
Purchaser having no approval rights in respect thereof;
(iii) if the escrow agent receives the certificate
referred to in paragraph (i) above prior to the close
of business on April 30, 1995, the escrow agent shall
deliver the portion of the Purchase Price placed in
escrow ( and all income earned thereon during the
escrow period) to the order of the Corporation and
Dominion, shall deliver each of the Closing Documents
to the party who is to receive it and shall destroy
the Alternative Documents;
(iv) if the escrow agent does not receive the certificate
referred to in paragraph (i) above prior to the close
of business on April 30, 1995, the escrow agent shall
deliver the portion of the Purchase Price placed in
escrow (and all income earned thereon during the escrow
period) to the order of the Vendors, shall deliver each
<PAGE>
- 20 -
of the Alternative Documents to the party who is to
receive it and shall destroy the Closing Documents; and
(v) Continental and the Purchaser shall provide the escrow
agent with the customary indemnities, but as between
them Continental shall indemnify the Purchaser with
respect thereto, and Continental shall pay any fees and
expenses of the escrow agent.
The Purchaser covenants and agrees to cooperate and to use
all reasonable efforts to take all steps reasonably requested of
it by Continental to be taken to achieve completion of the
Reorganization.
1.11 Disclosure Generally
--------------------
If, and to the extent, any information required to be
furnished in any Schedule is contained herein or in any Schedule
or part of a Schedule, such information shall be deemed to be
included in all sections hereof and in all Schedules and parts of
Schedules in which it is required to be included. The inclusion
of any information in the Schedules shall not be deemed to be an
admission or acknowledgement by the Vendors and Continental that
such information is material to or outside the ordinary course of
the Business of the Corporation and the Subsidiaries.
ARTICLE 2
---------
PURCHASE AND SALE
-----------------
2.1 Agreement to Purchase and Sell the Purchased Shares
---------------------------------------------------
Subject to the terms of this Agreement and in accordance
with section 1.10, as of the Time of Closing, Continental shall
cause one of the following to occur: (i) if the Reorganization
is completed by April 30, 1995, the Corporation and Dominion
<PAGE>
- 21 -
shall sell and the Purchaser shall purchase all of the issued and
outstanding shares in the capital of New Continental; or (ii) if
the Reorganization is not completed by April 30, 1995, the
Vendors shall sell and the Purchaser shall purchase all of the
issued and outstanding shares in the capital of the Corporation,
in either case for the Purchase Price paid in accordance with
section 2.2. The shares so purchased shall be herein referred to
as the "Purchased Shares".
2.2 Calculation and Payment of the Purchase Price for the
------------------------------------------------------------
Purchased Shares
----------------
2.2.1 The Purchaser shall purchase the Purchased Shares
for a total purchase price as follows:
2.2.1.1 $155 million; and
2.2.1.2 $10 million; and
2.2.1.3 50% of the Redundancy Amount
(hereinafter referred to as the "Purchase Price") in the manner
described in section 2.2.2 and upon and subject to the terms and
conditions hereof.
2.2.2 The Purchase Price shall be paid by the Purchaser
as specified in section 1.10 as follows:
2.2.2.1 as to the amount specified in section 2.2.1.1
above, at the Time of Closing by payment of $130
million by certified cheque or bank draft or wire
transfer at the option of the payee and the issuance of
the Fairfax Note; and
2.2.2.2 as to the amount specified in section 2.2.1.2
above, by certified cheque, bank draft or wire transfer
at the option of the payee on March 15, 2000 if and
<PAGE>
- 22 -
only if the Combined Ratio Achieved is 100.4 or less;
and
2.2.2.3 as to the amount specified in section 2.2.1.3
above, by certified cheque, bank draft or wire transfer
at the option of the payee on the date two weeks
following the date on which the Adjustment Amount has
been finally determined in accordance with section 6.5
hereof.
2.3 Transfer of Excluded Business and Canadian Branch Business
----------------------------------------------------------
Upon receiving all approvals and consents required under
Applicable Laws, Continental shall cause the Corporation,
Dominion, CIC, Niagara and any other relevant subsidiaries, prior
to the Time of Closing, to execute and deliver agreements, which
are in form and substance acceptable to the Purchaser and
Continental, acting reasonably, which provide for the following:
(i) the transfer of the Excluded Business from the
Corporation and Dominion to Niagara and CIC, as
applicable, effective the close of business on
September 30, 1994; and
(ii) the transfer of the Canadian Branch Business from
Niagara and CIC to the Corporation and Dominion, as
applicable, effective the Closing Date.
The above-mentioned transfer and assumption agreements shall
include the terms and conditions set out in Schedule 2.3, as
applicable, and shall be effected using the same form and
methodology as used in the Pro Forma Financial Statements.
2.4 Effective Date
--------------
<PAGE>
- 23 -
Although the purchase of the Purchased Shares takes effect
as of the Closing Date, the parties hereto acknowledge that the
Purchase Price was determined based on the state of affairs of
Continental Canada as at June 30, 1994 shown in the Pro Forma
Financial Statements and that the economic and accounting effect
of this transaction is that the results of the operations of
Continental Canada after June 30, 1994 are for the account of the
Purchaser in accordance with this Agreement.
ARTICLE 3
---------
REPRESENTATIONS AND WARRANTIES
------------------------------
3.1 By the Vendors and Continental
------------------------------
The Vendors and Continental jointly and severally represent
and warrant to the Purchaser as follows and acknowledge that the
Purchaser is relying upon the following representations and
warranties in connection with the transactions contemplated under
this Agreement:
3.1.1 Incorporation and Status of the Vendors,
--------------------------------------------------
Continental, Niagara and CIC. Each of the Vendors,
--------------------------------
Continental, Niagara and CIC are duly incorporated and
validly existing under the laws of their jurisdiction of
incorporation. Each of the Vendors, Niagara and CIC is,
directly or indirectly, a wholly-owned subsidiary of
Continental.
3.1.2 Corporate Power of the Vendors and Continental and
--------------------------------------------------
Due Authorization. This Agreement, and each of the
-------------------
agreements, contracts and instruments required by this
Agreement to be delivered by the Vendors, Continental,
Niagara and CIC, respectively, will at the Time of Closing
have been duly authorized by such respective party or
parties. Upon receipt of such authorizations, the Vendors,
Continental, Niagara and CIC will have the corporate power
<PAGE>
- 24 -
and capacity to enter into, and to perform their obligations
under, this Agreement. This Agreement has been duly
executed and delivered by the Vendors and Continental and
subject to receipt of appropriate corporate authorizations
as described above is a valid and binding obligation of the
Vendors and Continental, enforceable in accordance with its
terms, subject to the usual exceptions as to bankruptcy and
the availability of equitable remedies. At the Time of
Closing all agreements, contracts and instruments required
by this Agreement to be delivered by the Vendors,
Continental, Niagara and CIC at such time will be duly
executed and delivered by the Vendors, Continental, Niagara
and CIC, as the case may be, and will be valid and binding
obligations of the Vendors, Continental, Niagara and CIC, as
the case may be, enforceable in accordance with their
respective terms, subject to the usual exceptions as to
bankruptcy and the availability of equitable remedies.
3.1.3 Incorporation and Status of the Corporation and
--------------------------------------------------
Subsidiaries. Each of the Corporation and the Subsidiaries
------------
is duly incorporated and organized, and is subsisting under
the laws of its jurisdiction of incorporation. Each of the
Corporation and the Subsidiaries is duly registered,
licensed or qualified to carry on its Business under the
laws of each province or territory in which it carries on
Business.
3.1.4 Power of the Corporation and the Subsidiaries.
-------------------------------------------------
Each of the Corporation and the Subsidiaries has all the
necessary powers, licences, permits and rights which it
requires to own or lease its assets and to carry on its
Business as the same is presently conducted. None of the
Vendors and Continental is aware of any revocation,
termination or material adverse amendment of any power,
licence, permit or right referred to above which is proposed
<PAGE>
- 25 -
or threatened by any governmental body or regulatory
authority.
3.1.5 Capital of the Corporation and Subsidiaries.
-------------------------------------------------
Schedule 3.1.5 sets out particulars of the authorized and
issued shares of the Corporation and each Subsidiary. All
the shares indicated on such Schedule as being issued and
outstanding have been validly issued and are outstanding as
fully paid and non-assessable shares. There are no
shareholders agreements, voting trusts or other agreements
or understandings with respect to the voting of the shares,
or any of them, of the Corporation or any Subsidiary.
3.1.6 Subsidiaries. The Subsidiaries are the only
------------
subsidiaries of the Corporation.
3.1.7 No Obligations to Issue Securities. There are no
-----------------------------------
agreements, options, warrants, rights of conversion or other
rights pursuant to which the Corporation or any Subsidiary
is, or may become, obligated to issue any shares or any
securities convertible or exchangeable, directly or
indirectly, into any shares of the Corporation or any
Subsidiary.
3.1.8 Title to and Right to Sell the Purchased Shares
--------------------------------------------------
and the Branch Businesses. The Vendors are the sole
----------------------------
registered and beneficial owners of the Purchased Shares
with good, valid and freely transferable title thereto, free
of all Charges. Niagara and CIC are the absolute beneficial
owners of the Canadian Branch Assets each with good, valid
and freely transferable title thereto, free of all charges.
There are no agreements or (except for requisite regulatory
approvals) restrictions which in any way limit or restrict
the transfer to the Purchaser of any of the Purchased Shares
or to the Corporation of the Canadian Branch Business and
<PAGE>
- 26 -
there are no shareholders agreements, voting trusts or other
agreements or understandings with respect to the voting of
the Purchased Shares or any of them.
3.1.9 No Dividends. No dividends have been declared or
------------
paid on or in respect of the Purchased Shares and no other
distribution on any of the Corporation's or a Subsidiary's
securities or shares has been made since December 31, 1993.
3.1.10 Financial Statements and Pro Forma Financial
--------------------------------------------------
Statements.
----------
3.1.10.1 Financial Statements. The Financial
-----------------------
Statements have been prepared in accordance with
generally accepted accounting principles consistently
applied throughout the periods indicated and fairly
present the financial position of the Corporation and
the Subsidiaries and the results of their operations as
of the dates and throughout the periods indicated.
3.1.10.2 Pro Forma Financial Statements. The
-------------------------------------
unaudited Pro Forma Financial Statements fairly present
the financial position of Continental Canada as of June
30, 1994 and there has been no material adverse change
in the financial position of Continental Canada from
the position reflected in the Pro Forma Financial
Statements.
3.1.11 Tax Matters. The Corporation and the Subsidiaries
-----------
have accurately prepared and filed all tax returns required
to be filed by them in all applicable jurisdictions, and
have paid all Taxes payable by them, for all periods to and
including December 31, 1993. Adequate provision has been
made in the Financial Statements for all Taxes payable in
respect of the Business or assets of the Corporation and the
<PAGE>
- 27 -
Subsidiaries or otherwise for all periods up to the date of
any balance sheet comprising part of the Financial
Statements. Any amounts of Taxes owing pursuant to any
assessments for Taxes which have been issued to the
Corporation and the Subsidiaries have been paid or are being
contested in good faith. There are no actions, suits or
other proceedings or investigations (other than tax audits
in the ordinary course) or claims in progress, pending or
threatened against the Corporation or any Subsidiary in
respect of any Taxes and, in particular, there are no
currently outstanding reassessments or written enquiries
which have been issued or raised by any governmental
authority relating to any such Taxes. The Corporation and
the Subsidiaries have withheld or collected and remitted all
amounts required to be withheld or collected and remitted by
them in respect of any Taxes. Correct and complete copies
of all federal and provincial income tax returns, including
schedules thereto, filed by the Corporation and its
Subsidiaries since 1990 and all written communications
relating thereto have been provided to the Purchaser.
3.1.12 Pension Plans. All pension plans (the "plans")
--------------
provided by the Corporation or any Subsidiary (except for
the arrangement providing for the payment of the difference
between Revenue Canada limits and that pension that would
otherwise be payable under the provisions of the employee
pension plan) are registered under, and are in compliance
with, the Income Tax Act (Canada), the Pension Benefits Act
(Ontario) and all other applicable federal and provincial
legislation and all reports, returns and filings required to
be made thereunder have been made. The plans have been at
all times administered in accordance with their terms and
the provisions of applicable law.
<PAGE>
- 28 -
There are no unfunded liabilities under the plans
and, without limiting the generality of the foregoing, there
is no going concern unfunded actuarial liability, past
service unfunded actuarial liability or solvency deficiency.
No changes have occurred since the date of the actuarial
report provided to the Purchaser as contemplated in section
3.1.19 which makes such report misleading in any material
respect and, without limiting the generality of the
foregoing, none of the Corporation and the Subsidiaries has
made or granted, or committed to make or grant, any benefit
improvements to which members of any of the plans are or may
become entitled which are not reflected in such actuarial
report.
None of the Corporation and the Subsidiaries has
received, or applied for, any payment of surplus from any of
the pension plans of the Corporation or the Subsidiaries.
3.1.13 Intellectual Property. Schedule 3.1.13 is a list
---------------------
of all registered trade marks and trade mark applications,
trade names and certification marks used by the Corporation
or any Subsidiary in its Business. Each of the Corporation
and each Subsidiary is duly licensed to use or otherwise has
the right to use all of the intellectual property listed in
Schedule 3.1.13 used by it in carrying on its Business in
those jurisdictions in which the Business is carried on. To
the best of the knowledge of the Vendor and Continental, the
conduct of the Business does not infringe the intellectual
property rights of any Person.
3.1.14 Reinsurance. All treaties with reinsurers
-----------
contemplated or reflected in the reinsurance schedules
forming part of the 1993 P & C-1 filings by the Corporation
and its Subsidiaries, as the same have been renewed,
amended, terminated or replaced in the ordinary course of
<PAGE>
- 29 -
Business, are in full force and effect and none of the
Vendors, Continental or Continental Canada has received
notice from any reinsurer that such party intends to
terminate or does not intend to renew such agreement.
Neither Continental Canada nor, to the knowledge of the
Vendors and Continental, any other party thereto, is in
default as to any material provision of any reinsurance
treaty. All reinsurance placed or ceded by Continental
Canada: (i) was or, as applicable, is, fully placed; (ii)
covered or covers losses occurring during the term of the
reinsurance except in the case of reinsurance placed to
protect claims made against insurance or reinsurance
policies; and (iii) was or is placed on terms and conditions
which are concurrent with the terms and conditions of the
underlying insurance or reinsurance policies which are the
subject matter of such reinsurance. No reinsurance placed
or ceded by Continental Canada has been cancelled or
terminated without provision having been made to provide
reinsurance protection for the run-off of in-force insurance
or reinsurance policies which were the subject matter of
such reinsurance.
To the best knowledge of Continental, the Vendors, the
Corporation and its Subsidiaries, with respect to each
reinsurance agreement referred to above, there exists no
dispute between Continental Canada and the other party or
parties thereto.
3.1.15 Confidential Information Memorandum. To the best
-----------------------------------
of the knowledge of Continental, the Vendors, the
Corporation and its Subsidiaries, the Confidential
Information Memorandum did not as of its date make any
material untrue statement of fact concerning Continental
Canada or contain any material omission of a fact necessary
<PAGE>
- 30 -
to make a statement contained therein not misleading in the
light of the circumstances in which it was made.
3.1.16 Reinsurance Filings. The reinsurance schedules
--------------------
forming part of the P & C-1 filings by the Corporation and
its Subsidiaries are accurate in all material respects.
3.2 By the Purchaser
----------------
The Purchaser represents and warrants to the Vendors and
Continental as follows with respect to itself and any related
person to whom it assigns its rights under section 8.6, and
acknowledges that the Vendors and Continental are relying upon
the following representations and warranties in connection with
the transactions contemplated by this Agreement:
3.2.1 Incorporation and Status of the Purchaser. The
-------------------------------------------
Purchaser is duly incorporated and validly existing under
the laws of its jurisdiction of incorporation.
3.2.2 Corporate Power of the Purchaser and Due
--------------------------------------------------
Authorization. The Purchaser has the corporate power and
-------------
capacity to enter into, and to perform its obligations
under, this Agreement. This Agreement and the agreements,
contracts and instruments required by this Agreement to be
delivered by the Purchaser at Closing or forthwith
thereafter have been, or will at the Time of Closing or the
time of delivery as contemplated by this Agreement have
been, duly authorized by the Purchaser. This Agreement has
been duly executed and delivered by the Purchaser and is a
valid and binding obligation of the Purchaser, enforceable
in accordance with its terms, subject to the usual
exceptions as to bankruptcy and the availability of
equitable remedies. At the Time of Closing, all other
agreements, contracts and instruments required by this
Agreement to be delivered by the Purchaser at such time will
<PAGE>
- 31 -
be duly executed and delivered by the Purchaser and will be
valid and binding obligations of the Purchaser, enforceable
in accordance with their respective terms, subject to the
usual exceptions as to bankruptcy and the availability of
equitable remedies.
3.2.3 Fairfax Note. At the Time of Closing the
--------------
Purchaser will have taken all necessary corporate action to
authorize the execution, delivery and issue by the Purchaser
of the Fairfax Note and the Fairfax Note will constitute a
binding obligation of the Purchaser, enforceable in
accordance with its terms, subject to the usual exceptions
as to bankruptcy and the availability of equitable remedies.
3.3 No Finder's Fees
----------------
Each of the parties represents and warrants to the other
that such party has not taken, and agrees that it will not take,
any action that would cause the other party to become liable to
any claim or demand for a brokerage commission, finder's fee or
other similar payment. Any fees payable to Barclays Bank plc
acting through its BZW Division are the responsibility of
Continental.
3.4 Survival of Covenants, Representations and Warranties
-----------------------------------------------------
To the extent that they have not been fully performed at or
prior to the Time of Closing, the covenants contained in this
Agreement shall survive the Closing unless they are by their
terms to be performed at or prior to the Time of Closing. The
representations and warranties contained in this Agreement and in
all certificates and documents delivered pursuant to or
contemplated by this Agreement (which for the purposes of
sections 3.4.1 and 3.4.2 shall be deemed to be set out in the
appropriate corresponding section of this Agreement) shall
survive the Closing provided, however, that:
<PAGE>
- 32 -
3.4.1 such representations and warranties, except those
set out in sections 3.1.1 to 3.1.8 inclusive, 3.1.11,
3.1.16, 3.2.1 and 3.2.2 shall terminate on June 30, 1996;
3.4.2 the representations and warranties set out in
section 3.1.11 shall, subject to section 3.4.3, terminate on
the date six years from the Closing Date;
3.4.3 there shall be no termination of the
representations and warranties set out in section 3.1.11 to
the extent that any misrepresentation has been made or fraud
has been committed in filing a return or in supplying
information for the purposes of any legislation imposing Tax
on the Corporation or any Subsidiary; and
3.4.4 no claim for breach of representation or warranty
shall be valid unless the party against whom such claim is
made has been given notice thereof before the date on which
the applicable representation or warranty shall have
terminated in accordance with the foregoing.
ARTICLE 4
---------
CONDITIONS
----------
4.1 Conditions for the Benefit of the Purchaser
-------------------------------------------
The obligation of the Purchaser to complete the purchase of
the Purchased Shares pursuant to this Agreement is subject to the
satisfaction of, or compliance with, at or prior to the Time of
Closing, each of the following conditions (each of which is
acknowledged to be for the exclusive benefit of the Purchaser):
4.1.1 Accuracy of Representations of Vendors and
--------------------------------------------------
Continental and Compliance With Covenants. The
---------------------------------------------------
representations and warranties of the Vendors and
Continental made in or pursuant to this Agreement shall be
<PAGE>
- 33 -
true and correct at the Time of Closing with the same force
and effect as if made at and as of the Time of Closing,
except as otherwise contemplated by this Agreement; the
covenants contained in this Agreement to be performed by the
Vendors and Continental at or prior to the Time of Closing
shall have been performed; the Vendors and Continental shall
not be in breach of any material agreement on its part
contained in this Agreement; and the Purchaser shall have
received certificates confirming the foregoing, signed for
and on behalf of the Vendors by senior officers or directors
of the Vendors, and signed for and on behalf of Continental
by senior officers or directors of Continental, or other
persons acceptable to the Purchaser, in form and substance
satisfactory to the Purchaser and the Purchaser's Counsel,
acting reasonably.
4.1.2 Opinion of Vendors' Counsel. The Purchaser shall
---------------------------
have received an opinion of Vendors' Counsel as to such
matters as the Purchaser and the Purchaser's Counsel may
reasonably request (including matters with respect to
Continental, Niagara and CIC), which opinion shall be in
form and substance satisfactory to the Purchaser's Counsel,
acting reasonably.
4.1.3 No Action to Restrain. No action or proceeding
----------------------
shall be pending by any Person to restrain or prohibit:
4.1.3.1 the performance of this Agreement, including
the purchase and sale of the Purchased Shares hereunder
and the delivery of the consideration in connection
therewith in accordance with terms and conditions of
this Agreement; or
<PAGE>
- 34 -
4.1.3.2 the Corporation or any Subsidiary from
materially carrying on its Business as the Business is
being carried on at the date hereof.
4.1.4 Non-Competition. The Vendors and Continental
---------------
shall have executed and delivered to the Purchaser and
Continental Canada the Non-Competition Agreement.
4.1.5 Consents and Approvals. The following consents
-----------------------
and approvals, which shall be unconditional or on conditions
acceptable to the Purchaser at its sole option, shall have
been delivered to the Purchaser, in form and substance
satisfactory to the Purchaser and the Purchaser's Counsel,
acting reasonably:
4.1.5.1 the consent and approval of OSFI and the
insurance regulatory authorities in each jurisdiction
in which the Corporation or a Subsidiary is domiciled
or commercially domiciled, and such other regulatory
consents or approvals to the transactions contemplated
by this Agreement as are required by applicable
legislation;
4.1.5.2 receipt of an Advance Ruling Certificate
under the Competition Act (Canada); and
4.1.5.3 all other advice, consents, approvals,
waivers and orders notified by the Purchaser to
Continental within 30 days of Continental providing the
Purchaser with reasonably complete details (including
tax information) regarding the Reorganization, which
are required to be obtained by the Vendors in
connection with the completion of the transactions
contemplated by this Agreement, or which are required
in order for the Corporation and each Subsidiary to
<PAGE>
- 35 -
carry on Business after the Closing in accordance with
past practice.
4.1.6 Termination of Non-Arm's Length Management
--------------------------------------------------
Arrangements. All management arrangements between the
------------
Corporation or the Subsidiaries on the one part, and
Continental, any affiliate (excluding the Corporation and
the Subsidiaries), and any officer, director, employee or
shareholder of Continental or any such affiliate, on the
other part, will be terminated without any continuing
liability to the Corporation or a Subsidiary.
4.1.7 Security Agreements. The Vendors will deliver or
-------------------
cause to be delivered to the Purchaser, and duly registered
as necessary, the security agreements referred to below, in
form and on terms reasonably acceptable to the Purchaser.
The security agreements shall provide for a security
interest in marketable securities (the income on which shall
belong to the depositor) with a market value (determined by
mutual agreement of the parties, acting reasonably), as at
the Closing Date and on a continuing basis so long as the
security agreements remain in effect, of not less than $30
million (or, if the Purchaser has exercised its election
under section 5.8, $40 million), which may, if the Vendors
so choose, include the Fairfax Note (valued at $25 million)
whether or not the same is marketable. The security
agreements shall be agreements in favour of the Purchaser
collateralizing the indemnification and Adjustment Amount
payment obligations in section 6.1. Notwithstanding the
foregoing, the Purchaser may require that the above-
mentioned security arrangements be established by way of an
effective trust in favour of the Purchaser. All such
security or trust arrangements shall terminate upon
determination and payment, if any, of the Adjustment Amount.
<PAGE>
- 36 -
4.1.8 Transfer of Excluded Business and Canadian Branch
--------------------------------------------------
Business. The transfers referred to in section 2.3, all in
--------
form and substance satisfactory to the Purchaser acting
reasonably, shall have occurred.
4.1.9 No Material Adverse Change. There shall have been
--------------------------
no material adverse change to the financial condition of the
Corporation and the Subsidiaries taken as a whole since June
30, 1994 and neither the Corporation nor any Subsidiary
shall have any liability to pay any compensation as
described in section 5.4.6.
4.1.10 Financing. The Purchaser shall have arranged the
---------
necessary financing for the purchase provided for by this
Agreement by October 17, 1994. The Purchaser shall, on or
before October 17, 1994, notify Continental whether or not
this condition has been fulfilled, and if such notification
is not given this condition shall be deemed to be waived by
the Purchaser.
If any of the conditions contained in this section 4.1 shall
not be fulfilled or performed at or prior to the Time of Closing
to the satisfaction of the Purchaser, acting reasonably, the
Purchaser may, by notice to the Vendors and Continental,
terminate this Agreement and the obligations of the Vendors,
Continental and the Purchaser under this Agreement other than the
obligations contained in sections 3.3, 8.1 and 8.2. The
Purchaser may also bring an action against the Vendors and
Continental for damages suffered by the Purchaser where the non-
performance or non-fulfilment of a condition is as a result of a
wilful breach of covenant, representation or warranty by the
Vendors or Continental. Any condition may be waived in whole or
in part by the Purchaser without prejudice to any claims it may
have for wilful breaches of covenant, representation or warranty.
<PAGE>
- 37 -
4.2 Conditions for the Benefit of the Vendors
-----------------------------------------
The obligation of the Vendors to complete the sale of the
Purchased Shares hereunder is subject to the satisfaction of, or
compliance with, at or prior to the Time of Closing, each of the
following conditions (each of which is acknowledged to be for the
exclusive benefit of the Vendors):
4.2.1 Accuracy of Representations of Purchaser and
--------------------------------------------------
Compliance With Covenants. The representations and
----------------------------
warranties of the Purchaser made in or pursuant to this
Agreement shall be true and correct at the Time of Closing
with the same force and effect as if made at and as of the
Time of Closing except as otherwise contemplated by this
Agreement; the covenants contained in this Agreement to be
performed by the Purchaser at or prior to the Time of
Closing shall have been performed; the Purchaser shall not
be in breach of any material agreement on its part contained
in this Agreement; and the Vendors and Continental shall
have received a certificate confirming the foregoing signed
for and on behalf of the Purchaser by senior officers or
directors of the Purchaser or other persons acceptable to
the Vendors, in form and substance satisfactory to the
Vendors and the Vendors' Counsel, acting reasonably.
4.2.2 Opinion of Purchaser's Counsel. The Vendors shall
------------------------------
have received an opinion of the Purchaser's Counsel as to
such matters as the Vendors and the Vendors' Counsel may
reasonably request, which opinion shall be in form and
substance satisfactory to the Vendors' Counsel, acting
reasonably.
4.2.3 No Action to Restrain. No action or proceeding
----------------------
shall be pending or threatened by any Person to restrain or
prohibit the performance of this Agreement, including the
purchase and sale of the Purchased Shares hereunder and the
<PAGE>
- 38 -
delivery of the consideration in connection therewith in
accordance with terms and conditions of this Agreement.
4.2.4 Transfer of Excluded Business and Canadian Branch
--------------------------------------------------
Business. The transfers referred to in section 2.3, in form
--------
and substance satisfactory to the Vendors and Continental
acting reasonably, shall have occurred.
4.2.5 Consents and Approvals. The consents and
-------------------------
approvals referred to in section 4.1.5, which shall be
unconditional or on conditions acceptable to Continental and
the Vendors acting reasonably, shall have been delivered to
Continental and the Vendors, in form and substance
satisfactory to Continental and the Vendors, acting
reasonably.
4.2.6 Non-Competition. The Corporation and the
---------------
Purchaser shall have executed and delivered the Non-
Competition Agreement.
If any of the conditions contained in this section 4.2
shall not be fulfilled or performed at the Time of Closing to the
satisfaction of the Vendors and Continental, acting reasonably,
the Vendors and Continental may, by notice to the Purchaser,
terminate this Agreement and the obligations of the Vendors,
Continental and the Purchaser under this Agreement other than the
obligations contained in sections 3.3, 8.1 and 8.2. The Vendors
and Continental may also bring an action against the Purchaser
for damages suffered by the Vendors or Continental where the non-
performance or non-fulfilment of a condition is as a result of a
wilful breach of covenant, representation or warranty by the
Purchaser. Any condition may be waived in whole or in part by
the Vendors without prejudice to any claims it may have for
wilful breaches of covenant, representation or warranty.
<PAGE>
- 39 -
ARTICLE 5
---------
ADDITIONAL AGREEMENTS OF THE PARTIES
------------------------------------
5.1 Access to Information
---------------------
The Vendors and Continental shall to the extent reasonable
in connection with the transactions provided for herein give, and
shall cause the Corporation, the Subsidiaries, Niagara and CIC to
give, until the Time of Closing, to the Purchaser and its
accountants, legal advisers and representatives full access to
their premises, all their assets, books, accounts, tax returns,
contracts, commitments and records and to their personnel and to
furnish them with all such information relating to the Business
of the Corporation and each Subsidiary and the Canadian Branch
Business and their affairs and assets as the Purchaser may
reasonably request.
5.2 No Solicitation
---------------
Unless and until this Agreement is terminated in accordance
with its terms, the Vendors and Continental will not authorize or
permit any Person (including any related companies and trusts;
management, shareholders or trustees of Continental Canada or any
related companies and trusts; and financial advisers, investment
dealers or others acting as agent or otherwise for Continental or
the Vendors; or any of the foregoing), except in dealing with the
Purchaser, to provide access for review, enter into any
agreement, have any discussions or correspondence or take any
other action related to or with a view to soliciting, encouraging
or assisting in any offer or proposal for, or which would have an
effect comparable to, purchasing, financing or financing the
purchase of Continental Canada (in whole or in part) or all or
any material portion of Continental Canada's assets or Business.
<PAGE>
- 40 -
5.3 Conduct of Business Until Time of Closing
-----------------------------------------
Except as expressly provided in this Agreement (including
without limitation, the Reorganization) or except with the prior
written consent of the Purchaser, from the date hereof to the
Time of Closing the Vendors and Continental shall direct each of
the Corporation and the Subsidiaries, and Niagara and CIC with
respect to the Canadian Branch Business, to:
5.3.1 operate its Business only in the ordinary course,
consistent with past practice and, to the extent consistent
with such operation, use best efforts to preserve its
business organization, including the services of its
officers and employees, and its business relationships with
significant Policyholders, customers, suppliers, reinsurers
and others having business dealings with it;
5.3.2 maintain all its assets, whether owned or leased,
in good condition and repair, and maintain insurance upon
all its assets comparable in amount, scope and coverage to
that in effect on the date of this Agreement;
5.3.3 maintain its books, records and accounts in the
ordinary course on a basis consistent with past practice;
5.3.4 do or refrain from doing all acts and things in
order to ensure that the representations and warranties in
section 3.1 remain true and correct at the Time of Closing
as if such representations and warranties were made at and
as of such date and to satisfy or cause to be satisfied the
conditions in section 4.1 which are within its control.
<PAGE>
- 41 -
5.4 Negative Covenant
-----------------
Except as expressly provided in this Agreement (including
without limitation, the Reorganization) or except with the prior
written consent of the Purchaser, from the date hereof to the
Time of Closing the Vendors and Continental shall exercise
reasonable efforts to ensure that neither the Corporation nor any
Subsidiary:
5.4.1 amends its certificate of incorporation, by-laws
or other organizational documents;
5.4.2 amalgamates, merges or consolidates with, or
acquires all or substantially all the shares or assets of,
any Person;
5.4.3 declares or pays any dividends on, or makes other
distributions in respect of, or purchases or redeems, any of
its shares;
5.4.4 authorizes or proposes the issuance of, or
purchases or proposes the purchase of, any of its shares or
securities convertible into, or rights, warrants or options
to acquire, any of its shares;
5.4.5 changes its outstanding shares into a different
number of shares or a different class by reason of any
reclassification, recapitalization, split, consolidation,
combination, exchange of shares or readjustment, nor shall
it declare a stock dividend thereon; or
5.4.6 grants or pays to any officer or employee any
compensation with respect to or arising out of any
transaction contemplated by this Agreement.
5.5 Corporate Action and Resignations
---------------------------------
<PAGE>
- 42 -
At or prior to the Time of Closing, the Vendors and
Continental shall cause all necessary corporate action on their
part to be taken for the purpose of approving the transfer of the
Purchased Shares to the Purchaser. At or prior to such time, the
Vendors and Continental shall use reasonable efforts to obtain
the resignations of those directors, and those officers who are
not full-time employees, of the Corporation and the Subsidiaries
designated in writing by the Purchaser not less than 24 hours
prior to the Time of Closing. Continental shall indemnify the
Purchaser against any claims by such resigning individuals in
their capacity as directors and officers against the Corporation
or any of the Subsidiaries (other than in respect of
indemnification). If requested by the Purchaser, the Vendors and
Continental shall cause nominees of the Purchaser to be elected
or appointed directors of the Corporation and the Subsidiaries to
fill any vacancies effective as of the Time of Closing.
5.6 Obtaining of Consents and Approvals
-----------------------------------
The Vendors, Continental and the Purchaser shall use their
reasonable efforts to deliver, at or prior to the Time of
Closing, the consents and approvals referred to in section 4.1.5,
although they shall not be required to pay any monies or give any
other consideration in order to obtain any consent or approval,
other than payments in respect of required regulatory filing
fees, reasonable legal fees incurred by third parties in
connection with a request for a consent or approval and the
expenses of that party (including the reasonable fees and
disbursements of their counsel) in obtaining such consents and
approvals and such monies or other consideration as may be
necessary in connection with the receipt of any required consents
of reinsurers. If the Purchaser completes the transaction
contemplated hereby on the Closing Date notwithstanding that any
of the consents or approvals referred to in section 4.1.5 have
not been obtained, the Vendors, Continental and the Purchaser
shall continue after the Closing to use reasonable efforts as
<PAGE>
- 43 -
requested by the Purchaser from time to time in order to attempt
to obtain any such consent or approval.
5.7 Restructuring
-------------
Each of the Vendors, Continental and the Purchaser agree
that, in addition to the matter contemplated in section 1.10,
they will consent to any reasonable proposal to restructure the
transaction or any part thereof contemplated by this Agreement in
a way advantageous to the party making such proposal if such
proposal has no negative economic or commercial impact on the
party whose consent is sought.
5.8 Reinsurance Arrangements
------------------------
Except as otherwise expressly provided for in this
Agreement, all reinsurance arrangements between Continental
Canada and the Vendors, Continental and their affiliates shall
remain in place unamended until December 31, 1994. At the
Purchaser's option, Continental shall request the relevant
reinsurers to give reasonable consideration to continuing each
such arrangement for up to three additional one-year periods.
Nothing in this Agreement shall relieve any reinsurer under any
such reinsurance arrangements of any obligation incurred or
provided for under those arrangements.
At the Purchaser's election, which must be exercised by
notice given to Continental on or prior to December 15, 1994,
CRCIL shall, and Continental shall cause CRCIL to, enter into the
retrocession agreement provided for below (the "Retrocession
Agreement") and the Purchaser shall cause its affiliate to enter
into such agreement, which shall be signed either at the Time of
Closing or by March 31, 1995, as appropriate. If the
Retrocession Agreement is to take effect at the Time of Closing,
CRCIL shall, and Continental shall cause CRCIL to, and the
Purchaser shall cause its affiliate to, by the Time of Closing or
as soon thereafter as is reasonably practicable, take the steps
<PAGE>
- 44 -
necessary so that there shall have occurred all actions which
that agreement provides or contemplates will occur in conjunction
with that agreement taking effect. The Retrocession Agreement
shall include or be subject to the following terms:
(i) CRCIL will retrocede to an insurance company subsidiary
of the Purchaser (the "retrocessionnaire") all of the
liabilities of CRCIL under the Quota Share Treaty
related to the business of Continental Canada as of the
date provided for below, against payment by CRCIL of
good quality, marketable securities within the Bermuda
Trust (which securities shall remain within the Bermuda
Trust after such payment) equal in value (at fair
market value determined by the Purchaser and
Continental, acting reasonably) to the sum of 162/180
of the amount of liabilities for outstanding losses
assumed and 100% of the liabilities for unearned
premiums (net of deferred acquisition costs) assumed,
as determined in paragraph (iii) below;
(ii) the retrocessionnaire will receive 50% of the
investment income on the assets transferred pursuant to
paragraph (i) above from June 30, 1994 until the
earlier of Closing and December 31, 1994, and all of
such investment income thereafter. Except as provided
in the preceding sentence, CRCIL will receive all of
the investment income on its assets within the Bermuda
Trust;
(iii) the liabilities assumed shall initially be estimated
and, when audited 1994 financial statements are
available, those estimates shall be finalized and
necessary adjustments made, all pursuant to procedures
comparable to the scheme in Schedule 2.3;
(iv) the Purchaser may at its option specify either (a) that
the Retrocession Agreement will take effect at the
earlier of the Time of Closing and December 31, 1994,
in which event any further liabilities of CRCIL of the
type assumed which accrue after Closing until December
31, 1994 shall also be assumed as of December 31, 1994;
or (b) that the Retrocession Agreement will take effect
as of January 1, 1995, with the Purchaser having until
March 31, 1995 to arrange for this to occur;
(v) the Bermuda Trust will be amended as necessary to
ensure that the assets within the Bermuda Trust are
vested in trust for the benefit of the reinsured under
<PAGE>
- 45 -
the Quota Share Treaty and to permit payments of claims
under the Quota Share Treaty to be made out of the
assets of the retrocessionnaire within the Bermuda
Trust;
(vi) CRCIL will, in a manner satisfactory to Continental and
the Purchaser, acting reasonably, be relieved of direct
liability for the liabilities ceded under the
Retrocession Agreement, and the Purchaser shall ensure
the return to CRCIL of its assets within the Bermuda
Trust, not later than December 31, 1997. Until that
time, the assets of CRCIL within the Bermuda Trust will
remain within that trust and will be managed by CRCIL
and such assets as are transferred to the Purchaser
under the Retrocession Agreement will be managed by the
Purchaser or an affiliate, in both cases within OSFI
requirements or guidelines; and
(vii) in the event there is a requirement under
Applicable Laws that assets be contributed to the
Bermuda Trust,
(A) the Purchaser shall, or shall cause the
retrocessionnaire, to deposit within that trust
assets (which shall remain the contributor's
assets) with a fair market value (determined by
the Purchaser and Continental, acting reasonably)
such that the value of the Purchaser's and the
retrocessionnaire's assets within the Bermuda
Trust, when added to the amount of claims paid out
of such assets in respect of the liabilities
retroceded under the Retrocession Agreement, is at
least equal to the sum of the value of the assets
transferred to the retrocessionnaire in accordance
with paragraph (i) above at the time of such
transfer plus any increase in assets required
under Applicable Laws at any time after December
31, 1994 either as a result of adverse reserves
developments in respect of the retroceded
liabilities or any change in Applicable Laws; and
(B) Continental shall, or shall cause CRCIL, to
deposit within the Bermuda Trust assets (which
shall remain the contributor's assets) which are
sufficient, after any contribution of assets
referred to in the preceding clause (vii)(A), to
satisfy the requirements of Applicable Laws.
<PAGE>
- 46 -
5.9 Cooperation
-----------
The parties shall cooperate fully in good faith with each
other and their respective legal advisers, accountants and other
representatives in connection with any steps required to be taken
as part of their respective obligations under this Agreement.
5.10 Retention of Tax Records and Returns
------------------------------------
The Vendors, Continental, the Corporation and its
Subsidiaries shall retain (or cause to be retained) all returns,
schedules and work papers, records and other documents in their
possession relating to Tax matters of the Corporation and the
Subsidiaries for each taxable period ending after the Closing
Date and for all prior taxable periods, until the later of (i)
the expiration of the statute of limitations of the taxable
periods to which such returns and other documents relate, without
regard to extensions except to the extent notified by the
Purchaser in writing of such extensions for the respective
taxable periods, or (ii) six years following the due date
(without extension) for such returns; provided, however, that
-------- -------
returns, schedules, work papers, records and other documents
relating to the determination of the basis of any asset shall be
retained for six years following the disposition of such asset;
and provided further that none of Continental, the Vendors and
-------- -------
any subsidiary thereof shall dispose of any such documents
without first notifying the Corporation and providing the
Corporation a reasonable period of time in which to assume
possession of such documents. Any information obtained under
this section 5.10 shall be kept confidential except as may be
otherwise necessary in connection with the filing of returns or
claims for refund or in conducting an audit or other proceeding.
5.11 Continuance of Business Relationships
-------------------------------------
Each of the Purchaser, Continental and the Vendors covenant
and agree, and covenant and agree to cause their respective
affiliates, to continue the existing business relationships and
<PAGE>
- 47 -
arrangements referred to below in this section 5.11. In the
event that prior to Closing the Purchaser determines that it
wishes to continue an existing business relationship or
arrangement between Continental Canada and Continental and its
affiliates which is not referred to below, the Purchaser shall
provide Continental and the Vendors with a notice which includes
a description of the business relationship or arrangement to be
continued and, if Continental is, in its sole discretion,
interested in continuing such relationship or arrangement, the
parties shall negotiate reasonably regarding the continuation of
that business relationship consistent with the provisions below.
The North American Business Team arrangements described in
Schedule 5.11 will continue indefinitely, subject to mutual
agreement otherwise, and the arrangements under which loss
control or claims services, or administration services for MOAC
(as described in Schedule 5.11), are provided, and specialty
lines are insured in Canada and the United States respectively
and services and information with respect to those lines is
provided, will continue on mutually agreeable terms, negotiated
reasonably, so long as desired by the Person to whom the services
are provided.
5.12 Access to Insurance Products
----------------------------
For a period of five years after Closing, the Vendors and
Continental shall, and shall cause their affiliates to, provide
to Continental Canada, at Continental Canada's request,
information concerning new insurance products or revised existing
insurance products, other than insurance products relating to the
lines of business currently managed by MOAC or AAU described in
Schedule A to the Non-Competition Agreement and specialty lines
which are currently mutually written by Continental Canada and
affiliates of Continental but which cease to be mutually written
by such parties subsequent to Closing, including reasonable
access to copies of such products, all relevant documentation and
<PAGE>
- 48 -
knowledgeable personnel, so that Continental Canada will be in a
position to sell such insurance products. Continental Canada
will have the indefinite right to sell insurance products
developed based on the information and access provided by this
section 5.12 in Canada and any other jurisdiction where
Continental and its affiliates do not sell and have not announced
their intention to sell such insurance products prior to
Continental Canada starting to sell such products in those
jurisdictions. Nothing in this section 5.12 permits the use of
such insurance products otherwise than by Continental Canada or
use by Continental Canada in the United States otherwise than
through the North American Business Team arrangements described
in Schedule 5.11.
5.13 Protection of Existing Relationships
------------------------------------
Continental covenants and agrees, and covenants and agrees
to cause its affiliates, to refrain from taking any action which
may reasonably be expected to adversely affect a contractual or
business relationship existing between Continental Canada and any
other Person at the date hereof, including Continental Canada's
role as chief agent for Tokio Marine and Fire.
5.14 Software Licences
-----------------
Continental shall permit Continental Canada to continue to
use all computer software currently used by Continental Canada in
which Continental or its affiliates have any rights (including,
without limitation, software related to catastrophe management or
to underwriting or loss control services) and Continental shall
use reasonable efforts to provide, and use reasonable efforts to
cause its affiliates to provide, Continental Canada with any
license agreements which are required or beneficial to continue
to use such software, in all cases to the extent that Continental
or its affiliates have the right to permit such use. Such
license agreements shall be for an indefinite period and at no
cost to Continental Canada.
<PAGE>
- 49 -
If MOAC, CIC or Niagara wishes to use any computer software
for their business in Canada which is currently used by
Continental Canada, Continental Canada shall allow MOAC, CIC or
Niagara to use such software at no cost for an indefinite period
to the extent that Continental Canada has the right to permit
such use, and shall use reasonable efforts to provide MOAC, CIC
and Niagara with any licence agreements which are required or
beneficial in this regard.
5.15 Withholding Tax
---------------
If the Vendors fail to deliver to the Purchaser, at least 2
Business Days before the tax hereinafter referred to is required
to be remitted, a certificate issued pursuant to section 116 of
the Income Tax Act (Canada) in respect of the sale of the
Purchased Shares containing a certificate limit at least equal to
$155 million, the amount of the certified cheque or bank draft or
wire transfer of the Purchaser referred to in section 2.2.2.1 may
be reduced by the amount of tax for which the Purchaser may be
liable (as determined solely by the Purchaser's Counsel) under
section 116 of such Act. The Purchaser shall not remit such tax
to Revenue Canada until two Business Days prior to the last date
on which it is required to be remitted.
5.16 Use of Continental Name and Registered Trade Marks
--------------------------------------------------
Continental and the Vendors consent to the use by
Continental Canada of the names Continental Insurance Limited,
The Continental Insurance Company of Canada and Continental
Insurance Management Ltd. for a period of two years from Closing
and agree during that period, and for any longer period
contemplated below during which the Continental name may be used,
to provide Continental Canada with any consent or other document
which is required or beneficial for the use of such name in
Canada or any other jurisdiction in which Continental does not
carry on business in accordance with Applicable Laws. The
Purchaser agrees to change the name of the Corporation and its
<PAGE>
- 50 -
Subsidiaries so that their names do not include the name
"Continental" prior to the end of such two year period, unless
the name "Continental" is used by Continental Canada in
conjunction with another name or term so that the combined name
is not confusing with the name "Continental" and unless
Continental consents in its sole discretion to the use of the
combined name.
Continental shall, and shall cause its affiliates, to grant
or continue to grant to Continental Canada a licence, registered
user or comparable agreement to use in Canada the registered
trade marks listed on Schedule 3.1.13 which are marked for
identification with an "A" or a "B" and all other registered user
agreements shall be deemed to be terminated at Closing. The
period of the agreement for those marked with an "A" shall be the
period for which Continental Canada is allowed to use the
"Continental" name and for those marked with a "B" shall be
indefinite.
5.17 Financial Statements
--------------------
At the request of the Purchaser, Continental shall arrange
for the appropriate auditors to provide any financial statements
or pro forma financial statements relating to Continental Canada
that are required in connection with securities offerings by the
Purchaser to finance the purchase of Continental Canada
hereunder.
5.18 Chief Agent
-----------
Continental shall continue to appoint the chief executive
officer of the Corporation as chief agent in Canada for
Continental and any affiliate of Continental carrying on an
insurance business in Canada for a period of three years from the
Closing Date. Notwithstanding the preceding sentence, the
appointment shall be reviewable by Continental at the end of each
one year period and may be cancelled by Continental at each such
<PAGE>
- 51 -
time in its sole discretion or at any time for material non-
performance. The Purchaser shall indemnify and save Continental
harmless for any loss, damage, liability, expense or deficiency
suffered by Continental or an affiliate as a result of any
material non-performance of the chief agent as so appointed.
5.19 NABT Reporting
--------------
Robert Rich, or another person acceptable to the Purchaser,
shall be the individual designated by Continental as the contact
person for Continental Canada in relation to the activities of
the North American Business Team.
5.20 Fairfax Note
------------
At the request of Continental, the Purchaser will use all
reasonable efforts to cause the Fairfax Note to be freely
tradeable in the United States at any time after the Purchaser
has received its audited financial statements for the year ended
December 31, 1994.
5.21 Pension Plan Assets
-------------------
The assets including any surplus and related liabilities of
the current Continental Canada employee pension plan applicable
to MOAC and CAFO, Inc. employees shall be removed from such
pension plan in accordance with MOAC's instructions and at MOAC's
expense, as soon as all required regulatory consents and
approvals have been received. Towers Perrin or such other
actuary as is agreed to by the parties hereto shall make all
necessary actuarial determinations in this connection.
5.22 Reinsurance with Affiliates
---------------------------
Continental covenants and agrees that, except for currently
established fixed periodic premiums payable in 1994 which are
currently unpaid, Continental Canada shall not be liable, in
respect of 1994 or any prior period, for any additional or
adjusting premiums or payments (including without limitation any
<PAGE>
- 52 -
payback, swing rate, reinstatement or reinsurance surcharge
premium or any payment of a deductible) upon any existing
reinsurance or retrocession contract or arrangement made with any
affiliate of Continental as reinsurer or retrocessionnaire. The
Purchaser shall cause the Corporation and its Subsidiaries to
consent to the release to the settlor of any surplus assets held
in any trust relating to any existing reinsurance contracts
provided that OSFI has consented to such release of surplus
assets.
5.23 Currency Protection on U.S. Claims
----------------------------------
Continental covenants and agrees, with respect to all United
States losses of Continental Canada occurring prior to and
including December 31, 1994 (other than those relating to the
Thomson Corporation business), (the claims giving rise to such
losses being those listed in a schedule which has been prepared
by the Corporation and its Subsidiaries and provided to
Continental) to continue the existing practice whereby affiliates
of Continental (other than the Corporation and its Subsidiaries)
reimburse and indemnify the Corporation and its Subsidiaries for
the excess of any amounts paid by them in United States dollars
on or in connection with such claims over the amount which would
have been paid had the amount paid been the same numerical dollar
amount but denominated in Canadian dollars, such reimbursement
and indemnity obligation being limited to the respective loss
reserve for each claim as shown on the above-mentioned schedule.
5.24 Settling U.S. and Canadian Claims
---------------------------------
5.24.1 Continental covenants and agrees, subsequent to
the Time of Closing, to cause any affiliate which has the
authority or responsibility to settle in the United States
any claim on behalf of Continental Canada to keep
Continental Canada informed on developments and not to
settle such claim unless Continental Canada has approved
such settlement prior to the time it is made. In acting on
<PAGE>
- 53 -
behalf of Continental Canada in connection with claims
settlement activities, any such affiliate shall conduct
itself in a manner consistent with responsible industry
practice, including with a view to preserving Continental
Canada's client relationships. Nothing in this section 5.24
restricts Continental Canada's right to terminate the above-
mentioned authority or responsibility at any time.
5.24.2 The Purchaser covenants and agrees, subsequent to
the Time of Closing, to cause the Corporation or any
affiliate which has the authority or responsibility to
settle in Canada any claim on behalf of Continental or an
affiliate to keep Continental informed on developments and
not to settle such claim unless Continental has approved
such settlement prior to the time it is made. In acting on
behalf of Continental in connection with claims settlement
activities, the Corporation or any of its affiliates shall
conduct itself in a manner consistent with responsible
industry practice, including with a view to preserving
Continental's client relationships. Nothing in this section
5.24 restricts Continental's right to terminate the above-
mentioned authority or responsibility at any time.
5.25 Termination of Non-Arm's Length Arrangements. Except as
----------------------------------------------
expressly provided by this Agreement (including, without
limitation, in sections 5.11, 5.12, 5.13 and 5.14 hereof), all
arrangements between the Corporation or the Subsidiaries on the
one part, and Continental, any affiliate (excluding the
Corporation and the Subsidiaries), and any officer, director,
employee or shareholder of Continental or any such affiliate, on
the other part, and any arm's length investment management
agreement or arrangement to which Continental Canada is a party,
will be terminated as of the Time of Closing unless stipulated
otherwise by the Purchaser, without any continuing liability to
the Corporation or a Subsidiary and all accrued liabilities under
<PAGE>
- 54 -
such arrangements shall be satisfied without cost to the
Corporation and its Subsidiaries in full on a net basis at the
Time of Closing with respect to such of those amounts as are
determinable at such time and, with respect to such of those
amounts as are not determinable at that time, as soon thereafter
as such amounts are determinable.
5.26 Co-Operation in United States Tax Matters
-----------------------------------------
The Purchaser agrees that it shall co-operate with the
Vendors and Continental, and cause the Corporation and its
Subsidiaries to co-operate with the Vendors and Continental, by
sharing all financial and accounting information reasonably
requested by the Vendors and Continental in connection with the
preparation or audit of Continental's United States federal
income tax return or Canadian tax returns of the Corporation and
its Subsidiaries for any taxation year during any part of which
the Corporation and its Subsidiaries was owned, directly or
indirectly, by Continental. Such assistance shall include, but
not be limited to, providing information necessary to (i)
determine the subpart F income of the Corporation and its
Subsidiaries or (ii) substantiate foreign tax credits claimed
with respect to taxes paid or accrued by the Corporation and its
Subsidiaries.
ARTICLE 6
---------
INDEMNIFICATION AND
-------------------
PAYMENT OF ADJUSTMENT AMOUNT
----------------------------
6.1 Indemnification and Adjustment Amount
-------------------------------------
6.1.1 The Vendors and Continental shall jointly and
severally indemnify the Purchaser and save the Purchaser
harmless for and from any loss, damage, liability, expense
or deficiency suffered by the Purchaser as a result of any
breach of representation, warranty or covenant on the part
<PAGE>
- 55 -
of the Vendors or Continental or any of their affiliates
contained in this Agreement or in any agreement, certificate
or document delivered pursuant to or contemplated by this
Agreement, and all claims, demands, costs and expenses,
including reasonable legal fees, in respect of the
foregoing. The amount of such indemnity shall be on an
after-tax basis and shall be deemed to be an adjustment to
the Purchase Price.
6.1.2 The Vendors and Continental shall pay the
Adjustment Amount to the Purchaser in accordance with
sections 6.5 and 6.6.
6.1.3 Amounts payable under sections 6.1.1 and 6.1.2
shall be paid without duplication.
6.2 Notice of Claim for Indemnification
-----------------------------------
The Purchaser shall promptly give notice to the Vendors and
Continental of any claim for indemnification pursuant to section
6.1 (a "Claim", which term shall include more than one Claim).
Such notice shall specify whether the Claim arises as a result of
a claim by a Person (a "Third Party") against the Purchaser (a
"Third Party Claim") or whether the Claim does not so arise (a
"Purchaser's Claim"), and shall also specify with reasonable
particularity (to the extent that the information is available):
6.2.1 the factual basis for the Claim; and
6.2.2 the amount of the Claim or, if an amount is not
then determinable, an approximate and reasonable estimate of
the likely amount of the Claim.
If the Vendors and Continental do not receive such prompt notice,
the Vendors and Continental shall not be obligated to indemnify
<PAGE>
- 56 -
the Purchaser for any damages or costs that could have been
avoided but for such lack of timely notice.
6.3 Procedure for Indemnification
-----------------------------
6.3.1 Purchaser's Claims. Following receipt of notice
------------------
from the Purchaser of a Claim, the Vendors and Continental
shall have 30 days to make such investigation of the Claim
as the Vendors or Continental consider necessary or
desirable. For the purpose of such investigation, the
Purchaser shall make available to the Vendors and
Continental and their authorized representatives the
information relied upon by the Purchaser to substantiate the
Claim and all other available relevant information. If the
Purchaser and the Vendors or Continental agree at or prior
to the expiration of such 30 day period (or any mutually
agreed upon extension thereof) to the validity and amount of
such Claim, the Vendors or Continental, as the case may be,
shall immediately pay to the Purchaser the full agreed upon
amount of the Claim.
If the Purchaser and the Vendors or Continental do not
agree within such period (or any mutually agreed upon
extension thereof), the Purchaser, the Vendors and
Continental agree that any of them may take the dispute to a
court of competent jurisdiction.
6.3.2 Third Party Claims. With respect to any Third
-------------------
Party Claim against the Purchaser, the Vendors or
Continental shall have the right, at their own expense, to
participate in or assume control of the negotiation,
settlement or defence of such Third Party Claim and, in such
event, the Vendors or Continental shall reimburse the
Purchaser for all the Purchaser's out-of-pocket expenses as
a result of such participation or assumption. If the
<PAGE>
- 57 -
Vendors or Continental elect to assume such control, the
Purchaser shall cooperate with the Vendors or Continental,
and shall have the right to participate in the negotiation,
settlement or defence of such Third Party Claim at its own
expense. If the Vendors or Continental, having elected to
assume such control, thereafter fail to defend any such
Third Party Claim within a reasonable time, the Purchaser
shall be entitled to assume such control and the Vendors and
Continental shall be bound by the results obtained by the
Purchaser with respect to such Third Party Claim.
6.4 Additional Rules and Procedures for Indemnification
---------------------------------------------------
The obligation of the Vendors or Continental to indemnify
the Purchaser in respect of Claims shall also be subject to the
following:
6.4.1 The obligation of Continental and the Vendors to
indemnify the Purchaser and the Corporation shall not apply
until the aggregate amount of Claims is at least $1,000,000
and shall not apply to the first $1,000,000 in aggregate
amount of Claims. However, this section 6.4.1 shall not
apply to Claims pursuant to breaches of the indemnity
obligations in sections 1.10 and 5.5 and breaches of the
covenants contained in sections 5.22 and 5.23, with the
result that any proper Claims under those sections shall be
paid in full, and there shall be no minimum amount of
aggregate Claims under those sections.
6.4.2 The obligation of Continental and the Vendors to
indemnify the Purchaser and the Corporation in respect of
Claims shall be limited to the aggregate amount of
$50,000,000.
6.4.3 Whether or not the Vendors or Continental assume
control of the negotiation, settlement or defence of any
<PAGE>
- 58 -
Third Party Claim against the Purchaser, the Purchaser shall
not negotiate, settle, compromise or pay any such Third
Party Claim except with the prior written consent of the
Vendors and Continental (which consent shall not be
unreasonably withheld).
6.4.4 The Purchaser shall not permit any right of appeal
in respect of any Third Party Claim against it to terminate
without giving the Vendors and Continental notice thereof
and an opportunity to contest such Third Party Claim.
6.4.5 The Purchaser, the Vendors and Continental shall
cooperate fully with each other with respect to Third Party
Claims, shall keep each other fully advised with respect
thereto (including supplying copies of all relevant
documentation promptly as it becomes available) and shall
each designate a senior officer who will keep himself
informed about and be prepared to discuss the Third Party
Claim with his counterpart and with counsel at all
reasonable times.
6.4.6 Notwithstanding section 6.3.2, the Vendors and
Continental shall not settle any Third Party Claim or
conduct any related legal or administrative proceeding in a
manner which would, in the opinion of the Purchaser, acting
reasonably, have an adverse impact on the Purchaser.
6.5 Calculation of Adjustment Amount and Combined Ratio Achieved
------------------------------------------------------------
The Adjustment Amount will be calculated by the Purchaser
and its or the Corporation's independent actuary within 120 days
of the Determination Date. If the Vendors and Continental do not
agree with the amount calculated by the Purchaser and such
actuary, the Vendors and Continental will within 60 days of being
advised of the Purchaser's calculation advise the Purchaser of
the Adjustment Amount as calculated by the Vendors and
<PAGE>
- 59 -
Continental and their independent actuary (failing which the
Vendors and Continental will be deemed to have agreed with the
Purchaser's calculation), and if the Purchaser and the Vendors
and Continental cannot agree on the Adjustment Amount within 30
days thereafter, then such amount shall be forthwith determined
by a mutually agreed upon third party actuary whose
determination, including with respect to costs, shall be final
and binding on the parties hereto. Unless otherwise agreed, such
dispute shall be submitted to arbitration pursuant to the
Arbitration Act, 1991 (Ontario). Sections 6.3 and 6.4 shall not
apply to a claim for indemnification or payment of the Adjustment
Amount. After 1994, within 60 days of the end of each calendar
quarter, other than the fourth quarter, and within 120 days of
the end of each fourth quarter, the Purchaser shall provide
Continental with an estimate of the Adjustment Amount calculated
as at the end of such quarter and reasonable explanatory
commentary and such additional relevant information as
Continental shall at any time request.
The Combined Ratio Achieved will be calculated by the
Purchaser and the Corporation's auditors by February 28, 2000.
The second and third sentences of the preceding paragraph shall
apply mutatis mutandis to the calculation of the Combined Ratio
Achieved. Within 60 days of the end of each calendar year after
1994, the Purchaser shall provide Continental with a calculation
of the combined ratio of the Corporation and its Subsidiaries for
such calendar year and reasonable explanatory commentary relating
to such calculation and such additional relevant information as
Continental shall at any time request.
6.6 Payment of Indemnity and Adjustment Amount
------------------------------------------
All amounts payable by the Vendors and Continental to the
Purchaser as contemplated by this Article 6 will be paid
forthwith upon agreement of the indemnification or payment amount
calculated in accordance herewith.
<PAGE>
- 60 -
6.7 Right of Inspection
-------------------
The Vendors and Continental shall be entitled, through their
employees, representatives, accountants, actuaries and lawyers,
to inspect and examine such books, records, tax records and
financial statements of the Purchaser, the Corporation and the
Subsidiaries as may be relevant to a determination of the
indemnification or payment of the Adjustment Amount required by
this Article 6 or of the Combined Ratio Achieved. Any such
inspection and examination shall be conducted at reasonable times
and under reasonable circumstances in such a manner as to avoid
any unreasonable disruption of the businesses of such
corporations, and the Purchaser shall cause the Corporation and
the Subsidiaries and their representatives to cooperate fully
with such inspection and examination. The Vendors and
Continental shall, and shall cause any other person to whom the
Vendors and Continental have given access to information
disclosed pursuant to this section 6.7 to, keep confidential any
information or documents obtained pursuant to this section 6.7
unless such information or documents are readily ascertainable
from public or published information, are otherwise available to
the Vendors or Continental or are needed to be used in legal
proceedings related to the determination of indemnification or
payment obligations under this Article 6 or of the Combined Ratio
Achieved.
6.8 Joint and Several Liability of the Vendors and Continental
----------------------------------------------------------
For greater certainty, the Vendors and Continental are
jointly and severally liable to the Purchaser pursuant to the
indemnities contemplated by this Article 6.
6.9 Indemnity by Purchaser
----------------------
The Purchaser shall indemnify the Vendors and Continental
and save them harmless for and from:
<PAGE>
- 61 -
6.9.1 any loss, damage, liability, expense or deficiency
suffered by the Vendors or Continental as a result of any
breach of representation, warranty or covenant on the part
of the Purchaser contained in this Agreement or in any
agreement, certificate or document delivered pursuant to or
contemplated by this Agreement; and
6.9.2 all claims, demands, costs and expenses, including
reasonable legal fees, in respect of the foregoing.
The provisions of sections 6.2, 6.3 and 6.4 respecting the
indemnity given by the Vendors and Continental in section 6.1
shall apply mutatis mutandis to this indemnity by the Purchaser.
ARTICLE 7
---------
CLOSING
-------
7.1 Location and Time of the Closing
--------------------------------
The Closing shall take place at the Time of Closing on the
Closing Date at the offices of the Vendors' Counsel.
7.2 Deliveries at and forthwith upon the Closing
--------------------------------------------
At the Closing, the Vendors shall deliver the share
certificates representing the Purchased Shares and such other
documents as are required or contemplated to be delivered by the
Vendors or the Vendors' Counsel pursuant to this Agreement, and
the Purchaser shall pay the Purchase Price in the manner
contemplated by Article 2 and shall deliver such documents as are
required or contemplated to be delivered by the Purchaser or the
Purchaser's Counsel pursuant to this Agreement.
<PAGE>
- 62 -
ARTICLE 8
---------
GENERAL MATTERS
---------------
8.1 Confidentiality
---------------
If the transaction contemplated by this Agreement is not
completed, the Purchaser shall hold in confidence and shall not,
except as contemplated below, directly or indirectly use for its
own purposes or communicate to any other Person any confidential
information or data relating to the Vendors, Continental, the
Corporation, any Subsidiary or their respective Businesses
(including, without limitation, Intellectual Property) which
become known to the Purchaser, its accountants, legal advisers or
representatives as a result of the Vendors, Continental or their
advisers making the same available in connection with the
transactions contemplated hereby, and the Purchaser shall return
or cause to be returned to the Vendors, Continental and the
Corporation or the applicable Subsidiary all copies (and extracts
therefrom) of documents received from them in connection with the
transaction contemplated by this Agreement, except, in the case
of any dispute related to this Agreement, as retention of such
material is necessary or useful in conducting such dispute. The
foregoing shall not prevent the Purchaser from disclosing or
making available to its accountants, professional advisers and
bankers and other lenders, whether current or prospective, any
such information or data provided that such Persons agree to hold
the same in confidence.
8.2 Public Notices
--------------
No press release or other announcement concerning the
transaction contemplated by this Agreement shall be made by the
Vendors, Continental or the Purchaser without the prior consent
of the others (such consent not to be unreasonably withheld)
provided, however, that any party may, without such consent, make
such disclosure if the same is required by any stock exchange on
which any of the securities of such party or any of its
<PAGE>
- 63 -
affiliates are listed or by any law or any securities commission
or other similar regulatory authority having jurisdiction over
such party or any of its affiliates, and if such disclosure is
required, the party making the disclosure shall use reasonable
efforts to give the others prior written notice and the
opportunity to review the form of disclosure and if such prior
notice is not possible, to give such notice immediately following
the making of such disclosure.
8.3 Expenses
--------
Except as otherwise provided herein, each of the Vendors,
Continental and the Purchaser shall be responsible for their own
respective expenses (including fees and expenses of legal
advisers, accountants and other professional advisers) incurred
in connection with the negotiation and settlement of this
Agreement and the completion of the transactions contemplated
hereby.
8.4 Conveyance Taxes
----------------
Any real property transfer or gains, sales, use, transfer,
value added, stock transfer, stamp, recording, registration, and
any similar Tax or fee that becomes payable in connection with
the transactions contemplated by this Agreement shall be paid by
the transferee, and the transferee shall file such applications
and documents as shall permit any such Tax to be assessed and
paid on or prior to the Closing Date in accordance with any
available pre-sale filing procedure. Each party hereto shall
execute and deliver all instruments and certificates necessary to
enable the other to comply with the foregoing.
8.5 Specific Performance
--------------------
The parties hereto agree that irreparable damage will occur
in the event that any provision of this Agreement is not
performed in accordance with its terms and that the parties
hereto agree that each other party shall be entitled to specific
<PAGE>
- 64 -
performance of its terms or injunctive relief, as applicable, in
addition to any other remedy at law or equity.
8.6 Assignment
----------
No party may assign its rights, benefits or obligations
under this Agreement without the written consent of the others
except that the Purchaser may assign its rights, benefits and
obligations under this Agreement to an affiliate without such
consent as long as the Purchaser continues to remain liable for
all of its obligations under this Agreement.
8.7 Notices
-------
Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be given by
facsimile or other means of electronic communication or by hand-
delivery as hereinafter provided. Any such notice or other
communication, if sent by facsimile or other means of electronic
communication, shall be deemed to have been received on the date
of sending if sent during normal business hours on a Business
Day, and otherwise on the first Business Day following the date
of sending, or if delivered by hand shall be deemed to have been
received at the time it is delivered to the applicable address
noted below either to the individual designated below or to an
individual at such address having apparent authority to accept
deliveries on behalf of the addressee. Notice of change of
address or telecopier number shall also be governed by this
section. Notices and other communications shall be addressed as
follows:
(a) if to the Vendors and/or Continental, to:
180 Maiden Lane
New York, New York 10038
U.S.A.
Attention: William F. Gleason, Jr., Esq.
Telecopier No.: (212) 440-7982
<PAGE>
- 65 -
with a copy to:
Blake, Cassels & Graydon
Box 25, 28th Floor
Commerce Court West
Toronto, Ontario, Canada
M5L 1A9
Attention: Shirley A. Brown, Esq.
Telecopier No.: (416) 863-2174
(b) if to the Purchaser, to:
Fairfax Financial Holdings Limited
95 Wellington Street West
P.O. Box 8, Suite 800
Toronto, Ontario, Canada
M5J 2N7
Attention: Eric P. Salsberg
Telecopier Number: (416) 367-4946
with a copy to:
Tory Tory DesLauriers & Binnington
Suite 3000, Aetna Tower, P.O. Box 270
Toronto-Dominion Centre
Toronto, Ontario, Canada
M5K 1N2
Attention: Bradley P. Martin, Esq.
Telecopier Number: (416) 865-7380
The failure to send or deliver a copy of a notice to the
Purchaser's Counsel, the Vendors' Counsel or Continental's
counsel, as the case may be, shall not invalidate any notice
given under this section.
8.8 Time of Essence
---------------
Time is of the essence of this Agreement.
8.9 Further Assurances
------------------
Each of the parties shall promptly do, make, execute,
deliver, or cause to be done, made, executed or delivered, all
such further acts, documents and things as any other party hereto
<PAGE>
- 66 -
may reasonably require from time to time for the purpose of
giving effect to this Agreement and shall use reasonable efforts
and take all such steps as may be reasonably within its power to
implement to their full extent the provisions of this Agreement.
8.10 Counterparts
------------
This Agreement may be signed in counterparts and each such
counterpart shall constitute an original document and such
counterparts, taken together, shall constitute one and the same
instrument.
IN WITNESS WHEREOF the parties hereto have executed this
Agreement.
FIREMEN'S INSURANCE COMPANY OF
NEWARK, NEW JERSEY
By: /s/ J. HEATH FITZSIMMONS
-----------------------------------
J. HEATH FITZSIMMONS
-----------------------------------
Senior Vice President and Chief
Financial Officer
CONTINENTAL REINSURANCE CORPORATION
By: /s/ J. HEATH FITZSIMMONS
-----------------------------------
J. HEATH FITZSIMMONS
-----------------------------------
Senior Vice President and Chief
Financial Officer
CONTINENTAL REINSURANCE CORPORATION
INTERNATIONAL LIMITED
By: /s/ J. HEATH FITZSIMMONS
-----------------------------------
J. HEATH FITZSIMMONS
-----------------------------------
Senior Vice President and Chief
Financial Officer
<PAGE>
- 67 -
THE CONTINENTAL CORPORATION
By: /s/ J. HEATH FITZSIMMONS
-----------------------------------
J. HEATH FITZSIMMONS
-----------------------------------
Senior Vice President and Chief
Financial Officer
FAIRFAX FINANCIAL HOLDINGS LIMITED
By: /s/ V. Prem Watsa
-----------------------------------
Chairman
<PAGE>
- 68 -
THE CONTINENTAL INSURANCE COMPANY
OF CANADA
By: /s/ Byron G. Messier
-----------------------------------
-----------------------------------
THE DOMINION INSURANCE CORPORATION
By: /s/ Byron G. Messier
-----------------------------------
-----------------------------------
<PAGE>
SCHEDULE 1.1
NON-COMPETITION AGREEMENT
THIS AGREEMENT is made as of the day of , 1994
BY: FIREMEN'S INSURANCE COMPANY
OF NEWARK, NEW JERSEY,
a corporation incorporated
under the laws of the State of New
Jersey
("Firemen's")
- and -
CONTINENTAL REINSURANCE CORPORATION,
a corporation incorporated under
the laws of
the State of California
("CRC")
- and -
CONTINENTAL REINSURANCE CORPORATION
INTERNATIONAL LIMITED,
a corporation incorporated under
the laws of Bermuda
("CRCIL")
- and -
THE CONTINENTAL CORPORATION, a
corporation incorporated under
the laws of the State of
New York, on behalf of itself and
its Subsidiaries (as hereinafter
defined), including without
limitation The Continental
Insurance Company ("CIC") and
Niagara Fire Insurance Company
("Niagara")
("Continental")
(collectively the "The Continental
Group")
<PAGE>
- 2 -
- and -
FAIRFAX FINANCIAL HOLDINGS LIMITED,
(the "Purchaser")
- and -
THE CONTINENTAL INSURANCE COMPANY
OF CANADA, a corporation
incorporated under the laws of
Canada, and its Subsidiaries (as
hereinafter defined)
RECITALS:
Pursuant to an agreement (the "Purchase Agreement")
dated as of October 12, 1994 between the Purchaser and The
Continental Group, the Purchaser agreed to purchase and certain
members of The Continental Group agreed to sell all the issued
and outstanding shares of the Corporation;
The obligations of the Purchaser and The Continental
Group under the Purchase Agreement are subject to the condition
that the Purchaser, the Corporation and The Continental Group
execute and deliver this non-competition agreement;
The Continental Group acknowledge that this agreement
is necessary in order that the Purchaser receives the full
benefit of the goodwill of the Corporation's business and in
order to permit the Corporation to preserve that goodwill and,
accordingly, The Continental Group is willing to enter into this
agreement in order to ensure that the goodwill of the
Corporation's business is not impaired by action of The
Continental Group;
The Continental Group and the Purchaser acknowledge
that this agreement is an integral part of the transaction
contemplated by the Purchase Agreement under which The
Continental Group and the Purchaser are receiving significant
benefit and each such party is relying on the agreements and
acknowledgements given herein;
NOW THEREFORE in consideration of the foregoing and
other good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), The Continental
Group, the Purchaser and the Corporation mutually agree:
1. Definitions
-----------
In this agreement,
"Corporation" means The Continental Insurance Company of
Canada and its Subsidiaries unless the context otherwise
requires;
<PAGE>
- 3 -
"Person" means any individual, partnership, limited
partnership, joint venture, syndicate, sole proprietorship,
company or corporation with or without share capital,
unincorporated association, trust, trustee, executor,
administrator or other legal personal representative,
regulatory body or agency, government or governmental
agency, authority or entity however designated or
constituted;
"Subsidiaries" means subsidiaries within the meaning of the
Canada Business Corporations Act as the same may be amended
from time to time and any successor legislation thereto.
2. Non-Competition
---------------
The Continental Group shall not, and shall
not permit their Subsidiaries or any other Person not at arm's length
to them respectively over whom they have the necessary control
(collectively, their "Affiliates"), to, for a period of five (5)
years from the date hereof, directly or indirectly, in any manner
whatsoever including, without limitation, either individually, in
partnership, jointly or in conjunction with any other Person, or
as employee, principal, agent, director or shareholder:
(i) be engaged in any undertaking;
(ii) have any financial or other interest in or in
respect of the business of any Person which
carries on a business; or
(iii) advise, lend money to, guarantee the
debts or obligations of or permit the
use of The Continental Group's names or
any parts thereof by any Person which
carries on a business;
in Canada which is the same as or substantially similar to or
which competes with or would compete with the business of the
writing of property and casualty insurance currently carried on
by the Corporation.
The Corporation shall not, and shall not permit its
Subsidiaries or any other Person not at arm's length to them
respectively over whom they have the necessary control
(collectively, their "Affiliates"), and the Purchaser shall not
permit the Corporation, to, for a period of five (5) years from
<PAGE>
- 4 -
the date hereof, directly or indirectly, in any manner whatsoever
including, without limitation, either individually, in
partnership, jointly or in conjunction with any other Person, or
as employee, principal, agent, director or shareholder:
(i) be engaged in any undertaking;
(ii) have any financial or other interest in or in
respect of the business of any Person which
carries on a business; or
(iii) advise, lend money to, guarantee the
debts or obligations of any Person which
carries on a business;
in Canada which is the same as or substantially similar to or
which competes with or would compete with the business of the
writing of hull insurance, protection and indemnity insurance,
ocean cargo insurance, primary and excess marine liabilities
insurance and aviation insurance currently managed by Marine
Office of America Corporation and Associated Aviation
Underwriters.
3. Exceptions
----------
Notwithstanding section 2, nothing herein shall
prevent:
(i) The Continental Group or their Affiliates from
carrying on or managing, or competing with the
Corporation in respect of, the types of insurance
business currently managed by Marine Office of
America Corporation and Associated Aviation
Underwriters, which types of insurance business
are more specifically described in Schedule A
attached hereto;
(ii) The Continental Group or their Affiliates from
competing with the Corporation in respect of
specialty lines for which the current arrangement
whereby such specialty lines are done mutually by
the Corporation in Canada and by affiliates of
Continental in the United States has been
terminated by the Corporation or by affiliates of
Continental;
(iii) The Continental Group or their Affiliates
from owning, in aggregate as to The
Continental Group and their Affiliates, not
more than 10% of the issued shares of any
corporation, the shares of which are listed
on a recognized stock exchange or quoted on a
<PAGE>
- 5 -
recognized securities market or quotation
system;
(iv) the Corporation or its Affiliates from owning, in
aggregate as to the Corporation and its
Affiliates, not more than 10% of the issued shares
of any corporation, the shares of which are listed
on a recognized stock exchange or quoted on a
recognized securities market or quotation system.
4. Employees
---------
The Continental Group shall not, and shall not permit
their Affiliates to, for a period of two (2) years from the date
hereof, directly or indirectly, hire any individual who is at
such time an employee of the Corporation or induce or attempt to
induce any individual who is at such time an employee of the
Corporation to leave such individual's employment.
5. No Impairment
-------------
For a period of five (5) years from the date hereof,
The Continental Group and the Corporation shall not do or cause
or permit to be done any acts which would reasonably be expected
to impair in a material fashion the relationship between each of
them respectively and any of their respective suppliers,
customers, employees or other Persons.
6. Continental Group's Acknowledgements and Agreements
----------------------------------------------------
The Continental Group acknowledges and agrees:
(i) that the covenants contained herein are
intended to ensure that the Purchaser
receives the full benefit of the goodwill of
the Corporation's business; and
(ii) that the breach by it of any section of this
agreement will cause serious harm to the
Purchaser, the Corporation and the
Corporation's business.
The Continental Group agrees that the Purchaser is
relying on the acknowledgements and agreements contained herein
in connection with its purchase of the Corporation.
CIC and Niagara, each of which carry on a branch
business in Canada, acknowledge and agree (for good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged) that they are each bound by all of the agreements
of The Continental Group under this agreement.
<PAGE>
- 6 -
7. Invalidity of Provisions
------------------------
Each of the provisions contained in this agreement is
distinct and severable and a declaration of invalidity or
unenforceability of any such provision or part thereof by a court
of competent jurisdiction shall not affect the validity or
enforceability of any other provision hereof.
8. Remedies
--------
The Continental Group, the Purchaser and the
Corporation acknowledge that a breach or threatened breach by any
party hereto of any provision of this agreement will result in
the aggrieved party suffering irreparable harm which cannot be
calculated or fully or adequately compensated by recovery of
damages alone. Accordingly, The Continental Group, the Purchaser
and the Corporation agree that, in addition to any other relief
to which the aggrieved party may become entitled, the aggrieved
party shall be entitled to interim and permanent injunctive
relief, specific performance and other equitable remedies.
9. Amendment
---------
No modification, amendment or waiver of any of the
provisions of this agreement shall be effective unless made with
the prior written consent of the Purchaser and The Continental
Group.
10. Enurement
---------
This agreement shall enure to the benefit of the
Purchaser and the Corporation and The Continental Group and their
successors and assigns, respectively.
11. Governing Law
-------------
This agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario and the laws
of Canada applicable therein.
IN WITNESS WHEREOF each party herein has affixed its
corporate seal attested to by its proper officers.
FIREMEN'S INSURANCE COMPANY OF
NEWARK, NEW JERSEY
By: ___________________________ c/s
_______________________________
<PAGE>
- 7 -
CONTINENTAL REINSURANCE CORPORATION
By: ___________________________ c/s
_______________________________
CONTINENTAL REINSURANCE CORPORATION
INTERNATIONAL LIMITED
By: ___________________________ c/s
_______________________________
THE CONTINENTAL CORPORATION
By: ___________________________ c/s
_______________________________
THE CONTINENTAL INSURANCE COMPANY
By: ___________________________ c/s
_______________________________
NIAGARA FIRE INSURANCE COMPANY
By: ___________________________ c/s
_______________________________
<PAGE>
- 8 -
THE CONTINENTAL INSURANCE COMPANY OF
CANADA
By: ___________________________ c/s
_______________________________
FAIRFAX FINANCIAL HOLDINGS LIMITED
By: ___________________________ c/s
_______________________________
<PAGE>
SCHEDULE A
----------
Lines of Business Managed by MOAC
Inland Marine
Hull
Protection and Indemnity
Ocean Cargo
Yacht
Property classes currently managed by MOAC
Boiler & Machinery classes currently managed by MOAC
Liability related to Property and Marine classes currently
managed by MOAC
Primary and Excess Marine Liabilities
Motor Truck Physical Damage
Special programs, such as, but not limited to:
Western National Warranty Corp.
Speciality Underwriters
Boat/US
Lines of Business managed by Associated Aviation Underwriters
Aviation and related classes
<PAGE>
SCHEDULE 1.10
STEPS IN THE REORGANIZATION
---------------------------
1. The Corporation incorporates and organizes a new wholly-
owned licensed insurance company ("New Continental") and
Dominion incorporates and organizes a new wholly-owned
licensed insurance company ("New Dominion").
2. The Corporation and Dominion transfer all of their
respective assets (other than, in the case of the
Corporation, the shares of Dominion) and liabilities to,
respectively, New Continental and New Dominion, in
consideration for shares of the respective insurance
company, on a rollover basis - that is, the transfers will
be made at fair market value, but the elected adjusted cost
bases of the transferred assets will be their respective
adjusted cost bases to the transferor.
3. Dominion will transfer the shares of New Dominion to New
Continental, in consideration for shares of New Continental,
on a rollover basis (as described above).
4. The Corporation and Dominion will be discontinued as
insurance companies and continued as Canada business
corporations.
Upon completion of this reorganization, the Purchaser will
purchase from the Corporation and Dominion all of the shares of
New Continental.
<PAGE>
SCHEDULE 2.3
(a) Assumption of the Assumed Liabilities
-------------------------------------
(i) In accordance with section 2.3 of the Agreement:
(A) Continental shall cause Niagara and CIC to sell,
assign and transfer to the Corporation and its
Subsidiaries Canadian Branch Assets with a value
equal to the value of the Assumed Liabilities; and
(B) the Corporation and its Subsidiaries shall assume
from Niagara and CIC, respectively, the Assumed
Liabilities.
(ii) For the purposes of determining the value of the
Niagara Investments and the value of the CIC Investments
which Niagara and CIC shall sell, assign and transfer to the
Corporation and its Subsidiaries as part of the Canadian
Branch Assets, Continental shall in good faith prepare
estimates of the value of the Assumed Liabilities and of the
Canadian Branch Assets other than CIC Investments and
Niagara Investments as of the time of closing and deliver a
written statement of such estimates to the Purchaser not
less than three Business Days prior to the closing date.
The amount obtained when the second such estimated value is
subtracted from the first shall be the value of CIC
Investments and Niagara Investments transferred to the
Corporation and its Subsidiaries as of closing.
(iii) The value of the Assumed Liabilities and the value
of the Canadian Branch Assets other than the CIC Investments
and the Niagara Investments as of the closing date shall be
calculated by the Purchaser based upon the appropriate
audited financial statements for calendar 1994 within ten
Business Days after such audited financial statements are
<PAGE>
- 2 -
first available and written notice thereof shall be provided
to Continental. If Continental does not agree with such
values, Continental shall within ten Business Days of being
advised of the Purchaser's calculation advise the Purchaser
of such values as calculated by Continental in consultation
with its professional advisors (failing which Continental
will be deemed to have agreed with the Purchaser's
calculation), and if the Purchaser and Continental cannot
agree on such values within ten Business Days thereafter,
then such values shall be forthwith determined by a mutually
agreed upon third party whose determination, including with
respect to costs, shall be final and binding on the parties
hereto. Unless otherwise agreed, such dispute shall be
submitted to arbitration pursuant to the Arbitration Act,
1991 (Ontario).
(iv) For the purposes of this section (iv), "Canadian Branch
Adjustment Amount" means the difference between the value of
CIC Investments and Niagara Investments transferred as of
closing pursuant to section (ii), and the value of such
investments which should have been so transferred based on
the determinations made pursuant to section (iii), plus an
amount equal to deemed interest on such difference from the
closing date to the date of payment at a rate per annum
equal to 7 3/4%, calculated daily on the basis of the actual
number of days elapsed and a 365 day year. Continental
shall cause Niagara or CIC, as applicable, to pay to the
Corporation and its Subsidiaries, or the Corporation and its
Subsidiaries shall pay to Niagara or CIC, as applicable,
whichever is appropriate, the Canadian Branch Adjustment
Amount, in either case by transferring cash or marketable
securities as shall be mutually agreed by Continental and
the Purchaser acting reasonably, valued in accordance with
section (c).
<PAGE>
- 3 -
(v) The determinations and adjustments referred to in this
section (a) shall not limit or affect any other rights or
causes of action which the parties may have under the
agreement providing for the purchase by the Purchaser of the
Corporation with respect to representations, warranties,
covenants and indemnities in its favour contained in that
agreement.
(b) Assumption of Excluded Liabilities
----------------------------------
(i) In accordance with section 2.3 of the Agreement:
(A) the Corporation and the Subsidiaries shall sell,
assign and transfer to CIC or Niagara Excluded
Assets with a value equal to the value of the
Excluded Liabilities, and
(B) CIC or Niagara shall assume from the Corporation
and the Subsidiaries the Excluded Liabilities.
(ii) For the purposes of determining the value of the
Excluded Investments which the Corporation and the
Subsidiaries shall sell, assign and transfer to Niagara and
CIC as part of the Excluded Assets, Continental shall in
good faith prepare estimates of the value of the Excluded
Liabilities and of the Excluded Assets other than the
Excluded Investments as of September 30, 1994 and deliver a
written statement of such estimates to the Purchaser as soon
as practical. The amount obtained when the second such
estimated value is subtracted from the first shall be the
value of the Excluded Investments transferred to CIC or
Niagara as of closing.
(iii) The value of the Excluded Liabilities and the
value of the Excluded Assets other than the Excluded
<PAGE>
- 4 -
Investments as of the closing date shall be calculated by
the Purchaser based upon the appropriate audited financial
statements for calendar 1994 within ten Business Days after
such audited financial statements are first available and
written notice thereof shall be provided to Continental. If
Continental does not agree with such values, Continental
will within ten Business Days of being advised of the
Purchaser's calculation advise the Purchaser of such values
as calculated by Continental in consultation with its
professional advisors (failing which Continental will be
deemed to have agreed with the Purchaser's calculation), and
if the Purchaser and Continental cannot agree on such values
within ten Business Days thereafter, then such values shall
be forthwith determined by a mutually agreed upon third
party whose determination, including with respect to costs,
shall be final and binding on the parties hereto. Unless
otherwise agreed, such dispute shall be submitted to
arbitration pursuant to the Arbitration Act, 1991 (Ontario).
(iv) For the purposes of this section (iv), "Excluded
Adjustment Amount" means the difference between the value of
Excluded Investments transferred as of closing pursuant to
section (ii), and the value of such investments which should
have been so transferred based on the determinations made
pursuant to section (iii), plus an amount equal to deemed
interest on such difference from the closing date to the
date of payment at a rate per annum equal to 7 3/4%,
calculated daily on the basis of the actual number of days
elapsed and a 365 day year. The Purchaser shall cause the
Corporation and its Subsidiaries to pay to CIC or
Niagara, or Continental shall cause CIC or Niagara to
pay to the Corporation and its Subsidiaries whichever is
appropriate, the Excluded Adjustment Amount, in either
case by transferring cash or marketable securities as
shall be
<PAGE>
- 5 -
agreed by Continental and the Purchaser acting reasonably,
valued in accordance with section (c).
(v) The determinations and adjustments referred to in this
section (b) shall not limit or affect any other rights or
causes of action which the parties may have under the
agreement providing for the purchase by the Purchaser of the
Corporation with respect to representations, warranties,
covenants and indemnities in its favour contained in that
agreement.
(c) Valuation of Investments
------------------------
The parties shall mutually agree, each acting reasonably, on
the value of the investments transferred pursuant to sections (a)
and (b) as of their respective dates of transfer, which value is
intended in each case to be the fair market value thereof on the
date of transfer.
(d) Termination of Pooling Arrangements
-----------------------------------
The Continental-Phoenix Pooling Agreement will be terminated
on or prior to closing of the transfers referred to above for all
future purposes. The Dominion-Continental Pooling Agreement
shall be terminated on or prior to closing and the arrangements
thereunder shall be unwound ab initio.
<PAGE>
SCHEDULE 3.1.5
SHARE CAPITAL OF THE CORPORATION AND SUBSIDIARIES
-------------------------------------------------
CONTINENTAL INSURANCE COMPANY OF CANADA
---------------------------------------
The Company's capital stock consists of:
Authorized: 90,000 non-cumulative redeemable voting preferred
shares, without par value, entitled to a
preference over the common shares on the
declaration of dividends and on liquidation,
dissolution or wind-up
400,000 common shares
Issued and Outstanding: 12,361 common shares
DOMINION INSURANCE CORPORATION
------------------------------
The Company's capital stock consists of:
Authorized: 2,955 convertible voting participating first
preference shares, without par value, entitled to a
preference over the common shares on liquidation,
dissolution or wind-up of $16,387 per share
97,000 common shares
Issued and Outstanding: 2,955 first preference shares
631 common shares
CONTINENTAL INSURANCE MANAGEMENT LTD.
-------------------------------------
The Company's capital stock consists of:
Authorized: Unlimited number of shares
Issued: 200 shares
<PAGE>
<TABLE>
Schedule 3.1.10
restate Combined Dominion Insurance Corporation and
Continental Insurance Company of Canada
Balance sheet at June 30, 1994
<CAPTION>
MOAC AAU CRC UK IRI other Bermuda
Actual net of CRC net of CRC Losses Subtotal on CDN Total
ASSETS Jun 1994 Bermuda Bermuda Business
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash 12,537 12,537 12,537
Inv inc accrued 9,068 9,068 9,068
Term Deposits 49,716 49,716 49,716
Bonds and Debentures 362,518 362,518 362,518
Mortgages 938 938 938
Preferreds 1,263 1,263 1,263
Common 97,115 97,115 97,115
Subtotal investments 461,834 0 0 0 0 0 461,834 0 461,834
Agents and brokers 86,434 (11,325) 874 75,983 75,983
Policy holders 3,047 0 38 3,085 3,085
Instalment Premiums 17,125 0 211 17,336 17,336
Other insurers 1,190 (682) 0 508 508
Facility 33,063 0 408 33,471 33,471
Subs and affiliates 17,618 0 0 17,618 (5,360) 12,258
Income taxes 257 0 0 257 257
Other receivables 638 0 0 638 638
Inv in subs 1,731 0 1,731 1,731
Other Assets 857 0 857 857
DAC 49,354 (5,886) 11 (140) 644 43,983 8,880 52,863
Deferred tax 7,756 7,756 7,756
Balancing account 0 (38,400) (1,026) (5,416) (1,873) 6,126 (40,590) 184,092 143,502
----------------------------------------------------------------------------------------------
Total Assets 752,225 (56,293) (1,016) (5,416) (2,013) 8,301 695,788 187,612 883,400
==============================================================================================
LIABILITIES
Overdrafts 0 0 0 0
Due to agents & brokers 1,055 (160) 10 905 905
Due to policyholders 54 0 0 54 54
Other insurers 3,502 (425) 0 3,077 3,077
Subs and affiliates 18,654 0 0 18,654 18,654
Expenses due and accrued 4,136 (321) 0 3,815 3,815
Income taxes 53 0 53 53
Other taxes due and accrued 3,786 (324) 0 3,462 3,462
Unearned premiums 206,625 (26,014) (221) 0 (705) 2,708 182,393 39,469 221,862
Outstanding losses 336,120 (29,048) (701) (5,416) (1,308) 5,582 305,229 148,143 453,372
Unearned commission 94 (94) 0 0
Other liabilities 14,680 14,680 14,680
----------------------------------------------------------------------------------------------
Total liabilities 588,759 (56,293) (1,016) (5,416) (2,013) 8,301 532,322 187,612 719,934
Reserves required 20,258 20,258 20,258
Capital stock 60,360 60,360 60,360
Contributed surplus 0 0 0
Earned surplus 82,848 82,848 82,848
General reserves 0 0 0
Capital and surplus 143,208 0 0 0 0 0 143,208 0 143,208
Capital and surplus and reserves 163,466 0 0 0 0 0 163,466 0 163,466
----------------------------------------------------------------------------------------------
Total Liabilities and Capital 752,225 (56,293) (1,016) (5,416) (2,013) 8,301 695,788 187,612 883,400
==============================================================================================
</TABLE>
<PAGE>
SCHEDULE 3.1.13
INTELLECTUAL PROPERTY
---------------------
REGISTERED OWNER TRADE MARK REG'N/SERIAL NO.
---------------- ---------- -----------------
The Dominion Insurance The Dominion
Corporation Group & Design 129,583
Phoenix Continental
Management Ltd. Circle Design 326,369
Continental Insurance
Management Ltd. CIML 678,378
The Continental Insurance
Company
INNER CIRCLE 288,857 B
THE TIME MACHINE 333,173 B
The Continental
Corporation
CERCLE DES COUTIERS
DE LA CONTINENTAL 293,365 A
ASSURNET 346,587 B
CONTINENTAL CANADA 382,852 A
Maple Leaf and
Circle Design 382,853 B
Insurnet 368,579 B
Insurnet & Design 368,578 B
Cercle Select 399,177 B
Innovative Insurance
Solutions 417,259 B
<PAGE>
-2-
Une Vision Creative
en Assurance 396,749 B
BC: Business 736,754 A
Choice: Continental
Canada & Design
BC: Business Choice 748,253 B
& Design
PC: Personal Choice 736,425 A
CONTINENTAL CANADA
& Design
PC: PERSONAL CHOICE 736,740 B
& Design
CHOIX DES
PARTICULIERS
Pending B
HOMEWORK 749,242 B
MATURE INSURANCE 743,488 B
NORTH AMERICAN
BUSINESS TEAM 733,619 B
<PAGE>
SCHEDULE 5.11
BUSINESS RELATIONSHIPS
----------------------
NABT
----
A referral facility through the U.S. for business generated
through a Canadian broker or insured that has U.S. exposures.
The policies are issued by the U.S. on a net of commission basis.
The parties are presently establishing a reverse flow
relationship whereby business generated through U.S. insureds or
brokers with Canadian exposures are referred to the Corporation
for issuance of the appropriate policies of insurance.
MOAC
----
Administrative services to MOAC are provided for consideration.
These services include the provision of Accounting, Human
Resources, and Legal services.
