SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 2)
North East Insurance Company
(Name of issuer)
Common Stock, par value $1.00 per share
(Title of class of securities)
659164107
(CUSIP number)
Murry N. Gunty
Ballantrae Partners, L.L.C.
75 West End Avenue
R-12E
New York, New York 10023
(212) 957-1337
with copy to
Lawrence T. Yanowitch, Esq.
Tucker, Flyer & Lewis
a professional corporation
1615 L Street, N.W.
Suite 400
Washington, D.C. 20036-5612
(202) 429-3254
(Name, address and telephone number of person
authorized to receive notices and communications)
June 26, 1996
(Date of event which requires filing of this statement)
If the filing person has previously filed a statement on
Schedule 13G to report the acquisition which is the subject of
this Schedule 13D, and is filing this schedule because of Rule
13d-1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with the
statement [ ].
(Continued on following pages)
(Page __ of __ Pages)
CUSIP No. 659164107 13D Page __ of __ Pages
1. NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Ballantrae Partners, L.L.C.
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [ ]
3. SEC USE ONLY
4. SOURCE OF FUNDS*
WC
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) OR 2(e)
[ ]
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
NUMBER 7. SOLE VOTING POWER
OF - 0 -
SHARES 8. SHARED VOTING POWER
BENEFICIALLY - 0 -
OWNED BY 9. SOLE DISPOSITIVE POWER
EACH - 0 -
REPORTING PERSON 10. SHARED DISPOSITIVE POWER
PERSON WITH - 0 -
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
- 0 -
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES*
[x]
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
- 0 -
14. TYPE OF REPORTING PERSON*
OO
*SEE INSTRUCTIONS BEFORE FILLING OUT!
This Amendment No. 2 amends and supplements the statement on
Schedule 13D, as amended (the "Schedule 13D"), previously filed
on behalf of Ballantrae Partners, L.L.C., a Delaware limited
liability company ("Ballantrae"), relating to the Common Stock,
par value $1.00 per share (the "Common Stock"), of North East
Insurance Company, a Maine corporation (the "Company").
Capitalized terms not otherwise defined herein shall have the
meanings set forth in the Schedule 13D.
Item 2. Identity and Background.
Item 2 is hereby amended and supplemented by deleting
all of the materials therein, and inserting in lieu thereof the
following:
(a), (b), (c), (f) This statement is filed on behalf
of Ballantrae. Ballantrae is a recently formed limited liability
company that has not conducted business other than in connection
with the transactions described herein. The address of
Ballantrae's principal business and offices is 75 West End
Avenue, R-12E, New York, New York 10023.
The name, business address, occupational information,
and citizenship of each of the Members and the members of the
Management Committee of Ballantrae are as follows:
Gunty & Co., a Delaware corporation, is a Member of
Ballantrae. The principal business of Gunty & Co. is investment
advisory services. The address of Gunty & Co.'s principal
business and offices is 75 West End Avenue, R-12E, New York, New
York 10023. Murry N. Gunty is the sole stockholder, the sole
director and the President of Gunty & Co.
Murry N. Gunty is a Vice President with Lazard Freres &
Co., L.L.C., of 30 Rockefeller Plaza, 63rd Floor, New York, New
York 10020. Mr. Gunty's business address is the same. Mr. Gunty
is a citizen of the United States. Mr. Gunty is a member of the
Management Committee of Ballantrae.
Deborah L. Harmon is an Executive Vice President with
J.E. Robert Company, Inc. of 1650 Tysons Boulevard, Suite 1600,
McLean, Virginia 22102. Ms. Harmon's business address is the
same. Ms. Harmon is a citizen of the United States. Ms. Harmon
is a Member and a member of the Management Committee of
Ballantrae.
Jonathan S. Kern is an Executive Vice President with
J.E. Robert Company, Inc. of 1650 Tysons Boulevard, Suite 1600,
McLean, Virginia 22102. Mr. Kern's business address is the same.
Mr. Kern is a citizen of the United States. Mr. Kern is a Member
and a member of the Management Committee of Ballantrae.
Reginald Strickland is Executive Vice President of
Strickland General Agency, Inc. of P.O. Box 129, Norcross,
Georgia 30091. Mr. Strickland's business address is the same.
Mr. Strickland is a citizen of the United States. Mr. Strickland
is a non-voting member of the Management Committee of Ballantrae.
(d), (e) During the last five years, none of
Ballantrae or any of the above persons has been convicted in a
criminal proceeding (excluding traffic violations or similar
misdemeanors), nor has any of such persons been a party to a
civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or
is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to,
United States federal or state securities laws or finding any
violation with respect to such laws.
Item 4. Purpose of Transaction.
Item 4 is hereby amended and supplemented by deleting
the second sentence of the fifth paragraph thereof and adding in
lieu thereof the following:
Ballantrae intends to explore a variety of strategies
for enhancing the value of its potential investment, including,
without limitation, (i) transactions that would increase the
Company's working capital and access to capital, (ii)
improvements to the business operations of the Company and (iii)
the possibility of representatives of Ballantrae serving on the
Board of Directors of the Company.
Item 4 is hereby further amended and supplemented by
adding the following immediately prior to the last paragraph
thereof:
On June 26, 1996, a draft Form A Application (the
"Draft Form A") was submitted to the Maine Bureau of Insurance in
respect of the purchase of the Trust Shares and the Trust
Certificate by Ballantrae. Exhibit E to the Draft Form A, Future
Plans of Insurer (the "Draft Operational Plans") is attached
hereto as Exhibit 2.3 and is incorporated herein by reference.
The Draft Operational Plans describe certain proposed plans by
Ballantrae to improve the business operations of the Company by
reducing the Company's underwriting expense ratio to a level
closer to insurance industry averages, including the following:
1. Lines of Business. Ballantrae anticipates that
the Company will continue to pursue its established lines of
business that have produced reasonable historical results, such
as Private Passenger Automobile, Commercial Automobile,
Commercial Multi-Peril and General Liability.
2. Marketing. The Company will continue to market
its products through independent agents. In addition, wholesale
brokers and general agencies may be considered based upon the
loss ratio of their existing business and the experience of their
principals.
3. A.M. Best Rating. Ballantrae will work with the
Company and A.M. Best to improve the rating of the Company.
4. American Colonial Insurance Company. Ballantrae
will work with the management of the Company to rescind an
agreement between American Colonial Insurance Company and the
Insurance Department of the State of New York. Ballantrae would
anticipate that additional capital would need to be raised for
this to occur.
5. Total Premium Growth. Ballantrae would expect
that all of the above items would generate premium growth of ten
to fifteen percent (10 - 15%) per year.
6. Technology. Ballantrae will review the computer
capabilities of the Company and suggest to the management of the
Company methods of technologically improving business efficiency.
7. Surplus. Ballantrae believes that raising
additional capital and/or access to capital markets may be a
critical ingredient in any expansion of premium written and
enhanced profitability for the Company. In addition, though
Ballantrae has no immediate plans to raise additional capital for
the Company, some of the above items might require, or may easily
lend themselves to, additional surplus in the Company and/or
American Colonial Insurance Company. If management determines
that this is required, Ballantrae is committed to assisting
management in raising such capital.
8. Management. Ballantrae, at the current time,
would like to work with the existing management to execute the
Draft Operational Plans described herein to maximize shareholder
value, while protecting the interests of the insureds. However,
there can be no assurances that management will be interested in
supporting the Draft Operational Plans. Ballantrae would support
any current effort by management to implement aspects of the
Draft Operational Plans. In addition, Ballantrae would request
that the Company expand its existing Board of Directors by adding
four new seats, and that Mr. Gunty, Ms. Harmon, Mr. Kern and Mr.
Strickland be nominated to fill the vacancies thereby created.
Item 5. Interest in Securities of the Issuer.
Item 5 is hereby amended and supplemented by deleting
all of the materials therein and inserting in lieu thereof the
following:
(a), (b), (c) Pursuant to the Purchase Agreement,
Ballantrae has agreed to purchase subject to the terms and
conditions thereof the Trust Certificate and the Trust Shares.
The Trust Shares constitute 810,000 shares of Common Stock of the
Company, representing approximately 27.1% of the 2,992,314 shares
of Common Stock of the Company outstanding as of March 8, 1996.
As provided in the Purchase Agreement, the purchase of the Trust
Certificate and the Trust Shares is subject to a number of
conditions precedent (as described in Item 6 hereof). Pursuant
to the L.L.C. Agreement (as defined below), the Members and the
members of the Management Committee may be deemed to have shared
power to vote or direct the vote and shared power to dispose or
direct the disposition of the Trust Certificate and the Trust
Shares. Ballantrae, the members of the Management Committee and
the Members expressly disclaim beneficial ownership of the Trust
Certificate or the Trust Shares, and this Schedule 13D shall not
be deemed an admission that Ballantrae, the members of the
Management Committee or the Members are the beneficial owners of
the Trust Certificate or the Trust Shares for purposes of Section
13 or for any other purpose. See Item 6 hereof.
Representatives of Ballantrae have from time to time
held discussions with representatives of the Official Committee
of Unsecured Creditors of American Motor Club, Inc. concerning
the possible sale to Ballantrae of an additional approximate
215,000 shares of Common Stock of the Company. Ballantrae has
not entered into any definitive agreement with respect to such
shares, however, Ballantrae may continue such discussions from
time to time.
(d), (e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or
Relationships With Respect to Securities of the Issuer.
Item 6 is hereby amended and supplemented by deleting
the caption Limited Liability Company Agreement and all of the
materials thereunder, and inserting in lieu thereof the
following:
Assignment of Interest
Set forth below is a summary description of selected
provisions of the Assignment of Interest (the "Assignment") from
Murry N. Gunty to Gunty & Co. Such description is qualified in
its entirety by reference to the Assignment, a copy of which has
been included as Exhibit 2.1 hereto and is incorporated by
reference herein.
The Assignment provides for the assignment of all of
Murry N. Gunty's rights, obligations and interest in Ballantrae
to Gunty & Co. as of the date of the Assignment.
Amended and Restated Limited Liability Company
Agreement
Set forth below is a summary description of selected
provisions of the Amended and Restated Limited Liability Company
Agreement (the "L.L.C. Agreement") for Ballantrae. Such
description is qualified in its entirety by reference to the
L.L.C. Agreement, a copy of which has been included as Exhibit
2.2 hereto and is incorporated by reference herein.
The L.L.C. Agreement provides that each of Gunty & Co.,
Ms. Harmon and Mr. Kern have a 33.33% percentage interest in
Ballantrae.
The L.L.C. Agreement provides that each of Mr. Gunty,
Ms. Harmon and Mr. Kern will be members of the Management
Committee, and that the management of Ballantrae shall be the
exclusive responsibility of the Management Committee. All
actions of the Management Committee generally require the consent
or approval of all of the members of the Management Committee.
The Management Committee may by resolution designate one (1) or
more persons, whose execution of documents and other actions
taken on behalf of Ballantrae shall bind Ballantrae; provided,
however, that any such resolution may be rescinded by the vote of
two-thirds (2/3) of the members of the Management Committee.
The L.L.C. Agreement provides that prior written
consent of Members owning one hundred percent (100%) of the total
percentage interests in Ballantrae is required for (i) the sale,
exchange, pledge or other disposition of Ballantrae Property or
any portion thereof, (ii) the acquisition of any additional
Ballantrae Property, (iii) the voting of any securities that
constitute Ballantrae Property, (iv) the incurrence of any
indebtedness (secured or unsecured) by Ballantrae, or (v) the
incurrence of any obligation, liability or contingent liability
in excess of Ten Thousand Dollars ($10,000).
The L.L.C. Agreement provides that any amendment of the
L.L.C. Agreement or the Certificate of Formation filed with the
Secretary of State of Delaware requires the approval or consent
of all of the Members.
Item 7. Material to be Filed as Exhibits.
Exhibit 2.1. Assignment of Interest
Exhibit 2.2. Restated and Amended Limited Liability
Company Agreement for Ballantrae Partners, L.L.C.
Exhibit 2.3. Exhibit E to Form A Application
(Continuation of Response to Item 5 - Future Plans of Insurer)
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this
statement is true, complete and correct.
June 28, 1996
(Date)
/s/ Murry N. Gunty
(Signature)
Murry N. Gunty
Managing Director
(Name/Title)
Exhibit Index
Exhibit Page
2.1. Assignment of Interest 9
2.2. Amended and Restated Limited Liability Company
Agreement of Ballantrae Partners, L.L.C. 13
2.3. Exhibit E to Form A Application (Continuation of
Response to Item 5 - Future Plans of Insurer) 28
Exhibit 2.1
ASSIGNMENT OF INTEREST
This ASSIGNMENT OF INTEREST (this "Assignment") is dated as
of the 26th day of June, 1996, by and between Murry N. Gunty
("Assignor") and Gunty & Co., a Delaware corporation (the
"Assignee").
WHEREAS, Assignor, along with Deborah L. Harmon ("Harmon")
and Jonathan S. Kern ("Kern"), is a Member of Ballantrae
Partners, L.L.C., a Delaware limited liability company
("Ballantrae"), and owns a one-third (1/3) interest in Ballantrae
(the "Interest");
WHEREAS, Assignor desires to assign to Assignee, and
Assignee desires to accept, the Interest;
WHEREAS, that certain Limited Liability Company Agreement
(the "Operating Agreement") dated as of the 10th day of May,
1996, by and among Assignor, Harmon, Kern and Assignee, requires
that any Transfer (as defined) of an interest be conducted in
accordance with the provisions thereof; and
WHEREAS, the Operating Agreement requires that the Manager
(as defined) of Ballantrae approve any Transfer.
NOW THEREFORE, in consideration of the promises and the
mutual covenants contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties, intending legally to be bound,
hereby agree as follows:
Section 1. Assignment to the Assignee of the Interest.
Assignor, intending that Assignee be substituted for
Assignor pursuant to subparagraph 13(a)(i) of the Operating
Agreement, by this instrument does hereby assign, convey,
transfer, release, grant, setover, deliver and confirm
exclusively unto Assignee Assignor's rights under the Operating
Agreement and does hereby delegate all of its obligations under
the Operating Agreement with respect to the Interest to Assignee.
Assignee hereby accepts the foregoing assignment and delegation
of Assignor's obligations, and covenants and agrees to perform
all of Assignor's obligations under the Operating Agreement.
Section 2. Assignee to be bound by Operating Agreement.
Assignee agrees to be bound by the provisions of the
Operating Agreement pursuant to subparagraph 13(a)(ii) of the
Operating Agreement.
Section 3. Miscellaneous Provisions.
A. Counterparts. This Assignment may be executed in one
or more counterparts, all of which shall be considered one and
the same assignment.
B. Governing Law. This Assignment shall be governed by
and construed in accordance with the laws of the State of
Delaware, without regard to its provisions pertaining to choice
of laws or conflicts of laws.
C. Entire Assignment. This Assignment contains the entire
assignment between the parties with respect to the subject matter
hereof and there are no agreements, understandings,
representations or warranties between the parties other than
those set forth or referred to herein. This Assignment is not
intended to confer upon any person not a party hereto (and their
successors and assigns) any rights or remedies hereunder.
D. Successors and Assigns. This Assignment shall be
binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns.
E. Headings; Definitions. The Section and other headings
contained in this Assignment are inserted for convenience of
reference only and will not affect the meaning or interpretation
of this Assignment. All capitalized terms not defined herein
shall have the meanings assigned to such terms under the
Operating Agreement.
F. Amendments and Waivers. This Assignment may not be
modified or amended except by an instrument or instruments in
writing signed by the party against whom enforcement of any such
modification or amendment is sought. Either party hereto may,
only by an instrument in writing, waive compliance by the other
party hereto with any term or provision hereof on the part of
such other party hereto to be performed or complied with. The
waiver by any party hereto of a breach of any term or provision
hereof shall not be construed as a waiver of any subsequent
breach.
G. Interpretation; Absence of Presumption.
1. For the purposes hereof, (i) words in the singular
shall held to include the plural and vice versa and words of one
gender shall be held to include the other genders as the context
requires, (ii) the terms "hereof", "herein", and "herewith" and
words of similar import shall, unless otherwise stated, be
construed to refer to this Assignment as a whole and not to any
particular provision of this Assignment, and Section references
are to the Sections of this Assignment, unless otherwise
specified, (iii) the word "including" and words of similar import
when used in this Assignment shall be "including, without
limitation," unless the context otherwise requires or unless
otherwise specified, (iv) the word "or" shall not be exclusive,
and (v) provisions shall apply, when appropriate, to successive
events and transactions.
2. This Agreement shall be construed without regard
to any presumption or rule requiring construction or
interpretation against the party drafting or causing any
instrument to be drafted.
H. Severability. Any provision hereof which is invalid or
unenforceable shall be ineffective to the extent of such
invalidity or unenforceability, without affecting in any way the
remaining provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Assignment to be duly executed by an authorized representative
thereof, all as of the day and year first above written.
/s/ Murry N. Gunty
MURRY N. GUNTY
GUNTY & CO.,
a Delaware corporation
/s/ Murry N. Gunty
Murry N. Gunty
President
Approved:
GUNTY & CO.,
a Delaware corporation,
Manager, Ballantrae Partners, L.L.C.
/s/ Murry N. Gunty
Murry N. Gunty, President
Acknowledged:
/s/ Deborah L. Harmon
Deborah L. Harmon
Member, Ballantrae Partners, L.L.C.
/s/ Jonathan S. Kern
Jonathan S. Kern
Member, Ballantrae Partners, L.L.C.
Exhibit 2.2
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
BALLANTRAE PARTNERS, L.L.C.
THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY
AGREEMENT is made and effective for all purposes and in all
respects as of the 26th day of June, 1996, by and among the
undersigned parties.
WHEREAS, certain parties heretofore formed a limited
liability company, known as Ballantrae Partners, L.L.C. under and
pursuant to the Act (as hereafter defined) and other relevant
laws of the State of Delaware;
WHEREAS, certain parties executed that certain Limited
Liability Company Agreement of Ballantrae Partners, L.L.C. dated
as of May 10, 1996 (the "Original Agreement");
WHEREAS, Murry N. Gunty has assigned to Gunty & Co., a
Delaware corporation, and Gunty & Co. has accepted, all of Murry
N. Gunty's interest in Ballantrae Partners, L.L.C.; and
WHEREAS, the parties hereto desire to amend and restate, in
its entirety, the Original Agreement to reflect herein their
agreements and understandings.
NOW, THEREFORE, in consideration of the foregoing, of the
mutual promises herein contained and of other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending legally to be bound,
hereby covenant and agree as follows:
1. Definitions.
(a) "Act" shall mean and refer to the Delaware Limited
Liability Company Act, Delaware Code Annotated, Title 6, Sections
18-101 et seq. (1992), as the same may be amended from time to
time.
(b) "Agreement" shall mean and refer to this Amended
and Restated Limited Liability Company Agreement including all
Exhibits hereto, as originally executed and as amended from time
to time in writing.
(c) "Bankruptcy" and "Bankrupt" (and any derivations
thereof) shall mean and refer to an adjudication of bankruptcy
under Title 11 of the United States Code, as amended, an
assignment for the benefit of creditors and/or an adjudication of
insolvency under any state or local insolvency statute or
procedure or the occurrence of any other event of bankruptcy
under the Act, including specifically the provisions of Section
18-304 thereof).
(d) "Bona Fide Offer" shall mean and refer to a good
faith offer in writing to a Member by a person or entity who or
which is not affiliated with such Member, to purchase all (but
not less than all) of the Interest of such Member, which offer
shall, among other things, set forth all other relevant terms and
conditions of the proposed purchase.
(e) "Capital Account" shall, with respect to each
Member, mean and refer to the separate "book" account for such
Member to be established and maintained in all events in the
manner provided under, and in accordance with, Treasury Regula-
tion Section 1.704-1(b)(2)(iv), as amended, and in accordance
with the other provisions of Treasury Regulation Section
1.704-1(b) that must be complied with in order for the Capital
Accounts to be determined and maintained in accordance with the
provisions of Treasury Regulation Section 1.704-1(b)(2)(iv). In
furtherance of and consistent with the foregoing, a Member's
Capital Account shall include generally, without limitation, the
Capital Contributions of such Member (as of any particular date),
(i) increased by such Member's distributive share of profits,
income and gain of the Company (including, if such date is not
the close of the Company Accounting Year, the distributive share
of profits, income and gain of the Company for the period from
the close of the last Company Accounting Year to such date), and
(ii) decreased by such Member's distributive share of losses and
deductions of the Company and distributions by the Company to
such Member (including, if such date is not the close of the
Company Accounting Year, the distributive share of losses and
deductions of the Company and distributions by the Company during
the period from the close of the last Company Accounting Year to
such date). For purposes of the foregoing, distributions of
property shall result in a decrease in a Member's Capital Account
equal to the agreed fair market value of such property dis-
tributed (less the amount of indebtedness, if any, of the Company
which is assumed by such Member and/or the amount of
indebtedness, if any, to which such property is subject, as of
the date of distribution) by the Company to such Member.
(f) "Capital Contribution" or "Capital Contributions"
shall mean and refer to the amount of cash, and/or the agreed
fair market value of property (less the amount of indebtedness,
if any, of such Member which is assumed by the Company and/or the
amount of indebtedness, if any, to which such property is sub-
ject, as of the date of contribution, without regard to the
provisions of I.R.C. Section 7701(g)), actually contributed by a
Member to the capital of the Company, as well as any additional
contributions actually made pursuant to this Agreement,
including, but not limited to, any amounts paid by a Member
(except to the extent indemnification is made by another Member)
in respect of any claims, liabilities or obligations against the
Company and/or pursuant to any guaranty of Company indebtedness
or otherwise by such Member.
(g) "Certificate" shall mean and refer to that certain
Certificate of Formation of the Company filed with the Office of
the Secretary of State of Delaware, as the same may be amended
from time to time.
(h) "Company" shall mean and refer to Ballantrae
Partners, L.L.C.
(i) "Company Accounting Year" shall mean and refer to
the accounting year of the Company, ending December 31 of each
year.
(j) "Company Assets", at any particular time, shall
mean and refer to the Company Property and any other assets or
property (tangible or intangible, choate or inchoate, fixed or
contingent) of the Company.
(k) "Company Property" shall mean and refer to the
Company's entire legal and beneficial right, title and interest
in and to the assets set forth in Exhibit B hereto.
(l) "Exhibit A" shall mean and refer to the original
Exhibit A to this Agreement, relating to the names, addresses and
Percentage Interests of the Members, as the same may be amended
from time to time.
(m) "Exhibit B" shall mean and refer to the original
Exhibit B to this Agreement, relating to the description of the
Company Property, as the same may be amended from time to time.
(n) "Exhibit C" shall mean and refer to the original
Exhibit C to this Agreement, relating to additional Capital
Contributions, as the same may be amended from time to time.
(o) "Interest" in the Company shall mean and refer to
the entire ownership interest of a Member in the Company at any
particular time, including the right of such Member to any and
all benefits to which a Member may be entitled as provided in
this Agreement and under the Act, together with the obligations
of such Member to comply with all of the terms and provisions of
this Agreement and the Act.
(p) "I.R.C." shall mean and refer to the Internal
Revenue Code of 1986, as amended, or any similar Federal internal
revenue law enacted in substitution of the Internal Revenue Code
of 1986, and the corresponding revenue law (and sections thereof)
of any state or jurisdiction.
(q) "Management Committee" shall mean and refer to a
committee of three (3) persons which shall manage the business
and operations of the Company in accordance with the provisions
of paragraph 11 hereof, subject to the limitations set forth
therein. The members of the Management Committee shall be Murry
N. Gunty, Deborah L. Harmon and Jonathan S. Kern. Except as set
forth in paragraph 11(a), any and all actions of the Management
Committee shall require the approval or consent of all of the
members of the Management Committee. No member of the Management
Committee is required to be a resident of the State of Delaware.
(r) "Member" or "Members" shall mean and refer to
those persons and/or entities designated as such on Exhibit A
attached hereto, either individually or collectively.
(s) "Net Cash Flow" shall mean and refer to the total
cash receipts of the Company, plus any other funds (including
amounts previously set aside as reserves by the Management
Committee, where and to the extent the Management Committee no
longer regards such reserves as reasonably necessary in the
efficient conduct of the Company business) deemed available for
distribution and designated as Net Cash Flow by the Management
Committee, in its reasonable discretion, less the total cash
disbursements of the Company (such as, but not limited to,
operating expenses of the Company and repayments of any loans
made to the Company by any person or entity whatsoever (including
Members)), and less such reserves or other uses of cash as the
Management Committee, in its reasonable discretion, shall deem to
be necessary for the efficient conduct of the Company business.
(t) "Percentage Interest" of a Member shall mean and
refer to the percentage participation in the Company of such
Member as set forth opposite the name of such Member under the
column "Percentage Interest" in Exhibit A attached hereto, as
such percentage may be adjusted from time to time pursuant to the
terms hereof.
(u) "Term" shall mean and refer to the period of time
that the Company shall continue in existence, commencing as of
the date hereof and ending on December 31, 2036, unless sooner
terminated in accordance with the provisions of paragraph 15
hereof.
2. Name of Company. The restated name of the Company shall
be "Ballantrae Partners, L.L.C.".
3. Formation of Company. The Members hereby authorize
Tucker, Flyer & Lewis, a professional corporation, to act as
organizer in order to form the Company under and pursuant to the
Act by filing the Certificate on behalf of themselves and any
additional or substituted Members. This Agreement is subject to,
and governed by, the Act and the Certificate of the Company filed
with the Office of the Secretary of State of Delaware. In the
event of a direct conflict between the provisions of this Agree-
ment and either the mandatory provisions of the Act or the
Certificate, such mandatory provisions of the Act or the
Certificate (as the case may be) will be controlling.
4. Company Purposes. The general purposes of the Company
are (i) to acquire, own, hold, manage and/or, if and when
necessary or desirable, to sell or otherwise dispose of the
Company Property (or any portion thereof) for the production of a
profit, and (ii) to engage in any and all activities incidental
or related to the foregoing or to otherwise engage in any lawful
business or activity permitted under the Act.
5. Principal Office; Registered Office and Registered
Agent. The principal office of the Company shall be located at
75 West End Avenue, R12E, New York, New York 10023. The
Management Committee may change the principal office of the
Company and/or establish additional offices of the Company,
either within or without the State of Delaware, as the Management
Committee may deem advisable. The registered office of the
Company shall be located at c/o The Corporation Trust Company,
The Corporation Trust Center, 1209 Orange Street, Wilmington,
Delaware 19801, located in the County of New Castle. The
registered agent (the "Registered Agent") of the Company in the
State of Delaware for service of process shall be The Corporation
Trust Company, which is a Delaware corporation. The Management
Committee may, in its sole and absolute discretion, change the
Registered Agent to a person or entity who or which qualifies as
a registered agent under the Act.
6. Capital Contributions.
(a) Each Member hereby agrees to contribute to the
capital of the Company that sum set forth after the name of such
Member in Exhibit A attached hereto, for which such Member shall
receive appropriate credit to his or its Capital Account.
(b) In the event that at any time (or from time to
time) additional funds are required by the Company for or in
respect of its business or any of its obligations, expenses,
costs, liabilities or expenditures for any Company Accounting
Year, then the Management Committee, acting for and on behalf of,
and in the name of, the Company, shall have the right (but not
the obligation) to cause the Company to borrow said additional
funds, with interest payable at then-prevailing rates, from com-
mercial banks, savings and loan associations and/or other lending
institutions or other persons or entities (including Members).
(c) Except as set forth on Exhibit C, no Member shall
be required to make any Capital Contribution to the Company
beyond the amounts set forth in this paragraph 6.
(d) No interest shall accrue or be payable to any
Member by reason of his or its Capital Contribution or his or its
Capital Account.
(e) The foregoing provisions of this paragraph 6 are
not intended to be for the benefit of any creditor or other
person or entity (other than a Member in his or its capacity as a
member of the Company) to whom or which any debts, liabilities or
obligations are owed by (or who or which otherwise has any claim
against) the Company or any of the Members; and no such creditor
or other person or entity shall obtain any right under any of the
foregoing provision against the Company or any of the Members by
reason of any debt, liability or obligation (or otherwise).
(f) No Member (in his or its capacity as a Member)
shall be personally liable for losses, costs, expenses,
liabilities or obligations of the Company in excess of his or its
Capital Contributions or other obligations required under this
paragraph 6, without such Member's prior written consent.
7. Allocation of Profit and Loss.
(a) "Profit" and "Loss" shall, for purposes of this
paragraph 7, mean, for each fiscal year of the Company or other
period, an amount equal to the Company's taxable income, gain,
loss or deduction for such year or period, determined by the
Company's certified public accountants in accordance with I.R.C.
Section 703(a), with the following adjustments:
(i) All income or gain of the Company that is
exempt from Federal income tax and not otherwise taken into
account in computing Profit and Loss pursuant to this subpara-
graph 7(a) shall be added to such taxable income, gain, loss or
deduction.
(ii) Any expenditure of the Company described in
I.R.C. Section 705(a)(2)(B) or treated as an expenditure de-
scribed in such Section and not otherwise taken into account in
computing Profit and Loss pursuant to this paragraph 7 shall be
subtracted from such taxable income, gain, loss or deduction.
(b) Subject to the provisions of subparagraph 7(c)
hereof, the distributive shares of each item of Profit, Loss,
deduction, credit or basis of the Company for any Company
Accounting Year or other period shall be allocated among all
Members, pro rata, in proportion to their respective Percentage
Interests.
(c) The Company, with the review and concurrence of
the Company's certified public accountants, shall allocate
taxable income, gain, loss, credit and deduction (or items
thereof) arising in any Company Accounting Year in a manner other
than as provided in subparagraph 7(b) hereof if, and to the
extent that, the allocations otherwise provided under this
paragraph 7 would not be permissible under I.R.C. Sections 704(b)
and/or 704(c). Any allocation made pursuant to, and in accor-
dance with, this subparagraph 7(c) shall be deemed to be a
complete substitute for the allocation otherwise provided in
subparagraph 7(b) hereof, and no amendment of this Agreement or
approval of any Member shall be required with respect thereto,
and each Member shall, for all purposes and in all respects, be
deemed to have approved any such reasonable allocation, unless
such allocation under this subparagraph 7(c) would, or could,
have a materially adverse effect on the balance of each Member's
Capital Account relative to the balance of each Member's Capital
Account had the allocation been made as provided for under
subparagraph 7(b) hereof.
(d) If a Company Interest is transferred or assigned
during a Company Accounting Year, that part of any item of
Profit, Loss, income, gain, deduction, credit or basis allocated
pursuant to this paragraph 7 with respect to the Company Interest
so transferred shall, in the reasonable discretion of the
Management Committee, either (i) be based on segmentization of
the Company Accounting Year between the transferor and the
transferee or (ii) be allocated between the transferor and the
transferee in proportion to the number of days in such Company
Accounting Year during which each owned such Company Interest, as
disclosed by the Company books and records.
8. Distributions of Net Cash Flow. Except to the extent
that Net Cash Flow shall be distributed upon the termination of
the Company pursuant to subparagraph 15(b) hereof, the Net Cash
Flow of the Company shall be paid or distributed annually during
each Company Accounting Year (or more or less frequently if the
Management Committee shall, in its sole discretion, deem
advisable) to the Members, pro rata, in proportion to their
respective Percentage Interests.
9. Resignation; Return of Capital.
(a) Notwithstanding anything expressly or implicitly
to the contrary provided under the Act, including specifically
the provisions of Section 18-603 thereof, no Member shall have
the right, power or authority to resign from the Company and
withdraw his or its Capital Contribution therefrom or to demand
and receive property of the Company or any distribution in return
for his or its Capital Contribution prior to the expiration of
the Term; provided, however, that, following the expiration of
the Term, any Member, upon ninety (90) days' written notice by
such Member to the Management Committee, shall be entitled to
receive a distribution equal to the "fair value" of his or its
Interest as of the date of resignation, provided that the Company
Assets are then sufficient to cover all of the Company's
liabilities, both fixed and contingent, including liabilities to
Members in respect of their Capital Accounts. For purposes of
this paragraph 9, the term "fair value" shall conclusively be
deemed to mean the "Fair Market Value" of the Interest of the
resigning Member, as defined and determined in accordance with
the provisions of paragraph 16 hereof. Other than in dissolution
of the Company, upon the resignation of a Member and the payment
of "fair value" to such Member, the Percentage Interest of such
Member shall be allocated among all other Members, pro rata, in
proportion to their respective Percentage Interests. Neither the
Management Committee nor any of its directors, officers or
stockholders shall under any circumstances have any personal
liability whatsoever with respect to the payment of "fair value"
to any withdrawing Member under this paragraph 9.
(b) In the event that any Member (the "Withdrawing
Member") resigns or otherwise withdraws from the Company in
breach of this Agreement, including specifically, the provisions
of subparagraph 9(a) above, such resignation or withdrawal shall,
ipso facto, without any further action by the Company or any
Members, constitute a default by the Defaulting Member under this
Agreement, for which the Company and the other Members shall have
all of their rights and remedies, at law or in equity, under this
Agreement or under applicable law, including, without limitation,
the right to recover damages from the Withdrawing Member, which
damages may offset the amount otherwise distributable to the
Withdrawing Member under the provisions of subparagraph 9(a)
above.
10. Legal Title to Company Assets.
(a) Legal title to the Company Assets shall be held in
the name of the Company or in any other manner which the
Management Committee determines to be in the best interests of
the Company. Without limiting the foregoing grant of authority,
the Management Committee may take and hold title or arrange to
have title taken and held in the name of others, as trustees or
nominees for and on behalf of the Company.
(b) It is expressly understood and agreed that the
manner of holding title to the Company Property (or any part
thereof) and the other Company Assets (or any part thereof) is
solely for the convenience of the Company. Accordingly, the
spouse, heirs, executors or administrators, distributees,
directors, officers, stockholders, successors or assigns of any
Member shall have no right, title or interest in or to any of the
Company Property and/or the other Company Assets by reason of the
manner in which title is held; rather, the Company Property and
the other Company Assets shall be subject to the terms of this
Agreement. It is further understood and agreed that any Member's
Interest shall be considered personalty and not a real property
interest. Accordingly, no Member shall have the right to request
a partition of the Company Property (or any part thereof) or any
other Company Assets (or any part thereof).
11. Management; Indemnification.
(a) (i) No Member (in his or its capacity as a member
of the Company) shall have or exercise any rights in connection
with the management of the Company business. The management of
the Company and the Company business shall in every respect be
the full, exclusive and complete responsibility of the Management
Committee, which shall have all rights, powers and authorities
permitted by the laws of the State of Delaware, and all decisions
made for and on behalf of the Company by the Management Committee
shall be binding upon the Company. The Management Committee
(acting for and on behalf of the Company), in extension and not
in limitation of the rights and powers given it by law or by the
other provisions of this Agreement, shall, in its reasonable
discretion, have the full and entire right, power and authority,
in the management of the Company business, to do any and all acts
and things necessary, proper, convenient or advisable to
effectuate the purposes of the Company. In furtherance (but not
in limitation) of the foregoing, the Management Committee may by
resolution designate one (1) or more persons, whose execution of
documents and other actions taken on behalf of the Company shall
bind the Company; provided, however, that any such resolution may
be rescinded by the vote of two-thirds (2/3) of the members of
the Management Committee.
(ii) In furtherance of the provisions of
subparagraph 11(a)(i) hereof, the Management Committee shall, in
the exercise of its reasonable discretion, have the right, power
and authority (without regard to the Term), acting for and on
behalf of the Company, to enter into and execute any contract,
agreement, mortgage or other instrument or document required or
otherwise appropriate to sell, pledge or convey the Company
Property (or any substantial portion thereof) and to carry on any
and all other activities related to the business of the Company,
to borrow money and execute promissory notes (including notes
which confess judgment), to secure the same by mortgage (which
term "mortgage" is hereby defined for all purposes of this Agree-
ment to include deeds of trust, financing statements, chattel
mortgages, pledges, conditional sales contracts and similar
security agreements) upon the Company Property (or any other
Company Assets), to renew or extend any and all such loans or
notes, and to convey the Company Property (or any other Company
Assets) in fee simple by deed, mortgage or otherwise.
(b) In furtherance of the provisions of this paragraph
11, the Management Committee may contract with any person or
entity, including, without limitation, any of the Members, any
entity in which any of the Members may have an interest and/or
any affiliated or related entity, at reasonable and competitive
rates of compensation, commission or remuneration, for the
performance of any and all services which may at any time be
necessary, proper, convenient or advisable to carry on the
business of the Company.
(c) (i) The members of the Management Committee
shall be indemnified and held harmless by the Company from and
against any and all claims, demands, liabilities, costs, damages
and causes of action, of any nature whatsoever, arising out of or
incidental to the Management Committee's management of the
Company's affairs, or as otherwise permitted under the Act,
except where the claim at issue is based upon the material and
adverse breach by the Management Committee (or its members) of
any material provision of this Agreement.
(ii) The indemnification authorized by this
subparagraph 11(c) shall include, but not be limited to, payment
of (A) reasonable attorneys' fees or other expenses incurred in
connection with settlement or in any finally-adjudicated legal
proceeding, and (B) the removal of any liens affecting any
property of the indemnitee.
(iii) The indemnification rights contained in
this subparagraph 11(c) shall be cumulative of, and in addition
to, any and all rights, remedies and recourses to which the
Management Committee shall be entitled, whether pursuant to the
provisions of this Agreement, at law or in equity.
Indemnifications shall be made solely and entirely from the
Company Assets, and no Member shall be personally liable to the
indemnitee under this subparagraph 11(c). Furthermore, the
provisions of this subparagraph 11(c) are not intended to be for
the benefit of any creditor or other person or entity to whom or
which any debts, liabilities or obligations are owed by (or who
or which otherwise has a claim against) the indemnitee; and no
such creditor or other person or entity shall obtain any right
under the provisions of this subparagraph 11(c) against the
Company or any of the Members by reason of any debt, liability or
obligation of (or other claim against) the indemnitee.
(d) The members of the Management Committee and/or any
Member shall be fully and entirely reimbursed by the Company for
any and all reasonable out-of-pocket costs and expenses incurred
by the Management Committee or any such Member (as the case may
be) in direct connection with the formation of the Company, the
acquisition or disposition of any of the Company Assets, the
financing or refinancing of any Company indebtedness and/or the
management and supervision of the Company business; provided,
however, that, with respect to any such reimbursement, the
Management Committee or any such Member (as the case may be)
shall present the Company with such invoices, in such detail and
with such receipts, as are reasonably necessary to substantiate
such out-of-pocket costs and expenses.
(e) Notwithstanding anything to contrary contained in
this Agreement, including specifically, the provisions of para-
graph 13 hereof, it is understood and agreed that the prior
written consent of Members owning one hundred percent (100%) of
the total Percentage Interests shall be required for (i) the
sale, exchange, pledge or other disposition of the Company
Property (or any portion thereof); (ii) the acquisition of any
additional Company Property; (iii) the voting of any securities
that constitute Company Property; (iv) the incurrence of any
indebtedness (secured or unsecured) by the Company; or (v) the
incurrence of any obligation, liability or contingent liability
in excess of $10,000.
12. Bank Accounts, Accounting and Records.
(a) The funds of the Company shall be deposited in
such separate Company Federally-insured bank account or accounts
as shall be determined by the Management Committee.
(b) The books and records of the Company shall be
kept, and the financial condition and the results of its
operations recorded, in accordance with the accounting methods
elected to be followed by the Company for Federal income tax
purposes. The books and records of the Company shall reflect all
Company transactions and shall be appropriate and adequate for
the Company's business. The fiscal year of the Company for
financial reporting and for Federal income tax purposes shall be
the Company Accounting Year.
(c) The Company shall keep at its principal office or
at such other or additional offices (either within or without the
State of Delaware) as the Management Committee shall deem
advisable (i) books and records setting forth a current list of
the full name and last known address of each Member, (ii) a copy
of the Certificate and this Agreement, and all amendments
thereto, (iii) copies of the Company's Federal, state and local
income tax returns and personal property or intangible property
tax returns, if any, for the three (3) most recent Company
Accounting Years, (iv) copies of any financial statements of the
Company for the three (3) most recent Company Accounting Years,
which reflect the Company's state of business and financial
condition during such periods and (v) any other information
and/or records required by the Act. Each Member (and his or its
duly authorized representative) shall have access to the books
and records of the Company and the right to inspect and copy
them, provided such request is reasonable, is done at reasonable
hours and is done at such Member's personal expense.
(d) The Company may make all elections for Federal
income tax purposes upon the decision of the Management
Committee; provided, however, that, in case of a transfer of all
or part of the Interest of any Member or the distribution to a
Member by the Company of its property, the election pursuant to
I.R.C. Sections 734, 743 and 754 to adjust the basis of the
Company Assets shall be timely made.
13. Assignability of Interests.
(a) Subject to the provisions of subparagraph 13(b)
hereof, no Member shall sell, assign, transfer, convey, encumber,
pledge or in any way alienate all or any part of his or its legal
or beneficial Interest in the Company (each, a "Transfer"),
without the prior written consent of the Management Committee
(which consent may be granted or withheld in the sole and
absolute discretion of the Management Committee).
Notwithstanding the foregoing or anything to the contrary
contained herein, a permitted assignee of a Member shall not
become a substituted Member unless: (i) the assigning Member so
provides in the instrument of assignment, (ii) the assignee
agrees in writing to be bound by the provisions of this
Agreement, and (iii) the assigning Member, the assignee and any
other required signatory parties execute an amendment to this
Agreement and execute and record an amendment to the Certificate
(if necessary and appropriate), each of which shall reflect,
among other things, the admission of the assignee as a substitute
Member and the withdrawal of the assigning Member from the
Company.
(b) Notwithstanding anything contained in this Agree-
ment to the contrary, it is expressly understood and agreed that
no Transfer of any Interest in the Company (or any part thereof)
and no substitution of a Member, shall be permitted under any
circumstances whatsoever if such Transfer and/or substitution
would, or could, (i) jeopardize the limited liability status of
the Company for Federal and state income tax purposes; or (ii)
cause a termination of the Company within the meaning of I.R.C.
Section 708(b); or (iii) violate or cause the Company to violate
the rules or regulations of the Maine Bureau of Insurance; or
(iv) violate or cause the Company to violate, any state or
Federal securities law or any other applicable law or
governmental rule or regulation.
(c) Notwithstanding anything to the contrary contained
in this Agreement, the Management Committee shall not have the
right to admit additional Members to the Company without the
prior written consent of all of the Members. Any authorized
admission of additional Members under this subparagraph 13(c) (as
opposed to an assignment of an existing Interest under
subparagraph 13(a) hereof) shall dilute, pro rata, all Interests
of the Members existing at the time of such admission.
(d) Unless named in this Agreement or otherwise
admitted to the Company in accordance with the terms of this
Agreement, no person or entity shall be considered a Member. The
Company, each Member and any other person or entities having
business with the Company need deal only with Members so named or
so admitted; they shall not be required to deal with any other
person or entity by reason of an assignment by a Member or by
reason of the death or termination of a Member, except as other-
wise provided in this Agreement. In the absence of the substitu-
tion (as provided herein) of a Member for an assigning or de-
ceased Member, any payment to a Member or to its legal
representatives shall acquit the Company and the Management
Committee of all liability to any other persons or entities who
or which may be interested in such payment by reason of an
assignment by, or the death or termination of, such Member. It
is understood and agreed that the Management Committee shall not
admit additional Members (in contrast to substituted Members
pursuant to subparagraph 13(a) hereof) to the Company without the
unanimous written consent of all of the Members.
(e) Except as otherwise provided herein, no Member
shall dispose of any part or all of his or her Interest without
first giving to the other Members (hereinafter referred to
collectively as the "Offeree Members"), at least fifteen (15)
days in advance of such proposed disposition, written notice of
his or her intention to make such disposition. No such notice
shall be given unless and until the Member desiring to make such
disposition (hereinafter referred to as the "Offering Member")
shall have obtained a Bona Fide Offer to purchase all (but not
less than all) of the Offering Member's Interest. A true copy of
the Bona Fide Offer, setting forth all the terms and conditions
of the proposed purchase, with the names and addresses of the
proposed purchaser(s), shall be attached to such written notice.
For a period of fifteen (15) days from the receipt of such
written notice (the "Exercise Period"), the Offeree Members, pro
rata, in proportion to their respective Percentage Interests
(unless they agree upon another proportion), shall have the
option (but not the obligation) to purchase the Offering Member's
entire Interest at the same price and upon the same terms and
conditions as are set forth in the Bona Fide Offer. Such option
shall be exercised by giving written notice thereof to the
Offering Member. In the event that the Offeree Members (or any
of them) do not give written notice of their (or his or her
intent) to exercise the option prior to the expiration of the
Exercise Period, then the Offering Member shall be free to make
such disposition; provided, however, that such disposition shall
be made within thirty (30) days after the expiration of the
Exercise Period and in strict accordance with the terms and
conditions of such Bona Fide Offer. In the event that the
Offering Member's Interest is not so disposed of within said
thirty (30)-day period, the provisions of this subparagraph 13(e)
shall again be applicable and must be complied with.
14. Bankruptcy of a Member. In the event of the Bankruptcy
of a Member (the "Bankrupt Member"), and in the further event
that the other Members (or the requisite percentage thereof)
elect to continue the Company and the Company business pursuant
to subparagraph 15(a)(i) hereof (the "Continuing Members"), then
the Continuing Members (pro rata, in proportion to their
respective Percentage Interests, unless they agree upon another
proportion) shall have the option (but not the obligation),
exercisable by giving notice thereof to the Bankrupt Member or to
his or its trustee in Bankruptcy, guardian, receiver or other
legal representative, to purchase all (but not less than all) of
the Bankrupt Member's Interest, within sixty (60) days after the
event of such Bankruptcy, at a price equal to the "fair value" of
the Bankrupt Member's Interest as of the date of such Bankruptcy.
For purposes of this paragraph 14, the term "fair value" shall
conclusively be deemed to mean the Fair Market Value of the
Bankrupt Member's Interest, as determined in accordance with the
provisions of paragraph 16 hereof between the Continuing Members
and the legal representative of the Bankrupt Member. Within
sixty (60) days after the determination of the Fair Market Value
of the Bankrupt Member's Interest in accordance with the
procedures set forth in paragraph 16 hereof, the Continuing
Members shall give notice to the legal representative of the
Bankrupt Member of their decision as to the exercise of the
aforesaid option. If such option is exercised by any of the
Continuing Members, settlement shall be held within thirty (30)
days from the date of such exercise. The terms of payment for
the purchase of the Bankrupt Member's Interest shall be all cash,
unless otherwise agreed upon by the respective parties.
15. Dissolution and Termination of Company.
(a) The Company shall be dissolved, the Company Assets
shall be disposed of, and its affairs wound up, upon the earliest
to occur of the following events:
(i) the death, retirement, resignation,
expulsion, Bankruptcy or dissolution of a Member, or any other
event that terminates the continued membership of a Member in the
Company under the Act; provided, however, that, if, within ninety
(90) days after such event, the other Members owning at least
fifty-one percent (51%) of the total Percentage Interests elect
to continue the Company and the Company business, then (A) the
Company shall not be dissolved; (B) the Company and the Company
business shall be continued; and (C) this Agreement shall be
amended to reflect such continuation; provided further, however,
that the Company shall not be continued by fewer than two (2)
Members; or
(ii) the unanimous written consent of the
Members; or
(iii) the expiration of the Term; or
(iv) the entry of a decree of judicial
dissolution under the Act; or
(v) the occurrence of any other event
causing the dissolution of a limited liability company under the
laws of the State of Delaware.
(b) The Company shall terminate when all the Company
Assets have been disposed of (except for any liquid assets not so
disposed of), and the net proceeds therefrom, as well as any
other liquid or illiquid assets of the Company, shall, unless
otherwise required by the Act, be distributed as follows: (i)
first, to the creditors of the Company for the payment or due
provisions for the liabilities of the Company (including loans,
if any, to the Company from Members), and (ii) second, to the
Members, pro rata, in accordance with their respective positive
Capital Account balances (after the allocation of all items of
profit, gain, loss, deduction, credit and deduction (or items
thereof) under and pursuant to paragraph 7 hereof).
16. Valuation of Interest. For purposes of this Agreement,
the "Fair Market Value" of any Interest shall be determined based
on the price which would be paid by a willing buyer to a willing
seller in an arms'-length transaction for the purchase of such
Interest, free and clear of any option, call, contract,
commitment, demand, lien, charge, security interest or
encumbrance of any kind whatsoever other than this Agreement (the
"Subject Interest"), as such price may be mutually determined by
the interested Members (or groups of interested Members), or, if
the interested Members (or groups of interested Members) cannot
mutually agree upon such price within fifteen (15) days after any
event triggering a purchase of the Subject Interest pursuant to
this Agreement, the Fair Market Value of the Subject Interest
shall be determined as follows: each interested Member (or group
of interested Members) shall promptly appoint an appraiser, who
or which shall determine mutually the Fair Market Value of the
Subject Interest, for purposes of an all-cash sale; provided,
however, that, in the event the two (2) appraisers cannot agree
upon the Fair Market Value of the Subject Interest, the two (2)
appraisers shall together appoint a third (3rd) appraiser to
appraise the Subject Interest. All appraisers appointed
hereunder shall be qualified by experience and ability to
appraise the Subject Interest; and the fees and other costs of
each of the first two (2) appraisers shall be borne by the
interested Member(s) (or group(s) of interested Members) appoint-
ing each such appraiser, with the fees and other costs of the
third (3rd) appraiser being shared equally by the interested
Members (or groups of interested Members). The Fair Market Value
determined by the first two (2) appraisers or the third (3rd)
appraiser, as the case may be, shall be used to determine the
purchase price of the Subject Interest; provided, however, that,
if the Fair Market Value determined by the third (3rd) appraiser
is more than the higher of the first two (2) appraisals, the
higher of the first two (2) appraisals shall govern; and
provided, further, that if the Fair Market Value determined by
the third (3rd) appraiser is less than the lower of the first two
(2) appraisals, the lower of the first two (2) appraisals shall
govern.
17. Mandatory Buy-Sell.
(a) Notwithstanding anything to the contrary contained
in this Agreement, in the event that, at any time from and after
the effective date of this Agreement, the Members are unable to
agree (pursuant to paragraph 11(e)(iii) hereof) on the voting of
any securities that constitute Company Property for at least two
successive annual or special meetings of stockholders relating to
such securities, then any Member (hereinafter in this paragraph
17 referred to as the "Offeror") may send written notice (the
"Offer Notice") to the other Members (such other Members being
hereinafter in this subparagraph 17 collectively referred to as
the "Offeree Group"), stating a price per Percentage Interest
(the "Offered Price") and offering (at the option of the Offeree
Group) either (i) to purchase all (but not less than all) of the
Interests of the Offeree Group at the Offered Price, or (ii) to
sell all (but not less than all) of his Interest to the Offeree
Group at the Offered Price. Simultaneously with the sending of
the Offer Notice, the Offeror shall deposit in escrow by good
check with the Company's certified public accountants
(hereinafter referred to as the "Escrow Agent"), who or which
shall act as a bona fide escrow agent, an amount equal to five
percent (5%) of the total purchase price offered for all of the
Interests of the Offeree Group.
(b) Within ninety (90) days after the Offer Notice is
given by the Offeror to each member of the Offeree Group (the
"Election Period"), the members of the Offeree Group shall elect
one of the following alternatives: (i) the members of the
Offeree Group, pro rata, in proportion to their respective
Percentage Interests (unless the members of the Offeree Group
agree upon another proportion), shall purchase all (but not less
than all) of the Offeror's Interest at the Offered Price;
provided, however, that so long as one or more the members of the
Offeree Group elect in the aggregate to purchase all of the
Offeror's Interest (the "Purchasing Members"), the Offeree Group
shall be deemed to have elected the purchase alternative under
this subparagraph 17(b)(i), and provided further that, in such
event, the nonpurchasing members of the Offeree Group (if any)
shall retain their respective Interests, or (ii) each member of
the Offeree Group shall sell all (but not less than all) of his
respective Interest to the Offeror at the Offered Price. Said
election shall be made by the Offeree Group by sending written
notice to Offeror and to the Escrow Agent. In the event that the
Offeree Group elects to purchase all (but not less than all) of
the Offeror's Interest under alternative (i) above, then,
simultaneously with the sending of such written notice, (A) the
Offeree Group (or, if applicable, the Purchasing Members) shall
deposit in escrow with the Escrow Agent an aggregate amount equal
to five percent (5%) of the total price for the Offeror's entire
Interest and (B) the Members shall authorize and direct the
Escrow Agent promptly to return to the Offeror the deposit placed
by Offeror in escrow pursuant to subparagraph 17(a) hereof. The
failure or refusal by the Offeree Group to elect either
alternative afforded the members thereof under and pursuant to
this subparagraph 17(b) and/or the failure or refusal by the
Offeree Group (or any member thereof) to comply fully, within the
prescribed time periods, with all provisions of this subparagraph
17(b), shall be conclusively deemed for purposes of this
subparagraph 17(b) to constitute an election to sell all (but not
less than all) of the aggregate Interests of the Offeree Group to
the Offeror at the Offered Price.
(c) Settlement shall be held on a purchase of
Interests under this paragraph 17 at a location designated by the
purchasing Member(s) within the New York City metropolitan area
at such time and date as shall be specified in a written notice
sent by the purchasing Member(s), which date shall be within
sixty (60) days after the expiration of the Election Period or
within sixty (60) days after the election by the Offeree Group by
written notice specified in subparagraph 17(b) hereof, whichever
occurs sooner. At settlement on a purchase of Interests by the
purchasing Member(s) under this paragraph 17, the selling
Member(s) shall deliver to the purchasing Member(s) an amendment
to this Agreement to reflect the sale of the Interest(s) of the
selling Member(s) and their withdrawal from the Company, and the
purchasing Member(s) shall deliver to the selling Member(s), in
immediately-available funds, the entire purchase price for the
Interest(s) being conveyed (less the amount previously placed in
escrow, which amount shall be released by the Escrow Agent at
settlement to the Member(s) whose Interest(s) is (are) being so
conveyed).
(d) In the event that the purchasing Member(s) fail(s)
to settle on the purchase of all (but not less than all) of the
Interests of the selling Member(s) in accordance with the
provisions of subparagraph 17(c) hereof for any reason whatsoever
other than a default by the selling Member(s), then there shall
be paid to the selling Member(s) as fixed, agreed and liquidated
damages (and not as a penalty) of the purchasing Member(s), the
amount of the deposit (plus any and all accrued interest thereon)
held by the Escrow Agent. In addition to, and not in limitation
of, the foregoing provisions of this subparagraph 17(d), the
selling Member(s) (the "New Offeror(s)") shall have the right (i)
to purchase all (but not less than all) of the Interest(s) of the
defaulting Member(s) at a price equal to the Offered Price set
forth in the Offer Notice sent by the Offeror pursuant to
subparagraph 17(a) hereof, which election shall be made by
sending written notice to the defaulting Member(s) within thirty
(30) days after such default, or (ii) to avail himself of any
legal and/or equitable rights and remedies (including, without
limitation, the right of specific performance) which the New
Offeror(s) may have at law or in equity. In the event that the
New Offeror(s) elect(s) to purchase all (but not less than all)
of the Interests of the defaulting Member(s) under alternative
(i) above, then settlement under this subparagraph 17(d) shall be
held at a location designated by the purchasing Member(s) within
the New York City metropolitan area at such time and date as
shall be specified in a written notice sent by the New
Offeror(s), which date shall be within sixty (60) days after the
expiration of the aforesaid thirty (30)-day period in accordance
with all of the terms and provisions of subparagraph 17(c)
hereof.
(e) Upon the sale of Interests in the Company pursuant
to this paragraph 17, the purchasing Member(s) shall indemnify
the selling Member(s) for, and hold the selling Member(s)
harmless against, any loss, liability or expense arising in
connection with the Company, including, without limitation, legal
fees and any liability arising out of or in connection with any
endorsement or other guarantee of any indebtedness or lease of
the Company. In addition, at closing on a sale under this
paragraph 17, the selling Member(s), on the one hand, and the
purchasing Member(s) and the Company, on the other hand, shall
release each other from any and all of their respective claims
against or involving the Company.
18. Miscellaneous Provisions.
(a) The Members hereby agree to execute and deliver
all documents (subject to the provisions of subparagraph 18(d)
and (e) hereof), provide all information and take or refrain from
all such action as may be reasonably necessary or appropriate to
achieve the purposes of this Agreement and the Certificate.
(b) Except as expressly provided in this Agreement,
nothing contained herein shall be construed to constitute any
Member the agent of any other Member hereof or to limit in any
manner the Members in the carrying on of their own respective
businesses or activities.
(c) All notices provided for herein shall be in
writing, hand delivered, with receipt therefor, or sent by
certified or registered mail, return receipt requested, and
first-class postage prepaid, or by overnight courier, to the
address of the Member as shown in Exhibit A, unless notice of a
change of address is given to the Company pursuant to the
provisions of this subparagraph 18(c). Any notice which is
required to be given within a stated period of time shall be
considered timely if delivered or postmarked before midnight of
the last day of such period. Any notice made hereunder shall be
deemed effective for all purposes and in all respects when sent
(or given) to any Member at the address set forth in Exhibit A
hereof, or at such other address specified by a Member for which
notice has been received by the Company in accordance with this
subparagraph 18(c).
(ii) Where the consent or approval of any Member
is required by this Agreement, the failure of such Member to
respond (either affirmatively or negatively) in writing to any
notice given by the Management Committee requesting such approval
within ten (10) business days after the date such notice was
received shall be conclusively deemed the consent or approval of
such Member.
(d) Any amendment to this Agreement or the Certificate
shall require the approval or consent of the Members owning one
hundred percent (100%) of the Percentage Interests.
(e) Each Member hereby irrevocably makes, constitutes
and appoints the Management Committee as his or its true and
lawful attorney-in-fact and agent with full power and authority
in his or its name, place and stead to make, execute, sign,
acknowledge, deliver, file and record with respect to the Company
the following:
(i) All conveyances and other instruments,
certificates or documents which the Management Committee deems
appropriate to effect, evidence and/or reflect any sales or
transfers by, or the dissolution, termination and/or liquidation
of, the Company, including any sales or Transfer of Interests in
the Company pursuant to this Agreement; and
(ii) All such other instruments, documents and
certificates which may from time to time be required by the
Company, its mortgage lenders, the Internal Revenue Service, the
State of Delaware, the United States of America, or any political
subdivision within which the Company conducts its business, to
effectuate, implement, continue and defend the valid and
continuing existence of the Company as a limited liability
company and to carry out the intention and purpose of this
Agreement.
(f) Notwithstanding anything to the contrary contained
in this Agreement or set forth under the Act, each Member
acknowledges and agrees, on behalf of itself and its directors,
officers, stockholders, and other affiliates, that it has
fiduciary duties to the Company and the other Members with
respect to the business of the Company and the performance of
such Member's activities in connection therewith.
(g) This Agreement and the rights of the parties
hereunder will be governed by, interpreted and enforced in
accordance with the laws of the State of Delaware, without regard
to principles of conflicts of laws.
(h) This Agreement shall inure to the benefit of and
bind the parties hereto, their estates, heirs, personal or legal
representatives, successors and, subject to the provisions of
paragraph 13 hereof, assigns.
(i) Unless the context clearly indicates otherwise,
where appropriate the singular shall include the plural and the
masculine shall include the feminine or neuter, and vice versa,
to the extent necessary to give the terms defined herein and/or
the terms otherwise used in this Agreement their proper meanings.
(j) This Agreement and Exhibits A, B and C attached
hereto and the Certificate set forth all (and are intended by all
parties hereto to be an integration of all) of the promises,
agreements, conditions, understandings, warranties and
representations among the parties hereto with respect to the
Company, the Company's business and the Company Assets, and there
are no promises, agreements, conditions, understandings,
warranties or representations, oral or written, express or
implied, except as set forth herein.
(k) If any provision of this Agreement is held to be
illegal, invalid or unenforceable under the present or future
laws effective during the term of this Agreement, such provision
will be fully severable; this Agreement will be construed and
enforced as if such illegal, invalid or unenforceable provision
had never comprised a part of this Agreement; and the remaining
provisions of this Agreement will remain in full force and effect
and will not be affected by the illegal, invalid or unenforceable
provision or by its severance from this Agreement.
(l) This Agreement is made solely and specifically
among and for the benefit of the parties hereto, and their
respective successors and assigns, subject to the express
provisions hereof relating to successors and assigns, and no
other person or entity will have any rights, interest or claims
hereunder or be entitled to any benefits under or on account of
this Agreement as a third party beneficiary or otherwise. In
furtherance of and not in limitation of the foregoing, nothing
contained in this Agreement is intended to be for the benefit of
any creditor or other person or entity (other than a Member in
his or its capacity as a Member) to whom or which any debts,
liabilities or obligations are owed by (or who or which otherwise
has any claim against) the Company or any of the Members; and no
such creditor or other person or entity shall obtain any right
hereunder against the Company or any of the Members by reason of
any debt, liability or obligation (or otherwise).
(m) This Agreement may be executed in several counter-
parts, each of which will be deemed an original but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Amended and Restated Limited Liability Company Agreement as of
the date first above written.
MEMBERS:
GUNTY & CO.,
a Delaware corporation
By:/s/ Murry N. Gunty
Murry N. Gunty, President
/s/ Jonathan S. Kern
JONATHAN S. KERN
/s/ Deborah L. Harmon
DEBORAH L. HARMON
EXHIBIT A
TO
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
OF
BALLANTRAE PARTNERS, L.L.C.
Initial
Capital Percentage
Members Contribution Interest
Gunty & Co. $187,000 33.33%
75 West End Avenue
R-12E
New York, New York 10023
Deborah L. Harmon $187,000 33.33%
1650 Tysons Boulevard
Suite 1600
McLean, Virginia 22102
Jonathan S. Kern $187,000 33.33%
1650 Tysons Boulevard
Suite 1600
McLean, Virginia 22102
________ ______
TOTAL $561,000 100.0%
EXHIBIT B
TO
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
OF
BALLANTRAE PARTNERS, L.L.C.
Company Property
All of the Company's legal and beneficial right, title and
interest in and to the following:
1. Shares of Common Stock of North East Insurance Company,
a Maine corporation, pursuant to that certain Purchase Agreement
dated as of May 14, 1996, by and among the Company, Bernhard
Gershuny and Stephen F. Dubord as Trustee.
EXHIBIT C
TO
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT
OF
BALLANTRAE PARTNERS, L.L.C.
Additional Capital Contributions
The Members agree to make the following additional Capital
Contributions to the Company, if and only if all of the Closing
Conditions of that certain Purchase Agreement dated as of May 14,
1996, by and among the Company, Bernhard Gershuny and Stephen F.
Dubord as Trustee (as defined therein) are satisfied not later
than December 31, 1996.
Capital
Member Contribution
Gunty & Co. $140,000
Deborah L. Harmon $140,000
Jonathan S. Kern $140,000
Exhibit 2.3
CONFIDENTIAL
EXHIBIT E
TO
FORM A APPLICATION
(Continuation of Response to
Item 5 - Future Plans of Insurer)
Enhanced Profitability
As noted above, Ballantrae believes that North East's
underwriting expenses as a percentage of premiums earned are well
in excess of industry standards of thirty to thirty-five percent
(30-35%). There are two primary ways of correcting this
deficiency, namely (1) reducing expenses, or (2) increasing
premiums (thereby creating economies of scale by spreading the
same amount of expenses over a greater base of revenues). The
Board of North East appears to be committed to maintaining
talented personnel and, in general, on the basis of what we know
at this time, we do not think that North East's high expense
ratio can be substantially changed by cutting personnel expenses.
We note, however, that lack of surplus has probably impacted
management's ability to invest in technology (though we recognize
management's latest announcements about new systems being
installed) at levels required to realize tangible cost savings.
Thus, we believe that there are probably additional savings that
can result from further investments in technology.
However, Ballantrae believes that the key to enhancing the
profitability of North East is growing the volume of premiums
earned. In our opinion, to date management has been unable to
increase premium volume for the following principal reasons:
1. North East has a limited surplus base to support any
material increase in premiums written;
2. The Trust arrangement may have created great
uncertainty over North East's ability to raise additional capital
in the event it was required to do so. In view of this, North
East may have been forced to be overly conservative, both with
respect to new premium volume and the amount of premium ceded to
reinsurers;
3. The A.M. Best rating of "D" severely restricts North
East's operations and the lines of business it can profitably
pursue;
4. North East was still engaged in lines of business (such
as homeowner's) that, given its rating, financial instability and
position in the market, it could not profitably underwrite in the
State of Maine.
We believe that with relatively few changes North East could
be positioned to return to a period of prudent, moderate growth
in premiums earned and thereby reach profitability on a recurring
basis. Based on market research from the Bear Stearns Insurance
Investment Banking Department, the average insurance company
stock price reflects a value equal to 8-12x net income and/or
1.5-2.Ox shareholders' equity. Based on 1995 results and those
multiples, North East's stock should be valued between three and
five dollars ($3-5) per share. However, given the problems
discussed above, and the lack of liquidity for North East's
stock, the market has undervalued the stock, and we believe will
continue to do so until the following occurs:
(a) Removal of the 810,000 shares from the Non-Voting
Trust. Enabling these shares to be voted will provide operating
flexibility for North East to implement a conservative business
plan aimed at increasing surplus and net premiums earned;
(b) Reduction of underwriting expenses as a percentage
of net premiums earned; and
(c) Growth in the existing business lines by a
measurable amount on a consistent basis.
All of these events may attract new investors to North East,
and will serve the best interests of the policyholders while
maximizing shareholder value. Ballantrae's operating plan for
removing these impediments to profitability and growth is
discussed below.
Operating Plan
The operating plan discussed below is a statement of
Ballantrae's general intentions for North East and for the types
of things it would like the existing management to execute on
behalf of the insureds and the stockholders, including
Ballantrae. If the Bureau approves the transaction, Ballantrae
hopes to be in a position to work with the existing management to
implement this plan (with input and changes from them as
appropriate).
All of the items below are designed to reduce the
underwriting expense ratio to a level closer to industry
averages. Most of the items target increased net premiums earned
based on a modest growth plan of ten to fifteen percent (10-15%)
per year. We believe that a three to five (3-5) year plan with
this type of growth will enable North East to be consistently
profitable beginning in two to three (2-3) years.
1. Lines of Business
We would anticipate that North East will continue to pursue
established lines of business that have produced reasonable
historical results, such as Private Passenger Automobile,
Commercial Automobile, Commercial Multi-Peril, and General
Liability.
2. Marketing
North East will continue to market its products through
independent agents. Wholesale brokers and general agencies may
be considered based upon the loss ratio of their existing
business and the experience of their principals. We would expect
that management would continue to be very selective in expanding
its agency force. A solid reputation and financial strength will
be prerequisites to obtaining and retaining a contract to
represent North East.
3. A.M. Best Rating
We will work with A.M. Best to improve the rating of North
East either immediately or over time. We believe that improving
the current "D" rating is critical to improving the quality of
the business that North East is able to obtain.
4. American Colonial Insurance Company
The American Colonial Insurance Company ("ACIC"), under an
agreement with the Insurance Department of the State of New York,
ceased writing business in May 1990. We would like to work with
management of North East to have that agreement rescinded by the
New York State Insurance Department. We have not been able to
obtain the Consent Order so we are not aware, at this time, what
restrictions have been placed, or need to be satisfied before
this can occur. We would anticipate, however, that additional
capital would need to be raised.
5. Total Premium Growth
We would expect that all of the above items would generate
premium growth of ten to fifteen percent (10-15%) per year.
Ballantrae would like to limit expansion to this type of slow,
prudent growth because it currently believes that growth
substantially in excess of these levels may be difficult to
manage profitably and may not be in the long-term interests of
the shareholders or the insureds.
6. Technology
We will review the computer capabilities of North East and
will suggest to management any necessary improvements and
investments in order to establish an efficient method of
processing business. We are committed to supporting the use of
technology wherever possible to improve North East's expense
ratio and to better serve the policyholders.
7. Surplus
The Members of Ballantrae Partners have significant
experience in raising (and investing) capital for companies and
making investments substantially larger than the proposed
investment in North East. For example, Ms. Harmon-Seder has
arranged financings in excess of $1 billion over the past five
(5) years and Mr. Kern has done the same. Mr. Gunty currently is
involved in the investment and management of in excess of $1.5
billion of discretionary capital. Ballantrae believes that
raising additional capital and/or access to the capital markets
may be a critical ingredient in any expansion of premium written
and enhanced profitability for North East.
Though Ballantrae Partners has no immediate plans to raise
additional capital for North East, some of the items in the
operating plan might require, or may easily lend themselves to,
additional surplus in North East and/or American Colonial. If
management determines that this is required, Ballantrae is
committed to assisting management in raising such capital.
8. Management
Ballantrae, at the current time, would like to work with the
existing management to execute this plan to maximize shareholder
value, while protecting the interests of the insureds. However,
there can be no assurances that management will be interested in
supporting Ballantrae's plan. It is possible that certain
aspects of this plan may already be in process of being
implemented. If this is the case, Ballantrae would obviously
support these efforts.
After reviewing the operations of North East for the past
month and developing this plan, however, Ballantrae has decided
that it would request that North East expand its Board by adding
the three members of Ballantrae and a key insurance adviser to
the Board: Deborah Harmon-Seder, Jonathan Kern, Reginald
Strickland and Murry Gunty.
In summary, we believe that approval of this transaction and
the related removal of the stock from the Trust will increase the
opportunity for North East to take the necessary steps to move
towards recurring profitability. A critical element in that
process involves reducing underwriting expenses to more
reasonable industry standards. We believe this can be
accomplished through some cost cutting, but primarily through
slow, steady, conservative premium growth of ten to fifteen
percent (10-15%) per year. If this is implemented, North East
will reach a level of premium value in three to five (3-5) years
that will enable it to reduce the expense ratio to industry
standards and become a safe, profitable company for the
policyholders in Maine and all of its stockholders.
