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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No.__)*
HOME STATE HOLDINGS, INC.
(Name of Issuer)
COMMON STOCK
(Title of Class of Securities)
437368 10 3
(CUSIP Number)
Howard E. Steinberg
Senior Vice President and General Counsel
Reliance Financial Services Corporation
Park Avenue Plaza
55 East 52nd Street
New York, New York 10055
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications)
OCTOBER 4, 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 / /. (A fee is
not required only if the reporting person: (1) has a previous statement on file
reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
NOTE: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
Exhibit Index is located on page 13.
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SCHEDULE 13D
CUSIP NO. 437368 10 3
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
RELIANCE FINANCIAL SERVICES CORPORATION
IRS EMPLOYER'S IDENTIFICATION NO.: 51-0113548
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) /X/
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or (e) /X/
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
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7 SOLE VOTING POWER
620,251 SHARES OF COMMON STOCK
SHARES --------------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY
EACH 0 SHARES OF COMMON STOCK
REPORTING --------------------------------------------------------------
PERSON 9 SOLE DISPOSITIVE POWER
WITH
620,251 SHARES OF COMMON STOCK
--------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0 SHARES OF COMMON STOCK
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
620,251 SHARES OF COMMON STOCK
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / /
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
9.9%**
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14 TYPE OF REPORTING PERSON*
HC
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* SEE INSTRUCTIONS BEFORE FILLING OUT!
** Based on 5,660,000 shares of Common Stock outstanding as of October 4, 1996.
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The following information is filed by Reliance Financial Services
Corporation ("Reliance Financial") relating to the ownership by its subsidiaries
of the class of securities listed
on the cover of this Schedule 13D.
Item 1. Security and Issuer
This statement relates to the Common Stock, $0.01 par value ("Common
Stock"), of Home State Holdings, Inc., a corporation organized under the laws of
the State of Delaware (the "Company"). The principal executive offices of the
Company are located at Three South Revmont Drive, Shrewsbury, New Jersey 07702.
Item 2. Identity and Background
This statement is filed by Reliance Financial, which owns all of the
common stock of Reliance Insurance Company, a Pennsylvania corporation ("RIC").
RIC and its property and casualty insurance subsidiaries and its title insurance
subsidiaries are principally engaged in the business of underwriting a broad
range of standard commercial and specialty commercial lines of property and
casualty insurance, as well as title insurance. All of the capital stock of
Reliance Financial is owned by Reliance Group Holdings, Inc., a Delaware
corporation ("RGH").
Approximately 45% of the common voting stock of RGH is owned by Saul P.
Steinberg, members of his family and affiliated trusts. As a result of his
stockholdings in RGH, Saul P. Steinberg may be deemed to control RGH.
The principal executive offices of each of Reliance Financial and RGH
are located at Park Avenue Plaza, 55 East 52nd Street, New York, New York 10055.
The names, addresses and principal occupations of the directors and
executive officers of Reliance Financial, all of whom are United States
citizens, are as follows:
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POSITION WITH RELIANCE
FINANCIAL AND PRINCIPAL
NAME AND BUSINESS ADDRESS OCCUPATION
- ------------------------- -----------------------
Saul P. Steinberg Chairman of the Board, Chief
Reliance Group Holdings, Inc. Executive Officer and
Park Avenue Plaza Director, Reliance Financial
New York, New York 10055 and RGH
Robert M. Steinberg President, Chief Operating
Reliance Group Holdings, Inc. Officer and Director, Reliance
Park Avenue Plaza Financial and RGH; Chairman of
New York, New York 10055 the Board and Chief Executive
Officer, RIC
George E. Bello Executive Vice President,
Reliance Group Holdings, Inc. Controller and Director,
Park Avenue Plaza Reliance Financial and RGH
New York, New York 10055
Lowell C. Freiberg Senior Vice President, Chief
Reliance Group Holdings, Inc. Financial Officer and
Park Avenue Plaza Director, Reliance Financial
New York, New York 10055 and RGH
Henry A. Lambert Senior Vice President--Real
Reliance Group Holdings, Inc. Estate Investments and
Park Avenue Plaza Operations, Reliance Financial
New York, New York 10055 and RGH; President and Chief
Executive Officer, Reliance
Development Group, Inc.
Dennis J. O'Leary Senior Vice President--Taxes,
Reliance Group Holdings, Inc. Reliance Financial and RGH
Park Avenue Plaza
New York, New York 10055
Philip S. Sherman Senior Vice President--Group
Reliance Group Holdings, Inc. Controller, Reliance Financial
Park Avenue Plaza and RGH
New York, New York 10055
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POSITION WITH RELIANCE
FINANCIAL AND PRINCIPAL
NAME AND BUSINESS ADDRESS OCCUPATION
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Bruce L. Sokoloff Senior Vice President--
Reliance Group Holdings, Inc. Administration, Reliance
Park Avenue Plaza Financial and RGH
New York, New York 10055
Howard E. Steinberg, Esq. Senior Vice President, General
Reliance Group Holdings, Inc. Counsel and Corporate
Park Avenue Plaza Secretary, Reliance Financial
New York, New York 10055 and RGH
James E. Yacobucci Senior Vice President--
Reliance Insurance Company Investments and Director,
Park Avenue Plaza Reliance Financial, RGH and
New York, New York 10055 RIC
George R. Baker Director, Reliance Financial
WMS Industries and RGH; Corporate
3401 North California Avenue Director/Advisor various
Chicago, Illinois 60618 business enterprises
Dennis A. Busti Director, Reliance Financial
Reliance National and RGH; President and Chief
Risk Specialists, Inc. Executive Officer, Reliance
77 Water Street National Risk Specialists,
New York, New York 10005 Inc.
Dr. Thomas P. Gerrity Director, Reliance Financial
The Wharton School and RGH; Dean, the Wharton
University of Pennsylvania School of the University of
Steinberg Hall-Dietrich Hall Pennsylvania
3620 Locust Walk
Philadelphia, PA 19104
Jewell J. McCabe Director, Reliance Financial
Jewell Jackson McCabe and RGH; President, Jewell
Associates Jackson McCabe Associates,
50 Rockefeller Plaza consultants specializing in
Suite 46 strategic planning and
New York, New York 10020 communications
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POSITION WITH RELIANCE
FINANCIAL AND PRINCIPAL
NAME AND BUSINESS ADDRESS OCCUPATION
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Irving Schneider Director, Reliance Financial
Helmsley-Spear, Inc. and RGH; Executive Vice
60 East 42nd Street President, Helmsley-Spear,
New York, New York 10165 Inc., a real estate management
corporation
Bernard L. Schwartz Director, Reliance Financial
Loral Space & Communications and RGH; Chairman of the
Ltd. Board, Chief Executive
600 Third Avenue Officer, Loral Space &
New York, New York 10016 Communications Ltd., a defense
electronics and communications
corporation; Chairman of the
Board, Chief Executive
Officer, Globalstar
Telecommunications, Ltd.
Richard E. Snyder Director, Reliance Financial
c/o Golden Books Family and RGH; Chairman & C.E.O. of
Entertainment, Inc. Golden Books Family
850 Third Avenue Entertainment, Inc.
New York, New York 10022
Thomas J. Stanton, Jr. Director, Reliance Financial
240 South Mountain Avenue and RGH; Chairman Emeritus of
Montclair, New Jersey 07042 National Westminster Bank NJ
Neither Reliance Financial nor, to the best of Reliance Financial's
knowledge, any of the persons referred to in this Item 2 has, during the last
five years, been convicted in a criminal proceeding (excluding traffic
violations and similar misdemeanors) or, except as set forth below, 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, Federal or
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state securities laws or finding any violation with respect to such laws.
On February 17, 1994, in settlement of an administrative proceeding
concerning the accounting treatment for certain transactions in 1986 in the
fixed income portfolio of RIC without admitting or denying the allegations
against it, RGH agreed to entry of an order by the Securities and Exchange
Commission that RGH cease and desist from committing or causing any violation,
and from committing or causing any future violation of, Section 13(a) of the
Securities Exchange Act of 1934, as amended, and Rules 13a-1 and 13a-3
thereunder.
Item 3. Source and Amount of Funds or Other Consideration
RIC entered into a Securities Purchase Agreement (the "Securities
Purchase Agreement"), dated October 4, 1996 (a copy of which is attached hereto
as Exhibit 1), by and among the Company, RIC and Swiss Reinsurance America
Corporation, a corporation organized under the laws of the State of New York
("Swiss Re").
Pursuant to the Securities Purchase Agreement, on October 4, 1996 RIC
acquired for an aggregate cash purchase price of $5,000,000 (i) 5,000 shares
(the "Preferred Shares") of the Company's Series A Cumulative Voting Preferred
Stock, $0.01 par value (the "Preferred Stock") and (ii) Class A Warrants (the
"Warrants") evidenced by the Warrant Certificate attached hereto as Exhibit 2
entitling RIC to purchase an aggregate of up to 700,000 shares of Common Stock
(subject to adjustment as provided in the Warrants and the limitation described
in the immediately subsequent sentence) at an exercise price of $9.50 per
share. Notwithstanding the foregoing, RIC is prohibited by the terms of the
Warrants from exercising its rights to purchase Common Stock under the Warrants
to the extent such exercise would result, directly or indirectly, in RIC and
its affiliates owning, controlling or being entitled to own shares of capital
stock that, in the aggregate, represent ten percent (10%) or more of (i) of the
voting rights of all of the then outstanding shares of capital stock of the
Company or (ii) the then outstanding shares of Common Stock of the Company.
Based on the Company's representations in the Securities Purchase Agreement, on
October 4, 1996, there were 5,660,000 outstanding shares of Common Stock of the
Company, and
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accordingly, the Warrants held by RIC were exercisable for an aggregate total of
620,251 shares of Common Stock representing approximately 9.9% of the Common
Stock. The number of shares of Common Stock deliverable upon exercise of the
Warrants, and the exercise price thereof, are subject to adjustment as provided
in the Warrants.
The funds used by RIC to pay the purchase price for the Preferred
Shares and Warrants came from working capital of RIC available for investment.
The Securities Purchase Agreement which is attached hereto as Exhibit 1
and the Form of Warrant which is attached hereto as Exhibit 2 are incorporated
by reference and qualify the descriptions above.
Item 4. Purpose of Transaction
The Preferred Shares and Warrants were acquired by RIC for investment
purposes and not with the purpose of changing control of the Company.
In connection with, and as a condition to, the acquisition of the
Preferred Shares and Warrants the following agreements relating to or bearing
upon such securities were executed and delivered by RIC:
A Stockholders' Agreement (the "Stockholders' Agreement") dated as of
October 4, 1996 (a copy of which is attached hereto as Exhibit 3) by and among
the Company, RIC, Swiss Re, Herrick Partners, L.P., a Delaware limited
partnership ("Herrick Partners'), Michael H. Monier ("Mr. Monier") and Edward D.
Herrick ("Mr. Herrick") pursuant to which, among other things, (i) Swiss Re has
the right to designate an individual to serve as a Director of the Company for
so long as its holds shares of Preferred Stock, (ii) the parties have agreed to
vote in favor of the election of the individual designated by Swiss Re as a
Director of the Company, (iii) each of RIC and Swiss Re has the right, upon the
occurrence of a Redemption Default (as defined in the Stockholders' Agreement),
to designate an individual to serve as a Director of the Company, (iv) the
parties to the Stockholders' Agreement have agreed to vote in favor of the
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election of any individual designated by RIC and/or Swiss Re as a Dirctor of
the Company after a Redemption Default, and (v) the parties have agreed to vote
in favor of amending the Certificate of Incorporation of the Company (as
contemplated in the Securities Purchase Agreement and as described below).
A Registration Rights Agreement (the "Registration Rights Agreement")
dated as of October 4, 1996 (a copy of which is attached hereto as Exhibit 4) by
and among the Company, RIC and Swiss Re, pursuant to which RIC and Swiss Re have
been granted certain registration rights with respect to the shares of Common
Stock obtainable upon conversion or exercise of the Warrants.
In addition to the foregoing, Robert Abidor, a former executive of the
Company and a holder of 8.55% of the Common Stock, agreed with RIC and Swiss
Re, by letter agreement (the "Abidor Agreement") dated October 4, 1996 (a copy
of which is attached hereto as Exhibit 5) to vote all shares of Common Stock
which he holds or over which he exercises discretionary voting authority in
favor of amending the Certificate of Incorporation (as contemplated in the
Securities Purchase Agreement and as described below).
The Securities Purchase Agreement requires the Company to present at the
next annual stockholders' meeting, for a vote by the stockholders, certain
proposed amendments to the Certificate of Incorporation of the Company. Such
amendments would facilitate the election of those Directors which may be
designated by RIC and Swiss Re by, among other things, (i) providing for an
increase in the size of the Company's Board of Directors to not less than eight
(8) nor more than ten (10) members,(ii) permitting class voting, (iii)
permitting the removal of Directors without cause, (iv) providing that the
holders of Preferred Stock voting as a class shall be entitled to elect one
Director to the Company's Board of Directors and (v)providing that in the event
of a Redemption Default the holders of Preferred Stock voting as a class shall
be entitled to elect two directors to the Company's Board of Directors. The
parties to the Stockholders' Agreement and Mr. Abidor have agreed to vote all of
their respective shares in favor of the proposed amendments.
The response to Item 3 is incorporated herein by reference. The
Stockholders' Agreement which is attached hereto as Exhibit 3, the Registration
Rights Agreement which is attached hereto as Exhibit 4 and the Abidor
Agreement which is attached hereto as Exhibit 5 are incorporated herein by
reference.
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Item 5. Interest in Securities of the Company
RIC directly owns (i) 5,000 shares of Preferred Stock and (ii) Warrants
to purchase up to 700,000 shares of the Company's Common Stock (subject to
adjustment as provided in the Warrants and the limitation described in Item 3
hereof).
As of October 4, 1996, the Common Stock beneficially owned by RIC
pursuant to the Warrants, totalled approximately 620,251 shares and comprised
approximately 9,9% of the outstanding Common Stock. The number of shares of
Common Stock obtainable upon exercise in full of the Warrants is subject to
adjustment as provided in the Warrants and the limitations described in Item 3
hereof.
The terms of the Stockholders' Agreement could be deemed to provide for
an agreement among the parties thereto to act together for the purpose of
voting equity securities of the Company within the meaning of Rule 13(d)(5)
under the Securities Exchange Act of 1934, as amended (the "Act"). Accordingly,
the parties thereto could be deemed to be members of a "group" and could be
deemed to be beneficial owners of all of the securities of the Company held by
such group. RIC denies the existence of such a group and disclaims beneficial
ownership of the securities of the Company held by any person other than by
RIC.
Except as reported in Item 4 hereof, there have been no reportable
transactions with respect to the Common Stock within the last 60 days by RIC and
persons named in Item 2 hereof.
The response to Item 4 is incorporated herein by reference.
Item 6. Contracts, Arrangements, Understandings or Relationships
With Respect to the Securities of the Issuer
Except as herein disclosed, no contracts, arrangements, understandings
or relationships (legal or otherwise) exist among the persons named in Item 2
hereof or between such persons and any other person with respect to any
securities of the
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Company, including but not limited to transfer or voting of any such securities,
finder's fees, joint ventures, loan or option arrangements, puts or calls,
guarantees of profits, divisions of profits or loss, or the giving or
withholding of proxies.
Item 7. Material to be Filed as Exhibits
Exhibit 1 Securities Purchase Agreement,
dated as of October 4, 1996, by
and among the Company, RIC and
Swiss Re
Exhibit 2 Form of Warrant Certificate
issued to RIC
Exhibit 3 Stockholders' Agreement, dated
as of October 4, 1996, by and
among the Company, RIC, Swiss
Re, Mr. Herrick, Herrick
Partners and Mr. Monier
Exhibit 4 Registration Rights Agreement,
dated as of October 4, 1996, by
and among the Company, RIC and
Swiss Re
Exhibit 5 Letter Agreement, dated
October 4, 1996, executed by
Robert Abidor in favor of RIC
and Swiss Re
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SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief,
the undersigned certifies that the information set forth in this statement is
true, complete and correct.
Dated: October 15, 1996
RELIANCE FINANCIAL SERVICES CORPORATION
By: /s/ James E. Yacobucci
---------------------------------------------
Name: James E. Yacobucci
Title: Senior Vice President--Investments
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LIST OF EXHIBITS
Exhibit 1 Securities Purchase Agreement,
dated as of October 4, 1996, by
and among the Company, RIC and
Swiss Re
Exhibit 2 Form of Warrant Certificate
issued to RIC
Exhibit 3 Stockholders' Agreement, dated
as of October 4, 1996, by and
among the Company, RIC, Swiss
Re, Mr. Herrick, Herrick
Partners and Mr. Monier
Exhibit 4 Registration Rights Agreement,
dated as of October 4, 1996, by
and among the Company, RIC and
Swiss Re
Exhibit 5 Letter Agreement, dated
October 4, 1996, executed by
Robert Abidor in favor of RIC
and Swiss Re
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Exhibit 1
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HOME STATE HOLDINGS, INC.
SECURITIES PURCHASE AGREEMENT
DATED AS OF OCTOBER 4, 1996
SERIES A VOTING PREFERRED STOCK
AND
CLASS A WARRANTS
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SECURITIES PURCHASE AGREEMENT dated as of October 4, 1996
(together with all exhibits and schedules and as from time to time assigned,
supplemented or amended or as the terms thereof may be waived, the "Purchase
Agreement") by and among Home State Holdings, Inc., a Delaware corporation (the
"Company", which term shall also include successors and assigns), and each of
the persons listed on the signature page of this Purchase Agreement (each a
"Purchaser", and together the "Purchasers", which term or terms shall also
include successors and assigns).
W I T N E S S E T H:
In consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
SECTION 1. SALE AND PURCHASE
1.1. Issuance of Shares.
The Company will authorize the issuance of 25,000 shares of
Series A Cumulative Voting Preferred Stock, $0.01 par value per share (the
"Series A Preferred Stock"). The shares of Series A Preferred Stock being
acquired under this Purchase Agreement are herein referred to as the "Preferred
Shares," containing all the rights and privileges as more fully set forth in the
Certificate of Designations to the Certificate of Incorporation adopted by the
Board of the Company in the form attached hereto as Exhibit A (the "Certificate
of Designations").
1.2. Issuance of Warrants.
(a) The Company, prior to the Closing (as hereinafter
defined), will authorize the issuance of 2,100,000 Class A Warrants (the
"Warrants"), which at the Closing Date (as hereinafter defined) shall entitle
the holders thereof to purchase in the aggregate 2,100,000 shares of the
Company's Common Stock at an exercise price of $9.50 per share, such Warrants to
be evidenced by certificates substantially in the form attached hereto as
Exhibit B-1; provided, however that the certificate representing the Warrants
purchased by Reliance shall be in the form attached hereto as Exhibit B-2. The
number of shares of the Company's Common Stock deliverable upon exercise of the
Warrants, and the exercise price thereof, shall be subject to adjustment as
provided in the Warrants.
(b) The purchase price for shares of the Company's Common
Stock under the Warrants shall, at the option of a holder of a Preferred Share
and pursuant to the terms of the Warrants, be payable in cash and/or by
application of (i) all or any portion of the surrender value (as set forth in
Section 8(a) of the Certificate of Designations), at the date of exercise of the
Warrants, of any such Preferred Share and/or (ii) accrued and unpaid dividends
on any Preferred Shares at the time held by the holder.
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1.3. The Closing.
(a) The Company agrees to sell to each Purchaser and, subject
to the terms and conditions hereof and in reliance upon the representations and
warranties of the Company contained herein or made pursuant hereto, each
Purchaser agrees to purchase from the Company, the number of Preferred Shares
and Warrants set forth opposite such Purchaser's name on Schedule A hereto for
the aggregate purchase price set forth opposite such Purchaser's name on
Schedule A hereto (the "Purchase Price"). No further payment shall be required
from the Purchasers for the Preferred Shares and the Warrants.
(b) The closing of the purchase and sale of the Preferred
Shares and the Warrants to be purchased by the Purchasers (the "Closing") will
take place at the offices of Morgan, Lewis & Bockius LLP, 101 Park Avenue, New
York, New York at 10:00 A.M., New York City time, on October 4, 1996 or such
other time and date as shall be mutually agreed to by the Company and the
Purchasers. Such time and date are herein referred to as the "Closing Date".
(c) At the Closing (i) the Company will deliver to each
Purchaser (A) a certificate registered in such Purchaser's name (or in any such
other name as such Purchaser may request) evidencing the number of Preferred
Shares set forth opposite such Purchaser's name on Schedule A hereto and (B) a
certificate registered in such Purchaser's name (or in any such other name as
such Purchaser may request) evidencing the number of Warrants set forth opposite
such Purchaser's name on Schedule A hereto, and (ii) upon each Purchaser's
receipt thereof, each Purchaser will deliver to the Company by wire transfer of
federal or other immediately available funds an aggregate amount equal to its
respective Purchase Price.
(d) The Preferred Shares and the Warrants are being sold to
the Purchasers pursuant to this Purchase Agreement. The sale of Preferred Shares
and Warrants to each Purchaser under the Purchase Agreement is a separate sale.
No Purchaser is an indispensable party or must otherwise be joined in any action
by any and/or all of the Purchasers seeking enforcement against the Company of
any covenants or obligations hereunder.
1.4. Use of Proceeds.
The Company will use the proceeds from the sale of the
Preferred Shares and Warrants to increase the capital and surplus of the
Company's Insurance Subsidiaries and to pay for the costs incurred (including
those referenced in clauses (i) through (iv) of Section 14(a) hereof) in
respect of this transaction and for no other purpose.
1.5. Definitions.
Capitalized terms in this Purchase Agreement are used as
defined in Section 4 hereof unless otherwise defined herein.
2
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SECTION 2. CONDITIONS TO CLOSING
The Purchasers' obligation to purchase the Preferred Shares
and Warrants hereunder is subject to satisfaction of the following conditions at
or prior to the Closing (any of which may be waived by the Purchasers):
2.1. Certificate of Designations; Stockholders' Agreement,
etc.
(a) The certificate of incorporation of the Company shall
have been duly amended by the filing of the Certificate of Designations.
(b) The Company, the Purchasers and certain other stockholders
of the Company shall have entered into a Stockholders' Agreement dated the date
hereof (as from time to time assigned, supplemented or amended or as the terms
thereof may be waived, the "Stockholders' Agreement") in the form attached
hereto as Exhibit C.
(c) The Company and the Purchasers shall have entered into a
Registration Rights Agreement dated the date hereof (as from time to time
assigned, supplemented or amended or as the terms thereof may be waived, the
"Registration Rights Agreement") in the form attached hereto as Exhibit D.
(d) The Board of the Company shall have amended the By-Laws of
the Company (after giving effect to such amendments, the "By-Laws"), effective
upon the Closing, which amendments shall be in the form attached hereto as
Exhibit E.
2.2. Certain Other Agreements.
The Company shall have entered into the reinsurance
agreements, reinsurance binders and other agreements listed on Schedule B hereto
with the respective Purchasers listed on Schedule B, in form and substance
acceptable to each such Purchaser (the "Additional Agreements").
2.3. Accuracy of Representations and Warranties.
The representations and warranties of the Company herein or in
any Other Transaction Document, the Securities or in any certificate or document
delivered pursuant hereto or thereto shall be correct and complete on and as of
the Closing Date with the same effect as though made on and as of the Closing
Date (after giving effect to the transactions contemplated by this Purchase
Agreement).
2.4. Compliance with Agreements; Redemption Events.
3
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The Company shall have performed and complied with all
agreements, covenants and conditions contained in this Purchase Agreement, the
Other Transaction Documents, the Securities and any other document contemplated
hereby or thereby which are required to be performed or complied with by the
Company on or before the Closing Date. On the Closing Date (after giving effect
to the transactions contemplated hereby), there shall be no Redemption Event,
and there shall be no condition or event which, with notice or lapse of time or
both, would constitute a Redemption Event.
2.5. Certificates.
Each Purchaser shall have received from the Company the
following:
(a) a certificate dated the Closing Date and signed by the
President (or Acting President if there is no President) and by the Assistant
Secretary of the Company, to the effect set forth on Exhibit F-1 hereto
certifying as to the fulfillment of the conditions contained in this Section 2;
(b) a certificate dated the Closing Date and signed by the
President (or Acting President if there is no President) and by the Assistant
Secretary of the Company, to the effect set forth on Exhibit F-2 hereto, having
attached thereto the following:
(i) certified copies of the resolutions duly
adopted by the Board of the Company authorizing the execution,
delivery and performance of this Purchase Agreement, the Other
Transaction Documents, the issuance and sale of the
Securities, the reservation and issuance of the Warrant Shares
and the consummation of all other transactions contemplated by
this Purchase Agreement, the Other Transaction Documents and
the Securities;
(ii) certified copies of the Certificate of
Incorporation of the Company and each of its Subsidiaries, all
amendments thereto and the By-laws of the Company and each of
its Subsidiaries, each as in effect at the Closing;
(iii) certificates of good standing of the
Company and each of its Subsidiaries from their respective
states of incorporation or organization; and
(iv) Certificates of Compliance of each of
the Insurance Subsidiaries from the Directors of Insurance or
the equivalent thereof, from their respective states of
incorporation or organization, as to the authorization of each
such Insurance Subsidiary to carry on the business of
insurance and reinsurance.
4
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2.6. Proceedings.
All corporate and other proceedings in connection with the
transactions contemplated by this Purchase Agreement, the Other Transaction
Documents and the Securities, and all documents incident hereto and thereto,
shall be in form and substance satisfactory to the Purchasers and their counsel,
and each Purchaser shall have received all such originals or certified or other
copies of such documents as any such Purchaser or its counsel may reasonably
request.
2.7. Legality; Governmental and Other Authorization.
The purchase of and payment for the Securities shall not be
prohibited by any law or governmental order, rule, ruling, regulation, release,
interpretation or opinion applicable to any Purchaser (without resort to any
so-called "basket clause" under insurance laws relating to permissible
investments for persons regulated by such laws) and shall not subject any
Purchaser to any penalty, tax, liability or other onerous condition. The
Consents set forth in items 3(a) and 3(b) of Schedule 5.5 hereto have been
obtained or made by the Company and shall be in full force and effect (and all
such Consents shall have been delivered to the Purchasers). The Note Holders
shall have amended the existing Registration Rights Agreement in a manner
reasonably satisfactory to each Purchaser. Upon the reasonable request of any
Purchaser, the Company shall have delivered to such Purchaser factual
certificates or other evidence, in form and substance satisfactory to any such
Purchaser and its counsel, establishing compliance with this condition.
2.8. No Change in Law, etc.
No legislation, order, rule, ruling or regulation shall have
been proposed, enacted or made by or on behalf of any Governmental Authority,
and no legislation shall have been introduced in either House of Congress, and
no investigation by any governmental authority shall have been commenced or
threatened, and no action, suit or proceeding shall have been commenced before,
and no decision shall have been rendered by, any court, other Governmental
Authority or arbitrator, which, in any such case, in any Purchaser's reasonable
judgment could adversely affect, restrain, prevent or change the transactions
contemplated by this Purchase Agreement, the Other Transaction Documents and the
Securities (including without limitation the issuance of the Securities) or
materially and adversely affect the assets, properties, liabilities, business,
affairs, results of operations, condition (financial or otherwise) or prospects
of the Company on a consolidated basis.
2.9. Opinion of Counsel.
The Purchasers shall have received opinions, dated the Closing
Date and addressed to each Purchaser, of (a) Edwards & Angell, counsel for the
Company and (b) Dorsey & Whitney, counsel to Messrs. Herrick and Monier and to
Herrick Partners L.P.. Such opinions shall be in form and substance satisfactory
to each Purchaser and shall be to the effect set forth on Exhibit G-1 and
Exhibit G-2 hereto. The Company hereby instructs such counsel to prepare and
deliver such
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opinions to the Purchasers pursuant to this Section 2.9 and agrees that each
Purchaser may rely on the opinions so delivered.
2.10. Payment of Transaction Expenses.
Without limiting the provisions of Section 14 hereof, the
Company shall have paid the fees and disbursements of Morgan, Lewis & Bockius
LLP, special counsel to Swiss Re and Reliance, and the out-of-pocket expenses of
each Purchaser.
2.11. Company Financial Condition; No Material Adverse
Effect.
Except as set forth in items 1, 2 and 3 of Schedule 5.6, since
December 31, 1995, no event or events shall have occurred, and no condition or
conditions shall exist, which could have a Material Adverse Effect; provided
that, for purposes of the condition contained in this Section 2.11, any event or
condition requiring an increase of aggregate claim reserves so that incurred
losses are above an amount equal to 85% of net earned premium for the period
from such date through the Closing shall be deemed a Material Adverse Effect.
2.12. Other Documents and Opinions.
Each Purchaser shall have received such other documents and
opinions, in form and substance satisfactory to each such Purchaser and its
counsel, relating to matters incident to the transactions contemplated hereby,
as such Purchaser may reasonably request.
2.13. Preferred Director.
Pursuant to the Stockholders' Agreement, the Preferred
Director shall have been duly appointed to the Board of the Company as a Class
III Director.
2.14. Public Announcements.
Each Purchaser shall have received from the Company, and shall
have approved of (in its reasonable discretion), any press release, media alert,
public announcement or other similar notice or public statement of the Company
related to this Purchase Agreement, any Other Transaction Document or the
Securities or any transaction contemplated hereby or thereby.
2.15. Letter to Accountants.
The Company shall have delivered to Coopers & Lybrand the
letter described in Section 7.2 hereof and each Purchaser shall have received a
copy thereof.
2.16. Resignation.
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Each of Swiss Re and Reliance shall have received the
resignation of a director seated on the Board of the Company on the date hereof
which resignation shall be effective as provided in Section 8.16 hereof.
SECTION 3. COMPANY'S CONDITIONS TO CLOSING
The Company's obligations to issue and sell to each Purchaser
the Securities to be issued by it on the Closing Date are subject to
satisfaction of the following conditions at Closing:
3.1. Accuracy of Representations and Warranties.
The representations and warranties of each Purchaser in
Section 6 hereof shall be correct and complete on and as of the Closing Date
with the same effect as though made on and as of the Closing Date.
3.2. Fairness Opinion.
The Company shall have received an opinion, dated the Closing
Date and addressed to the Company and each of the Purchasers, of The Chicago
Corporation to the effect that the sale of the Securities to the Purchasers is
fair to the Company and its stockholders from a financial point of view.
SECTION 4. DEFINITIONS
(a) For purposes of this Purchase Agreement, the following
definitions shall apply (such definitions to be equally applicable to both the
singular and plural forms of the terms defined):
"Additional Agreements" has the meaning set forth in Section
2.2 hereof.
"Additional Securities" has the meaning set forth in Section
11 hereof.
"Additional Stockholders" has the meaning set forth in the
Stockholders' Agreement.
"Affiliate", when used with respect to any Person, means (i)
if such Person is a corporation, any officer or director thereof (other than a
director nominated by the Swiss Re Holders or the Reliance Holders pursuant to
the Stockholders' Agreement) and any Person (other than the Purchasers) which
is, directly or indirectly, the beneficial owner (by itself or as part of any
group) of more than five percent (5%) of any class of any equity security
(within the meaning of the Exchange Act) of such Person, and, if such beneficial
owner is a partnership, any general or limited partner thereof, or if such
beneficial owner is a corporation, any Person controlling, controlled by or
under common control with such beneficial owner, or any officer or director of
such beneficial
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<PAGE> 9
owner or of any corporation occupying any such control relationship, (ii) if
such Person is a partnership, any general or limited partner thereof, and (iii)
any other Person which, directly or indirectly, controls or is controlled by or
is under common control with such Person. For purposes of this definition,
"control" (including the correlative terms "controlling", "controlled by" and
"under common control with"), with respect to any Person, shall mean possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise. Notwithstanding the foregoing, for
purposes of this definition, neither the execution of this Purchase Agreement
and the Other Transaction Documents (or the existence of any other agreement or
arrangement among the Company and any Purchaser), nor the holding of any of the
Securities or any securities issued pursuant to this Purchase Agreement or any
Other Transaction Document or under any of the agreements or instruments
relating to such securities issued pursuant to this Purchase Agreement (or the
exercise of any such rights, including without limitation electing a director to
the Board of the Company), shall cause any Purchaser (or such nominated director
or observer of any person related to such Person) to be deemed to be an
"Affiliate" of the Company or of any Subsidiary.
"Available Securities" has the meaning set forth in Section
11.2 hereof.
"Benefit Plan" means any Plan, existing on the Closing Date or
established prior thereto, to which contributions have at any time been made by
the Company or any Subsidiary, or any predecessor of any of the foregoing, or
under which any employee, former employee or director of the Company or any
Subsidiary or any beneficiary thereof is covered, is eligible for coverage or
has benefit rights.
"Board" means, with respect to any Person which is a
corporation, a business trust or other entity, the board of directors or other
group, however designated, which is charged with legal responsibility for the
management of such Person, or any committee of such board of directors or group,
however designated, which is authorized to exercise the power of such board or
group in respect of the matter in question.
"Business Day" means any day, other than a Saturday, Sunday or
legal holiday, on which banks in New York, New York and in the location of the
office of the Company provided for in Section 8.2 hereof are open for business.
"By-Laws" has the meaning set forth in Section 2.1(d) hereof.
"Capital Expenditures" means all expenditures for, or
contracts for expenditures with respect to, any fixed assets or improvements, or
for replacements, substitutions or additions thereto, including, but not limited
to, the direct or indirect acquisition of such assets by way of increased
product or service charges, offset items or otherwise, and including in any case
the principal portion of all expenditures under Capitalized Leases, all as
determined in accordance with GAAP (except as otherwise expressly provided
herein); provided that the term "Capital Expenditures" shall not
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<PAGE> 10
include any of the foregoing expenditures made with the proceeds from insurance
policies to replace or repair property or assets whose damage, destruction or
impairment gave rise to the right to receive such insurance proceeds.
"Capitalized Leases" means any lease to which the Company or
any Subsidiary is party as lessee, or by which it is bound, under which it
leases any property (real, personal or mixed) from any lessor other than the
Company or a Subsidiary, and which is required to be capitalized in accordance
with GAAP.
"Certificate of Designations" has the meaning specified in
Section 1.1 hereof.
"Certificate of Incorporation" means the Certificate of
Incorporation of the Company, as amended by the Certificate of Designations.
"Class III Director" means a director duly appointed or
elected as a Class III Director in accordance with the By-Laws and having a term
which expires at the 1999 annual meeting of the Stockholders of the Company.
"Clayton Act" means Section 7 of the Clayton Act (15 U.S.C.
Section 18).
"Closing" has the meaning set forth in Section 1.3(b) hereof.
"Closing Date" has the meaning set forth in Section 1.3(b)
hereof.
"Code" means the United States Internal Revenue Code of 1986,
as amended from time to time, and the regulations and interpretations
thereunder.
"Commission" means the United States Securities and Exchange
Commission and any other similar or successor agency of the federal government
administering the Securities Act or the Exchange Act.
"Common Stock" of the Company or of a Subsidiary (as the case
may be) shall mean the Company's or the Subsidiary's (as the case may be)
presently authorized Common Stock, and any stock into which such Common Stock
may hereafter be changed or for which such Common Stock may be exchanged after
giving effect to the terms of such change or exchange (by way of reorganization,
recapitalization, merger, consolidation or otherwise) and shall also include any
Common Stock of the Company or of a Subsidiary (as the case may be) of any other
class hereafter authorized which is not preferred as to dividends or assets over
any other class of capital stock of the Company or a Subsidiary (as the case may
be) or which has ordinary voting power for the election of directors of the
Company or of a Subsidiary (as the case may be).
"Company" means Home State Holdings, Inc., a Delaware
corporation, and its successors and assigns.
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"Consents" has the meaning set forth in Section 5.5 hereof.
"Consolidated" or "consolidated", when used with reference to
any financial term in this Purchase Agreement, means the aggregate for the
Company and its Subsidiaries of the amounts signified by such term for all such
Persons, with intercompany items eliminated, and, with respect to net worth,
after eliminating the portion of net worth properly attributable to minority
interests, if any, in the capital of any such Person (other than in the capital
of the Company) and otherwise as determined in accordance with GAAP (except as
otherwise expressly provided herein).
"Debt Investments" means any Investment of the type described
in subsection (i) of the definition thereof.
"Default Director" has the meaning set forth in the
Stockholders' Agreement.
"Disclosure Material" has the meaning set forth in Section
5.6(a) hereof.
"Environmental Claim" means any and all administrative or
judicial actions, suits, orders, claims, liens, notices, notices of violations,
investigations, complaints, requests for information, proceedings, or other
communication (written or oral), whether criminal or civil, (collectively,
"Claims") pursuant to or relating to any applicable Environmental Law or any
Environmental Permit by any person (including but not limited to any
Governmental Authority, private person and citizens' group) based upon,
alleging, asserting, or claiming any actual or potential (i) violation of or
liability under any Environmental Law, (ii) violation of any Environmental
Permit, or (iii) liability for investigatory costs, cleanup costs, removal
costs, remedial costs, response costs, natural resource damages, property
damage, personal injury, fines, or penalties arising out of, based on, resulting
from, or related to the presence, Release, or threatened Release into the
environment, of any Hazardous Materials at any location, including but not
limited to any off-Site location to which Hazardous Materials or materials
containing Hazardous Materials were sent for handling, storage, treatment, or
disposal.
"Environmental Laws" means all current and future, federal,
state, local, foreign, civil and criminal laws, statutes, ordinances, orders,
codes, Environmental Permits, rules, policies, and regulations and common law
relating to the protection of the environment and human health or relating to
the handling, use, generation, treatment, storage, transportation or disposal of
Hazardous Materials, including but not limited to the Resource Conservation and
Recovery Act of 1976, 42 U.S.C. Section 6901 et seq.; the Toxic Substances
Control Act, 15 U.S.C. Section 2601 et seq.; the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et
seq.; the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq.;
the Clean Air Act, 42 U.S.C. Section 7401 et seq.; the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801 et seq.; the Occupational Safety and
Health Act, 29 U.S.C. Section 651; the Federal Insecticide, Fungicide and
Rodenticide Act, 7 U.S.C. Section 136y et seq.; and the Oil Pollution Act of
1990, 33 U.S.C. Section 2701 et seq.; and all the state analogues thereto, all
as may be amended or superseded from time to time.
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"Environmental Lien" has the meaning set forth in Section 8.6
hereof.
"Environmental Permits" means all permits, licenses,
approvals, authorizations or consents required by any Governmental Authority
under any applicable Environmental Law and includes any and all orders, consent
orders or binding agreements issued or entered into by a Governmental Authority
under any applicable Environmental Law.
"Equity Investment" means any Investment of the type described
in subsections (iii) and (v) of the definition thereof.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" means any Person who is, or at any time was,
a member of a controlled group (within the meaning of Section 412(n)(6) of the
Code) that includes, or at any time included, the Company or any Subsidiary, or
any predecessor of any of the foregoing.
"Exchange Act" means the United States Securities Exchange Act
of 1934, as amended from time to time, and the rules, regulations and
interpretations thereunder.
"Existing Purchase Agreement" means the Purchase Agreement
dated October 3, 1994 among the Company and the investors listed therein
pursuant to which the Company issued Subordinated Notes and Existing Warrants.
"Existing Registration Rights Agreement" means the
Registration Rights Agreement dated October 3, 1994 executed in connection with
the Existing Purchase Agreement, as amended contemporaneously herewith as
contemplated by Section 2.7 hereof.
"Existing Warrants" means the Stock Purchase Warrants issued
pursuant to or in connection with the Existing Purchase Agreement entitling the
holders thereof to acquire 265,000 shares of Common Stock.
"Full Cumulative Dividends" has the meaning set forth in the
Certificate of Designations.
"GAAP" means United States generally accepted accounting
principles consistently applied.
"Governmental Authority" means any federal, state, local or
county governmental agency, department, board, commission, instrumentality or
authority (including regulatory authority) of the United States or any foreign
nation or any self regulatory organization having jurisdiction over the Company
(or any Subsidiary) or any of their respective assets or businesses.
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"Guaranty" means (i) any guaranty or endorsement of the
payment or performance of, or any contingent obligation in respect of, any
Indebtedness or other obligation of any other Person, (ii) any other promise or
undertaking by a Person which supports the extension or continuance of credit to
an obligor (directly or indirectly) and which promise or undertaking of such
Person is (a) to pay the Indebtedness of such obligor, (b) to purchase an
obligation owed by such obligor, (c) to purchase or lease assets (or to provide
funds, goods or services) under circumstances that would enable such obligor to
discharge one or more of its obligations, or (d) to maintain the capital,
working capital, solvency or general financial condition of such obligor, in
each case whether or not such arrangement is disclosed in the balance sheet of
such other Person or is referred to in a footnote thereto and (iii) any
liability as a general partner of a partnership in respect of Indebtedness or
other obligations of such partnership; provided, however, that the term
"Guaranty" shall not include (1) endorsements for collection or deposit in the
ordinary course of business or (2) obligations of the Company or any Subsidiary
which would constitute Guaranties solely by virtue of the continuing liability
of a Person which has sold assets subject to liabilities for the liabilities
which were assumed by the Person acquiring the assets, unless such liability is
required to be carried on the consolidated balance sheet of the Company. The
amount of any Guaranty and the amount of Indebtedness or of Investment resulting
from such Guaranty shall be the maximum amount of the guarantor's potential
obligation in respect of such Guaranty.
"Gulkin Transaction" means the transactions contemplated by
the letter of intent dated August 14, 1996 from the Company to National Premium
Plan, Inc. and Stanley J. Gulkin, including the acquisition by a newly organized
Subsidiary of the Company of the Common Stock of NPP, a licensed premium finance
company that has not yet commenced operations, for the purpose of expanding
Tower Hill's premium finance business.
"Hazardous Materials" means any petroleum, petroleum
hydrocarbons, petroleum waste or petroleum products, underground storage tanks,
asbestos or asbestos-containing materials, pesticides, lead and lead-containing
materials, urea formaldehyde insulation and polychlorinated biphenyls (PCBs),
ionizing and non-ionizing radiation (including radon and electromagnetic
frequency radiation); and any chemicals, materials, substances or wastes in any
amount or concentration which are now or hereafter become defined as or included
in the definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic
substances," "toxic pollutants" or words of similar import, under any
Environmental Law.
"Indebtedness" of any Person means, without duplication, as of
any date as of which the amount thereof is to be determined:
(i) all obligations of such Person to repay money
borrowed (including without limitation all notes
payable and drafts accepted representing extensions
of credit, all obligations under letters of credit,
all obligations evidenced by bonds, debentures,
notes or other similar instruments and all
obligations upon which interest charges are
customarily paid);
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(ii) all Capitalized Leases in respect of which such
Person is liable as lessee or as the guarantor of
the lessee;
(iii) all monetary obligations which are secured by any
Lien existing on property owned by such Person
whether or not the obligations secured thereby have
been incurred or assumed by such Person and all
monetary obligations with respect to which a
financing statement under the Uniform Commercial
Code or any similar statute has been filed or
recorded;
(iv) all conditional sales contracts and similar title
retention debt instruments under which such Person
is obligated to make payments;
(v) with respect to the Company and any Subsidiaries,
all Preferred Stock of the Company or any
Subsidiary held by any person other than the
Company or a wholly owned Subsidiary;
(vi) all Guaranties by such Person; and
(vii) all contractual obligations (whether absolute or
contingent) of such Person to repurchase goods sold
or distributed.
"Insurance License" has the meaning set forth in Section
5.15(b).
"Insurance Subsidiaries" means, collectively, Home State
Insurance Company, a New Jersey corporation, Quaker City Insurance Company, a
Pennsylvania corporation, New York Merchant Bakers Insurance Company, a New York
corporation, Pinnacle Insurance Company, a Georgia corporation, Home Mutual
Insurance Company of Binghamton, New York, a New York mutual property and
casualty insurance company, and Westbrook Insurance Company, a Connecticut
corporation (and any successor or successors thereto), and any other Subsidiary
of the Company which now, or at any time hereafter, (i) is organized as an
insurance or reinsurance company under the laws of any jurisdiction or (ii) is
engaged in the business of writing insurance or reinsuring risks.
"Investment" means, with respect to any Person:
(i) any loan, advance or extension of credit to, any
contributions to the capital of, and the purchase
of bonds, notes, debentures or other debt
securities of, any other Person;
(ii) any Guaranty by such Person;
(iii) any interest in any capital stock or other
securities of any other Person;
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(iv) any transfer or sale of property of such Person to
any other Person other than upon full payment, in
cash, of not less than the agreed sale price or the
fair value of such property, whichever is higher;
(v) any acquisition by such Person of all or an
integral part of the business of any other Person
or the assets comprising such business or such part
thereof; and
(vi) any commitment or option to make an Investment if,
in the case of an option, the consideration
therefor exceeds $10,000.
Any of the foregoing under clauses (i) through (vi) shall be
considered an Investment whether such Investment is acquired by purchase,
exchange, merger or any other method.
"Investors" has the meaning set forth in Section 11.2 hereof.
"Junior Preferred Stock" means any Preferred Stock to which
the Preferred Shares rank prior, in each case, as to dividends, upon
liquidation, dissolution or winding up. All Preferred Stock of the Company other
than the Preferred Shares shall be Junior Preferred Stock.
"Lien" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), or preference,
priority or other security interest of any kind or nature whatsoever (including
without limitation any conditional sale or other title retention agreement, any
financing lease having substantially the same effect as any of the foregoing,
any assignment or other conveyance of any right to receive income and any
assignment of receivables with recourse against the assignor), any filing of a
financing statement as debtor under the Uniform Commercial Code or any similar
statute and any agreement to give or make any of the foregoing.
"Material Adverse Effect" means any event, matter, condition
or circumstance which (i) has or could reasonably be expected to have a material
adverse effect on the assets, properties, liabilities, business, affairs,
results of operations, condition (financial or otherwise) or prospects of (x)
any Subsidiary of the Company which, as of the date any determination is made as
to the existence of a Material Adverse Effect, contributed twenty-five percent
(25%) of the Company's consolidated revenues for the prior fiscal year or (y)
the Company on a consolidated basis, (ii) has or could reasonably be expected to
have an effect which is prejudicial in any material respect to a holder of
Securities, (iii) has or could reasonably be expected to have a material adverse
effect on the ability of the Company to perform its obligations under this
Purchase Agreement, the Other Transaction Documents or the Securities or (iv)
which results in or requires the making of a Restricted Payment (whether or not
permitted hereunder and whether or not expressly consented to by the Purchasers)
in excess of $100,000 in any year or $750,000 cumulatively from the date of this
Purchase Agreement to the date of such event, matter, condition or circumstance.
"Note Holders" means the holders of Subordinated Notes.
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"NPP" means NPP Funding Company, a New York corporation.
"Operating Lease" means, for any Person, any lease of any
property of any kind by that Person as lessee which is not a Capitalized Lease.
"Option" has the meaning set forth in Section 11.2 hereof.
"Option Period" has the meaning set forth in Section 11
hereof.
"Other Transaction Documents" means, collectively, the
Certificate of Designations, the Stockholders' Agreement, the Registration
Rights Agreement and the Additional Agreements (each as amended, modified or
supplemented from time to time) and any other documents, agreements, instruments
or certificates contemplated hereby or thereby.
"Outstanding" or "outstanding" means, when used with reference
to the Preferred Shares, the Warrants or the Warrant Shares (as the case may be)
as of a particular time, all such Securities theretofore duly issued except (i)
Securities theretofore reported as lost, stolen, mutilated or destroyed or
surrendered for transfer, exchange or replacement, in respect of which new or
replacement Securities have been issued by the Company, (ii) Warrants
theretofore fully exercised, and (iii) Preferred Shares theretofore surrendered
to and canceled by the Company, whether upon exercise of a Warrant in whole or
in part or otherwise; provided, however, that for the purpose of determining
whether holders of the requisite amount of Preferred Shares, Warrants or Warrant
Shares (as the case may be) have made or concurred in any declaration, waiver,
consent, approval, notice, annulment of acceleration or other communication
under this Purchase Agreement, any Other Transaction Document or under any
Securities, Securities registered in the name of, as well as Securities owned
beneficially by, the Company or any Subsidiary shall not be deemed to be
outstanding.
"Permitted Acquisition" means an acquisition, other than an
acquisition of stock or assets occurring between two (2) or more Insurance
Subsidiaries, by the Company or any Subsidiary, of equity securities or all or
substantially all of the assets of a Person which meet the following criteria:
(i) such Person is in the same general line of business
as the Company and the Subsidiaries (or the assets
to be acquired are utilized in such line of
business);
(ii) the acquisition has been approved by the Board of
the Company (or of a Subsidiary, as the case may
be) and the Board of such Person;
(iii) no Redemption Event is existing at the time of such
acquisition or is caused thereby;
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<PAGE> 17
(iv) all Consents necessary in connection with such
` acquisition shall have been obtained;
(v) all such equity securities or assets are to be
acquired free and clear of all liens, other than
Permitted Liens and any such equity securities are
free of any restrictions on transfer under federal
or state securities laws;
(vi) the Company (or Subsidiary, as the case may be) is
the surviving entity;
(vii) each Purchaser shall have received prompt notice
from the Company of the proposed acquisition
together with a copy of any letter of intent or
term sheet in respect of such proposed acquisition,
and all the terms of such proposed acquisition as
set forth in such letter of intent or term sheet
shall have been approved in a writing delivered by
each Purchaser and its counsel to the Company. The
Company also shall promptly furnish (as available)
to each Purchaser copies of all documents,
instruments and agreements to be entered into in
connection with such proposed acquisition, and such
documents, instruments and agreements shall have
been reviewed and finally approved by each
Purchaser not later than ten (10) Business Days
prior to the closing of such acquisition.
"Permitted Investment" means (i) any short-term Debt
Investment (maturing not more than three (3) years from the date of issue) (A)
rated A-2 or above by S&P or P-2 or above by Moody's or (B) issued or directly
and fully guaranteed or insured by the United States Government or any agency or
instrumentality thereof; (ii) any Equity Investment (subject to the proviso
below); (iii) any long-term Debt Investment (having a maturity of more than
three (3) years after the date of issue) rated BBB or above by S&P or Baa2 or
above by Moody's; and (iv) Investments in commercial real estate (subject to the
proviso below); provided, however, that all such Investments shall be in
accordance with all applicable laws, and provided further that (x) total Equity
Investments (other than Equity Investments in the Company, Quaker City or any
wholly owned Subsidiary) by each of the Company and each Subsidiary shall not
exceed ten percent (10%) of their respective total Investments, and (y) total
Investments in commercial real estate by each of the Company and each Subsidiary
shall not exceed five percent (5%) of their respective total Investments.
"Permitted Liens" shall mean:
(i) Liens existing as of the date of this Agreement and
identified on Schedule 5.19, securing Indebtedness
of the Company or any Subsidiary outstanding on
such date;
(ii) Liens for taxes, assessments or other governmental
charges or claims that are not yet delinquent or
that are being contested in good faith by
appropriate proceedings promptly instituted and
diligently concluded,
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provided, that any reserve or other appropriate
provision as shall be required in conformity with
GAAP shall have been made therefor;
(iii) Liens imposed by law such as carriers',
warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other similar Liens
arising in the ordinary course of business,
provided that the underlying obligations relating
to such Liens are not delinquent or remain payable
without penalty or are being contested in good
faith and by appropriate proceedings;
(iv) Liens on the property of the Company or any
Subsidiary incurred, or pledges, or deposits,
required, in connection with workmen's
compensation, unemployment insurance and other
social security legislation;
(v) Easements, rights-of-way, restrictions and other
encumbrances incurred in the ordinary course of
business which, in the aggregate, are not
substantial in amount, and which do not in any case
materially detract from the value of the property
subject thereto or interfere with the ordinary
conduct of the businesses of the Company or any
Subsidiary; and
(vi) Purchase money Liens on any office equipment
hereafter acquired or the assumption of any Lien on
office equipment existing at the time of a
Permitted Acquisition, or a Lien incurred in
connection with any conditional sale or other title
retention agreement or a Capitalized Lease
affecting office equipment, provided that:
(a) Any property subject to any of the foregoing
is acquired by the Company or a Subsidiary
in the ordinary course of business or
pursuant to a Permitted Acquisition and the
Lien on any such property is created
contemporaneously with its acquisition or
was, in connection with a Permitted
Acquisition, created previously by the
Person from whom such property was acquired
by the Company or the Subsidiary;
(b) The obligation secured by any Lien so
created, assumed, or existing shall not
exceed one hundred percent (100%) of the
lesser of cost or fair market value of the
property acquired as of the time of such
Person acquiring the same; and
(c) Each such Lien shall attach only to the
property so acquired and fixed improvements
thereon.
"Permitted Sale" has the meaning set forth in Section 11.2
hereof.
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"Person" or "person" means an individual, corporation,
company, partnership, firm, association, joint venture, trust, unincorporated
organization, government, governmental body, agency, political subdivision or
other entity.
"Plan" means any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock option,
stock ownership, stock appreciation rights, phantom stock, leave of absence,
layoff, vacation, day or dependent care, legal services, cafeteria, life,
health, accident, disability, workmen's compensation or other insurance,
severance, separation or other employee benefit plan, practice, policy or
arrangement of any kind, whether written or oral, or whether for the benefit of
a single individual or more than one individual including, but not limited to,
any "employee benefit plan" within the meaning of Section 3(3) of ERISA.
"Preferred Director" has the meaning set forth in the
Stockholders' Agreement.
"Preferred Share" or "Preferred Shares" has the meaning set
forth in Section 1.1 hereof. In the event that any Preferred Shares are sold
either in a public offering pursuant to an effective registration statement
under Section 6 of the Securities Act or pursuant to a Rule 144 Transaction,
such Preferred Shares shall thereupon be deemed shares of Series A Preferred
Stock and not subject to the terms and conditions of this Purchase Agreement.
"Preferred Stock" means any class of the capital stock of a
corporation (whether or not convertible into any other class of capital stock of
such corporation) which has any right, whether absolute or contingent, to
receive dividends or other distributions of the assets of such corporation
(including without limitation amounts payable in the event of the voluntary or
involuntary liquidation, dissolution or winding-up of the Company), which right
is superior to the rights of another class of the capital stock of such
corporation. "Preferred Stock" of the Company includes, without limitation, the
Series A Preferred Stock of the Company.
"Purchase Agreement" has the meaning set forth in the first
paragraph hereof.
"Purchaser" and "Purchasers" have the meaning set forth in the
first paragraph hereof.
"Purchase Price" has the meaning set forth in Section 1.3(a)
hereof.
"Quaker City" means Quaker City Holdings, Inc., a Delaware
corporation.
"Qualified Holder" has the meaning set forth in Section 7.1(b)
hereof.
"Release" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping, or
disposing of a Hazardous Material into the environment.
"Reliance" means Reliance Insurance Company, a Pennsylvania
corporation.
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<PAGE> 20
"Reliance Holder" means, so long as such person is holding
Preferred Shares, Warrants and/or Warrant Shares, Reliance and any transferee
obtaining such Preferred Shares, Warrants and/or Warrant Shares from a Reliance
Holder as permitted hereunder.
"Reliance Reinsurance Agreement" has the meaning set forth on
Schedule B hereto.
"Reliance Services Agreement" has the meaning set forth on
Schedule B hereto.
"Redemption Default" has the meaning set forth in the
Stockholders' Agreement.
"Redemption Event" has the meaning set forth in the
Certificate of Designations.
"Restricted Payment" means:
(i) every dividend or other distribution declared paid,
made or set apart by the Company or any Subsidiary
on or in respect of any class of its capital stock
(except with respect to the Series A Preferred
Stock), provided that if and so long as (i) Full
Cumulative Dividends (as defined in the
Certificate of Designations) have been paid in
full, (II) all other amounts due with respect to
the Preferred Shares have been paid, (III) no
holder of Series A Preferred Stock has exercised
such holder's redemption rights under Section 6(b)
of the Certificate of Designations and the date of
redemption established pursuant to Section 6(d) of
the Certificate of Designations shall not yet have
occurred, and (IV) the Company has not called for
redemption any of the Series A Preferred Stock
pursuant to Section 6(a) or Section 7 of the
Certificate of Designations, as the case may be,
and the date of redemption established pursuant to
Section 6(a) or Section 7(c) of the Certificate of
Designations, as the case may be, shall not yet
have occurred, then the following shall not
constitute "Restricted Payments": (x) cash
dividends, with respect to a fiscal year of the
Company, up to the lesser of $0.05 per share of
Common Stock (adjusted for stock splits, stock
dividends or the like) or five percent (5%) of the
Company's consolidated net after-tax earnings for
such fiscal year and (y) (notwithstanding the
limitation in the preceding clause (x)) cash
dividends permitted to be made pursuant to Section
8.4 hereof solely for the purpose of providing to
the Company funds sufficient to enable the Company
to pay on a timely basis all amounts due with
respect to the Securities and any other amounts due
to the Purchasers under this Purchase Agreement and
the Other Transaction Documents;
(ii) every payment in connection with the redemption,
purchase, retirement or other acquisition by or on
behalf of the Company or any Subsidiary of any
shares of the Company's or a Subsidiary's capital
stock (other than with
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<PAGE> 21
respect to the Series A Preferred Stock), whether
or not owned by the Company or any Subsidiary;
except for (A) payments made with respect to the
capital stock of the Company's wholly owned
Subsidiaries (provided that any such payments shall
not exceed an aggregate of more than $50,000 in any
fiscal year); and (B) payments with respect to the
redemption or purchase of Common Stock of the
Company or rights therein issued pursuant to
Section 6.3(d)(iii) of the Home State Holdings,
Inc. 1993 Stock Option Plan as in effect on the
date hereof;
(iii) any prepayments (in part or in full) or unscheduled
repayments made on Indebtedness of the Company or
of a Subsidiary including, without limitation,
any prepayments (in part or in full) or
unscheduled repayments made with respect to the
Subordinated Notes, but excluding (A) prepayments
and unscheduled repayments made on lines of
credit or other revolving credit facilities,
whether or not committed, of the Company or any
Subsidiary in the ordinary course of business and
(B) other prepayments and unscheduled repayments of
Indebtedness in the ordinary course of business
that shall not exceed an aggregate of $250,000 in
any fiscal year of the Company;
(iv) every payment (other than a payment to any
Affiliate permitted under Section 9.7) to or on
behalf of any Affiliate of the Company or any
Affiliate of any Subsidiary on account of or with
respect to any lease arrangements;
(v) every payment by or on behalf of the Company or any
Subsidiary (whether as repayment or prepayment of
principal or as interest or otherwise) on or with
respect to (A) any obligation to repay money
borrowed and owing to any Affiliate of the Company
or of any Subsidiary (other than a holder of a
Subordinated Note), or (B) any obligation, to any
Person, of any Affiliate of the Company or of any
Subsidiary or to any other holder of shares of the
Company's capital stock (defined to include
warrants and other rights and options to acquire
shares of capital stock whether upon exercise,
conversion, exchange or otherwise), which
obligation is assumed, or is the subject of a
Guaranty, by the Company or a Subsidiary; and
(vi) every payment by the Company or a Subsidiary to a
Subsidiary excluding, however (A) payments to a
Subsidiary pursuant to a transaction that is
permitted under Section 9.7, and (B) payments of a
dividend or other distribution to a Subsidiary that
is not a "Restricted Payment" pursuant to clause
(i) above;
provided, however, the term "Restricted Payments"
shall not include (A) intercompany transfers (whether by means
of investment, payments, loans,
20
<PAGE> 22
advances, capital distributions or dividend payments) by and
between the Company and any Subsidiary or between
Subsidiaries, and (B) any dividend payments or distributions
to the Purchasers (or holders of any of the Securities) under
the Purchase Agreement, any Other Transaction Document or the
Securities.
"Rule 144" means (i) Rule 144 under the Securities Act as such
Rule is in effect from time to time, and (ii) any successor rule, regulation or
law, as in effect from time to time.
"Rule 144A" means (i) Rule 144A under the Securities Act as
such Rule is in effect from time to time and (ii) any successor rule, regulation
or law, as in effect from time to time.
"Rule 144 Transaction" means a transfer of Securities (A)
complying with Rule 144 under the Securities Act as such Rule is in effect on
the date of such transfer (but not including a sale other than pursuant to a
"brokers transaction" as defined in clauses (1) and (2) of paragraph (g) of such
Rule as in effect on the date hereof) and (B) occurring at a time when
Securities are registered pursuant to Section 12 of the Exchange Act (or any
successor to such Section).
"SAP" means, with respect to a reinsurance or insurance
company, the accounting procedures and practices prescribed or permitted from
time to time by the National Association of Insurance Commissioners and adopted
or promulgated by the insurance regulatory authority in the state in which such
reinsurance or insurance company is domiciled and employed in a consistent
manner throughout the periods involved.
"Second Round Investors" has the meaning set forth in Section
11.2 hereof.
"Second Round Securities" has the meaning set forth in Section
11.2 hereof.
"Securities" means, collectively, the Preferred Shares, the
Warrants and the Warrant Shares and any Additional Securities purchased by Swiss
Re pursuant to Section 11.1 hereof.
"Securities Act" means the United States Securities Act of
1933, as amended from time to time, and the rules, regulations and
interpretations thereunder.
"SEC Documents" has the meaning set forth in Section 5.6(d)
hereof.
"Sherman Act" means Sections 1 and 2 of the Sherman Act (15
U.S.C. Sections 1 and 2).
"Site" means any of the real properties currently or
previously owned, leased or operated by the Company, any Subsidiary, any
predecessors of the Company or any Subsidiary, or any entities previously owned
by the Company or any Subsidiary, including all soil, subsoil, surface waters
and groundwater thereat.
"Sterling Bid Agreement" has the meaning set forth on Schedule
B hereto.
21
<PAGE> 23
"Stockholders' Agreement" has the meaning set forth in Section
2.1(b) hereof.
"Stock Option Plan" means any option, warrants, rights,
incentive or other plan approved by the Board of Directors of the Company (as of
the date hereof) pursuant to which the Company or the Subsidiaries may grant,
issue or award options, warrants or other rights to acquire Common Stock of the
Company or appreciation or similar rights with respect thereto; provided that
the aggregate number of shares of such Common Stock issued, issuable or subject
to all such Stock Option Plans or represented by appreciation or similar rights
shall not exceed ten percent (10%) of the issued and outstanding Common Stock of
the Company as of the date hereof.
"Subordinated Notes" means the 11.50% Subordinated Notes due
October 3, 2004 issued by the Company pursuant to the Existing Purchase
Agreement.
"Subsidiary", with respect to any Person, means any
corporation, association or other entity controlled by such Person. For purposes
of this definition, "control" with respect to any Person, shall mean possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise. The term "Subsidiary" or "Subsidiaries"
when used herein without reference to any particular Person, means a Subsidiary
or Subsidiaries of the Company which may now or hereafter exist.
"Swiss Re" means Swiss Reinsurance America Corporation, a New
York corporation.
"Swiss Re Holder" means, so long as such person is holding
Preferred Shares, Warrants and/or Warrant Shares, Swiss Re and any transferee
obtaining such Preferred Shares, Warrants and/or Warrant Shares from a Swiss Re
Holder as permitted hereunder.
"Swiss Re Reinsurance Binder" has the meaning set forth on
Schedule B hereto.
"Swiss Re Letter Agreement" has the meaning set forth on
Schedule B hereto.
"Swiss Re Services Agreement" has the meaning set forth on
Schedule B hereto.
"Tower Hill" means Tower Hill, Inc., a Delaware corporation.
"Tower Hill Receivables Financing" means the securitization of
premium finance receivables on commercially reasonable terms of Tower Hill, NPP
or a new Subsidiary to be established pursuant to the Gulkin Transaction in the
manner contemplated in that certain letter of William Magid, Vice President,
Chase Securities, Inc., to Jerome Gordon, Managing Director, Lutine Corporation,
dated September 3, 1996, and which securitization shall not require expenditure
by the Company of an aggregate amount in excess of two percent (2%) of the total
financing commitment, provided that such amount (excluding legal, accounting and
other professional fees of up to $350,000 in the aggregate) shall in no event
exceed $1,000,000.
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<PAGE> 24
"Warrants" has the meaning set forth in Section 1.2(a) hereof.
"Warrant Shares" means the shares of the Company's Common
Stock obtained or obtainable upon exercise of the Warrants and shall also
include any capital stock or other securities into which Warrant Shares are
changed or for which such Warrant Shares may be exchanged after giving effect to
the terms of such change or exchange (by way of reorganization,
recapitalization, merger, consolidation or otherwise) and any capital stock or
other securities resulting from or comprising a reclassification, combination or
subdivision of, or a stock dividend on, any Warrant Shares. In the event that
any Warrant Shares are sold either in a public offering pursuant to a
registration statement under Section 6 of the Securities Act or pursuant to a
Rule 144 Transaction, then the transferees of such Warrant Shares shall not be
entitled to any benefits under this Purchase Agreement with respect to such
Warrant Shares.
(b) For all purposes of this Purchase Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(i) the words "herein", "hereof" and "hereunder" and
other words of similar import refer to this Purchase Agreement as a
whole and not to any particular Section or other subdivision;
(ii) all accounting terms not otherwise defined
herein have the meanings assigned to them in accordance with GAAP
(except as otherwise expressly provided herein);
(iii) all computations provided for herein shall be
made in accordance with GAAP (except as otherwise expressly provided
herein);
(iv) any uses of the masculine, feminine or
neuter gender shall also be deemed to include any other gender, as
appropriate;
(v) all references herein to actions by the Company
or any Subsidiary, such as "create", "sell", "transfer", "dispose of",
etc., means such action, whether voluntary or involuntary, by operation
of law or otherwise;
(vi) the exhibits and schedules to this Purchase
Agreement shall be deemed a part of this Purchase Agreement;
(vii) each of the representations and warranties of
the Company contained in Section 5 hereof is separate and is not
limited, qualified or modified by the existence, wording or
satisfaction of any other representation or warranties of the Company
in Section 5 or otherwise;
(viii) each of the covenants of the Company contained
in Sections 7, 8 and 9 hereof or otherwise contained in the Other
Transaction Documents or the Securities is
23
<PAGE> 25
separate and is not limited or satisfied by the existence, wording or
satisfaction of any other covenant of the Company in Sections 7, 8 or 9
or otherwise; and
(ix) all references herein (in covenants or
otherwise) to any action(s) which are to be taken (or which are
prohibited from being taken) by any Person, the Company or any
Subsidiary shall apply to such Person, the Company or such Subsidiary,
as the case may be, whether such action is taken directly or
indirectly.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Purchaser as
follows as of the date hereof and as of the Closing Date:
5.1. Corporate Existence, Power and Authority.
(a) The Company and each Subsidiary is a corporation or
limited liability company duly organized, validly existing and, except with
respect to the Subsidiaries as set forth on Part B of Schedule 5.1, in good
standing under the laws of its state or other jurisdiction of incorporation. The
Company and, except as set forth on Part A of Schedule 5.1, each Subsidiary, is
duly qualified, licensed and authorized to do business and is in good standing
in each jurisdiction in which it owns or leases any material property or in
which the conduct of its business requires it to be so qualified or licensed.
(b) No proceeding has been commenced looking toward the
dissolution or merger of the Company or any Subsidiary. Except for the
amendments effected by the filing of the Certificate of Designations and except
as contemplated by Section 8.15 hereof and except as set forth in part B of
Schedule 5.1, no proceeding has been commenced looking toward the amendment of
the respective certificate or articles of incorporation of the Company or any
Subsidiary (as the case may be). Neither the Company nor any Subsidiary is in
violation in any respect of its certificate or articles of incorporation or
by-laws.
(c) The Company and each Subsidiary has all requisite power,
authority (corporate and other) and legal right to own or to hold under lease
and to operate the properties it owns or holds and to conduct its business as
now being conducted.
(d) The Company and each Subsidiary has all requisite power,
authority (corporate and other) and legal right to execute, deliver, enter into,
consummate and perform the transactions contemplated by this Purchase Agreement,
each Other Transaction Document to which it is a party and the Securities to be
or being issued by it (including without limitation the issuance by the Company
of the Preferred Shares, the Warrants and the Warrant Shares as contemplated
herein and therein). The execution, delivery and performance by the Company and
each Subsidiary of this Purchase Agreement, each Other Transaction Document to
which it is a party and the
24
<PAGE> 26
Securities to be or being issued by it (including without limitation the
issuance by the Company of the Preferred Shares, the Warrants and the Warrant
Shares as contemplated herein and therein) have been duly authorized by all
required corporate and other actions. The Company has duly executed and
delivered this Purchase Agreement and each Other Transaction Document and, at
Closing, will duly execute and deliver the Warrants and the Preferred Shares.
This Purchase Agreement and each Other Transaction Document constitute the
legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms. The Preferred Shares and the
Warrants at closing will constitute, and the Warrant Shares when issued in
accordance with the terms of the Warrants, will constitute, the legal, valid and
binding obligations of the Company, enforceable in accordance with their
respective terms.
5.2. Capitalization.
(a) The authorized capital stock of the Company consists of:
(i) 10,000,000 shares of Common Stock, par value $0.01 per share; and, (ii)
after giving effect of the Certificate of Designations, 25,000 shares of Series
A Preferred Stock. Items (a) and (b) of Schedule 5.2 sets forth (x) the number
of shares of Common Stock issued and outstanding on the Closing Date and certain
owners thereof, and (y) the shares of Series A Preferred Stock of the Company
that will be issued and outstanding on the Closing Date and the owners thereof,
which ownership in each case is free and clear of all Liens, options,
restrictions, claims or third party rights of any kind (other than those created
by such owner). At Closing, all of such shares of capital stock will be duly
authorized and validly issued and will be outstanding and fully paid and
non-assessable. All of the shares of the Company's Common Stock issuable upon
exercise of the Warrants will, when issued, be duly authorized, validly issued,
fully paid and non-assessable. None of the shares of the Company's capital stock
or other securities which will be outstanding at Closing, or which will be
outstanding upon exercise of the Warrants, will be subject to preemptive rights
or provide the holders thereof with any preemptive rights with respect to any
issuance of capital stock. On the Closing Date, no other shares of capital stock
of the Company will be outstanding or held in the Company's treasury.
(b) Except as set forth on item (c) of Schedule 5.2, the only
shares of the Company's Common Stock reserved for issuance by the Company are
shares to be issued upon the exercise of the Warrants.
(c) Except as set forth on item (d) of Schedule 5.2, there are
no outstanding options, warrants, subscriptions, rights, calls, convertible
securities or other agreements or plans or any provision of law under which the
Company may become obligated to issue, sell or transfer shares of its capital
stock or other securities.
(d) Except as set forth on item (e) of Schedule 5.2, and
except as provided in the Registration Rights Agreement, there are no
outstanding registration rights with respect to any capital stock of the Company
or of any Subsidiary.
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<PAGE> 27
(e) Except as provided in the Stockholders' Agreement, there
are no voting agreements, voting trusts, proxies or other agreements or
understandings with respect to the voting of any capital stock of the Company or
any Subsidiary.
(f) Except as set forth on item (f) of Schedule 5.2, and
except as provided by the terms of the Warrants, there are no anti-dilution
protections or other adjustment provisions in existence with respect to any
outstanding capital stock of the Company.
(g) The Certificate of Designations has been duly adopted by
the Company and is fully effective as an amendment to the Company's Certificate
of Incorporation. The Preferred Shares have all the rights, priorities and terms
set forth in the Certificate of Designations.
5.3. Subsidiaries.
(a) The Company's only Subsidiaries on the Closing Date will
be those set forth on Schedule 5.3 hereto. Such Subsidiaries are owned by the
Company as set forth on Schedule 5.3 hereto. Neither the Company nor any
Subsidiary has any Investments in any other Person except that the Company owns
93.33% of the common stock of Quaker City Holdings, Inc., a Delaware
corporation. The remaining 6.67% of the common stock of Quaker City Holdings,
Inc. is owned by preferred agents.
(b) All outstanding capital stock of the Subsidiaries has been
duly authorized and validly issued and is fully paid and non-assessable and is
owned beneficially and of record by the Company free and clear of all Liens,
options or claims of any kind, provided, however, that Quaker City and Quaker
City Insurance Company, a Pennsylvania domestic property and casualty insurance
company, are not wholly owned Subsidiaries. There are no outstanding options,
warrants, subscriptions, rights, convertible securities or other agreements or
plans under which any Subsidiary may become obligated to issue, sell shares of
its capital stock or other securities.
(c) Except as set forth on Schedule 5.3, there are no
restrictions (whether by charter, agreement, instrument, statute (other than the
governing corporate law of the jurisdiction of incorporation), rule, regulation,
judgment, decree, order or otherwise) that may affect or limit the ability of
any Subsidiary to pay dividends to the Company of such Subsidiary's earnings (as
reported in financial statements prepared under GAAP).
5.4. Business.
The Company is a property and casualty insurance holding
company for the Insurance Subsidiaries and certain other Subsidiaries. The
Company does not currently engage in, and it has no intention of engaging in,
any other business. The Insurance Subsidiaries are primarily engaged in
providing standard and preferred personal and commercial auto insurance and the
other Subsidiaries are engaged in the business of providing premium finance,
reinsurance brokerage and insurance management services to the Insurance
Subsidiaries and other Persons engaged in the
26
<PAGE> 28
business of writing property and casualty insurance. Neither the Insurance
Subsidiaries nor any of the other Subsidiaries currently engages in, or has any
intention of engaging in, any other business.
5.5. No Defaults or Conflicts.
(a) Neither the Company nor any of its Subsidiaries is in
material violation of or material default in any respect under (and is not in
default in any respect regarding any Indebtedness) any indenture, agreement or
instrument to which it is a party or by which it or its properties may be bound.
Neither the Company nor any of its Subsidiaries is in default under any order,
writ, injunction, judgment or decree of any court or other Governmental
Authority or arbitrator(s) which default could have a Material Adverse Effect.
(b) There are no Redemption Events currently existing and
there are no conditions or events which, with notice or lapse of time or both,
would constitute a Redemption Event.
(c) The execution, delivery and performance by the Company and
each Subsidiary of this Purchase Agreement, each of the Other Transaction
Documents to which it is a party and of the Securities to be or being issued by
it, and any of the transactions contemplated hereby or thereby (including
without limitation the issuance of the Preferred Shares, the Warrants and the
Warrant Shares as contemplated herein and therein and the subsequent ownership
of the Securities by the Purchasers) does not and will not (i) violate or
conflict with, result in a breach of, or constitute a default under (with or
without the giving of notice or the passage of time or both) any provision of
(A) the respective articles or certificate of incorporation or by-laws of the
Company or any of its Subsidiaries or (B) any law, rule, regulation or order of
any Governmental Authority (including without limitation the Securities Act, the
Exchange Act, all applicable state securities laws, the Clayton Act and the
Sherman Act), or any order, judgment, writ, injunction, decree, award or other
action of any court or Governmental Authority or arbitrator(s), or (C) any
agreement, mortgage, indenture, franchise, license, permit or other instrument
applicable to the Company or any of its Subsidiaries or any of their respective
properties (including without limitation any Indebtedness), (ii) result in the
creation of any Lien upon any of the Company's or any Subsidiary's properties,
assets or revenues, (iii) except as set forth on Schedule 5.5 hereto, require
the consent, waiver or approval of, or license, permit, order or authorization
of, or the declaration, registration, qualification or filing with, any
Governmental Authority or other Person (collectively, "Consents"), including,
without limitation, any insurance regulatory authority, or (iv) except as set
forth on Schedule 5.5 hereto, cause anti-dilution clauses of any outstanding
securities to become operative or give rise to any preemptive rights.
5.6. Disclosure Materials; Other Information.
(a) The Company has previously furnished to each Purchaser the
following material (the "Disclosure Material"): (i) audited consolidated
financial statements of the Company and its Subsidiaries consisting of
consolidated balance sheets as at December 31, 1995 and December 31, 1994 and
the related consolidated statements of income, changes in shareholders'
27
<PAGE> 29
equity and cash flows for the fiscal years ended December 31, 1995 and December
31, 1994 and the related notes thereto, all of which statements have been
certified by Coopers & Lybrand L.L.P., independent certified public accountants;
(ii) unaudited consolidated financial statements of the Company consisting of
consolidated balance sheets as at March 31, 1996 and June 30, 1996 and the
related consolidated statements of income, shareholders' equity and cash flows
for the period then ended and the related notes thereto; (iii) the Company's
projections dated August 2, 1996 prepared for its 1996 fiscal year showing
revenues, expenditures and cash flow for the Company and its Subsidiaries,
together with projected consolidated statements of income, cash flow and balance
sheets for the 1996, 1997 and 1998 fiscal years; (iv) the Company's Form 10-K
for the year ended December 31, 1995, Form 10-Q for the fiscal quarters ended
March 31, 1996 and June 30, 1996 and all other reports, schedules, forms,
statements and other documents filed by the Company with the Commission since
December 31, 1995 (in each case, as amended since the time of filing); (v) true
and complete copies of all filings made by the Company (or any Subsidiary) under
applicable insurance holding company statutes; and (vi) true, complete and
correct copies of all annual and quarterly statutory statements filed by the
Insurance Subsidiaries since December 31, 1995 and all examination reports of
such authorities relating to the Company or any Subsidiary and formal responses
thereto of the Company and its Subsidiaries. The audited and unaudited financial
statements referred to in the preceding clauses (i) and (ii) above, the filings
described in clause (v) and the statutory statements referred to in clause (vi)
above (including in each case the related notes and schedules) fairly present
the financial condition of the Company and its Subsidiaries as of the respective
dates thereof and the results of the operations of the Company and its
Subsidiaries for such periods and have been prepared in accordance with GAAP or
SAP, as the case may be, except that any such unaudited statements may omit
notes and may be subject to normal year-end adjustments.
(b) Since December 31, 1995, (i) the business of the Company
and its Subsidiaries has been conducted in the ordinary course and (ii) except
as set forth in items 1, 2 and 3 of Schedule 5.6, there has occurred no event
that could have a Material Adverse Effect. As of the Closing Date, except as set
forth in items 5 and 6 of Schedule 5.6 hereto, there are no liabilities or
obligations of the Company or any Subsidiary which would be required to be
provided for in a balance sheet of the Company as of either such date prepared
in accordance with GAAP or SAP, as the case may be, other than liabilities
provided for in the financial statements referred to in clause (ii) of Section
5.6(a) hereof. Since December 31, 1995, no amount or property has directly or
indirectly been declared, ordered, paid, made or set aside for any Restricted
Payment nor has any such action been agreed to.
(c) Neither the Company nor any Subsidiary is aware of any
obligations or liabilities, contingent or otherwise (including without
limitation any tax liabilities due or to become due), of the Company or of the
Subsidiaries that have not been fully disclosed and adequately provided for in
the financial statements referred to in Section 5.6(a) above or otherwise
disclosed in items 4, 5 and 6 of Schedule 5.6 hereto, other than liabilities
arising in the ordinary course of business subsequent to December 31, 1995, none
of which would have a Material Adverse Effect.
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(d) The Company has filed all required reports, schedules,
forms, statements and other documents with the Commission since December 31,
1992 (such reports, schedules, forms, statements and other documents, together
with all registration statements filed by the Company or its Subsidiaries with
the Commission since December 31, 1992, in each case, as such documents have
been amended since the time of their filing) (all such documents referred to
herein as the "SEC Documents"). As of their respective filing dates (or, if
amended, as of the date of the filing of such amendment), the SEC Documents
complied in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and the rules and regulations of the
Commission promulgated thereunder applicable to such SEC Documents. None of the
SEC Documents as of such dates contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(e) The financial projections included in the Disclosure
Material conform with the internal operating forecasts of the Company and its
Subsidiaries, are mathematically accurate, were based on reasonable assumptions
when made and have been prepared in good faith.
(f) Nothing has come to the attention of the Company or any
Subsidiary that would cause it to believe that any of the Disclosure Material
contained or contains a false or misleading statement of a material fact or
omits to state any material fact necessary in order to make the statements made
in such material, in light of the circumstances under which they were made, not
misleading.
(g) Since December 31, 1995, there has been no Material
Adverse Effect, and, except as set forth in items 1, 2 and 3 of Schedule 5.6,
there is no fact known to the Company or any Subsidiary, and there are no
existing circumstances, which could reasonably be expected to have a Material
Adverse Effect.
5.7. Litigation.
Except as set forth in Schedule 5.7, there is no action, suit,
arbitration, proceeding, investigation or claim pending or, to the knowledge of
the Company or its Subsidiaries, threatened, in law, equity or otherwise before
any court, administrative agency, Governmental Authority or arbitrator which
either (i) questions the validity of this Purchase Agreement, any of the Other
Transaction Documents or the Securities or any action taken or to be taken
pursuant hereto or thereto, (ii) could have a Material Adverse Effect, or (iii)
would be required to be, but has not previously been, described in any filing by
the Company with the Commission. The Company has no knowledge of any unasserted
claim that, if asserted, could have a Material Adverse Effect.
5.8. Taxes.
The Company and each Subsidiary has duly and timely filed all
federal, state, local, foreign and other tax returns, statements, forms and
reports, and any other returns (including
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information returns), statements, forms and reports with all Governmental
Authorities required to be filed by it and all such returns are complete and
correct. The Company and each Subsidiary has paid or caused to be paid all
taxes, fees, assessments and other governmental charges or levies (including
interest and penalties) that are due and payable (whether or not shown on any
such return), except those which are being contested by it in good faith by
appropriate proceedings and in respect of which adequate reserves are being
maintained on its books in accordance with GAAP or SAP, as the case may be. The
Company and each Subsidiary has withheld and paid all taxes required to have
been withheld and paid, including taxes in connection with amounts paid or owing
to any employee, creditor, independent contractor or other third party. Neither
the Company nor any Subsidiary has any material liabilities for taxes other than
those incurred in the ordinary course of business and in respect of which
adequate reserves are being maintained by it in accordance with GAAP or SAP, as
the case may be. There are no applicable taxes, fees or other governmental
charges payable by the Company or any Subsidiary in connection with the
execution and delivery of this Purchase Agreement or the Other Transaction
Documents or in connection with any of the transactions contemplated hereby or
thereby (including without limitation the issuance of the Preferred Shares, the
Warrants and the Warrant Shares as contemplated herein and therein).
5.9. Employee Benefit Plans.
All Benefit Plans are listed on Schedule 5.9, and to the
extent requested by any Purchasers, copies of all such written plans and
policies, written descriptions of all such oral plans and policies, and all
other documentation relating to such plans and policies have been delivered to
such Purchasers. Except as disclosed on Schedule 5.9, (a) each Benefit Plan and
the administration thereof complies, and has at all times complied, in all
material respects with its terms and the requirements of all applicable laws,
including ERISA and the Code, and each Benefit Plan intended to qualify under
Section 401(a) of the Code has at all times since its adoption been so
qualified, and each trust which forms a part of any such plan has at all times
since its adoption been tax-exempt under Section 501(a) of the Code; (b) no
Benefit Plan has incurred any "accumulated funding deficiency" within the
meaning of Section 302 of ERISA or Section 412 of the Code; (c) no liability has
been incurred or is reasonably expected to be incurred under Title IV of ERISA
by any party with respect to any Benefit Plan, or any other Plan presently or
heretofore maintained or contributed to by any ERISA Affiliate (other than PBGC
premium payments); (d) neither the Company nor any ERISA Affiliate has incurred
any liability for any tax imposed under Section 4971, 4972, 4974, 4975, 4976,
4977, 4978, 4978B, 4979, 4979A, 4980 and 4980B of the Code or civil liability
under Section 502(i) or (l) of ERISA; (e) the "amount of unfunded benefit
liabilities" within the meaning of Section 4001(a)(18) of ERISA does not exceed
zero with respect to any Benefit Plan subject to Title IV of ERISA; (f) no
Benefit Plan is a multiemployer plan within the meaning of Section 3(37) of
ERISA; (g) no Benefit Plan provides health or death benefit coverage beyond the
termination of an employee's employment, except as required by Part 6 of Title I
of ERISA or Section 4980B of the Code or other applicable state law, or pursuant
to an Employee Pension benefit plan as defined by Section 3(2) of ERISA, (h) no
"reportable event" (within the meaning of Section 4043 of ERISA) has occurred
with respect to any Benefit Plan or any Plan maintained by an ERISA Affiliate
since the effective date of said Section 4043; (i) no benefit under any Benefit
Plan, including without
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limitation any severance or parachute payment plan, practice, policy or
agreement, will be established or become accelerated, vested or payable by
reason of any transaction contemplated under this Purchase Agreement or any
Other Transaction Document; (j) no suit, actions or other litigation (excluding
claims for benefits incurred in the ordinary course of plan activities) have
been brought against or with respect to any Benefit Plan; and (k) all
contributions to Benefit Plans that were required to be made under such Benefit
Plans have been made as of the Closing Date, and all benefits accrued but not
payable under any Benefit Plan will have been accrued or otherwise adequately
reserved in accordance with GAAP or SAP, as the case may be, as of such date and
the Company will have performed by the Closing Date all obligations required to
be performed as of such date under all Benefit Plans. The transactions
contemplated by this Agreement will not trigger or cause to be made or provided
in any way (either directly or indirectly) any payments, or result in the
acceleration or other increase in any vesting of rights or other benefits of any
kind whatsoever, under (i) any Benefit Plan (including but not limited to the
Home State Holdings Inc. 1993 Stock Incentive Plan), and (ii) any employment,
consulting, severance or similar agreements or arrangements, whether formal or
informal, whether written or oral.
5.10. Legal Compliance.
(a) The Company and each Subsidiary has complied with all
applicable constitutions, statutes, laws, rules, regulations, orders, licenses,
judgments, writs, injunctions, decrees, rulings, charges or demands, except to
the extent that the failure to so comply could not have a Material Adverse
Effect.
(b) There are no adverse orders, judgments, writs,
injunctions, decrees, rulings, charges or demands of any court or administrative
body, domestic or foreign, or of any other governmental Authority, outstanding
against the Company or any Subsidiary.
5.11. Environmental Compliance.
(a) The Company and each Subsidiary has obtained and
holds all necessary Environmental Permits.
(b) The Company and each Subsidiary is in compliance in all
respects with all terms, conditions and provisions of all applicable (i)
Environmental Permits, and (ii) Environmental Laws.
(c) There are no past, pending, or to the knowledge of the
Company or any Subsidiary, threatened Environmental Claims against the Company
or any Subsidiary, and neither the Company nor any Subsidiary is aware of any
facts or circumstances which could reasonably be expected to form the basis for
any Environmental Claim against the Company.
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(d) No Releases of Hazardous Materials have occurred at, from,
in, to, on, or under any Site and no Hazardous Materials are present in, on,
about or migrating to or from any Site that could give rise to an Environmental
Claim against the Company or any Subsidiary.
(e) Neither the Company, any Subsidiary, any predecessor of the
Company or any Subsidiary, nor any entity previously owned by the Company or any
Subsidiary, has transported or arranged for the treatment, storage, handling,
disposal, or transportation of any Hazardous Material to any off-Site location
which could result in an Environmental Claim against the Company or any
Subsidiary.
(f) There are no Liens relating to an Environmental Claim on the
assets or property of the Company or any Subsidiary arising under or pursuant to
any Environmental Law on any Site and, to the Company's or any Subsidiary's
knowledge, there are no facts, circumstances, or conditions that could
reasonably be expected to restrict, encumber, or result in the imposition of
special conditions under any Environmental Law with respect to the ownership,
occupancy, development, use, or transferability of any Site.
(g) There are no (i) underground storage tanks, active or
abandoned, (ii) polychlorinated biphenyl containing equipment, or (iii) asbestos
containing material at any Site, which could result in an Environmental Claim
against the Company or any Subsidiary.
(h) There have been no environmental investigations, studies,
audits, tests, reviews or other analyses conducted by, on behalf of, or which
are in the possession of the Company or any Subsidiary with respect to any Site.
5.12. Status Under Certain Statutes.
Neither the Company nor any Subsidiary is: (i) a "public utility
company", or a "holding company", or an "affiliate" or a "subsidiary company" of
a "holding company", or an "affiliate" of such a "subsidiary company", as such
terms are defined in the United States Public Utility Holding Company Act of
1935, as amended; (ii) a "public utility" as defined in the Federal Power Act,
as amended; or, (iii) an "investment company" or an "affiliated person" thereof
or an "affiliated person" of any such "affiliated person", as such terms are
defined in the United States Investment Company Act of 1940, as amended.
5.13. Use of Proceeds; No Foreign Assets Control Regulation
Violation.
(a) The Company will use the net proceeds realized from the sale
of the Preferred Shares and the Warrants to increase the capital and surplus of
the Insurance Subsidiaries and for no other purpose. No portion of such proceeds
will be used for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying, within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System, as amended from time to time, any
"margin stock" as defined in said Regulation U, or any "margin stock" as defined
in Regulation G of the Board of
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Governors of the Federal Reserve System, as amended from time to time, or for
the purpose of purchasing, carrying or trading in securities within the meaning
of Regulation T of the Board of Governors of the Federal Reserve System, as
amended from time to time, or for the purpose of reducing or retiring any
indebtedness which both (i) was originally incurred to purchase any such margin
stock or other securities and (ii) was directly or indirectly secured by such
margin stock or other securities. None of the assets of the Company or any
Subsidiary includes any such "margin stock", and neither the Company nor any
Subsidiary has any present intention of acquiring any such "margin stock."
(b) The transactions contemplated by this Purchase Agreement
will not result in a violation of the Trading with the Enemy Act, as amended, or
any of the foreign assets control regulations of the United States Treasury
Department, 31 CFR, Subtitle B, Chapter V, as amended, or any ruling issued
thereunder or any enabling legislation or executive order granting authority
therefor or relating thereto, and the proceeds of the sale of the Preferred
Shares and the Warrants will not be used by the Company in a manner which would
violate any such regulations.
5.14. Outstanding Securities.
All securities (as defined in Section 2(1) of the Securities Act)
of the Company and each Subsidiary have been offered, issued, sold and delivered
in compliance with, or pursuant to exemptions from, all applicable federal and
state laws, and the rules and regulations of federal and state regulatory bodies
governing the offering, issuance, sale and delivery of securities.
5.15. Permits, Filings, Licenses and Approvals; Intellectual
Property and Other Rights.
(a) The Company and, except as set forth in Schedule 5.15 each
Subsidiary, owns or possesses and holds free from burdensome restrictions all
franchises, licenses, (including without limitation licenses under all relevant
insurance laws and regulations), permits, consents, approvals and other
authorizations (governmental or otherwise), patents, patent rights, trademarks,
trademark rights, tradenames, tradename rights and copyrights (each of which is
listed on Schedule 5.15 hereto), and all rights and privileges with respect to
any of the foregoing, as are necessary for the conduct of its business as now
being conducted and as proposed to be conducted. Except as set forth in Schedule
5.15, neither the Company nor any Subsidiary is in default in any material
respect under any of such franchises, licenses, permits, consents, approvals or
other authority. The rights of (and use by) the Company and each Subsidiary with
respect to such or any other patents, patent rights, trademarks, trademark
rights, tradenames, tradename rights or copyrights do not conflict with or
infringe any rights of others and no such claim of conflict or infringement has
been asserted by any Person.
(b) The Company and each of the Company's Insurance Subsidiaries
have made all required filings under applicable insurance holding company
statutes. Except as set forth in Schedule 5.15, each of the Company and its
Subsidiaries has all necessary authorizations, approvals,
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orders, consents, certificates, permits, registrations or qualifications of and
from any insurance regulatory authorities ("Insurance Licenses") to conduct
their businesses as currently conducted and all such Insurance Licenses are
valid and in full force and effect. Schedule 5.15 hereto lists each order and
written understanding or agreement of or with the applicable authorities
currently in effect and applicable to the Company of any of its Subsidiaries.
Neither the Company nor any of its Subsidiaries has received any notifications
(which notification has not been withdrawn or otherwise resolved prior to the
date of this Purchase Agreement) from any insurance regulatory authority to the
effect that any additional Insurance License from such insurance regulatory
authority is needed to be obtained by any of the Company or any of its
Subsidiaries. Each Insurance Subsidiary is in compliance with the requirements
of the insurance laws and regulations of any jurisdictions which are applicable
to such Insurance Subsidiary, and has filed all notices, reports, demands or
other information required to be filed thereunder.
5.16. Properties.
(a) The Company does not own, and no Subsidiary owns, any real
property. The Company and each Subsidiary has good and marketable title to its
assets and other properties (including tangible and intangible personal
property) free and clear of all Liens other than Permitted Liens. Certain real
property used by the Company or its Subsidiaries in the conduct of their
respective businesses is held under lease, as identified on Schedule 5.16
hereto.
(b) The Company and each Subsidiary has the right to and does
enjoy peaceful and undisturbed possession under all leases pursuant to which it
leases property. Neither the Company nor any Subsidiary is aware of any pending
or threatened claim or action by any lessor of any such property to terminate
any such lease. All such leases are valid and in full force and effect, and none
of such leases is in default.
(c) None of the properties owned or leased by the Company or any
of its Subsidiaries is subject to any Liens which could result in a Material
Adverse Effect.
5.17. Insurance Coverage.
There is in full force and effect one or more policies of
insurance issued by financially sound and reputable insurance companies with an
A.M. Best rating of A- (Class IX) or better, insuring (i) the Company and its
Subsidiaries, their properties and business and (ii) the directors and executive
officers of the Company and its Subsidiaries, against such losses and risks, and
in such amounts, as are customary in the case of corporations of established
reputation engaged in the same or similar businesses of similar size and
similarly situated. All insurance policies and programs maintained by or on
behalf of the Company and the Subsidiaries are separately identified and
disclosed on Schedule 5.17 hereto. The Company and its Subsidiaries have not
been refused any insurance coverage, and existing insurance coverage of
directors and executive officers of the Company and its Subsidiaries sought or
applied for, and the Company and its Subsidiaries have no
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reason to believe that they will be unable to renew their existing insurance
coverage upon terms at least as favorable as those presently in effect.
5.18. Key Employees; Labor Matters.
The Company and each Subsidiary has good relationships with its
employees and has not experienced and does not expect to experience any
substantial labor problems. Neither the Company nor any Subsidiary has any
knowledge as to any intentions of any key employee or any group of employees to
leave the employ of the Company or of any Subsidiary. No employee of the Company
or any Subsidiary is represented by a labor union or organization, no labor
union or organization has been certified or recognized as a representative of
any such employee, there are no pending or, to the knowledge of the Company,
threatened representation campaigns concerning union representation involving
any employee or efforts of any labor union or organization (or representatives
thereof) to organize any employees.
5.19. Indebtedness.
Item 1 of Schedule 5.19 hereto sets forth (i) the amount of all
Indebtedness of the Company or any Subsidiary, individually (as to each
outstanding obligation) in excess of $225,000, outstanding on the Closing Date,
(ii) any Lien with respect to such Indebtedness and (iii) a description of each
instrument or agreement governing such Indebtedness. No default exists with
respect to or under any such Indebtedness or any instrument or agreement
relating thereto and no event or circumstance exists with respect thereto which
(with notice or the lapse of time or both) could give rise to such a default.
5.20. No Burdensome Agreements.
To the best of the knowledge of the Company and its Subsidiaries,
neither the Company nor any Subsidiary is a party to, or bound by (nor is any of
its properties affected by), any (x) commitment, contract or agreement, any term
of which has, or in the future could reasonably be expected to have, a Material
Adverse Effect (except as set forth on Schedule 5.20), or (y) any contract or
agreement with any Affiliate of the Company or of any Subsidiary, the terms of
which are less favorable to the Company or such Subsidiary than those which
might have been obtained, at the time such contract or agreement was entered
into, from a Person who was not such an Affiliate.
5.21. Solvency.
(a) The Company and each of its Subsidiaries is and, immediately
after giving effect to the issuance and sale of the Preferred Shares and the
Warrants and the consummation of the other transactions contemplated hereby,
will be, Solvent.
(b) For purposes of this Section 5.21, the term "Solvent" means
that:
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(i) the Company's assets, at a fair valuation, exceed its
total liabilities (including contingent, subordinated, unmatured
and unliquidated liabilities) and the minimum statutory capital
and surplus requirement on a consolidated basis;
(ii) each Subsidiary's assets, at a fair valuation, exceed
its total liabilities (including contingent, subordinated,
unmatured and unliquidated liabilities) and the minimum statutory
capital and surplus requirements;
(iii) the Company believes, based on current projections,
which are based on underlying assumptions which provide a
reasonable basis for the projections and which reflect the
Company's judgment based on present circumstances of the most
likely set of conditions and most likely course of action for the
period projected, that it and each of its Subsidiaries has
sufficient cash flow to enable each of them to pay their
respective debts as they mature; and
(iv) neither the Company nor any Subsidiary has an
unreasonably small capital with which to engage in their
respective anticipated businesses.
(c) The "fair valuation" of the assets of the Company shall, for
purposes of this Section 5.21, be determined on the basis of the amount which
may be realized within a reasonable time, either through collection or sale of
such assets at the regular market value, and the "regular market value" shall be
the amount which could be obtained for such property within such period by a
capable and diligent businessperson from an interested buyer who is willing to
purchase under ordinary selling conditions.
5.22. Information True and Accurate.
None of the representations or warranties made by the Company or
any Subsidiary in this Purchase Agreement (including all exhibits and schedules
hereto) or in any Other Transaction Document or in any of the Securities, as of
the date of such representations and warranties and as of the Closing Date, and
none of the statements contained in each exhibit, schedule or report or any
other information furnished by or on behalf of the Company or any Subsidiary to
the Purchasers in connection with this Purchase Agreement or any Other
Transaction Document as of the respective dates of such materials and as of the
Closing Date, contains any untrue statement of a material fact or omits any
material fact required to be stated therein or necessary to make the statements
made therein, in the light of the circumstances under which they are made, not
misleading.
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5.23. No Brokers or Finders.
Except for the fee of $100,000 (plus an amount equal to 1% of the
proceeds received by the Company from Swiss Re in the event that Swiss Re
exercises the option granted to it under Section 11.1) payable to Isis
Consulting, Inc. ("Isis") by the Company pursuant to a letter agreement dated as
of August 15, 1996 between the Company and Isis and as to which the Purchasers
have no liability, none of the Company or its Subsidiaries has contracted for or
otherwise arranged for the services of any Person who has, or as a result of the
transactions contemplated herein will have, any right or valid claim against the
Company or any of its Subsidiaries or any Purchaser for any commission, fee or
other compensation as a finder or broker, or in any similar capacity.
5.24. Interested Party Transactions.
Except as disclosed on Schedule 5.24, no executive officer or
director of the Company, or shareholder who is known to the Company to own of
record or beneficially more than five percent (5%) of the Company's Common
Stock, or immediate family member of any of the foregoing, has or has had, or
will have either directly or indirectly, a material interest in any transaction,
series of similar transactions or currently proposed transaction or series of
similar transactions, to which the Company or any of its Subsidiaries is, was or
is to be a party, in which the amount involved exceeds $50,000.
5.25. Offering of Securities.
Neither the Company, nor any agent or other Person acting on its
behalf has, directly or indirectly, (i) offered any of the Securities or any
other security of the Company or any Subsidiary (A) by any form of general
solicitation or general advertising (within the meaning of Regulation D under
the Securities Act) or (B) for sale to or solicited offers to buy any thereof
from, or otherwise approached or negotiated with respect thereto with, any
person other than the Purchasers and other institutional investors each of which
the Company reasonably believed was an "accredited investor" within the meaning
of Regulation D under the Securities Act or (ii) done or caused to be done (or
has omitted to do or to cause to be done) any act which act (or which omission)
would result in bringing the issuance or sale of the Securities within the
provisions of Section 5 of the Securities Act or the filing, notification or
reporting provisions of any state securities laws.
5.26. Disaster.
Neither the business nor the properties of the Company or its
Subsidiaries is currently affected (or has been affected at any time since
December 31, 1995, by any fire, explosion, accident, strike, lockout or other
dispute, drought, storm, hail, earthquake, embargo, act of God or of the public
enemy or other casualty (whether or not covered by insurance), of a kind which
(individually or in the aggregate) has or could have a Material Adverse Effect.
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5.27. Insurance Contracts; Reinsurance; Loss Reserves.
(a) All insurance contracts written or issued by the Company or
any of its Subsidiaries as now in force are in all respects, to the extent
required under applicable law, on forms approved by applicable insurance
regulatory authorities (and have not been objected to by such authorities within
the period provided for objection), and such forms comply in all material
respects with the insurance statutes, regulations and rules applicable thereto.
True, complete and correct copies of such forms have been furnished or made
available to each Purchaser and there are no other forms of insurance contracts
used in connection with the Company's and its Subsidiaries' business. Premium
rates established by the Company or its Subsidiaries which are required to be
filed with or approved by insurance regulatory authorities have been so filed or
approved, the premiums charged conform thereto in all material respects, and
such premiums comply in all material respects with the insurance statutes,
regulations and rules applicable thereto.
(b) All reinsurance and coinsurance treaties or agreements,
including retrocessional agreements, to which the Company or any Subsidiary is a
party or under which the Company or any Subsidiary has any existing rights,
obligations or liabilities are in full force and effect. Neither the Company nor
any Subsidiary, nor, to the Company's or any Subsidiary's knowledge, any other
party to a reinsurance or coinsurance treaty or agreement to which the Company
or any Subsidiary is a party, is in default in any material respect as to any
provision thereof, and no such agreement contains any provision providing that
the other party thereto may terminate such agreement by reason of the
transactions contemplated by this Purchase Agreement or the Other Transaction
Documents. To the knowledge of the Company or any Subsidiary, the financial
condition of no other party to any such agreement is impaired with the result
that a default thereunder may reasonably be anticipated, whether or not such
default may be cured by the operation of any offset clause in such agreement.
(c) The reserves for loss and loss adjustment expense
liabilities set forth in any annual statement of the Company or any Subsidiary,
in any quarterly statement and in any subsequent annual and quarterly statement
of the Company or any Subsidiary after the date hereof were and in the future
will be, determined in accordance with GAAP or SAP, as the case may be, and
meets and in the future will meet all requirements of all applicable insurance
statutes, laws and regulations. The reserves for loss and loss adjustment
expense liabilities reflected in any annual statement, in any quarterly
statements and in any subsequent annual and quarterly statement of the Company
or any Subsidiary after the date hereof and established on the books of the
Company or any Subsidiary for all future insurance and reinsurance losses,
claims and expenses make or will make a reasonable provision for all unpaid loss
and loss adjustment expense obligations of the Company and its Subsidiaries,
including incurred but not reported reserves for loss and loss adjustment
expense, under the terms of its policies and agreements. The Company and each of
its Subsidiaries owns assets which qualify as admitted assets under the
applicable insurance laws in an amount at least equal to the sum of all of their
respective required insurance reserves and minimum statutory capital and surplus
as required by such state laws.
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SECTION 6. REPRESENTATIONS OF THE PURCHASERS
Each Purchaser hereby makes the representations and warranties to
the Company contained in this Section 6.
6.1. Corporate Power and Authority.
Each Purchaser has all requisite power, authority and legal right
to execute, deliver, enter into, consummate and perform this Purchase Agreement
and each Other Transaction Document to which it is a party. The execution,
delivery and performance of this Purchase Agreement and each Other Transaction
Document (to the extent to which it is a party thereto) by each Purchaser have
been duly authorized by all required corporate actions. Each Purchaser has duly
executed and delivered this Purchase Agreement and each Other Transaction
Document to which it is a party, and this Purchase Agreement and each Other
Transaction Document (to the extent to which it is a party thereto) constitutes
the legal, valid and binding obligation of each Purchaser enforceable against
each such Purchaser in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to the
rights of creditors generally.
6.2. Investor Suitability.
Each Purchaser is purchasing the Preferred Shares and Warrants to
be purchased by it for its own account, for investment purposes and not with a
present view to any distribution thereof in violation of any applicable
securities laws. It is understood that the disposition of each Purchaser's
property shall at all times be within each Purchaser's control. If the
Purchasers should in the future decide to dispose of any of their Preferred
Shares, Warrants or Warrant Shares, it is understood that they may do so but
only in compliance with the Securities Act and applicable securities laws. Each
Purchaser is as of the date hereof and will be as of the Closing Date an
"accredited investor" as defined in Rule 501(a) under the Securities Act.
SECTION 7. COVENANTS OF THE COMPANY REGARDING CERTAIN INFORMATION
7.1. Financial and Business Information.
(a) The Company will maintain, and cause each Subsidiary to
maintain, a system of accounting established and administered in accordance with
sound business practices to permit preparation of financial statements in
accordance with GAAP or SAP, as the case may be.
(b) The Company will deliver the following to each holder of any
Securities, so long as such holder (i) is a holder of at least $500,000 in
aggregate stated value of Preferred Shares or (ii) is a holder which holds (or
has the right to obtain through the exercise of Warrants) at least
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50,000 shares of Common Stock (each holder qualifying under clauses (i) or (ii),
a "Qualified Holder"):
(i) Monthly Financials. As soon as available and in any
event within thirty (30) days after the end of each month, (x)
updates of claim activities for the preceding month, (y) a
consolidated and consolidating balance sheet of the Company as at
the end of such month (if prepared) and (z) the related
consolidated and consolidating statements of income and cash flow
for such month and for the period from the beginning of the then
current fiscal year to the end of such month (if prepared), in
each case to be in reasonable detail, certified by the Chief
Financial Officer or the President (or the Acting President if
there is no President) of the Company and setting forth in
comparative form (except for the consolidating information) the
corresponding figures for the comparable period one year prior
thereto (subject to normal year end adjustments) and the
comparable figures included in the budget for such month (as
delivered or modified pursuant to clause (iv) below);
(ii) Quarterly Financials. As soon as practicable, and in
any event within forty-five (45) days after the close of each of
the fiscal quarters of the Company, (x) a consolidated and
consolidating balance sheet of the Company and its Subsidiaries as
of the end of such fiscal quarter and (y) consolidated and
consolidating statements of income, stockholders' equity and cash
flows of the Company and its Subsidiaries for the portion of the
fiscal year ended with the end of such quarter, in each case in
reasonable detail, certified by the Chief Financial Officer or the
President (or the Acting President if there is no President) of
the Company and setting forth in comparative form the
corresponding figures for the comparable period one year prior
thereto (subject to normal year-end adjustments) and the
comparable figures included in the budget for such quarter (as
delivered or modified pursuant to clause (iv) below), together
with a management analysis of any material differences between
such results and the corresponding figures for such prior period
and between such results and such budgeted figures;
(iii) Annual Financials. As soon as practicable but not
later than five (5) Business Days after their issuance, and in any
event within ninety (90) days after the close of each fiscal year
of the Company, (x) a consolidated and consolidating balance sheet
of the Company and its Subsidiaries as of the end of such fiscal
year and (y) consolidated and consolidating statements of income,
stockholders' equity and cash flows of the Company and its
Subsidiaries for such fiscal year, in each case setting forth in
comparative form the corresponding figures for the preceding
fiscal year, all such balance sheets and statements to be in
reasonable detail and certified without qualification by (and
accompanied by an opinion of) Coopers & Lybrand L.L.P. or other
independent public accountants of recognized national standing
selected by the Company and reasonably satisfactory to each
Purchaser and such statements shall be accompanied by a management
analysis of any material differences between the results for such
fiscal year and the corresponding figures for
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the preceding fiscal year and between the budgeted figures (as
delivered or modified pursuant to clause (iv) below) and the
results for such year;
(iv) Budgets. As soon as practicable, and in any event no
later than forty-five (45) days prior to the beginning of each
fiscal year of the Company (other than fiscal year 1997 with
respect to which such budget will be delivered thirty (30) days
prior to the beginning of such fiscal year), a budget for such
fiscal year prepared on a monthly basis regarding the Company's
operations and capital expenditures on a consolidated basis as
well as the operations and capital expenditures of each of the
Subsidiaries (and separately including a projected consolidated
income statement, cash flow and balance sheet), together with an
analysis of such budget prepared in reasonable detail by the Chief
Financial Officer or the President (or the Acting President if
there is no President) of the Company; and, within fifteen (15)
days following their preparation, (1) any operating budget of the
Company otherwise prepared and submitted to its Board and (2) any
revisions or amendments made by the Company (and submitted to its
Board) to any budget delivered under this clause (iv);
(v) Reports. As soon as practicable, copies of any
annual, special or interim audit reports or management or comment
letters with respect to the Company or any of its Subsidiaries or
their operations submitted to the Company by independent public
accountants;
(vi) Public Filings. As soon as practicable, copies of (x)
all financial statements, proxy materials or reports sent to the
Company's or any Subsidiary's stockholders, (y) any public or
press releases and (z) all reports, forms, registration statements
or other documents filed with the Commission pursuant to the
Securities Act or the Exchange Act;
(vii) Board Materials. As soon as practicable and without
duplication of any of the above items, all materials furnished,
from time to time, to directors of the Company and any Subsidiary,
as the case may be (including without limitation all
communications and information furnished to such directors), and
copies of minutes of meetings of the Board (and of any executive
committees thereof) of the Company and any Subsidiary, except to
the extent that such materials have been provided to any person
appointed or designated by the Qualified Holder as a director of
the Company (or as an observer on the Board of the Company)
pursuant to the Stockholders' Agreement; provided that the
Qualified Holder will not use any of such documents, reports or
other information for any reason or purpose other than to review
the affairs and financial condition of the Company in connection
with such Qualified Holder's Investment in the Company and the
compliance by the Company with the terms and provisions of this
Purchase Agreement, the Other Transaction Documents and the
Securities and will hold in confidence, unless required to
disclose
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by judicial, regulatory or administrative process or by other
requirements of law, all documents, reports or other information
obtained from the Company, except to the extent that such
documents, reports and other information have been (i) previously
known on a nonconfidential basis by such Qualified Holder, (ii) in
the public domain through no fault of such Qualified Holder or
(iii) subsequent lawfully acquired by such Qualified Holder from
sources other than the Company who, to the knowledge of such
Qualified Holder, had such documents, reports and other
information without any breach of any obligation of
confidentiality; provided that any such Qualified Holder may
disclose such documents, reports and other information to
officers, directors, employees, accountants, counsel, consultants,
advisors and agents of such Qualified Holder in connection with
such Qualified Holder's review of such documents, reports or other
information so long as such Persons are informed by such Qualified
Holder to treat such information confidentially and not to use any
of such documents, reports or other information for any reason or
purpose other than in connection with such Qualified Holder's
review.
(viii) Regulatory Filings. As soon as practicable, copies of
all (x) filings made by the Company or any Subsidiary under
insurance holding company statutes and (y) annual and quarterly
statutory statements filed by the Insurance Subsidiaries and all
examination reports of such authorities relating to the Company or
any Subsidiary and formal responses thereto of the Company and its
Subsidiaries.
(ix) Other Materials. As soon as practicable and without
duplication of any of the above items, all materials furnished,
from time to time, by or on behalf of the Company to any other
holders of Indebtedness or of capital stock of the Company
(including without limitation any compliance certificates
furnished in respect of such Indebtedness); and
(x) Requested Information. As soon as practicable, such
other information, as may reasonably be requested by a Qualified
Holder, regarding the assets, properties, liabilities, business,
affairs, results of operations, conditions (financial or
otherwise) or prospects of the Company or any Subsidiary.
All such financial statements shall be prepared in accordance with GAAP or SAP,
as the case may be (except for any change in accounting principles specified in
the accompanying certificate and except that any interim financial statements
may omit notes and may be subject to normal year-end adjustments) and shall be
true and correct in all material respects as of the dated and for the periods
stated therein.
(c) Without limiting the foregoing provisions of this Section
7.1, the Company agrees that, if expressly requested in writing by any holder of
any Securities, it will not deliver to such holder (until otherwise instructed
by such holder) (x) any information or materials regarding the Company or any
Subsidiary (whether described in this Section 7.1 or otherwise) that is
non-
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public and (y) any information (whether or not included in clause (x)) which
such holder specifies it does not want to receive.
7.2. Communication with Accountants.
The Company (on behalf of itself and each of its Subsidiaries)
hereby authorizes each holder of any Securities to communicate, from time to
time, directly with the independent certified public accountants for the Company
or any Subsidiary and authorizes such accountants to disclose to such holders
any and all financial statements and any other information of any kind that they
may have with respect to the assets, properties, liabilities, business, affairs,
results of operations, condition (financial or otherwise) or prospects of the
Company or any Subsidiary; provided, that such accountants may require that the
Company be informed of any such disclosures. The Company shall deliver a letter
addressed to such accountants instructing them to comply with the provisions of
this Section 7.2.
7.3. Inspection.
The Company will permit each Qualified Holder and any authorized
representative of such Qualified Holder to visit and inspect any of the
properties of the Company and its Subsidiaries, to examine their respective
books and records and to discuss with their officers their books and records and
the assets, properties, liabilities, business, affairs, results of operations,
condition (financial or otherwise) or prospects of the Company or any
Subsidiary, all at such reasonable times (upon 24 hours' notice) and as often as
may be reasonably requested.
7.4. Notices.
The Company will give notice to all holders of Securities promptly
after it learns (other than by notice from all of such holders) of the existence
of any of the following:
(a) any default or any event which could constitute a default
under any Indebtedness (or under any indenture, mortgage or other agreement
relating to any Indebtedness), which Indebtedness in an aggregate principal
amount exceeds $100,000 (or the equivalent thereof in other currencies), in
respect of which the Company or any Subsidiary is liable;
(b) any Redemption Event, or any condition or event which, with
notice or lapse of time or both, would constitute a Redemption Event;
(c) any default by the Company or any of its Subsidiaries under
any material agreement to which it is or such Subsidiary is a party;
(d) any action or proceeding which has been commenced or
threatened against the Company or any of its Subsidiaries and which, if
adversely determined, could have a Material Adverse Effect;
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<PAGE> 45
(e) any dispute which may exist between the Company or any of its
Subsidiaries and any Governmental Authority which, individually or in the
aggregate, has or could have a Material Adverse Effect;
(f) with respect to any Benefit Plans or any Plan maintained at
any time by, or contributed to by, an ERISA Affiliate: (i) any "reportable
event" (as such term is defined in Section 4043(b) of ERISA) has occurred; (ii)
any "accumulated funding deficiency" (within the meaning of Section 412(a) of
the Code) has been incurred, or application may be or has been made to the
Secretary of the Treasury for a waiver or modification of the minimum funding
standard (including any required installment payments) or an extension of any
amortization period under Section 412 of the Code; (iii) any Plan has been
terminated, reorganized, petitioned or declared insolvent under Title IV of
ERISA; (iv) any plan has an unfunded current liability giving rise to a lien
under ERISA or the Code; (v) any proceeding has been instituted pursuant to
Section 515 of ERISA to collect a delinquent contribution; or (vi) any liability
(including any contingent or secondary liability) will or may be incurred to or
on account of the termination or withdrawal under Section 4062, 4063, 4064 or
4975 of the Code or Section 409 or 502(i) of ERISA; or (vii) any "prohibited
transaction" (as such term is defined in Section 406 of ERISA and Section 4975
of the Code) in connection with an "employee pension benefit plan" to which an
exemption under Section 408 of ERISA or Section 4975(d) of the Code is not
applicable, which in the case of clause (i), (ii), (iii), (iv), (v), (vi) or
(vii) may, either individually or in the aggregate, result in a liability which
could have a Material Adverse Effect; and
(g) any Release of a Hazardous Material at, to, on, in, from or
under any real property owned, operated or leased by the Company which could
have a Material Adverse Effect.
Such notice (i) with respect to clauses (a) and (b) above shall specify the
nature and period of existence of any such default and what the Company proposes
to do with respect thereto and (ii) with respect to (c),(d), (e), (f) and (g)
shall specify the nature of any such matter referred to in such clause, what
action the Company or any Subsidiary proposes to take with respect thereto and
what action any other relevant Person is taking or proposes to take with respect
thereto.
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SECTION 8. AFFIRMATIVE COVENANTS
The Company covenants and agrees as follows:
8.1. Maintenance of Existence, Properties and Franchises;
Compliance with Law: Taxes; Insurance.
The Company will, and will cause each Subsidiary to:
(a) maintain their respective existences, rights and other
franchises in full force and effect;
(b) maintain their respective tangible assets in good repair,
working order and condition so far as is necessary or advantageous to the proper
carrying on of their respective businesses;
(c) comply in all respects with all applicable laws, rules,
regulations, orders, rules, rulings, certificates, licenses, regulations,
demands, judgments, writs, injunctions and decrees, and maintain all permits,
licenses, filings and other authorizations (including without limitation all
authorizations of state departments of insurance or other insurance regulatory
agencies); provided, that such compliance and/or maintenance shall not be
necessary so long as (i) the applicability or validity of any such constitution,
statute, law, order, rule, ruling, certificate, license, regulation, demand,
judgment, writ, injunction, ruling, charge or decree shall be contested in good
faith by appropriate proceedings and (ii) the failure to so comply (or maintain,
as the case may be) will not have a Material Adverse Effect;
(d) pay promptly when due all taxes, fees, assessments and other
governmental charges imposed upon their respective properties, assets or income
and all claims or indebtedness (including without limitation materialmen's,
vendors', workmen's and like claims) which might become a lien upon such
properties or assets; provided, that payment of any such tax, fee, assessment,
charge, claim or indebtedness shall not be necessary so long as (i) the
applicability or validity thereof shall be contested in good faith by
appropriate proceedings and a reserve, if appropriate, shall have been
established with respect thereto and (ii) the failure to make such payment will
not have a Material Adverse Effect;
(e) keep in full force and effect one or more policies of
insurance issued by financially sound and reputable insurance companies (with an
A.M. Best rating of A- (Class IX) or better) (i) insuring the Company and its
Subsidiaries and their respective properties and businesses and (ii) insuring
the directors and executive officers of the Company and its Subsidiaries
(including, without limitation, the Default Directors and the Preferred
Director) against losses and risks, and in such amounts as are customary in the
case of corporations of established reputation engaged in the same or similar
businesses of similar size and similarly situated; and
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(f) comply with all other obligations that it incurs pursuant to
any contract or agreement, whether oral or written, express or implied, as such
obligations become due; provided, that such compliance shall not be necessary so
long as (i) such obligations shall be contested in good faith by appropriate
proceedings, and (ii) to the extent that any breach of such contract or
agreement would not have a Material Adverse Effect.
(g) act to promptly make the filings referenced, or otherwise
rectify the matters set forth, in Item 1 of Schedule 5.15.
8.2. Office for Payment Exchange and Registration; Location of
Office; Notice of Change of Name or Office.
(a) So long as any of the Securities are outstanding, the Company
will maintain an office or agency where Securities may be presented for payment,
exchange, exercise, conversion or registration of transfer as provided in this
Purchase Agreement. Such office or agency initially shall be the office of the
Company as set forth in Section 17 hereof, subject to paragraph (b) of this
Section 8.2.
(b) The Company shall give each holder of Securities at least
twenty (20) days' prior written notice of any change in (i) the name of the
Company as then in effect, or (ii) the location of the office of the Company
required to be maintained under this Section 8.2.
8.3. Fiscal Year.
The fiscal year of the Company and its Subsidiaries for tax,
accounting and any other purposes shall end on December 31 of each calendar
year.
8.4. Payment of Dividends by Subsidiaries.
Subject to any required consent or approval from any applicable
Governmental Authority, the Company will cause its Subsidiaries to pay dividends
or make other distributions or advances to the Company, to the extent of funds
legally available therefor, in sufficient amounts and at sufficient times to
enable the Company to have sufficient earnings and funds to pay on a timely
basis all amounts due with respect to the Securities and any other amounts due
under this Purchase Agreement and the Other Transaction Documents.
8.5. Directors.
The Company shall take all actions (within its power) necessary to
ensure that the Preferred Director and/or the Default Directors (as the case may
be and as defined in the Stockholders' Agreement) are duly elected by the
stockholders as members of the Board of the Company, all in the manner provided
in the Stockholders' Agreement. Promptly after the Closing, the Company shall
take all actions necessary to ensure that effective upon their election or
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appointment to the Board of Directors of the Company, the Preferred Director and
the Default Directors, as the case may be, are insured directors under the
directors and officers insurance policies maintained by the Company and its
Subsidiaries for directors and officers (as required by Section 8.1(e) hereof).
8.6. Environmental Matters.
(a) The Company and each Subsidiary shall keep any property
either owned, leased or operated by the Company or any Subsidiary free and clear
of any Liens imposed for failure by the Company, any Subsidiary or any Person
under the control or subject to the direction of the Company or any Subsidiary
to comply with any environmental laws, regulations or ordinances (each, an
"Environmental Lien"), and the Company and each Subsidiary, as the case may be,
shall keep all such property in compliance with all Environmental Laws and
Environmental Permits and free of Hazardous Materials (except as used in the
ordinary course of the Company's or any Subsidiary's operations in compliance
with Environmental Laws); provided, however, that the Company and each
Subsidiary shall have the right at its cost and expense, and acting in good
faith, to contest, object or appeal by appropriate legal proceeding the validity
of any Environmental Lien. The contest, objection or appeal with respect to the
validity of an Environmental Lien shall suspend the Company's obligation to
eliminate such Environmental Lien under this paragraph pending a final
determination by appropriate administrative or judicial authority of the
legality, enforceability or status of such Environmental Lien; provided that the
following conditions are satisfied: (i) contemporaneously with the commencement
of such proceedings, the Company shall give written notice thereof to each
holder of Securities; and (ii) if under applicable law any real property or
improvements thereon are subject to sale or forfeiture for failure to satisfy
the Environmental Lien prior to a final determination of the legal proceedings,
the Company or such Subsidiary must successfully move to stay such sale,
forfeiture or foreclosure pending final determination of the Company's (or
Subsidiary's) action.
(b) The Company will, by administrative or judicial process or
other appropriate manner enforce the obligations of any other Person who is
potentially liable for damages, contribution or other relief in connection with
asbestos abatement, Hazardous Material investigation or remediation at any Site
or any off-Site location which abatement, investigation or remediation may
result in any obligation or liability on the part of the Company or any
Subsidiary.
(c) The Company will defend, indemnify and hold harmless each
current, former and future holder of Securities and its Affiliates from and
against any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits and claims, joint or several, and any costs, disbursements and
expenses (including reasonable attorneys' fees and expenses and reasonable costs
of investigation) of whatever kind or nature, known or unknown, contingent or
otherwise, arising out of or in any way related to its ownership or interest in
the Securities and to (i) the presence, disposal, release, removal, discharge,
storage or transportation of any Hazardous Material upon, into, from or
affecting any Site; (ii) any judicial or administrative action, suit or
proceeding, actual or threatened, relating to Hazardous Material upon, in, from
or affecting any Site; (iii) any violation of
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any Environmental Law or Environmental Permit by the Company or any Subsidiary
or any of their agents, tenants, subtenants or invitees; (iv) the imposition of
any Environmental Lien for the recovery of costs expended in the investigation,
study or remediation of any liability arising under Environmental Law of (or
asserted against) the Company or any Subsidiary; or (v) any Hazardous Materials
that were generated by the Company or any Subsidiary that were shipped off-Site
for treatment, storage, handling or disposal. This Section 8.6(c) and Section
8.6(d) below shall survive any payment, conversion or transfer of any Securities
and any termination of this Purchase Agreement.
(d) To the extent that the Company or any Subsidiary is strictly
liable without regard to fault under any Environmental Law, the Company's
obligation to the holders of Securities under any of the indemnification
provisions of this Purchase Agreement shall likewise be strict without regard to
fault with respect to the violation of any Environmental Law, which results in
any liability to any of the indemnified persons referred to in Section 8.6(c)
above.
8.7. Reservation of Shares.
The Company agrees that there shall have been reserved, and the
Company shall at all times keep reserved, free from preemptive rights, out of
its authorized Common Stock, a number of shares of Common Stock sufficient to
provide for the exercise of the rights of purchase represented by the Warrants.
8.8. Listing of Shares.
(a) The Company will take all such actions as may be necessary,
from time to time, to (i) maintain the listing of its Common Stock on The
National Association of Securities Dealers, Inc. Automated Quotation System (the
"Nasdaq System") or on a comparable system or national securities exchange, and
(ii) list the Warrant Shares on the Nasdaq System (or on a comparable system or
exchange, as the case may be), as provided in the Registration Rights Agreement.
8.9. Exchange Act Registration.
(a) The Company will maintain effective a registration statement
(containing such information and documents as the Commission shall specify and
otherwise complying with the Exchange Act), under Section 12(b) or Section
12(g), whichever is applicable, of the Exchange Act, with respect to the
Company's Common Stock, and the Company will file on time such information,
documents and reports as the Commission may require or prescribe for companies
whose stock has been registered pursuant to such Section 12(b) or Section 12(g),
whichever is applicable.
(b) The Company will, upon the request of any holder of
Securities, make whatever other filings with the Commission, or otherwise make
generally available to the public such financial and other information, as any
such holder may deem reasonably necessary or desirable
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in order to enable such holder to be permitted (i) to sell Warrant Shares
pursuant to the provisions of Rule 144 and (ii) if the Company has filed a
registration statement with respect to any Preferred Stock of the Company under
Section 6 of the Securities Act or Section 12(b) or Section 12(g) of the
Exchange Act, to sell Shares pursuant to the provisions of Rule 144.
8.10. Delivery of Information for Rule 144A Transactions.
If a holder of Securities proposes to transfer any such Securities
pursuant to Rule 144A, the Company agrees to provide (upon the request of such
holder or the prospective transferee) to such holder and (if requested) to the
prospective transferee any financial or other information concerning the Company
and its Subsidiaries which is required to be delivered by such holder to any
transferee of such Securities pursuant to Rule 144A.
8.11. Press Releases.
The Company shall submit any proposed press release, media alert,
public announcement or other similar notice related to this Purchase Agreement,
any Other Transaction Document or the Securities, or any transaction
contemplated hereby or thereby, to each Purchaser for their respective approval
(which approval shall not be unreasonably withheld) not less than three (3)
Business Days prior to sending any such release, alert, announcement or notice.
Each Purchaser shall provide the Company with comments with respect thereto,
which comments shall be duly considered (and not unreasonably rejected) by the
Company and its counsel.
8.12. Insurance Company Regulations.
The Company shall not, and shall not permit any of its
Subsidiaries to, conduct any business in any jurisdiction where the conduct of
such business would cause the holder of any Securities, solely by their
acquisition or ownership of the Securities, to become subject to the
jurisdiction of any insurance regulatory agency, or to become members of any
insurance holding company system, as that term is defined under the holding
company provisions of the insurance laws of such jurisdiction; provided that the
parties hereto (other than Reliance) acknowledge that, so long as any of the
Insurance Subsidiaries is subject to regulation as an insurance company, a
Purchaser may be required to obtain Consents from applicable Governmental
Authorities in connection with the exercise or conversion of the Warrants.
8.13. Financial Status.
The ratio between (i) net written premiums of the Company and its
Subsidiaries on a consolidated basis for any fiscal year and (ii) the statutory
surplus of the Company and its Subsidiaries on a consolidated basis, as
determined in accordance with SAP consistently applied, as of the end of such
fiscal year shall be less than 2.5:1.0; provided, however, for all periods
subsequent to December 31, 1996, such ratio shall be no greater than 2.0:1.0.
8.14. Insurance Filings.
(a) If at any time after the date hereof, any Purchaser shall be
required to make any filing with, or obtain the Consent of, any Governmental
Authority (including without limitation
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any insurance regulatory authorities of the states in which the Insurance
Subsidiaries are organized and/or doing business) as a result of its ownership
(either directly or indirectly through purchase, conversion, exercise or
otherwise) of any Securities, the Company shall cooperate with (and cause its
Subsidiaries to cooperate with) such Purchaser and its counsel in connection
with any such filing or Consent (including without limitation any "Form A"
filing), and the Company will take or cause to be taken all actions, and will do
or cause to be done all things necessary under applicable laws and regulations
to assist any such Purchaser in effectuating any such filing or obtaining any
such Consent. In connection with any such filing or Consent, the Company shall
cause its counsel to prepare and deliver to each Purchaser an opinion in
substantially the form delivered hereunder.
(b) The Company will pay all (i) costs and expenses incurred by
each Purchaser in connection with preparing and producing any such filing, or
obtaining any such Consent, and (ii) the out-of-pocket expenses incurred by each
Purchaser in connection with any such filing or Consent, including the fees and
disbursements of counsel to any such Purchaser.
(c) The Company shall promptly notify each Purchaser of any
event (including without limitation any redemption, repurchase or conversion of
outstanding capital stock) or circumstance which could give rise to an
obligation of the type described in clause (a) hereof.
8.15. Charter Amendment.
(a) The Company agrees that at the next annual stockholders
meeting of the Company it will recommend to its stockholders, in the proxy to be
distributed in connection with the convening of such stockholders meeting, that
the Company's Certificate of Incorporation be amended to provide that (i) class
voting be permitted for shares of capital stock of the Company, (ii) directors
be subject to removal with or without cause, (iii) the following proviso
contained in Section 4.8(b)(vi) of ARTICLE FOUR be deleted in its entirety:
"; provided, however, that such series, if a voting series, shall
be entitled to no more than one vote per share and shall not be
entitled to vote as a class on any matter except so specifically
required by law;"
(iv) the second sentence of Section 4.2 of ARTICLE FOUR be deleted in its
entirety; (v) the word "shall" contained in the last sentence of Section 6.1(a)
of ARTICLE SIX be deleted and replaced with the word "may"; (vi) the Certificate
of Designations be amended and restated in its entirety to read as set forth on
Exhibit H hereto; and (vii) the number of members of the Board of Directors be
set at not less than eight (8) and no more than ten (10).
(b) In the event that the stockholders fail to approve such
proposed amendment, the Company shall recommend such amendment at the next
succeeding annual meeting of stockholders. The Company shall provide drafts of
its proxy materials to counsel for the Purchasers
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and shall afford Purchasers' counsel reasonable opportunity to comment thereon.
The Company shall give due consideration to any comments which the Purchasers or
their counsel may have.
8.16. Default Directors.
(a) The Company agrees that, upon the occurrence of a Redemption
Default, it shall take all actions within its power, including without
limitation seeking the resignation of directors, and use its best efforts to
facilitate the election of each Default Director as provided in the
Stockholders' Agreement.
(b) Upon the occurrence of a Redemption Default, each of Swiss
Re and Reliance shall have the right to deliver to the Company the resignations
delivered to Swiss Re and Reliance, respectively, pursuant to Section 2.16
hereof, and upon such delivery by Swiss Re or Reliance, as the case may be, the
Company shall accept such resignation forthwith and the director named in such
resignation shall be deemed to have resigned. Upon the creation of any such
vacancy or vacancies, the Company shall use its best efforts to have such
vacancy or vacancies filled (pursuant to the Stockholders' Agreement) by the
Default Director designated by the person delivering such resignation.
SECTION 9. NEGATIVE COVENANTS
The Company covenants and agrees as follows:
9.1. Restricted Payments; Investments.
Neither the Company nor any Subsidiary will, except in furtherance
of its right to effect intercompany transfers pursuant to Section 9.2 hereof,
declare or make or permit to be declared or made any Restricted Payment or any
Investment; provided, however, that the Company and the Subsidiaries may make
(a) the Investment required in respect of The Tower Hill Receivables Financing
(as limited in the definition thereof), (b) pursuant to the Gulkin Transaction,
Investments and Restricted Payments up to, but not in excess of, $2,100,000 in
the aggregate, (c) Restricted Payments to redeem or purchase the minority
interests in Quaker City, provided that any such Restricted Payments shall not
exceed an aggregate of $1,400,000, and (d) Permitted Acquisitions collectively
aggregating in any fiscal year subsequent to fiscal year 1996 an amount not to
exceed $2,000,000.
9.2. Sale of Substantial Portion of Assets; Subsidiaries.
(a) Neither the Company nor any Subsidiary will sell, transfer,
lease, exchange, convey or otherwise dispose of all or substantially all of the
consolidated assets of the Company in a single transaction or series of related
transactions to any Person (other than to the Company, Quaker City or any
wholly-owned Subsidiary of the Company or Quaker City).
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(b) Neither the Company nor any Subsidiary will sell, transfer or
otherwise dispose of any capital stock of any Subsidiary, except to the Company,
Quaker City or any wholly-owned Subsidiary of the Company or Quaker City.
9.3. Indebtedness.
(a) Neither the Company nor any Subsidiary will create, incur,
assume or be or remain liable on any Indebtedness other than:
(i) Indebtedness represented by or incurred under the
Securities;
(ii) Indebtedness by the Company incurred to make all
payments required under the Purchase Agreement, the Other Transaction
Documents and the Securities; provided, that the terms and provisions
of such Indebtedness do not restrict the Company's or any Subsidiary's
ability to perform its respective obligations under the Purchase
Agreement, the Other Transaction Documents and the Securities;
(iii) Indebtedness of the Company and its Subsidiaries (A)
set forth on Schedule 5.19 hereto and (B) incurred pursuant to the
Gulkin Transaction and the Tower Hill Receivables Financing, but only
to the extent set forth in Section 9.1 hereof, or extensions, renewals
and refinancings of such Indebtedness; provided, that the principal
amount of such Indebtedness being extended, renewed or refinanced does
not increase (other than borrowings and reborrowings under lines of
credit or other revolving credit facilities, whether or not committed,
of the Company or any Subsidiary in the ordinary course of business);
(iv) Accounts payable to trade creditors for goods and
services and current operating liabilities (not the result of the
borrowing of money) incurred in the ordinary course of a Subsidiary's
business in accordance with customary terms and paid within the
specified time, unless contested in good faith by appropriate
proceedings and reserved for in accordance with GAAP;
(v) Indebtedness of the Subsidiaries under Capitalized
Leases in an aggregate principal amount not to exceed $250,000 at any
time outstanding; and
(vi) Indebtedness from time to time outstanding of the
Company, Quaker City or any wholly-owned Subsidiary of the Company or
Quaker City to the Company, Quaker City or any wholly-owned Subsidiary
of the Company or Quaker City.
9.4. No Change in Business.
The Company and each Subsidiary will preserve and keep in full
force and effect its existence and the rights and franchises material to its
business. The Company shall not (i) fail to
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preserve and keep (and cause each Subsidiary to preserve and keep) in full force
and effect its existence and the rights and franchises material to the business
of the Corporation and the Subsidiaries taken as a whole, or the Corporation or
any Subsidiary individually, (ii) materially change the nature or character of
its business activities as a holding company for companies organized as
insurance companies that primarily and predominantly engage in writing insurance
or reinsuring risks underwritten by insurance companies ("Insurance Companies")
and companies in the business of providing premium finance, reinsurance
brokerage and insurance management services to Insurance Companies, (iii) permit
any Subsidiary which is an Insurance Company to change materially the nature of
its business from that of an Insurance Company, or (iv) permit any Subsidiary
which is not an Insurance Company to engage in any business other than the
business of providing premium finance, reinsurance brokerage and insurance
management services to Insurance Companies.
9.5. Consolidation, Merger and Sale.
Except in connection with the Gulkin Transaction (including the
limitation on the aggregate expenditure which may be associated therewith
pursuant to Section 9.1) neither the Company nor any Subsidiary may permit or
agree to the sale, lease, transfer, exchange, conveyance or other disposition
(whether through voluntary liquidation, dissolution, winding-up or otherwise) of
all or substantially all of the consolidated assets of the Company and its
Subsidiaries in a single transaction or series of related transactions to any
Person (other than the Company, Quaker City or a wholly owned Subsidiary of the
Company or Quaker City), or the consolidation or merger of the Company or any
Subsidiary with or into any other Person (other than with or into the Company,
Quaker City or a wholly owned Subsidiary of the Company or Quaker City) or the
sale, transfer or other disposition of any capital stock of any Subsidiary
(other than to the Company or another wholly owned Subsidiary of the Company or
Quaker City).
9.6. Affiliate Loans and Guarantees.
Neither the Company nor any Subsidiary may incur or permit to
exist any of the following:
(a) any obligation of the Company or of any Subsidiary to repay
borrowed money owing to (i) any Affiliate of the Company, (ii) any Affiliate of
any Subsidiary or (iii) any other holder of shares of the capital stock of the
Company or of a Subsidiary; or
(b) any obligation, to any Person, which obligation is assumed or
guaranteed by the Company or a Subsidiary and which is an obligation of (i) any
Affiliate of the Company, (ii) any Affiliate of any Subsidiary or (iii) any
other holder of shares of the capital stock of the Company or of a Subsidiary
(excluding, in the case of this clause (b), any obligation of the Company or of
a wholly-owned Subsidiary which is not owed to an Affiliate of the Company or to
an Affiliate of a Subsidiary or to any other holder of shares of the capital
stock of the Company or of a Subsidiary).
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This Section 9.6 shall not apply to (1) any obligations of the Company under
this Purchase Agreement or with respect to the Securities (or under any other
agreement or arrangement between the Company and any Purchaser, including
without limitation under the Additional Agreements), (2) any Indebtedness
identified on Schedule 9.6 hereto, (3) payments made to any officer or employee
in the ordinary course of business of the Company as part of the compensation or
benefits provided to such officer or employee pursuant to arrangements approved
or ratified by the Board of the Company or as advances for bona fide, reasonable
business expenses to be incurred on behalf of the Company or a Subsidiary, (4)
payments made pursuant to the agreements with Affiliates maintained by the
Company permitted under Section 9.7 hereof, in each case as in effect on the
Closing Date, and (5) obligations of the Company, Quaker City or any of the
wholly-owned Subsidiaries of the Company or Quaker City, the payment of which
would not constitute a Restricted Payment..
9.7. Transactions with Affiliates.
Except for the Gulkin Transaction (which shall be limited as
provided in Section 9.1), the Tower Hill Receivables Financing (as defined), the
transactions among only the Company, Quaker City or wholly-owned Subsidiaries of
the Company or Quaker City and the transactions described in the proviso to
Section 9.1 but subject to the limitations on Restricted Payments incorporated
into such proviso to Section 9.1, the Company will not, and will not permit any
Subsidiary to, directly or indirectly, enter into any transaction or agreement
(including without limitation the purchase, sale, distribution, lease or
exchange of any property or the rendering of any service) with any Affiliate of
the Company or of any Subsidiary unless such transaction or agreement (a) is
approved by the Board of the Company, and (b) is on terms that are no less
favorable to the Company or such Subsidiary, as the case may be, than those
which might be obtained at the time of such transaction from a Person who is not
such an Affiliate.
9.8. Capital Expenditures.
Without the prior approval of a majority of the Board of the
Company, the Company and its Subsidiaries will not in the aggregate make Capital
Expenditures (including expenditures under Capitalized Leases) in excess of
$250,000 in any twelve month period or any single Capital Expenditure in excess
of $50,000.
9.9. No Restrictions on Dividends by Subsidiaries.
Except as set forth on Schedule 5.3, neither the Company nor any
Subsidiary will create (or permit to exist) any consensual restrictions (whether
by agreement or otherwise) that may affect or limit the ability of any
Subsidiary to pay dividends or to make other distributions of any or all of its
assets to the Company or to any Subsidiary; provided, however, the foregoing
shall not be deemed to characterize dividend payments or other distributions as
other than Restricted Payments, subject to all the limitations set forth in
Section 9.1 of this Purchase Agreement.
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9.10. Private Placement Status.
Neither the Company nor any agent nor other Person acting on the
Company's behalf will do or cause to be done (or will omit to do or to cause to
be done) any act which (or which omission) would result in bringing the issuance
or sale of the Preferred Shares, Warrant Shares or Warrants within the
provisions of Section 5 of the Securities Act or the filing, notification or
reporting requirements of any state securities law (other than in accordance
with a registration and qualification of Warrant Shares under the Registration
Rights Agreement).
9.11. No Dilution or Impairment; No Changes in Capital Stock.
The Company will not, by amendment of its Certificate of
Incorporation or through any consolidation, merger, reorganization, transfer of
assets, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Purchase Agreement, the Other Transaction Documents or the Securities. The
Company will at all times in good faith assist in the carrying out of all such
terms, and in the taking of all such action, as may be necessary or appropriate
in order to protect the rights of the holders of the Securities (as such rights
are set forth in this Purchase Agreement and the Other Transaction Documents and
the Securities) against dilution or other impairment. Without limiting the
generality of the foregoing, the Company (a) will not permit the par value or
the determined or stated value of any shares of Common Stock of the Company
receivable upon the exercise of the Warrants to be increased, (b) will take all
such action as may be necessary or appropriate in order that the Company may at
all times validly and legally issue duly authorized, fully paid and
nonassessable shares of the Company's Common Stock free from all taxes, Liens
and charges with respect to the issuance thereof, upon the exercise of the
Warrants from time to time outstanding, (c) will not take any action which
results in any adjustment of the current exercise price under the Warrants if
the total number of shares of the Company's Common Stock (or other securities)
issuable after the action upon the exercise of all of the then outstanding
Warrants would exceed the total number of shares of Common Stock (or other
securities) then authorized by the Company's certificate of incorporation and
available for the purpose of issuance upon such exercise, (d) will not amend its
certificate of incorporation to change any terms of its Common Stock, (e) except
pursuant to a Stock Option Plan, will not have any authorized Preferred Stock
other than Junior Preferred Stock and will not issue any Preferred Stock other
than in accordance with Sections 9.13 and 9.15 hereof, and (f) will not create
or establish (or make any grants or awards under) any phantom stock, stock
appreciation rights or other equity equivalent plan whereby the Company or any
Subsidiary agrees to pay any Person a percentage of, or an amount otherwise
determined by reference to, the earnings of the Company or any Subsidiary, the
value of their stock or the proceeds from a sale of their stock or upon their
liquidation.
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9.12. Maintenance of Public Market.
The Company will not proceed with a program of acquisition of its
Common Stock, initiate a corporate reorganization or recapitalization or
undertake a consolidation or merger or authorize, consent to or take any other
action which would have the effect of:
(a) removing the Company from registration with the Commission
under the Exchange Act;
(b) requiring the Company to make a filing under Section 13(e)
of the Exchange Act;
(c) reducing substantially or eliminating the primary public
market for shares of Common Stock of the Company;
(d) causing a delisting of the Company's Common Stock from the
Nasdaq System (unless such stock is delisted as a result of being
listed on a national securities exchange); or
(e) if any shares of the Company's Common Stock are at any time
listed on a national exchange, causing a delisting of such stock from
such exchange.
9.13. Issuances of Stock.
(a) Except in furtherance of its right pursuant to Section
9.2(b), neither the Company nor any Subsidiary shall (i) create, authorize,
issue or sell any Preferred Stock (except the Company may effect Permitted Sales
of Series A Preferred Stock pursuant to Section 11.2 hereof, sales of Preferred
Shares to Swiss Re pursuant to Section 11.1 hereof, sales of Preferred Shares
pursuant to this Purchase Agreement or sales of Junior Preferred Stock), or (ii)
create, authorize, issue or sell any options, warrants, subscription rights,
convertible securities or similar rights which have an exercise, conversion, or
subscription price per share lower than the then current exercise price per
share under the Warrants (before giving effect to such options, warrants,
subscription rights, convertible securities or similar rights).
(b) Except in furtherance of its right pursuant to Section
9.2(b), neither the Company nor any Subsidiary shall issue or otherwise transfer
(excluding transfers recorded on the stock books of the Company to reflect stock
transfers by a shareholder of the Company, which shareholder is not the Company
or any Subsidiary), for whatever reason, (i) any capital stock of any
Subsidiary, (ii) any option, warrant or other right to acquire, purchase or
receive capital stock of any Subsidiary or (iii) other securities convertible
into capital stock of any Subsidiary, whether or not such option, warrant or
rights are immediately exercisable or such other securities are immediately
convertible.
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(c) Neither the Company nor any Subsidiary shall (i) establish
any new Plan which by its terms contemplates the creation, issuance or granting
of any option, warrant or other right to acquire, purchase or receive capital
stock of the Company or (ii) amend any Plan so as to increase the number of
options, warrants or other rights to acquire, purchase or receive capital stock
of the Company currently available under such Plan.
9.14. Indebtedness Agreements.
The Company will not amend or modify any existing agreement,
respecting any Indebtedness, which amendment or modification restricts or
prohibits (or was intended primarily to restrict or prohibit) the Company from
making any payments under, or otherwise performing the Company's obligations
under, this Purchase Agreement, the Other Transaction Documents and the
Securities.
9.15. Amendments to Charter; By-Laws; Other Agreements.
The Company shall not (i) create, authorize, issue or sell (A) any
class or series of capital stock ranking prior to or pari passu with the
Preferred Shares as to dividends, registration rights or upon liquidation,
dissolution or winding up or (B) any rights, options or other securities
convertible, exercisable or exchangeable for or into, or having rights to
purchase, any shares of capital stock described in Clause A hereof or (C) any
class or series of capital stock with voting rights (other than the Series A
Preferred Stock and the Common Stock currently authorized), (ii) except as
contemplated by Section 8.15, amend the Certificate of Incorporation or By-Laws
or in any manner, alter or change the powers, rights, privileges or preferences
of the Securities, if such amendment or action would affect adversely the
powers, rights, privileges or preferences of the holders of the Securities,
(iii) increase the number of Preferred Shares authorized for issuance, (iv)
change the size of the Board of the Company except as permitted under the
Stockholders' Agreement and except as contemplated by Section 8.15, (v) at any
time after the Closing Date, issue any Preferred Shares except pursuant to
Sections 11 and 17 hereof, or (vi) consent to or request any amendment,
modification, supplement or waiver of any of the provisions of any agreement or
instrument evidencing the rights of shareholders of the Company or the terms of
(including the purchase and sale of) any form of capital stock of the Company.
SECTION 10. AMENDMENT OF AGREEMENT
This Purchase Agreement may be amended or modified only by an
instrument in writing executed by the Company and by each of the other parties
hereto.
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SECTION 11. PURCHASE OPTION; FUTURE SALES
11.1. Swiss Re Purchase Option.
(a) During the period following the Closing Date to and
including March 31, 1997 (the "Option Period"), the Company shall afford Swiss
Re the opportunity, and Swiss Re shall have the right and option exercisable in
its sole discretion, to the exclusion of any other Person (including without
limitation any other Purchaser or holder of Securities of the Company), to
purchase up to the number of additional Preferred Shares and Warrants set forth
on Schedule C hereof (the "Additional Securities") at the aggregate purchase
price (as adjusted if less than all of the Additional Securities are to be
purchased) set forth on such Schedule C. If such option is exercised pursuant to
clause (b) hereof, the Additional Securities issued by the Company shall be
issued under this Agreement (and such Additional Securities shall be deemed to
be Securities hereunder) with documentation and agreements substantially the
same as were delivered in connection with the purchase of the Securities
hereunder, including the documents referred to in Section 11.1(c) hereof, and
such Additional Securities shall have the same terms as (subject to required
adjustments to the Warrant terms as set forth in the provisos below) the
Preferred Shares and Warrants purchased pursuant to this Purchase Agreement and
the Other Transaction Documents (including without limitation price per share,
stated value, preferences and priorities, registration rights and covenants);
provided, however, that the exercise price of any Warrants purchased pursuant to
this Section 11.1(a) shall be the price equal to the exercise price of the then
outstanding Warrants on the date of the closing of the sale of the Additional
Securities as adjusted pursuant to the terms of such Warrants; and provided,
further, that the number of shares of Common Stock available upon the exercise
of such Warrants purchased pursuant to this Section 11.1(a) shall be 700,000.
(b) Swiss Re may exercise its option to purchase Additional
Securities under Section 11(a) hereof by giving written notice thereof to the
Company at any time during the Option Period. Such notice shall specify (i) the
number and type of Additional Securities to be purchased, and (ii) the proposed
date of such purchase, which shall be no later than sixty (60) days following
such exercise. Swiss Re shall be entitled to conduct the customary due diligence
inquiries with respect to the purchase of Additional Securities and the Company
agrees to cooperate with and facilitate such due diligence inquiries. Swiss Re
shall have the right (upon notice to the Company) at any time prior to the
proposed date of such purchase set forth in such notice to rescind its exercise
of the option as a result of its review of the results of its due diligence
inquiries, and upon delivery of such rescission notice Swiss Re shall have no
obligation to purchase any Additional Securities. The parties shall use their
respective best efforts to consummate the sale of Additional Securities to Swiss
Re within sixty (60) days following receipt of notice from Swiss Re on terms
provided in this Section 11.1; provided however that to the extent any Consents
are required in connection with any such purchase of Additional Securities,
Swiss Re shall be entitled to extend the proposed date of purchase.
(c) At the closing of the purchase by Swiss Re of the Additional
Securities, the Company shall deliver the following to Swiss Re: (i)
certificates evidencing the Additional
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Securities; (ii) an opinion of counsel to the Purchaser substantially in the
form delivered with respect to the purchase of the Securities hereunder; (iii) a
bring-down certificate with respect to the representations and warranties made
hereunder dated as of the date of such sale and purchase; and (iv) such other
documentation as is reasonably requested by Swiss Re and its counsel.
(d) The exercise or failure by Swiss Re to exercise any rights
provided by this Section 11 shall in no way prejudice the rights of Swiss Re or
any other holder of Securities under the Purchase Agreement, any Other
Transaction Document or the Securities.
(e) In connection with any proposed purchase of Additional
Securities by Swiss Re pursuant to this Section 11.1, the Company shall take
(and shall cause each of its Subsidiaries to take) all necessary steps to (i)
obtain a license for Quaker City to write insurance in New Jersey and (ii)
effect the requisite flex rate filings, it being understood and agreed by the
Company that the failure to obtain a license for Quaker City to write insurance
in New Jersey or the failure to effect the flex rate filings (with approval of
such rates being obtained) shall be bases on which Swiss Re may elect to rescind
its exercise of the option to purchase Additional Securities.
11.2. Permitted Sales.
(a) Subject to Section 11.2(c) hereof, in the event that (i)
Swiss Re fails to exercise the option provided under Section 11.1 hereof (the
"Option") during the Option Period or (ii) Swiss Re notifies the Company in
writing that it will not exercise such option during the Option Period, then the
Company shall have the right, for a period of sixty (60) days following the
earlier of the last day of the Option Period or the date when such notice is
given (if any), to sell, on terms no more favorable than those available to
Swiss Re, to one or more institutional investors (the "Investors") shares of
Series A Preferred Stock and Warrants which were subject to the Option, but
which were not purchased by Swiss Re during the Option Period (or as to which
Swiss Re has notified the Company that it will not purchase) (such shares and
Warrants, the "Available Securities").
(b) Subject to Section 11.2(c) hereof, on and after October 4,
1996 until March 31, 1997, the Company shall have the right to sell, in addition
to the Available Securities pursuant to Section 11.2(a) hereof, up to 10,000
shares of Series A Preferred Stock and warrants, (the "Second Round Securities")
to one or more institutional investors (the "Second Round Investors"). The
number of warrants which the Company may sell as Second Round Securities shall
be limited to the lesser of 1,400,000 or such number of shares as shall on a
fully diluted basis represent a percentage of the outstanding Common Stock of
the Company equal to the product of 100 and a fraction, the denominator of which
shall be the sum of (i) the estimated total stockholders' equity of the Company
as of the end of the most recent fiscal quarter of the Company preceding the
additional purchase by such Second Round Investors plus (ii) $10,000,000 plus
(iii) the amount of any other equity investment contemporaneous with Swiss Re's
additional investment, and the numerator of which shall be 10,000,000. The
exercise price of any warrants sold by the Company as Additional
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Securities shall be the exercise price of the then outstanding Warrants (as
adjusted pursuant to the terms of such Warrants).
(c) Any sale of Available Securities or of Second Round Securities
shall be subject to the following conditions: (i) the closing of a sale pursuant
to Section 11.2(a) shall occur during the sixty (60) day period set forth
therein; (ii) the closing of a sale pursuant to Section 11.2(b) shall occur
during the six (6) month period set forth therein; (iii) the Company shall
notify Swiss Re and Reliance of any proposed Permitted Sale (defined below) at
least ten (10) days prior to the closing thereof, such notice to identify the
Investors or the Second Round Investors, to specify the number of Available
Securities or Second Round Securities to be sold, to specify the purchase price
therefor, to specify the other material terms of such Permitted Sale and to
represent and warrant that such sale will constitute a Permitted Sale hereunder
upon consummation thereof; (iv) the terms of any such sale shall be no more
favorable to the Investors or the Second Round Investors than the terms offered
to Swiss Re and Reliance under this Purchase Agreement; (v) the Available
Securities and the Second Round Securities shall be issued with documentation
and agreements substantially the same as were delivered in connection with the
purchase of Securities hereunder; and (vi) each Investor and Second Round
Investor shall become party to the Stockholders' Agreement (but shall not be
entitled to designate a Preferred Director or Default Directors) as "Additional
Stockholders". The term "Permitted Sale" means any sale of Available Securities
or Second Round Securities effected in compliance with this Section 11.2.
SECTION 12. REMEDIES
(a) The Company agrees to indemnify and hold each Purchaser and
its Affiliates harmless from and against and will pay to each Purchaser the full
amount of any loss, damage, liability or expense (including amounts paid in
settlement and attorneys' fees and expenses) to such Purchaser resulting either
directly or indirectly from any breach of the representations or warranties, or
failure to perform any of the covenants or agreements of the Company or any
Subsidiary contained in this Purchase Agreement, the Other Transaction Documents
or any Securities.
(b) In the case of a breach of any representation or warranty, or
failure to perform any of the agreements or covenants of the Company or any
Subsidiary contained in this Purchase Agreement, the Other Transaction Documents
or any Securities, the holder of any Securities then outstanding may proceed to
protect and enforce the rights of such holder by an action at law, suit in
equity or other appropriate proceeding, whether for the specific performance of
any agreement or covenant contained herein or therein or in such Security or for
an injunction against a violation of any of the terms hereof or thereof or of
such Security, or in aid of the exercise of any power granted hereby or thereby
or by such Security or by law or for any other remedy (including without
limitation damages).
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(c) All amounts payable by the Company in connection with the
Securities shall be paid without counterclaim, set off, deduction or defense and
without abatement, suspension, deferment, diminution or reduction.
(d) No course of dealing and no delay on the part of any holder of
any Securities or any party to this Purchase Agreement in exercising any rights
or remedies shall operate as a waiver thereof or otherwise prejudice such
holder's or party's rights. No right or remedy conferred hereby or by the Other
Transaction Documents by any Securities shall be exclusive of any other right or
remedy referred to herein or therein in such Security or available at law, in
equity, by statute or otherwise.
(e) Holders of Securities shall, in addition to other remedies
provided by law, have the right and remedy to have the provisions of this
Purchase Agreement, the Other Transaction Documents or such Securities
specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed that any breach or threatened breach of the provisions
of this Purchase Agreement, the Other Transaction Documents or any Securities
will cause irreparable injury to holders of Securities and that money damages
will not provide an adequate remedy. Nothing contained herein shall be construed
as prohibiting a holder of Securities from pursuing any other remedies available
to such holder for such breach or threatened breach, including without
limitation the recovery of damages from the Company.
SECTION 13. RESTRICTIONS ON TRANSFER
(a) Each holder of a Preferred Share, Warrant or Warrant Share, by
acceptance thereof, agrees that it will not sell or otherwise dispose of any
Securities unless (i) such Securities have been registered under the Securities
Act and, to the extent required, under any applicable state securities laws,
(ii) such Securities are sold in accordance with the applicable requirements and
limitations of Rule 144 or Rule 144A and any applicable state securities laws,
(iii) if the Company has so requested, the Company has been furnished with an
opinion, in form and substance reasonably satisfactory to the Company, from
counsel to such holder (which counsel may be inside counsel of such holder) to
the effect that registration under the Securities Act is not required for the
transfer as proposed (provided that such opinion may be conditioned upon the
transferee's assuming the obligations of a holder of Securities under this
Section) or (iv) the Company has been furnished with a letter from the Division
of Corporate Finance of the Commission to the effect that such Division would
not recommend any action to the Commission if such proposed transfer were
effected without a registration statement effective under the Securities Act.
The Company agrees that within five (5) Business Days after receipt of any
opinion referred to in (iii) above, it will notify the holder supplying such
opinion whether such opinion is satisfactory to the Company's counsel.
(b) The Company may endorse on all Preferred Share, Warrant and
Warrant Share certificates a legend stating or referring to the transfer
restrictions contained in paragraph (a) above; provided, that no such legend
shall be endorsed on any Preferred Share, Warrant or Warrant Share
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certificates which, when issued, are no longer subject to the restrictions of
this Section 13; provided, further, that if a transfer is made pursuant to
clause (i), (ii) (other than pursuant to Rule 144A) or (iv) of paragraph (a) of
this Section 13 or if an opinion of counsel provided pursuant to clause (iii) of
paragraph (a) concludes that the legend is no longer necessary, the Company will
deliver upon transfer Preferred Share, Warrant or Warrant Share certificates
without such legends.
SECTION 14. EXPENSES
(a) Whether or not the transactions herein contemplated are
consummated, the Company will pay (i) the costs and expenses incurred by each
Purchaser in connection with the preparation, production and negotiation of this
Purchase Agreement, the Other Transaction Documents and the issuance of the
Securities and the furnishing of all opinions by counsel for the Company, (ii)
the out-of-pocket expenses incurred by each Purchaser in connection with the
negotiation, execution and delivery of this Purchase Agreement, the Other
Transaction Documents and the Securities and the transactions contemplated
hereby and thereby, including the fees and disbursements of Morgan, Lewis &
Bockius LLP (which fees are not contemplated to exceed $125,000), (iii) the fees
and disbursements of counsel to each Purchaser in connection with any amendments
to or modifications or waivers of or consents involving any provisions of this
Purchase Agreement, the Other Transaction Documents or the Securities, or in
connection with any other agreements between any Purchaser and the Company, (iv)
the fees and expenses of any investment banker, broker or finder involved with
this Purchase Agreement or any of the transactions contemplated hereby, (v) the
fees and expenses (including attorneys' fees and expenses) of any holder of
Securities in enforcing its rights against the Company if the Company defaults
in its obligations hereunder, under the Amendment or the Other Transaction
Documents, (vi) the expenses incurred by any holder in connection with its
exercise of any rights of inspection under Section 7.3 hereof, and (vii) the
cost of delivering to each Purchaser's home office or depository (or to such
other location or person as any Purchaser may otherwise instruct the Company in
writing), insured to each such Purchaser's reasonable satisfaction, the
Securities purchased by each Purchaser on the Closing Date.
(b) In addition to all other sums due hereunder or provided for in
this Purchase Agreement, the Company shall pay to the Purchasers or their
agents, respectively, an amount sufficient to indemnify such persons (net of any
taxes on any indemnity payments) against all reasonable costs and expenses
(including reasonable attorneys, fees and expenses and reasonable costs of
investigation) and damages and liabilities incurred by any such Purchasers or
agents (each an "Indemnitee") pursuant to any investigation or proceeding
against any or all of the Company, any Purchaser, or their agents, arising out
of or in connection with this Purchase Agreement, the Other Transaction
Documents, the Preferred Shares, the Warrant Shares or the Warrants (or any
transaction contemplated hereby or thereby or any other document or instrument
executed herewith or therewith or pursuant hereto or thereto), whether or not
the transactions contemplated by this Purchase Agreement are consummated, which
investigation or proceeding requires the participation of any such Indemnitee or
is commenced or filed against any such Indemnitee or its agents because of this
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<PAGE> 64
Purchase Agreement, the Other Transaction Documents, the Preferred Shares, the
Warrant Shares or the Warrants or any of the transactions contemplated hereby or
thereby (or any other document or instrument executed herewith or therewith or
pursuant hereto or thereto), other than any investigation or proceeding in which
it is finally judicially determined that there was gross negligence or willful
misconduct on the part of such Indemnitee or its agents which did not follow
from, or was not taken by them in reliance upon, any of the Company's
representations, warranties, covenants or agreements in this Purchase Agreement,
the Preferred Shares or the Warrant Shares or the Warrants or in any other
documents or instruments contemplated hereby or thereby or executed herewith or
therewith or pursuant hereto or thereto. The Company shall assume the defense,
and shall have its counsel (which counsel, however, shall be acceptable to the
Indemnitees) represent any such Indemnitee and such agents in connection with,
investigating, defending or preparing to defend any such action, suit, claim or
proceeding (including any inquiry or investigation); provided, however, that any
such Indemnitee shall have the right (without releasing the Company from any of
its obligations hereunder) to employ its own counsel and either to direct its
own defense or to participate in the Company's defense, but the fees and
expenses of such counsel shall be at the expense of such person unless (i) the
employment of such counsel shall have been authorized in writing by the Company
in connection with such defense or (ii) the Company shall not have instructed
its counsel to take charge of such defense or (iii) any such Indemnitee shall
have reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to the Company or
another Indemnitee, then in any of such events referred to in clauses (i), (ii)
or (iii) such counsel fees and expenses (but only for one counsel for such
Indemnitee or Indemnitees) shall be borne by the Company. Any settlement of any
such action, suit, claim or proceeding shall require the consent of both the
Company and such indemnified person (neither of which shall unreasonably
withhold its consent).
(c) The Company agrees to pay, or to cause to be paid, all
transfer, recording, stock transfer, documentary, stamp and other similar taxes
and fees levied under the laws of the United States of America or any state or
local taxing authority thereof or therein in connection with the issuance, sale
or subsequent transfer of the Securities (other than taxes in connection with a
transfer by a holder of Securities which taxes are imposed on or measured by the
net income of a holder of Securities) and the execution and delivery of this
Purchase Agreement, any Other Transaction Documents and any other documents or
instruments contemplated hereby or thereby and any modification of any of the
Securities, this Purchase Agreement, and Other Transaction Documents or any such
other documents or instruments and will hold each Purchaser harmless without
limitation as to time against any and all liabilities with respect to all such
taxes. The Company shall file all necessary documentation and returns with
respect to such taxes.
(d) The obligations of the Company under this Section 14 shall
survive the Closing and any termination of this Purchase Agreement.
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<PAGE> 65
SECTION 15. HOME OFFICE PAYMENTS
As long as any Purchaser or any institutional holder which is a
direct or indirect transferee (as a result of one or more transfers) from such
Purchaser shall be the holder of any Preferred Share, Warrant or Warrant Share,
the Company will make all dividend payments, redemption payments, liquidation
payments and other distributions (i) by check payable to the order of the holder
of any Security duly mailed or delivered to such Purchaser at its address
specified on Schedule A hereto or at such other address as such Purchaser or
such other holder may designate in writing pursuant to Section 17 hereof, or
(ii) if requested by such Purchaser or such other holder, by wire transfer to
such Purchaser's or such other holder's (or its nominee's) account at any bank
or trust company in the United States of America, notwithstanding any contrary
provision herein or in the Company's Certificate of Incorporation or By-Laws
with respect to the place of payment. IF ANY PURCHASER HAS PROVIDED AN ADDRESS
ON SCHEDULE A HERETO FOR PAYMENTS BY WIRE TRANSFER, THEN SUCH PURCHASER SHALL BE
DEEMED TO HAVE REQUESTED WIRE TRANSFER PAYMENTS UNDER THE PRECEDING CLAUSE (ii)
OF THIS SECTION 15. All such payments shall be made in U.S. dollars and in
federal or other immediately available funds.
SECTION 16. EXCHANGE OF SHARES; CANCELLATION OF SURRENDERED
SECURITIES; REPLACEMENT
(a) Subject to Section 13 hereof, at any time at the request of
any holder of Preferred Shares, Warrant Shares or Warrants to the Company at its
office provided in Section 8.2 hereof, the Company shall, at its expense (except
for any transfer tax arising out of the exchange) issue and deliver (insured to
such holder's reasonable satisfaction) to or upon the order of the holder in
exchange therefor a new Preferred Share, Warrant Share or Warrant certificate or
certificates of like tenor, in such amount or amounts as such holder may
request, representing in the aggregate the number of Preferred Shares, Warrant
Shares or Warrants represented by such surrendered certificate or certificates,
and registered in the name of such holder or as such holder may direct.
(b) Any Warrant certificate which is exercised for Warrant Shares,
in whole or in part, shall be canceled by the Company, and no new Warrant
certificates shall be issued in lieu of any Warrants which have been exercised
for Warrant Shares. The Company shall issue a new Warrant certificate with
respect to any Warrants which were not exercised for Warrant Shares and were
represented by a certificate which was exercised in part.
(c) Any Preferred Share certificate which is surrendered as
payment, in whole or in part, of the exercise price for any Warrants, shall be
canceled by the Company and no new Preferred Share certificates shall be issued
in lieu of any Preferred Shares which have been so surrendered. The Company
shall issue a new Preferred Share certificate with respect to any Preferred
Shares which were not so surrendered in payment of the exercise price under any
Warrant, but were represented by a Preferred Share certificate which was
surrendered in part.
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<PAGE> 66
(d) Upon receipt of evidence satisfactory to the Company of the
loss, theft, destruction or mutilation of any Preferred Share or Warrant Share
or Warrant certificate and, in the case of any such loss, theft or destruction,
upon delivery of an indemnity agreement reasonably satisfactory to the Company
(if requested by the Company and unsecured in the case of the Purchasers or an
institutional holder), or in the case of any such mutilation, upon surrender of
such Preferred Share, Warrant Share or Warrant certificate (which surrendered
Preferred Share, Warrant Share or Warrant certificate shall be canceled by the
Company), the Company will issue a new Preferred Share, Warrant Share or Warrant
certificate of like tenor in lieu of such lost, stolen, destroyed or mutilated
Preferred Share, Warrant Share or Warrant certificate as if the lost, stolen,
destroyed or mutilated Preferred Share, Warrant Share or Warrant certificate
were then surrendered for exchange.
SECTION 17. NOTICES
Unless otherwise expressly specified or permitted by the terms
hereof, all notices, requests, demands, consents and other communications
hereunder or with respect to any Security shall be in writing and shall be
delivered personally, sent by reputable overnight express courier service
(charges prepaid) or certified mail, return receipt requested, postage prepaid
and shall be deemed to have been given when so delivered, sent or deposited in
the U.S. Mail (i) to any Purchaser, at such Purchaser's address as set forth in
Schedule A hereto or at such other address as such Purchaser may otherwise
indicate in a written notice delivered to, (ii) to any other holder of a
Security, at such address as the registered holder thereof may otherwise
indicate in a written notice delivered to the Company in writing, or (iii) to
the Company, at Three South Revmont Drive, Shrewsbury, New Jersey 07702,
Attention: Chief Financial Officer, or at such other address as the Company may
otherwise indicate in a written notice delivered to the Purchaser and to the
other holders of Securities.
Addresses may be changed upon notice of such change given as
provided in this Section 17.
SECTION 18. MISCELLANEOUS
18.1. Entire Agreement.
This Purchase Agreement, the Other Transaction Documents and, upon
the Closing, the Securities issued hereunder, together with any further
agreements entered into by any Purchaser and the Company at the closing
hereunder (or at any subsequent closing pursuant to Section 11 hereof), contain
the entire agreement among the Purchasers and the Company, and supersede any
prior oral or written agreements, commitments, terms or understandings,
regarding the subject matter hereof.
65
<PAGE> 67
18.2. Survival.
All agreements, representations and warranties, covenants, and
obligations of the Company and any Subsidiary contained in this Purchase
Agreement, the Other Transaction Documents, the Securities or any document or
certificate delivered pursuant hereto or thereto shall survive, and shall
continue in effect following, the execution and delivery of this Purchase
Agreement, the Other Transaction Documents, the closings hereunder and
thereunder, any investigation at any time made by or on behalf of the Purchasers
or by any other Person, the issuance, sale and delivery of the Securities, any
disposition thereof and any payment, exercise conversion or cancellation of the
Securities; provided, that Sections 8.3, 8.4, 9.1, 9.2, 9.5, 9.7, 9.8, and 9.9
shall terminate when no Preferred Shares or Warrants are outstanding. All
statements contained in any certificate or other document delivered by or on
behalf of the Company pursuant hereto shall constitute representations and
warranties by the Company hereunder.
18.3. Counterparts.
This Purchase Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all of which such counterparts shall together constitute one and
the same instrument, and all signatures need not appear on any one counterpart.
18.4. Headings.
The headings and captions in this Purchase Agreement and the table
of contents are for convenience of reference only and shall not define, limit or
otherwise affect any of the terms or provisions hereof.
18.5. Binding Effect, Benefit and Assignment.
(a) The terms of this Purchase Agreement shall be binding upon,
and inure to the benefit of, the parties and their respective successors and
permitted assigns whether so expressed or not.
(b) The Company may not assign any of its obligations, duties or
rights under this Purchase Agreement, except with each Purchaser's consent.
(c) In addition to any assignment by operation of law, each
Purchaser may assign, in whole or in part, any or all of its rights (and/or
obligations) under this Purchase Agreement or under the Securities to any
permitted transferee of any or all of its Securities, and (unless such
assignment expressly provides otherwise) any such assignment shall not diminish
the rights each Purchaser would otherwise have under this Purchase Agreement or
with respect to any remaining Securities held by such Purchaser or with respect
to any indemnity or reimbursement rights (or with
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<PAGE> 68
respect to any other provisions which expressly provide that they survive any
termination of this Purchase Agreement).
18.6. Severability.
Any provision hereof, of any Other Transaction Documents or of the
Securities which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
thereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other jurisdiction.
18.7. Governing Law.
This Purchase Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York (other than any conflict of
laws rule which might result in the application of the laws of any other
jurisdiction).
18.8. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
THE COMPANY HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR
FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK AND
IRREVOCABLY AGREES THAT, SUBJECT TO THE ELECTION OF ANY PURCHASER OR ANY OTHER
HOLDER OF SECURITIES, ALL ACTIONS OR PROCEEDINGS RELATING TO THIS PURCHASE
AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR THE SECURITIES MAY BE LITIGATED IN
SUCH COURTS. THE COMPANY ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, GENERALLY AND UNCONDITIONALLY, NONEXCLUSIVE JURISDICTION OF THE
AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENCE, AND
IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH THIS PURCHASE AGREEMENT, THE OTHER TRANSACTION DOCUMENTS, AND THE
SECURITIES. A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED
MAIL TO THE COMPANY AT THE ADDRESS OF THE COMPANY PROVIDED IN SECTION 17 HEREOF,
EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL
SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS. AS AN ALTERNATIVE
TO SERVICE OF PROCESS ON SUCH AGENT (WHETHER OR NOT ANY SUCH AGENT HAS BEEN
APPOINTED), THE COMPANY HEREBY AGREES THAT SERVICE UPON IT BY MAIL SHALL
CONSTITUTE SUFFICIENT NOTICE AND SERVICE OF PROCESS. NOTHING HEREIN SHALL AFFECT
RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT OF THE PURCHASERS OR ANY OTHER HOLDER OF SECURITIES TO BRING PROCEEDINGS
OR OBTAIN OR ENFORCE JUDGMENTS AGAINST THE COMPANY IN THE COURTS OF ANY OTHER
JURISDICTION.
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<PAGE> 69
18.9. WAIVER OF JURY TRIAL. THE COMPANY HEREBY WAIVES ITS RIGHT TO
A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
PURCHASE AGREEMENT, ANY OTHER TRANSACTION DOCUMENTS OR THE SECURITIES OR ARISING
OUT OF ANY DEALINGS BETWEEN THE COMPANY AND THE PURCHASERS RELATING TO SUBJECT
MATTER OF THIS TRANSACTION. THE COMPANY ALSO WAIVES ANY BOND OR SURETY OR
SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF ANY
PURCHASER. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY
AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT
MATTER OF THIS TRANSACTION, INCLUDING WITHOUT LIMITATION, CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.
THE COMPANY FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL, AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO (OR ASSIGNMENTS OF) THIS PURCHASE AGREEMENT, THE OTHER
TRANSACTION DOCUMENTS OR THE SECURITIES. IN THE EVENT OF LITIGATION, THIS
PURCHASE AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL (WITHOUT A JURY)
BY COURT.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 70
IN WITNESS WHEREOF, the parties hereto have caused this Purchase
Agreement to be duly executed as of the date first above written.
HOME STATE HOLDINGS, INC.
By: /s/ Mark Vaughn
---------------------------------
Name: Mark Vaughn
Title: Acting President
[SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
<PAGE> 71
Accepted and agreed to as of the date first above
written by the undersigned Purchaser:
SWISS REINSURANCE
AMERICA CORPORATION
By: /s/ Thomas L. Forsyth
-----------------------------
Name: Thomas L. Forsyth
Title: Senior Vice President
and General Counsel
RELIANCE INSURANCE COMPANY
By: /s/ Albert A. Benchimol
-----------------------------
Name: Albert A. Benchimol
Title: Vice President
[SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
<PAGE> 72
SCHEDULE A
PURCHASERS
<TABLE>
<CAPTION>
Number
of Preferred Number of Aggregate
Name and Address of Purchaser Shares Warrants Purchase Price
- ----------------------------- ------------- --------- --------------
<S> <C> <C> <C>
1. Swiss Reinsurance
America Corporation 5,000 700,000 $5,000,000
(a) address for communications:
Swiss Reinsurance American Corporation
237 Park Avenue
New York, New York 10017
Attn: General Counsel
(b) address for payments by wire
transfer:
The Bank of New York
Bk of NYC\CTR\BBK
IOC 565 - Inst'l Custody
ABA No.: 021 000 018
Account: Swiss Reinsurance America Corporation
Account No.: 351850
(providing sufficient information with such
wire transfer to identify the source and
application of such funds)
2. Reliance Insurance Company 5,000 700,000 $5,000,000
(a) address for communications:
Reliance Insurance Company
c/o Reliance Group Holdings, Inc.
Park Avenue Plaza
55 East 52nd Street
New York, New York 10055
Attn: Treasurer
</TABLE>
71
<PAGE> 73
with copy to
Reliance Group Holdings, Inc.
Park Avenue Plaza
55 East 52nd Street
New York, New York 10055
Attn: General Counsel
and
Reliance Reinsurance Corp.
4 Penn Center Plaza
Philadelphia, Pennsylvania 19103
Attn: President
(b) address for payments wire transfer:
Bank of New York
IOC 566
ABA No.: 021 000 018
Account: Reliance Insurance Company
Account No.: 301564
(providing sufficient information with such
wire transfer to identify the source and
application of such funds)
72
<PAGE> 74
SCHEDULE B
CERTAIN AGREEMENTS
1. Swiss Reinsurance America Corporation
The Company, on or prior to the Closing, shall have entered into the
following agreements with Swiss Re, each of which shall be in form and
substance satisfactory to Swiss Re:
Reinsurance Binders (as from time to time assigned,
supplemented or amended or as the terms thereof may be waived,
the "Swiss Re Reinsurance Binders");
Services Agreement (as from time to time assigned,
supplemented or amended or as the terms thereof may be waived,
the "Swiss Re Services Agreement"); and
Letter Agreement dated the date hereof pursuant to which Swiss
Re Reinsurance Binders may be renewed, as from time to time
obligating Home State, subject to specified terms and
conditions, to renew the reinsurance arrangements entered into
among Swiss Re, the Company and the Insurance Subsidiaries
relating to the 1997 coverage year, as more fully described in
the Reinsurance Binders (the "Swiss Re Letter Agreement").
2. Reliance Insurance Company
The Company, on or prior to the Closing, shall have entered into the
following agreements with Reliance, each of which shall be in form and
substance satisfactory to Reliance:
Reinsurance Agreement (as from time to time assigned,
supplemented or amended or as the terms thereof may be waived,
the "Reliance Reinsurance Agreement"); and
Services Agreement (as from time to time assigned,
supplemented or amended or as the terms thereof may be waived,
the "Reliance Services Agreement"); and
Bid Agreement (pursuant to which the Company will seek bids
from Sterling Administrative Services, Inc., a Pennsylvania
corporation and a wholly owned subsidiary of Reliance,
relating to administration services as from time to time
assigned, supplemented or amended or as the terms thereof may
be waived, the "Sterling Bid Agreement").
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<PAGE> 75
SCHEDULE C
ADDITIONAL SECURITIES
<TABLE>
<CAPTION>
Number
of Preferred Number of Aggregate
Name and Address of Purchaser Shares Warrants Purchase Price
- ----------------------------- ------------- --------- --------------
<S> <C> <C> <C>
1. Swiss Reinsurance
America Corporation 5,000 700,000 $5,000,000
(a) address for communications:
Swiss Reinsurance American Corporation
237 Park Avenue
New York, New York 10017
Attn: General Counsel
(b) address for payments by wire
transfer:
The Bank of New York
Bk of NYC\CTR\BBK
IOC 565 - Inst'l Custody
ABA No.: 021 000 018
Account: Swiss Reinsurance America Corporation
Account No.: 351850
(providing sufficient information with such
wire transfer to identify the source and
application of such funds)
</TABLE>
74
<PAGE> 1
EXHIBIT 2
THIS WARRANT CERTIFICATE (AND THE COMMON STOCK OR OTHER SECURITIES
ISSUABLE UPON EXERCISE HEREOF) HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY APPLICABLE LAW OR
REGULATION OF ANY STATE AND ARE NOT TRANSFERABLE EXCEPT UPON THE
CONDITIONS SPECIFIED IN SECTION 13 OF THE PURCHASE AGREEMENT REFERRED
TO HEREIN AND SUBJECT TO SECTION 14 OF THE REGISTRATION RIGHTS
AGREEMENT REFERRED TO HEREIN. THE COMPANY RESERVES THE RIGHT TO REFUSE
THE TRANSFER OF SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED WITH RESPECT TO SUCH TRANSFER. A COPY OF SUCH PURCHASE
AGREEMENT SHALL BE FURNISHED BY THE COMPANY TO THE REGISTERED HOLDER
HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.
HOME STATE HOLDINGS, INC.
Class A Warrant Certificate
Date of Issuance: October 4, 1996 Certificate No. A-2
FOR VALUE RECEIVED, the undersigned HOME STATE HOLDINGS, INC.,
a Delaware corporation (together with its successors and assigns, the
"Company"), hereby grants to HARE & CO., or its registered assigns (the
"Registered Holder"), or any other Person to whom this Warrant has been assigned
pursuant to Section 8 hereof (an "Assignee"), the right to purchase from the
Company up to an aggregate of 700,000 shares of duly authorized, validly issued,
fully paid and non-assessable shares of the Company's Common Stock, $0.01 par
value per share (the "Common Stock"), or any stock into which such Common Stock
shall have been changed or any stock or other securities resulting from a
reclassification thereof (the Common Stock and/or any other securities
obtainable hereunder, the "Warrant Stock") at an exercise price of $9.50 per
share (as adjusted hereunder, the "Exercise Price") at any time and from time to
time. The foregoing rights are subject to the terms, conditions and adjustments
set forth below in this Warrant.
This Warrant Certificate is one of the Class A Warrant
Certificates (the "Warrants", which term includes all Warrants issued in
substitution therefor or portions of rights thereunder) issued in connection
with the sale by the Company of Series A Cumulative Voting Preferred Stock,
$0.01 par value per share (the "Preferred Stock"). The Warrants and the
Preferred Stock have been issued pursuant to the terms of the Securities
Purchase Agreement, dated as of October 4, 1996 (as from time to time assigned,
supplemented or amended or as the terms thereof may be waived, the "Purchase
Agreement"), between the Company and the Purchasers named therein. Capitalized
terms used but not otherwise defined herein shall have the meanings assigned to
such terms in the Purchase Agreement. This Warrant is subject to the provisions,
and is entitled to the benefits, of the Purchase Agreement.
<PAGE> 2
Section 1. Exercise of Warrant.
1.1 Exercise Period. At any time and from time to time after the Date
of Issuance (as defined herein) to and including October 4, 2003 (the "Exercise
Period"), the Registered Holder or any Assignee, may exercise this Warrant (any
such Person exercising this Warrant, the "Exercising Holder") as provided in
Section 1.2.
1.2 Exercise Procedure. The purchase rights represented by this Warrant
may be exercised by the Exercising Holder, in whole or in part, during normal
business hours on any Business Day, by surrender of this Warrant to the Company
at its office designated pursuant to Section 13 hereof, which Warrant shall be
accompanied by:
(a) an Exercise Agreement duly executed by or on behalf of the
Exercising Holder in substantially the form attached hereto as Annex A,
in each case (i) designating the Person to whom the shares of Warrant
Stock are to be issued, (ii) specifying the number of shares of Warrant
Stock to be purchased, and (iii) specifying the method of payment for
such shares;
(b) payment for the shares of Warrant Stock specified in the
Exercise Agreement in an amount (the "Aggregate Exercise Price") equal
to (i) the number of shares of Warrant Stock specified in the Exercise
Agreement (giving effect to any adjustment thereof) multiplied by (ii)
the Exercise Price; such payment shall be made, at the option of the
Exercising Holder, (x) by wire transfer (made pursuant to instructions
from the Company) or by official bank or certified check payable to the
Company, (y) as provided in Section 1.4 or (z) as provided in Section
1.5; and
(c) if this Warrant is to be exercised by an Assignee not then
reflected as the Registered Holder of this Warrant, an Assignment or
Assignments in substantially the form attached hereto as Annex B
evidencing the assignment of this Warrant to such Assignee pursuant to
Section 8 hereof.
Upon delivery of the foregoing, this Warrant shall be deemed to have been
exercised (the date of such exercise being referred to as the "Exercise Date")
and the Exercising Holder (or any designee thereof) shall thereupon be entitled
to receive (and shall be deemed to have become the record holder of) the number
of shares of Warrant Stock specified in the Exercise Agreement (plus cash in
lieu of any fractional share as provided in Section 1.3(c) hereof).
2
<PAGE> 3
1.2A Limitation on Exercise; Cash Settlement.
(a) Notwithstanding any other provision of this Warrant, the
Registered Holder (or its Assignee) shall not be permitted to exercise its
purchase rights under this Warrant if and to the extent such exercise would
result, directly or indirectly, in such Registered Holder (or any Assignee) and
its Affiliates owning, controlling or being entitled to own (including through
exercise of its rights under this Warrant) shares of capital stock of the
Company that, in the aggregate, represent ten percent (10%) or more of (i) the
voting rights of all of the then-outstanding shares of capital stock of the
Company or (ii) the then-outstanding shares of Common Stock of the Company.
(b) If the limitation on exercise set forth in Section 1.2A(a)
above prevents the exercise by the Registered Holder (or its Assignee) of all of
its purchase rights under this Warrant as of the end of the Exercise Period,
such Registered Holder (or any Assignee) shall be entitled to receive from the
Company at the end of the Exercise Period, in lieu of such purchase rights, a
cash settlement payment equal to the excess, if any, of (i) the Fair Market
Value on such date of the Warrant Shares that could have been issued had the
limitation on exercise not been in effect over (ii) the Exercise Price for such
Warrant Shares on such date (as adjusted pursuant to the terms hereof).
1.3 Share Certificates, Cash for Fractional Shares, etc.
(a) As promptly as practicable after the Exercise Date (and in
any event within fifteen (15) Business Days thereafter) a certificate or
certificates for shares of Warrant Stock purchased upon exercise of this Warrant
shall be delivered by the Company to the Exercising Holder (or such other Person
as may be designated by the Exercising Holder in the Exercise Agreement).
(b) If this Warrant is exercised in part only, the Company
shall prepare a new Warrant or Warrants of like tenor, calling in the aggregate
on the face or faces thereof for the number of shares of Warrant Stock equal to
the number of shares called for on the face of this Warrant minus the number of
shares of Warrant Stock specified in the Exercise Agreement (without giving
effect to any adjustment thereof). Such new Warrant certificate or certificates
shall be delivered to the Exercising Holder (or any designee thereof) as
promptly as practicable after the Exercise Date (and in any event within five
(5) Business Days thereafter).
(c) If any fraction of a share of Warrant Stock would be
issuable upon the exercise of any Warrants (or specified portion thereof), in
lieu of such fractional share, the Company shall pay to the Exercising Holder an
amount in cash equal to such fraction multiplied by the Fair Market Value per
share of Warrant Stock on the Exercise Date. If more than one Warrant is
presented for exercise at the same time by any Exercising Holder, the number of
full shares of Warrant Stock issuable upon the exercise thereof shall be
computed on the basis of the aggregate number of shares of Warrant Stock
purchasable on exercise of the Warrants so presented.
3
<PAGE> 4
(d) The issuance of certificates for shares of Warrant Stock
upon exercise of this Warrant shall be made without charge to the Exercising
Holder (or any designee thereof) for any issuance, stamp, or other tax in
respect thereof (other than income tax) or other cost incurred by the Company in
connection with the exercise of this Warrant and the related issuance of shares
of Warrant Stock. Each share of Warrant Stock issuable upon exercise of this
Warrant shall, upon payment of the Aggregate Exercise Price therefore, be fully
paid and nonassessable and free from all liens and charges and free from
preemptive or other rights and each certificate representing shares of Warrant
Stock shall bear the following legend:
THIS WARRANT CERTIFICATE (AND THE COMMON STOCK OR OTHER SECURITIES ISSUABLE UPON
EXERCISE HEREOF) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER ANY APPLICABLE LAW OR REGULATION OF ANY STATE AND ARE NOT
TRANSFERABLE EXCEPT UPON THE CONDITIONS SPECIFIED IN SECTION 13 OF THE PURCHASE
AGREEMENT REFERRED TO HEREIN AND SUBJECT TO SECTION 14 OF THE REGISTRATION
RIGHTS AGREEMENT REFERRED TO HEREIN. THE COMPANY RESERVES THE RIGHT TO REFUSE
THE TRANSFER OF SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH
RESPECT TO SUCH TRANSFER. A COPY OF SUCH PURCHASE AGREEMENT SHALL BE FURNISHED
BY THE COMPANY TO THE REGISTERED HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT
CHARGE.
(e) Notwithstanding any other provision hereof, if this
Warrant is to be exercised, in full or in part, in connection with a public
offering, any such exercise may, at the election of the Exercising Holder, be
conditioned upon the consummation of the public offering in which case such
exercise shall not be deemed to be effective until the consummation of the
public offering.
(f) The Company shall at all times reserve and keep available
out of its authorized but unissued shares of Common Stock, solely for the
purpose of issuance upon the exercise of the Warrants, at least the number of
shares equal to the total number of shares of Warrant Stock issuable upon the
exercise of all outstanding Warrants. Upon each adjustment in the number of
shares of Warrant Stock for which Warrants are exercisable (pursuant to Section
2.1(b) hereof), the Company shall reserve an additional number of shares of
Warrant Stock sufficient to permit the exercise of all Warrants as so adjusted.
The Company shall not close its books against the transfer of this Warrant or of
any share of Warrant Stock issued or issuable upon the exercise of this Warrant
in any manner which interferes with the timely exercise of this Warrant.
(g) The Company shall take all such actions as may be
necessary to insure that all shares of Warrant Stock issued upon exercise of
this Warrant are issued without violation of any applicable law, governmental
regulation or requirements of any domestic securities exchange upon which shares
of Warrant Stock may be listed (except for official notice of issuance which
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shall be immediately delivered by the Company upon each such issuance). The
Company shall assist and cooperate with any Exercising Holder (or any designee
thereof) required to make any governmental filings or obtain any governmental
approvals prior to or in connection with the exercise of this Warrant
(including, without limitation, making any filings required to be made by the
Company).
1.4 Payment by Application of the Preferred Stock.
(a) The Exercising Holder shall have the option, but not the
obligation, upon any exercise of this Warrant, to apply any one or more of the
following to all or part of the Aggregate Exercise Price: (i) Preferred Stock
held by the Exercising Holder on the Exercise Date, or (ii) all or any part of
the accrued and unpaid dividends on any shares of Preferred Stock held by the
Exercising Holder on the Exercise Date. Any Preferred Stock to be applied to the
Aggregate Exercise Price pursuant to the preceding clause (i) shall be
surrendered to the Company for cancellation and each share so surrendered for
cancellation shall be deemed to be the payment of $1,000 of the Aggregate
Exercise Price; provided, however, that if any shares of Preferred Stock to be
surrendered hereunder are subject to redemption at a higher price per share (as
provided in the Certificate of Designations), then each such share surrendered
shall be deemed to be the payment of such higher price per share, in each case
towards the Aggregate Exercise Price. If a certificate for shares of Preferred
Stock is surrendered pursuant to this Section 1.4, and such certificate
represents more shares of Preferred Stock than are being applied to the
Aggregate Exercise Price, the Company shall issue a new certificate for the
unapplied number of shares and such certificate shall be delivered to the
Exercising Holder as promptly as practicable after the Exercise Date (and in any
event within fifteen (15) Business Days thereafter).
(b) The Exercising Holder may elect either (or both) of the
options set forth in subsections (i) and (ii) above by specifying in the
Exercise Agreement the number of shares of Preferred Stock to be applied to the
Aggregate Exercise Price and/or the amount of accrued and unpaid dividends
thereon to be applied to the Aggregate Exercise Price, and in such event, the
Company will accept the number of shares of Preferred Stock and/or the accrued
and unpaid dividends so specified in full or partial satisfaction of the
Aggregate Exercise Price. The Exercising Holder shall have the right to apply
shares of Preferred Stock and/or accrued and unpaid dividends thereon to
exercise all or any portion of this Warrant (x) whether or not payment on the
shares of Preferred Stock is otherwise prohibited and (y) even though the
Company or such Exercising Holder may have given notice of redemption with
respect to all or any portion of such Preferred Stock, so long as the Exercise
Agreement shall, together with this Warrant, have been delivered to the Company
in accordance with Section 1.2 hereof prior to the date fixed for such
redemption.
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1.5 Conversion of Warrant.
(a) In addition to and without limiting any rights under the
terms of this Warrant, the Exercising Holder shall have the option, but not the
obligation, to convert this Warrant or any portion thereof (the "Conversion
Right") into shares of Warrant Stock as provided in this Section 1.5 at any
time; provided, however, that the Exercising Holder shall not be permitted to
exercise its Conversion Right if and to the extent such exercise would result,
directly or indirectly, in such Exercising Holder and its Affiliates owning,
controlling or being entitled to own (including through exercise of its rights
under this Warrant) shares of capital stock of the Company that, in the
aggregate, represent ten percent (10%) or more of the voting rights of all of
the then-outstanding shares of capital stock of the Company. Upon exercise of
the Conversion Right with respect to a particular number of shares subject to
this Warrant (the "Conversion Warrant Stock"), the Company shall deliver to the
Exercising Holder (without payment by the Exercising Holder of any Exercise
Price or any cash or other consideration) that number of shares of Warrant Stock
equal to the quotient obtained by dividing (i) the Fair Market Value of this
Warrant (or the specified portion hereof) on the Conversion Date (as defined in
Section 1.5(b) hereof) by (ii) the Fair Market Value of one share of Common
Stock of the Company on the Conversion Date. No fractional shares shall be
issuable upon exercise of the Conversion Right, and if the number of shares to
be issued determined in accordance with the foregoing formula is other than a
whole number, in lieu of such fractional share, the Company shall pay to the
Exercising Holder cash in an amount equal to such fraction multiplied by the
Fair Market Value per share of Warrant Stock on the Conversion Date.
(b) The Conversion Right may be exercised by the Exercising
Holder by delivery of this Warrant at the office of the Company designated
pursuant to Section 13 of this Warrant, during normal business hours on any
Business Day, together with a written statement (a "Conversion Notice") executed
by or on behalf of such Exercising Holder specifying that the Exercising Holder
thereby intends to exercise the Conversion Right and indicating the number of
shares of Conversion Warrant Stock (i.e., the shares of Warrant Stock which are
being surrendered in exercise of the Conversion Right). Such conversion shall be
deemed effective upon receipt by the Company of this Warrant together with the
Conversion Notice, or on such later date as is specified therein (the
"Conversion Date") and, at the election of the Exercising Holder, may be made
contingent upon the occurrence of any event specified in the Conversion Notice.
Certificates for the shares of Warrant Stock issuable upon exercise of the
Conversion Right and, if applicable, a new Warrant evidencing the balance of the
shares remaining subject to this Warrant, shall be issued as of the Conversion
Date and shall be delivered (together with cash in lieu of any fractional shares
to which such holder would otherwise be entitled) to the Exercising Holder (or
any designee thereof) as promptly as practicable after the Conversion Date (and
in any event within five (5) Business Days thereafter).
1.6 Acknowledgment of Obligation. The Company will, at the time
of or at any time after each exercise of this Warrant, upon the request of the
Registered Holder hereof, acknowledge in writing its continuing obligation to
afford to such Registered Holder all rights
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(including without limitation any rights to registration of any such shares of
Warrant Stock pursuant to the Registration Rights Agreement) to which such
Registered Holder shall continue to be entitled under this Warrant, the Purchase
Agreement and the Other Transaction Documents; provided, that if any such
Registered Holder shall fail to make any such request, the failure shall not
affect the continuing obligation of the Company to afford such rights to such
Registered Holder.
Section 2. Adjustments.
2.1 Adjustment of Exercise Price and Number of Shares of Warrant Stock.
(a) In order to prevent dilution of the rights granted under
this Warrant, the Exercise Price shall be subject to adjustment from time to
time as provided in this Section 2; provided, however, that no adjustments to
the Exercise Price shall be made as a result of or in connection with:
(i) the issuance of shares of Warrant Stock upon exercise of
any of the Warrants; or
(ii) the issuance of Common Stock to directors, officers and
employees of the Company and its Subsidiaries, or the grant to, or the
exercise by, any such persons of rights, options or warrants to
subscribe for or purchase Common Stock ("Options"); provided, that any
such issuance or grant or exercise shall be pursuant to the Company's
employee compensation plan duly adopted by the Company's Board of
Directors and the Company's shareholders and as in effect on the date
hereof, and with respect to Options, such exercise price for any such
Common Stock shall be at least the Fair Market Value at the time of the
grant of such Option; provided, further, that the aggregate number of
shares of Common Stock which, as of any date, have been issued and are
outstanding pursuant to such plan or are obtainable under then
outstanding Options issued pursuant to such plan shall not exceed ten
percent (10%) of the total of (A) the outstanding number of shares of
Common Stock on the date hereof and (B) the number of shares of Common
Stock which may then be issued (and are not then outstanding) under the
Warrants or under any other outstanding Options or Convertible
Securities; provided, further, that if any shares of Common Stock are
issued or obtainable under such plans in excess of such ten percent
(10%) limit or in violation of the first proviso of this subsection
(ii), there shall be an adjustment to the Exercise Price as provided in
Section 2.2(b) hereof with respect to such excess shares.
In no event shall the Exercise Price as adjusted pursuant to this Section 2.1 be
less than the par value of a share of Common Stock. Without the prior written
consent of the holders of at least fifty-one percent (51%) of the shares of
Warrant Stock then obtainable from the exercise of all then outstanding
Warrants, the Company will not (x) increase the par value of a share of Common
Stock of the Company or (y) effect a subdivision of, or a stock dividend payable
in, shares of
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Common Stock of the Company without also effecting a proportionate decrease in
the par value of a share of Common Stock of the Company.
(b) Notwithstanding the number of shares of Warrant Stock
called for on the face of this Warrant, upon each adjustment of the Exercise
Price, the number of shares of Warrant Stock acquirable upon exercise of this
Warrant shall be adjusted up (and not down except pursuant to the terms of
Section 2.2(c)(iii) hereof) to the number of shares of Warrant Stock equal to
(i) the Exercise Price in effect immediately prior to such adjustment multiplied
by the number of shares of Warrant Stock acquirable upon exercise of this
Warrant immediately prior to such adjustment divided by (ii) the Exercise Price
resulting from any adjustment made pursuant to Section 2.2 hereof.
(c) If after an adjustment a holder of a Warrant upon exercise
of it may receive shares of two (2) or more classes of capital stock of the
Company, the Company shall determine the allocation of the adjusted Exercise
Price between the classes of capital stock. After such allocation, the exercise
privilege and the Exercise Price of each class of capital stock shall thereafter
be subject to adjustment on terms comparable to those applicable to Common Stock
in this Section 2.
2.2 Adjustment of Exercise Price. The Exercise Price shall be subject
to adjustment from time to time, as follows:
(a) Adjustments for Stock Dividends, Stock Splits, etc. If the
Company at any time after the Date of Issuance (i) subdivides (by stock split,
stock dividend, recapitalization or otherwise) its outstanding shares of Common
Stock into a greater number of shares, (ii) combines (by reverse stock split or
otherwise) its outstanding shares of Common Stock into a smaller number of
shares, (iii) pays a stock dividend or makes a distribution (on or in respect of
any class of its capital stock) in shares of its capital stock (whether shares
of Common Stock or of capital stock of any other class), or (iv) issues by
reclassification of its shares of Common Stock any shares of capital stock of
the Company, then, in any such case, the Exercise Price in effect immediately
prior to such action shall be adjusted to a price equal to (x) the Exercise
Price in effect immediately prior to such action multiplied by (y) the number of
shares of Warrant Stock acquirable upon exercise of this Warrant immediately
prior to such action divided by the number of shares of Warrant Stock which
would have been owned immediately following such action had such Warrant been
exercised immediately prior thereto (with any record date requirement being
deemed to have been satisfied), and, in any such case, such Exercise Price shall
thereafter be subject to further adjustments under this Section 2. An adjustment
made pursuant to this Section 2.2(a) shall become effective retroactively on the
record date in the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
(b) Adjustments for Issuance of Additional Common Stock.
Subject to the exceptions referred to in Section 2.1 hereof, if after the Date
of Issuance the Company issues or
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sells, or in accordance with paragraph 2.2(c) is deemed to have issued or sold,
any shares of Common Stock (the "Additional Common Stock") either (i) for a
consideration per share less than the Fair Market Value per share of Warrant
Stock immediately prior to such issuance or sale, (ii) for a consideration per
share less than the Exercise Price immediately prior to such issuance or sale,
or (iii) without consideration, then immediately upon each such issuance or sale
the Exercise Price shall be reduced to a price equal to the lesser of:
(A) the price determined by multiplying such Exercise Price by a
fraction, of which
(1) the numerator shall be (i) the number of shares
of Common Stock outstanding when the Exercise Price became
effective plus (ii) the number of shares of Common Stock which
the aggregate amount of consideration, if any, received by the
Company upon all issues of its Common Stock since the Exercise
Price became effective (including the consideration, if any,
received for such Additional Common Stock) would purchase at
the greater of (x) the then current Fair Market Value per
share of the Common Stock or (y) the then Exercise Price per
share, and
(2) the denominator shall be (i) the number of shares
of Common Stock outstanding when the Exercise Price became
effective plus (ii) the number of shares of Common Stock
issued since the Exercise Price became effective (including
the number of shares of such Additional Common Stock); and
(B) the price determined by dividing (x) the aggregate amount of
consideration, if any, received by the Company upon all issues of its Common
Stock since the Exercise Price became effective (including the consideration, if
any, received for such Additional Common Stock) by (y) the number of shares of
Common Stock issued since the Exercise Price became effective (including the
number of shares of such Additional Common Stock);
provided, however, that such adjustment shall be made only if such adjustment
results in an Exercise Price less than the Exercise Price in effect immediately
prior to the issuance of such Additional Common Stock.
(c) Effect on Exercise Price of Certain Events. For purposes
of determining the adjusted Exercise Price under this Section 2.2, the following
shall be applicable:
(i) Issuance of Rights or Options. If the Company issues
(whether by sale, grant or otherwise) any (A) Options (subject to the
exceptions referred to in Section 2.1 hereof) or (B) any security
directly or indirectly convertible into Common Stock ("Convertible
Securities"), the Company shall be deemed to have issued, for the
consideration described below, the number of shares of Common Stock
into which any such Convertible Security may be converted when first
convertible and/or the number of shares of Common Stock deliverable
upon the exercise of such Options when first
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exercisable, as the case may be (and such shares shall be deemed to be
outstanding shares of Additional Common Stock for purposes of this
Warrant). For purposes of this Warrant, the consideration deemed to be
received by the Company at the time of the issuance of such Options
and/or Convertible Securities shall be the consideration so determined
pursuant to Section 2.2(c)(iv) or 2.2(c)(v) hereof, as the case may be,
plus (x) any consideration or adjustment payment to be received by the
Company in connection with such conversion or, as applicable, (y) the
aggregate price at which shares of the Common Stock are to be delivered
upon the exercise of such Options when first exercisable (or, if no
price is specified and such shares are to be delivered at an option
price related to the market value of the subject Common Stock, an
aggregate option price bearing the same relation to the Fair Market
Value of the subject Common Stock at the time such Options were
granted).
(ii) Change in Option Price or Conversion Rate. If (A) the
conversion or exercise price of any Options or Convertible Securities
is decreased or (B) the number of shares of Common Stock deliverable
upon the exercise of any Option or upon the conversion of any
Convertible Security is increased, the Exercise Price in effect at the
time of such change shall be readjusted pursuant to Section 2.2(c)(i),
which readjusted Exercise Price shall be calculated as if the terms of
the applicable Options and/or Convertible Securities following such
change (including the conversion or exercise price and the number of
shares of Common Stock subject thereto) had been in effect at the time
such Options and/or Convertible Securities had been initially issued;
provided, however, that no such readjustment shall result in an
increase in the Exercise Price.
(iii) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration or termination of any Option or the
expiration or termination of any right to convert or exchange any
Convertible Securities, the Exercise Price then in effect (and the
number of shares of Warrant Stock acquirable hereunder) shall be
readjusted (up or down as the case may be) to the Exercise Price (and
the number of shares) as would have been obtained had the adjustments
made with respect to the issuance of such Options or Convertible
Securities been made upon the basis of the delivery of only the number
of shares of Common Stock actually delivered upon the exercise of such
Options or upon the conversion of any such Convertible Securities and
at the actual exercise or conversion prices (but any such recalculation
shall not result in the Exercise Price being higher than that which
would be calculated without regard to such issuance.)
(iv) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed
to have been issued for cash, the consideration received therefor shall
be deemed to be the net amount received by the Company therefor after
deducting any commissions or other expenses paid or incurred by the
Company for any underwriting of, or otherwise in connection with the
issuance of any of the foregoing. If any Common Stock, Options or
Convertible Securities are
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issued for a consideration other than cash, the amount of the
consideration other than cash received by the Company shall be deemed
to be the fair value of such consideration. The fair value of any
consideration other than cash or securities shall be determined jointly
by the Board of Directors of the Company and the Registered Holders of
Warrants representing a majority of the shares of Warrant Stock
obtainable upon exercise of the then outstanding Warrants. If such
parties are unable to reach agreement within a reasonable period of
time, such fair value shall be determined by an appraiser jointly
selected by the Company and the Registered Holders of Warrants
representing a majority of the shares of Warrant Stock obtainable upon
exercise of the then outstanding Warrants. The determination of such
appraiser shall be final and binding on the Company and the Registered
Holders of the Warrants, and the fees and expenses of such appraiser
shall be paid by the Company. Notwithstanding the foregoing, (A) where
such non-cash consideration consists of securities, the value of such
non-cash consideration shall be the Fair Market Value of such
securities as of the date of receipt and (B) where such non-cash
consideration consists of the cancellation, surrender or exchange of
outstanding obligations of the Company (or where such obligations are
otherwise converted into shares of Common Stock), the value of the
non-cash consideration shall be deemed to be the amount, including
principal and any accrued interest, as of the time of the Company's
receipt, of the obligations canceled, surrendered, satisfied, exchanged
or converted.
(v) Integrated Transactions. In case any Option or Convertible
Security is issued in connection with the issue or sale of other
securities of the Company, together comprising one integrated
transaction in which no specific consideration is allocated to such
Options or Convertible Security, the Option or Convertible Security
shall be deemed to have been issued without consideration.
(vi) Number of Shares Outstanding. The number of shares of
Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company or any Subsidiary
but shall include the aggregate number of shares of Common Stock
actually outstanding at such time, plus the number of shares of Common
Stock deemed to be outstanding pursuant to Section 2.2(c)(i), plus, any
of the other securities referred to in Sections 2.1(a)(i) and
2.1(a)(ii), regardless of whether the Options or Convertible Securities
exercisable or convertible for Common Stock are actually exercisable or
convertible at such time.
(d) Antidilution Adjustments under other Securities. Without
limiting any other rights available hereunder to the Registered Holders, if
there is an antidilution adjustment under any Options or Convertible Securities,
whether issued prior to or after the date hereof (except as stated in Section
2.1(a) hereof), which results in a reduction in the exercise, purchase or
conversion price with respect to such Convertible Security or Option or results
in an increase in the number of shares obtainable under such Convertible
Security or Option, then an adjustment shall be made to the Exercise Price. Any
such adjustment under this Section 2.2(d) shall be
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whichever of the following results in a lower Exercise Price: (i) a reduction in
the Exercise Price equal to the percentage reduction in such exercise or
purchase price with respect to such Convertible Security or Option or (ii) a
reduction in the Exercise Price which will result in the same percentage
increase in the number of shares of Warrant Stock available hereunder as the
percentage increase in the number of shares available under such Convertible
Security or Option. Any such adjustment under this Section 2.2(d) shall only be
made if it would result in a lower Exercise Price than that which would be
determined pursuant to any other antidilution adjustment otherwise required
hereunder as a result of the event or circumstance which triggered the
adjustment to the Convertible Securities or Options described above (and if any
such adjustment is so made under this Section 2.2(d), then any such other
antidilution adjustment otherwise required hereunder shall not be made as a
result of such event or circumstance).
(e) Other Adjustments. Without limiting any provisions of this
Section 2 or any other provisions of this Warrant, in case any event shall occur
as to which any of the provisions of this Section 2 are not strictly applicable
but the failure to make any adjustment would not fairly protect the exercise
rights represented by the Warrants in accordance with the essential intent and
principles of this Section 2, then, in each such case, the Company shall appoint
a firm of independent public accountants of recognized national standing
selected in good faith by the Board of Directors of the Company (who may be the
regular auditors of the Company), which shall give their opinion upon the
adjustment, if any, on a basis consistent with the essential intent and
principles established in this Section 2, necessary to preserve, without
dilution, the exercise rights represented by the Warrants. Upon receipt of such
opinion, the Company will promptly mail copies thereof to the Registered Holders
of the Warrants and shall make the adjustments described therein. In the event
that the Company shall enter into any transaction for the purpose of avoiding
the application of the provisions of this Section 2, the benefits provided by
such provisions shall nevertheless apply and be preserved.
(f) Meaning of "Issuance". References in this Warrant to
"issuance" of stock by the Company include issuances by the Company of
previously unissued shares and issuances, sales or other transfers by the
Company of treasury stock.
2.3 Reorganization, Reclassification, Consolidation, Merger or Sale.
If, at any time, (i) the Company shall consolidate or merge into another
corporation (where the Company is not the continuing corporation after such
merger or consolidation), (ii) all or substantially all of the Company's assets
are sold to another Person, (iii) the Company engages in any recapitalization,
reorganization or reclassification, or (iv) the Company engages in any other
transaction which is effected in such a way that holders of Common Stock are
entitled to receive (either directly or upon subsequent Liquidation (as defined
in Section 4.2 hereof)) securities or assets with respect to or in exchange for
Common Stock (each of the foregoing referred to herein as a "Restructuring
Event"), the Registered Holder hereof shall thereafter be entitled to receive,
upon the exercise of the Warrants, the securities or other assets to which (and
upon the same terms and with the same rights as) a holder of the number of
shares of Warrant Stock then deliverable upon exercise of this Warrant would
have been entitled upon the occurrence such Restructuring Event (subject to any
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adjustments required hereunder). In any such case, the Company shall make
appropriate provision (in form and substance reasonably satisfactory to the
Registered Holders of the Warrants representing a majority of the Warrant Stock
obtainable upon exercise of all Warrants then outstanding) to insure that,
following the occurrence of any such Restructuring Event, the terms of, and
rights under, the Warrants shall be applicable in relation to any securities or
other assets thereafter deliverable upon the exercise of this Warrant. The
Company shall not effect any such Restructuring Event unless prior to the
consummation thereof the successor entity (if other than the Company) agrees by
written instrument (in form and substance reasonably satisfactory to the
Registered Holders of Warrants representing a majority of the Warrant Stock
obtainable upon exercise of all of the Warrants then outstanding) (A) to assume
the obligation to deliver to each Registered Holder such securities or other
assets to which such Registered Holder may be entitled in accordance with the
foregoing provisions and (B) to be bound by the Warrants, the Purchase Agreement
and any applicable Other Transaction Documents.
2.4 Voluntary Reduction. The Company from time to time may, as the
Board of Directors deems appropriate, reduce the Exercise Price by any amount
for any period of time (but not for a period less than ninety (90) days);
provided, however, that in no event may the Exercise Price be less than the par
value of a share of Common Stock. If the Exercise Price is reduced pursuant to
this Section 2.4, the Company shall, at least fifteen (15) days before the date
the reduced Exercise Price takes effect, mail to the Registered Holders a notice
of such reduction. The notice shall state the reduced Exercise Price and the
period it will be in effect. No reduction of the Exercise Price pursuant to this
Section 2.4, shall effect the obligation of the Company to adjust the Exercise
Price pursuant to this Section 2.
Section 3. Dividends. If the Company, after the Date of Issuance,
declares or makes a distribution upon the Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing corporation) of (i) cash (whether or not payable out
of earnings or surplus), other than regularly scheduled cash distributions
declared or made in the ordinary course of the Company's business and approved
by the Board of Directors of the Company, (ii) other assets, (iii) evidences of
indebtedness or other securities of the Company or of any entity other than the
Company, or (iv) Options or Convertible Securities to purchase any of the
foregoing assets or securities, whether or not such Options or Convertible
Securities are immediately exercisable or convertible (any such distribution
referred to herein as a "Dividend"), then the Company shall hold in escrow in a
manner reasonably satisfactory to each holder of Warrants pending exercise of
such Warrants, and upon exercise of any Warrant the Company shall deliver to the
Registered Holder of such Warrant, the Dividend which would have been paid to
such Registered Holder on the Warrant Stock had this Warrant been fully
exercised immediately prior to the date on which a record is taken for such
Dividend, or, if no record is taken, the date as of which the record holders of
Common Stock entitled to such dividends are to be determined.
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Section 4. Certificates, Notices, Consents and Reservations.
4.1 Certificates. Upon the occurrence of any Diluting Event, the
Company shall mail to the Registered Holders (by registered or certified mail,
postage prepaid) a certificate signed by the President, Acting President or a
Vice President and by the Treasurer, an Assistant Treasurer or Chief Financial
Officer of the Company, setting forth in reasonable detail the events requiring
the adjustment and the method by which such proposed adjustment was calculated
and specifying the adjusted Exercise Price and/or number of shares subject to
this Warrant after giving effect to the proposed adjustment(s) and, upon the
request of any Registered Holder, the Company shall deliver a certificate of a
firm of independent public accountants of recognized national standing selected
by the Board of Directors of the Company (who may be the regular auditors of the
Company) setting forth the Exercise Price as so adjusted, the then current
number of shares of Warrant Stock (as adjusted pursuant to Section 2.1(b)
hereof), the computation of such adjustments and a brief statement of the facts
accounting for such adjustment (which certificate shall be obtained at the
expense of the Company).
4.2 Notice. If at any time after the date hereof (i) the Company
authorizes, declares or makes any Dividend to the holders of Common Stock; (ii)
the Company takes any action or any event occurs which results in or constitutes
a Diluting Event; (iii) there shall be any Restructuring Event; (iv) there shall
be any voluntary or involuntary liquidation, dissolution or winding-up of the
Company or other distribution of the Company's assets (a "Liquidation"), then,
in each such case, the Company shall mail (by registered or certified mail,
postage prepaid) to the Registered Holders notice of any such event or proposed
action, which notice shall (x) set forth such facts as shall indicate the effect
of any such event or action (to the extent such facts are known on the date of
such notice) on the Exercise Price, (y) indicate the kind and amount of the
shares and other securities and assets deliverable upon exercise of the Warrants
and (z) specify the date as of which such holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other assets
deliverable upon any of the events or actions described in subsections (i)-(iv)
hereof. Such notice shall be mailed, in each case, at least ten (10) days prior
to any record date, and in any event, at least thirty (30) days prior to the
date upon which such action or event takes place.
4.3 Failure and Defects. Failure to file any certificate or notice or
to mail any notice, or any defect in any certificate or notice pursuant to this
Section 4, shall not affect the legality or validity of the adjustment of the
Exercise Price and/or number of shares of Warrant Stock subject to this Warrant
pursuant to Section 2.
Section 5. Definitions. The following terms have the meanings set forth
below:
"Additional Common Stock" has the meaning set forth in Section
2.2(b) hereof.
"Affiliate", when used with respect to any Person, means (i)
if such Person is a corporation, any officer or director thereof and
any Person which is, directly or
14
<PAGE> 15
indirectly, the beneficial owner (by itself or as part of any group) of
more than five percent (5%) of any class of any equity security (within
the meaning of the Exchange Act) of such Person, and, if such
beneficial owner is a partnership, any general or limited partner
thereof, or if such beneficial owner is a corporation, any Person
controlling, controlled by or under common control with such beneficial
owner, or any officer or director of such beneficial owner or of any
corporation occupying any such control relationship, (ii) if such
Person is a partnership, any general or limited partner thereof, and
(iii) any other Person which, directly or indirectly, controls or is
controlled by or is under common control with such Person. For purposes
of this definition, "control" (including the correlative terms
"controlling", "controlled by" and "under common control with"), with
respect to any Person, shall mean possession, directly or indirectly,
of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting
securities or by contract or otherwise.
"Additional Common Stock" has the meaning set for in Section
2.2(b) hereof.
"Aggregate Exercise Price" has the meaning set forth in
Section 1.2(b) hereof.
"Assignee" has the meaning set forth in the first paragraph of
this Warrant.
"Business Day" means any day other than a Saturday, Sunday or
a day on which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
"Common Stock" has the meaning set forth in the first
paragraph of this Warrant.
"Conversion Date" has the meaning set forth in Section 1.5(b)
hereof.
"Conversion Notice" has the meaning set forth in Section
1.5(b) hereof.
"Conversion Right" has the meaning set forth in Section 1.5(a)
hereof.
"Conversion Warrant Stock" has the meaning set forth in
Section 1.5(a) hereof.
"Convertible Securities" has the meaning set forth in Section
2.2(c)(i) hereof.
"Date of Issuance" means the date of initial issuance of the
Warrants pursuant to the Purchase Agreement regardless of the number of
times transfer of such Warrants shall be made on the records maintained
by or for the Company and regardless of the number of new certificates
which may be issued to represent the unexpired and unexercised rights
formerly represented by this Warrant.
15
<PAGE> 16
"Diluting Event" shall mean any event which, pursuant to the
terms of this Warrant, requires the Company to adjust the Exercise
Price and/or the number of shares subject to this Warrant.
"Exercise Date" has the meaning set forth in Section 1.2
hereof.
"Exercising Holder" has the meaning set forth in Section 1.1
hereof.
"Exercise Period" has the meaning set forth in Section 1.1
hereof.
"Exercise Price" has the meaning set forth in the first
paragraph hereof.
"Fair Market Value" means as to any security (other than
Warrants), on any date, the average of the daily closing prices of such
security's sales on the principal national securities exchange on which
such security is listed or admitted to trading, or, if there have been
no sales on any such exchange on any day, the average of the highest
bid and lowest asked prices on such exchange at the end of such day,
or, if on any day such security is not so listed or admitted to trading
on any national securities exchange, the average of the highest bid and
lowest asked prices quoted by the National Association of Securities
Dealers, Inc., Automated Quotation System (the "Nasdaq System") (or
comparable system) as of 4:00 P.M., New York time, on such day, or, if
on any day such security is not quoted in such system, the average of
the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case
averaged over a period of twenty-one (21) days consisting of the day as
of which "Fair Market Value" is being determined and the twenty (20)
consecutive Business Days prior to such day; provided that if such
security is listed on any domestic securities exchange, for the
purposes of this definition, the term Business Days as used in this
sentence means Business Days on which such exchange is open for
trading. If at any time such security is not listed on any domestic
securities exchange or quoted in the Nasdaq System or the domestic
over-the-counter market, the "Fair Market Value" shall be the fair
value thereof determined jointly by the Company and the Registered
Holders of Warrants representing a majority of the Warrant Stock
purchasable upon exercise of all Warrants then outstanding; provided
that if such Registered Holders and the Company are unable to agree
within ten (10) days of delivery of notice by the Company in connection
with the event giving rise to the determination of Fair Market Value
then Fair Market Value shall be determined by the agreement of two
arbitrators, one of whom shall be selected by the Company and the other
of whom shall be selected by a majority of the Registered Holders or if
the two arbitrator so selected fail to agree within twenty (20) days,
by a third arbitrator selected by the mutual agreement of the other two
(with all costs and expenses of the arbitrators to be paid by the
Company). Any determination of Fair Market Value of a security will be
made without giving-effect to any discount for any lack of liquidity
attributable to a lack of a public market for such security, any
minority interest or any voting rights thereof or lack
16
<PAGE> 17
thereof. The "Fair Market Value" of a Warrant means the excess of (i)
the Fair Market Value of the shares of Warrant Stock obtainable upon
exercise thereof at the close of business on the day preceding such
exercise over (ii) the Aggregate Exercise Price of the Warrant Stock
payable in connection with such exercise.
"Liquidation" has the meaning set forth in Section 4.2 hereof.
"Options" has the meaning set forth in Section 2.1(a)(ii)
hereof.
"Person" means an individual, a partnership, a joint venture,
a corporation, a trust, an unincorporated organization and a government
or any department or agency thereof.
"Preferred Stock" has the meaning set forth in the second
paragraph of this Warrant.
"Purchase Agreement" has the meaning set forth in the second
paragraph of this Warrant.
"Registered Holder" with respect to this Warrant means the
Person designated in the first paragraph hereof, and with respect to
each other Warrant, "Registered Holder" means, on any given date, the
Person who is then reflected as the holder thereof on the register
maintained by the Company for such purpose and "Registered Holders" at
any time means all Registered Holders of Warrants then outstanding.
"Registration Rights Agreement" the Registration Rights
Agreement, dated as of October 4, 1996, as from time to time assigned,
supplemented or amended or as the terms thereof may be waived, among
the Company and the Holders named therein.
"Restructuring Event" has the meaning set forth in Section 2.3
hereof.
"Warrant Stock" has the meaning set forth in the first
paragraph of this Warrant.
Section 6. No Voting Rights; Limitations of Liability. Prior to the
exercise of this Warrant (in full or in part) and except as otherwise
specifically provided herein or in the Purchase Agreement, this Warrant shall
not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Company. Prior to exercising this Warrant (in full or in
part), nothing contained herein shall be construed as imposing on the Registered
Holder or any Assignee any liabilities to purchase any securities or as a
stockholder of the Company.
Section 7. Liquidation Rights. Upon any Liquidation of the Company,
each Registered Holder shall be entitled to, and the Company shall deliver to
each such Registered Holder at the time of such Liquidation, an amount equal to
(i) the number of shares of Warrant Stock obtainable under this Warrant
immediately prior to any such Liquidation multiplied by (ii)
17
<PAGE> 18
the quotient obtained by dividing (A) the value of the assets available for
distribution to the common stockholders of the Company pursuant to Section
281(a) of the Delaware General Corporation Law of the State of Delaware by (B)
the total number of shares of Common Stock outstanding on the date of any such
Liquidation plus the number of shares of Warrant Stock obtainable under this
Warrant immediately prior to any such Liquidation.
Section 8. Warrant Transferable. Subject to the transfer conditions
referred to in the legend endorsed hereon and contained in Section 13 of the
Purchase Agreement and Section 14 of the Registration Rights Agreement, this
Warrant and all rights hereunder are transferable, in whole or in part (without
charge to the Registered Holder or the Assignee), upon surrender of this Warrant
with a properly executed Assignment in substantially the form attached hereto as
Annex B. Upon surrender of this Warrant pursuant to this Section 8, the Company
shall execute and deliver to the Assignee a new Warrant or Warrants of like
tenor, in the name of such Assignee, calling in the aggregate on the face or
faces thereof for the number of shares of Warrant Stock called for on the face
or faces of the Warrant or Warrants so surrendered (and the records of the
Company shall be updated to reflect such Assignee as the Registered Holder).
Until such Warrant has been transferred pursuant to this Section 8, the Company
may treat the Registered Holder as the owner and holder of this Warrant for all
purposes. Notwithstanding the foregoing, a Warrant, if properly assigned, may be
exercised by an Assignee without a new Warrant first having been issued.
Section 9. Replacement. Upon receipt of an affidavit of the Registered
Holder or other evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of any certificate evidencing this Warrant, and
in the case of any such loss, theft or destruction, upon receipt by the Company
of an unsecured indemnity from the Registered Holder against claims directly
related to the loss, theft or destruction of any such certificate, or in the
case of any such mutilation, upon surrender and cancellation of such mutilated
certificate, the Company shall (at its expense) execute and deliver a new
certificate of like tenor (which certificate shall be dated the date of such
lost, stolen, destroyed or mutilated certificate).
Section 10. Specific Performance. The Company agrees and stipulates
that the remedies at law of the Registered Holder (or any Assignee) in the event
of any default or threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant are not and will not be
adequate and that, to the fullest extent permitted by law, such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise. Such remedies and all other remedies provided for in this
Warrant shall, however, be cumulative and not exclusive and shall be in addition
to any other remedies which a party may have under this Warrant or otherwise.
Section 11. Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the Registered Holder at
the principal office of the
18
<PAGE> 19
Company, for new Warrants of like tenor representing in the aggregate the
purchase rights hereunder, and each of such new Warrants shall represent such
portion of such rights as is designated by the Registered Holder at the time of
such surrender.
Section 12. Obtaining Stock Exchange Listings or Nasdaq Quotations. The
Company shall take such action as may be necessary, from time to time, (i) to
insure that the Common Stock remains listed on the Nasdaq System (or comparable
system) and (ii) to the extent that the Registered Holder (or any predecessor
thereto) shall have exercised registration rights pursuant to the Registration
Rights Agreement with respect thereto, so that the shares of Warrant Stock,
immediately upon their issuance upon the exercise of Warrants, will be listed or
part of a class quoted, as the case may be, on the Nasdaq System (or on any
other comparable system on which other shares of Common Stock are then listed or
quoted.)
Section 13. Notices. Except as otherwise expressly provided herein, all
notices, requests, demands, consents and other communications hereunder shall be
in writing and shall be delivered personally, sent by reputable express courier
service (charges prepaid) or sent by registered or certified mail, return
receipt requested, postage prepaid and shall be deemed to have been given when
so delivered, sent or deposited in the U.S. Mail (i) to the Company, at Three
South Revmont Drive, Shrewsbury, New Jersey 07702, Attention: Eric A. Reehl, or
at such other address as the Company may otherwise indicate in a written notice
delivered to the Registered Holders and (ii) to the Registered Holder of this
Warrant at such Registered Holder's address as it appears in the records of the
Company or at such other address as any such Registered Holder may otherwise
indicate in a written notice delivered to the Company.
Section 14. Amendment and Waiver. Except as otherwise provided herein,
the provisions of the Warrants may be amended, and compliance with any covenant
or provision herein set forth may be omitted or waived, only if the Company has
obtained the written consent of the Registered Holders of Warrants representing
at least seventy-five percent (75%) of the shares of Warrant Stock obtainable
upon exercise of the then outstanding Warrants and each Registered Holder shall
be bound thereby; provided, however, that (i) no such amendment may decrease the
Exercise Price of the Warrants or increase the number of shares or change the
class of shares of stock obtainable upon the exercise of any Warrant unless such
decrease, increase or change is made available to each Registered Holder on the
same terms; (ii) no such amendment may increase the Exercise Price of any
Warrant or decrease the number of shares or change the class of shares of stock
obtainable upon the exercise of such Warrant without the written consent of each
Registered Holder; and (iii) any written consent or waiver of any Registered
Holder of any Warrant shall be binding upon such Registered Holder without
majority consent if so specified in such written consent or waiver.
Notwithstanding the foregoing, the provisions of Reliance's Warrant may be
amended to delete Section 1.2A hereof and the proviso to the first sentence of
Section 1.5(a) hereof thirty (30) days following the delivery by the Registered
Holder to the Company of a notice that such Warrant is to be modified by such
deletions.
19
<PAGE> 20
Section 15. Descriptive Headings; Governing Law. The headings and
captions in this Warrant are for convenience only and shall not define, limit or
otherwise affect any of the terms or provisions hereof. This Warrant shall be
governed by and construed and enforced in accordance with the laws of the State
of New York (without regard to any choice of law or conflict provision or rule
which might result in the application of the laws of any jurisdiction other than
the State of New York).
20
<PAGE> 21
IN WITNESS WHEREOF, HOME STATE HOLDINGS, INC. has caused this
Warrant to be dated and to be executed and issued on its behalf by its officers
thereunto duly authorized.
HOME STATE HOLDINGS, INC.
By: /s/ Mark Vaughn
--------------------
Mark Vaughn
Acting President
Attest: /s/ Eric A. Reehl
----------------------
Eric A. Reehl
Assistant Secretary
[SIGNATURE PAGE TO THE RELIANCE WARRANT]
<PAGE> 22
ANNEX A
EXERCISE AGREEMENT
To: Dated:
The undersigned [REGISTERED HOLDER] [ASSIGNEE] of the
accompanying Warrant (Certificate No. A-__), pursuant to the provisions set
forth in the attached Warrant, hereby exercises such Warrant or portion thereof,
and agrees to subscribe for the purchase of _____ (1) shares of the Warrant
Stock (as defined in such Warrant) and makes payment therefor [BY APPLICATION
PURSUANT TO SECTION 1.4 OF SUCH WARRANT OF $________ REPRESENTING THE
LIQUIDATION VALUE OF/DIVIDENDS ON _________ SHARES OF THE PREFERRED STOCK (AS
DEFINED IN THE WARRANT) HELD BY THE UNDERSIGNED] and/or [BY WIRE TRANSFER/BANK
CHECK/CERTIFIED CHECK IN THE AMOUNT OF $____________]. The undersigned requests
that the certificate for such shares of Warrant Stock be issued in the name of,
and be delivered to, ___________________________ whose address is
_________________________________________.
____________________________________
[Name of Exercising Holder]
By: _______________________________
Name:
Title:
Address ____________________________
__________________
(1)/ [Insert the number of shares of Warrant Stock as to which this Warrant is
being exercised. In the case of partial exercise, a new Warrant or Warrants will
be issued and delivered, representing the unexercised portion of this Warrant,
to the Exercising Holder surrendering the same (unless such Exercising Holder
designates another Person as the recipient of such new Warrant)].
22
<PAGE> 23
ANNEX B
ASSIGNMENT
To: Dated:
FOR VALUE RECEIVED, _________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (Certificate No. A-____) with respect to the number of shares of the
Warrant Stock covered thereby set forth below, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
____________________________________
[Name of Registered Holder]
By:_________________________________
Name:
Title:
23
<PAGE> 1
Exhibit 3
STOCKHOLDERS' AGREEMENT dated as of October 4, 1996 by and
among Home State Holdings, Inc., a Delaware corporation (the "Company"), Mr.
Edward D. Herrick, a director of the Company ("Mr. Herrick"), Herrick Partners,
L.P., a Delaware limited partnership ("Herrick Partners"), Michael H. Monier,
the Chairman of the Board, Secretary and a shareholder of the Company ("Mr.
Monier"; Messrs. Herrick and Monier together with Herrick Partners, the
"Management Group"), Swiss Reinsurance America Corporation, a New York
corporation ("Swiss Re") and Reliance Insurance Company, a Pennsylvania
corporation ("Reliance").
W I T N E S S E T H :
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the Company is executing and delivering a Securities Purchase
Agreement dated the date hereof with each of Swiss Re and Reliance (as from time
to time assigned, supplemented or amended or as the terms thereof may be waived,
the "Purchase Agreement"); and
WHEREAS, the Purchase Agreement provides for the execution and
delivery, as a condition precedent to the closing under the Purchase Agreement,
of this Stockholders' Agreement; and
WHEREAS, the Purchase Agreement contemplates the sale of additional
Series A Preferred Shares and requires any purchaser thereof to become a party
hereto;
NOW, THEREFORE, in connection with the Purchase Agreement and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
Section 1. Certain Definitions.
(a) As used in this Agreement, the following terms shall have
the following meanings:
"Additional Stockholder" has the meaning set forth in Section
15 hereof.
"Affiliate", when used with respect to any Person, means (i)
if such Person is a corporation, any officer or director thereof and any Person
which is, directly or indirectly, the beneficial owner (by itself or as part of
any group) of more than five percent (5%) of any class of any equity security
(within the meaning of the Exchange Act) of such Person, and, if such beneficial
owner is a partnership, any general or limited partner thereof, or if such
beneficial owner is a corporation, any Person controlling, controlled by or
under common control with
<PAGE> 2
such beneficial owner, or any officer or director of such beneficial owner or of
any corporation occupying any such control relationship, (ii) if such Person is
a partnership, any general or limited partner thereof, and (iii) any other
Person which, directly or indirectly, controls or is controlled by or is under
common control with such Person. For purposes of this definition, "control"
(including the correlative terms "controlling", "controlled by" and "under
common control with"), with respect to any Person, shall mean possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise.
"Agreement" means this Agreement (together with annexes,
exhibits and schedules) as from time to time assigned, supplemented or amended
or as the terms hereof may be waived.
"Board" means the Board of Directors of the Company.
"By-Laws" means the By-Laws of the Company as in effect on the
date hereof and as amended from time to time in accordance with this Agreement.
"Certificate of Designations" means the Certificate of
Designations, Preferences and Rights of Series A Cumulative Voting Preferred
Stock, $0.01 par value per share, of the Company, in the form attached as
Exhibit A to the Purchase Agreement.
"Certificate of Incorporation" means the Certificate of
Incorporation of the Company as in effect on the date hereof and as amended from
time to time in accordance with this Agreement.
"Common Stock" means the shares of Common Stock of the
Company, $0.01 par value per share, or any capital stock or other securities
into which such Common Stock shall have been changed or any capital stock or
other securities resulting from a reclassification, combination or subdivision
of, or a stock dividend on, any Common Stock.
"Default Director" has the meaning set forth in Section 4(c)
hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and the rules, regulations and interpretations
thereunder.
"Management Stockholders" means, so long as such person is
holding Shares, (A) each person in the Management Group and (B) any transferee
obtaining Shares from a Management Stockholder in accordance with this Agreement
(upon taking title to such Shares), unless (i) prior to such transfer such
transferee was a Reliance Stockholder or a Swiss Re Stockholder, or (ii) such
transferee is not required to become a party hereto under Section 15 hereof.
-2-
<PAGE> 3
"Outstanding" or "outstanding" means, (i) with respect to the
Common Stock, the authorized, issued and outstanding shares of Common Stock,
together with shares of Common Stock then obtainable (whether or not then
issued) pursuant to outstanding warrants, options, convertible securities or
other rights (including without limitation, the Warrants) and (ii) with respect
to the Series A Preferred Shares, the authorized, issued and outstanding Series
A Preferred Shares.
"Permitted Sale" has the meaning set forth in Section 11.2 of
the Purchase Agreement.
"Person" or "person" means an individual, corporation, trust,
unincorporated organization, government, governmental body, agency, political
subdivision or other entity.
"Purchase Agreement" has the meaning set forth in the preamble
of this Agreement.
"Preferred Director" has the meaning set forth in Section 4(b)
hereof.
"Redemption Default" means the failure by the Company to
redeem Series A Preferred Shares in accordance with Section 6(a) or Section 6(b)
of the Certificate of Designations for any reason, and such failure in such
redemption of such shares shall have continued for at least fifteen (15) days.
"Redemption Event" has the meaning set forth in the
Certificate of Designations.
"Reliance Preferred Shares" means the Series A Preferred
Shares held by the Reliance Stockholders.
"Reliance Shares" means at any time, all Shares then held by
the Reliance Stockholders.
"Reliance Stockholders" means, so long as such person is
holding Shares, (A) Reliance and (B) any transferee obtaining Shares from a
Reliance Stockholder in accordance with this Agreement.
"Restricted Period" has the meaning set forth in Section 6
hereof.
"Retiring Director" has the meaning set forth in Section 4(c)
hereof.
"Rule 144 Transaction" means a transfer of Shares (A)
complying with Rule 144 under the Securities Act as such Rule is in effect on
the date of such transfer (but not including a sale other than pursuant to a
"brokers transaction" as defined in clauses (1) and (2) of paragraph
-3-
<PAGE> 4
(g) of such Rule as in effect on the date hereof) and (B) occurring at a time
when Shares are registered pursuant to Section 12 of the Exchange Act (or any
successor to such Section).
"Securities" has the meaning set forth in the Purchase
Agreement.
"Securities Act" means the Securities Act of 1933, as amended
from time to time, and the rules, regulations and interpretations thereunder.
"Series A Preferred Shares" means the Company's Series A
Cumulative Voting Preferred Stock, par value $0.01 per share, issued pursuant to
the Purchase Agreement including Series A Preferred Shares issued in a Permitted
Sale (as defined in the Purchase Agreement).
"Shares" means (i) the Series A Preferred Shares issued on the
date hereof to Swiss Re and Reliance (or purchased on any date hereafter
pursuant to Section 11 of the Purchase Agreement) and (ii) shares of Common
Stock, debentures or other securities convertible into Common Stock and options,
warrants, rights or other securities exercisable for Common Stock (whether or
not granted by the Company but excluding any rights created under this
Agreement), including without limitation any Warrants, all as such shares of
Common Stock or other securities may from time to time be adjusted, changed or
exchanged as a result of and after giving effect to all non-cash dividends
payable in stock or other securities, stock splits or reverse stock splits,
reorganizations, reclassifications, mergers, consolidations or other similar
events.
"Stockholder Group" means each of (A) the Management
Stockholders taken as a group, (B) the Reliance Stockholders taken as a group
and (C) the Swiss Re Stockholders taken as a group. The Company shall not in any
case be deemed to be a member of any Stockholder Group (whether or not the
Company repurchases or otherwise acquires any Shares).
"Stockholders" means, so long as such person is holding
Shares, (A) the parties hereto other than the Company and (B) any person (other
than the Company) which hereafter may hold any Series A Preferred Shares
acquired from the Company pursuant to Section 11 of the Purchase Agreement or
acquired from another Stockholder (other than pursuant to an effective
registration statement under the Securities Act or in a Rule 144 Transaction).
"Subsidiary", with respect to any Person, means any
corporation, association or other entity controlled by such Person. For purposes
of this definition, "control" with respect to any Person, shall mean possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise. The term "Subsidiary" or "Subsidiaries"
when used herein without reference to any particular Person, means a Subsidiary
or Subsidiaries of the Company which may now or hereafter exist.
-4-
<PAGE> 5
"Swiss Re Preferred Shares" means the Series A Preferred
Shares held by the Swiss Re Stockholders.
"Swiss Re Shares" means at any time, all Shares then held by
the Swiss Re Stockholders.
"Swiss Re Stockholders" means, so long as such person is
holding Shares, (A) Swiss Re and (B) any transferee obtaining Shares from a
Swiss Re Stockholder in accordance with this Agreement.
"Warrants" means the Class A Warrants issued pursuant to the
Purchase Agreement as such Warrants may be assigned from time to time.
(b) All Shares transferred by a Stockholder (other than
pursuant to an effective registration statement under the Securities Act or in a
Rule 144 Transaction) shall be held by the transferee thereof pursuant to this
Agreement. Such transferee shall have all the rights and be subject to all of
the obligations of a Stockholder under this Agreement automatically and without
requiring any further act by such transferee or by any parties to this
Agreement. Without affecting the preceding sentence, if such transferee is not a
Stockholder on the date of such transfer, then such transferee, as a condition
of such transfer, shall confirm such transferee's obligations hereunder in
accordance with the terms of Section 14 hereof.
(c) Any uses of the masculine, feminine or neuter gender
herein shall also be deemed to include any other gender, as appropriate.
Section 2. Certificate of Incorporation and By-Laws.
Annexed hereto as Exhibits 1 and 2, respectively, are the
Certificate of Incorporation and By-Laws of the Company, in each case as amended
and as in effect on the date hereof. No amendment to such Certificate of
Incorporation or By-Laws which would adversely alter, change, or affect the
powers, rights, privileges or preferences of the Swiss Re Stockholders or the
Reliance Stockholders shall be approved, agreed to or voted in favor of by any
Stockholder without the consent of (i) the holders of a majority of the then
outstanding Reliance Shares (which consent may be withheld for any reason) and
(ii) the consent of the holders of the majority of the then outstanding Swiss Re
Shares (which consent may be withheld for any reason).
Section 3. Issuance of Shares.
The authorized capital stock of the Company on the date hereof
consists of 10,000,000 shares of Common Stock and 100,000 shares of preferred
stock of which 25,000
-5-
<PAGE> 6
have been designated Series A Preferred Shares. As of the date hereof, the names
of the Stockholders, together with their holdings, are listed on Schedule A
hereto.
Section 4. Preferred Director and Default Directors.
(a) Board Seats. During the term hereof, the By-Laws shall
provide for a Board consisting of not less than eight (8) nor more ten (10)
members. One (1) of such members shall be the Preferred Director (as defined in
Section 4(b) below) and, subject to the conditions set forth in Section 4(b)
below, two (2) of such members shall be the Default Directors (as defined in
Section 4(c) below). In the event the Swiss Re Stockholders or the Reliance
Stockholders shall be entitled, pursuant to the provisions of Section 4(c)
hereof, to designate to the Board of Directors of the Company a Default Director
(or Default Directors), the resignation(s) delivered pursuant to Section 2.16 of
the Purchase Agreement shall thereupon become effective, and the parties hereto
shall take all necessary actions (including without limitation the actions set
forth in Section 4(d) hereof and within their power) to have the Default
Directors appointed or elected to fill the resulting vacancies.
(b) Preferred Director. For so long as the Swiss Re
Stockholders hold any Series A Preferred Shares, the holders of a majority of
the then outstanding Swiss Re Preferred Shares shall be entitled to designate
one (1) individual to serve as a member of the Board (such director referred to
herein as the "Preferred Director"). The Preferred Director shall be elected
pursuant to Section 4(d) hereof, and the term of such Preferred Director shall
end when the term of the other members of the class of directors to which the
Preferred Director shall be assigned shall end. Upon the expiration of any such
term, for so long as any Swiss Re Stockholder holds any Series A Preferred
Shares, successor Preferred Directors shall be designated and elected for
successive three (3) year terms pursuant to the provisions hereof.
(c) Default Director. In addition to the rights set forth in
Section 4(b) hereof, upon the occurrence of a Redemption Default and for so long
as such Redemption Default shall be continuing (hereinafter called the "Default
Period"), the holders of a majority of the then outstanding Swiss Re Preferred
Shares shall be entitled to designate one (1) individual to serve as a member of
the Board and the holders of a majority of the then outstanding Reliance
Preferred Shares shall be entitled to designate one (1) individual to serve as a
member of the Board (each such director referred to therein as a "Default
Director"). Each Default Director shall be elected pursuant to Section 4(d)
hereof for a term which shall end when the term of the other members of the
class of directors to which such Default Director shall be assigned shall end
(such Default Director, at the time of the expiration of such Default Director's
term, a "Retiring Director"). If any such term expires prior to the end of the
Default Period, the holders of a majority of the then outstanding Swiss Re
Preferred Shares or the Reliance Preferred Shares, or each of them (as the case
may be), shall be entitled to designate a successor Default Director (which may
again be the Retiring Director). Such successor Default Director shall be
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designated and elected for a term equal to the term of the class of directors to
which the Retiring Director was elected pursuant to the provisions hereof.
(d) Election and Removal of the Directors.
(i) The Company agrees that it shall take all actions
within its power to facilitate the election of the Preferred Director
and each of the Default Directors by the stockholders of the Company at
any annual meeting or special meeting of stockholders where a
stockholder vote may be required to elect or re-elect a Preferred
Director or Default Director, including without limitation recommending
the election of such Directors as designated by the Swiss Re
Stockholders and/or the Reliance Stockholders.
(ii) Each Stockholder severally agrees, upon the
designation of individuals to serve as members of the Board pursuant to
Sections 4(b) and 4(c) hereof, to vote all shares of voting stock of
the Company owned by such Stockholder (and at any time to take any
other action necessary or appropriate and within the power of such
Stockholder, including without limitation (x) calling a meeting of
stockholders or taking any such action by written consent in lieu of
any such meeting or (y) directing the directors designated by such
Stockholder to take such action) (A) to cause the immediate election to
the Board (as a Preferred Director and/or as Default Directors, as the
case may be) of the individuals designated pursuant to Sections 4(b)
and 4(c), or to cause the election of their respective successors
similarly designated, or (B) if requested by the Swiss Re Stockholders
(acting through the holders of a majority of the Swiss Re Shares), to
cause the immediate removal of the Preferred Director and/or the
Default Director designated by the Swiss Re Stockholders, with or
without cause, from the Board, or (C) if requested by the Reliance
Stockholders (acting through the holders of a majority of the Reliance
Shares), to cause the immediate removal of the Default Director
designated by the Reliance Stockholders with or without cause, from the
Board.
(e) Observer. The Swiss Re Stockholders (acting through the
holders of a majority of the Swiss Re Shares) and the Reliance Stockholders
(acting through the holders of a majority of the Reliance Shares) shall each
have the right, at all times during the term hereof, at their request, to send
one (1) representative to the meetings of the Board, such representative to act
as observer without a vote or other rights as a director (except that such
observer shall have the right to receive sufficient notice to enable such
attendance and the right to receive all other communications, information and
materials furnished, from time to time, to directors of the Company and the
right to receive reimbursement for travel expenses to the same extent as
directors of the Company); except that during any period in which the Swiss Re
Stockholders, or the Reliance Stockholders, as the case may be, have designated
an individual who is then serving on the Board, there shall be no right for the
Swiss Re Stockholders, or the Reliance Stockholders, as the case may be, to send
such observer pursuant to this Section 4(e). Notwithstanding anything to the
contrary contained in this Section, each representative of Swiss Re or Reliance
who attends meetings of the Board (i) will hold in confidence, unless required
to
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disclose by judicial, regulatory or administrative process or by other
requirements of law, all documents, reports or other information obtained from
the Company, and (ii) will not use any such documents, reports or other
information for any reason or purpose other than to review the affairs and
financial condition of the Company and assess the compliance by the Company with
the terms and provisions of this Purchase Agreement, the Other Transaction
Documents and the Securities (each as defined in the Purchase Agreement), except
to the extent that such documents, reports and other information have been (A)
previously known on a nonconfidential basis by such representative, (B) in the
public domain through no fault of such representative, or (C) later lawfully
acquired by such representative without any breach of any obligation of
confidentiality; provided, however that any such representative may disclose
such documents, reports and other information to officers, directors, employees,
accountants, counsel, consultants, advisors and agents of Swiss Re or Reliance,
as the case may be, in connection with such representative's review of such
documents, reports or other information so long as such Persons are informed by
Swiss Re or Reliance, as the case may be, to treat such information
confidentially and not to use any of such documents, reports or other
information for any reason or purpose other than in connection with such
representative's review.
(f) Actions Taken. Any action taken by a Preferred Director
and/or a Default Director in his capacity as a director of the Company (such as
approving or authorizing transactions, adopting resolutions, etc.) shall be
considered to be an action taken by such director solely in his capacity as a
director and not in any other capacity and shall not be construed as, considered
to be or deemed to be an action taken by a Reliance Stockholder or a Swiss Re
Stockholder and such action shall not in any way bind, obligate, estop, waive
the rights of or otherwise affect in any way such Stockholders (in their
capacity as stockholders or otherwise) or the directors in any capacity other
than as directors of the Company.
Section 5. Charter Amendment.
Each of the Stockholders agrees to vote all shares of voting
stock of the Company owned by such Stockholder (and at any time to take any
other action necessary or appropriate and within the power of such Stockholder)
in favor of any proposal presented to the stockholders of the Company in
accordance with Section 8.15 of the Purchase Agreement.
Section 6. Certain Rights and Restrictions of the Management
Stockholders.
Until October 4, 2000 (the period between the Closing Date and
such later date, the "Restricted Period"), no Management Stockholder may sell,
assign, transfer, pledge, hypothecate, mortgage, encumber, dispose of by gift,
bequeath or otherwise transfer or dispose of any right, title or interest in any
or all Shares, except that, during the Restricted Period each of the Management
Stockholders shall be permitted to sell, assign, transfer, pledge, hypothecate,
mortgage, encumber, dispose of by gift, bequeath or otherwise transfer or
dispose of up to
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fifteen percent (15%) of the Shares held by such Management Stockholder on the
date hereof (adjusted for changes in the capitalization of the Company in the
same manner as provided in the Warrants); provided, that in each such instance,
any such transferee shall become a party to, and such transferee's Shares shall
remain subject to, this Agreement as provided in Section 15 hereof.
Notwithstanding anything to the contrary contained herein, the parties hereto
acknowledge that Herrick Partners has pledged 100,000 of its shares to a bank
located in Telluride Colorado (the "Herrick Pledgee"). Herrick Partners retains
voting control over such Shares and agrees to vote such Shares as required
hereunder, and for so long as Herrick Partners retains such voting control, the
Herrick Pledgee shall not be required to become a party to this Agreement.
Section 7. Certain Transfer Restrictions.
(a) From the date hereof to the date of the next annual
meeting of the stockholders of the Company in May, 1997, neither the Swiss Re
Stockholders nor the Reliance Stockholders shall be permitted to transfer any
Shares to a third party unless, prior to any proposed transfer the Swiss Re
Stockholders or Reliance Stockholders (as the case may be, a "Selling
Stockholder") has given written notice of the proposed transfer of such Shares
(the "Notice of Intention") to the Company specifying the type and number of
Shares which such Selling Stockholder wishes to transfer, the proposed purchase
price (the "Offer Price") therefore and all other material terms and conditions
of the proposed transfer. For a period of thirty (30) days following its receipt
of the Notice of Intention, the Company or its designees shall have the right to
purchase all or (with the consent of the Selling Stockholder) any portion of the
Shares offered by such Selling Stockholder at the Offer Price and on the other
terms specified in the Notice of Intention, exercisable by delivery of an
irrevocable notice (the "Company Notice") to the Selling Stockholder specifying
the number of offered Shares with respect to which the Company or its designees
is exercising its option. If all notices required to be given pursuant to this
Section have been duly given and the Company or its designees do not exercise
the option to purchase the offered Shares at the Offer Price and on the other
terms specified in the Notice of Intention or determined, with the consent of
the Selling Stockholder, to exercise its option to purchase a portion of the
offered Shares, then the Selling Stockholder shall have the right, at any time
thereafter to sell to a third party the offered Shares remaining unsold under
this Section at a price not less than the Offer Price and on other terms which
shall not be materially more favorable to such third party in the aggregate than
those terms set forth in the Notice of Intention.
(b) From and after May, 1997, the Reliance Stockholders and
the Swiss Re Stockholders may freely transfer, sell, assign, pledge,
hypothecate, mortgage, encumber, dispose of by gift, bequeath or otherwise
transfer or dispose of any right, title or interest in any or all Shares,
provided that any such disposition shall comply with all applicable laws and
provided further that any transferee obtaining such Shares shall become a
Stockholder hereunder and shall
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<PAGE> 10
execute a signature page in the form of Annex A and shall be bound by the terms
of this Agreement.
Section 8. Involuntary Transfers of Shares.
In the event of any Involuntary Transfer (as hereinafter
defined) by any Stockholder of any Shares, the following procedures shall apply:
(a) The Stockholder deprived or divested of Shares by the
Involuntary Transfer (the "Transferor") shall promptly give written notice of
such Involuntary Transfer in reasonable detail to the other Stockholders (for
purposes of this Section 8, collectively, the "Other Stockholders") and the
person or persons who take or propose to take any interest in such Shares (the
"Subject Shares") as a result of such Involuntary Transfer (the "Transferee")
shall hold such interest subject to the rights of the Other Stockholders as set
forth below.
(b) (i) Upon receipt of the notice referred to in Section 8(a)
above or upon discovery of such Involuntary Transfer, the Company shall
cause the determination of Fair Market Value or appraisal referred to
in Section 8(c) to be made and notice of such determination or
appraisal shall be delivered to each of the Other Stockholders within
ten (10) days of the receipt of the notice referred to in Section 8(a).
Each of the Other Stockholders shall have the irrevocable option, but
not the obligation, for a period of sixty (60) days following receipt
by all Other Stockholders of the results of such determination of Fair
Market Value or appraisal, to purchase the Subject Shares, subject to
the terms set forth herein. If such Subject Shares are shares of Common
Stock or Warrants, each Other Stockholder may exercise the option for
the number of shares of Common Stock bearing the same relation to the
total number of Subject Shares as (x) such Other Stockholder's
percentage interest (including through Warrants) in shares of Common
Stock bears to (y) the aggregate percentage interest (including through
Warrants) in shares of Common Stock then held by all of the Other
Stockholders exercising such option (and purchasing Subject Shares
under Section 8(c) below), or for such other number of Subject Shares
as all of the Other Stockholders exercising such option may agree in
writing. If such Subject Shares are Preferred Shares, each Other
Stockholder may exercise the option for the number of Preferred Shares
bearing the same relation to the total number of Preferred Shares as
(x) such Other Stockholder's percentage interest in Preferred Shares
bears to (y) the aggregate percentage interest in Preferred Shares then
held by all of the Other Stockholders exercising such option (and
purchasing Preferred Shares under Section 8(c) below), or for such
other number of Preferred Shares as all of the Other Stockholders
exercising such option may agree in writing. All exercises of such
option or options shall be in writing, shall specify the number of
Subject Shares to be purchased and shall be effective upon receipt
thereof by the Transferee.
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(ii) Notwithstanding the foregoing, it is agreed that
(x) during the first thirty (30) days of the sixty (60) day period
described above, if the Transferor is a Management Stockholder,
Reliance Stockholder or Swiss Re Stockholder, then the other members of
the Transferor's Stockholder Group shall have the exclusive right to
purchase all of the Subject Shares (such right to be exercised in the
manner set forth in the preceding paragraph, except that, for purposes
of the second sentence of the preceding paragraph, such other members
shall be deemed to be all of the "Other Stockholders"), and (y) only
after such first thirty (30) day period shall the Other Stockholders
also be entitled to purchase the Subject Shares as to which the other
members of the Transferor's Stockholder Group have not exercised an
option under this Section 8 (or which are not purchased, even though an
option may have been exercised, under Section 8(c) below). Such right
under this paragraph (b)(ii) shall be exercised in the manner set forth
in the preceding paragraph. The Stockholders who shall have had the
exclusive right to purchase the Subject Shares during such first thirty
(30) day period shall also have the right to exercise the option
granted under this Section 8 during the second thirty (30) day period
in accordance with the preceding paragraph.
(c) The closing for any such sale of Subject Shares to one or
more Other Stockholders shall be at the offices of the Company on the date
specified by each Other Stockholder in its notice of exercise, but in any event
not prior to the expiration of the sixty (60) day period nor later than
forty-five (45) days after the end of such sixty (60) day period. The purchase
price per share of any Subject Shares purchased pursuant to this Section 8 shall
be (i) in the event the Common Stock is listed on the Nasdaq National Market or
a national securities exchange, the Fair Market Value (as defined in the
Warrant) per share of the Common Stock, or (ii) the amount which is equal to the
fair value, as of the Valuation Date (as hereinafter defined), of a Subject
Share, as such fair value is determined by an independent appraiser selected by
the Company and reasonably acceptable to holders of a majority of the then
outstanding Shares held by the Other Stockholders, and the costs of such
appraisal shall be paid by the Company. The "Valuation Date" shall be the last
day of the calendar quarter immediately preceding the Involuntary Transfer.
(d) In the event that the Other Stockholders do not purchase
all of the Subject Shares involved in an Involuntary Transfer pursuant to this
Section 8, the Transferee shall take and hold all rights and interests in any
Subject Shares not so purchased subject to the terms of this Agreement.
(e) For purposes of this Agreement, the term "Involuntary
Transfer" shall mean any involuntary sale, transfer, encumbrance or other
disposition by or in which any Stockholder shall be deprived or divested of any
right, title or interest in or to any Shares, including without limitation any
levy of execution, foreclosure on a pledge, transfer in connection with
bankruptcy, reorganization, insolvency or similar proceedings or any transfer to
a public officer or agency pursuant to any abandoned property or escheat law,
but shall not
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include any transfer to a spouse in connection with a marital dissolution;
provided, that any transfer complying with Section 6 hereof shall not be deemed
an "Involuntary Transfer".
Section 9. Action Necessary to Effectuate the Agreement.
In their respective capacities as Stockholders of the Company,
the parties hereto agree to take or cause to be taken all such corporate and
other action as may be necessary to effect the intent and purposes of this
Agreement. Notwithstanding anything to the contrary contained herein, no
provision hereof shall in any way obligate any Management Stockholder to take or
refrain from taking any action in such Management Stockholder's capacity as a
director or officer of the Company.
Section 10. Payments under the Securities
If at any time any amounts are due from the Company to any
holder of Shares and if payment of any such amount is not being made by the
Company for any reason whatsoever, the Company agrees (to the extent permitted
by law) to cause the Company and the Board to take the necessary actions to
eliminate the reason why such payment is not being made and each Stockholder
agrees to vote its Shares in favor of any proposal which would have the effect
of enabling such payments to be made; provided that nothing herein contained
shall in any way obligate any Management Stockholder to take or refrain from
taking any action in such Management Stockholder's capacity as a director of the
Company.
Section 11. Purchase For Investment; Legend on Certificate.
Each of the parties acknowledges that all of the Series A
Preferred Shares and Warrants are being (or have been) acquired for investment
and not with a view to the distribution thereof and that no transfer,
hypothecation or assignment of Series A Preferred Shares and Warrants may be
made except in compliance with applicable federal and state securities laws. All
the certificates of Series A Preferred Shares of the Company shall have endorsed
in writing, stamped or printed, upon the face thereof the following legend:
THIS CERTIFICATE AND THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO
AND TRANSFERABLE ONLY IN ACCORDANCE WITH THE PROVISIONS OF A
STOCKHOLDERS' AGREEMENT DATED AS OF OCTOBER 4, 1996 AMONG HOME STATE
HOLDING, INC., HERRICK PARTNERS, L.P., EDWARD D. HERRICK, MICHAEL H.
MONIER, SWISS REINSURANCE AMERICA CORPORATION, RELIANCE INSURANCE
COMPANY AND ANY OTHER PERSON THAT BECOMES A PARTY TO THE STOCKHOLDERS'
AGREEMENT AS REQUIRED THEREUNDER.
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All certificates representing the Warrants shall bear the
following legend:
THIS WARRANT CERTIFICATE (AND THE COMMON STOCK OR OTHER SECURITIES
ISSUABLE UPON EXERCISE HEREOF) HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY APPLICABLE LAW OR
REGULATION OF ANY STATE AND ARE NOT TRANSFERABLE EXCEPT UPON THE
CONDITIONS SPECIFIED IN SECTION 13 OF THE PURCHASE AGREEMENT REFERRED
TO HEREIN AND SUBJECT TO SECTION 14 OF THE REGISTRATION RIGHTS
AGREEMENT REFERRED TO HEREIN. THE COMPANY RESERVES THE RIGHT TO REFUSE
THE TRANSFER OF SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED WITH RESPECT TO SUCH TRANSFER. A COPY OF SUCH PURCHASE
AGREEMENT SHALL BE FURNISHED BY THE COMPANY TO THE REGISTERED HOLDER
HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.
Section 12. Termination.
This Agreement shall automatically and without further action
terminate when all Series A Preferred Shares have been redeemed and all Warrants
have been exercised.
Section 13. Specific Performance.
The parties hereto acknowledge that irreparable damage will
result in the event that this Agreement is not specifically enforced (including
without limitation any restrictions on transfer of Shares) and the parties
hereto agree that any damages available at law for a breach of this Agreement
would not be an adequate remedy. Therefore, the provisions hereof and the
obligations of the parties hereunder shall be enforceable in a court of equity,
or other tribunal having jurisdiction, by a decree of specific performance, and
appropriate injunctive relief may be applied for and granted in connection
therewith. Such remedies and all other remedies provided for in this Agreement
shall, however, be cumulative and not exclusive and shall be in addition to any
other remedies which any party may have under this Agreement or otherwise.
Section 14. Effectiveness of Transfers.
No Shares shall be transferred on the Company's books and
records, and no transfer of Shares shall be otherwise effective, unless any such
transfer is made in accordance with the terms and conditions of this Agreement,
and the Company is hereby authorized by the parties to this Agreement to enter
appropriate stop transfer notations on its transfer records to give effect to
this Agreement.
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Section 15. Additional Stockholders.
Any person or entity (i) acquiring Series A Preferred Shares
from a Stockholder at any time, or (ii) acquiring Common Stock from any
Management Stockholder during the Restricted Period, shall on or before the
transfer of any such Shares, sign the signature page attached hereto as Annex A
and shall thereby become a party to this Agreement (each, an "Additional
Stockholder"); provided, however, that any person or entity that at any time
acquires (together with any Affiliates thereof) from any Management Stockholder,
directly or indirectly, a number of Shares which is less than five percent (5%)
of the aggregate number of Shares held by such transferring Management
Stockholder on the date hereof, shall not be required to become a party hereto.
Every person becoming a party to this Agreement by virtue of acquiring Shares
from a Stockholder, shall be bound by this Agreement and shall hold such Shares
with all rights conferred, and subject to all the obligations and restrictions
imposed, hereunder.
Section 16. After-Acquired Shares.
The terms and provisions of this Agreement shall apply to all
of the Shares of the Company now owned or which may be issued hereafter to the
parties to this Agreement in consequence of any additional issuance, purchase,
exercise of any options or other rights (including without limitation the
Warrants), conversion of any debentures or other securities, exchange or
reclassification of shares, corporate reorganization, any other form of
recapitalization, consolidation or merger or any share split-up, share dividend
or distribution or which are acquired by the parties to this Agreement or in any
manner whatsoever.
Section 17. Notices.
Except as otherwise provided herein, all notices, requests,
demands, consents and other communications hereunder shall be in writing and
shall be delivered personally, sent by reputable express courier service
(charges prepaid) or sent by registered or certified mail, return receipt
requested, postage prepaid and shall be deemed to have been given when so
delivered, sent or deposited in the U.S. Mail (i) to Swiss Re, at 237 Park
Avenue, New York, New York, 10017, Attention: Thomas L. Forsyth, Senior Vice
President and General Counsel, or at such other address as Swiss Re may
otherwise indicate in a written notice delivered to the Company; (ii) Reliance
Insurance Company, c/o Reliance Group Holdings, Inc., Park Avenue Plaza, 55 East
52nd Street, New York, New York 10055, Attention: Treasurer, and with a copy to
Reliance Group Holdings, Inc., Park Avenue Plaza, 55 East 52nd Street, New York,
New York 10055, Attention: General Counsel, with a copy to Reliance Reinsurance
Corp., 4 Penn Center Plaza, Philadelphia, Pennsylvania 19103, Attention:
President, or at such other address as Reliance may otherwise indicate in a
written notice delivered to the Company; (iii) if to any other holder of Shares
at the holder's address set forth in the records of the Company or at such other
address as the holder thereof may otherwise indicate in a written notice
delivered to the Company; or (iv) if to the Company, at Three South Revmont
Drive, Shrewsbury, New Jersey
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07702, Attention: Eric A. Reehl, or at such other address as the Company may
otherwise indicate in a written notice delivered to the holders.
Section 18. No Waiver.
No course of dealing and no delay on the part of any party
hereto in exercising any right, power or remedy conferred by this Agreement
shall operate as a waiver thereof or otherwise prejudice such party's rights,
powers and remedies. No single or partial exercise of any rights, powers or
remedies conferred by this Agreement shall preclude any other or further
exercise thereof or the exercise of any other right, power or remedy.
Section 19. Binding Effect; Assignability.
This Agreement shall be binding upon and, except as otherwise
provided herein, shall inure to the benefit of the respective parties and their
permitted successors and assigns. This Agreement shall not be assignable, except
as otherwise provided herein.
Section 20. No Election of Remedies.
No provision of, or any rights granted or remedies available
under, this Agreement, the Purchase Agreement, the Certificate of Designations,
the Registration Rights Agreement or any other agreements, shall limit the
availability of any other right or remedy for the breach or violation of any of
the provisions contained in this Agreement or any such other agreements or
documents.
Section 21. Severability.
Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. To the extent permitted by applicable law, the parties
hereby waive any provision of law which renders any provision hereof prohibited
or unenforceable in any respect.
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Section 22. Modification.
No term or provision of this Agreement may be amended, waived,
modified or terminated except by an instrument in writing executed by the
Company and by each of the parties hereto (including any person which may
hereafter become a party to this Agreement).
Section 23. Governing Law.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York (other than any conflicts of
law rules which might result in the application of the laws of any other
jurisdiction), except to the extent that the General Corporation Law of the
State of Delaware applies as a result of the Company being incorporated in the
State of Delaware, in which case such General Corporation Law shall apply.
Section 24. Consent to Jurisdiction and Service of Process.
EACH OF THE PARTIES HERETO CONSENTS TO THE JURISDICTION OF ANY
STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK
OR WITHIN THE STATE OF DELAWARE AND IRREVOCABLY AGREES THAT ALL ACTIONS OR
PROCEEDINGS RELATING TO THIS AGREEMENT MAY BE LITIGATED IN SUCH COURTS. EACH OF
THE PARTIES HERETO ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO
BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT.
EACH OF THE PARTIES HERETO FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING
BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE
PREPAID, TO THE PARTY AT THE ADDRESS SPECIFIED IN THIS AGREEMENT, SUCH SERVICE
TO BECOME EFFECTIVE FIFTEEN (15) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL
IN ANY WAY BE DEEMED TO LIMIT THE ABILITY OF ANY PARTY HERETO TO SERVE ANY SUCH
LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS IN ANY OTHER MANNER PERMITTED BY
APPLICABLE LAW OR TO OBTAIN JURISDICTION OVER OR TO BRING ACTIONS, SUITS OR
PROCEEDINGS AGAINST ANY OF THE OTHER PARTIES HERETO IN SUCH OTHER JURISDICTIONS,
AND IN SUCH MANNER, AS MAY BE PERMITTED BY ANY APPLICABLE LAW.
Section 25. Waiver of Jury Trial.
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EACH OF THE COMPANY AND THE MANAGEMENT STOCKHOLDERS HEREBY
WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS AGREEMENT, OR ARISING OUT OF THIS AGREEMENT.
EACH OF THE COMPANY AND THE MANAGEMENT STOCKHOLDERS ALSO WAIVES ANY BOND OR
SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED
OF ANY PARTY HERETO. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING
OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE
SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS. EACH OF THE COMPANY AND THE MANAGEMENT STOCKHOLDERS FURTHER WARRANTS AND
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO
A TRIAL BY THE COURT.
Section 26. Counterparts.
This Agreement may be executed in one or more counterparts
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument, and all signatures need not appear on
any one counterpart.
Section 27. Headings.
All headings and captions in this Agreement are for purposes
of reference only and shall not be construed to limit or affect the substance of
this Agreement.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
HOME STATE HOLDINGS, INC.
By: /s/ Mark Vaughn
--------------------------------
Name: Mark Vaughn
Title: Acting President
SWISS REINSURANCE AMERICA
CORPORATION
By: /s/ Thomas L. Forsyth
--------------------------------
Name: Thomas L. Forsyth
Title: Senior Vice President
and General Counsel
RELIANCE INSURANCE COMPANY
By: /s/ Albert A. Benchimol
--------------------------------
Name: Albert A. Benchimol
Title: Vice President
[SIGNATURE PAGE FOR STOCKHOLDERS' AGREEMENT]
<PAGE> 19
/s/ Michael H. Monier
------------------------------
Michael H. Monier
/s/ Edward D. Herrick
------------------------------
Edward D. Herrick
HERRICK PARTNERS, L.P.
By: /s/ EDWARD D. HERRICK
----------------------
Edward D. Herrick,
General Partner
[SIGNATURE PAGE FOR STOCKHOLDERS' AGREEMENT]
<PAGE> 20
ANNEX A
Signature Page for Additional Stockholders
<PAGE> 21
SCHEDULE A
<TABLE>
<CAPTION>
Number of Shares of Number of Number of Series A
Name Common Stock Class A Warrants Preferred Shares
---- -------------- ---------------- -----------------
<S> <C> <C> <C>
Swiss Reinsurance 0 700,000 5,000
America Corporation
Reliance Insurance 0 700,000 5,000
Company
Edward D. Herrick 0 0 0
Herrick Partners, 561,725 0 0
L.P.
Michael H. Monier 548,200 0 0
-------------- ---------------- -----------------
TOTAL 1,109,925 1,400,000 10,000
============== ================ =================
</TABLE>
<PAGE> 22
Exhibit 1
CERTIFICATE OF INCORPORATION
<PAGE> 23
Exhibit 2
BY-LAWS
<PAGE> 1
Exhibit 4
REGISTRATION RIGHTS AGREEMENT, dated as of October 4, 1996, among Home
State Holdings, Inc., a Delaware corporation (the "Company"), Swiss Reinsurance
America Corporation , a New York corporation ("Swiss Re") and Reliance Insurance
Company, a Pennsylvania corporation ("Reliance"). Capitalized terms used but not
otherwise defined herein shall have the meanings assigned to such terms in the
Purchase Agreement dated the date hereof, among the Company and the purchasers
named therein (as from time to time assigned, supplemented or amended or as the
terms thereof may be waived, the "Purchase Agreement").
W I T N E S S E T H:
WHEREAS, pursuant to the Purchase Agreement certain purchasers are
investing in Preferred Shares and Warrants (exercisable for shares of Common
Stock) of the Company, all on the terms and subject to the conditions therein
set forth; and
WHEREAS, the Purchase Agreement contemplates the execution and delivery
of this Agreement contemporaneously therewith;
NOW, THEREFORE, in connection with the Purchase Agreement and for the
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereby agree as follows:
Section 1. Definitions.
As used in this Agreement, the following terms shall have the
following meanings:
"Commission" means the Securities and Exchange Commission and
any other successor agency of the federal government administering the
Securities Act or the Exchange Act.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar successor federal statute, and the rules, regulations
and interpretations of the Commission thereunder, all as the same shall be in
effect at the time.
"Existing Holder Demand" has the meaning set forth in Section
2.1(b) hereof.
"Existing Registration Rights" means the registration rights
granted under the Existing Registration Rights Agreement.
<PAGE> 2
"Existing Registration Rights Agreement" means the
Registration Rights Agreement dated as of October 3, 1994, as from time to time
assigned, supplemented or amended or as the terms thereof may be waived, among
the Company and the Investors named therein.
"Future Holders" means the Holder or Holders of Future Holder
Securities.
"Future Holder Demand" has the meaning set forth in Section
2.1(b) hereof.
"Future Holder Securities" means at any time, (i) the shares
of Common Stock obtainable upon exercise of each Future Holder Warrant and (ii)
the shares of Common Stock outstanding from any previous exercise of a Future
Holder Warrant.
"Future Holder Warrants" means the Warrants issued as
permitted by Section 11.2 of the Purchase Agreement, as such Warrants may be
assigned or transferred from time to time.
"Holder" means any person owning or having the right to
acquire Registrable Securities or Warrants (each as defined herein) or any
assignee or transferee thereof in accordance with the provisions of the Purchase
Agreement, the Warrants and the Stockholders' Agreement, as the case may be.
"Person" or "person" means an individual, corporation,
partnership, association, joint venture, trust or unincorporated organization,
or a government, governmental body, court, or any agency or political
subdivision thereof.
"Register", "registered" or "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document.
"Registrable Securities" means collectively, the Swiss Re
Registrable Securities and the Reliance Registrable Securities.
"Registration Demand" shall mean a written notice (i) from one
(1) or more Swiss Re Holders stating that the Holder or Holders of a majority of
the Swiss Re Registrable Securities desire to sell all or part of such Swiss Re
Registrable Securities under circumstances requiring registration under the
Securities Act and requesting that the Company effect registration with respect
to such Registrable Securities or (ii) from one (1) or more Reliance Holders
stating that the Holder or Holders of at least a majority of the Reliance
Registrable Securities desire to sell such Reliance Registrable Securities under
circumstances requiring registration under the Securities Act and requesting
that the Company effect registration with respect to such Registrable
Securities.
- 2 -
<PAGE> 3
"Reliance Holders" means the Holder or Holders of Reliance
Registrable Securities.
"Reliance Registrable Securities" means at any time, (i) the
shares of Common Stock obtainable upon exercise of the Reliance Warrants and
(ii) the shares of Common Stock outstanding from any previous exercise of the
Reliance Warrants.
"Reliance Warrants" means the Warrants issued to Reliance
pursuant to the Purchase Agreement, as such Warrants may be assigned or
transferred from time to time.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar successor federal statute, and the rules, regulations and
interpretations of the Commission thereunder, all as the same shall be in effect
at the time.
"Swiss Re Holders" means the Holder or Holders of Swiss Re
Registrable Securities.
"Swiss Re Registrable Securities" means, at any time, (i) the
shares of Common Stock obtainable upon exercise of the Swiss Re Warrants and
(ii) the shares of Common Stock outstanding from any previous exercise of the
Swiss Re Warrants.
"Swiss Re Warrants" means the Warrants issued to Swiss Re
pursuant to the Purchase Agreement (including pursuant to Section 11.1 thereof)
, as such Warrants may be assigned or transferred from time to time.
"Warrants" means the Class A Warrants issued to Swiss Re and
Reliance pursuant to the Purchase Agreement, as such Warrants may be assigned or
transferred from time to time.
Section 2. Registration Rights.
2.1 Demand Registration Rights.
(a) At any time after October 4, 1996 and on or before October
4, 2006, the Swiss Re Holders holding a majority of the Swiss Re Registrable
Securities or the Reliance Holders holding a majority of the Reliance
Registrable Securities may make a Registration Demand requesting registration
under the Securities Act of all or part of their Registrable Securities. The
Company shall use its best efforts to cause the Registrable Securities as to
which registration is requested in the Registration Demand to be promptly
registered under the Securities Act (and in any event, such registration shall
be effected within one hundred and eighty (180) days following receipt of a
Registration Demand). Within ten (10) days after receipt of any such
Registration Demand, the Company shall give written notice of the proposed
registration to all other Holders of Registrable Securities. All Holders of
Registrable Securities
- 3 -
<PAGE> 4
shall have the option, subject to the provisions of Section 2.5(b), to have all
or part of their Registrable Securities included in any registration under this
Section 2.1. Any Holder may exercise such option by delivering written notice of
exercise to the Company within thirty (30) days after receiving notice from the
Company of the proposed registration. Any such notice to the Company shall
specify the number of Registrable Securities to be included in such registration
and the Company, subject to the provisions of Section 2.5(b), shall be obligated
to include such Registrable Securities in any such registration.
(b) In the event of a Registration Demand by either the Swiss
Re Holders or the Reliance Holders, or in the event of a request for
registration by the holders of Existing Registration Rights pursuant to Section
2 of the Existing Registration Rights Agreement (an "Existing Holder Demand"),
or in the event of a registration demand made by any Future Holder pursuant to a
future registration rights agreement permitted under the Purchase Agreement, (a
"Future Holder Demand"), any subsequent Registration Demand, Existing Holder
Demand or Future Holder Demand received by the Company within thirty (30) days
after the initial Registration Demand, Existing Holder Demand or Future Holder
Demand, as the case may be, shall be treated (together with the initial
Registration Demand, Existing Holder Demand or Future Holder Demand, as the case
may be) as one (1) Registration Demand (a "Collective Demand") and the Company
shall be required to effect only one (1) registration statement with respect to
the securities subject to the Collective Demand. In the event of a Collective
Demand, each of the Swiss Re Holders and the Reliance Holders shall be deemed to
have made a Registration Demand (subject to Section 2.2 hereof).
2.2 Number of Demand Registrations. Subject to the terms and
conditions hereof, the Swiss Re Holders shall be entitled to request (and the
Company shall be required to effect) up to two (2) registrations under the
Securities Act of all or part of the Swiss Re Registrable Securities and the
Reliance Holders shall be entitled to request (and the Company shall be required
to effect) up to two (2) registrations under the Securities Act of all or part
of the Reliance Registrable Securities. For purposes hereof, if (i) the Company
withdraws a registration statement prior to the effectiveness thereof, (ii) the
sale of securities subject to a registration statement filed pursuant to any
Registration Demand is not consummated because of the failure of the Company to
comply with the terms of this Agreement, (iii) upon the consummation of a sale
of securities subject to a registration statement filed pursuant to any
Registration Demand, less than eighty percent (80%) of the securities registered
for sale or requested to be registered for sale thereunder are sold, or (iv) a
revocation notice has been delivered and expenses of the Company have been paid
as provided in Section 2.3 hereof, such registration statement shall not be
counted as one of the registrations to which such Holders are entitled under
this Section 2.2.
2.3 Right of Holders to Revoke Registration Demand. After the
delivery of a Registration Demand under this Section 2, at any time prior to the
effective date of the registration relating to such Registration Demand, the
Holder or Holders making such Registration Demand may revoke such request by
providing written notice of such revocation to
- 4 -
<PAGE> 5
the Company. Any such revocation shall count as one (1) of the registrations to
which such revoking Holder or Holders are entitled under Section 2.2 hereof
unless the revoking Holder or Holders pay all of the Company's out-of-pocket
expenses with respect to such registration and qualification incurred to the
date of the revocation notice. In any such event, the registration statement
initiated by the revoked Registration Demand need not be filed.
2.4 Right of Company to Delay or Postpone Registration. The
Company may delay or postpone the registration of Registrable Securities
following a Registration Demand for a period of not more than one hundred and
twenty (120) days after receipt of such Registration Demand if the Company
furnishes to each Holder of Registrable Securities to be included in the
applicable registration a copy of a resolution of the Board of Directors
certified by the Secretary of the Company stating that (i) the Company is in
possession of material non-public information which, in the good faith judgment
of the Board of Directors, it considers prudent not to disclose in a
registration statement, or (ii) such registration would, in the good faith
judgment of the Board of Directors, adversely affect a material pending third
party financing, reorganization, recapitalization, merger, consolidation or
similar transaction, or (iii) such registration would, in the good faith
judgment of the Board of Directors, have a Material Adverse Effect on the
Company's business or financial condition and, in each case, stating the basis
of such good faith judgment; provided, however, that the Company during such
delay or postponement may not file a registration statement for securities to be
issued and sold for its own account or that of anyone other than the Holders.
2.5 Underwriter's Clawback.
(a) The Company may propose including Common Stock to be
publicly offered and sold by it in any registration statement to be filed
pursuant to a Registration Demand under this Section 2. The holders of Existing
Registration Rights may propose including Common Stock to be publicly offered
and sold by the Company in any registration statement to be filed pursuant to a
Registration Demand under this Section 2. If, in the written opinion of
underwriters selected (pursuant to Section 2.6 hereof) for the proposed
offering, the inclusion of all of the securities proposed to be offered and sold
in connection with a Registration Demand (or a Collective Demand, as the case
may be) would jeopardize the success of the offering, then the number of shares
to be registered shall be allocated (i) first, pro rata among the Holders making
such Registration Demand, or, if applicable, pro rata among the parties making a
Collective Demand; (ii) second, to the extent that the underwriters have
determined that additional shares may be registered, pro rata among the holders
of Existing Registration Rights exercising their piggyback rights under Section
3 of the Existing Registration Rights Agreement, the Holders exercising
piggyback rights pursuant to Section 3 hereof and any Future Holders exercising
piggyback rights pursuant to any future registration rights agreement permitted
under the Purchase Agreement; and (iii) third, to the Company and all other
holders of piggyback rights. To the extent clawbacks are made on the number of
shares proposed to be registered by the Holder or Holders making such
Registration Demand, such Holder or Holders may elect to convert their proposed
offering to an offering pursuant to Section 3 hereof. If the selling Holder
- 5 -
<PAGE> 6
or Holders elect to convert the offering pursuant to this Section 2.5(a), the
number of registrations to which such Holders are entitled under Section 2.2
hereof shall not be reduced as a result of the participation by such Holders in
such offering.
2.6 Selection of Underwriters. The managing underwriter and
all other underwriters participating in any underwritten public offering covered
by a Registration Demand shall be selected by the Holders of a majority of the
shares of Registrable Stock that participate in such registration, subject to
the approval of the Board of Directors of the Company, which shall not be
unreasonably withheld.
Section 3. Piggyback Registrations.
3.1 Piggyback Registration. If at any time or from time to
time, the Company shall propose to register any Common Stock (or any warrants,
units, convertibles, rights or other securities related or linked to any shares
of the Common Stock) for public sale under the Securities Act, whether pursuant
to an Existing Holder Demand, a Future Holder Demand or otherwise, then the
Company shall give prompt written notice to all Holders of the proposed
registration (but in no event shall such notice be given later than forty-five
(45) days before any such registration is filed with the Commission). If any
Holders so request within thirty (30) days after receipt of such notice, the
Company, subject to the provisions of Section 3.3, shall include in such
registration the Registrable Securities held or to be held by such Holders and
requested to be included in such registration.
3.2 Right of Company to Withdraw Registration. The Company may
at any time prior to the effectiveness of any such registration statement, in
its sole discretion and following notice to any Holder that has, or may, elect
to participate in such registration, abandon the proposed offering. In the event
of any such abandonment, the Company shall bear all reasonable expenses incurred
by such Holder in connection with such withdrawn registration statement.
3.3 Underwriter's Clawback. Notwithstanding anything contained
in Sections 3.1 and 3.2 hereof, the Company shall not be obligated to include
such Registrable Securities in such offering if the Company is advised in
writing by the managing underwriter or underwriters of such offering (with a
copy to each Holder) that such offering would in its or their good faith
judgment be materially adversely affected by such inclusion, in which case
Holders shall be entitled to participate in any such reduced number of
Registrable Securities (if any) which may be included in such registration in
proportion to their relative holdings of Registrable Securities. Notwithstanding
the foregoing, any such clawback shall be imposed pro rata on the Holders
exercising piggyback rights, the Future Holders exercising piggyback rights and
the holders of Existing Registration Rights exercising piggyback rights under
the Existing Registration Rights Agreement (to the extent such rights are
exercised).
- 6 -
<PAGE> 7
Section 4. Registration on Form S-3.
4.1 Form S-3 Registration Rights. In addition to the rights
provided the Holders of Registrable Securities in Sections 2 and 3 above, if the
registration of Registrable Securities under the Securities Act can be effected
on Form S-3 (or any similar form promulgated by the Commission), the Company
will at any time, and from time to time, thereafter, as expeditiously as
possible, but not more than once in any six-month period, use its best efforts
to effect qualification and registration under the Securities Act on said Form
S-3 of all or such portion of the Registrable Securities as the Holder or
Holders shall specify.
4.2 Right of Company to Delay or Postpone Registration. The
Company may delay or postpone the registration of Registrable Securities under
this Section 4 for a period of not more than one hundred and twenty (120) days
after receipt of a request for such registration if the Company furnishes to
each Holder of Registrable Securities to be included in the applicable
registration a copy of a resolution of the Board of Directors certified by the
Secretary of the Company stating that (i) the Company is in possession of
material non-public information which, in the good faith judgment of the Board
of Directors, it considers prudent not to disclose in a registration statement,
or (ii) such registration would, in the good faith judgment of the Board of
Directors, adversely affect a material pending third party financing,
reorganization, recapitalization, merger, consolidation or similar transaction,
or (iii) such registration would, in the good faith judgment of the Board of
Directors, have a Material Adverse Effect on the Company's business or financial
condition and, in each case, stating the basis of such good faith judgment;
provided, however, that the Company during such delay or postponement may not
file a registration statement for securities to be issued and sold for its own
account or that of anyone other than the Holders.
Section 5. Expenses. Subject to the limitations contained in this
Section 5 and except as otherwise specifically provided in this Agreement, the
entire costs and expenses of the registrations and qualifications pursuant to
this Agreement shall be borne by the Company. Such costs and expenses shall
include, without limitation, (i) the fees and expenses of counsel for the
Company and of its accountants, (ii) all other costs, fees and expenses of the
Company incident to the preparation, printing and filing under the Securities
Act of the registration statement and all amendments and supplements thereto,
(iii) the cost of furnishing copies of each preliminary prospectus, each final
prospectus and each amendment or supplement thereto to underwriters, dealers and
other purchasers of the Registrable Securities, (iv) the costs and expenses
(including fees and disbursements of counsel) incurred in connection with the
qualification of the Registrable Securities under the securities or Blue Sky
laws of various jurisdictions, and (v) the reasonable fees and expenses of
counsel for each of the Swiss Re Holders and the Reliance Holders in connection
with each registration of their Registrable Securities.
Section 6. Obligations of the Company. Without limiting any other
provision hereof, in connection with any registration of Registrable Securities
pursuant to Section 2, 3 or 4 hereof, the Company shall (i) use its best efforts
to prepare and file with the Commission as soon as
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<PAGE> 8
reasonably practicable, a registration statement with respect to the shares
required to be so registered; (ii) use its best efforts to register and qualify
the shares covered by such registration statement under the securities or Blue
Sky Laws of such jurisdictions as any Holder may reasonably request; (iii) take
such other actions as are reasonable and necessary to comply with the
requirements of the Securities Act, the Exchange Act, and all applicable rules
and regulations promulgated thereunder; (iv) obtain the withdrawal of any order
suspending the effectiveness of the registration statement at the earliest
possible time; and (v) provide a transfer agent and registrar for the
Registrable Securities not later than the effective date of any registration
statement.
Section 7. Procedures.
(a) In the case of each registration or qualification pursuant
to this Agreement, the Company will keep all Holders advised in writing as to
the initiation of proceedings for such registration and qualification and as to
the completion thereof, and will advise any such Holder, upon request, of the
progress of such proceedings.
(b) The Company will use its best efforts, at the Company's
sole expense, to keep each registration and qualification under this Agreement
effective (and in compliance with the Securities Act) by such action as may be
necessary or appropriate for a period of one hundred twenty (120) days after the
effective date of such registration statement, including, without limitation,
the filing of post-effective amendments and supplements to any registration
statement or prospectus necessary to keep the registration statement current and
the further qualification under any applicable Blue Sky or other state
securities laws to permit such sale or distribution, all as requested by the
Holder or Holders.
(c) The Company shall immediately notify each Holder on whose
behalf Registrable Securities have been registered pursuant to this Agreement,
at any time when a prospectus relating thereto is required to be delivered under
the Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement (including any preliminary
prospectus), as then in effect, includes an untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the circumstances then
existing.
(d) The Company will furnish to each Holder on whose behalf
Registrable Securities have been registered pursuant to this Agreement a signed
counterpart, addressed to such Holder, of (i) an opinion of counsel for the
Company, dated the effective date of such registration statement, and (ii) a
so-called "cold comfort" letter signed by the independent public accountants
certifying the Company's financial statements included in such registration
statement, and such opinion of counsel and accountants' letter shall cover
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel
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<PAGE> 9
and in accountants' letters delivered to underwriters in connection with
underwritten public offerings of securities.
(e) Without limiting any other provision hereof, in connection
with any registration of Registrable Securities under this Agreement, the
Company will comply with the Securities Act, the Exchange Act, all applicable
rules and regulations of the Commission, and all other applicable laws and will
make generally available to its securities holders, as soon as reasonably
practicable, an earnings statement covering a period of at least twelve (12)
months, beginning with the first month of the first fiscal quarter after the
effective date of such registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act.
(f) In connection with any registration of Registrable
Securities under this Agreement, the Company will, if requested by underwriters
for any Registrable Securities included in such registration, enter into an
underwriting agreement with such underwriters for such offering, such agreement
to contain such representations and warranties by the Company and such other
terms and provisions as are customarily contained in underwriting agreements
with respect to secondary distributions, including, without limitation,
provisions relating to indemnification. The Holders on whose behalf Registrable
Securities are to be distributed by such underwriters shall be parties to any
such underwriting agreement, and the representations and warranties by, and the
other agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such Holders. Such
underwriting agreement shall also comply with Section 9 hereof.
(g) If the Company at any time proposes to register any of its
securities under the Securities Act, other than pursuant to a request made under
Section 2 hereof, whether or not for sale for its own account, and such
securities are to be distributed by or through one or more underwriters, then
the Company will use its best efforts, if requested by any Holder requesting
registration of Registrable Securities in connection therewith pursuant to
Section 3 or 4 hereof, to arrange for such underwriters to include such
Registrable Securities among the securities to be distributed by or through such
underwriters.
(h) In connection with the preparation and filing of each
registration statement registering Registrable Securities, the Company will give
any Holders on whose behalf such Registrable Securities are to be so registered,
any underwriters participating in any such disposition of Registrable Securities
and their respective counsel and accountants, the opportunity to participate in
the preparation of such registration statement, each prospectus included therein
or filed with the Commission, and each amendment thereof or supplement thereto,
and will give each of them such access to its books and records and such
opportunities to discuss the business of the Company with its officers, its
counsel and the independent public accountants who have certified its financial
statements, as shall be necessary, in the opinion of such Holders or such
underwriters or their respective counsel, in order to conduct a reasonable and
diligent investigation within the meaning of the Securities Act. Without
limiting the
- 9 -
<PAGE> 10
foregoing, each registration statement, prospectus, amendment, supplement or any
other document filed with respect to a registration under this Agreement shall
be subject to review and reasonable approval by the Holders registering
Registrable Securities in such registration and by their counsel.
Section 8. Furnishing of Documents. The Company will, at its sole
expense, furnish to each holder with respect to which registration has been
effected, such number of registration statements, prospectuses, offering
circulars and other documents incident to any registration or qualification
referred to in this Agreement as any such Holder from time to time may
reasonably request.
Section 9. Indemnification of Holders.
(a) Subject to the conditions set forth below, in connection
with any registration of Registrable Securities pursuant hereto, the Company
agrees to indemnify and hold harmless each Holder and any underwriters, selling
brokers, dealer managers and similar securities industry professionals
participating in a distribution covered by a registration statement, their
respective officers, directors and affiliates (collectively, the "Indemnitees"):
(i) against any and all losses, claims,
damages or liabilities, joint or several, and expenses
whatsoever arising out of or based upon (including, but not
limited to, any and all expense whatsoever reasonably incurred
by any of the Indemnities in investigating, preparing or
defending any litigation, commenced or threatened, or any
claim whatsoever based upon or arising out of) (A) any untrue
or alleged untrue statement of a material fact contained in
any preliminary prospectus, or any amendment or supplement
thereto, the registration statement or the prospectus (each as
from time to time amended and supplemented), or in any
application or other document executed by the Company or based
upon written information furnished by the Company filed in any
jurisdiction in order to qualify the Common Stock under the
securities laws thereof or otherwise incident to the
registration or the qualification of the Common Stock under
the Securities Act or any state securities laws applicable to
the Company; or (B) the omission or alleged omission from any
item referred to in the preceding clause of a material fact
required to be stated therein or necessary to make the
statements therein not misleading; or (C) any other violation
or alleged violation of applicable federal or state law, rule
or regulation relating to action or inaction by the Company in
connection with any such registration or qualification;
provided, however, that with respect to an Indemnitee, the
indemnity agreement contained herein shall not apply to any
loss, claim, damage, liability or action of or involving such
Indemnitee arising out of or based upon any untrue or alleged
untrue statement or omission made in reliance upon and in
conformity with any information furnished in writing to the
Company by such Indemnitee expressly for use therein;
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<PAGE> 11
(ii) subject to the proviso contained in
subsection (i) above, against any and all losses, claims,
damages and liabilities, joint or several, and expenses
whatsoever to the extent of the aggregate amount paid in
settlement of any litigation, commenced or threatened, or of
any claim whatsoever based upon any such untrue statement or
omission or any such alleged untrue statement or omission
(including, but not limited to, any and all expenses
whatsoever reasonably incurred by the Indemnitees or their
respective counsel in investigating, preparing or defending
against any such litigation or claim) if such settlement is
effected with the written consent of the Company which consent
shall not be unreasonably withheld.
(b) The Company will enter into an underwriting agreement and
other agreements with the underwriter or underwriters for any offering
registered under the Securities Act pursuant to this Agreement and with the
Holders selling Registrable Securities pursuant to such offering, and such
underwriting agreement and other agreements shall contain customary provisions
with respect to indemnification which shall, at a minimum, provide the
indemnification set forth above.
(c) The procedure for indemnification by the Company under
this Section 9 shall be as follows:
(i) if any action or proceeding (including
any governmental investigation or inquiry) shall be brought or
asserted against an Indemnitee in respect of which indemnity
may be sought from the Company, such Indemnitee shall promptly
notify the Company in writing, and the Company shall be
entitled to assume the defense thereof, including the
employment of counsel reasonably satisfactory to such
Indemnitee and the payment of all reasonable expenses related
thereto (including those of such counsel), by delivering
written notice of its election to do so within fifteen (15)
days following receipt of notice from such Indemnitee;
provided that the failure of the Indemnitee to give the
Company prompt notice as provided herein shall not relieve the
Company of its indemnification obligations hereunder except to
the extent, if any, the Company shall have been prejudiced
thereby.
(ii) such Indemnitee shall have the right to
employ separate counsel in any such action and to participate
in the defense thereof, but the fees and expenses of such
separate counsel shall be the expense of such Indemnitee
unless (A) the Company has agreed to pay such fees and
expenses, or (B) the Company has failed to assume the defense
of such action or proceeding by delivering the notice referred
to in subsection (i) hereof or (C) the Company has failed to
employ counsel reasonably satisfactory to the Indemnitee
within ten (10) days after the Company has elected to assume
the defense of such action pursuant to subsection (i) hereof,
or if such counsel has been employed by the Company, at
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<PAGE> 12
any time after such employment, such counsel ceases (in the
reasonable judgment of the Indemnitee) to be reasonably
satisfactory, or (D) the named parties to any such action or
proceeding (including any impleaded parties) include both such
Indemnitee and the Company, and such Indemnitee shall have
been advised by counsel that there may be one or more legal
defenses available to such Indemnitee that are different from
or additional to those available to the Company creating a
conflict of interest on the part of such counsel to represent
both parties; and
(iii) if such Indemnitee notifies the
Company in writing that it elects to employ separate counsel
at the expense of the Company as permitted by the provisions
of the preceding subsection (ii), the Company shall not have
the right to assume the defense of such action or proceeding
on behalf of such Indemnitee. The foregoing notwithstanding,
the Company shall not be liable for the reasonable fees and
expenses of more than one (1) separate firm of attorneys at
any time for such Indemnitee and any other Indemnitee (which
firm shall be designated in writing by such Indemnitee) in
connection with any one such action or proceeding or separate
but substantially similar or related actions or proceedings in
the same jurisdiction arising out of the same general
allegations or circumstances.
Section 10. Indemnification of the Company.
Each Holder, in any registered offering pursuant hereto, agrees to
indemnify and hold harmless the Company, its officers and directors and agents
and each other person, if any, who controls the Company within the meaning of
Section 15 of the Securities Act against any and all losses, liabilities,
claims, damages and expenses of the kind indemnified against by the Company
under Section 9 above based upon statements or omissions or alleged statements
or omissions, if any, made in any preliminary prospectus, the registration
statement or prospectus or any amendment or supplement thereof or any
application or other document in reliance upon, and in conformity with, written
information furnished by such Holder to the Company expressly for use in any
preliminary prospectus, the registration statement or prospectus or any
amendment or supplement thereof or in any such application or other document. In
no event, however, shall the liability hereunder of any Holder be greater than
the dollar amount of the proceeds received by such Holder upon sale of its
Registrable Securities in the offering giving rise to such indemnification
obligation. In case any action shall be brought against the Company, or any
other person so indemnified, in respect of which indemnity may be sought against
any Holder, such Holder shall have the rights and duties given to the Company,
and each person so indemnified shall have the rights and duties given to such
Holder, by the provisions of Section 9 above and the procedure for
indemnification shall be as provided for in Section 9.
Section 11. Reports Under Exchange Act . With a view to making
available to each Holder the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the Commission that may at
any time permit the Holder to sell securities of the
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<PAGE> 13
Company to the public without registration or pursuant to a registration with
the information required to be disclosed on Form S-3, the Company agrees to use
its best efforts to satisfy the requirements of all such rules and regulations
(including the requirements for public information, registration under the
Exchange Act and timely reporting to the Commission) at the earliest possible
date after their first registered public offering. The Company shall (whether or
not it shall then be required to do so) timely file such information, documents
and reports as the Commission may require or prescribe under Section 13 or 15(d)
(whichever is applicable) of the Exchange Act, for so long as the Company is
subject to the reporting requirements of either Section 13 or 15(d) of the
Exchange Act. The Company shall forthwith upon request furnish any Holder of
applicable Registrable Securities (i) a written statement by the Company that it
has complied with such reporting requirements, (ii) a copy of the most recent
annual or quarterly report of the Company and (iii) such other reports and
documents field by the Company with the Commission as such Holder may reasonably
request.
Section 12. Obligations of Holders. It shall be a condition precedent
to the obligation of the Company to register any Registrable Securities pursuant
hereto that each Holder shall (i) furnish to the Company such information
regarding the Registrable Securities and the intended method of disposition
thereof and other information concerning such Holder as the Company shall
reasonably request and as shall be required in connection with the registration
statement to be filed by the Company, and (ii) agree to abide by such additional
customary terms affecting the proposed offering as may be reasonably requested
by the managing underwriter of such offering.
Section 13. Certain Limitations in Connection with Future Grants of
Registration Rights.
(a) From and after the date of this Agreement, except with
respect to the agreements with Future Holders which are permitted under the
Purchase Agreement, the Company shall not enter into any agreement with any
holder or prospective holder of any of its Common Stock providing for the
granting to such holder of demand registration rights unless such agreement
includes provisions to the effect that (i) the Company will give each Holder
notice at least thirty (30) days prior to the filing of a registration statement
pursuant to the exercise of such rights and (ii) if any Holder requests
inclusion of Registrable Securities in such registration statement within thirty
(30) days after receipt of such notice, then such Holder's Registrable
Securities requested to be so included will be given priority over the
securities sought to be registered by the holders of such demand registration
rights if marketing factors require a limitation on the number of securities to
be included in such registration statement.
(b) From and after the date of this Agreement, the Company
shall not enter into any agreement with any holder or prospective holder of any
of its Common Stock providing for the granting to such holder of incidental or
"piggyback" registration rights unless such agreement includes provisions to the
effect that, in the case of a registered underwritten public offering of the
Common Stock to which Section 3 hereof applies, such agreement gives
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<PAGE> 14
priority to the Holders of Registrable Securities requested to be so included if
marketing factors require a limitation on the number of shares of Common Stock
to be included in such offering.
Section 14. Suspension of Sales. Upon receipt of written notice from
the Company that a registration statement, preliminary prospectus or prospectus
contains an untrue statement of a material fact or an omission to state a
material fact required to be stated in a registration statement or prospectus or
necessary to make the statements in a registration statement, prospectus or
preliminary prospectus not misleading, each Holder shall forthwith discontinue
disposition of Registrable Securities until such Holder has received copies of
the supplemented or amended prospectus, or until such Holder is advised in
writing by the registrant that the use of the prospectus may be resumed, and, if
so directed by the registrant, such Holder shall deliver to the registrant (at
the registrant's expense) all copies, other than permanent file copies then in
such Holder's possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice.
Section 15. Holdback. Except for transfers made in transactions exempt
from the registration requirements under the Securities Act pursuant to Section
4(2) thereof or pursuant to Rule 144A, upon the written request of the managing
underwriter of any underwritten offering of the Common Stock, neither the
Company nor any Holder shall sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Common Stock (other than
those included in such registration) without the prior written consent of such
managing underwriter for a period (not to exceed thirty (30) days before the
effective date and ninety (90) days thereafter) that such managing underwriter
reasonably determines is necessary in order to effect the underwritten public
offering. In addition, the Company will cause each of the officers and directors
of the registrant to enter into substantially similar hold-back agreements with
such managing underwriter covering at least the same period.
Section 16. Specific Performance. The Company agrees and stipulates
that the remedies at law of the Holders in the event of any default by the
Company in the performance of or compliance with any of the terms of this
Agreement are not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise. Such remedies and
all other remedies provided for in this Agreement shall, however, be cumulative
and not exclusive and shall be in addition to any other remedies which a party
may have under this Agreement or otherwise.
Section 17. Notices. Except as otherwise provided herein, all notices,
requests, demands, consents and other communications hereunder shall be in
writing and shall be delivered personally, sent by reputable express courier
service (charges prepaid) or sent by registered or certified mail, return
receipt requested, postage prepaid and shall be deemed to have been given when
so delivered, sent or deposited in the U.S. Mail (i) to Swiss Re, at 237 Park
Avenue, New York, New York, 10017, Attention: Thomas L. Forsyth, Senior Vice
President and General Counsel, or at such other address as Swiss Re may
otherwise indicate in a written
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<PAGE> 15
notice delivered to the Company; (ii) to Reliance, at c/o Reliance Group
Holdings, Inc., Park Avenue Plaza, 55 East 52nd Street, New York, New York,
Attention: Treasurer (with a copy to the General Counsel) and with a copy to
Reliance Reinsurance Corp., 4 Penn Center Plaza, Philadelphia, Pennsylvania
19103, Attention: President, or at such other address or addresses as Reliance
may otherwise indicate in a written notice delivered to the Company; (iii) if to
any other Holder of Registrable Securities, at the Holder's address set forth in
the records of the Company or at such other address as the Holder thereof may
otherwise indicate in a written notice delivered to the Company; or (iv) if to
the Company, at Three South Revmont Drive, Shrewsbury, New Jersey 07702,
Attention: Eric A. Reehl, or at such other address as the Company may otherwise
indicate in a written notice delivered to the Holders.
Section 18. CONSENT TO JURISDICTION AND SERVICE OF PROCESS
THE COMPANY HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE
OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK AND
IRREVOCABLY AGREES THAT, SUBJECT TO THE ELECTION OF ANY PURCHASER OR ANY HOLDER
OF REGISTRABLE SECURITIES, ALL ACTIONS OR PROCEEDINGS RELATING TO THIS AGREEMENT
MAY BE LITIGATED IN SUCH COURTS. THE COMPANY ACCEPTS FOR ITSELF AND IN
CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, NONEXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON
CONVENIENCE, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY
IN CONNECTION WITH THIS AGREEMENT. A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE
MAILED BY REGISTERED MAIL TO THE COMPANY AT THE ADDRESS OF THE COMPANY PROVIDED
IN SECTION 20 HEREOF, EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW,
ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF
PROCESS. AS AN ALTERNATIVE TO SERVICE OF PROCESS ON SUCH AGENT (WHETHER OR NOT
ANY SUCH AGENT HAS BEEN APPOINTED), THE COMPANY HEREBY AGREES THAT SERVICE UPON
IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE AND SERVICE OF PROCESS. NOTHING
HEREIN SHALL AFFECT RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW
OR SHALL LIMIT THE RIGHT OF ANY HOLDER OF REGISTRABLE SECURITIES TO BRING
PROCEEDINGS OR OBTAIN OR ENFORCE JUDGMENTS AGAINST THE COMPANY IN THE COURTS OF
ANY OTHER JURISDICTION.
Section 19. WAIVER OF JURY TRIAL. THE COMPANY HEREBY WAIVES ITS RIGHT
TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF
THIS AGREEMENT OR ARISING OUT OF ANY DEALINGS BETWEEN THE COMPANY AND ANY HOLDER
OF REGISTRABLE SECURITIES RELATING TO SUBJECT MATTER OF THIS TRANSACTION. THE
COMPANY ALSO WAIVES ANY BOND OR SURETY OR SECURITY UPON SUCH
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<PAGE> 16
BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF ANY HOLDER. THE SCOPE OF
THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY
BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION,
INCLUDING WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THE COMPANY FURTHER
WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL,
AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO (OR ASSIGNMENTS
OF) THIS AGREEMENT. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL (WITHOUT A JURY) BY COURT.
Section 20. Miscellaneous.
(a) The rights and remedies of each Holder hereunder shall be
independent of the rights and remedies of any other Holder, except as otherwise
expressly provided herein. Without limiting the foregoing, if the Company or any
other person has any rights, claims or defenses against any Holder, such rights,
claims or defenses shall not apply with respect to any other Holder, except as
otherwise expressly provided herein. The taking of any action or the failure to
take any action by any Holder with respect to the subject matter of this
Agreement shall not, and shall not be deemed to, constitute the taking of any
action or the failure to take any action by any other Holder, except as
expressly set forth in this Agreement.
(b) This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument, and all signatures need not appear on any one counterpart.
(c) The headings and captions in this Agreement are for
convenience of reference only and shall not define, limit or otherwise affect
any of the terms or provisions hereof.
(d) The terms of this Agreement shall be binding upon, and
inure to the benefit of, the parties and their respective successors and
permitted assigns whether so expressed or not. The Company may not assign any of
its obligations, duties or rights under this Agreement except with the consent
of each Holder. In addition to any assignment by operation of law, (i) each
Holder may assign, in whole or in part, any or all of its rights (and/or
obligations) under this Agreement to any person, provided that any such transfer
or assignment is in compliance with the Purchase Agreement and/or the terms of
the Warrants and (unless such
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<PAGE> 17
assignment expressly provides otherwise) any such assignment shall not diminish
the rights the Holder would otherwise have under this Agreement or with respect
to any remaining Registrable Securities held by the Holder.
(e) Except as otherwise provided herein, the provisions of
this Agreement may be amended, and compliance with any covenant or provision
herein set forth may be omitted or waived, only if the Company has obtained the
written consent of the Holders of at least seventy-five percent (75%) of the
Registrable Securities, including the consent of the Holder or Holders of at
least fifty-one percent (51%) of the Swiss Re Registrable Securities and the
Holder or Holders of at least fifty-one percent (51%) of the Reliance
Registrable Securities. In each such case, the Company shall deliver copies of
such consent in writing to any Holders who did not execute the same. Any waiver
or consent may be given subject to satisfaction of conditions stated therein and
any waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
(f) Any provision hereof which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof or thereof, and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
(g) By executing this Agreement, each of the undersigned
represents and warrants, severally and not jointly, that (i) it has all
necessary power and has taken all necessary action to make all the provisions of
the Agreement the valid and binding obligation of the undersigned and
enforceable in accordance with its terms; and (ii) the Agreement is a legal,
valid and binding obligation of the undersigned enforceable in accordance with
its terms.
(h) This Agreement shall be governed by and construed and
enforced in accordance with, the laws of the State of New York (other than any
conflict of laws rules which might result in the application of the laws of any
other jurisdiction).
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<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
HOME STATE HOLDINGS, INC.
By: /s/ Mark Vaughn
-----------------------------
Name: Mark Vaughn
Title: Acting President
SWISS REINSURANCE AMERICA
CORPORATION
By: /s/ Thomas L. Forsyth
-----------------------------
Name: Thomas L. Forsyth
Title: Senior Vice President
and General Counsel
RELIANCE INSURANCE COMPANY
By: /s/ Albert A. Benchimol
-----------------------------
Name: Albert A. Benchimol
Title: Vice President
[SIGNATURE PAGE TO THE REGISTRATION RIGHTS AGREEMENTS]
<PAGE> 1
Exhibit 5
September 30, 1996
Swiss Reinsurance America Corporation
237 Park Avenue
New York, New York 10017
Reliance Insurance Company
55 East 52nd Street
New York, New York 10055
Re: Amendment of Certificate of Incorporation
Ladies and Gentlemen:
Reference is made to a Purchase Agreement (the "Purchase
Agreement") of even date among each of you and Home State Holdings, Inc. (the
"Company") pursuant to which, among other matters, each of you is purchasing
shares of the Company's Series A Voting Preferred Stock (the "Series A Preferred
Stock"). The undersigned is the holder of shares of the Company's Common Stock
and will benefit from your investment in the Series A Preferred Stock (the
"Investment"). You have indicated that you are requiring the execution of this
letter agreement by the undersigned as a condition to the closing of the
transactions contemplated by the Purchase Agreement, the Investment and the
performance of your other obligations under the Purchase Agreement and the
transactions contemplated thereby.
The undersigned agrees to vote all shares of the Company's
Common Stock which he holds or over which he exercises discretionary voting
authority as of the date of the herein referenced meeting of the Company's
stockholders (the "Subject Shares") in favor of any proposal (a "Proposal")
presented to the stockholders of the Company to amend the Company's Certificate
of Incorporation so as (a) to permit the designation of one or more series of
Preferred Stock by the Company's Board of Directors, the holders of which are
entitled to vote as a class on any matter designated by such Board of Directors,
whether of not such a class vote would otherwise be required by applicable law,
(b) to permit the holders of the Series A Preferred Stock to vote as a class
upon any matter, including, without limitation the election of the Preferred
Director and the Default Directors, as defined in the Stockholders' Agreement,
(c) to increase the number of directors of the Company to at least ten (10), or
(d) to incorporate any amendments proposed by the holders of the Series A
Preferred Stock provide that any such proposed amendment does not adversely
effect the interests of the undersigned.
Upon written request by either of you, the undersigned agrees,
at least seven (7) days prior to any meeting of the Company's stockholders to
consider a Proposal, to grant to you and to execute in your favor an irrevocable
proxy to vote the Subject Shares in favor of the aforementioned Proposal.
<PAGE> 2
The undersigned acknowledges and agrees that any breach or
threatened breach of the undersigned's obligations under this letter agreement
will cause irreparable injury to you for which money damages will not provide an
adequate remedy. Therefore, you shall be entitled to seek specific enforcement
of any of such obligations before any court having equity jurisdiction. The
parties hereto acknowledge and agree that such remedy of specific performance
shall be your sole remedy against the undersigned for a breach of his
obligations hereunder. The undersigned agrees to waive any requirement that you
post a bond in connection with the granting of any such remedy of specific
enforcement.
This letter agreement shall be governed by, and construed in
accordance with, the laws of the State of New York (other than any conflict of
laws rule which might result in the application of the laws of any other
jurisdiction).
Please indicate your acceptance and agreement to the foregoing
in the space provided below.
/s/ Robert Abidor
------------------------------------
Robert Abidor
SWISS REINSURANCE AMERICA CORPORATION
By /s/ Thomas L. Forsyth
----------------------------------
Name: Thomas L. Forsyth
Title: Senior Vice President
and General Counsel
RELIANCE INSURANCE COMPANY
By /s/ Albert A. Benchimol
----------------------------------
Name: Albert A. Benchimol
Title: Vice President
