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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of report: August 22, 1996
(Date of earliest event reported)
NORTH EAST INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
Maine 0-11184 01-0278387
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File No.) Identification No.)
482 Payne Road, Scarborough, Maine 04074
(Address of principal executive offices) (Zip code)
Registrant's telephone number: (207) 883-2232
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Item 5. Other Events.
On August 22, 1996, North East Insurance Company ("NEIC" or the "Company") and
Ballantrae Partners, L.L.C. ("Ballantrae") entered into a Standstill Agreement
governing certain proposed purchases of NEIC Common Stock by Ballantrae.
As previously reported, Ballantrae as of May 14, 1996 had entered into a
Purchase Agreement under which it undertook to purchase 810,000 shares of NEIC
Common Stock beneficially owned by Bernard D. Gershuny. Ballantrae's purchase
commitment under such agreement is subject to various conditions that have not
yet been satisfied, including (i) a requirement under applicable law to obtain
prior regulatory approval from the Maine Bureau of Insurance and the New York
Insurance Department and (ii) a requirement to obtain approval from the U.S.
Bankruptcy Court for the Eastern District of New York in a bankruptcy-related
action involving Mr. Gershuny's shares.
On July 10, 1996, Ballantrae filed its Form A application with the Maine Bureau
of Insurance, seeking approval to acquire Mr. Gershuny's shares. Form A requires
disclosure of (among other things) any plans or proposals that the applicant
may have to make a material change in the business operations, corporate
structure, or management of the target insurance company.
Information regarding the Purchase Agreement between Ballantrae and Mr. Gershuny
and regarding Ballantrae's Form A application is contained in Schedule 13D
filings by Ballantrae with the Securities and Exchange Commission.
Ballantrae's Form A application stated that Ballantrae was generally supportive
of the current management of the Company and of the business strategy being
pursued by the Company. NEIC's management and Board of Directors did have
significant concerns, however, over Ballantrae's intentions. For one thing,
Ballantrae's statements of its intentions were quite general and did not rule
out other courses of action that were not necessarily in the best interests of
the other shareholders. Moreover, NEIC management and the Board were concerned
that certain important business relationships of the Company would be disrupted
if Ballantrae's acquisition of a controlling interest in NEIC were construed by
others (despite Ballantrae's representations to the contrary) as a means for
Howard Gunty to become involved once again in NEIC's business affairs. Mr. Gunty
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is the father of Murry N. Gunty (one of three members of Ballantrae) and was
President and Chief Executive Officer of NEIC at a time when the Company had
numerous regulatory and financial problems.
Believing that an affiliation between Ballantrae and the Company could prove
mutually advantageous, representatives of both parties entered into
negotiations over a proposed Standstill Agreement. The objective of these
negotiations from the Company's standpoint has been to obtain legally
enforceable assurances as to Ballantrae's stated investment objectives.
Specifically, the Company has sought, for a reasonable period of time, to
preserve the power of NEIC's public shareholders to elect a Board that is not
controlled by Ballantrae, and to provide certain protections against
transactions that benefit a dominant shareholder to the exclusion of the other
shareholders.
A COPY OF THE STANDSTILL AGREEMENT IS ATTACHED AS AN EXHIBIT TO THIS REPORT. SET
FORTH BELOW IS A SUMMARY OF CERTAIN TERMS OF THAT DOCUMENT. SUCH SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ATTACHED EXHIBIT.
TERM OF AGREEMENT. The Standstill Agreement (and most associated rights and
restrictions of the parties) will expire on or around May 30, 1999. The
Standstill Agreement may also be terminated at any time by either party upon the
occurrence of certain specified events, including for example a third party's
commencement of a tender offer for the outstanding NEIC stock.
BOARD OF DIRECTORS. Following Ballantrae's purchase of shares from Mr.
Gershuny, the Board will exercise its authority under the bylaws to increase
the number of NEIC directors and will then elect three Ballantrae nominees to
fill those vacancies. It is anticipated that the Board will thereby be
increased from ten to thirteen members. At the 1997 Annual Meeting of
Shareholders, the Company will place in nomination a total of ten directors, of
whom three will be Ballantrae nominees. At that same meeting the Company will
seek shareholder approval of a change in the Board of Directors, whereby the
directors will be divided into three classes to be elected in staggered
three-year terms. Each of those three classes will contain one Ballantrae
nominee.
LIMITS ON PROXY CONTESTS. During the term of the Standstill Agreement and
subject to certain exceptions, Ballantrae has agreed not to initiate,
participate in, or assist any proxy
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solicitation over election of a competing slate of directors or over shareholder
approval of other significant matters. These restrictions will not be applicable
in certain cases, such as where the Company seeks shareholder approval of
a major transaction opposed by Ballantrae. These restrictions will also not
prevent Ballantrae from voting its Common Stock as it sees fit.
PENDING PRIVATE PLACEMENT. The Company has agreed to limit its pending private
placement, such that it will sell not more than 800,000 shares of Common Stock
to purchasers other than Ballantrae. Ballantrae has agreed to purchase 400,000
shares directly from the Company at the offering price paid by other purchasers
(but not to exceed $1.25 per share, the current offering price in the private
placement). Ballantrae has conditioned its purchase of these 400,000 shares on
consummation of its purchase of shares from Mr. Gershuny.
LIMITS ON OTHER PURCHASES. Upon purchase of 810,000 shares of Common Stock from
Mr. Gershuny and 400,000 shares from the Company, Ballantrae will own
approximately 29% of the then outstanding shares (assuming the issuance of
800,000 shares to other purchasers through the private placement). Ballantrae
has agreed to limit its maximum ownership percentage as follows: 30% until
December 31, 1996; 32.5% starting January 1, 1997; 35% starting July 1, 1997;
37.5% starting January 1, 1998; and 40% from July 1, 1998 through the
termination date of the Standstill Agreement. This limitation is subject to an
exception as follows. The Company and Ballantrae are aware of a block of 215,000
shares presently held of record by First National Life & Casualty, over which a
Creditors Committee in the American Motor Club, Inc. bankruptcy proceeding is
asserting various claims. Through March 31, 1997, Ballantrae has agreed not to
compete with any attempt by the Company to acquire such shares from the
Creditors Committee (or any attempt by the Company to cause a broker-dealer to
effect a distribution of such shares). After March 31, 1997 (or such earlier
date as the Company notifies Ballantrae it is no longer seeking such shares)
Ballantrae may attempt to purchase these shares from the Creditors Committee.
The Company has agreed to waive the percentage ownership limits (other than the
40% limit) to the extent necessary to accommodate such a purchase.
ANTIDILUTION RIGHTS. Upon any future issuance of Common Stock during the term of
the Standstill Agreement (other than pursuant
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to employee/director compensation plans), the Company has agreed to offer
Ballantrae sufficient shares to protect against dilution in Ballantrae's then
existing percentage ownership. Any such sale to Ballantrae would be on terms
equivalent to the sale to third parties.
PURCHASE/RESALE RESTRICTIONS. Ballantrae has agreed to provide prior notice of
its intended purchases or sales of Common Stock. Large purchases or dispositions
may involve other substantive or procedural restrictions.
REGISTRATION RIGHTS. Ballantrae will receive certain "piggyback" and "demand"
rights to require NEIC to register future resales of Common Stock by Ballantrae.
Ballantrae would pay a specified portion (not less than half) of the Company's
incremental out-of-pocket costs in registering Ballantrae's shares. These
registration rights would facilitate large dispositions of Common Stock by
Ballantrae, and expire ten years after the date of the Standstill Agreement.
INDEMNIFICATION. The Company has agreed to indemnify and defend Ballantrae (and
related persons) in the event of certain lawsuits or claims involving the NEIC's
pending private placement transaction, the Standstill Agreement, or any equity
offering in which Ballantrae exercises its antidilution rights.
NO CHANGES TO ARTICLES OR BYLAWS. The Company has agreed not to make any changes
in its articles of incorporation or bylaws during the term of the Standstill
Agreement (other than to implement a staggered Board of Directors, as noted
above). The Company has also agreed not to adopt certain antitakeover defenses
for specified periods following termination of the Agreement.
TRANSITIONAL MATTERS. As noted above, management and the Board of Directors
have concerns that the purchase of such a large block of shares by this
investor group could disrupt important business relationships of NEIC, such as
with certain agents or reinsurers of the Company. The Company and Ballantrae
have agreed to work together to provide such persons with appropriate
assurances about the Company's future business direction and management.
EMPLOYMENT ARRANGEMENTS. The Company has been in the process of developing
employment contracts and related arrangements with certain of its key
executives. Ballantrae will be kept informed
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of these efforts and will have an opportunity to comment, but any decisions
regarding such arrangements will be made by the NEIC's Board of Directors, not
Ballantrae.
As of the date hereof, there is no assurance that Ballantrae will succeed in
acquiring the shares from Mr. Gershuny. If the Purchase Agreement between
Ballantrae and Mr. Gershuny were to terminate before consummation of such
transaction, then the Standstill Agreement by its terms would expire.
In anticipation of the execution of the Standstill Agreement, the Company's
Board of Directors on August 21, 1996 authorized a reduction in the minimum
offering size of the Company's pending private placement, to 800,000 shares.
This action would allow the Company to consummate the sale of 800,000 shares to
other purchasers, even prior to Ballantrae's purchase of 400,000 shares on the
terms and conditions set forth in the Standstill Agreement.
Item 7. Financial Statements and Exhibits.
(a), (b) Not applicable.
(c) The following is filed as an exhibit to this report.
99.1 Standstill Agreement dated August 22, 1996 between the
Company and Ballantrae Partners, L.L.C.
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.
NORTH EAST INSURANCE COMPANY
Date: August 28, 1996 By: /s/ Graham S. Payne
-------------------------
Graham S. Payne
Treasurer and Chief
Financial Officer
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INDEX TO EXHIBITS
Exhibit
Number Description Page
- ------- --------------------------------------- ----
99.1 Standstill Agreement dated August 22,
1996 between the Company and Ballantrae
Partners, L.L.C.
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EXHIBIT 99.1
NORTH EAST INSURANCE GROUP
DELIVERY ADDRESS: 482 PAYNE ROAD - 4TH FLOOR, SCARBOROUGH, ME 04074-8929
MAILING ADDRESS: P.O. BOX 1418, SCARBOROUGH, ME 04070-1418
PHONE: 207-883-2232 FAX: 207-883-1564
August 22, 1996
Mr. Jonathan S. Kern
Ballantrae Partners, LLC
75 West End Avenue, R-12E
New York, NY 10023
Re: Standstill Agreement
Dear Jonathan:
Pursuant to our discussions, this letter sets forth the terms of the
agreement between North East Insurance Company ("NEIC" or the "Company") and
Ballantrae Partners, L.L.C. ("Ballantrae") regarding Ballantrae's proposed
purchase of 810,000 shares of NEIC common stock beneficially owned by Bernard D.
Gershuny, and certain related transactions and matters. The terms set forth in
this Standstill Agreement have been expressly approved by NEIC's Board of
Directors (the "Board") and, by your signature below, you confirm that these
terms have been approved by Ballantrae and each of its members.
The terms of the parties' agreement are as follows:
1. Board of Directors
a. Following Ballantrae's purchase of the Gershuny block, the size of the
Board will be expanded by three directors, such vacancies to be filled by
Ballantrae nominees.
b. At the 1997 Annual Meeting of Shareholders, the size of the Board will be
reduced to 10 directors in total, of which Ballantrae may appoint three
nominees.
c. The Board size will not exceed 10 directors without Ballantrae's
consent.
d. The Company will implement staggered three-year director terms at the
1997 Annual Meeting of Shareholders; Ballantrae will have one nominee in each of
the three classes of directors; Ballantrae will retain nominee rights at all
times, i.e. Ballantrae can fill its own vacancies even within a particular
3-year term.
e. Ballantrae nominees other than Jonathan Kern or Deborah Harmon will be
subject to the Board's prior consent, which will not
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be unreasonably withheld; prior to the 1998 Annual Meeting, Ballantrae's
nominees will not include any person who is or was an officer of NEIC or any
member of that person's immediate family.
f. No member of the Ballantrae Group will, directly or indirectly, become a
participant in any proxy contest constituting an "election contest" within the
meaning of SEC rules; Ballantrae may vote its NEIC shares however it sees fit,
but Ballantrae Group members may not instigate or assist any effort to solicit
other shareholders; assistance will include statements to any third party of
Ballantrae's intention to vote for a competing slate of nominee, other than a
statement to a person who is a participant in the solicitation of proxies for
such competing slate.
g. Ballantrae agrees not to vote its shares for any nominee who has not been
described in a definitive proxy statement mailed to all shareholders entitled to
vote at such meeting unless Ballantrae gives the Board at least 60 days' notice
of its intention to vote for such person, naming him or her and providing (to
the extent reasonably available to Ballantrae) information comparable to that
required for a nominee under SEC proxy rules.
2. Other Matters Submitted to Shareholder Vote
a. Ballantrae may vote its shares as it sees fit but, except as provided
below, neither Ballantrae or any of its members will directly or indirectly
solicit any proxies from any other shareholder or assist others in doing so.
b. This proxy solicitation restriction will be inapplicable as to any
proposal for which the Company seeks shareholder approval, other than (i)
election of directors, (ii) ratification of accountants, (iii) compensation
plans for NEIC employees, officers, or directors (involving, in the aggregate,
authorization of not more than 400,000 shares of NEIC common stock, except as
Ballantrae's Board representatives may otherwise approve), and (iv) other
matters which (in Ballantrae's reasonable opinion) do not materially and
adversely affect the value of Ballantrae's investment in NEIC stock; Ballantrae
may solicit proxies in opposition to any proposal for which any third party
seeks shareholder approval, other than a proposal approved by the Board of
Directors for which the Company could seek shareholder approval under clauses
(i) through (iv) above.
c. This proxy solicitation restriction will be subject to an exception
during the pendency of any unsolicited tender offer by an unrelated third party.
For purposes of this Section 2.c and Section 3.c, the term "unsolicited" tender
offer means a tender offer not directly or indirectly solicited by Ballantrae.
3. Antidilution Rights/Ownership Thresholds
a. Upon any subsequent issuance of stock by NEIC (other than pursuant to
employee/director compensation plans approved by the Board), Ballantrae will
have a contractual antidilution right to maintain up to its percentage ownership
at its then current percentage; Ballantrae's purchase price and terms will be
equivalent to those at which shares are sold to third parties.
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b. Ballantrae may purchase shares in the open market transactions or
privately negotiated transactions, in either case on notice to a designated
compliance officer for NEIC under a reasonable stock preclearance policy to be
implemented by the Company for all NEIC directors and executive officers; prior
to January 31, 1997, Ballantrae will not acquire any NEIC shares other than:
810,000 shares from Mr. Gershuny, up to 400,000 shares through NEIC's private
placement, and (subject to the Company having given notice of its intention not
to buy such shares) up to 215,000 shares from AMC as contemplated below.
c. In no event may Ballantrae's percentage ownership exceed 30% without
prior Board consent except in response to an unsolicited tender offer by an
unrelated third party; such percentage shall increase to 32.5% commencing
January 1, 1997, 35% commencing July 1, 1997, 37.5% commencing January 1, 1998,
and 40% commencing July 1, 1998; the Company agrees to waive the applicable
limits (other than the 40% limit) if and to the extent necessary for Ballantrae
to acquire and own the following shares: 810,000 shares from Mr. Gershuny, up to
400,000 shares through NEIC's private placement, up to 215,000 shares from AMC
(if and to the extent permitted hereunder), and any otherwise permissible
purchases by Ballantrae from January 1, 1997 to the date Ballantrae receives
notice of the Company's intention not to seek a purchase of the AMC shares (but
in any event not later than March 31, 1997).
d. Beneficial ownership by any person who is an affiliate or associate of a
Ballantrae Group member will count toward applicable ownership thresholds under
this Standstill Agreement; any share repurchase by the Company will not cause
Ballantrae's then existing ownership to exceed the ownership thresholds.
4. Permitted Resales of Shares
a. Upon prior notice to a designated compliance officer under the
above-referenced preclearance policy, resale into the open market in compliance
with Rule 144 or a private sale to a person who will not (to Ballantrae's
knowledge after reasonable investigation) thereby own 10% or more of the
outstanding NEIC stock; NEIC agrees to make available sufficient information to
permit a proposed Ballantrae resale under Rule 144, if not otherwise publicly
available.
b. Upon at least 30 days' notice to NEIC, resale or other transfer to a
related or unrelated third party who agrees to be bound by the restrictions of
this Standstill Agreement.
c. Resale to an unrelated third party pursuant to a transaction in which
each other NEIC shareholder will have an opportunity to sell his or her stock on
equivalent terms.
d. All resales must comply with applicable laws and regulations.
e. These restrictions apply equally to any indirect disposition of equity
interests in NEIC, for example a sale of membership interests in Ballantrae or
sales of shares of Gunty & Co.
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f. A pledge of NEIC shares (directly or indirectly) may be made only with
prior consent of the Board, which will not be unreasonably withheld.
g. Ballantrae will not enter into any agreement regarding voting of NEIC
stock, except with a person who is bound by the restrictions of this standstill
agreement and who has received any requisite regulatory approval under state
insurance laws and regulations.
5. Term: Expires on May 30, 1999 (or one day before the 1999 Annual Meeting, if
earlier), except that either party may terminate this Standstill Agreement (i)
if Ballantrae's percentage ownership drops below 10% through transactions
permitted by this agreement, (ii) if Ballantrae's percentage ownership increases
to more than 50% in transactions permitted by this agreement, (iii) during the
pendency of any unsolicited tender offer by an unrelated third party, or during
the pendency of any tender offer by an unrelated third party (solicited or not)
as to which Ballantrae has agreed to sell its entire ownership interest in NEIC
on the same terms as are offered to all other NEIC shareholders, (iv) on six
months' prior notice if the Company's statutory surplus drops below $4.5
million, (v) upon the failure (other than due to action by Ballantrae) to elect
Ballantrae's permitted nominees to the Board, or (vi) if an unrelated third
party receives approval from the Maine Bureau of Insurance and the New York
Insurance Department to acquire 10% or more of NEIC's stock and does acquire at
least 10% of NEIC's stock.
6. Registration Rights: Ballantrae will receive unlimited "piggyback"
registration rights, subject to its payment of one-half of any incremental
Company out-of-pocket costs and subject to customary limitations (doesn't apply
to Form S-8's; underwriter cutbacks; etc.). Ballantrae will receive one "demand"
registration right through an underwriter reasonably acceptable to the Company,
subject to payment by Ballantrae of one-half of the Company's out-of-pocket
costs; and a second "demand" registration right through an underwriter
reasonably acceptable to the Company, subject to payment by Ballantrae of all of
the Company's out-of-pocket costs. These registration rights expire 10 years
after the date of this Standstill Agreement. In any registration required
hereunder, the Company will (i) use best efforts to cause the registration
statement to become effective and otherwise to comply with all applicable
securities laws, (ii) enter into a customary underwriting agreement, and (iii)
provide Ballantrae with customary indemnification arrangements.
7. Indemnification: The Company agrees to indemnify, defend, and hold harmless
Ballantrae and its members, managing directors, members of its Management
Committee, its Insurance Consultant, and Ballantrae's designees on the NEIC
Board (each such person an "Indemnified Person"), to the fullest extent lawful,
from and against any losses, claims, damages, judgments, liabilities, or actions
related to or arising out of (i) NEIC's private placement (or any other equity
offering contemplated by Section 3.a of this Agreement for which Ballantrae
exercises its antidilution rights) or (ii) this Standstill Agreement. The
Company will pay or reimburse all expenses reasonably incurred by an Indemnified
Person in connection with investigating, preparing, or defending any such
losses, claims, damages, judgments, liabilities, or actions; if the Indemnified
Persons (or any of them) choose, in their sole discretion, to retain counsel
separate from that retained by the Company for the defense of such matter, the
Company
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agrees to pay or reimburse the reasonable fees and disbursements of such
counsel, except that the Company will not be liable for the fees and
disbursements of more than one such counsel. The foregoing indemnification shall
be in addition to any rights that an Indemnified Person may otherwise have at
common law or otherwise, including without limitation any right to contribution
or any indemnification of NEIC directors by the Company. To the extent that the
foregoing undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction of
its obligations which is permissible under applicable law. The foregoing
indemnification is not intended to extend to any action or claim by or on behalf
of the Company for breach or alleged breach of this Standstill Agreement by
Ballantrae, and is not intended to extend to any claim by an Indemnified Person
against another Indemnified Person. For purposes hereof, Ballantrae's "Insurance
Consultant" shall mean Reginald Strickland or any replacement retained by
Ballantrae from time to time as its primary insurance consultant.
8. Articles and Bylaws: Except as contemplated by Section 1.e above or except
as Ballantrae's representatives on the NEIC Board may approve, the Company shall
not amend its articles of incorporation or bylaws prior to termination of this
Standstill Agreement. The Company agrees that prior to termination of this
Standstill Agreement, and for a period of three years thereafter, it shall not
opt into Section 910 of the Maine Business Corporation Act. The Company agrees
that prior to termination of this Standstill Agreement it will not adopt a
shareholder rights plan or any device having similar effects. For three years
following termination of this Standstill Agreement, the Company will not adopt
any shareholder rights plan, or any device having similar effects, except on at
least 10 business days' prior notice to Ballantrae. The Company's Board of
Directors has, within the meaning of Section 611-A(1)(A) of the Maine Business
Corporation Act, approved Ballantrae's purchase of shares pursuant to the
private placement and Ballantrae's purchase of shares pursuant to its
antidilution rights under Section 3.a above, in each case substantially on the
terms contemplated by this Standstill Agreement. The Company agrees that such
approval will not be withdrawn or further conditioned by the Company, and that
such approval shall survive termination of this Standstill Agreement.
9. Private Placement Transaction: The Company will limit its pending private
placement to 1.2 million shares, of which Ballantrae agrees to purchase 400,000
shares at the price paid by other purchasers, not to exceed $1.25 per share. The
sale of any such shares may close in advance of Ballantrae's obtaining Form A
approval; Ballantrae at its election may condition its subscription upon closing
of its purchase of the Gershuny shares, in which case purchase of the 400,000
shares shall occur within three days after consummation of such other purchase,
but in any event by December 31, 1996 unless closing of the Gershuny purchase is
delayed beyond December 31, 1996 for reasons beyond Ballantrae's control. The
private placement will not be extended past January 31, 1997 except as necessary
to accommodate such purchase by Ballantrae. The private placement and
Ballantrae's purchase commitment are contingent on sale of at least 600,000
shares through the private placement to persons other than Ballantrae.
10. AMC Shares: The Company may attempt to obtain a contract to purchase the
AMC shares at a price not to exceed $1.10 per share (or in the
<PAGE> 6
alternative may attempt to arrange for distribution through Advest at no net
cost to the Company). Ballantrae agrees not to purchase these shares (and
therefore not to compete with NEIC for these shares), except as provided in the
next sentence. After March 31, 1997 (or, if earlier, the date Ballantrae
receives notice of the Company's intention not to seek a purchase of the AMC
shares), Ballantrae may purchase from AMC any of the AMC shares that have not
been purchased by the Company.
11. Capital Commitment: None, other than the subscription for 400,000 shares
through the private placement.
12. Certain Transitional Matters: Ballantrae and the Company will work together
in good faith to reduce or eliminate anticipated adverse effects of Ballantrae's
purchase of the Gershuny shares. Constituents to be addressed consist primarily
of NEIC's agents and reinsurers. It is expected that this standstill agreement
and the Order described below will provide a framework for assuring these
constituents that: (i) there is no current intention to radically alter the
current business plan of the Company, (ii) the affiliation with Ballantrae will
lead to a strengthened balance sheet, and (iii) Howard and Mitchell Gunty will
have no involvement whatsoever in the Company's affairs.
13. Form A Proceedings: Subject to the foregoing, NEIC agrees to support
Ballantrae's Form A application in Maine and before the New York Insurance
Department. NEIC and Ballantrae will promptly meet with the Bureau to discuss
the terms of this Standstill Agreement and NEIC's support of the application.
NEIC agrees that in view of the foregoing, it is not necessary for NEIC to
submit data requests; that it will work with Ballantrae and the Bureau to
arrange the earliest possible hearing and decision date; that its role at the
hearing will be limited to responding to questions from the Bureau and other
intervenors (if any); that it is not aware of any persons or entities that plan
to intervene in this proceeding, and that it will advise Ballantrae if it
becomes aware of the same; that if Ballantrae chooses to oppose intervention by
another party, NEIC will be supportive of such position; that it will submit
pre-filed testimony in support of the application, if requested by Ballantrae or
the Bureau; and that it will take such other reasonable actions in support of
Ballantrae's applications as Ballantrae may request. NEIC's support will be
conditioned on the parties requesting that the Order of the Deputy
Superintendent approving the Form A application contain a provision that (i)
prohibits Ballantrae from transferring any direct or indirect equity interest in
NEIC to Howard or Mitchell Gunty (or any entity with which either is associated,
or any relative other than Murry Gunty and his wife or members of her immediate
family) and (ii) requires advance notice to the Bureau of any proposed
transaction between NEIC and Howard or Mitchell Gunty (or any entity with which
either is associated, or any relative other than Murry Gunty and his wife or
members of her immediate family). The rationale of such a restriction would be
predicated on Ballantrae's representation to the Bureau that Howard Gunty and
Mitchell Gunty will have no involvement in this investment. In addition, the
Company agrees to cooperate with Ballantrae, and execute such documents as
Ballantrae may reasonably request, to effectuate a termination of the Non-Voting
Trust under which Mr. Gershuny's shares presently are held.
<PAGE> 7
14. Contracts with Management: NEIC will be attempting to put in place
reasonable employment-related contracts with key management, and will be
attempting to obtain shareholder approval for a stock option plan and/or other
stock-related compensation plan. This effort will proceed independently of
negotiations between NEIC and Ballantrae, although Ballantrae upon request will
be kept informed of any material contracts being negotiated and will be given an
opportunity for comment. All decisions regarding such arrangements will
ultimately be made by the Board of Directors.
* * *
The provisions set forth above are a statement of the parties' mutual
intentions and are intended to be legally enforceable obligations of the
parties; provided, that this Agreement will terminate upon any termination or
abandonment of the Gershuny Purchase Agreement. Upon the consummation of the
Gershuny Purchase Agreement, for a period of 15 days the parties hereto shall in
good faith negotiate a long-form definitive Standstill Agreement to replace this
Agreement. This Agreement shall continue to be binding upon the parties unless
and until the parties execute a mutually acceptable long-form definitive
agreement.
We believe that the Standstill Agreement terms set forth in this letter
provide a fair and mutually advantageous framework within which both you and we
can advance the long-term best interests of the Company's shareholders and
policyholders. We look forward to working with you toward that end.
Sincerely yours,
NORTH EAST INSURANCE COMPANY
/s/ Robert G. Schatz
Robert G. Schatz
President and Chief Executive Officer
SEEN AND AGREED TO AS OF
THE DATE OF THIS LETTER:
BALLANTRAE PARTNERS, L.L.C.
By: /s/ Jonathan S. Kern
Jonathan S. Kern, its duly authorized
member and managing director
