STOCK PURCHASE AND SALE AGREEMENT
THIS STOCK PURCHASE AND SALE AGREEMENT is made and entered into as of
April 14, 1999 (as amended, supplemented or otherwise modified from time to
time, this "Agreement"), by and between Samstock, L.L.C., a Delaware limited
liability company ("Purchaser"), and Danielson Holding Corporation, a Delaware
corporation (the "Company). All capitalized terms used and not otherwise defined
herein have the meanings ascribed to them in Article X hereof.
WHEREAS, the Company desires to issue and sell to Purchaser, and
Purchaser desires to purchase from the Company, (i) 2,000,000 newly issued
shares (such 2,000,000 newly issued shares, collectively the "Shares") of Common
Stock in the aggregate, representing as of the date hereof approximately 9.43%
of the Fully Diluted Common Stock and approximately 11.38% of the outstanding
Common Stock (after giving effect to the sale and issuance of the Shares), and
(ii) a warrant (the "Warrant") in the form of Exhibit A hereto to purchase an
additional 2,000,000 shares of Common Stock in the aggregate (such additional
2,000,000 shares of Common Stock in the aggregate issuable from time to time
upon exercise of the Warrant, collectively the "Warrant Shares"), representing
as of the date hereof approximately 9.43% of the Fully Diluted Common Stock, all
upon the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises, representations and
warranties and the mutual covenants and agreements set forth herein and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES AND WARRANT
1.1 Purchase and Sale. Upon the terms and subject to the satisfaction
of the conditions contained in this Agreement, at the Closing, the Company shall
issue and sell to Purchaser and Purchaser shall purchase from the Company the
Shares and the Warrant, in each case free and clear of all Liens.
1.2 Consideration. Upon the terms and subject to the satisfaction of
the conditions contained in this Agreement, at the Closing, Purchaser shall pay
to the Company Nine Million Dollars ($9,000,000) in the aggregate (the "Purchase
Price") for the Shares and the Warrant.
ARTICLE II
THE CLOSING
2.1 Time and Place. Upon the terms and subject to the satisfaction of
the conditions contained in this Agreement, the closing of the issuance and sale
of the Shares and the Warrant contemplated by this Agreement (the "Closing")
shall take place at the offices of Rosenberg & Liebentritt, P.C., Two North
Riverside Plaza, Chicago, Illinois at 10:00 a.m. (local time) on the third
business day following the date on which all of the conditions hereunder have
been satisfied or waived, or at such other place or time as Purchaser and the
Company may agree. The date and time at which the Closing actually occurs is
hereinafter referred to as the "Closing Date."
2.2 Deliveries by the Company. At the Closing, the Company shall
deliver the following to Purchaser:
(a) escrow receipts evidencing Purchaser's beneficial ownership of the
Shares, dated as of the Closing Date, in accordance with Section 5.2(a), of the
Company's Certificate of Incorporation;
(b) the Warrant, dated as of the Closing Date, in the name of
Purchaser;
(c) an opinion of Zukerman Gore & Brandeis, LLP substantially in the
form attached hereto as Exhibit B; and
(d) all other documents, instruments and writings reasonably required
to be delivered by the Company at or prior to the Closing Date in connection
with this Agreement.
2.3 Deliveries by Purchaser. At the Closing, Purchaser shall deliver
the following to the Company:
(a) the Purchase Price by interbank transfer of federal funds to one or
more accounts designated in a writing delivered by the Company to Purchaser no
less than two (2) business days prior to the Closing Date or by such other means
as may be agreed upon in writing by the Company and Purchaser;
(b) an opinion letter from Rosenberg & Liebentritt, P.C., counsel to
Purchaser, in substantially the form attached hereto as Exhibit C; and
(c) all other documents, instruments and writings reasonably required
to be delivered by Purchaser at or prior to the Closing Date in connection with
this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents, warrants and covenants to Purchaser on the date
of this Agreement and again on the Closing Date, which representations,
warranties and covenants shall survive the Closing until the Survival Date (as
hereinafter defined), as follows:
3.1 Organization and Qualification. Each of the Company and each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority to carry on its business as it is now
being conducted. Each of the Company and each Subsidiary is duly qualified or
licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction (including any foreign country) where the character of its
properties owned, leased or operated by it or the nature of its activities makes
such qualification or licensing necessary,
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except for such failures to be so qualified or licensed or in good standing
which would not, individually or in the aggregate, have a Material Adverse
Effect.
3.2 Certificate of Incorporation and Bylaws. The Company has heretofore
made available to Purchaser a complete and correct copy of the certificates of
incorporation of the Company and each Subsidiary and the bylaws of the Company
and each Subsidiary as currently in effect (collectively, the "Organizational
Documents"). Such Organizational Documents are in full force and effect, and no
other organizational documents are applicable to or binding upon the Company or
any Subsidiary (including, without limitation, any joint venture, investment or
other agreement). Neither the Company nor any Subsidiary is in violation of any
of the provisions of its Organizational Documents in any material respect or in
any respect (whether or not material) which could reasonably be expected to
result in a Material Adverse Effect.
3.3 Capitalization; Subsidiaries.
(a) The authorized capital stock of the Company consists of 20,000,000
shares of Common Stock and 10,000,000 shares of Preferred Stock. As of the date
hereof, (i) 15,586,994 shares of Common Stock were issued, 15,576,276 shares of
Common Stock were outstanding and 10,718 shares of Common Stock were held in the
treasury of the Company, all of which shares were validly issued, fully paid and
nonassessable, (ii) no shares of Preferred Stock were issued or outstanding, and
(iii) other than 10,718 shares of Common Stock, no Equity Securities were held
in the treasury of the Company.
(b) As of the date hereof and the Closing Date and after giving affect
to the sale of the Shares, the Shares represent, or shall represent,
approximately 9.43% of the Fully Diluted Common Stock and approximately 11.38%
of the outstanding shares of Common Stock. As of the date hereof and the Closing
Date, the Warrant Shares represent, or shall represent, approximately 9.43% of
the Fully Diluted Common Stock.
(c) Except as set forth above in Section 3.3(a) and as set forth in
Schedule 3.3(c) hereto, there are no outstanding Equity Securities of the
Company. Schedule 3.3(c) includes a true and correct table summarizing all
outstanding stock options, warrants and other rights to acquire Equity
Securities of the Company or any Subsidiary (other than the Warrant), including
the identity of the holder, the number of shares covered, the vesting schedule
therefor, the exercise price therefor, and the termination date therefor.
(d) Attached as Schedule 3.3(d) hereto is a true, correct and complete
organization chart identifying the Company, each direct or indirect Subsidiary
and the ownership of each such entity. Each of the outstanding shares of capital
stock of each Subsidiary is duly authorized, validly issued, fully paid and
nonassessable, and all such shares are owned by the Company, directly or
indirectly through other wholly-owned Subsidiaries, as represented in Schedule
3.3(d), free and clear of all Liens, and there are no outstanding Equity
Securities of any Subsidiary other than such shares. The Company does not own,
directly or indirectly, any capital stock or other equity interest in any Person
other than the Subsidiaries identified or as otherwise identified on Schedule
3.3(d). No Subsidiary engaged in the insurance business is commercially
domiciled in any jurisdiction other than its jurisdiction of incorporation.
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3.4 The Shares and the Warrant.
(a) Upon payment of the Purchase Price at the Closing, Purchaser will
acquire good and marketable title to the Shares, free and clear of all Liens.
Upon payment of the Purchase Price, the Shares shall be validly issued, fully
paid and nonassessable.
(b) Upon payment of the Purchase Price at the Closing, Purchaser will
acquire good and marketable title to the Warrant, free and clear of all Liens.
Upon exercise of the Warrant, in whole or, from time to time, in part, and upon
payment of the exercise price therefor, all in accordance with the terms of the
Warrant, Purchaser will acquire good and marketable title to the Warrant Shares,
free and clear of all Liens, and such Warrant Shares shall be validly issued,
fully paid and nonassessable.
3.5 Power and Authority. The Company has all necessary corporate power
and authority to execute and deliver this Agreement, the Investment Agreement,
the Warrant and all other documents, instruments and other writings to be
executed and/or delivered by or on behalf of the Company to Purchaser or any of
its representatives in connection with the transactions contemplated hereby or
thereby (collectively, the "Company Transaction Documents"), to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby, except that the Proxy Proposals require
shareholder approval as referenced in Section 3.23(b). The execution, delivery
and performance of each of the Company Transaction Documents by the Company, and
the consummation by the Company of the transactions contemplated hereby and
thereby, have been duly and validly authorized by the Board of Directors of the
Company (the "Board"), and no other corporate proceedings on the part of the
Company are necessary to authorize the execution, delivery and performance of
the Company Transaction Documents or the consummation of the transactions
contemplated hereby and thereby, except that the Proxy Proposals require
shareholder approval as referenced in Section 3.23(b).
3.6 No Conflict; Required Filings and Consents. The execution, delivery
and performance of the Company Transaction Documents by the Company do not and
will not: (a) conflict with or violate the Organizational Documents of the
Company or any Subsidiary; (b) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to the Company or any
Subsidiary or by which its or any of their respective properties are bound or
affected which could reasonably be expected to have a Material Adverse Effect;
(c) require any consent, approval, authorization or permit of, action by, filing
with or notification to, any Governmental Entity (other than (i) any filing
required under Section 13(a) or (d), 14, 15(d) or 16(a) of the Exchange Act,
(ii) the Purchaser Insurance Filings and Consents, or (iii) with respect to the
exercise of the Warrant, the filing of the HSR Report and the expiration or
termination of the applicable waiting period under the HSR Act) or any
securities exchange including AMEX (except that the Company must and shall as
soon as practicable notify AMEX of this transaction and take all action
necessary to cause the Shares and Warrant Shares to be, and the Shares and the
Warrant Shares must be, listed and approved by AMEX), except where the failure
to obtain or effect the same would not have a Material Adverse Effect; or (d)
result in any breach or violation of or constitute a default (or an event which
with notice or lapse of time or both could become a default) or result in the
loss by the Company or any Subsidiary of a material benefit under, or give rise
to any right of termination, amendment, acceleration or cancellation of, or
result in the creation of a Lien on any of the properties or assets of the
Company or any Subsidiary pursuant to, any Contract, Permit or other instrument
or obligation
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to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary or any of their respective properties are bound or
affected which could reasonably be expected to have a Material Adverse Effect.
3.7 Employment, Consulting and Severance Agreements and Related
Matters. Except as set forth in Schedule 3.7 hereto:
(a) There are no Employment, Consulting or Severance Agreements to
which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any of their respective assets may be bound, and no present or
former employee, officer, director, consultant, independent contractor or other
agent of the Company or any Subsidiary is a party to or the beneficiary of any
such Employment, Consulting or Severance Agreements.
(b) The execution and delivery of this Agreement or the other Company
Transactions Documents and the consummation of the transactions contemplated
hereby and thereby: (i) do not and will not result in any breach or violation of
or constitute a default (or an event which with notice or lapse of time or both
could become a default) or result in the loss by the Company or any Subsidiary
of a material benefit under, or give rise to any right of termination,
amendment, acceleration or cancellation of any Employment, Consulting or
Severance Agreement; or (ii) do not and will not give rise to any obligation on
the part of the Company or any Subsidiary to pay or provide any Severance
Payment.
3.8 Compliance; No Violation. Each of the Company and each Subsidiary
is in compliance with, and is not in default or violation of, (i) its respective
Organizational Documents, and (ii) all Contracts, Permits and other instruments
or obligations to which any of them are a party or by which any of them or any
of their respective properties may be bound or affected, except, in the case of
clause (ii), for any such failures of compliance, defaults and violations which
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
3.9 Insurance Regulatory Compliance and Related Matters.
(a) The statutory Annual Statements of the Company and each Subsidiary
for the year ended December 31, 1998, together with all exhibits and schedules
thereto, and financial statements relating thereto, and any actuarial opinion,
affirmation or certification filed in connection therewith, and all Insurance
Reports, with respect to the Company and each of its Subsidiaries, in each case
as filed with the applicable Insurance Regulator of its jurisdiction or
domicile, in every jurisdiction in which it holds a certificate of authority or
in any other jurisdiction as otherwise required, were timely filed and were
prepared in all material respects in conformity with SAP, applied on a
consistent basis, and present fairly, in all material respects, to the extent
required by and in conformity with SAP, the admitted assets, liabilities,
capital and surplus, cash flow, other funds liability for unpaid losses and loss
adjustment expenses and unearned premiums, of the Subsidiaries at such date and
the results of operations, changes in capital and surplus and cash flow of each
such entity for such period, and were correct in all material respects when
filed and there were no material omissions therefrom when filed. The reserves
for unpaid losses and loss adjustment expenses included therein have been
estimated in accordance with generally accepted actuarial standards and in
accordance with SAP. Except as set forth on Schedule 3.9(a), no Insurance
Regulator has given any written notice of any deficiency or violation of any
applicable statute, law, ordinance, rule, order or regulation of any
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Governmental Entity which deficiency or violation would have a Material Adverse
Effect. Each of the Company and its Subsidiaries has filed with Insurance
Regulators all Insurance Reports required to be filed under the insurance and
other laws of its state of domicile and in each state where it holds a
certificate of authority except where such failure to file, individually or in
the aggregate, would not have a Material Adverse Effect. Schedule 3.9(a) sets
forth all reports of examination issued by any Insurance Regulator with respect
to the Company or any of its Subsidiaries since January 1, 1996. The Company and
its Insurance Subsidiaries have resolved all material issues raised in such
reports to the satisfaction of the issuer thereof.
(b) Schedule 3.9(b) identifies all in force Subsidiary Reinsurance
Agreements. Each Subsidiary Reinsurance Agreement is in full force and effect,
enforceable in accordance with the terms thereof, and neither the Company nor
any Subsidiary is in default under or breach of any of the provisions of any
Subsidiary Reinsurance Agreements and, except as set forth on Schedule 3.9(b),
there is no event that has occurred which, with the passage of time or the
giving of notice, or both, would create a default or breach by the Company or
any such Subsidiary thereunder, except to the extent that any such default or
breach would not have a Material Adverse Effect. The execution and delivery of
this Agreement or the other Company Transactions Documents and the consummation
of the transactions contemplated hereby and thereby including the issuance and
sale of the Shares and Warrant or the exercise of the Warrant or the sale and
issuance of Warrant Shares upon exercise of the Warrant do not and will not
result in any breach or violation of or constitute a default (or an event which
with notice or lapse of time or both could become a default) or result in the
loss by the Company or any Subsidiary of a material benefit under, or give rise
to any right of termination, amendment, acceleration or cancellation of any
Subsidiary Reinsurance Agreement. None of the Company, any Subsidiary or any
reinsurer under any Subsidiary Reinsurance Agreement has given any notice of
termination with respect to any such arrangement or treaty, and there is no
dispute other than those that occur in the ordinary course of business, under
any such arrangement or treaty regarding the liability for any claim against the
Company or any Subsidiary by its insureds that is covered by any such
arrangement or treaty, which if adversely determined would, individually or in
the aggregate, have a Material Adverse Effect.
(c) All insurance products offered and sold by the Company or any
Subsidiary, complied when offered, issued, and sold, in all material respects
with the provisions of all applicable laws and regulations. All policies, bonds
or contracts of insurance issued by the Company or any Subsidiary, as currently
in force, are to the extent required under applicable law, on forms approved by
Insurance Regulators or other appropriate Governmental Entities or which have
been filed and not objected to by such authorities within the period provided
for objection, and all such insurance in force is valid and binding upon the
Company or its Subsidiaries, in accordance with the terms of such policies,
bonds and contracts. All premium rates required to be filed with or approved by
Insurance Regulators have been so filed, approved or not objected to within the
period provided for objection and all premiums charged, conform thereto.
(d) Neither the Company nor any Subsidiary has advertised or used any
sales promotional materials in connection with the offer and sale of insurance
products that does not comply with applicable laws, except where any such
practice would not have a Material Adverse Effect.
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(e) Neither the Company nor any of its Insurance Subsidiaries has
empowered any independent agent with the authority to bind it to any insurance
or reinsurance contract or any amendment or endorsement thereto, whether known
as or acting as managing general agent or otherwise, with the exception of the
authority granted to the agents of the Company or its Insurance Subsidiaries
pursuant to their respective Agency Agreements. Each Agency Agreement is in full
force and effect, enforceable in accordance with the terms thereof, and neither
the Company nor any Subsidiary is in default under or breach of any of the
provisions of any Agency Agreements, and there is no event that has occurred (or
to the Company's knowledge that is likely to occur) which, with the passage of
time or the giving of notice, or both, would create a default or breach by the
Company or any such Subsidiary thereunder, except to the extent that any such
default or breach would not have a Material Adverse Effect. None of the Company,
any Subsidiary or any agent under any Agency Agreement has given any notice of
termination with respect to any such arrangement.
(f) The execution, delivery and performance of the Purchaser
Transaction Documents by any Person acquiring the Shares and Warrant as
contemplated by this Agreement, does not and will not: (i) conflict with or
violate any insurance law, statute, rule, regulation or policy of any
jurisdiction, (collectively, "Purchaser Insurance Regulations") applicable to
any Person acquiring the Shares and Warrant Shares as contemplated by this
Agreement; and (ii) except as specified in Schedule 3.9(f) hereto, require any
consent, approval, authorization or permit of, action by, filing with or
notification to, any Insurance Regulator (all such consents, approvals,
authorizations, permits, actions, filings and notifications, collectively,
"Purchaser Insurance Filings and Consents").
(g) Except as set forth on Schedule 3.9(g) hereto, each of the Company
and each Subsidiary is in compliance with all statutes, laws, regulations,
rules, injunctions, decrees, permits, orders and licenses to which it is
subject, including, without limitation, laws, statutes, rules, regulations,
permits, and orders of or issued or administered by Insurance Regulators
governing their businesses, including, without limitation, development and
marketing of insurance products, the licensure or registration of agents and
brokers and the execution and performance of reinsurance agreements, except
where such failure to comply would not have a Material Adverse Effect, and has
received no notice of any alleged violation of any such law, statute, rule,
regulation, injunction, decree, permit, order or license.
(h) Schedule 3.9(h) contains a complete and accurate list and
description of all certificates of authority, licenses and permits held by each
insurance Subsidiary, which certificates of authority, licenses and permits
constitute all authority necessary to the lawful conduct of each such
Subsidiary's business as currently contemplated, and are in full force and
effect. Neither the Company nor any Subsidiary is aware of or has received any
notice from any Insurance Regulator indicating any problem with, or condition or
limitation on, any certificate of authority, license or permit, including
without limitation, any condition or limitation that could restrict or prohibit
the use thereof upon the consummation of the transactions contemplated hereby.
(i) Schedule 3.9(i) sets forth a complete and accurate list and
description of each registration, filing, application, notice, transfer,
consent, approval, order, qualification or waiver (each a "Required Consent")
known to the Company to be required to be obtained by the Company or a
Subsidiary by virtue of the execution of this Agreement or the consummation of
the transactions contemplated hereby (a) to avoid the loss of any certificate of
authority or of
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any license or permit or the violation of any law or regulation or any order to
which the Company or a Subsidiary is subject or by which any of their assets
may be bound, or to prevent the possibility of a termination or impairment
of any contract or reinsurance agreement disclosed or referred to in Schedule
3.9(i), (b) to enable the transfer of valid and marketable title to the Shares
to Purchaser, (c) to enable the Company and each Subsidiary to continue their
respective businesses after the Closing as conducted prior to the Closing, or
(d) to continue after the Closing the agreements of the reinsurers of each
Subsidiary to provide reinsurance.
3.10 SEC Documents; Undisclosed Liabilities.
(a) The Company has filed with the SEC all required reports, schedules,
forms, proxy, registration and other statements and other documents
(collectively, the "SEC Documents"). As of the date of this Agreement, the last
SEC Document filed by the Company was the Company's Annual Report on Form 10-K
for the year ended December 31, 1998. As of their respective filing dates, 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 SEC promulgated thereunder applicable to the SEC Documents.
As of their respective filing dates, none of the SEC Documents 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, except to
the extent such statements have been modified or superseded by a later SEC
Document filed and publicly available prior to the Closing Date, the
circumstances or bases for which modifications or supersessions have not and
will not individually or in the aggregate result in any material liability or
obligation on behalf of the Company under the Securities Act, the Exchange Act,
the rules promulgated under the Securities Act or the Exchange Act, or any
federal, state or local anti-fraud, blue-sky, securities or similar laws. The
consolidated financial statements of the Company included in the SEC Documents
(as amended or supplemented by any later filed SEC Document filed and publicly
available prior to March 31, 1999), comply as to form in all material respects
with applicable accounting requirements and the rules and regulations of the SEC
with respect thereto, have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be indicated in
notes thereto) and fairly present the consolidated financial position of the
Company and the Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments).
Other than liabilities and obligations reflected or reserved against in the
consolidated financial statements of the Company and its consolidated
Subsidiaries included in the Company's Annual Report on Form10-K for the year
ended December 31, 1998, or incurred since the date of the balance sheet
included in such financial statements in the ordinary course of business which
are not individually or collectively material to the Company and the
Subsidiaries taken as a whole, and except as set forth in the SEC Documents
(which includes, without limitation, descriptions of the uncertainties involved
in determining reserve for insurance payments), neither the Company nor any
Subsidiary has any obligation or liability of any nature whatsoever (direct or
indirect, matured or unmatured, absolute, accrued, contingent or otherwise)
either (i) required by GAAP to be set forth on a consolidated balance sheet of
the Company and the Subsidiaries or in the notes thereto or (ii) which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect whether or not required by GAAP to be provided for or
reserved against on a balance sheet prepared in accordance with GAAP.
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(b) At the date the Proxy Statement is first mailed to the Company's
stockholders or at the time of the Stockholders' Meeting, the Proxy Statement
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading (other than with respect to information concerning Purchaser provided
by Purchaser in writing to the Company specifically to be included in the Proxy
Statement as to which the Company makes no representation). The Proxy Statement
shall comply in all material respects with the requirements of the Exchange Act
and the rules and regulations promulgated thereunder except that the Company
makes no representation, warranty or covenant with respect to any written
information supplied by Purchaser specifically for inclusion in the Proxy
Statement.
3.11 Absence of Certain Changes or Events. Except as disclosed in the
SEC Documents, since December 31, 1998, the Company and the Subsidiaries have
conducted their businesses only in the ordinary course and in a manner
consistent with past practice, and there has not occurred any event, condition,
circumstance, change or development (whether or not in the ordinary course of
business) that, individually or in the aggregate, has had or could reasonably be
expected to have a Material Adverse Effect. Without limiting the generality of
the foregoing, except as set forth on Schedule 3.11 hereto or as disclosed in
any SEC Documents and publicly available prior to March 31, 1999, since December
31, 1998, there has not been (i) any change by the Company in its accounting
methods, principles or practices, (ii) any revaluation by the Company of any of
its or any Subsidiary's material assets, other than in the ordinary course of
business consistent with past practice, (iii) any entry outside the ordinary
course of business by the Company or any Subsidiary into any commitments or
transactions material, individually or in the aggregate, to the Company and the
Subsidiaries taken as a whole, (iv) any declaration, setting aside or payment of
any dividends or distributions in respect of the shares of Common Stock or, any
redemption, purchase or other acquisition of any of its securities, (v) any
grant or issuance of any Equity Securities of the Company or any Subsidiary; or
(vi) any increase in, establishment of or amendment of any Employment,
Consulting or Severance Agreement, bonus, insurance, deferred compensation,
pension, retirement, profit sharing, stock option (including without limitation
the granting of stock options, stock appreciation rights, performance awards, or
restricted stock awards), stock purchase or other employee benefit plan or
agreement or arrangement, or any other increase in the compensation payable or
to become payable to any present or former directors, officers or employees of
the Company or any Subsidiary, except for increases in compensation in the
ordinary course of business consistent with past practice.
3.12 Absence of Litigation; Compliance. Except as set forth on Schedule
3.12 hereto or as disclosed in any SEC Documents filed with the SEC and publicly
available prior to March 31, 1999, there are no suits, claims, actions,
proceedings or investigations pending or, to the Company's knowledge, overtly
threatened against the Company or any Subsidiary, or any properties or rights of
the Company or any Subsidiary, including, without limitation before any
arbitrator or Governmental Entity that (i) if determined adversely to the
Company or any Subsidiary could, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect or (ii) seek to delay or prevent the
consummation of the transactions contemplated by this Agreement. Neither the
Company nor any Subsidiary nor any of their respective properties is or are
subject to any order, writ, judgment, injunction, decree, determination or award
having, or which in the future could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect or could prevent or
delay the
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consummation of the transactions contemplated by this Agreement or any other
Transaction Document. Neither the Company nor any Subsidiary is in
violation of, nor has the Company or any Subsidiary violated, any applicable
provisions of any Contract, Permit or other instrument or obligations to which
the Company or any Subsidiary is a party or by which the Company, any Subsidiary
or any of their respective properties are bound or affected except for any such
violations which could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Except as disclosed in any SEC
Documents filed with the SEC and publicly available prior to March 31, 1999, the
Company and its Subsidiaries are in compliance with all applicable statutes,
laws, ordinances, rules, orders and regulations of any Governmental Entity
(including, without limitation, with respect to employment and employment
practices, immigration laws relevant to employment, and terms and conditions of
employment and wages and hours) except for any failure to comply which could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Except as disclosed in any SEC Documents filed with the SEC and
publicly available prior to March 31, 1999, no investigation by any Governmental
Entity with respect to the Company or any Subsidiary is pending or, to the best
of the Company's knowledge, threatened.
3.13 Employee Benefit Plans.
(a) The Company has made available or delivered to Purchaser copies (or
if the same do not exist in written form, descriptions) of each material formal,
informal, oral or written bonus, deferred compensation, incentive compensation,
stock purchase, stock option, restricted stock purchase or other issuance,
severance or termination pay, hospitalization or other medical, life or other
insurance (or similar self-insurance), supplemental unemployment benefits,
profit-sharing, employee stock ownership, pension, or retirement plan, program,
agreement or arrangement, and each other employee benefit plan, program,
agreement or arrangement whether for the benefit of present or former officers,
employees, agents, directors or independent contractors of the Company or any
Subsidiary or any ERISA Affiliate, sponsored, maintained or contributed to or
required to be contributed to by the Company or by any trade or business,
whether or not incorporated (an "ERISA Affiliate"), that together with the
Company would be deemed a "single employer" within the meaning of Section
4001(b) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") or Section 414(b) or (c) of the Code (collectively, the "Plans"). Each
of the Plans that is an "employee benefit plan," as that term is defined in
Section 3(3) of ERISA and subject thereto is collectively referred to herein as
"ERISA Plans."
(b) No material liability under Title IV of ERISA has been incurred by
the Company or any ERISA Affiliate that has not been satisfied in full, and no
condition exists that presents a material risk to the Company or any ERISA
Affiliate of incurring a material liability under such Title, other than
liability for premiums due the Pension Benefit Guaranty Corporation ("PBGC")
(which premiums have been paid when due). To the extent this representation
applies to sections 4064, 4069 or 4204 of Title IV of ERISA, it is made not only
with respect to each ERISA Plan but also with respect to any employee benefit
plan, program, agreement or arrangement subject to Title IV of ERISA to which
the Company or any ERISA Affiliate made, or was required to make, contributions
during the five-year period ending on the Closing Date. Neither the Company nor
any ERISA Affiliate is required to contribute to a "multiemployer plan" (as
defined in Section 4001(a)(3) of ERISA) or has withdrawn from any multiemployer
plan where such withdrawal has resulted or would result in any "withdrawal
liability" (within the meaning of Title IV of ERISA) that has not been fully
paid.
10
(c) The PBGC has not instituted proceedings to terminate any ERISA Plan
and no condition exists that presents a material risk that such proceedings will
be instituted.
(d) Neither the Company nor any ERISA Affiliate, nor any ERISA Plan,
nor any trust created thereunder, nor any trustee or administrator thereof has
engaged in a transaction in connection with which the Company or any ERISA
Affiliate, any ERISA Plan, any such trust, or any trustee or administrator
thereof, or any party dealing with any ERISA Plan or any such trust could
reasonably be subject to either a material civil penalty assessed pursuant to
section 409 or 502(i) of ERISA or a material tax imposed pursuant to section
4975 or 4976 of the Code.
(e) No ERISA Plan or any trust established thereunder has incurred any
"accumulated funding deficiency" (as defined in section 302 of ERISA and section
412 of the Code), whether or not waived, as of the last day of the most recent
fiscal year of each ERISA Plan, which could reasonably be expected to result in
a material liability to the Company; and all contributions required to be made
with respect thereto (whether pursuant to the terms of any ERISA Plan or
otherwise) have been timely made.
(f) Each Plan has been operated and administered in accordance with its
terms and applicable law in all material respects, including, but not limited
to, ERISA and the Code. No Plan is subject to any material dispute or proceeding
other than relating to a routine claim for benefits.
(g) There are no material pending or (to the knowledge of the Company)
threatened claims by or on behalf of any Plan, by any employee or beneficiary
covered under any such Plan, or otherwise involving any such Plan (other than
routine claims for benefits).
(h) To the knowledge of the Company, no fact exists that could
reasonably be expected to result in the disqualification of any Plan that is
intended to be qualified under Section 401(a) of the Code.
3.14 Tax Matters. Since August 15, 1990, each of the Company and the
Subsidiaries has filed all Tax Returns, or requests for extensions to file Tax
Returns, which the Company and the Subsidiaries were required to have filed on
or before the date hereof, except where the failure to do so could not
reasonably be expected to have a Material Adverse Effect. All Tax Returns filed
by the Company or the Subsidiaries are complete and accurate, except where the
failure to be complete and accurate could not reasonably be expected to have a
Material Adverse Effect. The Company and the Subsidiaries have paid (or the
Company has paid on behalf of the Subsidiaries) or has made adequate provision
for the payment of all Taxes shown as due on such Tax Returns and reflected in
the most recent financial statements contained in the SEC Documents for all
taxable periods and portions thereof accrued through the date of such financial
statements, except where the failure to do so could not reasonably be expected
to have a Material Adverse Effect. No deficiencies for any Taxes have been
proposed, asserted or assessed against the Company or any Subsidiary that are
not adequately reserved for, pursuant to such Tax Returns or pursuant to any
assessment received with respect thereto. Neither the Company nor any Subsidiary
has been notified, or otherwise has knowledge, of any pending audit or
examination of any Tax Return of the Company or any Subsidiary by any
Governmental Entity, nor has the Company or any Subsidiary received written
notice of any such audit or examination and there are no unexpired waivers or
agreements for the extension of time for the assessment of taxes on the Company
or any Subsidiary or extension of any
11
statute of limitations with respect to any Taxes, and there are no pending,
nor has the Company or any Subsidiary received any written notice of any
threatened, actions, proceedings or investigations by any Governmental Entity
with respect to Taxes.
3.15 Environmental Matters. To the best knowledge of the Company, none
of the Company or any Subsidiary (including, without limitation, their
respective assets) is in violation of any Environmental Laws or Environmental
Permits. To the best knowledge of the Company, the Company and each Subsidiary
possesses and is in compliance with all Environmental Permits which are required
for the operation of their respective businesses, except where the failure to
possess or comply with such Environmental Permits could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect. During
the last five years, none of the Company or any Subsidiary has received any
notice, citation, inquiry or complaint of any alleged violation by any of them
of any Environmental Law or Environmental Permit
3.16 Labor Matters. (a) neither the Company nor any Subsidiary is
engaged in any unfair labor practice; (b) there is no unfair labor practice
charge or complaint against the Company or any Subsidiary pending before the
National Mediation Board, the National Labor Relations Board, or any comparable
state or local agency, (c) there is no (x) labor strike, material dispute, slow
down or stoppage actually pending or, to the knowledge of the Company,
threatened against or involving the Company or any Subsidiary, or (y) material
labor grievance or pending arbitration involving the Company or any Subsidiary;
(d) neither the Company nor any Subsidiary has experienced any work stoppage or
other material labor difficulty during the three-year period prior to the date
of this Agreement; (e) there are no collective bargaining agreements, union
contracts or similar types of agreements by which the Company or any Subsidiary
is bound or covered; (f) there are no union representation petitions pending
before the National Labor Relations Board, and no union within the past three
years has sought or demanded recognition by the Company or any Subsidiary; and
(g) there is no union organizing activity, to the knowledge of the Company,
currently in progress involving the Company or any Subsidiary.
3.17 Real Property. None of the Company or any Subsidiary owns,
or has any option to purchase, any real property.
3.18 Material Contracts; Defaults. Schedule 3.18 hereto sets forth a
correct and complete list of all material Contracts (other than Employment,
Consulting or Severance Agreements and insurance contracts) to which the Company
or any Subsidiary is a party or by which the Company or any Subsidiary or any of
their respective assets may be bound (the "Material Contracts"), including,
without limitation, any such Contracts (a) involving the expenditure (or the
transfer of assets or services) by any party thereto in an aggregate amount or
with an aggregate value in excess of $100,000 in any year, (b) which do not by
their terms expire and are not subject to termination (without penalty to the
Company or any Subsidiary) within six (6) months from the date of execution and
delivery thereof, or (c) to which any director or officer of the Company or any
Subsidiary or any holder of more than 5% of the outstanding Common Stock or any
of their respective Affiliates is a party. The Company has made available or
delivered to Purchaser correct and complete copies of all Material Contracts.
Neither the Company nor any Subsidiary is, or has received any notice or has any
knowledge that any other party is, in default in any respect under any Material
Contract, except for those defaults which would not, either individually or in
the aggregate, reasonably be expected to
12
have a Material Adverse Effect, and there has not occurred any event that
with the lapse of time or the giving of notice or both would constitute such a
default by the Company or any Subsidiary or, to the Company's knowledge, by any
other party. To the Company's knowledge, no party to any Material Contract has
threatened to terminate such Material Contract (or modify such Material
Contract in a manner detrimental to the Company or any Subsidiary).
3.19 Intellectual Property. The Company and each of its Subsidiaries
owns, or is licensed to use (in each case, free and clear of any Liens) all
patents, trademarks, trade names, service marks, service names, copyrights,
technology, know-how, trade secrets, processes and computer software (including,
without limitation, all documentation and source and object codes with respect
to such software) used in or necessary for the conduct of its business as
currently conducted which are material to the business, operations, assets,
prospects, financial condition or results of operations of the Company and its
Subsidiaries taken as a whole. To the Company's knowledge, the use of such
patents, trademarks, trade names, copyrights, technology, know-how, trade
secrets, processes and computer software (including, without limitation, all
documentation and source and object codes with respect to such software) by the
Company and its Subsidiaries does not infringe or otherwise violate the rights
of any person. To the Company's knowledge, no person is infringing any right of
the Company or any Subsidiary with respect to any such patents, trademarks,
trade names, copyrights, technology, know-how, processes or computer software
(including, without limitation, all documentation and source and object codes
with respect to such software). The Company and each of its Subsidiaries is Year
2000 Compliant, except where the failure to be Year 2000 Compliant could not
reasonably be expected to have a Material Adverse Effect.
3.20 Insurance. The Company has heretofore made available to Purchaser
copies of all policies or binders of fire, liability, product liability,
worker's compensation, vehicular and other insurance bonds that insure the
operations of the Company and the Subsidiaries. Such policies include all
policies that are required in connection with the operation of the businesses of
the Company and the Subsidiaries, as presently conducted, by applicable laws or
regulations or by the terms of any Contract to which the Company or any
Subsidiary is a party or by which any of their respective assets is bound. The
policies concerning such insurance are in full force and effect and no notice of
cancellation or termination has been received by the Company or any Subsidiary
with respect to any such policy. There are no outstanding unsettled claims under
any such policy or binder that individually, or in the aggregate, exceed the
coverage of any such policy or binder. There is no failure by the Company or any
Subsidiary to pay premiums when due, and there is no material inaccuracy in any
application for such policies or binders. Neither the Company nor any Subsidiary
has received any notice of cancellation or nonrenewal of any such policy or
binder. Neither the Company nor any Subsidiary has received any notice from any
carrier of such insurance that any insurance premiums will be materially
increased in the future or that any such insurance coverage will not be
available in the future on substantially the same terms as now in effect.
3.21 Permits. The Company and the Subsidiaries have all Permits
required by law or governmental regulations from all applicable Governmental
Entities that are necessary to operate their respective businesses as presently
conducted and all such Permits are in full force and effect, except where the
failure to have any such Permits in full force and effect could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Neither the Company nor any Subsidiary is in default under, or
in violation of or noncompliance with, any of such Permits, except for any such
default, violation of or noncompliance which
13
could not, individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect. Upon consummation of the transactions
contemplated by this Agreement, each such Permit will remain in full force
and effect and will not create a right of any other person to terminate or
revoke, modify or condition such Permit based on such consummation.
3.22 Related Party Transactions. Except as disclosed in any SEC
Documents filed with the SEC and publicly available prior to March 31, 1999, no
director or officer of the Company or any Subsidiary or holder of more than 5%
of the outstanding Common Stock or any of their respective Affiliates or any
Affiliate of the Company or any Subsidiary (i) has borrowed any monies from or
has outstanding any indebtedness or other similar obligations to the Company or
any Subsidiary in excess, individually or in the aggregate, of $100,000; (ii)
owns more than a 5% equity interest in, or is a director, officer, employee,
partner, Affiliate or associate of, or consultant or lender to, or borrower
from, or has the right to participate in the management, operations or profits
of, any person which is a competitor, supplier, customer, creditor, or debtor of
the Company or any Subsidiaries; or (iii) is otherwise a party to any contract,
arrangement or understanding with the Company or any Subsidiary with an
aggregate value or amount in excess of $100,000, in all cases other than travel
and other expenses and reimbursements, company car charges and other similar
transactions which are customary in amount and in the ordinary course of
business.
3.23 Vote Required.
(a) No vote of the holders of any class or series of capital stock or
other Equity Securities of the Company or any Subsidiary is required to approve
or effect this Agreement or the transactions contemplated hereby, including,
without limitation, under applicable law, AMEX regulations, the Organizational
Documents, any Contract or any Permit, except that the Proxy Proposals require
shareholder approval as referenced in Section 3.23(b).
(b) The affirmative vote of the holders of no more than a majority of
the outstanding shares of Common Stock is the only vote of the holders of any
class or series of capital stock or other Equity Securities of the Company
necessary to approve the Proxy Proposals.
3.24 Takeover Status. No "fair price", "moratorium", "control share
acquisition" or other similar anti-takeover statute or regulation enacted under
state or federal laws or applicable stock exchange rules or regulations,
including, without limitation, Section 203 of the Delaware General Corporation
Law, applicable to the Company or any Subsidiary is applicable to the
transactions contemplated hereby or by any other Transaction Document, taken
individually or in the aggregate.
3.25 Compliance with Securities Laws. The Company has not taken, and
will not take, any action which would subject the issuance and sale of the
Shares, the Warrant and/or the Warrant Shares pursuant to this Agreement to the
provisions of Section 5 of the Securities Act, or violate the registration or
qualification provisions of any securities or blue sky laws of any applicable
jurisdiction, and, based in part on the representations of Purchaser in Section
4.5, the sale of the Shares and the Warrant pursuant to this Agreement and the
issuance of the Warrant Shares from time to time upon exercise of the Warrant
complies with all applicable requirements of applicable federal and state
securities and blue sky laws.
14
3.26 Reporting Company; Form S-3. The Company is subject to the
reporting requirements of the Exchange Act and its Common Stock is registered
under Section 12 of the Exchange Act. The Company is eligible to register for
resale shares of its Common Stock to be sold by parties other than the Company
on a registration statement on Form S-3 under the Securities Act.
3.27 Trading on AMEX. The Company's Common Stock is listed for trading
on AMEX, and the trading in the Company's Common Stock on AMEX has not been
suspended as of the date hereof and as of the Closing Date.
3.28 Brokers. No broker, finder, or investment banker or other Person
is entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by the Company Transaction Documents based
upon arrangements made by or on behalf of the Company.
3.29 Accuracy. All of the representations, warranties, understandings
and acknowledgments that the Company has made herein are true and correct in all
material respects as of the date of the execution hereof.
3.30 Use of Proceeds. The Company agrees that the Purchase Price and
the proceeds, if any, paid to the Company upon exercise of the Warrant shall be
retained as direct assets of the Company and such proceeds shall not be
transferred or attributed in any way, directly or indirectly, to any Insurance
Subsidiary.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents, warrants and covenants to the Company on
the date of this Agreement and again on the Closing Date, which representations
and warranties shall survive the Closing, as follows:
4.1 Organization. Purchaser is a limited liability company duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized.
4.2 Authority Relative to This Agreement. Purchaser has the limited
liability company power and authority to execute and deliver this Agreement, the
Investment Agreement and all other documents, instruments and other writings to
be executed and/or delivered by or on behalf of Purchaser to the Company or any
of its representatives in connection with the transactions contemplated hereby
or thereby (collectively, "Purchaser Transaction Documents"), to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance of each
of the Purchaser Transaction Documents by Purchaser and the consummation by
Purchaser of the transactions contemplated hereby and thereby have been duly
authorized by the managing member of Purchaser, and no other limited liability
company proceedings on the part of Purchaser are necessary to authorize the
execution, delivery and performance of the Purchaser Transaction Documents or
the transactions contemplated hereby or thereby. Each of the Purchaser
Transaction Documents has been duly executed and delivered by Purchaser, and,
assuming due authorization, execution and delivery by the
15
Company, constitutes a legal, valid and binding obligation of Purchaser,
enforceable against Purchaser, in accordance with its terms.
4.3 No Conflict; Required Filings and Consents. The execution, delivery
and performance of the Purchaser Transaction Documents by Purchaser, does not
and will not: (a) conflict with or violate the organizational documents of
Purchaser; (b) conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to Purchaser, or by which any of its properties
are bound or affected (other than with respect to Purchaser Insurance
Regulations or Purchaser Insurance Filings and Consents); (c) require any
consent, approval, authorization or permit of, action by, filing with or
notification to, any Governmental Entity (other than any filing (i) required
under Section 13(a) or (d), 14, 15(d) or 16(a) of the Exchange Act, (ii) with
respect to Purchaser Insurance Regulations or Purchaser Insurance Filings and
Consents or (iii) with respect to the exercise of the Warrant, the filing of the
HSR Report and the expiration or termination of the applicable waiting period
under the HSR Act); (d) result in any breach or violation of or constitute a
default (or an event which with notice or lapse of time or both could become a
default) or result in the loss of a material benefit under, or give rise to any
right of termination, amendment, acceleration or cancellation of, or result in
the creation of a Lien on any of the property or assets of Purchaser, pursuant
to, any Contract, Permit or other instrument or obligation to which Purchaser is
a party or by which Purchaser, or any of its properties are bound or affected;
or (e) to Purchaser's knowledge, conflict with or violate any Purchaser
Insurance Regulations or require any consent, approval, authorization or permit
of, action by, filing with or notification to, any Governmental Entity other
than any Purchaser Insurance Filings and Consents, except, in the case of
clauses (b), (c), (d) and (e), for any such conflicts, violations, breaches,
defaults or other occurrences which could not, individually or in the aggregate,
reasonably be expected to impair or delay the ability of Purchaser to perform
its obligations under this Agreement.
4.4 Brokers. No broker, finder, investment banker or other person is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by the Purchaser Transaction Documents based
upon arrangements made by or on behalf of Purchaser.
4.5 Investment Intent. Purchaser represents and warrants that the
Shares and the Warrant (and the Warrant Shares issuable upon the exercise of the
Warrants) are being purchased or acquired solely for Purchaser's own account,
for investment purposes only and not with a view towards the distribution or
resale to others. Purchaser acknowledges, understands and appreciates that the
Shares, the Warrant and the Warrant Shares have not been registered under the
Securities Act by reason of a claimed exemption under the provisions of the
Securities Act which depends, in large part, upon the Purchaser's
representations as to investment intention, investor status and related and
other matters set forth herein. Purchaser understands that, in the view of the
United States Securities and Exchange Commission (the "SEC"), among other
things, a purchase with a present intent to distribute or resell would represent
a purchase and acquisition with an intent inconsistent with its representation
to the Company, and the SEC might regard such a transfer as a deferred sale for
which the registration exemption is not available. The Purchaser agrees and
consents to the placement of a legend on the certificate(s) representing the
Shares purchased hereunder (and upon the Warrant Shares) stating that such
securities have not been registered under the Act or applicable state securities
laws. Such legend shall also reference the transfer restrictions described in
the last sentence of Section 4.11 below.
16
4.6 Certain Risks. Purchaser expressly understands that: (i) no return
on investment, whether through distributions, appreciation, transferability or
otherwise, and no performance by, through or of the Company, has been promised,
assured, represented or warranted by the Company, or by any director, officer,
employee, agent or representative thereof; (ii) while the Company's Common Stock
is presently traded on the AMEX, and while the Purchaser is a beneficiary of
certain registration rights with respect to the Shares and the Warrant Shares,
the Shares and the Warrant subscribed for and that may be purchased under this
Agreement and the Warrant Shares issuable upon exercise of the Warrants (x) are
not registered under applicable federal or state securities laws, and thus may
not be sold, conveyed, assigned or transferred unless registered under such laws
or unless an exemption from registration is available under such laws, as more
fully described below, and (y) are not quoted, traded or listed for trading or
quotation on the AMEX, or any other organized market or quotation system, and
there is therefore no present public or other market for the Shares, the Warrant
or the Warrant Shares, nor can there be any assurance that the Common Stock will
continue to be quoted, traded or listed for trading or quotation on the AMEX or
on any other organized market or quotation system; and (iii) that the purchase
of Shares and the Warrant is a speculative investment, involving a degree of
risk, and is suitable only for a person or entity of adequate financial means
who has no need for liquidity in this investment in that, among other things,
(x) such person or entity may not be able to liquidate their investment in the
event of an emergency or otherwise, (y) transferability is limited, and (z) in
the event of a dissolution or otherwise, such person or entity could sustain a
complete loss of their entire investment.
4.7 Sophistication. Purchaser (i) has adequate means of providing for
the Purchaser's current financial needs and possible contingencies and has no
need for liquidity of the Purchaser's investment in the Shares and the Warrant;
(ii) the Purchaser is able to bear the economic risks inherent in an investment
in the Shares and the Warrant and an important consideration bearing on its
ability to bear the economic risk of the purchase of Shares and the Warrant is
whether the Purchaser can afford a complete loss of the Purchaser's investment
in the Shares and the Warrant and the undersigned Purchaser represents and
warrants that the Purchaser can afford such a complete loss; and (iii) the
Purchaser has such knowledge and experience in business, financial, investment
and banking matters (including, but not limited to investments in restricted,
non-listed and non-registered securities) that the Purchaser is capable of
evaluating the merits, risks and advisability of an investment in the Shares and
the Warrant.
4.8 Accredited Investor. Purchaser is an "accredited investor," as such
term is defined in Rule 501 of Regulation D promulgated under the Act.
4.9 Documents, Information and Access. Purchaser's (i) decision to
purchase the Shares and the Warrant is not based on any promotional, marketing
or sales materials, and (ii) Purchaser and its representatives have been
afforded, prior to purchase thereof, the opportunity to ask questions of, and to
receive answers from, the Company and its management, and has had access to all
documents and information which the Purchaser deems material to an investment
decision with respect to the purchase of the Shares and Warrant hereunder. The
Purchaser acknowledges and understands that the Company is a public reporting
company, that annual, quarterly and other reports are, from time to time, filed
by the Company with the SEC under the Exchange Act, and that the Purchaser can
obtain a copy of any such reports, and of the notice and proxy statement of the
Company relating to its
17
annual meeting of stockholders at which (among other things) directors are
elected, without charge, from certain public information offices maintained
by the SEC or from the Company.
4.10 No Registration, Review or Approval. Purchaser acknowledges and
understands that the limited private offering and sale of the Shares and Warrant
pursuant to this Agreement has not been reviewed or approved by the SEC or by
any state securities commission, authority or agency, and is not registered
under the Act or under the securities or "blue sky" laws, rules or regulations
of any state. The Purchaser acknowledges, understands and agrees that the Shares
and the Warrant are being offered and sold hereunder pursuant to (i) a private
placement exemption to the registration provisions of the Act pursuant to
Section 4(2) of such Act (and Rule 506 of Regulation D promulgated under such
Act), and (ii) a similar exemption to the registration provisions of applicable
state securities laws.
4.11 Transfer Restrictions.
(a) Purchaser will not transfer any Securities purchased under this
Agreement unless such Securities are registered under the Act and under any
applicable state securities or "blue sky" laws (collectively, the "Securities
Laws"), or unless an exemption is available under such Securities Laws, and the
Company may, if it chooses, where an exemption from registration is claimed by
such Purchaser, condition any transfer of Securities out of the Purchaser's name
on an opinion of the Company's counsel, to the effect that the proposed transfer
is being effected in accordance with, and does not violate, an applicable
exemption from registration under the Securities Laws.
(b) Purchaser expressly agrees to be bound by all of the provisions of
Article Fifth of the Company's Certificate of Incorporation ("Article Fifth").
For purposes of applying such Article Fifth, except with regard to an actual
exercise of the Warrant, the Warrant will be treated as fully exercised into
Warrant Shares after taking into account the adjustments contained in Sections 3
and 4 of the Warrant. None of the Purchaser or any person that has either a
direct or indirect ownership interest in the Purchaser or which acquires an
interest in the shares from the Purchaser pursuant to this paragraph, including
without limitation, a "first tier entity," a "higher tier entity", a "5-percent
owner," a "public owner" or any other "entity" (collectively "Indirect Owners")
will engage in any transaction that could result in a "shift" in the ownership
of the Company's stock without first complying with the procedures of Article
Fifth. Notwithstanding the foregoing, compliance with the procedures of Article
Fifth will not be required to consummate any transfer or other disposition not
involving a "shift" if the Indirect Owners receive an opinion of competent
counsel that such transaction will not result in a "shift" in the ownership of
the Company's stock. For purposes of this section the terms "first tier entity,"
"higher tier entity," "5-percent owner," "public owner," "entity" and "shift"
have the meanings ascribed to them in Treasury Regulation Sections 1.382-2T(f)
and 1.382-3. The Purchaser and the Indirect Owners will cooperate with the
Company concerning the Company's duty to inquire as to actual stock ownership
pursuant to Treasury Regulation 1.382-2T(k)(3) and or any successor provision
and will provide any related documentation that is reasonably requested by the
Company. The foregoing representations will survive as long as Purchaser holds
all or any portion of the Shares, the Warrant or the Warrant Shares or until the
termination of the Stock Escrow pursuant to Article Fifth of the Company's
Certificate of Incorporation.
18
4.12 Accuracy of Purchaser Information. Purchaser represents and
warrants that all information concerning Purchaser provided by Purchaser
specifically for the purpose of being included in any public documents to be
filed by the Company shall be true and accurate in all material respects.
4.13 Reliance. Purchaser understands, acknowledges and appreciates that
the Company is relying upon all of the representations, warranties, covenants,
understandings, acknowledgements and agreements contained in this Agreement in
determining whether to accept this subscription, and sell and issue the Shares
and Warrant to the Purchaser.
4.14 Litigation. There are no outstanding suits, claims, actions,
proceedings or investigations pending or, to Purchaser's knowledge, overtly
threatened against Purchaser, which could reasonably be expected to impair or
delay the ability of Purchaser to perform its obligations under this Agreement
and/or, if Purchaser so elects, exercise the Warrant.
4.15 Accuracy. All of the representations, warranties, understandings
and acknowledgments that Purchaser has made herein are true and correct in all
material respects as of the date of the execution hereof.
ARTICLE V
CONDUCT OF BUSINESS OF THE COMPANY PENDING CLOSING
5.1 Conduct of Business of the Company Pending Closing. During the
period from the date hereof to the earlier of the termination of this Agreement
pursuant to Section 8.1 hereof and the Closing, unless Purchaser shall otherwise
agree in writing in advance, the businesses of the Company and the Subsidiaries
shall be conducted only in, and the Company and the Subsidiaries shall not take
any action except in, the ordinary course of business and in a manner consistent
with past practice and in compliance with applicable laws; and the Company and
its Subsidiaries each shall use commercially reasonable efforts to preserve
substantially intact the business organization of the Company and the
Subsidiaries, to keep available the services of the present officers, employees
and consultants of the Company and the Subsidiaries and to preserve the present
relationships of the Company and the Subsidiaries with customers, and other
Persons with which the Company or any Subsidiary has significant business
relations. By way of amplification and not limitation, unless Purchaser shall
otherwise agree in writing in advance, neither the Company nor any Subsidiary
shall, between the date of this Agreement and the Closing, directly or
indirectly do, or propose or commit to do, any of the following:
(a) amend its Organizational Documents other than by means of the
Charter Amendment;
(b) issue, deliver, sell, pledge, dispose of or encumber, or authorize
or commit to the issuance, sale, pledge, disposition or encumbrance of, (i) any
Equity Securities of the Company or any Subsidiary (other than upon the exercise
of employee and/or director options pursuant to the terms of stock option plans
disclosed in the schedules to this Agreement), or (ii) any assets of the Company
or any Subsidiary with an individual value in excess of $100,000 or an aggregate
value as to all such assets of $500,000 (other than the purchase or sale of
insurance and/or investment related assets in the ordinary course of business);
19
(c) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) except in the ordinary course of business consistent with past
practices, acquire (by merger, consolidation or acquisition of stock or assets)
any corporation, partnership or other business organization or division thereof
or any assets, except for such transactions which involve aggregate
consideration of less than $100,000; (ii) except in the ordinary course of
business consistent with past practices, sell, transfer, lease, mortgage,
pledge, encumber or otherwise dispose of or subject to any Lien any of its
assets (including capital stock of the Subsidiaries), except for such
transactions which involve aggregate consideration of less than $100,000; (iii)
incur any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any Person, or make any loans, advances or
capital contributions to, or investments in, any other Person other than in the
ordinary course of business consistent with past practices; (iv) enter into,
amend or terminate any Subsidiary Reinsurance Agreement or Agency Agreements,
except in the ordinary course of business consistent with past practices; (v)
enter into any commitments or transactions material, individually or in the
aggregate, to the Company and the Subsidiaries taken as a whole, except in the
ordinary course of business consistent with past practices; (vi) authorize any
capital expenditure in excess of $100,000, individually, or $500,000 in the
aggregate, except in the ordinary course of business consistent with past
practices; or (vii) enter into or amend any Contract obligating it to take any
of the actions set forth in this Section 5.1(e);
(f) (i) increase the compensation or fringe benefits of any of its
present or former directors, officers, employees, consultants or independent
contractors except for increases in salary or wages of employees of the Company
or the Subsidiaries who are not officers of the Company in all cases to the
extent in the ordinary course of business in accordance with past practice, (ii)
grant any severance, termination or similar payments or benefits except in the
ordinary course of business in accordance with past practice, (iii) enter into,
or amend, any Employment, Consulting or Severance Agreements except in the
ordinary course of business in accordance with past practice, or (iv) establish,
adopt, enter into or amend or terminate any bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, or other plan, agreement, trust, fund, policy or arrangement for
the benefit of any present or former directors, officers, employees,
consultants, independent contractors or other agents of the Company or any
Subsidiary;
(g) except as may be required as a result of a change in law or in
GAAP, change any of the accounting practices or principles used by it;
(h) except in the ordinary course of business, settle or compromise any
pending or threatened suits, actions or claims in a manner obligating the
Company or any Subsidiary thereof to pay, or waiving amounts claimed by the
Company or any Subsidiary.
(i) authorize, recommend, propose, announce or adopt a plan of complete
or partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization (other than the transactions contemplated by the Transaction
Documents) or other reorganization;
20
(j) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of liabilities reflected or reserved against in
the financial statements of the Company or incurred in the ordinary course of
business and consistent with past practice;
(k) enter into any Contract providing for the acceleration of payment
or performance or other consequences as a result of any of the transactions
contemplated by any Transaction Document;
(l) enter into any new non-insurance related business; or
(m) take, or offer or propose to take, or agree to any of the actions
described in this Article V.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Exclusivity.
(a) In consideration of the expenditure of time, effort and expense to
be undertaken by Purchaser in connection with the preparation of this Agreement
and the other Transaction Documents, and the investigations and review of the
business of the Company and the Subsidiaries, the Company agrees that, prior to
the Termination Date, neither it, any of the Subsidiaries, any of their
respective Affiliates, nor any of the respective directors, officers, employees,
agents or representatives of any of the foregoing will, directly or indirectly:
(a) solicit or discuss with any potential third party buyer any proposals with
respect to the issuance, sale or other disposition, however effected, to any
potential third party buyer of any Equity Securities of the Company or any
Subsidiary or, other than in the ordinary course of business, any assets of the
Company or any Subsidiary (any such transaction or proposed transaction, a
"Competing Transaction"); (b) provide any information relating to or in
connection with any Competing Transaction to any potential third party buyer; or
(c) disclose publicly or disclose to any potential third party buyer the fact
that the Company or any Subsidiary is, or any of their Equity Securities or,
other than in the ordinary course of business, assets are for sale or
disposition generally. The Company agrees to promptly advise Purchaser in
writing of the existence of (i) any inquiries or proposals (or desire to make a
proposal) received by (or indicated to), any information requested from, or any
negotiations or discussions sought to be initiated or continued with, the
Company, the Subsidiaries, their respective Affiliates, or any of the respective
directors, officers, employees, agents or representatives of the foregoing, in
each case from any party with respect to a Competing Transaction, and (ii) the
terms thereof, including the identity of such party (and any other real party in
interest, including the direct and indirect owners of such party). The Company
agrees, without limitation of its obligations, that any violation of this
Section 6.1 by any directors, officers, or other management personnel of the
Company and/or any Subsidiary whether or not such Person is purporting to act on
behalf of the Company or by any investment banker, financial advisor, attorney
or other advisor, consultant, agent or representative of the Company, the
Subsidiaries and their respective
21
Affiliates, acting upon the authority and with the knowledge of the Company,
shall be deemed to be a breach of this Section 6.1 by the Company.
(b) Nothing in this Agreement shall prevent the Company and the board
of directors of the Company from complying with Rule 14e-2 under the Exchange
Act, or issuing a communication meeting the requirements of Rule 14d-9(e) under
the Exchange Act, with respect to any tender offer or otherwise prohibit the
Company from making any public disclosures required by law or the requirements
of the American Stock Exchange (provided, whenever practicable, the Company
first consults with Purchaser concerning the timing and content of such
disclosure).
6.2 Access to Information. Purchaser is entitled to continue its due
diligence investigation of the Company and the Subsidiaries, including without
limitation, any business, legal, financial or environmental due diligence as
Purchaser deems appropriate. The Company will permit Purchaser and its
authorized representatives, accountants, attorneys, advisors and consultants
full access to the Company's and the Subsidiaries' property and all records and
other data with respect to the Company, the Subsidiaries, and their respective
properties, assets, operations, and products and services, as is reasonably
requested, and will provide such assistance as is reasonably requested.
Purchaser is entitled to contact and communicate with employees, legal advisors
and accountants of the Company and the Subsidiaries.
6.3 Form 8-K. Within five days after the date hereof, the Company shall
provide a draft of the Form 8-K to Purchaser for Purchaser's review and comment
with respect to the information contained therein relating to Purchaser, this
Agreement or the transactions contemplated hereby, and promptly after receiving
Purchaser's comments thereon, file the final version of the Form 8-K with the
SEC.
6.4 Filings. As promptly as practicable after the date of this
Agreement, the Company and Purchaser shall make or cause to be made all other
filings and submissions under laws and regulations applicable to the Company and
Purchaser, if any, as may be required for the consummation of the transactions
contemplated by this Agreement. Purchaser and the Company shall coordinate and
cooperate in exchanging such information and providing such reasonable
assistance as may be requested by any of them in connection with the filings and
submissions contemplated by this Section 6.4.
6.5 Stockholders' Meeting. The Company acting through the Board,
shall, in accordance with applicable law:
(a) as soon as practicable, give notice of, convene and hold an annual
or special meeting of its stockholders (the "Stockholders' Meeting") for the
purpose of considering and taking action upon each of the Proxy Proposals;
(b) include in the proxy statement (the "Proxy Statement") to be
distributed to the Company's stockholders in connection with the Proxy
Proposals, including any amendments or supplements thereto (which Proxy
Statement shall be in form and content reasonably satisfactory to Purchaser),
the recommendation of the Board that the stockholders of the Company vote in
favor of the approval of each of the Proxy Proposals;
22
(c) (i) obtain and furnish the information required to be included by
it in the Proxy Statement and respond promptly to any comments made by the SEC
with respect to the Proxy Statement and any preliminary version thereof and
cause the Proxy Statement to be mailed to its stockholders at the earliest
practicable time, and (ii) obtain the necessary approvals by its stockholders of
the Proxy Proposals;
(d) cause the Proxy Statement (i) not to contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading (other than with respect
to information concerning Purchaser provided by Purchaser in writing to the
Company specifically to be included in the Proxy Statement), and (ii) to comply
as to form in all material respects with the applicable provisions of the
Exchange Act and the rules and regulations thereunder; and
(e) immediately upon approval of the Proxy Proposals by the
stockholders of the Company, file the Charter Amendment with the Secretary of
State of the State of Delaware and take, or cause to be taken, all action and to
do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to adopt and make effective the Proxy Proposals.
6.6 Agreement to Cooperate; Further Assurances. Subject to the terms
and conditions of this Agreement, each of the parties hereto shall use all
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement and the other Transaction Documents, including providing
information and using reasonable efforts to obtain all necessary or appropriate
waivers, consents and approvals, and effecting all necessary registrations and
filings, including, without limitation, in the case of Purchaser, all Purchaser
Insurance Filings and Consents, and in the case of the Company, all Required
Consents. In case at any time after the Closing Date any further action is
necessary or desirable to transfer any Shares, the Warrant or the Warrant Shares
to Purchaser or otherwise to carry out the purposes of this Agreement and the
other Transaction Documents, the Company and Purchaser shall execute such
further documents and shall take such further action as shall be necessary or
desirable to effect such transfer and to otherwise carry out the purposes of
this Agreement and the other Transaction Documents, in each case to the extent
not inconsistent with applicable law or the Company's Certificate of
Incorporation.
6.7 Public Announcements. Any public announcement made by or on behalf
of either Purchaser or the Company prior to the termination of this Agreement
pursuant to Article VIII hereof concerning this Agreement, the transactions
described herein or in any other Transaction Document or any other aspect of the
dealings heretofore had or hereafter to be had between the Company and Purchaser
and their respective Affiliates must first be approved in writing by the other
(any such approval not to be unreasonably withheld), subject to the Company's
obligations under applicable law or AMEX rules and listing requirements as a
public company (but the Company shall use its best efforts to consult with
Purchaser as to all such public announcements). A copy of the press release to
be issued upon the execution of this Agreement is attached hereto as Exhibit
6.7.
23
6.8 Notification of Certain Matters. The Company shall promptly provide
Purchaser (or its counsel) with copies of all filings made by the Company with
the SEC, any other Governmental Entity or AMEX in connection with this
Agreement, the other Transaction Documents and the transactions contemplated
hereby and thereby.
6.9 Representations and Warranties. The Company shall give prompt
notice to Purchaser, and Purchaser shall give prompt notice to the Company, of
(a) any representation or warranty made by such party contained in this
Agreement that is qualified as to materiality becoming untrue or inaccurate in
any respect or any such representation or warranty that is not so qualified
becoming untrue or inaccurate in any material respect prior to the Closing or
(b) the failure by such party prior to Closing to comply with or satisfy in any
material respect any covenant, condition or agreement to be complied with or
satisfied by such party under this Agreement; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.
6.10 Purchaser Insurance Filings and Consents. Purchaser shall, as soon
as practicable and in accordance with all applicable laws, (i) file all required
filings, applications and notices in connection with the required Purchaser
Insurance Filings and Consents with the applicable Governmental Entities, (ii)
prosecute the same, (iii) upon reasonable request by the Company, furnish copies
of all such filings to the Company to the extent providing said copies to the
Company would not in the good faith judgment of Purchaser materially prejudice
Purchaser, and (iv) update the Company, from time to time, as to the status of
any such filings.
ARTICLE VII
CONDITIONS TO CLOSING
7.1 Conditions to Obligation of Each Party. The respective obligations
of each party to effect the transactions contemplated by this Agreement shall be
subject to the satisfaction at or prior to the Closing Date of the following
conditions:
(a) No temporary restraining order, preliminary or permanent injunction
or other order or decree by any court of competent jurisdiction which prevents
the consummation of the transactions contemplated by this Agreement or the other
Transaction Documents or imposes material conditions with respect thereto shall
have been issued and remain in effect (each party agreeing to use its reasonable
efforts to have any such injunction, order or decree lifted);
(b) No action shall have been taken, and no statute, rule or regulation
shall have been enacted, by any Governmental Entity which would prevent the
consummation of the transactions contemplated by this Agreement or the other
Transaction Documents or impose material conditions with respect thereto; and
(c) No action or proceeding shall be pending against the Company or
Purchaser before any court of competent jurisdiction to prohibit, restrain,
enjoin or restrict the consummation of the transactions contemplated by this
Agreement or the other Transaction Documents.
24
(d) All orders, consents and approvals of Governmental Entities
(including, without limitation, the consents of any Insurance Regulator
specified in the Purchaser Insurance Filings and Consents), legally required for
the consummation of the transactions contemplated by this Agreement or the other
Transaction Documents shall have been obtained and be in effect at the Closing
Date.
7.2 Condition to Obligations of the Company. The obligation of the
Company to effect the transactions contemplated by this Agreement shall be
subject to the fulfillment at or prior to the Closing Date of the following
additional condition:
(a) Purchaser shall have performed in all material respects all
obligations by it required to be performed at or prior to the Closing Date, and
the representations and warranties of Purchaser contained in this Agreement
shall be true and correct in all material respects (if not qualified by
materiality) and true and correct (if so qualified) on and as of the date of
this Agreement and at and as of the Closing Date as if made at and as of the
Closing Date, except to the extent that any such representation or warranty
expressly relates to another date (in which case, as of such date) and the
Company shall have received a certificate signed on behalf of Purchaser by an
executive officer thereof, to such effect;
(b) All consents, approvals, authorizations and permits of, actions by,
filing with or notifications to, Governmental Entities and third parties
required in connection with the transactions contemplated by this Agreement and
the other Transaction Documents shall have been obtained, taken or made; and
(c) Each of the Proxy Proposals shall have received Stockholder
Approval.
7.3 Conditions to Obligations of Purchaser. The obligations of
Purchaser to effect the transactions contemplated by this Agreement shall be
subject to the fulfillment at or prior to the Closing Date of the following
additional conditions:
(a) The Company shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the Closing Date, and the representations and warranties of the Company
contained in this Agreement shall be true and correct in all material respects
(if not qualified by materiality) and true and correct (if so qualified) on and
as of the date of this Agreement and at and as of the Closing Date as if made at
and as of the Closing Date, except to the extent that any such representation or
warranty expressly relates to another date (in which case, as of such date) and
Purchaser shall have received a certificate from the Company signed by an
executive officer), to such effect;
(b) All consents, approvals, authorizations and permits of, actions by,
filings with or notifications to, Governmental Entities and third parties
required in connection with the transactions contemplated by this Agreement and
the other Transaction Documents shall have been obtained, taken or made;
(c) The Company and each current Company stockholder who is to be made
a party thereto shall have executed and delivered to Purchaser the Investment
Agreement, and such Investment Agreement shall be in full force and effect; and
25
(d) Each of the Proxy Proposals shall have received Stockholder
Approval, and the Charter Amendment shall have been filed with the Delaware
Secretary of State and be shall be effective.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated and the transactions
contemplated by this Agreement may be abandoned at any time prior to the Closing
Date:
(a) By mutual written consent of Purchaser and the Company;
(b) By Purchaser, upon notice to the Company, if (i) the Company shall
not have mailed the Proxy Statement to the Company's stockholders by June 15,
1999, or (ii) the Closing shall not have occurred on or before the sixtieth
(60th) day following the mailing of the Proxy Statement, unless the absence of
such occurrence shall be due to (i) the failure of the Stockholders to approve
the Proxy Proposals at the Stockholders' Meeting, or (ii) the failure of
Purchaser to perform in all material respects each of its obligations under this
Agreement required to be performed by it at or prior to the Closing.
(c) By Purchaser (i) if there has been a material breach by the Company
of any representation, warranty, covenant or agreement set forth in this
Agreement (other than the covenant set forth in Section 6.1 hereof), which
breach has not been cured within ten (10) business days following receipt by the
breaching party of notice of such breach; (ii) if there has been a material
breach by the Company of any covenant set forth in Section 6.1 hereof (including
due to the act or omission of any directors, officers, or other management
personnel of the Company and/or any Subsidiary whether or not such Person is
purporting to act on behalf of the Company or by any investment banker,
financial advisor, attorney or other advisor, consultant, agent or
representative of the Company, the Subsidiaries and their respective Affiliates,
acting upon the authority and with the knowledge of the Company) provided,
however, that in the event Purchaser has knowledge of any such material breach,
Purchaser has notified the Company in writing of such breach and such breach has
not been cured (to the extent such breach is curable) within 48 hours of receipt
of such notice; (iii) if the Board fails to recommend, or revokes or otherwise
modifies its recommendation of, the Proxy Proposals or resolves to do so, or
(iv) if the Company enters into a definitive agreement concerning a Competing
Transaction;
(d) By the Company, upon notice to Purchaser, if the Closing shall not
have occurred on or before the sixtieth (60th) day following the mailing of the
Proxy Statement, unless the absence of such occurrence shall be due to the
failure of the Company to perform in all material respects each of its
obligations under this Agreement required to be performed by it at or prior to
the Closing;
(e) By Purchaser or the Company, upon notice to the other, if the
Company's stockholders fail to adopt each of the Proxy Proposals at the
Stockholders' Meeting.
26
(f) By Purchaser or the Company, if (i) the Board of Directors of the
Company shall withdraw, modify or change its approval or recommendation of the
Proxy Proposals in a manner adverse to Purchaser or shall have resolved to do
so; or (ii) the Board of Directors of the Company shall have recommended to the
stockholders of the Company a Competing Transaction;
(g) By the Company, if there has been a material and intentional breach
by Purchaser of any representation, warranty, covenant or agreement set forth in
this Agreement which breach has not been cured within ten (10) business days
following receipt by the breaching party of notice of such breach;
(h) By the Company, in event that Purchaser fails to consummate the
transactions contemplated by this Agreement in accordance with its terms and
such failure constitutes an intentional breach of this Agreement by Purchaser.
8.2 Termination Fees and Expenses Payable to Purchaser or the
Company.
(a) Notwithstanding any provision to the contrary contained in this
Agreement, in the event that Purchaser terminates this Agreement pursuant to
Section 8.1(b), 8.1(c), 8.1(d), or 8.1(f), hereof (provided the Company is not
entitled to terminate this Agreement pursuant to Section 8.1(h) hereof), or if
the Company terminates this Agreement other than pursuant to Section 8.1(d),
8.1(g) or 8.1(h) hereof (provided Purchaser is not entitled to terminate this
Agreement pursuant to Section 8.1(b), 8.1(c), 8.1(d), or 8.1(f), hereof), then
the Company shall immediately pay to Purchaser an amount equal to (a) One
Million Dollars ($1,000,000), plus (ii) all documented out-of-pocket costs and
expenses (including attorneys' fees and expenses), not to exceed $250,000 in the
aggregate, reasonably incurred by Purchaser and their Affiliates in connection
with this Agreement and the other Purchaser Transaction Documents, with the One
Million Dollars to be paid concurrently with such termination of this Agreement,
and the expense amount under clause (ii) above to be paid within five (5)
business days after receipt by the Company of reasonably detailed evidence of
the same. Upon receipt of such payments, Purchaser shall not be entitled to and
shall be deemed to have waived the right to seek Damages or remedies from the
Company for breach of, or otherwise in connection with, this Agreement.
Notwithstanding any provision to the contrary contained in this Agreement, in
the event that Purchaser terminates this Agreement pursuant to Section 8.1(e)
hereof, then the Company shall immediately pay to Purchaser an amount equal to
all documented out-of-pocket costs and expenses (including attorneys' fees and
expenses), not to exceed $250,000 in the aggregate, reasonably incurred by
Purchaser and their Affiliates in connection with this Agreement and the other
Purchaser Transaction Documents, with the expense amount to be paid within five
(5) business days after receipt by the Company of reasonably detailed evidence
of the same. Notwithstanding anything to the contrary in this Section 8.2, the
Company shall not be obligated to pay the One Million Dollar fee referred to
above or any out-of-pocket costs and expenses of Purchaser in the event that
this Agreement is terminated pursuant to Section 8.1(b) because any of the
conditions to Closing specified in Section 7.1, Section 7.2(b), or Section
7.3(b) have not been satisfied or waived (except, with respect to Section 7.1,
Section 7.2(b) and Section 7.3(b), where the failure to obtain the consents,
approvals, authorizations and permits of, actions by, filings with or
notifications to, Governmental Entities and third parties referred to in said
Section 7.1, Section 7.2(b) and Section 7.3(b) shall be due to the failure by
the Company to perform in all material respects each of its obligations under
this Agreement required to be performed by the Company prior to the Closing).
27
(b) Notwithstanding any provision to the contrary contained in this
Agreement, in the event that the Company terminates this Agreement pursuant to
Section 8.1(g) or 8.1(h) hereof (provided Purchaser is not entitled to terminate
this Agreement pursuant to Section 8.1(b), 8.1(c), 8.1(d), or 8.1(f) hereof)
then Purchaser shall immediately pay to the Company an amount equal to (i) One
Million Dollars ($1,000,000), plus (ii) all documented out-of-pocket costs and
expenses (including attorneys' fees and expenses), not to exceed $250,000 in the
aggregate, reasonably incurred by the Company and its Affiliates in connection
with this Agreement and the other Company Transaction Documents, with the One
Million Dollars ($1,000,000) to be paid concurrently with such termination of
this Agreement, and the expense amount under clause (ii) above to be paid within
five (5) business days after receipt by the Company of reasonably detailed
evidence of the same. Upon receipt of such payments, the Company shall not be
entitled to and shall be deemed to have waived the right to seek Damages or
remedies from Purchaser for breach of, or otherwise in connection with, this
Agreement.
8.3 Other Remedies. Notwithstanding any provision to the contrary
contained in this Agreement, if this Agreement is terminated pursuant to Article
VIII or otherwise by the Company, on the one hand, or Purchaser, on the other
hand, and the non-terminating party is not entitled to receive the payments
described in Section 8.2, then the non-terminating party shall be entitled to
pursue any available legal rights to recover Damages.
ARTICLE IX
INDEMNIFICATION
9.1 General. From and after the Closing, the parties shall indemnify
each other as provided in this Article IX. No specifically enumerated
indemnification obligation with respect to a particular subject matter as set
forth below shall limit or affect the applicability of a more general
indemnification obligation as set forth below with respect to the same subject
matter. For the purposes of this Article IX, each party shall be deemed to have
remade all of its representations, warranties and covenants contained in this
Agreement at the Closing with the same effect as if originally made at the
Closing. No Person which may be subject to an indemnification obligation under
this Article IX shall be entitled to require that any action be brought against
any other Person before action is brought against it hereunder by a Person
seeking indemnification by such Person.
9.2 The Company's Indemnification Obligations. The Company shall
indemnify, save and keep harmless Purchaser, its Affiliates and their respective
officers, directors, employees, agents, representatives, successors and
permitted assigns (collectively, "Purchaser Indemnitees") against and from all
Damages sustained or incurred by any of them resulting from or arising out of or
by virtue of any inaccuracy in, breach of or other failure to comply with any
representation, warranty or covenant made by the Company in this Agreement or
any other Company Transaction Document. A claim for indemnification under this
Section 9.2 must be asserted by notice delivered to the Company within one year
after the Closing Date (such one year period, hereinafter the "Survival Date").
Notwithstanding anything to the contrary in this Agreement, no investigation or
lack of investigation by Purchaser shall in any way limit the Company's
indemnification obligations hereunder. The Purchaser Indemnification shall not
be entitled to recover any amount hereunder until the total amount which the
Purchaser
28
Indemnitee would be entitled to recover hereunder, but for this
sentence, exceeds $100,000, and then only for the excess over $100,000.
9.3 Purchaser's Indemnification Obligations. Purchaser shall indemnify,
save and keep harmless the Company, its Subsidiaries and Affiliates and their
respective officers, directors, employees, agents, representatives, successors
and permitted assigns against and from all Damages sustained or incurred by any
of them resulting from or arising out of or by virtue of any inaccuracy in or
breach of any representation and warranty made by Purchaser to the Company in
this Agreement or in any other Purchaser Transaction Document. A claim for
indemnification under this Section 9.3 must be asserted by notice delivered to
the party from whom indemnification is sought no later than the Survival Date,
provided however, that notwithstanding the foregoing, any such claim resulting
from, arising out of or by virtue of any inaccuracy in or breach of the
representation made in Section 4.11(b) hereof, must be asserted by notice
delivered to Purchaser at any time (including after the Survival Date) within
three (3) months after the Company has actual knowledge of such breach.
ARTICLE X
DEFINITIONS
"AMEX" means the American Stock Exchange.
"Affiliate" shall mean, with respect to any person, any other person
that directly or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with such first person. As used in this
definition, "control" (including, with correlative meanings, "controlled by" and
"under common control with") shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of management or policies, whether
through the ownership of securities or partnership or other ownership interests,
by contract or otherwise.
"Agency Agreement" means all agreements whereby the Company or any of
its Insurance Subsidiaries has empowered any independent agent with the
authority to bind it to any insurance or reinsurance contract or any amendment
or endorsement thereto, whether known as or acting as managing general agent or
otherwise, including, without limitation, that certain Agency Agreement, dated
as of March 15, 1993, by and between National American Insurance Company of
California and SCJ Insurance Services.
"Board" has the meaning given it in Section 3.5 hereof.
"Charter Amendment" means an amendment to the Company's Certificate of
Incorporation, in form and content acceptable to Purchaser, (i) increasing the
number of authorized shares of Common Stock from 20,000,000 to 55,000,000 and
(ii) eliminating the right to cumulative voting in connection with the election
of directors.
"Closing" has the meaning given it in Section 2.1 hereof.
"Closing Date" has the meaning given it in Section 2.1 hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
29
"Common Stock" means the common stock, $.10 par value per share, of the
Company.
"Company Transaction Document" has the meaning given it in Section 3.5
hereof.
"Competing Transaction" has the meaning given it in Section 6.1(a)
hereof.
"Contract" means any contract, agreement, commitment, indenture, lease,
note, bond, mortgage, license, plan, arrangement or understanding, whether
written or oral.
"Damages" means all liabilities, demands, claims, actions or causes of
action, regulatory, legislative or judicial proceedings or investigations,
assessments, levies, losses, fines, penalties, damages, costs and expenses,
including, without limitation, reasonable attorneys', accountants',
investigators', and experts' fees and expenses, sustained or incurred in
connection with the defense or investigation of any of the foregoing.
"Employment, Consulting or Severance Agreements" means all oral and
written (i) agreements for the employment for any period of time whatsoever, or
in regard to the employment, or restricting the employment, of any employee of
the Company or any Subsidiary, (ii) consulting, independent contractor or
similar agreements, and (iii) policies, agreements, arrangements or
understandings relating to the payment or provision of severance, termination or
similar pay or benefits to any present or former employees, officers, directors,
consultants, independent contractors or other agents of the Company or any
Subsidiary.
"Environmental Laws" means all federal, state and local statutes,
regulations, ordinances, rules, regulations and policies, all court orders and
decrees and arbitration awards, and the common law, which pertain to
environmental matters or contamination of any type whatsoever.
"Environmental Permits" means licenses, permits, registrations,
governmental approvals, agreements and consents which are required under or are
issued pursuant to Environmental Laws.
"Equity Securities" means, with respect to the Company or any
Subsidiary, as the case may be, (i) any class or series of common stock,
preferred stock or other capital stock, whether voting or non-voting, including,
without limitation, with respect to the Company, Common Stock and Preferred
Stock, (ii) any other equity securities issued by the Company or such
Subsidiary, as the case may be, whether now or hereafter authorized for issuance
by the Company's or such Subsidiary's, as the case may be, Certificate of
Incorporation, (iii) any debt, hybrid or other securities issued by the Company
or such Subsidiary, as the case may be, which are convertible into, exercisable
for or exchangeable for any other Equity Securities, whether now or hereafter
authorized for issuance by the Company's or such Subsidiary's, as the case may
be, Certificate of Incorporation, (iv) any equity equivalents (including,
without limitation, stock appreciation rights, phantom stock or similar rights),
interests in the ownership or earnings of the Company or such Subsidiary, as the
case may be, or other similar rights, (v) any written or oral rights, options,
warrants, subscriptions, calls, preemptive rights, rescission rights or other
rights to subscribe for, purchase or otherwise acquire any of the foregoing,
(vi) any written or oral obligation of the Company or such Subsidiary, as
the case may be, to issue, deliver or sell, any of the foregoing, (vii) any
written or oral obligations of the Company or such Subsidiary, as
30
the case may be, to repurchase, redeem or otherwise acquire any Equity
Securities, and (viii) any bonds, debentures, notes or other indebtedness
of the Company or such Subsidiary, as the case may be, having the right to
vote (or convertible into, or exchangeable for securities having the right to
vote) on any matters on which the stockholders of the Company or such
Subsidiary, as the case may be, may vote.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Form 8-K" shall mean a Current Report on Form 8-K disclosing this
Agreement and the transactions contemplated hereby.
"Fully Diluted Common Stock" means the total number of shares of Common
Stock outstanding after taking into account the following: (i) all shares of
Common Stock outstanding (exclusive of the Shares); (ii) all Shares and Warrant
Shares (assuming full exercise of the Warrant and issuance of all Warrant
Shares); (iii) all shares of Common Stock issuable upon conversion, exchange or
other exercise of the Company's Equity Securities outstanding; and (iv)
adjustments needed to account or adjust for stock splits, stock dividends,
recapitalizations, recombinations and similar events.
"GAAP" means United States generally accepted accounting principles.
"Governmental Entity" means any court, administrative agency or
commission or other governmental authority or instrumentality, whether domestic
(federal, state or local) or foreign.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"HSR Report" means the notification report required under the HSR Act.
"IRS" means the Internal Revenue Service.
"Insurance Regulators" means Governmental Entities charged with the
supervision of insurance companies or the sale or provision of insurance
policies.
"Insurance Reports" means all filings, statements, documents, and
reports required of insurance companies and their Affiliates by the insurance
laws, statutes, regulations, rules or policies of any Governmental Entities.
"Interim Financial Statements" has the meaning given it in Section 6.9
hereof.
"Investment Agreement" means that certain Investment Agreement, dated
as of even date herewith, among Purchaser, the Company and certain current
stockholders of the Company.
"knowledge" in the context of the phrase "to the knowledge" or "to the
best knowledge" of the Company and/or its Subsidiaries, or words or phrases of
similar import, includes, without limitation, the knowledge of any officers,
directors or other management personnel of the Company and/or any Subsidiary,
and the knowledge of any of them is imputed to the Company and each Subsidiary.
31
"Lien" means any preemptive or similar rights of any third party,
purchase options, calls, proxies, voting trusts, voting agreements, judgments,
pledges, charges, assessments, levies, escrows, rights of first refusal or first
offer, transfer restrictions, mortgages, indentures, claims, liens, equities,
mortgages, deeds of trust, deeds to secure debt, security interests and other
encumbrances of every kind and nature whatsoever, whether arising by agreement,
operation of law or otherwise, other than any created by (i) Purchaser or the
Purchaser Transaction Documents, (ii) the Certificate of Incorporation of the
Company, or (iii) federal and state securities laws, rules and regulations.
"Material Adverse Effect" means a material adverse effect (or any
development which could reasonably be expected to have a material adverse
effect) on the business, operations, assets, financial or other condition,
results of operations or prospects of the Company and the Subsidiaries, taken as
a whole, or that could reasonably be expected to impair or delay the ability of
the Company to perform its obligations under this Agreement, whether or not
required by GAAP to be provided for or reserved against on a balance sheet
prepared in accordance with GAAP.
"Material Contracts" has the meaning given it in Section 3.17 hereof.
"Organizational Documents" has the meaning given it in Section 3.2
hereof.
"Parachute Payment" means any Severance Payment constituting a
"parachute payment" within the meaning of Section 280G(b)(2) of the Code and the
regulations issued thereunder.
"Permit" means any permit, certificate, consent, approval,
authorization, order, license, variance, franchise or other similar indicia of
authority issued or granted by any Governmental Entity.
"Person" or "person" means any individual, corporation, partnership,
limited liability partnership, limited liability company, joint venture,
association, joint stock company, trust, unincorporated organization or
Governmental Entity, or any agency or political subdivision thereof, or any
other entity.
"Preferred Stock" means the preferred stock, $.10 par value per share,
of the Company.
"Proxy Proposals" means the following proposals to be included in the
Proxy Statement for Stockholder Approval: (i) the election to the Board of the
individuals designated in accordance with Section 1.1 of the Investment
Agreement; and (ii) the Charter Amendment.
"Proxy Statement" has the meaning given it in Section 6.4(b) hereof.
"Purchase Price has the meaning given it in the recitals to this
Agreement.
"Purchaser Indemnitees" has the meaning given it in Section 6.2 hereof.
"Purchaser Insurance Filings and Consents" has the meaning given it in
Section 3.9(f) hereof.
"Purchaser Insurance Regulation" has the meaning given to it in Section
3.9(f) hereof.
32
"Purchaser Transaction Documents" has the meaning given it in Section
4.2 hereof.
"Required Consent" has the meaning given it in Section 3.9(i) hereof.
"SAP" means statutory accounting practices prescribed or permitted by
Insurance Regulators.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Laws" has the meaning given it in Section 4.11 hereof.
"SEC" means the Securities and Exchange Commission.
"SEC Documents" has the meaning given it in Section 3.9 hereof.
"Severance Payment" means any termination, severance or similar payment
or benefit, including without limitation any such payment or benefit as would
constitute a Parachute Payment, to which any present or former employee,
officer, director, consultant, independent contractor or other agent of the
Company or any Subsidiary might be entitled pursuant to any Employment,
Consulting or Severance Agreement or otherwise, which entitlement results from
the Company's execution and delivery of this Agreement or the other Company
Transaction Documents or the consummation of the transactions contemplated
hereby or thereby, whether taken alone or taken together with any other action
or failure to act by Purchaser, the Company or any Subsidiary or any of their
respective officers, directors, employees, agents or other representatives.
"Shares" has the meaning given it in the recitals to this Agreement.
"Stockholder Approval" means the requisite approval of the Company's
stockholders under the Company's Organizational Documents, the Delaware General
Corporation Law for the Proxy Proposals and the rules, regulations and notices
of AMEX or other applicable stock exchanges.
"Stockholders' Meeting" has the meaning given it in Section 6.4(a).
"Subsidiary" means each of (i) National American Insurance Company of
California, a California corporation, (ii) Mission American Insurance Company, a
California corporation, (iii) Danielson Indemnity Company, a Missouri
corporation, (iv) Danielson Reinsurance Corporation, a Missouri corporation, (v)
Danielson Insurance Company, a California corporation, (vi) Danielson National
Insurance Company, a California corporation, (vii) KCP Holding Company, a
Delaware corporation, (viii) Kramer Capital Consultants, Inc., a New York
corporation, (ix) Danielson Mortgage Corporation, a Delaware corporation, (x)
Danielson Advisers, Inc., a Delaware corporation, (xi) Danielson Investments,
Inc., a Delaware corporation, (xii) Mission Sub D, Inc., a Delaware corporation,
(xiii) Mission Sub E, Inc., a Delaware corporation, (xiv) Valor Insurance
Company, Inc., a Montana corporation, (xv) Great River Insurance Company, a
California corporation, (xvi) Viscount Insurance Services, Inc., a California
corporation, (xvii) NAICC Insurance Services, Inc., a California corporation,
and (viii) Victory Insurance Services, Inc., a Montana corporation, all of which
are identified on Schedule 3.3(d) hereto.
33
"Subsidiary Reinsurance Agreements" means all presently in force
reinsurance arrangements and treaties, and all addenda thereto, to which any
Subsidiary is a party.
"Survival Date" has the meaning given it in Section 9.2 hereof.
"Taxes" means all federal, state, local and foreign taxes, duties,
fees, levies, governmental charges or other assessments of any kind (whether
imposed directly or through withholding), including any interest, additions to
tax or penalties applicable thereto.
"Tax Return" means all federal, state, local and foreign tax returns,
declarations, statements, reports, schedules, forms and information returns and
any amendment to any of the foregoing.
"Termination Date" means the earlier of (i) the Closing Date, or (ii)
the date on which the Agreement is terminated pursuant to Article VIII.
"Transaction Document" means any Company Transaction Document and any
Purchaser Transaction Document.
"Warrant" has the meaning given it in the recitals to this Agreement.
"Warrant Shares" has the meaning given it in the recitals to this
Agreement.
"Year 2000 Compliant" means that the "Company's Technology" (as
hereinafter defined), is designed to be used prior to, during and after the
calendar year 2000 A.D., and that the Company's Technology used during each such
time period will: (i) accurately receive, provide and process date/time data
including, but not limited to, calculating, comparing, and sequencing from, into
and between the twentieth and twenty-first centuries, including the years 1999
and 2000, and leap-year calculations, provided that the provider's date/time
data is delivered in a Year 2000 Compliant Manner and (ii) will not malfunction,
cease to function, or provide incorrect results as a result of date/time data.
"Technology" shall mean computer software, computer firmware, computer hardware,
computer chip embedded equipment and other similar or related items of
automated, computerized, or software system(s) or equipment. The "Company's
Technology" shall mean all Technology owned, licensed, used or relied on by the
Company and/or any Subsidiary in the conduct of its business.
ARTICLE XI
MISCELLANEOUS
11.1 Notices. All notices, and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, sent by documented
overnight delivery service or, to the extent receipt is confirmed, facsimile, to
the appropriate address or facsimile number set forth below (or at such other
address or facsimile number for a party as shall be specified by like notice):
34
if to Purchaser:
c/o Samstock, L.L.C.
Two N. Riverside Plaza, Suite 600
Chicago, IL 60606
Attention: Bill Pate
Fax: (312) 559-1280
with an additional copy to:
Rosenberg & Liebentritt, P.C.
Two N. Riverside Plaza, Suite 1600
Chicago, IL 60606
Attention: President
Fax: (312) 454-0335
if to the Company:
Danielson Holding Corporation
767 Third Avenue
New York, NY 10017
Attention: David M. Barse
Fax: (212) 888-6704
with a copy to:
Danielson Holding Corporation
767 Third Avenue
New York, NY 10017
Attention: Ian M. Kirschner
Fax: (212) 735-0003
11.2 Expenses. Except as otherwise provided in this Agreement, the
Company shall bear all fees and expenses incurred by the Company or any
Subsidiary in connection with, relating to or arising out of the execution,
delivery and performance of this Agreement and the other Company Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby, including attorneys', accountants' and other professional fees and
expenses. Purchaser shall bear all fees and expenses incurred by Purchaser in
connection with, relating to or arising out of the execution, delivery and
performance of this Agreement and the other Purchaser Transaction Documents and
the consummation of the transactions contemplated hereby and thereby, including
attorneys', accountants' and other professional fees and expenses.
11.3 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in
35
an acceptable manner to the end that the transactions contemplated hereby are
fulfilled to the fullest extent possible
11.4 Entire Agreement; Amendment; Waiver; Assignment; Nature of
Obligations. This Agreement, together with the other Transaction Documents,
constitutes the entire agreement among the parties with respect to the subject
matter hereof and thereof and supersedes all prior agreements and undertakings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof and thereof. No amendment, supplement, modification or
waiver of this Agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision of this
Agreement, whether or not similar, nor shall such waiver constitute a continuing
waiver unless otherwise expressly provided. This Agreement shall not be assigned
by operation of law or otherwise.
11.5 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
rights, benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
11.6 Publicity. Neither the Company nor Purchaser will make or issue,
or cause to be made or issued, any announcement or written statements concerning
the Transaction Documents or the transactions contemplated thereby for
dissemination to the general public without the prior written consent of the
Company or Purchaser, as appropriate, which consent shall not be unreasonably
withheld. This provision will not apply to any announcement or written statement
required to be made by law or the regulations of the SEC or AMEX, except that
the party required to make such announcement will, whenever practicable, consult
with the other parties hereto concerning the timing and content of such
announcement before such announcement is made.
11.7 Governing Law. This Agreement shall be governed and controlled as
to validity, enforcement, interpretation, construction, effect and in all other
respects by the internal laws of the State of Delaware applicable to contracts
made in that State.
11.8 Headings. The descriptive headings contained in this Agreement are
included for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
11.9 Interpretation. Unless the context requires otherwise, all words
used in this Agreement in the singular number shall extend to and include the
plural, all words in the plural number shall extend to and include the singular,
and all words in any gender (including neutral gender) shall extend to and
include all genders.
11.10 Counterparts. This Agreement may be executed in two or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
11.11 Jurisdiction and Service of Process. THE COMPANY AND PURCHASER
HEREBY CONSENT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT
36
LOCATED WITHIN THE STATE OF DELAWARE AND IRREVOCABLY AGREE THAT, SUBJECT
TO THE OTHER PROVISIONS OF THIS AGREEMENT, ALL ACTIONS OR PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT WHICH MAY BE LITIGATED SHALL BE
LITIGATED IN SUCH COURTS. EACH OF THE COMPANY AND PURCHASER ACCEPTS FOR
SUCH PARTY AND IN CONNECTION WITH SUCH PARTY'S PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE
BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT.
EACH OF THE COMPANY AND PURCHASER AGREES TO ACCEPT SERVICE OF ALL PROCESS BY
REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, IN ANY SUCH
PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY EACH
SUCH PARTY TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. IF ANY AGENT
APPOINTED BY THE COMPANY, OR PURCHASER REFUSES TO ACCEPT SERVICE, SUCH PARTY
HEREBY AGREES THAT SERVICE UPON SUCH PARTY BY MAIL SHALL CONSTITUTE SUFFICIENT
NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE COMPANY OR PURCHASER
TO BRING PROCEEDINGS AGAINST THE COMPANY OR PURCHASER IN THE COURTS OF ANY
OTHER JURISDICTION.
11.12 Trial. EACH OF THE COMPANY AND PURCHASER HEREBY WAIVES SUCH
PARTY'S RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THE PARTIES HERETO
RELATING TO THE SUBJECT MATTER HEREOF. EACH OF THE COMPANY AND PURCHASER ALSO
WAIVES ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS
WAIVER, BE REQUIRED OF ANY PARTY TO THIS AGREEMENT WITH RESPECT TO ANY ACTION
COMMENCED BY ONE OF THEM AGAINST THE OTHER OF THEM. 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. EACH OF THE COMPANY AND PURCHASER
ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS
AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED
FUTURE DEALINGS. EACH OF THE COMPANY AND PURCHASER FURTHER WARRANTS AND
REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH SUCH PARTY'S LEGAL
COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES SUCH PARTY'S 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 THE 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.
37
IN WITNESS WHEREOF, Purchaser and the Company have executed this Stock
Purchase and Sale Agreement as of the date first above written.
PURCHASER:
SAMSTOCK, L.L.C.
Donald J. Liebentritt
----------------------------------------
By: Donald J. Liebentritt, Vice President
COMPANY:
DANIELSON HOLDING CORPORATION
David Barse
---------------------------------------
By: David Barse, President and
Chief Operating Officer
38
EXHIBIT A
---------
Stock Warrant No. ______
THIS WARRANT AND THE SECURITIES THAT MAY BE ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR ANY STATE SECURITIES ACT AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
REGISTRATION OR EXEMPTION THEREFROM OR AS OTHERWISE PROVIDED IN THIS WARRANT.
THE EXERCISE OF THIS WARRANT MAY BE SUBJECT TO THE FILING OF A NOTIFICATION
REPORT UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS
AMENDED, AND THE EXPIRATION OF OR TERMINATION OF THE APPLICABLE WAITING PERIOD
THEREUNDER.
DANIELSON HOLDING CORPORATION
Common Stock Warrant
Danielson Holding Corporation, a Delaware corporation (the "Company"),
hereby certifies that, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Samstock, L.L.C., a Delaware
limited liability company ("Samstock"), or its permitted assigns under the terms
of this warrant (Samstock or such permitted assigns at the time being the
registered holder or holders hereof being hereinafter referred to as "Holder")
is entitled, subject to the terms set forth below, to purchase from the Company,
at a purchase price per share of $4.75 (as such amount may be adjusted from time
to time pursuant to Sections 1.5 or 3 hereof, the "Purchase Price"), at any time
or from time to time prior to 5:00 p.m., Eastern Standard Time, on the
Expiration Date, 2,000,000 fully paid and non-assessable shares of Common Stock,
$.10 par value per share, of the Company (the "Common Stock") (such shares of
Common Stock as the number and characterization of such shares may be adjusted
or otherwise modified from time to time pursuant to Sections 3 or 4, are herein
referred to as the "Warrant Shares").
Certain capitalized terms not otherwise defined herein shall have the
meanings set forth in Section 6 hereof.
Section 1 EXERCISE OF WARRANT.
1.1 Exercise. This Warrant may be exercised by Holder, in whole or in
part (but not for less than 100,000, subject to pro rata adjustment for any
subdivision of Common Stock or the payment of any dividend in shares of Common
Stock, of the Warrant Shares issuable under this Warrant, or the remaining
Warrant Shares, if less than such amount), at any time and from time to time
prior to 5:00 p.m., Eastern Standard Time, on the Expiration Date, by surrender
of this Warrant, together with a subscription substantially in the form of
Exhibit A attached to this Warrant (or a reasonable facsimile thereof) duly
executed by Holder, to the Company at its principal office and accompanied by
payment in full, in cash or by check payable to the order of
the Company (or in the manner provided in Section 1.2 hereof), in the amount
of the aggregate Purchase Price for the Warrant Shares covered by such
exercise.
1.2 Cashless Exercise. In lieu of exercising this Warrant pursuant to
Section 1.1 above, the Holder shall have the right at any time and from time to
time prior to 5:00 p.m., Eastern Standard Time, on the Expiration Date to
exercise this Warrant, in whole or in part, by requiring the Company to convert
all or any part of this Warrant (the "Conversion Right"), into Warrant Shares by
surrendering this Warrant to the Company accompanied by the form conversion
notice (substantially in the form attached hereto as Exhibit B, or a reasonable
facsimile thereof) which has been duly completed and signed. Upon exercise of
the Conversion Right, the Company shall deliver to the Holder (without payment
by the Holder of any cash in respect of the Purchase Price) that number of
Warrant Shares which is equal to the amount obtained by dividing (x) an amount
equal to the difference between (A) the Current Market Price Per Share
multiplied by the number of Warrant Shares as to which the Conversion Right is
then being exercised (the "Conversion Shares"), determined as of immediately
prior to the effective time of the exercise of the Conversion Right, minus (B)
the aggregate Purchase Price then applicable to the Conversion Shares (such
difference, the "Conversion Amount"), by (y) the Current Market Price Per Share
of one share of Common Stock determined as of immediately prior to the effective
time of the exercise of the Conversion Right. Upon exercise of the Conversion
Right, the Conversion Amount shall be deemed to have been paid to the Company in
respect of the Warrant Shares so acquired. Any references in this Warrant to the
"exercise" of this Warrant, and the use of the term "exercise" herein, shall be
deemed to include, without limitation, any exercise of the Conversion Right. In
the event this Warrant is not exercised in full, the Warrant Shares shall be
reduced by the number of Warrant Shares subject to such partial exercise, and
the Company, at its expense, shall forthwith issue and deliver to Holder a new
Warrant of like tenor in the name of Holder, reflecting such adjusted Warrant
Shares.
1.3 When Exercise Effective. Each exercise of this Warrant shall be
deemed to have been effected immediately prior to the close of business on the
Business Day on which this Warrant (together with the applicable subscription
and Purchase Price) shall have been surrendered to the Company as provided in
Section 1.1 or 1.2 hereof, and at such time the Person or Persons in whose name
or names any certificate or certificates for shares of Common Stock (or Other
Securities) shall be issuable upon such exercise as provided in Section 1.4
shall be deemed to have become the holder or holders of record thereof. The
warrant or warrants surrendered upon exercise thereof shall thereafter be
canceled and of no further force or effect.
1.4 Delivery of Stock Certificates, etc. As soon as practicable after
each exercise of this Warrant, in whole or in part, the Company at its expense
(including the payment by it of any and all applicable issue taxes but excluding
any applicable transfer taxes) will issue and deliver to Holder: (a) a
certificate or certificates (or an escrow receipt in lieu thereof as may be
required under Section 5.2 of the Company's Certificate of Incorporation), in
such name or names as such Holder may designate, for the number of duly
authorized, validly issued, fully paid and non-assessable shares of Common Stock
to which Holder shall be entitled on such exercise, plus, in lieu of any
fractional share to which such holder would otherwise be entitled, cash in an
amount equal to the same fraction of the Current Market Price Per Share
determined as of the Business Day preceding the date of such exercise, and (b)
in case such exercise is for less than all the Warrant Shares issuable
hereunder, a new Warrant representing such Warrant or Warrants remaining
hereunder in substantially the form of this Warrant.
2
1.5 Reduction of Purchase Price for A&E Deficiency. If on the date of
any exercise pursuant to Section 1.1 or 1.2 above (determined in accordance with
Section 1.3 hereof) the Company does not have in effect an Excess of Loss Policy
and there exists an A&E Deficiency, then the Purchase Price applicable to such
exercise shall be automatically reduced as follows (the "Price Reduction"):
(a) If the A&E Deficiency is:
(i) greater than $5,000,000 but less than or equal to
$10,000,000, the Purchase Price shall be reduced by an amount
determined by dividing (x) 40.8% of the amount by which the A&E
Deficiency exceeds $5,000,000, by (y) the initial number of Warrant
Shares represented by the original Warrant (taking into account any
adjustment pursuant to Sections 3 and 4 hereof);
(ii) greater than $10,000,000, the Purchase Price shall be
reduced by an amount determined by dividing (x) an amount equal to the
sum of (A) 20.4% of the amount by which the A&E Deficiency exceeds
$10,000,000 plus (B) $2,040,000 by (y) the initial number of Warrant
Shares represented by the original Warrant (taking into account any
adjustment pursuant to Sections 3 and 4 hereof);
(b) If the Holder has previously exercised a portion of the Warrant,
then the Purchase Price shall, in addition to any reduction pursuant to
subsection (a) above, be further reduced by an amount determined by dividing (x)
the excess, if any, of (A) the Price Reduction calculated pursuant to subsection
(a) above multiplied by the aggregate number of Warrant Shares issued upon all
prior exercises of the Warrant over (B) the Aggregate Price Reduction, by (y)
the total number of Warrant Shares to which the current exercise relates.
(c) Notwithstanding the foregoing, the Price Reduction shall be applied
only to the extent that it does not cause the Purchase Price to be reduced below
the lower of (x) $3.00, which amount shall be adjusted proportionately with any
adjustment in the Purchase Price pursuant to Section 3 hereof, or (y) the
Current Market Price Per Share as of the date of such adjustment.
(d) The Price Reduction is independent of and in addition to any
adjustment required by Section 3 hereof, is applicable only to the particular
exercise to which such Price Reduction relates and shall not affect any future
calculations except to the extent that a Price Reduction increases Aggregate
Price Reduction.
3
Section 2 CERTAIN OBLIGATIONS OF THE COMPANY.
2.1 Reservation of Stock. The Company covenants that it will at all
times reserve and keep available, free from preemptive rights, solely for
issuance and delivery upon exercise of this Warrant, the number of shares of
Common Stock (or Other Securities) from time to time issuable upon exercise of
this Warrant. In furtherance of and not in limitation of the foregoing, the
Company will from time to time, in accordance with the laws of its state of
incorporation, take all necessary action to increase and maintain the authorized
amount of its Common Stock (or Other Securities) if at any time the number of
shares of Common Stock authorized but remaining unissued and unreserved for
other purposes shall be insufficient to permit the full exercise of this
Warrant.
2.2 Status of Warrant Shares; Corporate Actions. The Company covenants
that all Warrant Shares, upon issuance in accordance with the terms of this
Warrant Agreement and the Company's Certificate of Incorporation, as amended
from time to time (the "Certificate of Incorporation"), shall be fully paid and
nonassessable and free from all taxes with respect to the issuance thereof
(other than income taxes, if any, related to ordinary income attributable to the
Holder) and from all liens, charges and security interests other than transfer
restrictions contained in the Company's Certificate of Incorporation. The
Company will not, by amendment of its Certificate of Incorporation or through
any consolidation, merger, reorganization, transfer of assets, dissolution,
issuance or sale of securities or any other voluntary action or omission, avoid
or seek to avoid the observance or performance of any of the terms of this
Warrant. 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 the
Common Stock receivable upon the exercise of this Warrant to exceed the amount
payable therefor upon such exercise and (b) will take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of the Common Stock (or Other Securities)
upon the exercise of this Warrant, including, without limitation, amending the
Certificate of Incorporation.
2.3 Maintenance of Office. The Company will maintain an office where
presentations and demands to or upon the Company in respect of this Warrant may
be made. The initial location of such office shall be at 767 Third Avenue, New
York, NY 10017. The Company will give notice in writing to Holder in accordance
with Section 11 hereof of each change in the location of such office.
2.4 Use of Proceeds. The Company agrees that proceeds paid to the
Company from any Holder's exercise of the Warrant shall be retained as direct
assets of the Company and such proceeds shall not be transferred or attributed
in any way, directly or indirectly, to any insurance subsidiary of the Company.
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Section 3 ADJUSTMENT OF PURCHASE PRICE.
3.1 General; Purchase Price. The number of shares of Common Stock which
the holder of this Warrant shall be entitled to receive upon each exercise
hereof shall be determined by multiplying the number of shares of Common Stock
which would otherwise (but for the provisions of this Section 3) be issuable
upon such exercise, as designated by the holder hereof pursuant to Section 1
hereof, by the fraction of which (a) the numerator is $4.75, and (b) the
denominator is the Purchase Price in effect on the date of such exercise. The
"Purchase Price" shall initially be $4.75 per share, shall be adjusted and
readjusted from time to time as provided in this Section 3 and, as so adjusted
or readjusted, shall remain in effect until a further adjustment or readjustment
thereof is required by this Section 3.
3.2. Issuance of Additional Shares of Common Stock. In case the Company
at any time or from time to time after the date hereof shall issue or sell
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section 3.3 or 3.4 hereof) without consideration
or for a consideration per share less than the Purchase Price in effect
immediately prior to such issue or sale, then, and in each such case, such
Purchase Price shall be reduced, concurrently with such issue or sale, to a
price (calculated to the nearest .001 of a cent) determined by multiplying such
Purchase Price by a fraction,
(i) the numerator of which shall be (A) the number of
shares of Common Stock outstanding immediately prior to such
issue or sale plus (B) the number of shares of Common Stock
which the aggregate consideration received by the Company for
the total number of such Additional Shares of Common Stock so
issued or sold would purchase at the Purchase Price in effect
immediately prior to such sale; and
(ii) the denominator of which shall be the number of
shares of Common Stock outstanding immediately after such
issue or sale, provided that, for the purposes of this Section
3.2, (A) immediately after any Additional Shares of Common
Stock are deemed to have been issued pursuant to Section 3.3
or 3.4 hereof, such Additional Shares of Common Stock shall be
deemed to be outstanding, and (B) treasury shares shall not be
deemed to be outstanding.
3.3. Treatment of Options and Convertible Securities. In case the
Company at any time or from time to time after the date hereof shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities entitled to receive, any Options or
Convertible Securities, then, and in each such case, the maximum number of
Additional Shares of Common Stock (as set forth in the instrument relating
thereto, without regard to any provisions contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in the
case of Convertible Securities and options therefor, issuable upon the
conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue, sale,
grant or assumption or, in case such a record date shall have been fixed, as of
the close of business on such record date (or, if the Common Stock trades on an
ex-dividend basis, on the date prior to the commencement of ex-dividend
trading); provided that such Additional Shares of Common Stock shall not be
deemed to have been issued unless the consideration per share (determined
pursuant to Section 3.5 hereof) of such shares would be less than the Purchase
Price in effect on the date of and immediately prior to such issue, sale, grant
or assumption or
5
immediately prior to the close of business on such record date (or, if the
Common Stock trades on an ex-dividend basis, on the date prior to the
commencement of ex-dividend trading), as the case may be; and, provided,
further, that in any such case in which Additional Shares of Common Stock are
deemed to be issued:
(a) no further adjustment of the Purchase Price shall be made
upon the subsequent issue or sale of Convertible Securities or shares of Common
Stock upon the exercise of such Options or the conversion or exchange of such
Convertible Securities, except in the case of any such Options or Convertible
Securities which contain provisions requiring an adjustment, subsequent to the
date of the issue or sale thereof, of the number of Additional Shares of Common
Stock issuable upon the exercise of such Options or the conversion or exchange
of such Convertible Securities by reason of (i) a change of control of the
Company or (ii) the acquisition by any Person or group of Persons of any
specified number or percentage of the Voting Securities of the Company;
(b) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of Additional
Shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof (by change of rate or otherwise), the Purchase Price computed upon the
original issue, sale, grant or assumption thereof (or upon the occurrence of the
record date, or date prior to the commencement of ex-dividend trading, as the
case may be, with respect thereto), and any subsequent adjustments based
thereon, shall, upon any such increase or decrease becoming effective, be
recomputed to reflect such increase or decrease insofar as it affects such
options, or the rights of conversion or exchange under such Convertible
Securities, which are outstanding at such time;
(c) upon the expiration (or purchase by the Company and
cancellation or retirement) of any such Options which shall not have been
exercised or the expiration of any rights of conversion or exchange under any
such Convertible Securities which (or purchase by the Company and cancellation
or retirement of any such Convertible Securities the rights of conversion or
exchange under which) shall not have been exercised, the Purchase Price computed
upon the original issue, sale, grant or assumption thereof (or upon the
occurrence of the record date, or date prior to the commencement of ex-dividend
trading, as the case may be, with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration (or such cancellation or
retirement, as the case may be), be recomputed as if:
(i) in the case of Options for Common Stock or Convertible
Securities, the only Additional Shares of Common Stock issued or sold
were the Additional Shares of Common Stock, if any, actually issued or
sold upon the exercise of such Options or the conversion or exchange of
such Convertible Securities and the consideration received therefor was
the consideration actually received by the Company for the issue, sale,
grant or assumption of all such Options, whether or not exercised, plus
the consideration actually received by the Company upon such exercise,
or for the issue or sale of all such Convertible Securities which were
actually converted or exchanged, plus the additional consideration, if
any, actually received by the Company upon such conversion or exchange;
and
(ii) in the case of Options for Convertible Securities, only
the Convertible Securities, if any, actually issued or sold upon the
exercise of such Options were issued
6
at the time of the issue, sale, grant or assumption of such Options,
and the consideration received by the Company for the Additional
Shares of Common Stock deemed to have then been issued was the
consideration actually received by the Company for the issue, sale,
grant or assumption of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Company
(pursuant to Section 3.5 hereof) upon the issue or sale of such
Convertible Securities with respect to which such Options were
actually exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above
shall have the effect of increasing the Purchase Price by an amount in excess of
the amount of the adjustment thereof originally made in respect of the issue,
sale, grant or assumption of such Options or Convertible Securities; and
(e) in the case of any such Options which expire by their
terms not more than 30 days after the date of issue, sale, grant or assumption
thereof, no adjustment of the Purchase Price shall be made until the expiration
or exercise of all such Options, whereupon such adjustment shall be made in the
manner provided in subdivision (c) above.
3.4. Treatment of Stock Dividends, Stock Splits, etc. In case the
Company at any time or from time to time after the date hereof shall declare or
pay any dividend on the Common Stock payable in Common Stock, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, with respect to any
adjustment of the Purchase Price pursuant to Section 3.2, Additional Shares of
Common Stock shall be deemed to have been issued (a) in the case of any such
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or (b) in the case of any such subdivision, at the close of business
on the day immediately prior to the day upon which such corporate action becomes
effective.
3.5 Computation of Consideration. For the purposes of this
Section 3:
(a) the consideration for the issue or sale of any
Additional Shares of Common Stock shall, irrespective of the accounting
treatment of such consideration,
(i) insofar as it consists of cash, be computed at
the net amount of cash received by the Company, (without
deducting any expenses paid or incurred by the Company or any
commissions or compensations paid or concessions or discounts
allowed to underwriters, dealers or others performing similar
services in connection with such issue or sale);
(ii) insofar as it consists of property (including
securities) other than cash, be computed at the fair value
thereof at the time of such issue or sale, as determined in
good faith by the Board of Directors of the Company; and
(iii) in case Additional Shares of Common Stock are
issued or sold together with other stock or securities or
other assets of the Company for a consideration which covers
both, be the portion of such consideration so received,
computed as provided in clauses (i) and (ii) above, allocable
to such
7
Additional Shares of Common Stock, all as determined
in good faith by the Board of Directors of the Company.
(b) Additional Shares of Common Stock deemed to have been
issued pursuant to Section 3.3, relating to Options and Convertible Securities,
shall be deemed to have been issued for a consideration per share determined by
dividing
(i) the total amount, if any, received and receivable
by the Company as consideration for the issue, sale, grant or
assumption of the Options or Convertible Securities in
question plus the aggregate amount of additional consideration
(as set forth in the instruments relating thereto, without
regard to any provision contained therein for a subsequent
adjustment of such consideration to protect against dilution)
payable to the Company upon the exercise in full of such
Options or the conversion or exchange of such Convertible
Securities or, in the case of Options for Convertible
Securities, the exercise of such options for Convertible
Securities and the conversion or exchange of such Convertible
Securities, in each case computing such consideration as
provided in the foregoing subdivision (a), by
(ii) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without
regard to any provision contained therein for a subsequent
adjustment of such number to protect against dilution)
issuable upon the exercise of such Options or the conversion
or exchange of such Convertible Securities.
(c) Additional Shares of Common Stock deemed to have been issued
pursuant to Section 3.4 hereof, relating to stock dividends, stock splits, etc.,
shall be deemed to have been issued for no consideration, unless and only to the
extent that consideration is actually paid therefor.
3.6. Adjustments for Combinations, etc. In case the outstanding shares
of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Purchase Price in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
Section 4 RECLASSIFICATION, CONSOLIDATION, MERGER, ETC. In the case of (A) any
capital reorganization, reclassification or other change of outstanding Common
Stock (or Other Securities) (other than those referred to in Section 3.4 hereof
and other than a change in par value), or (B) any consolidation of the Company
with any other corporation or any merger of the Company into another corporation
or of another corporation into the Company (other than a consolidation or merger
in which the Company is the continuing or surviving corporation and which does
not result in any reclassification of, or change (other than a change in par
value, or as a result of a subdivision or combination to which Section 3.4
hereof is applicable) in, the outstanding Common Stock (or Other Securities)),
or (C) any sale or transfer to another Person (other than by mortgage or pledge)
of all or substantially all of the properties and assets of the Company, each
Warrant shall from and after such event or transaction be exercisable upon the
terms and conditions specified in this Warrant, for the number of shares of
stock or other securities or assets to which the Holder (at the time of the
transaction or event) upon
8
exercise of this Warrant would have been entitled upon such transaction or
event as if such Holder exercised this Warrant in full immediately prior to
such transaction or event and in any such case, if necessary, the
provisions set forth in this Section 4 with respect to the rights thereafter of
the Holder shall be appropriately adjusted so as to be applicable, as nearly as
may be possible, to any shares of stock or other securities or assets
thereafter deliverable on the exercise of the Warrant; provided, that any such
resulting or surviving corporation or purchaser, as the case may be, in any such
transaction, shall expressly assume, by delivery of a written instrument
delivered to the Company and the Holder prior to consummation of the transaction
in question, the obligation to deliver, upon the exercise of the Warrant, such
shares, securities or property as the Holder of the Warrant or other securities
received by the Holder in place thereof, shall be entitled to receive pursuant
to the provisions hereof, and to make provisions for the protection of the
exercise rights as above provided.
Section 5 NOTICE OF CERTAIN EVENTS.
If at any time:
(a) the Company shall declare any dividend or distribution payable to
the holders of its Common Stock (whether payable in cash, Common Stock or other
consideration);
(b) the Company shall offer for subscription or issuance pro rata to
the holders of its Common Stock any additional shares of stock of any class;
(c) there shall be any capital reorganization of the Company, any
recapitalization or reclassification of the capital stock of the Company, or
consolidation or merger involving the Company, or any sale or transfer of all or
substantially all of the Company's assets to any other Person;
(d) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company as a whole or substantially as a whole in a single
transaction or a series of related transactions; or
(e) there shall be any other event which would or may require
adjustment of at least 1% of the Purchase Price or the Warrant Shares pursuant
to Section 3 or 4 hereof,
then, in any one or more of such cases, the Company shall give Holder written
notice of the date on which a record shall be taken for such dividend,
distribution or subscription rights or for determining stockholders entitled to
vote upon such reorganization, recapitalization, reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up
and of the date, if determined, when any such transaction shall take place, as
the case may be. If and to the extent applicable, such notice shall also specify
the date as of which the holders of Common Stock of record shall participate in
such dividend, distribution or subscription rights or shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such recapitalization, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be. Such notice shall be given at least 30 days
before the earliest date required to be specified therein in accordance with
this subparagraph, shall describe the proposed transaction in reasonable detail
and shall specify the consideration to be received by the holders of Common
Stock in respect thereto and/or any adjustment which would be made to the number
of Warrant Shares obtainable upon the exercise of this Warrant as a result of
such
9
transaction; provided, however, that the Company shall be obligated to give only
ten 10 days prior notice with respect to the following events: (i) any
event the occurrence of which would give rise to an adjustment pursuant to the
provisions of Section 3 or (ii) any regularly-scheduled dividend or distribution
which, individually or as a policy, has been previously publicly announced. The
Company shall also furnish to each Holder all notices and materials furnished to
its stockholders in connection with such transaction as and when such notices
and materials are furnished to its stockholders.
Section 6 DEFINITIONS.
As used herein, the following terms, unless the context otherwise
requires, have the following respective meanings:
6.1 The term "Additional Shares of Common Stock" shall mean all shares
(including treasury shares) of Common Stock issued or sold (or, pursuant to
Section 3.3 or 3.4 hereof, deemed to be issued) by the Company after the date
hereof, whether or not subsequently reacquired or retired by the Company, other
than: (a) shares issued upon the exercise of this Warrant; (b) options and
shares issued upon the exercise of options outstanding on the date hereof or to
be granted under any Company stock option plan or stock purchase plan as in
effect on the date hereof or under any other employee or director stock option
or purchase plan or plans adopted or assumed after such date and which have been
duly approved and adopted by a vote of the stockholders of the Company; (c) such
additional number of shares as may become issuable upon the exercise of any of
the securities referred to in the foregoing clauses (a) or (b), by reason of
adjustments required pursuant to anti-dilution provisions applicable to such
securities as in effect on the date hereof, but only if and to the extent that
such adjustments are required as the result of the original issuance of the
Warrants; (d) such additional number of shares as may become issuable upon the
exercise of any of the securities referred to in the foregoing clauses (a), (b),
or (c) by reason of adjustments required pursuant to anti-dilution provisions
applicable to such securities as in effect on the date hereof, in order to
reflect any subdivision or combination of Common Stock, by reclassification or
otherwise, or any dividend on Common Stock payable in Common Stock.
6.2 The term "A&E Deficiency" shall mean the amount by which the sum of
losses and loss adjustment expenses actually paid by the insurance company
subsidiaries of the Company in settlement of asbestos-related claims and
environmental-related claims between December 31, 1998, and the date of exercise
of the Warrant, plus the reserves for such losses and loss adjustment expenses
as of such exercise date, exceed the reserves established by such subsidiaries
for such losses and loss adjustment expenses (including reserves for losses that
have been incurred but which have not been reported) as of December 31, 1998.
6.3 The term "Aggregate Price Reduction" means the sum of all
reductions from the aggregate purchase price paid in connection with all prior
exercises, calculated in accordance with Section 1.5 hereof; provided that for
purposes of determining this amount, such reductions for cashless exercises
pursuant to Section 1.2 hereof shall be determined by multiplying the number of
Warrant Shares as to which the Conversion Right is then being exercised by the
Price Reduction applicable to such cashless exercise.
10
6.4 The term "Business Day" means any day other than a Saturday or a
Sunday or a day on which commercial banking institutions in New York City are
authorized by law to be closed. Any reference to "days" (unless Business Days
are specified) shall mean calendar days.
6.5 The term "Charter Amendment" shall have the meaning ascribed to it
in the Purchase and Sale Agreement.
6.6 The term "Common Stock" shall have the meaning ascribed to it in
the introductory paragraph to this Warrant, provided that such term shall also
include any other securities or rights into which or for which the Common Stock
is converted or exchanged, whether pursuant to a plan of reclassification,
reorganization, consolidation, merger, sale of assets, dissolution, liquidation,
or otherwise.
6.7 The term "Convertible Securities" shall mean any evidence of
indebtedness, shares of stock (other than Common Stock) or other securities
directly or indirectly convertible into or exchangeable for Additional Shares of
Common Stock.
6.8 The term "Current Market Price Per Share" shall mean, with respect
to any of the Common Stock, as of any particular date of determination, the
average of the daily closing prices of the Common Stock as reported in The Wall
Street Journal or other reputable financial news source, for the 20 consecutive
trading days immediately preceding such date.
6.9 The term "Excess of Loss Policy" shall mean a policy of reinsurance
obtained by the insurance company subsidiaries of the Company, which reinsurance
policy shall limit the amount of the A&E Deficiency payable by such insurance
company subsidiaries to [$10,000,000.]
6.10 The term "Expiration Date" shall mean 5:00 p.m., Eastern Standard
Time, on ________________, 2003 [insert fourth anniversary of the Closing Date
under Purchase and Sale Agreement]; provided however that if on such date the
Purchase Price would be subject to adjustment pursuant to Section 1.5 herein if
the Warrant were then exercised, then the Expiration Date shall be extended
until _________, 2004 [insert fifth anniversary of the Closing Date under the
Purchase Agreement].
6.11 The term "Options" shall mean any and all rights, options or
warrants to subscribe for, purchase or otherwise acquire either Additional
Shares of Common Stock or Convertible Securities.
6.12 The term "Other Securities" shall mean any stock (other than
Common Stock) and other securities of the Company or any other Person (corporate
or otherwise) which the holders of this Warrant at any time shall be entitled to
receive, or shall have received, upon the exercise of this Warrant, in lieu of
or in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 hereof or otherwise.
6.13 The term "Person" shall mean an individual, corporation,
partnership, limited liability company, association, trust, joint venture,
unincorporated organization or any government, governmental department or agency
or political subdivision thereof.
11
[6.14 The term "Price Reduction" shall have the meaning ascribed to
it in Section 1.5 hereof.]
6.15 The term "Purchase and Sale Agreement" shall mean that certain
Stock Purchase and Sale Agreement dated as of April 14, 1999 between the Company
and Holder.
6.16 The term "Voting Securities" shall mean stock of any class or
classes (or equivalent interests), if the holders of the stock of such class or
classes (or equivalent interests) are ordinarily, in the absence of
contingencies, entitled to vote for the election of the directors (or persons
performing similar functions) of such business entity, even though the right so
to vote has been suspended by the happening of such a contingency.
6.17 The term "Warrant" shall refer to this or any replacement Warrant
covering any Warrant Shares.
6.18 The term "Warrant Shares" shall have the meaning ascribed to it in
the introductory paragraph to this Warrant, provided that such term shall
include all Other Securities issuable from time to time upon exercise of this
Warrant in whole or in part.
Section 7 REPLACEMENT OF WARRANTS.
Upon surrender of this Warrant in mutilated form or receipt of evidence
satisfactory to the Company of the loss, theft or destruction of this Warrant,
then, the Company, at the Holder's expense, shall execute and deliver, in lieu
of and in replacement of this Warrant, a Warrant identical in form to this
Warrant.
Section 8 REMEDIES.
The Company stipulates that the remedies at law of the Holder in the
event of any breach or threatened breach by the Company of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a breach of any of the terms hereof
or otherwise. The Company hereby irrevocably waives, to the extent that it may
do so under applicable law, any defense based on the adequacy of a remedy at law
which may be asserted as a bar to the remedy of specific performance in any
action brought against the Company for specific performance of this Warrant by
the Holder. 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 may be available under this Warrant.
Section 9 APPLICABILITY OF ARTICLE FIFTH OF CERTIFICATE OF
INCORPORATION; TRANSFER.
This Warrant and its direct and indirect owners are subject to all of
the restrictions set forth in Article Fifth of the Company's Certificate of
Incorporation and in Section 4.11(b) of the Purchase and Sale Agreement. Upon a
transfer in accordance with this Section 9, the Company at its expense
(excluding any applicable transfer taxes) shall execute and deliver, in lieu of
and in replacement of this Warrant, Warrants identical in form to this Warrant
and in such denominations as the transferring Holder shall request; provided
that, any such transferee, by
12
acceptance hereof, agrees to assume all of the obligations of Holder and be
bound by all of the terms and provisions of this Warrant.
Section 10 NOTICES.
Where this Warrant provides for notice of any event, such notice shall
be given (unless otherwise herein expressly provided) in writing and either (i)
delivered personally, (ii) sent by certified, registered or express mail or a
nationally recognized express courier, postage and other applicable charges
prepaid, (iii) sent by facsimile transmission, and shall be deemed given when so
delivered personally, sent by facsimile transmission (confirmed in writing) or
four days after being mailed. Notices shall be addressed, as follows:
if to Holder:
Samstock, L.L.C.
Two North Riverside Plaza
Suite 600
Chicago, IL 60606
Attention: Bill Pate
if to the Company:
Danielson Holding Corporation
767 Third Avenue
New York, NY 10017
Attention: General Counsel
provided, that the exercise of this Warrant shall be effective in the manner
provided in Section 1 hereof.
Section 11 SALE OF WARRANT OR SHARES.
Neither this Warrant nor the shares of Common Stock issuable upon
exercise hereof have been registered under the Securities Act of 1933, as
amended (the "Federal Act"), or under the securities laws of any state. Neither
this Warrant nor such shares, when issued, may be sold, transferred, pledged or
hypothecated in the absence of an effective registration statement for this
Warrant, or the shares, as the case may be, under the Federal Act, such
registration or qualification as may be necessary under the securities laws of
any state, an exemption from such registration or qualification requirements.
The certificate or certificates evidencing all or any of the shares issued upon
exercise of this Warrant shall bear the following legend:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or any state
securities act and may not be sold or transferred in the absence of
such registration or an exemption therefrom, or in the absence of
receipt by the issuer of an opinion of counsel reasonably satisfactory
to the issuer that the securities may be sold or transferred without
such registration. The securities represented by this
13
certificate are also subject to certain restrictions on transfer
contained in the issuer's Certificate of Incorporation."
This Warrant shall be registered on the books of the Company, which
shall be kept by it at its principal office for that purpose and shall be
transferable only on said books by the registered Holder's duly authorized
attorney upon surrender of this Warrant properly endorsed, and only in
compliance with the provisions of the preceding paragraph.
Section 12 NO DIVIDENDS OR VOTING RIGHTS.
No provision of this Warrant shall be construed as conferring upon the
Holder the right to receive dividends or to vote as a shareholder of the
Company, or as imposing any obligation on the Holder to purchase any securities
or as imposing any liabilities on such Holder as a stockholder of the Company,
whether such obligation or liabilities are asserted by the Company or by
creditors of the Company.
Section 13 MISCELLANEOUS.
This Warrant shall be binding upon the Company and Holder and their
legal representatives, successors and permitted assigns. In case any provision
of this Warrant shall be invalid, illegal or unenforceable, or partially
invalid, illegal or unenforceable, the provision shall be enforced to the
extent, if any, that it may legally be enforced and the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by a statement in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This Warrant shall be governed by, and construed and enforced in
accordance with, the laws of the State of Delaware without regard to its
principles of conflicts of laws. The headings in this Warrant are for purposes
of reference only, and shall not limit or otherwise affect any of the terms
hereof. This Warrant may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which constitute one and the same
instrument.
Section 14 JUDICIAL PROCEEDINGS; WAIVER OF JURY TRIAL. Any judicial proceeding
brought against the Company with respect to this Warrant may be brought in any
state or federal court of competent jurisdiction in the State of Delaware and,
by execution and delivery of this Agreement, the Company (a) accepts, generally
and unconditionally, the nonexclusive jurisdiction of such courts and any
related appellate court, and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Warrant, subject to any rights of
appeal, and (b) irrevocably waives any objection the Company may now or
hereafter have as to the venue of any such suit, action or proceeding brought in
such a court or that such court is an inconvenient forum. THE COMPANY HEREBY
WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY, OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY
WAY ARISING OUT OF, RELATED TO, OR CONNECTION WITH THIS WARRANT OR THE
RELATIONSHIP ESTABLISHED HEREUNDER.
14
IN WITNESS WHEREOF, the Company and the Holder have caused this Warrant
to be executed as an instrument under seal by a duly authorized officer and, in
the case of the Company, attested by its Secretary or Assistant Secretary.
Dated as of _______________, 1999
(Corporate Seal)
DANIELSON HOLDING CORPORATION
Attest:
_______________________ By:
___________________________
Secretary/Assistant Secretary Name:
Title:
15
EXHIBIT A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: DANIELSON HOLDING CORPORATION
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to receive thereunder, shares of Common
Stock of DANIELSON HOLDING CORPORATION (the "Company"), and herewith makes
payment of $_________ therefor, and requests that the certificates (or escrow
receipts therefor, in lieu thereof, if applicable) for such shares be issued in
the name of _________________________, and delivered to
_________________________ whose address is____________________________.
Dated:
_____________________________
(Signature must conform in all respects to
name of Holder as specified on the face of
the Warrant)
___________________________________
(Address)
_____________________
*Insert here the number of shares of Common Stock to which the Warrant is being
exercised (including partial exercise), and in any event without making any
adjustment for Additional Shares of Common Stock or any other stock or Other
Securities or property or cash which, pursuant to the adjustment provisions of
this Warrant, may be delivered upon exercise. In the case of partial exercise, a
new Warrant or Warrants will be issued and delivered, representing the
unexercised portion of the Warrant, to the holder of the surrendering Warrant.
EXHIBIT B
FORM OF NOTICE OF CONVERSION
(To be executed upon conversion of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant delivered herewith, in accordance with Section 1.2 of
the Warrant, to convert the Warrant represented thereby into ___ shares of
Common Stock in accordance with the terms hereof. The undersigned requests that
a certificate (or escrow receipts therefor, in lieu thereof, if applicable) for
such shares of Common Stock be registered in the name of
___________________________ whose address is _____________________________ and
that such certificate be delivered to _______________________ whose address is
___________________. If said number of shares of Common Stock is less than all
of the Warrant Shares obtainable hereunder, the undersigned requests that a new
Warrant representing the remaining balance of the Warrant Shares be registered
in the name of ___________________________ whose address is
______________________________ and that such Warrant be delivered to
____________________________ whose address is ____________________________.
Signature:
_________________________________________________
(Signature must conform in all respects to name
of Holder as specified on the face of the Warrant.)
Date:_____________