SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) October 4, 1996
HOME STATE HOLDINGS, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 0-22016 13-3429087
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
Three South Revmont Drive, Shrewsbury, NJ 07702
(Address of Principal Executive Offices) (zip code)
Registrant's telephone number, including area code (908) 935-2600
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(Former Name or Former Address, if Changed Since Last Report
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Item 5. Other Events
On October 4, 1996, Registrant raised $10,000,000 in additional capital
through the private placement of 10,000 shares of its Series A Cumulative Voting
Preferred Stock (the "Preferred Stock") to Swiss Reinsurance America Corporation
("Swiss Re") and Reliance Insurance Company ("Reliance") pursuant to a
Securities Purchase Agreement (the "Securities Purchase Agreement") dated as of
October 4, 1996 among Registrant, Swiss Re and Reliance. Swiss Re and Reliance
each purchased $5,000,000 of the Preferred Stock and Swiss Re has been granted
the right to purchase an additional 5,000 shares of Preferred Stock for
$5,000,000 at any time until April 4, 1997.
Each share of Preferred Stock is entitled to one vote along with
Registrant's common stock and carries a dividend rate of 7.5%. Registrant may
call the Preferred Stock for redemption at any time after the fourth anniversary
of the closing. The Preferred Stock must be redeemed at $1,000 per share plus
any accumulated dividends in five equal tranches at the 10th through 14th
anniversaries of the closing.
Each share of Preferred Stock carries with it detachable Class A
Warrants ("Warrants") to purchase 140 shares of Registrant's common stock for
$9.50 per share at any time until October 4, 2003. The number of shares of
Registrant's common stock deliverable upon exercise of the Warrants, and the
exercise price thereof, are subject to adjustment as provided in the Warrants.
If all of the Warrants issued in connection with the $10,000,000 of Preferred
Stock issued were to be exercised, the 1,400,000 shares of common stock
purchased would represent approximately 19.8% of Registrant's issued and
outstanding common stock.
Registrant also entered into a Registration Rights Agreement dated as
of October 4, 1996 with Swiss Re and Reliance (the "Current Registration Rights
Agreement") pursuant to which Registrant granted Swiss Re and Reliance
registration rights entitling each of such investors to two demand registrations
(for a total of four demand registrations) and unlimited "piggyback" rights with
respect to the shares of common stock issuable upon exercise of the Warrants. In
addition, Registrant has amended its October 3, 1994 Registration Rights
Agreement (the "1994 Registration Rights Agreement") entered into at the time of
Registrant's 1994 private placement of 11.50% Subordinated Notes (the
"Subordinated Notes") and warrants (the "Existing Warrants") to provide for an
additional demand registration right thereunder and the pro rata, pari passu
treatment of registration rights under the 1994 Registration Rights Agreement
and the Current Registration Rights Agreement.
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Registrant, Swiss Re and Reliance have also entered into
agreements for Registrant's subsidiaries to purchase reinsurance from Swiss Re
and Reliance at commercially reasonable and actuarially sound rates and for
Swiss Re and Reliance to provide certain consulting and management services to
Registrant.
In connection with the Preferred Stock issuance, Swiss Re,
Reliance, Registrant, Michael H. Monier, Edward D. Herrick and Herrick Partners,
L.P. entered into a Stockholders' Agreement dated as of October 4, 1996 (the
"Stockholders' Agreement") regarding, among other matters, the voting and
transferability of shares of Registrant's capital stock and the election of
certain directors, including a director designated by Swiss Re. On October 4,
1996, the size of Registrant's Board was increased from eight to nine directors
and Henry Sopher, Swiss Re's designee, and Eric A. Reehl, the Executive Vice
President and Chief Financial Officer of Registrant, were elected to fill
vacancies on the Board of Directors. In the event of certain defaults in
Registrant's obligation to redeem Preferred Stock, the holders of Preferred
Stock will have the right to designate two directors (to fill vacancies or
replace existing directors), to serve during the continuation of such default.
The Securities Purchase Agreement requires Registrant to present
at the next annual stockholders' meeting, for a vote by its stockholders,
certain proposed amendments to the Certificate of Incorporation of Registrant.
Such amendments would facilitate the election of those directors which may be
designated by Swiss Re and Reliance by, among other things, (i) providing for an
increase in the maximum size of the Board of Directors to ten (10), (ii)
permitting class voting and (iii) permitting the removal of directors without
cause. The parties to the Stockholders' Agreement have agreed to vote all of
their respective shares in favor of the proposed amendments.
On October 4, 1996, Registrant also amended the Loan Agreement
dated March 4, 1996 among Registrant, Tower Hill, Inc. ("Tower Hill"), The Chase
Manhattan Bank (formerly known as Chemical Bank), as agent, The Chase Manhattan
Bank and European American Bank, as amended by a First Amendment and Waiver
dated as of August 14, 1996 among the parties to such Loan Agreement, to
provide, among other things, that (a) the revolving commitment to Registrant
thereunder shall be reduced to $2,000,000 as of February 1, 1997 and the
maturity date of such commitment shall be September 30, 1997, and (b) the
revolving commitment to Tower Hill thereunder shall be $13,000,000 until January
31, 1997 and, thereafter, $15,000,000 until February 28, 1998, at which time
such commitment shall expire and mature.
On October 7, 1996, Registrant contributed $10,000,000
(including the net proceeds of the sale of Preferred Stock) to New York Merchant
Bakers Insurance Company, an insurance subsidiary of Registrant ("Merchant
Bakers"), to increase Merchant Bakers' surplus.
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A.M. Best has notified Registrant that the rating of its
National Pool has been downgraded from B+ to B.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits.
3.1 By-laws of Registrant, as amended.
4.1 Certificate of Designations, Preferences and Rights of Series
A Cumulative Voting Preferred Stock of Registrant.
4.2 Form of Class A Warrant issued to Swiss Re.
4.3 Form of Class A Warrant issued to Reliance.
10.1 Securities Purchase Agreement dated as of October 4, 1996
among Swiss Re, Reliance and Registrant.
10.2 Stockholders' Agreement dated as of October 4, 1996 among
Registrant, Swiss Re, Reliance, Michael H. Monier, Edward D.
Herrick and Herrick Partners, L.P.
10.3 Registration Rights Agreement dated as of October 4, 1996
among Swiss Re, Reliance and Registrant
10.4 Letter Agreement dated as of October 4, 1996 amemding the
Registration Rights Agreement dated as of October 3, 1994
among Registrant and the holders of the Subordinated Notes and
Existing Warrants named therein and providing for consents and
waivers from such holders.
10.5 First Amendment and Waiver dated as of August 14, 1996 to
the Loan Agreement (the "Loan Agreement") dated March 4, 1996
among Registrant, Tower Hill, Inc., Chemical Bank (now known
as The Chase Manhattan Bank), as agent, Chemical Bank and
European American Bank.
10.6 Second Amendment dated as of October 4, 1996 to the Loan
Agreement and related consent of guarantors and note
endorsements.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
Date: October 21, 1996 HOME STATE HOLDINGS, INC.
By: /s/ Mark S. Vaughn
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Mark S. Vaughn, President
EXHIBIT 3.1
AMENDED BY-LAWS
OF
HOME STATE HOLDINGS, INC.
A Delaware Corporation
ARTICLE 1
OFFICES
1.1 Registered Office.
The registered office of the corporation in the State of Delaware shall be
located at Suite L-100, 32 Loockerman Square, Dover, County of Kent, Delaware
19901. The name of the corporation's registered agent at such address is The
Prentice-Hall Corporation System, Inc. The registered office and/or registered
agent of the corporation may be changed from time to time by action of the board
of directors.
1.2 Other Offices.
The corporation also may have offices at such other places, both within
and without the State of Delaware, as the board of directors may from time to
time determine or the business of the corporation may require.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
2.1 Place And Time of Meetings.
An annual meeting of the stockholders shall be held each year within one
hundred fifty (150) days after the close of the immediately preceding fiscal
year of the corporation for the purpose of electing directors and conducting
such other proper business as may come before the meeting. The date, time and
place of the annual meeting shall be determined by the President of the
corporation; provided, that if the President does not act, the board of
directors shall determine the date, time and place of such meeting.
2.2 Special Meetings.
Special meetings of stockholders may be called for any purpose and may be
held at such time and place, within or without the State of Delaware, as shall
be stated in a notice of meeting or in a duly executed waiver of notice thereof.
Such
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meetings may be called at any time by the board of directors, the President,
the holders of shares entitled to cast not less than fifteen percent (15%) of
the votes at such meeting.
2.3 Place of Meetings.
The board of directors may designate any place, either within or without
the State of Delaware, as the place of meeting for any annual meeting (unless
the President has designated the place pursuant to sub-section 2.1 above) or for
any special meeting called by the board of directors. If no designation is made,
or if a special meeting be otherwise called, the place of meeting shall be the
principal executive office of the corporation.
2.4 Notice.
Whenever stockholders are required or permitted to take action at a
meeting, written or printed notice stating the place, date, time, and, in the
case of special meetings, the purpose or purposes, of such meeting, shall be
given to each stockholder entitled to vote at such meeting not less than ten
(10) nor more than sixty (60) days before the date of the meeting. All such
notices shall be delivered, either personally or by mail, by or at the direction
of the board of directors, the President or the secretary, and if mailed, such
notice shall be deemed to be delivered when deposited in the United States mail,
postage prepaid, addressed to the stockholder at his, her or its address as the
same appears on the records of the corporation.
2.5 Stockholders List.
The officer having charge of the stock ledger of the corporation shall
make, at least ten (10) days before every meeting of the stockholders, a
complete list of the stockholders entitled to vote at such meeting arranged in
alphabetical order, showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
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2.6 Quorum.
The holders of the outstanding shares of capital stock representing a
majority of the voting power of the corporation present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders, except
as otherwise provided by law or by the certificate of incorporation. If a quorum
is not present, the holders of the shares representing a majority of the voting
power present in person or represented by proxy at the meeting, and entitled to
vote at the meeting, may adjourn the meeting to another time and/or place. When
a specified item of business requires a vote by a class or series (if the
corporation shall then have outstanding shares of more than one class or series)
voting as a class, the holders of a majority of the shares of such class or
series shall constitute a quorum (as to such class or series) for the
transaction of such item of business. When a quorum is once present to commence
a meeting of stockholders, it is not broken by the subsequent withdrawal of any
stockholder or their proxies.
2.7 Adjourned Meetings.
When a meeting is adjourned to another time and place, notice need not be
given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. At the adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is more than thirty (30) days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
2.8 Vote Required.
When a quorum is present, the affirmative vote of the holders of the
shares representing a majority of the voting power present in person or
represented by proxy at the meeting and entitled to vote on the subject matter
shall be the act of the stockholders, unless the question is one upon which by
express provisions of an applicable law or of the certificate of incorporation a
different vote is required, in which case such express provision shall govern
and control the decision of such question. Where a separate vote by class may be
required, the affirmative vote of the majority of shares of such class present
in person or represented by proxy at the meeting shall be the act of such class.
2.9 Voting Rights.
Except as otherwise provided by the Delaware General Corporation Law, as
amended, or by the certificate of incorporation of the corporation or any
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amendments thereto and subject to sub-section 6.3 hereof, every stockholder
shall at every meeting of the stockholders be entitled to one vote in person or
by proxy for each share of common stock held by such stockholder.
2.10 Proxies.
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him or her by proxy, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period.
2.11 Action by Written Consent.
Unless otherwise provided in the certificate of incorporation, any action
required to be taken at any annual or special meeting of stockholders of the
corporation, or any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent or consents in writing, setting forth the action so
taken and bearing the dates of signature of the stockholders who signed the
consent or consents, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted and shall be delivered to the corporation by delivery to
its registered office in the State of Delaware, or the corporation's principal
place of business, or an officer or agent of the corporation having custody of
the book or books in which proceedings of meetings of the stockholders are
recorded. Delivery made to the corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. All consents
properly delivered in accordance with this section shall be deemed to be
recorded when so delivered. No written consent shall be effective to take the
corporate action referred to therein unless, within sixty (60) days of the
earliest dated consent delivered to the corporation as required by this section,
written consents signed by the holders of a sufficient number of shares to take
such corporate action are so recorded. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing. Any action
taken pursuant to such written consent or consents of the stockholders shall
have the same force and effect as if taken by the stockholders at a meeting
thereof.
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ARTICLE 3
DIRECTORS
3.1 General Powers.
The business and affairs of the corporation shall be managed by or under
the direction of the board of directors.
3.2 Number, Election and Term of Office.
The number of directors which shall constitute the board shall be such
number as shall be established by resolution of the board, not less than eight
(8) and no more then ten (10). Subject to the Securities Purchase Agreement (as
defined below), the Stockholders' Agreement (as defined in the Securities
Purchase Agreement) and Certificate of Designations (as defined in the
Securities Purchase Agreement), thereafter, the number of directors shall be
established from time to time by resolution of the board of directors. The
directors of the corporation shall be classified with respect to their tenure of
office by dividing them into three groups, each of which shall consist of as
nearly equal a number of persons, as practicable. The initial term of the
directors of the first group shall expire as of the annual meeting of
shareholders to be held in 1994. The initial term of the directors of the second
group shall expire at the annual meeting of shareholders to be held in 1995. The
initial term of the directors of the third group shall expire at the annual
meeting of shareholders to be held in 1996. Upon resolution of the Board of
directors, one directorship in each of the first and second groups of directors
may be reserved for a Default Director (as defined in the Stockholders'
Agreement) and, after such resolution, shall remain vacant unless and until a
Default Director shall be appointed thereto. One directorship in the third group
of directors shall be reserved for the Preferred Director (as defined in the
Stockholders' Agreement) and shall remain vacant unless and until the Preferred
Director shall be appointed thereto. At each annual meeting of shareholders,
commencing with the annual meeting of shareholders to be held in 1994, directors
shall be elected for the term of three (3) years to succeed those of the group
whose term of office is then expiring; provided that any person elected to
succeed the Preferred Director or a Default Director or to fill a vacancy in a
seat reserved for the Preferred Director or such a Default Director must have
been designated the Preferred Director or a Default Director, as applicable,
pursuant to the Stockholders' Agreement. The directors shall be elected by a
plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to hold office until a successor is duly elected and
qualified or until his or her earlier death, resignation or removal as
hereinafter provided.
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For purposes of these By-Laws, "Securities Purchase Agreement" means the
Securities Purchase Agreement dated as of October 4, 1996 among the Corporation
and the Purchasers named therein, as from time to time assigned, supplemented or
amended or as the terms thereof may be waived, pursuant to which, among other
matters, the Corporation issued certain shares of Series A Cumulative Voting
Preferred Stock.
3.3 Removal and Resignation.
Any director or the entire board of directors may be removed at any time
for cause by the holders of the shares representing a majority of the voting
power of the corporation then entitled to vote at an election of directors.
Whenever the holders of any class or series are entitled to elect one or more
directors by the provisions of the corporation's certificate of incorporation,
the provisions of this section shall apply, in respect to the removal without
cause of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class or series and not to the vote of the
outstanding shares as a whole. Any director may resign at any time upon written
notice to the corporation.
3.4 Vacancies.
Vacancies and newly created directorships resulting from any increase in
the authorized number of directors may be filled by a majority of the directors
then in office, though less than a quorum, or by a sole remaining director;
provided that no vacancy created by the resignation or removal of the Preferred
Director or a Default Director or by the creation or establishment of a
directorship reserved for the Preferred Director or a Default Director may be
filled by a person who has not been designated as the Preferred Director of a
Default Director, as applicable, pursuant to the Stockholders' Agreement. Each
director so chosen shall hold office until a successor is duly elected and
qualified or until his or her earlier death, resignation or removal as herein
provided.
3.5 Annual Meetings.
The annual meeting of the board of directors shall be held without other
notice than this by-law immediately after, and at the same place as, the annual
meeting of stockholders.
3.6 Other Meetings and Notice.
Regular meetings, other than the annual meeting, of the board of directors
may be held without notice at such time and at such place that shall from time
to time be determined by resolution of the board of directors. Special meetings
of the board of directors may be called by or at the request of the President or
any director
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on at least 24 hours notice to each director, either personally, by telephone,
by telecopier, by mail or by telegraph.
3.7 Quorum, Required Vote and Adjournment.
A majority of the total number of directors shall constitute a quorum for
the transaction of business. The vote of a majority of directors present at a
meeting at which a quorum is present shall be the act of the board of directors.
If a quorum shall not be present at any meeting of the board of directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
3.8 Committees.
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, each committee to consist of one
or more of the directors of the corporation, which to the extent provided in
such resolution or these amended by-laws shall have and may exercise the powers
of the board of directors in the management and affairs of the corporation
except as otherwise limited by law. The board of Directors may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the board of directors. Each committee shall keep
regular minutes of its meetings and report the same to the board of directors
when required.
3.9 Committee Rules.
Each committee of the board of directors may fix its own rules of
procedure and shall hold its meetings as provided by such rules, except as may
otherwise be provided by a resolution of the board of directors designating such
committee. Unless otherwise provided in such a resolution, the presence of at
least a majority of the members of the committee shall be necessary to
constitute a quorum. In the event that a member and that member's alternate, if
alternates are designated by the board of directors as provided in sub-section
3.8, of such committee is or are absent or disqualified, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
such member or members constitute a quorum, may unanimously appoint another
member of the board of directors to act at the meeting in place of any such
absent or disqualified member.
3.10 Executive Committee.
The board of directors may, by resolution passed by a majority of the
whole board, designate an Executive Committee, to consist of three or more
directors, but
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always an odd number. Members of the Executive Committee may be removed for
cause or without cause by the board of directors, but any vacancy created shall
be promptly filled by the board. The board of directors may discharge the
Executive Committee at any time either with or without cause. The Executive
Committee, to the extent provided in the resolution of the board of directors,
shall have and may exercise the powers of the board of directors in the
management of the business and affairs of the Corporation and may authorize the
seal of the Corporation to be affixed to all papers which may require it. A
majority of the Executive Committee shall constitute a quorum for the
transaction of business, and the act of a majority of the members of the
Committee present at any meeting at which a quorum is present shall be the act
of the Committee. Members of the Committee shall act only as a committee and the
individual members shall have no power as such.
3.11 Communications Equipment.
Members of the board of directors or any committee thereof may participate
in and act at any meeting of such board or committee through the use of a
conference telephone or other communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in
the meeting pursuant to this section shall constitute presence in person at the
meeting.
3.12 Waiver of Notice.
Any member of the board of directors or any committee thereof who is
present at a meeting shall be conclusively presumed to have waived notice of
such meeting except when such member attends for the express purpose of
objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened.
3.13 Action by Written Consent.
Unless otherwise restricted by the certificate of incorporation, any
action required or permitted to be taken at any meeting of the board of
directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the board or committee.
3.14 Compensation of Directors.
Directors may be paid such compensation for their services and such
reimbursement for expenses of attendance at meetings as the board of directors
may from time to time determine. No such payment shall preclude any director
from serving the corporation or any of its subsidiaries or affiliated
corporations in any other capacity and receiving compensation for such service.
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ARTICLE 4
OFFICERS
4.1 Number.
The officers of the corporation shall be elected by the board of directors
and shall consist of a Chairman, one or more Vice Chairmen, a President, one or
more Vice-Presidents, a Secretary, a Treasurer, and such other officers and
assistant officers as may be deemed necessary or desirable by the board of
directors. Any number of offices may be held by the same person. In its
discretion, the board of directors may choose not to fill any office for any
period as it may deem advisable, except that the offices of President and
Secretary shall be filled as expeditiously as possible.
4.2 Election and Term of Office.
The officers of the corporation shall be elected annually by the board of
directors at its first meeting held after each annual meeting of stockholders or
as soon thereafter as conveniently may be. Vacancies may be filled or new
offices created and filled at any meeting of the board of directors. Each
officer shall hold office until a successor is duly elected and qualified or
until his or her earlier death, resignation or removal as hereinafter provided.
4.3 Removal.
Any officer or agent elected by the board of directors may be removed by
the board of directors whenever in its judgment the best interests of the
corporation would be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed.
4.4 Vacancies.
Any vacancy occurring in any office because of death, resignation,
removal, disqualification or otherwise, may be filled by the board of directors
for the unexpired portion of the term by the board of directors then in office.
4.5 Compensation.
Compensation of all officers shall be fixed by the board of directors, and
no officer shall be prevented from receiving such compensation by virtue of his
or her also being a director of the corporation.
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4.6 Chairman and Vice-Chairman.
If the Board of Directors appoints a Chairman, he shall, subject to the
control of the board of directors, have general charge and supervision of the
business of the corporation. He shall also perform such duties and possess such
powers as are assigned to him by the board of directors. Unless otherwise
provided by the board of directors, he shall preside at all meetings of the
stockholders and of the board of directors. If the board of directors appoints a
Vice-Chairman he shall, in the absence or disability of the Chairman, perform
the duties and exercise the powers of the Chairman and shall perform such other
duties and possess such other powers as may from time to time be vested in him
by the board of directors.
4.7 President.
The President shall be the Chief Executive Officer of the corporation and,
subject to the control of the board of directors, have general charge and
supervision of the business of the corporation. He shall also perform such
duties and possess such powers as are assigned to him by the board of directors.
In the absence of the Chairman and Vice-Chairman(s), he shall preside at all
meetings of the stockholders and of the board of directors. The President shall
execute bonds, mortgages and other contracts requiring a seal, under the seal of
the corporation, except where required or permitted by law to be otherwise
signed and executed and except where the signing and execution thereof shall be
expressly delegated by the board of directors to some other officer or agent of
the corporation. The President shall have such other powers and perform such
other duties as may be prescribed by the board of directors or as may be
provided in these amended by-laws.
4.8 Vice-Presidents.
The Vice-President, or if there shall be more than one, the
Vice-Presidents in the order determined by the board of directors, shall, in the
absence or disability of the President, act with all of the powers and be
subject to all the restrictions of the President. The Vice-Presidents also shall
perform such other duties and have such other powers as the board of directors,
the President or these amended by-laws may, from time to time, prescribe.
4.9 The Secretary and Assistant Secretaries.
The Secretary shall attend all meetings of the board of directors, all
meetings of the committees thereof and all meetings of the stockholders and
record all the proceedings of the meetings in a book or books to be kept for
that purpose. Under the President's supervision, the Secretary shall give, or
cause to be given, all notices required to be given by these amended by-laws or
by law and shall have such powers and perform such duties as the board of
directors, the President or these amended
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by-laws may, from time to time, prescribe. The Secretary shall have custody of
the corporate seal of the corporation. The Secretary, or an Assistant Secretary,
shall have authority to affix the corporate seal to any instrument requiring it
and when so affixed, it may be attested by his or her signature or by the
signature of such Assistant Secretary. The board of directors may give general
authority to any other officer to affix the seal of the corporation and to
attest the affixing by his or her signature. The Assistant Secretary, or if
there be more than one, the Assistant Secretaries in the order determined by the
board of directors, shall, in the absence or disability of the Secretary,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the board of directors, the
President, or the Secretary may, from time to time, prescribe.
4.10 The Treasurer and Assistant Treasurer.
The Treasurer shall have the custody of the corporate funds and
securities. The Treasurer shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all monies
and other valuable effects in the name and to the credit of the corporation as
may be ordered by the board of directors. The Treasurer shall cause the funds of
the corporation to be disbursed when such disbursements have been duly
authorized, taking proper vouchers for such disbursements and shall render to
the President and the board of directors, at its regular meeting or when the
board of directors so requires, an account of the corporation. The Treasurer
shall have such powers and perform such duties as the board of directors, the
President or these amended by-laws may, from time to time, prescribe. The
Assistant Treasurer, or if there shall be more than one, the Assistant
Treasurers in the order determined by the board of directors, shall in the
absence or disability of the Treasurer perform the duties and exercise the
powers of the Treasurer. The Assistant Treasurers shall perform such other
duties and have such other powers as the board of directors, the President or
Treasurer may, from time to time, prescribe.
4.11 Other Officers, Assistant Officers and Agents.
Officers, assistant officers and agents, if any, other than those whose
duties are provided for in these amended by-laws, shall have such authority and
perform such duties as may from time to time be prescribed by resolution of the
board of directors.
4.12 Absence or Disability of Officers.
In the case of the absence or disability of any officer of the corporation
and of any person hereby authorized to act in such officer's place during such
officer's absence or disability, the board of directors may by resolution
delegate the powers and duties of such officer to any other officer or to any
director, or to any other person whom it may select.
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ARTICLE 5
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
5.1 Nature of Indemnity.
The corporation shall, to the fullest extent permitted by Section 145 of
the Delaware General Corporation Law, as that Section may be amended and
supplemented from time to time, indemnify each person who was or is made a party
or is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(collectively, a "Proceeding"), by reason of the fact that he or she, or a
person of whom he or she is the legal representative, is or was a director or
officer, of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, fiduciary, or agent of another
corporation or of a partnership, joint venture, trust or other enterprise, shall
be indemnified and held harmless by the corporation to the fullest extent which
it is empowered to do so by the Delaware General Corporation Law, as amended
(but, in the case of any such amendment, only to the extent that such amendment
permits the corporation to provide broader indemnification rights than said law
permitted the corporation to provide prior to such amendment) against all
expenses, liability and loss (including attorneys' fees actually and reasonably
incurred by such person in connection with such Proceeding) and such
indemnification shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that, except as provided in sub-section 5.2
hereof, the corporation shall indemnify any such person seeking indemnification
in connection with a Proceeding initiated by such person only if such Proceeding
was authorized by the board of directors of the corporation. The right to
indemnification conferred in this Article 5 shall be a contract right and,
subject to sub-sections 5.2 and 5.5 hereof, shall include the right to be paid
by the corporation the expenses incurred in defending any such Proceeding in
advance of its final disposition. The corporation may, by action of its board of
directors, provide indemnification to employees and agents of the corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
To assure indemnification under this Article 5 of all such persons who are
determined by the corporation or otherwise to be or to have been "fiduciaries"
of any employee benefit plan of the corporation which may exist from time to
time, such Section 145 shall, for the purposes of this Article 5, be interpreted
as follows: an "other enterprise" shall be deemed to include such an employee
benefit plan, including, without limitation, any plan of the corporation which
is governed by the Act of Congress entitled "Employee Retirement Income Security
Act of 1974", as amended from time to time; the corporation shall be deemed to
have requested a
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person to serve an employee benefit plan where the performance by such person of
his duties to the corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person with respect to an employee benefit plan
pursuant to such Act of Congress shall be deemed "fines"; and action taken or
omitted by a person with respect to an employee benefit plan in the performance
of such person's duties for a purpose reasonably believed by such person to be
in the interest of the participants and beneficiaries of the plan shall be
deemed to be for a purpose which is not opposed to the best interests of the
corporation.
5.2 Procedure for Indemnification of Directors and Officers.
Any indemnification of a director or officer of the corporation under
subsection 5.1 of this Article 5 or advance of expenses under sub-section 5.5 of
this Article 5 shall be made promptly, and in any event within thirty (30) days,
upon the written request of the director or officer. If a determination by the
corporation that the director or officer is entitled to indemnification pursuant
to this Article 5 is required, and the corporation fails to respond within sixty
(60) days to a written request for indemnity, the corporation shall be deemed to
have approved the request. If the corporation denies a written request for
indemnification or advancing of expenses, in whole or in part, or if payment in
full pursuant to such request is not made within thirty (30) days, the right to
indemnification or advance as granted by this Article 5 shall be enforceable by
the director or officer in any court of competent jurisdiction. Such person's
costs and expenses incurred in connection with successfully establishing his or
her right to indemnification, in whole or in part, in any such action shall also
be indemnified by the corporation. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any Proceeding in advance of its final disposition where the required
undertaking, if any, has been tendered to the corporation) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
General Corporation Law, as amended, for the corporation to indemnify the
claimant for the amount claimed, but the burden of such defense shall be on the
corporation. Neither the failure of the corporation (including its board of
directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, as amended, nor an actual determination by the corporation (including its
board of directors, independent legal counsel, or its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
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5.3 Article Not Exclusive.
The rights to indemnification and the payment of expenses incurred in
defending a Proceeding in advance of its final disposition conferred in this
Article 5 shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the certificate of
incorporation, by-law, agreement, vote of stockholders or disinterested
directors or otherwise.
5.4 Insurance.
The corporation may purchase and maintain insurance on its own behalf and
on behalf of any person who is or was a director, officer, employee, fiduciary,
or agent of the corporation or was serving at the request of the corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her in any such capacity,
whether or not the corporation would have the power to indemnify such person
against such liability under this Article 5.
5.5 Expenses.
Expenses incurred by any person described in sub-section 5.1 of this
Article 5 in defending a Proceeding shall be paid by the corporation in advance
of such Proceeding's final disposition upon receipt of an undertaking by or on
behalf of the director or officer to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by the corporation.
Such expenses incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the board of directors deems appropriate.
5.6 Employees and Agents.
Persons who are not covered by the foregoing provisions of this Article 5
and who are or were employees or agents of the corporation, or who are or were
serving at the request of the corporation as employees or agents of another
corporation, partnership, joint venture, trust or other enterprise, may be
indemnified to the extent authorized at any time or from time to time by the
board of directors.
5.7 Contract Rights.
The provisions of this Article 5 shall be deemed to be a contract right
between the corporation and each director or officer who serves in any such
capacity at any time while this Article 5 and the relevant provisions of the
Delaware General Corporation Law, as amended, or other applicable law are in
effect, and any repeal or modification of this Article 5 or any such law shall
not affect any rights or
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obligations then existing with respect to any state of facts or Proceeding then
existing.
5.8 Merger or Consolidation.
For purposes of this Article 5, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this Article 5 with respect to the resulting or surviving
corporation as he or she would have with respect to such constituent corporation
if its separate existence had continued.
ARTICLE 6
CERTIFICATES OF STOCK
6.1 Form.
Every holder of stock in the corporation shall be entitled to have a
certificate, signed by, or in the name of the corporation by the President or a
Vice-President and the Secretary or an Assistant Secretary of the corporation,
certifying the number of shares owned by such holder in the corporation. If such
a certificate is countersigned (1) by a transfer agent or an assistant transfer
agent other than the corporation or its employee or (2) by a registrar, other
than the corporation or its employee, the signature of any such President,
Vice-President, Secretary, or Assistant Secretary may be facsimiles. In case any
officer or officers who have signed, or whose facsimile signature or signatures
have been used on, any such certificate or certificates shall cease to be such
officer or officers of the corporation whether because of death, resignation or
otherwise before such certificate or certificates have been delivered by the
corporation, such certificate or certificates may nevertheless be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures have been used thereon
had not ceased to be such officer or officers of the corporation. All
certificates for shares shall be consecutively numbered or otherwise identified.
The name of the person to whom the shares represented thereby are issued, with
the number of shares and date of issue, shall be entered on the books of the
corporation. Shares of stock of the corporation shall only be transferred on the
books of the corporation by the holder of record thereof or by such holder's
attorney duly authorized in writing, upon surrender to the corporation of the
certificate or
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certificates for such shares endorsed by the appropriate person or persons, with
such evidence of the authenticity of such endorsement, transfer, authorization,
and other matters as the corporation may reasonably require, and accompanied by
all necessary stock transfer stamps. In that event, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate or certificates, and record the transaction on its books.
The board of directors may appoint a bank or trust company organized under the
laws of the United States or any state thereof to act as its transfer agent or
registrar, or both in connection with the transfer of any class or series of
securities of the corporation.
6.2 Lost, Stolen or Destroyed Certificates.
The board of directors may direct a new certificate or certificates to be
issued in place of any certificate or certificates previously issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate of certificates, or his or her legal representative, to
give the corporation a bond sufficient to indemnify the corporation against any
claim that may be made against the corporation on account of the loss, theft or
destruction of any such certificate or the issuance of such new certificate.
6.3 Fixing a Record Date for Stockholder Meetings.
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
the board of directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the board of directors, and which record date shall not be more than sixty (60)
nor less than ten (10) days before the date of such meeting. If no record date
is fixed by the board of directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be the close
of business on the next day preceding the day on which notice is given, or if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the board of directors may fix a new
record for the adjourned meeting.
6.4 Fixing a Record Date for Action by Written Consent.
In order that the corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the board of directors
may
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fix a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of directors, and
which date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the board of directors. If no
record date has been fixed by the board of directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required by
statute, shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the board of directors and prior action by the board of directors is required by
statute, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the board of directors adopts the resolution taking such
prior action.
6.5 Fixing a Record Date for Other Purposes.
In order that the corporation may determine the stockholders entitled to
receive payment of any dividend or other distribution or allotment or any rights
or the stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purposes of any other lawful action,
the board of directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty (60) days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
board of directors adopts the resolution relating thereto.
6.6 Registered Stockholders.
Prior to the surrender to the corporation of the certificate or
certificates for a share or shares of stock with a request to record the
transfer of such share or shares, the corporation may treat the registered owner
as the person entitled to receive dividends, to vote, to receive notifications,
and otherwise to exercise all the rights and powers of an owner.
6.7 Subscriptions for Stock.
Unless otherwise provided for in the subscription agreement, subscriptions
for shares shall be paid in full at such time, or in such installments and at
such times, as shall be determined by the board of directors. Any call made by
the board
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of directors for payment on subscriptions shall be uniform as to all shares of
the same class or as to all shares of the same series. In case of default in the
payment of any installment or call when such payment is due, the corporation may
proceed to collect the amount due in the same manner as any debt due the
corporation.
ARTICLE 7
GENERAL PROVISIONS
7.1 Dividends.
Dividends upon the capital stock of the corporation, subject to the provisions
of the certificate of incorporation, if any, may be declared by the board of
directors at any regular or special meeting, pursuant to law. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the certificate of incorporation. Before payment of any dividend,
there may be set aside out of any funds of the corporation available for
dividends such sum or sums as the directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or any other purpose and the directors may modify or abolish any
such reserve in the manner in which it was created.
7.2 Checks, Drafts or Orders.
All checks, drafts, or other orders for the payment of money by or to the
corporation and all notes and other evidences of indebtedness issued in the name
of the corporation shall be signed by such officer or officers, agent or agents
of the corporation, and in such manner, as shall be determined by resolution of
the board of directors or a duly authorized committee thereof.
7.3 Contracts.
The board of directors may authorize any officer or officers, or any agent
or agents, of the corporation to enter into any contract or to execute and
deliver any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
7.4 Loans.
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty
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or other assistance may be with or without interest, and may be unsecured, or
secured in such manner as the board of directors shall approve, including,
without limitation, a pledge of shares of stock of the corporation. Nothing in
this section contained shall be deemed to deny, limit or restrict the powers of
guaranty or warranty of the corporation at common law or under any statute. No
loans shall be made or contracted on behalf of the corporation and no evidences
of indebtedness shall be issued in its name unless authorized by resolution of
the board of directors. Such authority may be general or confined to specific
instances.
7.5 Fiscal Year.
The fiscal year of the corporation shall be fixed by resolution of the
board of directors.
7.6 Corporate Seal.
The corporate seal shall be in such form as shall be approved by the board
of directors.
7.7 Voting Securities Owned by Corporation.
Voting securities in any other corporation held by the corporation shall
be voted by the President, unless the board of directors specifically confers
authority to vote with respect thereto, which authority may be general or
confined to specific instances, upon some other person or office. Any person
authorized to vote securities shall have the power to appoint proxies, with
general power of substitution.
7.8 Inspection of Books and Records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records, and to make copies or extracts therefrom. A proper purpose shall mean
any purpose reasonably related to such person's interest as a stockholder. In
every instance where an attorney or other agent shall be the person who seeks
the right to inspection, the demand under oath shall be accompanied by a power
of attorney or such other writing which authorizes the attorney or other agent
to so act on behalf of the stockholder. The demand under oath shall be directed
to the corporation at its registered office in the State of Delaware or at its
principal place of business.
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7.9 Evidence of Authority.
A certificate by the Secretary, or an Assistant Secretary, or a temporary
Secretary, as to any action taken by the stockholders, directors, a committee or
any officer or representative of the corporation shall as to all persons who
rely on the certificate in good faith be conclusive evidence of such action.
7.10 Certificate of Incorporation.
All references in these by-laws to the certificate of incorporation shall
be deemed to refer to the certificate of incorporation of the corporation, as
amended and in effect from time to time.
7.11 Transactions with Interested Parties.
No contract or transaction between the corporation and one or more of the
directors or officers, or between the corporation and any other corporation,
partnership, association or other organization in which one or more of the
directors or officers are directors or officers or have a financial interest,
shall be void or voidable solely for such reason, or solely because the director
or officer is present at or participates in the meeting of the board of
directors or a committee of the board of directors which authorizes the contract
or transaction, or solely because his or their votes are counted for such
purpose, if one of the following conditions are met:
(A) the material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the board of
directors or the committee, and the board of directors or committee in
good faith authorizes the contract or transaction by the affirmative votes
of a majority of the disinterested directors, even though the
disinterested directors are less than a quorum;
(B) the material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(C) the contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified by the board of directors,
a committee of the board of directors, or the stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the board of directors or of a committee which
authorizes the contract or transaction.
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7.12 Severability.
Any determination that any provision of these amended by-Laws is for any
reason inapplicable, illegal or ineffective shall not affect or invalidate any
other provision of these amended by-laws.
7.13 Pronouns.
All pronouns used in these amended by-laws shall be deemed to refer to the
masculine, feminine or neuter, singular or plural, as the identity of the person
or persons may require.
7.14 Headings.
Headings to articles and sections in these amended by-laws are for
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
7.15 Inconsistent Provisions.
In the event that any provision of these amended bylaws is or becomes
inconsistent with any provision of the certificate of incorporation, the
Delaware General Corporation Law, as amended, or any other applicable law, the
provision of these amended by-laws shall not be given any effect to the extent
of such inconsistency but shall otherwise be given full force and effect.
ARTICLE 8
MISCELLANEOUS
8.1 Amendments.
These amended by-laws may be amended, altered, or repealed and new by-laws
adopted at any meeting of the board of directors by a majority vote. The fact
that the power to adopt, amend, alter, or repeal the amended by-laws has been
conferred upon the board of directors shall not divest the stockholders of the
same powers.
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EXHIBIT 4.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES A CUMULATIVE VOTING PREFERRED STOCK
($0.01 PAR VALUE PER SHARE)
of
HOME STATE HOLDINGS, INC.
Pursuant to Section 151(g) of the
General Corporation Law of the
State of Delaware
We, Mark Vaughn, Acting President, and Eric A. Reehl,
Assistant Secretary, of HOME STATE HOLDINGS, INC. (the "Corporation"), a
corporation organized and existing under and by virtue of the provisions of the
General Corporation Law of the State of Delaware,
DO HEREBY CERTIFY:
FIRST: The Amended and Restated Certificate of Incorporation
(the "Certificate of Incorporation") of the Corporation authorizes the issuance
of 100,000 shares of preferred stock, $0.01 par value per share ("Preferred
Stock"), in one or more series, and further authorizes the Board of Directors to
provide by resolution for the issuance of shares of Preferred Stock in one or
more series not exceeding the aggregate number of shares of Preferred Stock
authorized by the Certificate of Incorporation and to determine with respect to
each such series, the voting powers, full or limited, if any, and the
designations, preferences and relative, participating, optional or other rights,
if any, and the qualifications, limitations or restrictions appertaining
thereto.
SECOND: A resolution providing for and in connection with the
issuance of the Preferred Stock was duly adopted by the Executive Committee of
the Board of Directors pursuant to authority granted to it by the Board of
Directors pursuant to authority expressly conferred on the Board of Directors by
the provisions of the Certificate of Incorporation as aforesaid, which
<PAGE>
resolution provides as follows:
RESOLVED: that the Board of Directors, pursuant to authority
expressly vested in it by ARTICLE FOUR of the Amended and Restated Certificate
of Incorporation (the "Certificate of Incorporation") of Home State Holdings,
Inc. (the "Corporation"), hereby authorizes the issuance of a series of
cumulative voting preferred stock ("Cumulative Voting Preferred Stock") of the
Corporation and hereby establishes the voting powers, designations, preferences
and relative, participating, optional and other rights, and the qualifications,
limitations and restrictions appertaining thereto in addition to those set forth
in such Certificate of Incorporation (or otherwise provided by law) as follows
(the following, referred to hereinafter as "this resolution" or "this
Certificate of Designations", is to be filed as part of a Certificate of
Designations under Section 151(g) of the General Corporation Law of the State of
Delaware):
1. General.
(a) Designation and Number. The designation of Cumulative
Preferred Stock created by this resolution shall be Series A Cumulative Voting
Preferred Stock, $0.01 par value per share, of the Corporation (the "Series A
Preferred Stock"), and the number of shares of Series A Preferred Stock which
the Corporation shall be authorized to issue shall be 25,000 shares.
(b) Priority. The Series A Preferred Stock shall rank prior to
the Common Stock (as hereinafter defined) and to all other capital stock of the
Corporation now or hereafter authorized or issued (the Common Stock and any such
other capital stock collectively may be referred to herein as the "Junior
Stock"), in each case as to dividends and upon liquidation, dissolution or
winding up.
(c) Voting. Each holder of Series A Preferred Stock shall be
entitled to one (1) vote per share with respect to each matter submitted to a
stockholder vote.
2. Certain Definitions.
(a) For purposes of this Certificate of Designations, the
following terms shall have the meanings indicated below:
"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.
"Board of Directors" means the Board of Directors of
the Corporation.
"Call Redemption Price" has the meaning set forth in
Section 7(a) hereof.
"Commission" means the Securities and Exchange
Commission and any other similar or successor agency of the
federal government administering the Securities Act or the
Exchange Act.
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"Common Stock" means the Corporation's Common Stock,
as presently authorized by the Certificate of Incorporation
and as 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).
"Default Director" has the meaning set forth in the
Stockholders' Agreement.
"Dividend Reference Date" has the meaning set forth
in Section 4(d) hereof.
"Exchange Act" means the Securities Exchange Act of
1934, as from time to time amended, and the rules, regulations
and interpretations thereunder.
"Full Cumulative Dividends" means as of any date the
amount of accumulated, accrued and unpaid dividends payable on
each share of Series A Preferred Stock as provided by Section
4 hereof, whether or not earned or declared and whether or not
there shall be funds legally available for the payment
thereof, and in all cases, the term "Full Cumulative
Dividends" shall include all accumulated, accrued and unpaid
dividends owing with respect to any period or Dividend
Reference Date prior to the date on which the amount of Full
Cumulative Dividends is determined.
"Fundamental Change" has the meaning set forth in
Section 9 hereof.
"Gulkin Transaction" has the meaning set forth in the
Purchase Agreement.
"Insurance Company" has the meaning set forth in the
Purchase Agreement.
"Investment" has the meaning set forth in the
Purchase Agreement.
"Junior Preferred Stock" means any Preferred Stock to
which the Series A Preferred Stock ranks prior, in each case,
as to dividends, or upon liquidation, dissolution or winding
up. All Preferred Stock of the Corporation other than the
Series A Preferred Stock shall be Junior Preferred Stock.
"Junior Stock" has the meaning set forth in Section
1(b) hereof.
"Mandatory Redemption Date" has the meaning set forth
in Section 6(a) hereof.
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"Mandatory Redemption Price" has the meaning set
forth in Section 6(a) hereof.
"Material Adverse Effect" has the meaning set forth
in the Purchase Agreement.
"Non-Compliance Event" means any of the following:
(a) the failure by the Corporation to redeem
shares of Series A Preferred Stock in accordance with
the provisions of Section 6(a) or 6(b) hereof for any
reason, and such failure in such redemption of such
shares shall have continued for at least fifteen
(15) days; or
(b) the failure by the Corporation to pay
Full Cumulative Dividends on each share of Series A
Preferred Stock on any two (2) consecutive Dividend
Reference Dates.
"Non-Payment Notice" has the meaning set forth in
Section 6(e) hereof.
"Optional Redemption Price" has the meaning set forth
in Section 6(b) hereof.
"Other Transaction Document" has the meaning set
forth in the Purchase Agreement.
"Person" or "person" means an individual,
corporation, partnership, firm, association, joint venture,
trust, unincorporated organization, government, governmental
body, agency, political subdivision or other entity.
"Preferred Director" has the meaning set forth in the
Stockholders' Agreement.
"Preferred Liquidation Value" has the meaning set
forth in Section 5(a) hereof.
"Premium Redemption Price" has the meaning set forth
in Section 6(a) hereof.
"Purchase Agreement" means the Securities Purchase
Agreement dated as of October 4, 1996 by and among the
Corporation and the Purchasers named therein (as from time to
time assigned, supplemented or amended or as the terms thereof
may be waived).
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"Redemption Default" has the meaning set forth in
Section 6(e) hereof.
"Redemption Event" means any of the following:
(a) any transaction or series of
transactions (including, without limitation, a tender
offer, merger or consolidation) the result of which
is that any Person or group (within the meaning of
Sections 13(d)(3) or 14(d)(2) of the Exchange Act),
together with any affiliates or associates of any
thereof (within the meaning of Rule 12b-2 under the
Exchange Act) (other than any holder of Series A
Preferred Stock or Warrants or Herrick Partners, L.P.
and Michael H. Monier) shall at any time beneficially
own (within the meaning of Rule 13d-3 under the
Exchange Act) a percentage of the total voting power
of the Common Stock of the Corporation which is equal
to or greater than twenty percent (20%); or
(b) except in connection with the Gulkin
Transaction (provided that aggregate Investments and
Restricted Payments in connection therewith do not
exceed $2,100,000), 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 Corporation and its
Subsidiaries in a single transaction or series of
related transactions to any Person (other than the
Corporation or a wholly owned Subsidiary of the
Corporation), or the consolidation or merger of the
Corporation or any Subsidiary with or into any other
Person (other than with or into the Corporation or a
wholly owned Subsidiary of the Corporation) or the
sale, transfer or other disposition of any capital
stock of any Subsidiary (other than to the
Corporation or another wholly owned Subsidiary of the
Corporation); or
(c) the Corporation (i) commences a
voluntary case or other proceeding seeking
liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar
official of it or any substantial part of its assets,
or (ii) consents to any such relief or to the
appointment of or taking possession by any such
official in an involuntary case or other proceeding
commenced against it, or (iii) makes a general
assignment for the benefit of creditors, or
(iv) fails generally, or admits in writing its
inability, to pay its debts as they become due, or
(v) takes any corporate action to authorize any of
the foregoing; or
(d) the commencement of an involuntary case
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or other proceeding against the Corporation seeking
liquidation, reorganization or other relief with
respect to it or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar
official of it or any substantial part of its assets,
and such involuntary case or other proceeding remains
undismissed or unstayed for a period of sixty (60)
days, or the entry of an order for relief against the
Corporation under the federal bankruptcy laws or any
other similar law now or hereafter in effect; or
(e) the acquisition by the Corporation of
the Common Stock (or any corporate reorganization or
recapitalization or other action) if the effect of
such acquisition (or other action) would be either
(i) to reduce substantially or to eliminate the
primary public market for the shares of the Common
Stock or (ii) to remove the Corporation from
registration with the Commission under the Exchange
Act or (iii) to require the Corporation to make a
filing under Section 13(e) of the Exchange Act or
(iv) to cause a delisting of the Common Stock from
the Nasdaq National Market (unless such stock is
delisted as a result of being listed on a national
securities exchange) or (v) if any shares of the
Corporation's common stock is at any time listed on a
national exchange, causing a delisting of such stock
from such exchange; or
(f) at any time, a majority of the members
of the Board of Directors (other than members
designated by the holders of Series A Preferred
Stock) are persons other than persons each of whom
was both (i) nominated as a director for his or her
then current term by the Board of Directors and was
recommended by the Board of Directors to the
Corporation's shareholders for election as a member
of the Board of Directors and (ii) a member of the
Board of Directors for at least one (1) year prior to
such term (except that a person chosen by the Board
of Directors as a successor to a director who died in
office, resigned from the Board of Directors because
of a disability, or retired , shall be deemed to have
satisfied this clause (ii)); or
(g) the prepayment or making of an
unscheduled repayment, in part or in full, of the
Subordinated Notes; or
(h) except as otherwise permitted in Section
6 of the Stockholders' Agreement, Herrick Partners,
L.P., a Delaware limited partnership, ceases to
beneficially own (within the meaning of Rule 13d-3
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under the Exchange Act) at least 477,467 shares, or
Michael H. Monier ceases to beneficially own (within
the meaning of Rule 13d-3 under the Exchange Act) at
least 465,970 shares, of the outstanding Common Stock
of the Corporation for any reason; provided, that
such number of shares shall be increased or
decreased, as appropriate, for any stock dividends,
subdivision of outstanding shares, combination of
outstanding shares or reclassification of shares; or
(i) the failure by the Corporation to pay
Full Cumulative Dividends on each share of Series A
Preferred Stock on six (6) consecutive Dividend
Reference Dates; or
(j) the authorization, approval or
occurrence of any Fundamental Change; or
(k) the failure to elect any Preferred
Director or Default Director pursuant to the
Stockholders' Agreement, or the removal of any such
director other than as provided in the Stockholders'
Agreement; or
(l) at any time the Corporation (i) fails to
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 changes 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) permits any Subsidiary which is an Insurance
Company to change materially the nature of its
business from that of an Insurance Company, or
(iv) permits 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; or
(m) the failure by the Corporation to
perform (i) the covenants set forth in Section 8.15
or Section 9.1 of the Purchase Agreement or (ii) any
covenant or agreement contained in the Purchase
Agreement or any Other Transaction Document (except
as may be waived if permitted thereunder), other than
the covenants or agreements contained in the Reliance
Reinsurance Agreement, the Swiss Re Reinsurance
Binders or the Swiss Re Letter Agreement, or the
breach by, or default of, the Corporation (or any of
its affiliates) under the Purchase Agreement or any
Other Transaction Document; provided that any such
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failure, breach or default described in clause
(ii) hereof would have a Material Adverse Effect; or
(n) (i) at any time, the Corporation or any
Insurance Subsidiary (x) fails to perform, breaches
or causes a default under, any of its covenants,
agreements or obligations under the Reliance
Reinsurance Agreement and such failure to perform,
breach or default shall continue for a period of ten
(10) days following written notice thereof to the
Corporation from Reliance or (y) challenges the
validity or enforceability of the Reliance
Reinsurance Agreement or (ii) at any time, the
Reliance Reinsurance Agreement shall be judicially
determined to be invalid or unenforceable; provided
that only the parties to the Reliance Reinsurance
Agreements (other than the Corporation or any
Subsidiary thereof) may exercise a right of
redemption under Section 6(b) hereof with respect to
this clause (n); or
(o) (i) at any time, the Corporation or any
Insurance Subsidiary (x) fails to perform, breaches
or causes a default under, any of its covenants,
agreements or obligations under the Swiss Re
Reinsurance Binders or the Swiss Re Letter Agreement
and such failure to perform, breach or default shall
continue for a period of ten (10) days following
written notice thereof to the Corporation from Swiss
Re or (y) challenges the validity or enforceability
of the Swiss Re Reinsurance Binders or the Swiss Re
Letter Agreement or (ii) at any time, the Swiss Re
Reinsurance Binders or the Swiss Re Letter Agreement
shall be judicially determined to be invalid or
unenforceable; provided that only the parties to the
Swiss Re Reinsurance Binders or the Swiss Re Letter
Agreements (other than the Corporation or any
Subsidiary thereof) may exercise a right of
redemption under Section 6(b) hereof with respect to
this clause (o); or
(p) the failure of the stockholders of the
Corporation to amend the Corporation's Certificate of
Incorporation as contemplated in Section 8.15 of the
Purchase Agreement or, after such amendment has been
effected, any amendment of the Corporation's
Certificate of Incorporation or By-Laws, or any
action by the stockholders of the Corporation or the
Board of Directors, that would have the effect of
rendering those provisions of the amendment
contemplated Section 8.15 of the Purchase Agreement
intended to secure the rights, privileges and
preferences of the holders of Series A Preferred
stock inoperative or ineffective, or otherwise
adversely affect such rights, privileges and
preferences included in the amendment contemplated by
Section 8.15 of the Purchase Agreement; or
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(q) the failure by the Corporation to make
any redemption of Series A Preferred Stock pursuant
to Section 6(a) hereof.
"Reliance Reinsurance Agreement" has the
meaning set forth in the Purchase Agreement.
"Reliance" means Reliance Insurance
Company, a Pennsylvania corporation.
"Restricted Payments" has the meaning set
forth in the Purchase Agreement.
"Securities Act" means the Securities Act of
1933, as from time to time amended, and the rules,
regulations and interpretations thereunder.
"Stockholders' Agreement" means the
Stockholders' Agreement dated as of October 4, 1996
by and among the Corporation, Swiss Re, Reliance and
the Edward D. Herrick and Michael H. Monier of the
Corporation (as from time to time assigned,
supplemented or amended or as the terms thereof may
be waived).
"Subordinated Notes" means the 11.50%
Subordinated Notes due October 3, 2004 issued by the
Corporation pursuant to a Purchase Agreement dated
October 3, 1994 among the Corporation and the
Investors listed therein.
"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 management
and policies of such Person, whether through the
ownership of voting securities or by contract or
otherwise.
"Swiss Re" means Swiss Reinsurance America
Corporation, a New York corporation.
"Swiss Re Reinsurance Binders" has the
meaning set forth in the Purchase Agreement.
"Swiss Re Letter Agreement" has the meaning
set forth in the Purchase Agreement.
"Warrants" means, the Corporation's Class A
Warrants to purchase the Common Stock of the
Corporation represented by Class A Warrant
Certificates (as from time to time assigned,
supplemented or amended) issued pursuant to the
Purchase Agreement.
9
(b) The words "hereof", "herein" and "hereunder" and other
words of similar import refer to this Certificate of Designations as a whole and
not to any particular Section or other subdivision.
(c) References herein to the Certificate of Incorporation
include such Certificate as amended by this Certificate of Designations.
3. Voting Rights.
(a) General. The Series A Preferred Stock shall vote together
with the Common Stock on all actions to be voted on by the stockholders of the
Corporation. Each share of Series A Preferred Stock shall entitle the holder
thereof to one (1) vote per share on each such action.
(b) Meetings; Consents. The holders of Series A Preferred
Stock shall be entitled to receive notice of all meetings of stockholders of the
Corporation in the same manner and at the same times as the holders of the
Common Stock. A special meeting of the stockholders of the Corporation may be
called at any time by the holders of at least twenty-five percent (25%) of the
Corporation's Series A Preferred Stock then outstanding and shall be called by
the Chairman, the Chief Executive Officer, the President, any Vice President,
the Secretary or any director at the request in writing of holders of at least
twenty-five percent (25%) of the total number of shares of the Corporation's
Series A Preferred Stock then outstanding. Any special meeting of the
stockholders shall be held on such date, at such time and at such place within
or without the State of New York as shall be designated in any such request.
Whenever any action is proposed to be taken by stockholders without a meeting,
the stockholders proposing to take such action shall provide prior written
notice of such action, at least seven (7) days prior to the taking of such
action, to the holders, if any, of the Series A Preferred Stock then
outstanding.
4. Dividend Rights.
(a) General Dividend Obligations. The Corporation shall pay,
when and as declared by the Board of Directors, to the holders of the Series A
Preferred Stock, out of the assets of the Corporation legally available
therefor, cash dividends at the times, in the amounts and with such priorities
as are provided for in this Section 4.
(b) Accrual of Dividends. Dividends on each share of Series A
Preferred Stock shall accrue cumulatively on a daily basis, at the rate and in
the manner prescribed herein, from and including the date of issuance of such
share of Series A Preferred Stock to and including the date on which the
redemption of such share of Series A Preferred Stock shall have been effected or
on which full payment with respect to such share shall have been made pursuant
to any liquidation, dissolution or winding-up of the Corporation. The date on
which the Corporation shall initially issue any share of Series A Preferred
Stock shall be deemed to be its "date of issuance" regardless of the number of
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times transfer of such share of Series A Preferred Stock shall be made on the
stock records maintained by or for the Corporation and regardless of the number
of certificates which may be issued to evidence such share of Series A Preferred
Stock (whether by reason of transfer of such share of Series A Preferred Stock
or for any other reason).
(c) Dividend Rates. Dividends shall accrue cumulatively on
each share of Series A Preferred Stock from and including the date of issuance
at a rate per annum equal to $75 per share calculated on the basis of a 360 day
year (i.e., $0.2084 per day) and be paid for the actual number of days elapsed
in a year; provided, however, that from and after the occurrence of a
Non-Compliance Event (for so long as a Non-Compliance Event shall be
continuing), dividends shall accrue cumulatively on each share at a rate per
annum equal to $85 per share calculated on the basis of a 360 day year
(i.e., $0.2361 per day) and be paid for the actual number of days elapsed in a
year and; provided, however, that if at any time there shall be more than one
Non-Compliance Event which shall have occurred, then for so long as at least two
Non-Compliance Events shall be concurrently continuing, then dividends shall
accrue cumulatively on each share at a rate per annum equal to $95 per share
calculated on the basis of a 360 day year (i.e., $0.2639 per day) and be paid
for the actual number of days elapsed in a year.
(d) Payment Dates. Full Cumulative Dividends on each share of
Series A Preferred Stock shall be payable quarterly on the last day of each
March, June, September and December or, if any such day is not a Business Day,
the immediately succeeding Business Day (each, a "Dividend Reference Date"),
commencing on December 31, 1996. The first Dividend Reference Date shall be
December 31, 1996 (on which date dividends accrued from and including the date
of issuance through and including such Dividend Reference Date shall be
payable). An amount equal to the Full Cumulative Dividends also shall be
payable, in satisfaction of such dividend obligation, upon liquidation as
provided under Section 5 hereof, and upon redemption as provided under Section 6
hereof. The record date for the payment of dividends on the Series A Preferred
Stock shall in no event be more than sixty (60) nor less then fifteen (15) days
prior to a Dividend Reference Date.
(e) Amounts Payable. The amount of dividends payable on each
share of Series A Preferred Stock on each Dividend Reference Date shall be the
Full Cumulative Dividends which are unpaid through and including such Dividend
Reference Date. Dividends which are not paid for any reason whatsoever on a
Dividend Reference Date shall cumulate until paid and shall be payable on the
next Dividend Reference Date on which payment can lawfully be made (or upon
liquidation or redemption as provided herein). Holders of shares of Series A
Preferred Stock called for redemption on a redemption date falling between the
close of business on a dividend payment record date and the opening of business
on the corresponding Dividend Reference Date shall, in lieu of receiving such
dividend payment on the Dividend Reference Date fixed therefor, receive an
amount equal to the Full Cumulative Dividends payable with respect to such
shares on the date fixed for redemption. If for whatever reason all payments
have not been made with respect to any share of Series A Preferred Stock as
required by Section 5 on a distribution date or all payments have not been made
with respect to any share of Series A Preferred Stock as required by Section 6
on a redemption date (other than because of a failure by the holder thereof to
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tender such shares for payment on such date), then, notwithstanding any other
provision hereof, dividends shall continue to accumulate on such outstanding
shares (at the applicable rate set forth in Section 4(c) hereof) until paid.
Dividends paid on shares of Series A Preferred Stock in an amount less than the
Full Cumulative Dividends payable on such shares shall be allocated pro rata
among all such shares of Series A Preferred Stock then outstanding.
(f) Priority. So long as any shares of the Series A Preferred
Stock are outstanding, in the event (A) Full Cumulative Dividends shall not have
been paid in full, (B) any amount due with respect to the Series A Preferred
Stock shall not have been paid, (C) any holder of Series A Preferred Stock shall
have exercised such holder's rights under Section 6(b) and the date of
redemption established pursuant to Section 6(c) shall not yet have occurred, or
(D) the Corporation shall have called for redemption of any Series A Preferred
Stock pursuant to Section 6(a) or Section 7, as the case may be, and the date of
redemption established pursuant to Section 6(a) or Section 7(c), as the case may
be, shall not yet have occurred, then (i) no dividends shall be declared or paid
or set apart for payment and no other distribution shall be declared or made or
set apart for payment, in each case upon the Common Stock or upon any other
Junior Stock of the Corporation and (ii) no capital stock of the Corporation
(other than the Series A Preferred Stock or Common Stock 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 shall be redeemed, purchased
or otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund or otherwise for the purchase or redemption of any
shares of any such stock) by the Corporation or any Subsidiary.
5. Liquidation Rights.
(a) Priority. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, before any
payment or distribution of the assets of the Corporation (whether from capital
or surplus) shall be made to or set apart for the holders of any Common Stock or
any other Junior Stock, and before any purchase, redemption or other acquisition
for any consideration by the Corporation shall be made in respect of any Common
Stock or any other Junior Stock, each holder of shares of Series A Preferred
Stock shall be entitled to receive from the assets of the Corporation, whether
represented by capital, surplus, reserves or earnings, an amount per share
(payable in cash) equal to the sum of (i) $1,000 plus (ii) the Full Cumulative
Dividends payable with respect to each such share through and including the date
of such liquidation, dissolution or winding-up of the Corporation or the date on
which such share of Series A Preferred Stock is fully redeemed pursuant to
Section 6 below (the sum of (i) and (ii) being the "Preferred Liquidation
Value"). If the assets distributable upon such liquidation, dissolution or
winding-up of the Corporation, whether voluntary or involuntary, shall be
insufficient to permit payment to the holders of the shares of Series A
Preferred Stock of the full preferential amounts as set forth in this Section
5(a), then such assets shall be distributed ratably among the shares of Series A
Preferred Stock.
(b) Junior Stock. After payment shall have been made in full
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to the holders of Series A Preferred Stock as provided in this Section 5 upon
any liquidation, dissolution or winding up of the Corporation, the holders of
the Common Stock and any other Junior Stock of the Corporation shall, subject to
the respective terms and provisions (if any) applying thereto, be entitled to
receive any and all assets remaining to be paid or distributed upon such
liquidation, dissolution or winding up.
(c) Notice of Liquidation. Written notice of any liquidation,
dissolution or winding-up of the Corporation, stating the payment date or dates
when and the place or places where the amounts distributable in such
circumstances shall be payable, shall be given (not less than thirty (30) days
prior to any payment date stated therein) to the holders of record of the Series
A Preferred Stock at their respective addresses as the same shall appear on the
stock register of the Corporation.
6. Redemption.
(a) Mandatory Redemption. The Corporation shall redeem on each
of September 30, 2006, September 30, 2007, September 30, 2008, September 30,
2009 and September 30, 2010 (each, a "Mandatory Redemption Date"), the number of
shares of Series A Preferred Stock that is equal to twenty percent (20%) of the
total shares of Series A Preferred Stock outstanding on September 30, 2006 (or
any such lesser number of shares which on any such Mandatory Redemption Date
shall constitute all of the remaining outstanding shares of Series A Preferred
Stock), in each case at a price per share in cash (the "Mandatory Redemption
Price") equal to the Preferred Liquidation Value per share on the applicable
Mandatory Redemption Date; provided, however, that if the Corporation fails to
fully redeem shares of Series A Preferred Stock pursuant to this Section 6(a) on
any two (2) Mandatory Redemption Dates, or if a Redemption Event of the type
referred to in clause (i) of the definition thereof has occurred, the
Corporation shall thereafter be required to redeem any remaining outstanding
shares of Series A Preferred Stock at a price per share in cash equal to the sum
of (i) $1,025 plus (ii) the Full Cumulative Dividends payable with respect to
each such share through and including the date of redemption of such share (the
"Premium Redemption Price").
(b) Optional Redemption.
(i) Upon the occurrence of any Redemption Event, each holder
of a share of Series A Preferred Stock shall have the right, at such holder's
option, to require the Corporation to redeem such holder's shares of Series A
Preferred Stock in whole or in part at a price per share in cash (the "Optional
Redemption Price") equal to the Preferred Liquidation Value per share of Series
A Preferred Stock through and including the date of such redemption; provided,
however, that (A) if such Redemption Event occurred on or prior to September 30,
1997, the Optional Redemption Price shall be increased by $37.50 per share of
Series A Preferred Stock, (B) if such Redemption Event occurred during the
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period after September 30, 1997 to and including September 30, 1998, the
Optional Redemption Price shall be increased by $18.75 per share of Series A
Preferred Stock, and (C) if such Redemption Event occurred during the period
after September 30, 1998 to and including September 30, 2010, the Optional
Redemption Price shall be increased by $9.3525 per share of Series A Preferred
Stock; provided further that, if a Redemption Event of the type referred to in
clause (i) of the definition thereof has occurred, the Optional Redemption Price
shall be an amount equal to the Premium Redemption Price.
(ii) Such holder's option to require redemption under this
Section 6(b) may be exercised by written notice to the Corporation pursuant to
Section 6(d) hereof given at any time on or after the occurrence of any
Redemption Event, but in no event after the later of (i) the ninetieth (90th)
day after such holder receives written notice from the Corporation of such
Redemption Event or (ii) the ninetieth (90th) day after the holder becomes aware
of the occurrence of such Redemption Event. Promptly (and in any event within
ten (10) days) after the occurrence of any Redemption Event, the Corporation
shall give written notice to each holder of a share of Series A Preferred Stock
notifying each such holder of the occurrence of such Redemption Event and
informing each such holder of its right to exercise its option to require a
redemption under this Section 6(b).
(c) Payment of Redemption Price. Each payment to be made under
Section 6(a) or Section 6(b) hereof shall be made in accordance with Section 10
hereof to the holder of each share of Series A Preferred Stock being redeemed
upon surrender by such holder to the Corporation or its agent of the certificate
representing such share of Series A Preferred Stock, duly endorsed in blank or
accompanied by an appropriate form of assignment.
(d) Notice of Redemption.
(i) Notice of the redemption of shares of Series A Preferred
Stock pursuant to Section 6(a) hereof, specifying the time and place of
redemption and the price at which such shares are to be redeemed, shall be
mailed by certified or registered mail, return receipt requested, to each holder
of record of shares to be redeemed, at the address for such holder shown on the
stock records of the Corporation not less than ten (10) Business Days prior to
the date on which such redemption is to be made; provided, that neither failure
to give such notice nor any defect therein shall affect the validity of the
proceeding for the redemption of any shares of Series A Preferred Stock to be
redeemed. Such notice shall also specify the number of shares of Series A
Preferred Stock of each holder thereof and the certificate numbers thereof which
are to be redeemed. In case less than all the shares of Series A Preferred Stock
represented by any certificate are redeemed, a new certificate representing the
unredeemed shares of Series A Preferred Stock shall be issued to the holder
thereof without cost to such holder.
(ii) In order to exercise its right to require a redemption
under Section 6(b) hereof, a holder of any shares of Series A Preferred Stock
requesting such redemption shall send to the Corporation a written notice
demanding redemption under Section 6(b) hereof and specifying the date of such
redemption (which shall not be less than five (5) days after receipt of such
notice by the Corporation); provided that neither failure to give such notice
nor any defect therein shall affect the validity of the proceeding for the
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redemption of any shares of Series A Preferred Stock to be redeemed.
(e) Failure to Redeem. In the event that on any date for
redemption pursuant to Section 6(a) or Section 6(b) hereof, the Corporation, for
whatever reason, is unable to, or does not, pay in full the applicable
redemption price or other amounts due to any holder or holders of shares of
Series A Preferred Stock (the "Redemption Default"), the Corporation shall
promptly notify all holders of shares of Series A Preferred Stock of the
Redemption Default (the "Non-Payment Notice"). In the event of any Redemption
Default, and without releasing the Corporation from its obligations under
Section 6(a) or Section 6(b) hereof, the amount, if any, paid by the Corporation
shall be allocated as follows: (i) with respect to any amounts payable under
Section 6(a) hereof, to all holders of shares of Series A Preferred Stock in
proportion, as nearly as practicable, to the respective number of shares of
Series A Preferred Stock then held by each holder, and (ii) with respect to any
amounts payable under Section 6(b) hereof, to all holders of shares of Series A
Preferred Stock who have sent written notices to the Corporation of their intent
to exercise redemption rights under Section 6(b) hereof within thirty (30) days
following the delivery of the Non-Payment Notice by the Corporation, which
allocation shall be in proportion, as nearly as practicable, to the respective
number of shares of Series A Preferred Stock then held by each such holder;
provided that any holders of Series A Preferred Stock which, not more than
thirty (30) days prior to the delivery of the Non-Payment Notice, have delivered
notice to the Corporation of their intent to exercise redemption rights under
Section 6(b) hereof, shall be included in the allocation described in clause
(ii) hereof.
(f) Status of Redeemed Shares. Shares of the Series A
Preferred Stock which have been redeemed pursuant to Section 6(a) or 6(b) hereof
shall, after such redemption be retired, canceled and shall not thereafter be
reissued as Series A Preferred Stock. All such shares shall have the status of
authorized but unissued shares of Preferred Stock of the Corporation, without
designation as to series, until such shares are once more designated as part of
a particular series by or on behalf of the Board of Directors.
7. Call Redemption of Series A Preferred Stock.
(a) Call Redemption. So long as no Redemption Event or
Non-Compliance Event shall have occurred and be continuing, the Corporation may,
at its option, at any time on or after September 30, 2000, on one or more
occasions, provided that the Corporation may legally do so at such time, elect
to redeem for a cash amount per share equal to the Preferred Liquidation Value
through and including the date of such redemption (the "Call Redemption Price")
(i) all of the then outstanding shares of Series A Preferred Stock or (ii) a
portion of the then outstanding shares of Series A Preferred Stock (but in no
event, a portion representing less than twenty-five percent (25%) of the total
number of Series A Preferred Shares then issued and outstanding). Such option
under this Section 7(a) shall be exercised by written notice under Section 7(b)
hereof to each holder of a share of Series A Preferred Stock.
(b) Notice of Call Redemption. In order to exercise its right
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to require redemption under Section 7(a) hereof, the Corporation shall send to
each holder of a share of Series A Preferred Stock a written notice demanding
redemption under Section 7(a) hereof, which notice shall (i) specify the date of
such redemption (which shall not be less than five (5) Business Days after
receipt of such notice by each such holder), (ii) specify the total number of
shares of Series A Preferred Stock to be redeemed (and the number of each such
holder's shares to be redeemed if less than all of the shares are to be
redeemed) and (iii) specify the Call Redemption Price and the place of payment;
provided, that neither failure to give such notice nor any defect therein shall
affect the validity of the proceeding for the redemption of any shares of Series
A Preferred Stock to be redeemed. In case less than all the shares of Series A
Preferred Stock represented by any certificate are redeemed, a new certificate
representing the unredeemed shares of Series A Preferred Stock shall be issued
to the holder thereof without cost to such holder.
(c) No Selective Redemption. In any such redemption by the
Corporation, if all shares of Series A Preferred Stock are not being redeemed,
then the number of shares of Series A Preferred Stock to be redeemed shall be
allocated among all shares of Series A Preferred Stock, such that the shares of
Series A Preferred Stock are redeemed from the holders in proportion to the
respective number of shares of Series A Preferred Stock held by each such holder
(or in such other proportion as agreed by all such holders). Nothing in this
Section 7(c) shall effect the obligation of the Corporation to redeem shares of
Series A Preferred Stock in accordance with the terms of (and this Section 7
shall not apply to) Sections 6(a) through 6(d) hereof.
(d) Status of Redeemed Shares. Shares of the Series A
Preferred Stock which have been redeemed pursuant to Section 7(a) hereof shall,
after such redemption be retired, canceled and shall not thereafter be reissued
as Series A Preferred Stock. All such shares shall have the status of authorized
but unissued shares of Preferred Stock of the Corporation, without designation
as to series, until such shares are once more designated as part of a particular
series by or on behalf of the Board of Directors.
8. Exercise of Warrants.
(a) Application of Liquidation Value to Exercise Price.
Notwithstanding any other provision of this Certificate of Designations and to
the extent legally permitted, any holder of Series A Preferred Stock also
holding Warrants shall have the option, but not the obligation, upon any
exercise of Warrants, to surrender to the Corporation for cancellation in
payment of the exercise price therefor, in accordance with the terms and
provisions of the Warrants, shares of Series A Preferred Stock held by such
holder. Each share of Series A Preferred Stock so surrendered for cancellation
shall be deemed to be the payment of $1,000 of the aggregate exercise price for
the Warrants being exercised; provided, however, if at the time of such
surrender, the respective shares are subject to either (or both) of the Premium
Redemption Price or the Optional Redemption Price, each share so surrendered for
cancellation shall be deemed to be the payment of such Premium Redemption Price
or Optional Redemption Price, as the case may be (or, the greater of the Premium
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Redemption Price and the Optional Redemption Price if both are applicable), and
in each such case such amounts shall be applied towards payment of the aggregate
exercise price for the Warrants being exercised. The surrender of shares
pursuant to this Section 8(a) shall in no way extinguish or limit the obligation
of the Corporation to pay (or effect the right of any holder of Series A
Preferred Stock to receive) Full Cumulative Dividends through and including the
date of such surrender.
(b) Application of Unpaid Dividends to Exercise Price.
Notwithstanding any other provision in this Certificate of Designations and to
the extent legally permitted, any holder of Series A Preferred Stock who also
holds Warrants shall have the option, but not the obligation, upon any exercise
of Warrants to apply to all or a portion of the exercise price therefor, in
accordance with the terms and provisions of the Warrants, all or any part of the
accrued and unpaid dividends on the shares of Series A Preferred Stock held by
such holder. Any such application to the exercise price of Warrants shall reduce
the amount of accrued and unpaid dividends with respect to such shares of Series
A Preferred Stock by the aggregate amount applied to such exercise price.
(c) Status of Surrendered Shares. Shares of the Series A
Preferred Stock which have been surrendered pursuant to Section 8(a) hereof
shall, after such surrender be retired, canceled and shall not thereafter be
reissued as Series A Preferred Stock. All such shares shall have the status of
authorized but unissued shares of Preferred Stock of the Corporation, without
designation as to series, until such shares are once more designated as part of
a particular series by or on behalf of the Board of Directors.
9. Prohibited Actions. So long as any shares of any Series A
Preferred Stock remain outstanding, the Corporation shall not:
(a) create, authorize, issue or sell (i) any class or series
of capital stock ranking prior to or on parity with the Series A Preferred Stock
as to dividends or upon liquidation, dissolution or winding up or (ii) 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 (i) hereof; or
(b) amend the Certificate of Incorporation or By-laws of the
Corporation, or in any other manner alter or change the powers, rights,
privileges or preferences of the Series A Preferred Stock, if such amendment or
action would alter, change or affect adversely the powers, rights, privileges or
preferences of the holders of the Series A Preferred Stock; or
(c) increase the number of shares of Series A Preferred Stock
authorized for issuance; or
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(d) change the size of the Board of Directors, except as
permitted under the Stockholders' Agreement; or
(e) at any time after the date hereof, issue any shares of
Series A Preferred Stock, except (i) issuances specifically permitted by Section
11 of the Purchase Agreement, or (ii) issuances of share certificates upon
transfers or exchanges of shares by holders (other than the Corporation) or in
replacement of lost, stolen, damaged or mutilated share certificates;
(each of the actions set forth in the preceding clauses (a)-(e) of this Section
9, a "Fundamental Change").
10. Method of Payment. Any payments to be made by the
Corporation with respect to the Series A Preferred Stock shall be made, at the
option of each respective holder, by certified or official bank check or by wire
transfer of immediately available funds in money of the United States that at
the time of payment is legal tender for payment of public and private debts.
11. 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 services (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 holder of a
share of Series A Preferred Stock, at the holder's address as it appears in the
records of the Corporation or at such other address as any such holder may
otherwise indicate in a written notice delivered to the Corporation or (ii) to
the Corporation, at Three South Revmont Drive, Shrewsbury, New Jersey 07702 or
at such other address as the Corporation may otherwise indicate in a written
notice delivered to each holder of shares of Series A Preferred Stock. All such
notices, requests, demands, consents and other communications shall be deemed to
have been received two (2) days after so delivered, sent or deposited.
Whenever any notice is required to be given hereunder, such notice shall be
deemed given and such requirement satisfied only when such notice is delivered
or, if sent by telex or telecopier, when received, unless otherwise expressly
specified or permitted by the terms hereof.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, HOME STATE HOLDINGS, INC. has caused this
Certificate of Designations to be signed by its duly authorized Acting President
and its Assistant Secretary this 4th day of October, 1996.
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 Certificate of Designations]
EXHIBIT 4.2
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-1
FOR VALUE RECEIVED, the undersigned HOME STATE HOLDINGS, INC.,
a Delaware corporation (together with its successors and assigns, the
"Company"), hereby grants to SWISS REINSURANCE AMERICA CORPORATION, a New York
corporation, 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>
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).
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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.
(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
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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 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.
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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.
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. 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
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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 (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
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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 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
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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 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.
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<PAGE>
(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 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
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<PAGE>
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 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.
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(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 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
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<PAGE>
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 of such Restructuring Event (subject to
any 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
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<PAGE>
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.
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:
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"Additional Common Stock" has the meaning set forth 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.
"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
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<PAGE>
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 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.
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"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) 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).
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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 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
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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.
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).
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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 Reehl
--------------------------
Eric Reehl
Assistant Secretary
[Signature Page to the Swiss Re Warrant]
<PAGE>
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)].
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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:
21
EXHIBIT 4.3
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>
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).
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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.
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(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
shall be immediately delivered by the Company upon each such issuance). The
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<PAGE>
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.
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
5
<PAGE>
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 (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.
6
<PAGE>
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 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
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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 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:
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(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 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
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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 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.
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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 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).
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(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
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
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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 indirectly, the beneficial
owner
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(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.
"Diluting Event" shall mean any event which, pursuant to the
15
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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 thereof. The
"Fair Market Value" of a Warrant means the excess of (i) the Fair
16
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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) the quotient
obtained by dividing (A) the value of the assets available for distribution to
17
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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 Company, for new Warrants of like tenor representing
in the aggregate the purchase rights hereunder, and each of such new Warrants
18
<PAGE>
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.
Section 15. Descriptive Headings; Governing Law. The headings and
captions in this Warrant are for convenience only and shall not define, limit or
19
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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>
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: ___________________________
Mark Vaughn
Acting President
Attest: _________________________
Eric A. Reehl
Assistant Secretary
[Signature Page to the Reliance Warrant]
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<PAGE>
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)].
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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
EXHIBIT 10.1
HOME STATE HOLDINGS, INC.
SECURITIES PURCHASE AGREEMENT
Dated as of October 4, 1996
Series A Voting Preferred Stock
and
Class A Warrants
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
SECTION 1. SALE AND PURCHASE.....................................................................................1
1.1. Issuance of Shares..................................................................................1
1.2. Issuance of Warrants................................................................................1
1.3. The Closing.........................................................................................2
1.4. Use of Proceeds.....................................................................................3
1.5. Definitions.........................................................................................3
SECTION 2. CONDITIONS TO CLOSING.................................................................................3
2.1. Certificate of Designations; Stockholders' Agreement, etc...........................................3
2.2. Certain Other Agreements............................................................................3
2.3. Accuracy of Representations and Warranties..........................................................4
2.4. Compliance with Agreements; Redemption Events.......................................................4
2.5. Certificates........................................................................................4
2.6. Proceedings.........................................................................................5
2.7. Legality; Governmental and Other Authorization......................................................5
2.8. No Change in Law, etc...............................................................................5
2.9. Opinion of Counsel..................................................................................6
2.10. Payment of Transaction Expenses.....................................................................6
2.11. Company Financial Condition; No Material Adverse Effect.............................................6
2.12. Other Documents and Opinions........................................................................6
2.13. Preferred Director..................................................................................6
2.14. Public Announcements................................................................................6
2.15. Letter to Accountants...............................................................................7
SECTION 3. COMPANY'S CONDITIONS TO CLOSING.......................................................................7
3.1. Accuracy of Representations and Warranties..........................................................7
3.2. Fairness Opinion....................................................................................7
SECTION 4. DEFINITIONS...........................................................................................7
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................................................23
5.1. Corporate Existence, Power and Authority...........................................................23
5.2. Capitalization.....................................................................................24
5.3. Subsidiaries.......................................................................................25
5.4. Business...........................................................................................25
5.5. No Defaults or Conflicts...........................................................................26
5.6. Disclosure Materials; Other Information............................................................27
5.7. Litigation.........................................................................................28
5.8. Taxes..............................................................................................29
5.9. Employee Benefit Plans.............................................................................29
5.10. Legal Compliance...................................................................................30
5.11. Environmental Compliance...........................................................................30
5.12. Status Under Certain Statutes......................................................................31
5.13. Use of Proceeds; No Foreign Assets Control Regulation Violation....................................31
5.14. Outstanding Securities.............................................................................32
5.15. Permits, Filings, Licenses and Approvals; Intellectual Property and Other Rights...................32
5.16. Properties.........................................................................................33
-i-
<PAGE>
5.17. Insurance Coverage.................................................................................33
5.18. Key Employees; Labor Matters.......................................................................34
5.19. Indebtedness.......................................................................................34
5.20. No Burdensome Agreements...........................................................................34
5.21. Solvency...........................................................................................34
5.22. Information True and Accurate......................................................................35
5.23. No Brokers or Finders..............................................................................35
5.24. Interested Party Transactions......................................................................36
5.25. Offering of Securities.............................................................................36
5.26. Disaster...........................................................................................36
5.27. Insurance Contracts; Reinsurance; Loss Reserves....................................................36
SECTION 6. REPRESENTATIONS OF THE PURCHASER.....................................................................37
6.1. Corporate Power and Authority. ...................................................................37
6.2. Investor Suitability...............................................................................38
SECTION 7. INFORMATION AS TO COMPANY ...........................................................................38
7.1. Financial and Business Information.................................................................38
7.2. Communication with Accountants.....................................................................41
7.3. Inspection.........................................................................................42
7.4. Notices............................................................................................42
SECTION 8. AFFIRMATIVE COVENANTS................................................................................43
8.1. Maintenance of Existence, Properties and Franchises; Compliance with Law: Taxes; Insurance.........43
8.2. Office for Payment Exchange and Registration; Location of Office; Notice of Change of Name or
Office.............................................................................................44
8.3. Fiscal Year........................................................................................45
8.4. Payment of Dividends by Subsidiaries...............................................................45
8.5. Directors..........................................................................................45
8.6. Environmental Matters..............................................................................45
8.7. Reservation of Shares..............................................................................47
8.8. Listing of Shares..................................................................................47
8.9. Exchange Act Registration..........................................................................47
8.10. Delivery of Information for Rule 144A Transactions.................................................47
8.11. Press Releases.....................................................................................48
8.12. Insurance Company Regulations......................................................................48
8.13. Reinsurance Arrangements...........................................................................48
SECTION 9. NEGATIVE COVENANTS...................................................................................50
9.1. Restricted Payments; Investments...................................................................50
9.2. Sale of Substantial Portion of Assets; Subsidiaries................................................50
9.3. Indebtedness.......................................................................................50
9.4. No Change in Business..............................................................................51
9.5. Consolidation, Merger and Sale.....................................................................51
9.6. Affiliate Loans and Guarantees.....................................................................52
9.7. Transactions with Affiliates.......................................................................52
9.8. Capital Expenditures...............................................................................52
9.9. No Restrictions on Dividends by Subsidiaries.......................................................53
9.10. Private Placement Status...........................................................................53
9.11. No Dilution or Impairment; No Changes in Capital Stock.............................................53
9.12. Maintenance of Public Market.......................................................................54
9.13. Issuances of Stock.................................................................................54
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9.14. Indebtedness Agreements............................................................................55
9.15. Amendments to Charter; By-Laws; Other Agreements...................................................55
SECTION 10. AMENDMENT; WAIVER; CONSENT..........................................................................55
SECTION 11. PURCHASE OPTION; FUTURE SALES.......................................................................56
11.1. Swiss Re Purchase Option...........................................................................56
11.2. Permitted Sales....................................................................................57
SECTION 12. PUT OPTION .........................................................................................58
SECTION 13. REMEDIES............................................................................................59
SECTION 14. RESTRICTIONS ON TRANSFER............................................................................60
SECTION 15. EXPENSES............................................................................................61
SECTION 16. HOME OFFICE PAYMENTS................................................................................63
SECTION 17. EXCHANGE OF SHARES; CANCELLATION OF SURRENDERED SECURITIES; REPLACEMENT.............................63
SECTION 18. NOTICES.............................................................................................64
SECTION 19. MISCELLANEOUS.......................................................................................65
19.1. Entire Agreement...................................................................................65
19.2. Survival...........................................................................................65
19.3. Counterparts.......................................................................................65
19.4. Headings...........................................................................................65
19.5. Binding Effect, Benefit and Assignment.............................................................65
19.6. Severability.......................................................................................66
19.7. Governing Law......................................................................................66
19.8. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.....................................................66
19.9. WAIVER OF JURY TRIAL...............................................................................67
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</TABLE>
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.
<PAGE>
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.
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<PAGE>
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
<PAGE>
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
<PAGE>
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
5
<PAGE>
and deliver such 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.
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<PAGE>
2.16. Resignation.
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
7
<PAGE>
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. 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
8
<PAGE>
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 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. ss.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).
9
<PAGE>
"Company" means Home State Holdings, Inc., a Delaware corporation, and
its successors and assigns.
"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. SS.6901 et seq.; the Toxic Substances Control
Act, 15 U.S.C. SS.2601 et seq.; the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. SS.9601 et seq.; the Federal
Water Pollution Control Act, 33 U.S.C. SS.1251 et seq.; the Clean Air Act, 42
U.S.C. SS.7401 et seq.; the Hazardous Materials Transportation Act,
10
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49 U.S.C. SS.1801 et seq.; the Occupational Safety and Health Act, 29 U.S.C.
SS.651; the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. SS.136y
et seq.; and the Oil Pollution Act of 1990, 33 U.S.C. SS.2701 et seq.; and all
the state analogues thereto, all as may be amended or superseded from time to
time.
"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.
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"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.
"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:
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(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);
(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:
13
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(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;
(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
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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.
"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:
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(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;
(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.
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"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, 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;
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<PAGE>
(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.
"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.
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"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.
"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)
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<PAGE>
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 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
20
<PAGE>
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, 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.
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"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. ss.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.
"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.
22
<PAGE>
"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.
"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;
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(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 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
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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 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
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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.
(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
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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 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.
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(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' 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
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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.
(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.
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(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 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
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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 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
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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.
(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
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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 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
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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, 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
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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 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
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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:
(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
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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.
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
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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.
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.
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(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.
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
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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 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
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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 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
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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 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
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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-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
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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;
(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
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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.
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
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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
(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 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.
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(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
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
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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 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.
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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 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.
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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 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
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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 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
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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).
(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;
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(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 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
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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).
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
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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.
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).
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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.
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;
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(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.
(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
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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.
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
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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 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
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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 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
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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).
(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
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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 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
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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
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,
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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.
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
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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.
(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.
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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.
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
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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 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.
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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.
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,
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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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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>
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
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
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
<PAGE>
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>
72
<PAGE>
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)
73
<PAGE>
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").
74
<PAGE>
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>
75
<PAGE>
EXHIBIT A
[CERTIFICATE OF DESIGNATIONS]
76
<PAGE>
EXHIBIT B-1
[FORM OF WARRANT]
77
<PAGE>
EXHIBIT B-2
[FORM OF RELIANCE WARRANT]
78
<PAGE>
EXHIBIT C
[FORM OF STOCKHOLDERS' AGREEMENT]
79
<PAGE>
EXHIBIT D
[FORM OF REGISTRATION RIGHTS AGREEMENT]
80
<PAGE>
EXHIBIT E
[FORM OF AMENDED BY-LAWS]
81
<PAGE>
EXHIBIT F-1
[FORM OF COMPANY OFFICER'S CERTIFICATE]
82
<PAGE>
EXHIBIT F-2
[FORM OF COMPANY SECRETARY'S CERTIFICATE]
83
<PAGE>
EXHIBIT G-1
[FORM OF EDWARDS & ANGELL OPINION]
84
<PAGE>
EXHIBIT G-2
[FORM OF DORSEY & WHITNEY OPINION]
85
<PAGE>
EXHIBIT H
[FORM OF AMENDED AND RESTATED CERTIFICATE OF DESIGNATIONS]
86
<PAGE>
[DISCLOSURE SCHEDULES]
87
EXHIBIT 10.2
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.
<PAGE>
"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 such beneficial owner, or any officer or director of
such beneficial owner or of any corporation occupying any such control
<PAGE>
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.
"Outstanding" or "outstanding" means, (i) with respect to the
Common Stock, the authorized, issued and outstanding shares of Common Stock,
-2-
<PAGE>
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 (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).
-3-
<PAGE>
"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.
"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.
-4-
<PAGE>
"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 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
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
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<PAGE>
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 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
-7-
<PAGE>
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 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.
-8-
<PAGE>
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 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
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<PAGE>
"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.
(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
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<PAGE>
(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 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
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<PAGE>
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.
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.
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<PAGE>
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.
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
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<PAGE>
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 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.
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<PAGE>
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.
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
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<PAGE>
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.
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
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<PAGE>
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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<PAGE>
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>
/s/ Michael H. Monier
------------------------------
Michael H. Monier
/s/ Edward D. Herrick
------------------------------
Edward D. Herrick
HERRICK PARTNERS, L.P.
By Edward D. Herrick,
General Partner
/s/ Edward D. Herrick
------------------------------
[Signature Page for Stockholders' Agreement]
<PAGE>
ANNEX A
Signature Page for Additional Stockholders
<PAGE>
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 America 0 700,000 5,000
Corporation
Reliance Insurance Company 0 700,000 5,000
Edward D. Herrick 0 0 0
Herrick Partners, L.P. 561,725 0 0
Michael H. Monier 548,200 0 0
--------- --------- ------
TOTAL 1,109,925 1,400,000 10,000
========= ========= ======
</TABLE>
<PAGE>
Exhibit 1
Certificate of Incorporation
<PAGE>
Exhibit 2
By-Laws
EXHIBIT 10.3
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.
"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.
<PAGE>
"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.
"Reliance Holders" means the Holder or Holders of Reliance Registrable
Securities.
-2-
"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 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)
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<PAGE>
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 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.
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<PAGE>
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 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.
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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).
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
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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 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
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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 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
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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 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.
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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;
(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
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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 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
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(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 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
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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 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
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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 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
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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 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
-15-
<PAGE>
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 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
-16-
<PAGE>
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).
-17-
<PAGE>
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]
EXHIBIT 10.4
October 4, 1996
Home State Holdings, Inc.
Three South Revmont Drive
Shrewsbury New Jersey 07702
Attention: Mark Vaughn
Acting President and
Chief Executive Officer
Re: Investment by Swiss Reinsurance America Company
("Swiss Re") and Reliance Insurance Company ("Reliance")
---------------------------------------------------------
Gentlemen:
Reference is made to the Purchase Agreement dated as of October 3, 1994
among Home State Holdings, Inc. (the "Company") and the Purchasers named therein
(as amended, the "Note Purchase Agreement"). Capitalized terms used herein which
are defined in the Note Purchase Agreement shall have the same meanings herein
as therein, unless defined or the context requires otherwise.
1. Consent. The undersigned Holders of a majority of (i) the aggregate
principal amount of the Notes outstanding, and (ii) the outstanding shares of
Warrant Stock (as defined in the Registration Rights Agreement) hereby consent
to (A) the execution, delivery and performance of the Securities Purchase
Agreement of even date herewith among the Company, Swiss Re and Reliance (the
"Securities Purchase Agreement") and each of the agreements and instruments
contemplated thereby (including the Other Transaction Documents and the
Securities (each as defined in the Securities Purchase Agreement)), and (B) the
consummation of the transactions contemplated by each of the foregoing,
including without limitation the issuance of the Preferred Shares and the
Warrants (both, as defined in the Securities Purchase Agreement) and any
subsequent exercise of Warrants. Without limiting the foregoing consent, the
undersigned consent to the following:
a) Restricted Payments. So long as no Event of Default, and no event which
with the passage of time or the giving of notice, or both, would
constitute an Event of Default, has occurred and is continuing, the
declaration and payment of dividends upon the Preferred Shares in
accordance with the Certificate of Designations (as defined in the
Securities Purchase Agreement) shall not be deemed to violate or to be
prohibited by Section 9.3 of the Note Purchase Agreement;
b) Funded Indebtedness. The issuance and subsequent ownership of the
Preferred Shares and the Warrants (and any exercise of such Warrants)
shall not be deemed to violate the terms and provisions of Section 9.6 of
the Note Purchase Agreement; and
<PAGE>
c) Transaction with Affiliates. The agreements, including without limitation,
the Other Transaction Documents, executed or to be executed in connection
with, or contemplated by the Securities Purchase Agreement, to which the
Company or any of its Subsidiaries, on the one hand, and Swiss Re or
Reliance, on the other, are parties, and the performance by the respective
parties of their obligations thereunder and the consummation of the
transactions contemplated thereby shall not be deemed to violate or to be
prohibited by Section 9.11 of the Note Purchase Agreement.
The granting of the consents hereunder shall be limited specifically to
the matters set forth above and does not constitute directly or by implication
an amendment or waiver of any other provisions of the Note Purchase Agreement or
any other default which may occur or may have occurred under the Note Purchase
Agreement. Notwithstanding anything to the contrary contained herein, the
granting of the above consent shall not be deemed to be a consent by the Holders
to any payment upon the redemption or repurchase of the Preferred Shares
following the occurrence of a Redemption Event (as defined in the Certificate of
Designations) or otherwise prior to the payment in full of the Notes and any
consent requested with respect to any such payment may be withheld or granted by
the Holders in their sole discretion.
2. Amendment to Registration Rights Agreement. The undersigned Holders
and the Company hereby amend the Registration Rights Agreement as follows:
a) Additional Demand. Section 2(a) of the Registration Rights Agreement is
hereby amended by inserting the phrase "on two separate occasions" before
the words "the Holders" in the first sentence thereof. Section 2(b) of the
Registration Rights Agreement is hereby amended by deleting the phrase
"one time only" in the first sentence thereof and inserting in place
thereof, "on two separate occasions". Any and all references in the
Registration Rights Agreement to "the Demand Registration" or "a Demand
Registration" shall be deemed to be a reference to one of the two separate
requests that the Holders of majority of the shares of Warrant Stock may
make pursuant to Section 2(a) of the Registration Rights Agreement, as
amended
b) Priority of Demands. Notwithstanding anything to the contrary contained
in the Registration Rights Agreement, the rights of the Holders with
respect to any requested Demand Registration pursuant to Section 2 of the
Registration Rights Agreement shall be subject to the terms and provisions
of Sections 2.1(b) and 2.5 of a Registration Rights Agreement dated on or
about September 30, 1996 among the Company, Swiss Re and Reliance (the
"1996 Registration Rights Agreement").
c) Priority of Piggybacks. Notwithstanding anything to the contrary contained
in the Registration Rights Agreement, the rights of the Holders with
respect to any request to include Restricted Stock in a Piggyback
Registration pursuant to
<PAGE>
Section 3 of the Registration Rights Agreement shall be subject to the
terms and provisions of Section 3.3 of the 1996 Registration Rights
Agreement.
d) Future Registrations Rights. Notwithstanding anything to the contrary
contained in the Registration Rights Agreement, the rights of the Holders
with respect to any future registration rights pursuant to Section 11 of
the Registration Rights Agreement shall be subject to the terms and
provisions of Sections 2.1(b), 2.5 and 3.3 of the 1996 Registration Rights
Agreement.
The amendment of the Registration Rights Agreement hereunder shall be
limited specifically to the matters set forth above and does not constitute
directly or by implication an amendment or waiver of any other provisions of the
Registration Rights Agreement or any other default which may occur or may have
occurred under the Note Purchase Agreement.
3. Certain Amendments. The Company agrees that it shall not permit the
amendment of the 1996 Registration Rights Agreement or the Securities Purchase
Agreement if such amendment would have a material adverse effect upon the rights
of the Holders.
4. No Defaults. The Company hereby represents and warrants that, after
giving effect to this Letter Agreement and the transactions to be effected as of
the Closing (as defined in the Securities Purchase Agreement) pursuant to the
Securities Purchase Agreement, no Event of Default exists under the Note
Purchase Agreement or any other related document.
5. Counterparts. This Letter Agreement may be executed in one or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument.
Please indicate your consent to and acknowledgment of the following in
the spaces provided below.
BAKER FENTRESS & COMPANY
By_____________________________
Scott Smith
Executive Vice President
<PAGE>
Consented to and acknowledged as
of the date first above written
HOME STATE HOLDINGS, INC.
By__________________________
Eric A. Reehl
Assistant Secretary
EXHIBIT 10.5
FIRST AMENDMENT and WAIVER dated as of August 14,
1996 to the LOAN AGREEMENT dated as of March 4,
1996 (the "Agreement"), among HOME STATE HOLDINGS,
INC. ("Holdings"), a Delaware corporation, TOWER
HILL, INC., ("Tower"), a Delaware corporation
(Holdings and Tower collectively the "Credit
Parties"), THE CHASE MANHATTAN BANK (formerly
known as Chemical Bank) ("Chase"), a New York
banking corporation, and EUROPEAN AMERICAN BANK
("EAB"), a New York banking corporation (Chase and
EAB individually a "Bank" and collectively, the
"Banks"), and THE CHASE MANHATTAN BANK (formerly
known as Chemical Bank), as agent for the Banks
(in such capacity, the "Agent")
WHEREAS, the Credit Parties, the Agent and the Banks desire to waive and amend
the Agreement in certain respects;
WHEREAS, the Agent and the Banks have agreed, subject to the terms and
conditions of this FIRST AMENDMENT and WAIVER, to waive and amend the Agreement
to the extent set forth below;
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and
agreements hereinafter set forth, the parties hereto agree as follows:
1. Waiver of Article V, COVENANTS OF THE BORROWER, Section 5.02, Negative
Covenants, (k) Losses.
Compliance with Section 5.02(k)(1) of the Agreement is hereby waived to
permit the Credit Parties to incur a net consolidated loss for the fiscal
quarter ended June 30, 1996 in an amount not in excess of $5,500,000 in the
aggregate provided, however, that such loss arises solely as a result of a
reserve taken in the fiscal quarter ended June 30, 1996 in the amount of
$11,300,000.
2. Amendment to Article V, COVENANTS OF THE BORROWER, Section 5.02, Negative
Covenants, (k) Losses.
Section 5.02(k) of the Agreement is hereby amended by deleting it in its
entirety and substituting the following therefor:
"Incur (i) a net consolidated loss in excess of $1,500,000 in the aggregate
for any two (2) fiscal quarters in any four (4) quarter period (excluding,
for purposes of calculating compliance with this covenant, the fiscal
quarter ended June 30, 1996 from any four (4) quarter period and including,
in substitution thereof, the fiscal quarter next preceding the
<PAGE>
first quarter in such four quarter period), or (ii) a net consolidated loss
in any amount for any fiscal year (other than the fiscal year ending
December 31, 1996, in which the Credit Parties may incur a net consolidated
loss not in excess of $2,500,000)."
This FIRST AMENDMENT and WAIVER shall be construed and enforced in accordance
with the laws of the State of New York.
All terms used herein shall have the meaning as in the Agreement unless
specifically defined herein.
Except as expressly amended or waived hereby, the Agreement shall remain in full
force and effect in accordance with the original terms thereof. The FIRST
AMENDMENT and WAIVER herein contained is limited specifically to the matters set
forth above and does not constitute directly or by implication an amendment or
waiver of any other provisions of the Agreement or any default which may occur
or may have occurred under the Agreement.
The Credit Parties hereby represent and warrant that, after giving effect to
this FIRST AMENDMENT and WAIVER, no Event of Default or Default exists under the
Agreement or any other related document.
Please be advised that should there be a need for further amendments and waivers
with respect to the Agreement, those requests will be evaluated by the Agent and
the Banks when formally requested in writing by the Credit Parties.
This FIRST AMENDMENT and WAIVER may be executed in one or more counterparts,
each of which shall constitute an original, but all of which, when taken
together, shall constitute but one FIRST AMENDMENT and WAIVER. This FIRST
AMENDMENT and WAIVER shall become effective as of the date first above written
upon the receipt by the Agent of duly executed counterparts of the FIRST
AMENDMENT and WAIVER, bearing the signatures of each of the parties hereto.
IN WITNESS WHEREOF, the Credit Parties, the Agent and the Banks have caused this
FIRST AMENDMENT and WAIVER to be duly executed by their duly authorized
officers, all as of the day and year first above written.
HOME STATE HOLDINGS, INC.
By:_________________________________
Name:
Title
By:_________________________________
Name:
Title
2
<PAGE>
TOWER HILL, INC.
By:_________________________________
Name:
Title
By:_________________________________
Name:
Title
THE CHASE MANHATTAN BANK
(formerly known as Chemical), as Agent
and a Bank
By:_________________________________
Name:
Title
By:_________________________________
Name:
Title
EUROPEAN AMERICAN BANK
By:_________________________________
Name:
Title
By:_________________________________
Name:
Title
3
<PAGE>
CONSENT
The undersigned, as Guarantors of the obligations of Home State Holdings, Inc.
and Tower Hill, Inc., hereby consent to the execution and delivery by Home State
Holdings, Inc. and Tower Hill, Inc. of this FIRST AMENDMENT AND WAIVER and
hereby confirm that they remain fully bound by the terms of the General Guaranty
dated March 4, 1996 to which they are a party.
HSIM L.L.C. ASPEN INTERMEDIARIES, INC.
By:_____________________________ By:_____________________________
Name: Name:
Title: Title:
By:_____________________________ By:_____________________________
Name: Name:
Title: Title:
ASPEN INTERMEDIARIES L.L.C.
By:_____________________________
Name:
Title:
By:_____________________________
Name:
Title:
4
EXHIBIT 10.6
SECOND AMENDMENT
DATED AS OF OCTOBER 4, 1996
TO LOAN AGREEMENT
DATED AS OF MARCH 4, 1996
This Second Amendment Agreement (the "Second Amendment") is dated as of
October 4, 1996 and is by and among HOME STATE HOLDINGS, INC. ("Holdings"), a
Delaware corporation, having its principal place of business at 3 South Revmont
Drive, Shrewsbury, New Jersey 07702, TOWER HILL, INC. ("Tower"), a Delaware
corporation, having its principal place of business at 3 South Revmont Drive,
Shrewsbury, New Jersey 07702, (Holdings and Tower collectively, the "Credit
Parties"), THE CHASE MANHATTAN BANK ("Chase"), (formerly known as Chemical Bank)
a New York banking corporation, having an office at 395 N. Service Road,
Melville, New York 11747, EUROPEAN AMERICAN BANK ("EAB"), a New York banking
corporation, having an office at 335 Madison Avenue, New York, New York 10017
(Chase and EAB, individually, a "Bank" and collectively, the "Banks") and THE
CHASE MANHATTAN BANK ("Agent"), a New York banking corporation having an office
at 395 N. Service Road, Melville, New York 11747 hereby agree as follows:
W I T N E S S E T H :
WHEREAS, the Banks, the Agent and the Credit Parties entered into a Loan
Agreement dated as of March 4, 1996 and amended as of August 14, 1996 (as
amended, the "Agreement") pursuant to which Agreement the Banks have each made
certain revolving credit facilities available to the Credit Parties upon the
terms and conditions of the Agreement; and
WHEREAS, the Credit Parties have requested that the Agent and the Banks
modify certain provisions of the Agreement and waive compliance with certain
provisions of the Agreement and the Agent and the Banks have agreed to same
provided, among other things, the Credit Parties enter into this Second
Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the Agent, the Banks and the Credit
Parties agree as follows:
1. Definitions. As used in this Second Amendment, capitalized terms unless
otherwise defined, shall have the meanings given to them in the Agreement.
2. Representations and Warranties. As an inducement for the Banks to enter
into this Second Amendment, each of the Credit Parties represent and warrant as
follows:
<PAGE>
That with respect to the Agreement and the Loan Documents:
(i) There are no defenses, offsets or counterclaims to the respective
obligations of the Credit Parties under the Agreement, the Loans, the Notes
or any of the other Loan Documents, and if any such defenses, offsets or
counterclaims exist without the knowledge of one or more of the Credit
Parties, the same are hereby waived.
(ii) All of the representations and warranties made by the Credit
Parties in the Agreement and the other Loan Documents are true and correct
in all material respects as of the date of this Second Amendment provided
that the representations and warranties set forth in Section 4.01(f) of the
Agreement shall relate to the consolidated financial statements of Holdings
and its Consolidated Affiliates for the fiscal year ended December 31, 1995
and for the six month period ended June 30, 1996.
(iii) Upon the execution of this Second Amendment and the receipt of the
required consent of the holders of the Subordinated Notes, and upon the
execution of the Securities Purchase Agreement and the consummation of the
transactions contemplated thereby, no Default or Event of Default is, or
will be, existing under the Agreement (as amended by the Second Amendment)
or the other Loan Documents or will result from the execution of this
Second Amendment or the execution of the Securities Purchase Agreement and
the consummation of the transaction contemplated thereby.
(iv) The continued performance by the Credit Parties of the Agreement
(as amended by the Second Amendment), including without limitation the
borrowing, repaying and reborrowing under any one or more of Chase's
Holdings Commitment, Chase's Tower Commitment, EAB's Holdings Commitment,
or EAB's Tower Commitment, and the guarantee of the obligations of Holdings
by Tower and the guarantee of the obligations of Tower by Holdings will not
conflict with, result in a breach of, constitute a default under, or result
in the occurrence of Redemption Event or Put Event under the Securities
Purchase Agreement.
(v) The outstanding principal balance of (i) Chase's Revolving Credit
Note (Holdings) is $3,333,500.00, (ii) Chase's Revolving Credit Note
(Tower) is $3,716,881.00, (iii) EAB's Revolving Credit Note (Holdings) is
$1,666,500.00 and (iv) EAB's Revolving Credit Note (Tower) is
$1,858,119.00.
(vi) Interest on all of the Notes has been paid through September 30,
1996.
3. Amendment. The Agreement is hereby amended as follows:
(a) The following defined terms shall be added to Section 1.01 of the
Agreement:
"Certificate of Designations" has the meaning given such term in the
Securities Purchase Agreement.
"Holdings Maturity Date" means September 30, 1997.
<PAGE>
"Other Transaction Documents" has the meaning given such term in the
Securities Purchase Agreement.
"Preferred Stock" has the meaning given such term in the Securities
Purchase Agreement.
"Purchaser" or "Purchasers" has the meaning given such term in the
Securities Purchase Agreement.
"Redemption Event" has the meaning given such term in the Securities
Purchase Agreement.
"Securities Purchase Agreement" means that certain Securities Purchase
Agreement dated as of September 30, 1996 among Holdings, Swiss Reinsurance
America Corporation and Reliance Insurance Company pursuant to which Swiss
Reinsurance America Corporation and Reliance Insurance Company purchases
certain Preferred Stock and certain Warrants from Holdings.
"Tower Maturity Date" means February 28, 1998.
"Warrants" has the meaning given such term in the Securities Purchase
Agreement.
(b) Section 1.01 of the Agreement, and certain defined terms therein are
hereby amended as follows:
(i) "The definition of 'Chemical's Holdings Commitment' shall be amended
to read in its entirety as follows:
'Chase's Holdings Commitment' means (i) from the date of this Agreement
to and until January 31, 1997, Three Million Three Hundred Thirty Three
Thousand Five Hundred ($3,333,500.00) Dollars, and (ii) from February 1,
1997 through and until the Holdings Maturity Date, One Million Three
Hundred Thirty Three Thousand Four Hundred ($1,333,400.00) Dollars, or, in
the case of either (i) or (ii) such lesser pro rata amount as the Holdings
Commitment may be reduced pursuant to Section 2.06 of this Agreement.
(ii) "Chemical's Tower Commitment" shall be amended to read in its
entirety as follows:
'Chase's Tower Commitment' means (i) from the date of this Agreement to
and until January 31, 1997, Eight Million Six Hundred Sixty Seven Thousand
One Hundred ($8,667,100.00) Dollars, or (ii) from February 1, 1997 through
and until the Tower Maturity Date, Ten Million Five Hundred
($10,000,500.00) Dollars, or, in the case of either (i) or (ii) such lesser
pro rata amount as the Tower Commitment may be reduced pursuant to
<PAGE>
Section 2.06 of this Agreement, and in the case of each of one (i) and
(ii) such Commitment to be subject with the EAB Tower Commitment, to the
Borrowing Base. Notwithstanding the foregoing, if on February 1, 1997 there
exists a Default or an Event of Default, the increase in Chase's Tower
Commitment shall not become effective.
(iii) "EAB's Holdings Commitment" shall be amended to read in its
entirety as follows:
'EAB's Holdings Commitment' means (i) from the date of this Agreement to
and until January 31, 1997, One Million Six Hundred Sixty Six Thousand Five
Hundred ($1,666,500.00) Dollars, and (ii) from February 1, 1997 through and
until the Holdings Maturity Date, Six Hundred Sixty Six Thousand Six
Hundred ($666,600.00) Dollars, or, in the case of either (i) or (ii) such
lesser pro rata amount as the Holdings Commitment may be reduced pursuant
to Section 2.06 of this Agreement.
(iv) "EAB's Tower Commitment" shall be amended to read in its entirety
as follows:
'EAB's Tower Commitment' means (i) from the date of this Agreement to
and until January 31, 1997, Four Million Three Hundred Thirty Two Thousand
Nine Hundred ($4,332,900.00) Dollars, or (ii) from February 1, 1997 through
and until the Tower Maturity Date, Four Million Nine Hundred Ninety Nine
Thousand Five Hundred ($4,999,500.00) Dollars, or, in the case of either
(i) or (ii) such lesser pro rata amount as the Tower Commitment may be
reduced pursuant to Section 2.06 of this Agreement, and in the case of each
of one (i) and (ii) such Commitment to be subject with the Chase Tower
Commitment, to the Borrowing Base. Notwithstanding the foregoing, if on
February 1, 1997 there exists a Default or an Event of Default, the
increase in EAB's Tower Commitment shall not become effective.
(v) The definition of "Maturity Date" shall be deleted in its entirety.
(vi) In each case in which the defined term "Maturity Date" appears in
the Agreement from and after the date of this Second Amendment, such term
shall relate to either the Holdings Maturity Date or the Tower Maturity
Date as the context requires.
(vii) All references to Chemical Bank, or Chemical, shall be deemed
references to The Chase Manhattan Bank, or Chase.
(c) Section 2.01(a) and Section 2.01(b) of the Agreement shall be amended
to read in their entirety as follows:
SECTION 2.01. The Revolving Credit Loans. (a) The Banks agree,
severally but not jointly, on the date of this Agreement, and on the terms
and conditions and in reliance upon the representations and warranties
hereinafter set forth in this Agreement, to lend to Holdings prior to the
Holdings Maturity Date, such amounts as Holdings may request from time to
time (individually, a "Revolving Credit Loan (Holdings)" or collectively,
the "Revolving Credit Loans (Holdings)"), which amounts may be borrowed,
repaid and reborrowed, provided,
<PAGE>
however, that the aggregate amount of such Revolving Credit Loans
(Holdings) outstanding at any one time shall not exceed (i) in the case of
both Banks, (x) from the date of this Agreement until January 31, 1997,
Five Million ($5,000,000.00) Dollars in the aggregate, or (y) from February
1, 1997 until the Holdings Maturity Date, Two Million ($2,000,000.00)
Dollars in the aggregate or, in the case of either (x) or (y) such lesser
amount of the Holdings Commitment as may be reduced pursuant to Section
2.06 hereof and (ii) in the case of Chase, Chase's Holdings Commitment or,
in the case of EAB, EAB's Holdings Commitment.
(b) The Banks agree, severally but not jointly, on the date of this
Agreement, on the terms and conditions and in reliance upon the
representations and warranties hereinafter set forth in this Agreement, to
lend to Tower prior to the Tower Maturity Date, such amounts as Tower may
request from time to time (individually, a "Revolving Credit Loan (Tower)"
or collectively, the "Revolving Credit Loans (Tower)"), which amounts may
be borrowed, repaid and reborrowed, provided, however, that the aggregate
amount of such Revolving Credit Loans (Tower) outstanding at any one time
shall not exceed (i) in the case of both Banks, the lesser of (x) (1) from
the date of this Agreement until January 31, 1997, Thirteen Million
($13,000,000.00) Dollars in the aggregate, or (2) from February 1, 1997
until the Tower Maturity Date, Fifteen Million ($15,000,000.00) Dollars in
the aggregate or, in the case of either (1) or (2) such lesser amount of
the Tower Commitment as may be reduced pursuant to Section 2.06 hereof or
(y) the Borrowing Base, and (ii) in the case of Chase, Chase's Tower
Commitment or, in the case of EAB, EAB's Tower Commitment.
(d) Section 2.02 shall be amended to read as follows:
SECTION 2.02. Revolving Credit Notes. Each Revolving Credit Loan shall
be (i) in the case of each Alternate Base Rate Loan in the minimum
principal amount of $50,000.00 and (ii) in the case of each Eurodollar
Loan, in the minimum principal amount of $750,000.00, and in minimum
increased multiples of $100,000.00 (except that, if any such Alternate Base
Rate Loan so requested shall exhaust the remaining available Commitment of
a Bank, such Alternate Base Rate Loan may be in an amount equal to the
amount of the unused Commitment), and shall be evidenced by the Revolving
Credit Notes (Holdings) or the Revolving Credit Notes (Tower). Each
Revolving Credit Note shall be dated the date hereof and be in the maximum
principal amount of (i) Chase's Holdings Commitment in the case of Chase's
Revolving Credit Note (Holdings) and Chase's Tower Commitment in the case
of Chase's Revolving Credit Note (Tower) and (ii) EAB's Holdings Commitment
in the case of EAB's Revolving Credit Note (Holdings) and EAB's Tower
Commitment in the case of EAB's Revolving Credit Note (Tower). Each Note
shall mature on the Holdings Maturity Date or the Tower Maturity Date as
applicable, at which time the entire outstanding principal balance and all
interest thereon shall be due and payable. The Notes shall each be entitled
to the benefits and subject to the provisions of this Agreement.
At the time of the making of each Revolving Credit Loan and at the
time of each payment of principal thereon, each Bank is hereby authorized
by the applicable Credit Party to make a notation on the schedule annexed
to the applicable Note of the date and amount of the Revolving Credit Loan
or payment, as the case may be. Failure to make a notation with respect
<PAGE>
to any Revolving Credit Loan shall not limit or otherwise affect the
obligation of the applicable Credit Party hereunder or under the applicable
Note with respect to such Revolving Credit Loan, and any payment of
principal on a Note by a Credit Party shall not be affected by the failure
to make a notation thereof on said schedule.
(e) Section 2.07(b) of the Agreement shall be amended to read in its
entirety as follows:
(b) Mandatory. (i) Upon the occurrence of a Borrowing Base Deficiency,
Tower shall, without demand by the Agent or the Banks, prepay so much of
the Revolving Credit Loans (Tower) as shall equal the Borrowing Base
Deficiency. Any such mandatory prepayment required under this Section
2.07(b)(i) shall be applied first to Tower's Alternate Base Rate Loans
outstanding and then to Tower's Eurodollar Loans outstanding. In the event
of any such mandatory prepayment of a Eurodollar Loan, such prepayment
shall be held by the Agent as cash collateral for the Revolving Credit
Loans (Tower), and shall earn interest at a rate then generally paid by the
Agent on cash collateral accounts, and shall be applied to prepay the
Eurodollar Loan on the last day of such Loan's Interest Period, or upon an
Event of Default, if earlier.
(ii) Holdings shall make such prepayments on the Revolving Credit Notes
(Holdings) so that there will be no amounts outstanding under such Notes
from January 31, 1997 until March 2, 1997.
(iii) All mandatory prepayments shall be applied pro rata between the
Banks.
(iv) All Revolving Credit Loans shall be paid in full on the Maturity
Date.
(f) Section 5.02 of the Agreement shall be amended by adding a new
subsection (o) to read as follows:
"(o) Securities Repurchase Agreement. Amend, modify or in any way agree
to any change in the terms of the Securities Purchase Agreement, the
Certificate of Designations or any of the Other Transaction Documents which
would (i) increase the dividend rate on the Preferred Stock; (ii) change or
modify the definition or description of any Redemption Event (other than as
contemplated by Section 8.15 of the Securities Purchase Agreement);
(iii) give the holders of the Preferred Stock or Warrants any additional
rights of redemption or repurchase of the Preferred Stock or Warrants; or
(iv) result in a Material Adverse Change."
(g) Section 5.03(b) of the Agreement shall be amended to read in its
entirety as follows:
"(b) Consolidated Leverage Ratio. Holdings will maintain, at the end of
each fiscal quarter, a Consolidated Leverage Ratio of not greater than 0.50
to 1.00, provided that for the fiscal quarter ending September 30, 1996 and
through and including December 30, 1996, Holdings will maintain a
Consolidated Leverage Ratio of not greater than 0.55 to 1.00."
<PAGE>
(h) Section 6.01(k) of the Agreement shall be amended to read in its
entirety as follows:
"(k) There shall have occurred (i) a "Repurchase Event" as defined in
the Subordinated Note Agreement or (ii) a Redemption Event under or
pursuant to the Securities Purchase Agreement, the Certificate of
Designation or the Other Transaction Documents."
4. Effectiveness. This Second Amendment shall become effective upon the
occurrence of the following events and the receipt and satisfactory review by
the Agent and the Banks of the following documents:
(a) The Second Amendment, duly executed by all parties thereto;
(b) Endorsement No. 1 to each of the Notes;
(c) Certified (as of the date of this Second Amendment) copies of the
resolutions of the boards of directors of each of the Credit Parties,
approving and authorizing the Second Amendment and the transactions
contemplated thereby;
(d) An opinion of Edwards & Angell, counsel to the Credit Parties as to
certain matters relating to the Second Amendment;
(e) True and complete execution copies of the Securities Purchase
Agreement, the Certificate of Designations and the Other Transaction
Documents;
(f) The following statements shall be true and the Agent and the Banks
shall have received a certificate signed by an Authorized Official of each
of the Credit Parties dated the date of this Second Amendment, stating
that:
(i) The representations and warranties contained in Article IV of
the Agreement and in the other Loan Documents with respect to such
Credit Party are correct on and as of such date;
(ii) No Default or Event of Default has occurred and is continuing;
and
(iii) Since December 31, 1995, no Material Adverse Change has
occurred in either of the Credit Parties or any of their Affiliates or
Subsidiaries.
(g) An amendment fee of $10,000.00 will have been paid to the Agent, for
the pro rata distribution to the Banks, and all fees and expenses of
counsel to the Agent and the Banks will have been paid.
5. Ratification and Reaffirmation of Agreement. Except as hereby amended,
the Agreement and all other Loan Documents executed in connection therewith,
are, in all respected ratified and confirmed.
6. Ratification and Reaffirmation by Guarantors. By their execution of the
Second Amendment, each of the Guarantors expressly ratify and reaffirm their
Guaranties.
<PAGE>
7. Waivers and Consents. In consideration of the Credit Parties entering
into this Second Amendment, and provided no Default or Event of Default (other
than as consented to herein) has occurred or results therefrom, the Agent and
the Banks consent to (i) the execution, delivery and performance of the
Securities Purchase Agreement and the Other Transaction Documents (each in the
final form previously delivered to the Agent and the Banks), (ii) the issuance
of the Preferred Stock, (iii) the performance by Holdings of all of its
obligations under the Securities Purchase Agreement, the Other Transaction
Documents and otherwise arising in connection with the terms of the Preferred
Stock, provided that such performance will not result in a Default or Event of
Default, except as permitted by (c) below, and (iv) the consummation of the
transactions contemplated by each of the foregoing, including without limitation
the issuance of the Preferred Shares and Warrants and the issuance of Common
Stock (as defined in the Securities Purchase Agreement) upon the conversion of
exercise of the Warrants. Without limiting the foregoing consent, the Agent and
the Banks consent to the following:
a) Funded Indebtedness. The issuance of the Preferred Shares and
the Warrants shall not be deemed to violate the terms and provisions of
Section 5.02(b) of the Loan Agreement; and
b) Transaction with Affiliates. The Securities Purchase Agreement,
the Certificate of Designations and the Other Transaction Documents, to
which the Holdings or any of its Subsidiaries, on the one hand, and
Swiss Reinsurance America Company or Reliance Insurance Company, on the
other, are parties, and the performance by the respective parties of
their obligations thereunder shall not be deemed to violate or to be
prohibited by Section 5.02(f) of the Loan Agreement.
c) Preferred Stock Dividends. So long as no Default or Event of
Default has occurred and is continuing (other than as consented to
herein), the declaration and payment of dividends on the Preferred
Stock (at the rate or rates set forth in Section 4 of the Certificate
of Designations) will not be deemed a breach of, or be prohibited by,
Section 5.02(m) or Section 5.03(h) of the Agreement.
The granting of the consents hereunder shall be limited specifically to the
matters set forth above and does not constitute directly or by implication an
amendment or waiver of any other provisions of the Agreement or any other
default which may occur or may have occurred under the Agreement. Should there
be a need for further consents with respect to the Securities Purchase Agreement
or the transactions contemplated thereby, each such consent will be evaluated by
the Agent and the Banks when formerly requested in writing by either Holdings or
Tower.
8. Subordinated Debt Agreement. Holdings agrees to deliver to the Agent and
the Banks, not later than October 15, 1996, an acknowledgment from the holders
of the Subordinated Notes, or an amendment or modification to the Subordinated
Debt Agreement, the effect of which is to acknowledge or confirm that the Loans
made or to be made under the Agreement
<PAGE>
(including any increases in the Chase Tower Commitment or the EAB Tower
Commitment) are "Senior Indebtedness" as defined in the Subordinated Debt
Agreement. Any failure of Holdings to deliver such acknowledgment, amendment or
modification shall be deemed a breach of the representation given in Section
4.01(w) of the Agreement.
9. Execution in Counterparts. This Second Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Second
Amendment as of the year and date first above written.
HOME STATE HOLDINGS, INC.
By
----------------------------------------
Eric A. Reehl
Assistant Secretary
TOWER HILL, INC.
By
----------------------------------------
Eric A. Reehl
Chief Operating Officer
THE CHASE MANHATTAN BANK
By
----------------------------------------
James M. Diver
Vice President
EUROPEAN AMERICAN BANK
By
----------------------------------------
Paul Arendt
Group Vice President
THE CHASE MANHATTAN BANK, as Agent
By
----------------------------------------
James M. Diver
Vice President
<PAGE>
Consent and Reaffirmation
Each of the following Guarantors consent to the Second Amendment to the
Loan Agreement dated as of March 4, 1996 among Home State Holdings, Inc., Tower
Hill, Inc., The Chase Manhattan Bank, as Agent, and The Chase Manhattan Bank and
European American Bank, as Banks, and the transactions contemplated thereby, and
reaffirm their obligations under the Guaranties previously executed and
delivered.
ASPEN INTERMEDIARIES, LLC
By
----------------------------------------
Name:
Title:
HOME STATE INSURANCE MANAGEMENT, LLC
By
----------------------------------------
Name:
Title:
ASPEN INTERMEDIARIES, INC.
By
----------------------------------------
Name:
Title:
<PAGE>
Endorsement No. 1
EXHIBIT 10.6
The undersigned, TOWER HILL, INC. (the "Borrower") and THE CHASE MANHATTAN
BANK (formerly Chemical Bank)(the "Bank") hereby amend the Revolving Credit Note
(Tower) of the Borrower dated March 4, 1996 to which this Endorsement No. 1 is
attached (the "Note") as hereinafter set forth. The Note has been issued
pursuant to the Loan Agreement described therein. The Loan Agreement has been
amended by a Second Amendment of even date herewith and this Endorsement No. 1
is to amend the Note to conform to the Second Amendment. Accordingly, the Note
is hereby amended to the extent that the first paragraph is deleted and the
following is substituted therefor:
"On February 28, 1998, TOWER HILL, INC. ("Borrower"), a Delaware
corporation, having its principal place of business at 3 South Revmont
Drive, Shrewsbury, New Jersey 07702, for value received, promises to pay to
the order of THE CHASE MANHATTAN BANK ("Bank") at its office located at 395
North Service Road, Melville, New York, the principal amount of the lesser
of: (i)(a) from the date hereof through and until January 31, 1997, Eight
Million Six Hundred Sixty Seven Thousand One Hundred ($8,667,100.00)
Dollars, and (b) from February 1, 1997 through and until the Tower Maturity
Date, Ten Million Five Hundred ($10,000,500.00) Dollars; or (ii) the
aggregate unpaid principal amount of all Revolving Credit Loans (Tower)
made by Bank to Borrower pursuant to the Agreement, as defined below.
Except as expressly amended by this Endorsement No. 1, all the terms and
conditions of the Note shall continue in full force and effect.
This Endorsement No. 1 shall be effective as of October 4, 1996.
TOWER HILL, INC.
By: /s/ Eric A. Reehl
--------------------------------
Name: Eric A. Reehl
Title: Chief Operating Officer
THE CHASE MANHATTAN BANK
By: /s/ James M. Diver
---------------------------------
Name: James M. Diver
Title: Vice President
<PAGE>
Endorsement No. 1
The undersigned, TOWER HILL, INC. (the "Borrower") and EUROPEAN AMERICAN
BANK (the "Bank") hereby amend the Revolving Credit Note (Tower) of the Borrower
dated March 4, 1996 to which this Endorsement No. 1 is attached (the "Note") as
hereinafter set forth. The Note has been issued pursuant to the Loan Agreement
described therein. The Loan Agreement has been amended by a Second Amendment of
even date herewith and this Endorsement No. 1 is to amend the Note to conform to
the Second Amendment. Accordingly, the Note is hereby amended to the extent that
the first paragraph is deleted and the following is substituted therefor:
"On February 28, 1998, TOWER HILL, INC. ("Borrower"), a Delaware
corporation, having its principal place of business at 3 South Revmont
Drive, Shrewsbury, New Jersey 07702, for value received, promises to pay to
the order of EUROPEAN AMERICAN BANK ("Bank") at its office located at 335
Madison Avenue, New York, New York, the principal amount of the lesser of:
(i)(a) from the date hereof through and until January 31, 1997, Four
Million Three Hundred Thirty Two Thousand Nine Hundred ($4,332,900.00)
Dollars, and (b) from February 1, 1997 through and until the Tower Maturity
Date, Four Million Nine Hundred Ninety Nine Thousand Five Hundred
($4,999,500.00) Dollars; or (ii) the aggregate unpaid principal amount of
all Revolving Credit Loans (Tower) made by Bank to Borrower pursuant to the
Agreement, as defined below.
Except as expressly amended by this Endorsement No. 1, all the terms and
conditions of the Note shall continue in full force and effect.
This Endorsement No. 1 shall be effective as of October 4, 1996.
TOWER HILL, INC.
By: /s/ Eric A. Reehl
--------------------------------
Name: Eric A. Reehl
Title: Chief Operating Officer
EUROPEAN AMERICAN BANK
By: /s/ Paul Arendt
--------------------------------
Name: Paul Arendt
Title: Group Vice President
<PAGE>
Endorsement No. 1
The undersigned, HOME STATE HOLDINGS, INC. (the "Borrower") and THE CHASE
MANHATTAN BANK (formerly Chemical Bank)(the "Bank") hereby amend the Revolving
Credit Note (Holdings) of the Borrower dated March 4, 1996 to which this
Endorsement No. 1 is attached (the "Note") as hereinafter set forth. The Note
has been issued pursuant to the Loan Agreement described therein. The Loan
Agreement has been amended by a Second Amendment of even date herewith and this
Endorsement No. 1 is to amend the Note to conform to the Second Amendment.
Accordingly, the Note is hereby amended to the extent that the first paragraph
is deleted and the following is substituted therefor:
"On September 30, 1997, HOME STATE HOLDINGS, INC. ("Borrower"), a
Delaware corporation, having its principal place of business at 3 South
Revmont Drive, Shrewsbury, New Jersey 07702, for value received, promises
to pay to the order of THE CHASE MANHATTAN BANK ("Bank") at its office
located at 395 North Service Road, Melville, New York, the principal amount
of the lesser of: (i)(a) from the date hereof through and until January 31,
1997, Three Million Three Hundred Thirty Three Thousand Five Hundred
($3,333,500.00) Dollars, and (b) from February 1, 1997 through and until
the Holdings Maturity Date, One Million Three Hundred Thirty Three Thousand
Four Hundred ($1,333,400.00) Dollars; or (ii) the aggregate unpaid
principal amount of all Revolving Credit Loans (Holdings) made by Bank to
Borrower pursuant to the Agreement, as defined below."
Except as expressly amended by this Endorsement No. 1, all the terms and
conditions of the Note shall continue in full force and effect.
This Endorsement No. 1 shall be effective as of October 4, 1996.
HOME STATE HOLDINGS, INC.
By: /s/ Eric A. Reehl
--------------------------------
Name: Eric A. Reehl
Title: Assistant Secretary
THE CHASE MANHATTAN BANK
By: /s/ James M. Diver
--------------------------------
Name: James M. Diver
Title: Vice President
<PAGE>
Endorsement No. 1
The undersigned, HOME STATE HOLDINGS, INC. (the "Borrower") and EUROPEAN
AMERICAN BANK (the "Bank") hereby amend the Revolving Credit Note (Holdings) of
the Borrower dated March 4, 1996 to which this Endorsement No. 1 is attached
(the "Note") as hereinafter set forth. The Note has been issued pursuant to the
Loan Agreement described therein. The Loan Agreement has been amended by a
Second Amendment of even date herewith and this Endorsement No. 1 is to amend
the Note to conform to the Second Amendment. Accordingly, the Note is hereby
amended to the extent that the first paragraph is deleted and the following is
substituted therefor:
"On September 30, 1997, HOME STATE HOLDINGS, INC. ("Borrower"), a
Delaware corporation, having its principal place of business at 3 South
Revmont Drive, Shrewsbury, New Jersey 07702, for value received, promises
to pay to the order of EUROPEAN AMERICAN BANK ("Bank") at its office
located at 335 Madison Avenue, New York, New York, the principal amount of
the lesser of: (i)(a) from the date hereof through and until January 31,
1997, One Million Six Hundred Sixty Six Thousand Five Hundred
($1,666,500.00) Dollars, and (b) from February 1, 1997 through and until
the Holdings Maturity Date, Six Hundred Sixty Six Thousand Six Hundred
($666,600.00) Dollars; or (ii) the aggregate unpaid principal amount of all
Revolving Credit Loans (Holdings) made by Bank to Borrower pursuant to the
Agreement, as defined below."
Except as expressly amended by this Endorsement No. 1, all the terms and
conditions of the Note shall continue in full force and effect.
This Endorsement No. 1 shall be effective as of October 4, 1996.
HOME STATE HOLDINGS, INC.
By: /s/ Eric A. Reehl
--------------------------------
Name: Eric A. Reehl
Title: Assistant Secretary
EUROPEAN AMERICAN BANK
By: /s/ Eric A. Reehl
--------------------------------
Name: Paul Arendt
Title: Group Vice President
