SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 6)
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)
August 23, 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 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. 6 amends and supplements the statement on
Schedule 13D (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 3. Source and Amount of Funds or Other Consideration.
Item 3 is hereby further amended and supplemented by
deleting the second paragraph thereof in its entirety, and
inserting in lieu thereof the following:
The Purchase Agreement was amended by Amendment
No. 1 to Purchase Agreement dated as of August 22,
1996, by and between the Seller and Ballantrae
("Amendment No. 1").
The source of funds for the purchase of the Trust
Certificate and the Trust Shares will be working
capital of Ballantrae contributed from the personal
funds of each of the Members in accordance with each of
their percentage interest in Ballantrae. The aggregate
amount of funds required to purchase the Trust
Certificate and the Trust Shares will be approximately
$749,250 consisting of: (i) $500,000 plus certain fees
and expenses of the Seller (not to exceed $30,000) upon
delivery of the Trust Certificate to Ballantrae, and
(ii) $219,250 less reasonable expenses of Ballantrae
(not to exceed $150,000) upon delivery of the Trust
Shares to Ballantrae. It is anticipated that the Trust
Certificate and the Trust Shares will be delivered
substantially simultaneously to Ballantrae pursuant to
the Purchase Agreement. In connection with the
Purchase Agreement, Ballantrae deposited $500,000 into
an escrow account.
The source of funds for the purchase of the
Placement Shares (as defined below) will be working
capital of Ballantrae contributed from the personal
funds of each of the Members in accordance with each of
their percentage interest in Ballantrae. The aggregate
amount of funds required to purchase the Placement
Shares will not exceed $500,000.
Item 4. Purpose of Transaction.
Item 4 is hereby further amended and supplemented by
adding the following immediately prior to the last paragraph
thereof:
On August 23, 1996, Ballantrae executed a letter
agreement with the Company dated as of August 22, 1996
(the "Letter Agreement"). The Letter Agreement is a
statement of the Company's and Ballantrae's mutual
intentions regarding the proposed purchase by
Ballantrae of the Trust Shares and related
transactions. The Letter Agreement is attached hereto
as Exhibit 6.1 and is incorporated herein by reference.
The following description of the Letter Agreement is
qualified in its entirety by reference to the Letter
Agreement.
The Letter Agreement provides that, following
Ballantrae's purchase of the Trust Shares, the size of
the Board of Directors of the Company (the "Board")
will be expanded by three directors, with such
vacancies to be filled by nominees of Ballantrae. At
the 1997 Annual Meeting of shareholders of the Company,
the size of the Board will be reduced to a total of ten
(10) directors, of which Ballantrae may appoint three
(3) nominees. Thereafter, the Board may not exceed ten
(10) directors without Ballantrae's consent. In
addition, at the 1997 Annual Meeting of shareholders,
the Company intends to implement staggered three-year
director terms in each of the three classes of
directors. Pursuant to the Letter Agreement, prior to
the 1998 Annual Meeting, Ballantrae's nominees will not
include any person who is or was an officer of the
Company or any member of that person's immediate
family.
In the Letter Agreement, Ballantrae agrees that
Ballantrae will not, directly or indirectly, become a
participant in any proxy contest constituting an
"election contest" within the meaning of the rules of
the Securities and Exchange Commission (the "SEC").
Ballantrae may vote its shares with respect to
elections of directors as it sees fit, however,
Ballantrae may not instigate or assist any effort to
solicit proxies from other shareholders. Moreover, in
the Letter Agreement 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 unless Ballantrae gives the Board at
least sixty days' notice of its intention to vote for
such person.
The Letter Agreement provides that, with respect
to other shareholder proposals, Ballantrae may vote its
shares as it sees fit, however, Ballantrae may not,
directly or indirectly, solicit any proxies from any
other shareholder or assist others in doing so. 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 Company employees, officers or directors
(involving, in the aggregate, authorization of not more
than 400,000 shares of 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 the
Common 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 for which the Company could seek
shareholder approval under clauses (i) through (iv)
above. This proxy solicitation restriction will be
subject to an exception during the pendency of any
unsolicited tender offer by an unrelated third party.
Pursuant to the Letter Agreement, in any
subsequent issuance of stock by the Company (other than
pursuant to employee/director compensation plans
approved by the Board) Ballantrae will have the right
to maintain up to its then current percentage
ownership; Ballantrae's purchase price and terms will
be equivalent to those at which shares are sold to
third parties. Prior to January 31, 1997, Ballantrae
will not acquire any Common Stock other than: the
Trust Shares, up to 400,000 shares (the "Placement
Shares") through the Company's proposed private
placement of 1.2 million shares of Common Stock (the
"Private Placement"), and (subject to the Company
having given notice of its intention not to buy such
shares) up to 215,000 shares from the Official
Committee of Unsecured Creditors of American Motor
Club, Inc. (the "AMC Shares"). 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 of Common Stock: the Trust Shares,
the Placement Shares, and the AMC Shares (if and to the
extent permitted by the Letter Agreement), 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 no event later than March 31,
1997).
Pursuant to the Letter Agreement, upon prior
notice to a designated compliance officer, Ballantrae
may resell its Common Stock in 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 ten percent or
more of the outstanding Common Stock. Ballantrae may
also resell or otherwise transfer its Common Stock upon
at least thirty days' notice to the Company to a
related or unrelated third party who agrees to be bound
by the restrictions of the Letter Agreement.
Ballantrae may also resell its Common Stock to an
unrelated third party pursuant to a transaction in
which each other Company shareholder will have an
opportunity to sell his or her Common Stock on
equivalent terms.
Except as described below, the Letter Agreement
expires on May 30, 1999, or one day before the 1999
Annual Meeting of the Company, if earlier. Either the
Company or Ballantrae may terminate the Letter
Agreement (i) if Ballantrae's percentage ownership
drops below ten percent through transactions permitted
under the Letter Agreement, (ii) if Ballantrae's
percentage ownership increases to more than fifty
percent in transactions permitted by the Letter
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 the
Company on the same terms as are offered to all other
Company 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 ten
percent or more of the Common Stock and does acquire at
least ten percent of the Common Stock.
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. 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 ten years after the
date of the Letter Agreement.
Under the Letter Agreement, the Company agrees not
to amend its articles of incorporation or bylaws prior
to termination of the Letter Agreement. The Company
agrees that prior to the termination of the Letter
Agreement, and for a period of three years thereafter,
it shall not opt into Section 910 of the Maine Business
Corporation Act (the "MBCA"). The Company agrees that
prior to termination of the Letter Agreement it will
not adopt a shareholder rights plan or any device
having similar effects. For three years following
termination of the Letter Agreement, the Company will
not adopt any shareholder rights plan, or any device
have similar effects, except on at least ten business
days' prior notice to Ballantrae. The Company's Board
has, within the meaning of MBCA Section 611-A(1)(A),
approved Ballantrae's purchase of Common Stock pursuant
to the Private Placement and Ballantrae's purchase of
shares pursuant to its antidilution rights under the
Letter Agreement, in substantially the terms
contemplated by the Letter Agreement.
Under the Letter Agreement, the Company will limit
the 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 Private Placement will not be extended past
January 31, 1997 except as necessary to accommodate
Ballantrae's purchase of the Placement Shares. The
Private Placement and Ballantrae's purchase commitment
are contingent on the Company's sale of at least
600,000 shares of Common Stock through the Private
Placement to persons other than Ballantrae.
Under the Letter Agreement, 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
alternative may attempt to arrange for distribution
through Advest at no net cost to the Company).
Ballantrae agrees not to purchase any of the AMC Shares
until 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).
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. 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 Letter Agreement, Ballantrae
has agreed to purchase the Placement Shares at a price
of up to $1.25 per share, subject to the terms and
conditions thereof. The Placement Shares constitute
400,000 shares of the Common Stock of the Company. As
provided in the Letter Agreement, Ballantrae's purchase
of the Placement Shares is subject to a number of
conditions (as described in Item 4 hereof), including
Ballantrae's purchase of the Trust Shares.
As of August 23, 1996, the Trust Shares and the
Placement Shares together represent approximately 35.6%
of the outstanding shares of Common Stock of the
Company.<F1>
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, the Trust
Shares and the Placement Shares. Ballantrae, the
members of the Management Committee and the Members
expressly disclaim beneficial ownership of the Trust
Certificate, the Trust Shares or the Placement 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, the Trust Shares or the
Placement 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 the AMC Shares. Ballantrae has not
entered into any definitive agreement with respect to
such shares, however, subject to the terms of the
Letter Agreement, Ballantrae may continue such
discussions from time to time.
<F1> Computed on the basis of 3,002,375 shares of
Common Stock outstanding, as reported on a Form 10-Q
filed by the Company with the SEC on August 15, 1996,
plus 400,000 shares of Common Stock to be purchased by
Ballantrae in the Private Placement, which are deemed
to be outstanding pursuant to Rule 13d-3(d)(1)(i). If
the Private Placement is consummated and the maximum
1,200,000 shares of Common Stock are sold pursuant
thereto, the Trust Shares and the Placement Shares
together would represent approximately 29.0% of the
outstanding shares of Common Stock of the Company.
(d), (e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or
Relationships With Respect to Securities of the Issuer.
Item 6 is hereby supplemented by inserting the following at
the end of the materials provided in Item 6.
Letter Agreement
A summary description of selected provisions of
the Letter Agreement is provided in Item 4. Such
description, as qualified in its entirety by reference
to the Letter Agreement, is incorporated by reference
in this Item 6.
Amendment No. 1
Set forth below is a summary description of
selected provisions of Amendment No. 1. Such
description is qualified in its entirety by reference
to Amendment No. 1, a copy of which has been included
as Exhibit 6.2 hereto and is incorporated by reference
herein.
Amendment No. 1 provides that Section 1.2(b) of
the Purchase Agreement is deleted in its entirety and
amended to provide that, upon the transfer of the Trust
Shares from the Seller to Ballantrae, an additional
$219,250 less reasonable expenses of Ballantrae (not to
exceed $150,000) will be delivered by Ballantrae to the
Seller.
Item 7. Material to be Filed as Exhibits.
Exhibit 6.1. Letter Agreement dated as of August 22,
1996, between North East Insurance Company and
Ballantrae Partners, L.L.C.
Exhibit 6.2. Amendment No. 1 to Purchase Agreement
dated as of August 22, 1996, between Ballantrae
Partners, L.L.C. and Bernhard Gershuny
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.
August 27, 1996
(Date)
/s/ Murry N. Gunty
(Signature)
Murry N. Gunty
Managing Director
(Name/Title)
Exhibit Index
Exhibit Page
6.1. Letter Agreement dated as of August 22,
1996, between North East Insurance
Company and Ballantrae Partners, L.L.C. 11
6.2 Amendment No. 1 to Purchase Agreement
dated as of August 22, 1996, between
Ballantrae Partners, L.L.C. and
Bernhard Gershuny 19
Exhibit 6.1
NORTH EAST INSURANCE GROUP
DELIVERY ADDRESS: 482 PAYNE ROAD - 4TH FLOOR
SCARBOROUGH COURT
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 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.
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.
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 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 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.
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
Exhibit 6.2
AMENDMENT NO. 1 TO PURCHASE AGREEMENT
AMENDMENT NO. 1 TO PURCHASE AGREEMENT dated as of August 22,
1996 (this "Amendment"), by and between Bernhard D. Gershuny (the
"Seller") and Ballantrae Partners, L.L.C., a Delaware limited
liability company (the "Purchaser").
WHEREAS, the Seller and the Purchaser are parties to that
certain Purchase Agreement dated as of May 14, 1996 (the
"Agreement");
WHEREAS, Section 9.3 of the Agreement requires that all
modifications of the Agreement be in writing and signed by the
party against which enforcement is sought; and
WHEREAS, each of the Seller and the Purchaser desires to
amend the Agreement to the extent set forth below.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, and of other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. Section 1.2(b). Section 1.2(b) of the Agreement is
hereby deleted in its entirety and amended to read as follows:
After the Closing and subject to the conditions
set forth in Section 6.1, upon (i) the approval of the
Bureau of Insurance of the State of Maine, the New York
State Insurance Department and any other applicable
regulatory authority of the transfer of the Trust
Shares to the Purchaser and (ii) the delivery of the
Trust Shares to the Purchaser, free and clear of all
liens, charges, pledges, security interests,
encumbrances, restrictions and claims of any kind
whatsoever in accordance with the terms of the Trust
and (iii) reasonable assurances from the Corporation to
the Purchaser that the Trust Shares will be registered
in the Purchaser's name upon presentation to the
Corporation's transfer agent, the Purchaser shall
deliver to the Seller an additional $219,250 less
reasonable expenses (including legal and accounting
fees) incurred by the Purchaser in connection with the
transactions contemplated hereunder, but not to exceed
$150,000 (the "Contingent Purchase Price"). The date
that the events set forth in clauses (i), (ii) and
(iii) of this Section 1.2(b) shall have occurred shall
be referred to herein as the "Approval Date."
2. Capitalized Terms. Capitalized terms not defined
herein shall have the meanings ascribed to such terms in the
Agreement.
3. Ratification. Except as amended hereby, the parties
hereby ratify and affirm each of the terms and provisions of the
Agreement, which shall continue in full force and effect.
IN WITNESS WHEREOF, this Amendment has been duly
executed by the parties hereto as of the date first above
written.
BERNHARD D. GERSHUNY
/s/ Bernhard D. Gershuny
BALLANTRAE PARTNERS, L.L.C., a
Delaware limited liability
company
/s/ Jonathan S. Kern
By: Jonathan S. Kern
