SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
March 27, 1998
Date of Report (Date of earliest event reported)
FUND AMERICAN ENTERPRISES HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 1-8993 94-2708455
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) file number) Identification No.)
80 South Main Street, Hanover, New Hampshire 03755
(Address of principal executive offices)
(603) 643-1567
(Registrant's telephone number, including area code)
Item 5. Other Events.
On March 27, 1998, upon receipt of state and federal regulatory approvals,
Fund American increased its ownership of Main Street America Holdings, Inc.
("MSA") from 33% to 50%. MSA currently shares in 60% of the insurance operations
of National Grange Mutual Insurance Company of Keene, New Hampshire and holds
certain insurance, reinsurance and financial services subsidiaries. The
aggregate purchase paid by Fund American to purchase its additional investment
in MSA was $70.1 million, subject to certain purchase price adjustments. Fund
American expects to assign the additional investment in MSA to White Mountains
Holdings, Inc. A copy of the MSA Stock Purchase Agreement dated November 1, 1996
is filed herewith as Exhibit 10(a) and a copy of the Amended MSA Stock Purchase
Agreement dated January 21, 1998 is filed herewith as Exhibit 10(b).
Item 7. Financial Statements and Exhibits.
(c) Exhibits. The following exhibits are filed herewith:
Exhibit No. Description
----------- -----------
10(a) Stock Purchase Agreement, dated November 1, 1996,
among the Registrant, Main Street America Holdings,
Inc., National Grange Mutual Insurance Company and
Main Street America Financial Corporation.
10(b) Amendment to the Stock Purchase Agreement, dated
January 21, 1998, among the Registrant, Main Street
America Holdings, Inc., National Grange Mutual
Insurance Company and Main Street America Financial
Corporation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FUND AMERICAN ENTERPRISES HOLDINGS, INC.
Dated: April 1, 1998 By: /s/
----------------- -----------------
Michael S. Paquette
Senior Vice President and
Controller
Stock Purchase Agreement
among
Main Street America Holdings, Inc.,
National Grange Mutual Insurance Company,
Main Street America Financial Corporation
and
Fund American Enterprises Holdings, Inc.
November 1, 1996
TABLE OF CONTENTS
Page
1. Purchase and Sale of Stock............................................1
2. Representations of NGM, MSA Financial, and the Company................2
2.1. Organization and Existence...................................2
2.2. Capitalization...............................................2
2.3. Authorization and Validity; Title to Securities..............4
2.4. Approvals and Consents.......................................5
2.5. Litigation and Proceedings...................................6
2.6. Compliance...................................................6
2.7. Financial Statements.........................................6
2.8. Properties...................................................8
2.9. Taxes........................................................8
2.10. Securities Laws..............................................9
2.11. Agreements..................................................10
2.12. Disclosure..................................................10
2.13. Licenses and Permits........................................11
2.14. No Conflict.................................................12
2.15. Intangible Property and Computer Software...................13
2.16. Powers of Attorney, Guarantees..............................13
2.17. Operations of the Company...................................13
2.18. Insurance Business..........................................15
2.19. Agents......................................................16
2.20. Reserves....................................................17
2.21. No Undisclosed Liabilities..................................17
2.22. ERISA.......................................................18
2.23. Environmental Matters.......................................20
3. Representations of the Purchaser.....................................21
3.1. Investment..................................................21
3.2. Authorization...............................................23
3.3. Approvals and Consents......................................23
4. Agreements Prior to the Closing......................................23
4.1. Conduct of Business.........................................23
4.2. Access to Information; Consultation.........................25
4.3. Cooperation and Reasonable Best Efforts.....................25
4.4. Consents and Approvals With Respect to the Purchaser........25
4.5. Consents and Approvals With Respect to the Company..........26
4.6. Notification of Certain Matters.............................26
4.7. Public Announcements........................................27
4.8. Guarantee...................................................27
5. Conditions...........................................................28
5.1. Conditions to Purchaser's Obligation........................28
(a) Representations and Warranties.....................28
(b) Officer's Certificate..............................28
(c) Articles, By-Laws, Etc.............................29
(d) Satisfactory Examination...........................29
(e) Legal Opinion......................................29
(f) Only Subsidiaries..................................30
(g) Proceedings and Documents..........................30
(h) Amendment to Pooling Agreement.....................30
(i) Management and Investment Management Agreements....31
5.2 Conditions to NGM's and the Company's Obligations...........31
(a) Representations and Warranties.....................31
(b) Officer's Certificate..............................31
(c) Articles, By-Laws, Etc.............................32
(d) Legal Opinion......................................32
(e) Purchase of Outstanding Shares.....................32
(f) Proceedings and Documents..........................32
5.3. Conditions to All Parties' Obligations......................32
(a) Shareholder Agreement..............................33
(b) Approvals and Consents.............................33
(c) No Orders..........................................33
(d) Litigation.........................................33
6. Additional Agreements................................................33
6.1 Amendment to Articles.......................................34
6.2 Purchase of Shares; Issuance of Non-Voting Stock or Stock
Appreciation Rights.........................................34
6.3 Termination of Prior Agreement..............................34
7. Right to Participate in Stock Issuances..............................34
8. Cooperation on Future Projects.......................................37
9. Registration Rights..................................................37
9.1. Piggyback Registration Rights...............................37
9.2. Demand Registration Rights..................................38
9.3. Registration Procedures.....................................38
9.4. Notification................................................39
9.5. Indemnification by the Company..............................39
9.6. Indemnification by Shareholders.............................40
9.7. Reports Under Securities Exchange Act of 1934...............41
9.8. Termination of Registration Rights..........................42
10. Survival; Indemnification............................................42
10.1. Survival of Representations and Warranties..................42
10.2. Indemnification.............................................43
10.3. Threshold to Indemnification................................46
11. Termination..........................................................46
11.1. Termination.................................................46
11.2. Effect of Termination.......................................48
12. Amendments and Waivers...............................................48
13. Costs and Expenses...................................................48
14. Brokers..............................................................49
15. Binding Effect; Assignment...........................................49
16. Notices..............................................................49
17. Governing Law........................................................50
18. Severability.........................................................50
19. No Third Party Beneficiaries.........................................50
20. Captions.............................................................50
21. Counterparts.........................................................50
22. Construction of Agreement............................................50
LIST OF EXHIBITS
Exhibit 1 (Purchase Price Adjustment Formula)
Exhibit 2 (Disclosure Statement)
Exhibit 3 (Amendment to By-Laws of the Company)
Exhibit 4 (Pooling Agreement/Amendment)
Exhibit 5 (Management Agreement)
Exhibit 6 (Investment Management Agreement)
Exhibit 7 (Shareholder Agreement)
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is entered into as of November 1, 1996, among Main
Street America Holdings, Inc., a New Hampshire corporation with an address of 55
West Street, Keene, New Hampshire 03431 (the "Company"), National Grange Mutual
Insurance Company, a mutual insurance company organized under the laws of New
Hampshire, also with an address of 55 West Street, Keene, New Hampshire 03431
("NGM), Main Street America Financial Corporation, a New Hampshire corporation
also with an address of 55 West Street, Keene, New Hampshire 03431 ("MSA
Financial") and Fund American Enterprises Holdings, Inc., a Delaware corporation
with an address of 80 South Main Street, Hanover, New Hampshire 03755 (the
"Purchaser").
NGM, the Company, MSA Financial, and the Purchaser hereby agree as
follows:
1. Purchase and Sale of Stock. In reliance upon the representations and
warranties made herein and subject to the terms and conditions hereof, (i) MSA
Financial agrees to contribute to the Company, in consideration of the receipt
of 83,809 shares of the $.01 par value common stock of the Company, all of the
issued and outstanding stock held by MSA Financial in the following
subsidiaries: MSA Information Systems and Services Corporation ("MSAISS"), Main
Street America Capital Corporation ("MSA Capital"), Guilderland Reinsurance
Company ("Guilderland"), and Old Dominion Insurance Company ("Old Dominion")
(the forgoing subsidiaries, together with Main Street America Assurance Company
("MSAAC") being referred to collectively hereinafter as the "Subsidiaries") and
(ii) the Company agrees to issue and the Purchaser agrees to buy 176,382 shares
of the $.01 par value common stock of the Company (the "Shares") at a price of
$341.56 per share, for an aggregate purchase price of $60,245,035.92.
The purchase price will be subject to adjustment as of December 31, 1997,
according to the procedure described in Exhibit 1 attached hereto and
incorporated herein. The purchase will occur at a closing (the "Closing") to be
held at 10:00 a.m. at the offices of the Company, 55 West Street, Keene, New
Hampshire, on December 31, 1996, or at such other place or such other time or on
such other date as the parties may mutually agree upon in writing (the "Closing
Date"). Payment will be made by wire transfer to the account of the Company,
against delivery to the Purchaser of a certificate representing the Shares.
2. Representations of NGM, MSA Financial, and the Company. NGM, MSA
Financial, and the Company represent and warrant as follows:
2.1. Organization and Existence. Each of the Company and the
Subsidiaries is duly organized and validly existing in good standing in its
state of organization, and is duly qualified and in good standing as a foreign
corporation in all jurisdictions in which the failure to so qualify would have a
material adverse effect on its business. As of the Closing, the only
subsidiaries of the Company will be the Subsidiaries identified in Section 1.
2.2. Capitalization. As of the Closing, taking into account
the transactions contemplated hereby, the Company's total authorized capital
stock will consist of 20 million shares of voting common stock, $.01 par value,
of which 533,976 shares will be issued and outstanding, and 50,000 shares of
non-voting common stock, none of which will be issued and outstanding. The total
authorized capital stock, par value, and number of shares issued and outstanding
for each of the Subsidiaries are as follows:
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Authorized Class and Shares Issued
Subsidiary Shares Par Value and Outstanding
MSA-ISS 5,000 Common Stock 5,000
$100 par value
MSA Capital 100,000 Common Stock 26,000
$.01 par value
Guilderland 4,000,000 Common Stock 2,426,282
$1.00 par value
Old Dominion 2,500,000 Common Stock 2,000,000
$1.00 par value
MSAAC 150,000 Common Stock 75,000
$100 par value
As of the Closing, the Company will be the record and beneficial owner of 100
percent of the issued and outstanding capital stock of each Subsidiary, except
for Guilderland. As of the Closing, the Company will be the record and
beneficial owner of 2,051,960 shares, representing approximately 84.57 percent,
of Guilderland's issued and outstanding common stock. Immediately prior to the
Closing, MSA Financial will be the record and beneficial owner of 183,179 shares
of the Company's voting common stock, representing approximately 66.9 percent of
the Company's issued and outstanding capital stock. Immediately after the
Closing, MSA Financial will be the record and beneficial owner of 266,988 shares
of the Company's voting common stock, representing exactly 50 percent of the
Company's issued and outstanding voting common stock. NGM is the record and
beneficial owner of 100 percent of MSA Financial's issued and outstanding
capital stock.
All the outstanding shares of the Company's capital stock have been duly
authorized and validly issued, and are fully paid and nonassessable. All shares
of the Company's
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capital stock owned by MSA Financial and, to the best of the Company's
knowledge, all shares of such stock owned by the Purchaser are subject to no
Liens (as defined in Section 2.3) or restrictions except restrictions on
transfer imposed by applicable securities laws and by the Shareholder
Agreement dated December 31, 1994 (the "Old Shareholder Agreement") and as
contemplated by the Shareholder Agreement of approximate even date herewith
between MSA Financial and the Purchaser, and joined in by the Company and NGM
(the "New Shareholder Agreement") . There are outstanding no options,
warrants, conversion rights, preemptive rights or other statutory or
contractual rights to purchase shares of capital stock or other securities of
the Company, nor has the Company authorized any such right, nor is the
Company obligated in any other manner to issue shares of its capital stock or
other securities, except as contemplated by the Old and New Shareholder
Agreements.
The offer and sale of all shares of capital stock or other securities of
the Company issued prior to the Closing complied with or were exempt from all
federal and state securities laws.
2.3. Authorization and Validity; Title to Securities. Each
of NGM, MSA Financial, and the Company has all necessary power and authority
to enter into this Agreement, to carry out its obligations hereunder and to
consummate the transactions contemplated hereby. This Agreement has been duly
authorized, executed, and delivered by each of NGM, MSA Financial, and the
Company, and the issuance of the Shares has been duly authorized by the
Company. This Agreement constitutes a legal, valid and binding obligation of
each of NGM, MSA Financial, and the Company, enforceable against each of them
in accordance with its terms. The Shares, when issued and delivered for the
consideration stated herein, will be duly
4
authorized, validly issued, fully paid and nonassessable and free and clear of
any lien, mortgage, charge, pledge, security interest, claim, right of first
refusal or other limitation on transfer or other encumbrance (any of the
foregoing, a "Lien"), except as provided in the New Shareholder Agreement. The
issuance, sale and delivery of the Shares as contemplated by this Agreement are
not and will not be subject to any preemptive right, right of first refusal or
other right or restriction, except for rights under the Stock Purchase Agreement
among the Company, NGM, and the Purchaser dated as of December 28, 1994 (the
"Old Stock Purchase Agreement"), which rights all of the parties hereby
expressly waive. Upon issuance of the Shares as aforesaid, the Purchaser will
acquire good and marketable title to the Shares, free and clear of any Liens,
except as provided in the New Shareholder Agreement.
2.4. Approvals and Consents. Except for compliance with the
notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), the filing of Form A with, and approval
by, the New Hampshire Insurance Commissioner, the Florida Insurance
Commissioner, and the New York Insurance Commissioner, and approval of the
Management Agreement and the Investment Management Agreement described in
section 5.1(i) by the insurance commissioners of New Hampshire, New York,
Florida, and Pennsylvania (which approvals are listed in the Disclosure
Statement annexed hereto as Exhibit 2 (the "Disclosure Statement")), no
notice, approval or filing with any court or governmental body and no consent
from any person is necessary for the making or performance by NGM or the
Company of this Agreement or the consummation of the transactions
contemplated hereby.
2.5. Litigation and Proceedings. All litigation and
proceedings pending or
5
known by NGM, MSA Financial, or the Company to be threatened involving claims of
over $100,000 and relating to the business or assets of the Company or any
Subsidiary are described in the Disclosure Statement. There is no litigation or
proceeding pending or known by NGM, MSA Financial, or the Company to be
threatened involving the business or assets of the Company or any Subsidiary
other than claims in the ordinary course of the Subsidiaries' insurance
business, and all such claims over $100,000 are described in the Disclosure
Statement. No litigation or proceeding is pending, or known by NGM, MSA
Financial, or the Company to be threatened, the outcome of which might have a
material adverse effect on the assets, liabilities (whether absolute, accrued,
contingent or otherwise), condition (financial or otherwise), results of
operations, business or prospects of the Company or any Subsidiary.
2.6. Compliance. The Company and each Subsidiary are in
compliance with their charters and by-laws and are in material compliance
with (a) all laws, judgments, orders, rules and regulations applicable to the
Company or any Subsidiary, or their businesses or any of their assets and (b)
all agreements, obligations and instruments binding upon any of them, except
as disclosed in the Disclosure Statement. The making and performance of this
Agreement, and the consummation of the transactions contemplated hereby by
NGM, MSA Financial, and the Company, will not violate any of the foregoing
matters.
2.7. Financial Statements. MSA Financial's consolidated
balance sheet and statements of income, retained earnings and cash flows for
the fiscal years ending December 31, 1994, and December 31, 1995, true and
complete copies of which are attached to the Disclosure Statement, fairly
present the financial condition and results of operations of MSA Financial
and its subsidiaries at all dates and for all periods covered thereby in
accordance with generally
6
accepted accounting principles, consistently applied, except as therein noted.
The Company and the Subsidiaries have no material liability, contingent or
otherwise, not disclosed in such statements. Since September 30, 1996, there has
been no change, event or development which, individually or in the aggregate,
has now or is reasonably likely to have a material adverse effect on the assets,
liabilities (whether absolute, accrued, contingent or otherwise), condition
(financial or otherwise), results of operations, business or prospects of the
Company or any Subsidiary or the ability of NGM, MSA Financial, or the Company
to perform its obligations hereunder, or to consummate the transactions
contemplated by this Agreement, the Disclosure Statement, and any other
agreement, certificate, report or document delivered pursuant to or contemplated
by this Agreement (collectively, the "Transaction Agreements") , and neither the
Company nor any Subsidiary has engaged in any material transaction outside the
ordinary course of business consistent with past practice.
The annual statements of Guilderland, Old Dominion and MSAAC (hereinafter
referred to collectively as the "Insurance Subsidiaries") filed with or
submitted to the departments of insurance in their respective states of domicile
for the fiscal years ending December 31, 1994 and December 31, 1995 (the "Annual
Statements") and the quarterly statements of the Insurance Subsidiaries filed
with or submitted to the departments of insurance in their respective states of
domicile for the quarters ending March 31 and June 30, 1996 (the "Quarterly
Statements"), true and complete copies of which have been provided to the
Purchaser, were prepared on forms prescribed or permitted by the appropriate
departments of insurance and fairly present the statutory assets, liabilities,
capital and surplus, results of operations and cash flows of the Insurance
Subsidiaries at all dates and for the periods covered thereby in accordance with
7
statutory accounting principles consistently applied (except as set forth in the
notes, exhibits or schedules thereto), subject in the case of quarterly
financial statements to year-end adjustments, and complied in all respects with
all applicable laws.
2.8. Properties. The Company and the Subsidiaries have good
title to all assets used by them in their business, free of any Lien, except
as disclosed in the Disclosure Statement. The Company and each Subsidiary
enjoy peaceful and undisturbed possession under all leases under which they
are operating, and all such leases are valid and subsisting and in full force
and effect.
2.9. Taxes. (a) The Company and the Subsidiaries and any
affiliated entity with which they have filed or were required to file
consolidated or combined tax returns (the "Tax Affiliates"), have timely
filed all returns, schedules and declarations (including withholding and
information returns) ("Tax Returns") relating to federal, state, local or
foreign income, franchise, capital, payroll, property, sales, use, excise,
employment or other taxes, including any interest, additions to tax or
penalties with respect to the foregoing ("Taxes" or "Tax"), which are
required to be filed in any jurisdiction. All of the information in such Tax
Returns is complete and accurate in all material respects, and such Tax
Returns accurately reflect in all material respects the Tax liabilities of
the Tax Affiliates, and (to the extent required to be included or reflected
in such Tax Returns) all items relevant to their future Tax liabilities,
including the tax bases of their respective properties and assets. The Tax
Affiliates have paid in full all Taxes (including any interest, addition to
tax or penalties) required to be paid with respect to the periods covered by
such Tax Returns, and have made all deposits of Taxes required by the
relevant taxing authorities. The Tax Affiliates have fully accrued in their
financial statements all
8
Taxes for any period through that date that are not yet due. The Tax Affiliates
have made all payments of Taxes required to be deducted and withheld from the
wages paid to their respective employees.
(b) None of the Tax Affiliates is delinquent in the payment of
any Taxes or has requested any extension of time within which to file any Tax
Returns that have not been filed, and no deficiencies for any Taxes have been
claimed, proposed or assessed. None of the Tax Affiliates has agreed to any
currently effective extensions of time for the assessment or payment of any
Taxes payable by it.
(c) Other than adjustments or additions to Taxes payable by
any of the Tax Affiliates for the year ending December 31, 1996, or any prior
year as a result of any future determination by any federal, state, local, or
foreign taxing authority that any Insurance Subsidiary's loss or loss adjustment
expense reserves or other deductions were overstated for any such year, neither
NGM, MSA Financial, nor the Company knows of any actual, threatened, or proposed
Tax assessment or adjustment with respect to any of the Tax Affiliates or any of
their respective assets or operations for any prior taxable period or of any
basis therefor. No examination by any taxing authority of the Tax Returns, or of
any forms or information of or relating to the business of the Company or any
Subsidiary, is currently in progress or threatened.
(d) Neither the Company nor any Subsidiary has filed or will
file on or before the Closing Date an election under Section 341(f) of the
Internal Revenue Code.
2.10. Securities Laws. The issuance and sale by the Company of
the Shares in accordance with the terms of this Agreement will not require
registration under the Securities Act of 1933 or any state securities laws, and
is otherwise in compliance with all such laws.
9
2.11. Agreements. Neither the Company nor any Subsidiary is
a party to or bound by any oral or written agreement, arrangement, lease or
commitment extending beyond the first anniversary of the Closing Date,
involving total payments by any of them of more than $100,000 in the
aggregate during the calendar year ending December 31, 1996, or which cannot
be canceled by the Company or the Subsidiary without penalty or further
payment or without more than 30 days' notice (including without limitation
leases, purchase orders or contracts, employment contracts, consulting
contracts, union contracts, loan agreements, bonuses, incentive compensation,
pension, profit-sharing, employee benefit or stock option plans or
arrangements), or is liable with respect to any indebtedness for money
borrowed or is a party to any such agreement with NGM, MSA Financial or any
affiliate thereof, except as set forth in the Disclosure Statement. Except as
set forth in the Disclosure Statement, the Company and the Subsidiaries are
in material compliance with all material agreements, obligations or
instruments binding on them, and all such agreements, obligations and
instruments necessary for the operation of the Company's business and that of
the Subsidiaries as previously operated are in full force and effect and the
Company and the Subsidiaries are entitled to the benefits thereof, and to the
knowledge of NGM, MSA Financial, and the Company, no party to such material
agreements, obligations or instruments plans or otherwise intends to
discontinue such agreement, obligation or instrument upon renewal or
otherwise as a result of the transactions contemplated by this Agreement or
otherwise.
2.12. Disclosure. All copies of agreements, documents and
papers delivered by NGM, MSA Financial, the Company or any Subsidiary to the
Purchaser in connection with the transactions contemplated by this Agreement,
including without limitation the Disclosure
10
Statement, were prepared and delivered in good faith and are accurate and
complete copies thereof. Neither this Agreement, nor anything in writing
furnished to the Purchaser on behalf of NGM, MSA Financial, the Company or
any Subsidiary in connection with this Agreement and related transactions,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein,
in light of the circumstances under which they are made, not misleading.
There is no fact within the special knowledge of any of the executive
officers of NGM, MSA Financial, or the Company which has not been disclosed
to the Purchaser and which may, insofar as they can now reasonably foresee,
materially adversely affect the assets, liabilities (whether absolute,
accrued, contingent or otherwise), condition (financial or otherwise) ,
results of operations, business or prospects of the Company or any Subsidiary.
2.13. Licenses and Permits. The Company and the
Subsidiaries are duly licensed, with all requisite permits and
qualifications, as required by applicable law for the purpose of conducting
their respective businesses or owning their respective properties or both, in
each jurisdiction in which they do business or own property, or in which such
license, permit or qualification is otherwise required and where the failure
to have such license, permit or qualification would or could reasonably be
expected to have a material adverse effect on the assets, liabilities
(whether absolute, accrued, contingent or otherwise), condition (financial or
otherwise), results of operations, business or prospects of the Company or
any Subsidiary. The Company and the Subsidiaries are in compliance with all
such licenses, permits and qualifications. The Disclosure Statement includes
a list of all such licenses, permits and qualifications, and the expiration
dates thereof. There are no proceedings, pending or threatened,
11
to revoke or terminate any such presently existing license, permit or
qualification of the Company or any Subsidiary, and neither NGM, MSA
Financial, nor the Company knows of any reason why any such license, permit
or qualification would not be renewed in the ordinary course.
2.14. No Conflict. Assuming compliance with the
governmental and regulatory requirements described in Sections 2.4 and 3.3 of
this Agreement, the execution, delivery and performance of this Agreement by
NGM, MSA Financial, and the Company and the consummation of the transactions
contemplated hereby will not (i) conflict with any of the terms or provisions
of the articles of incorporation or bylaws of NGM, MSA Financial, the Company
or any Subsidiary; (ii) conflict with, result in a breach, modification,
termination or violation of, give rise to a default or a right of termination
or modification under, or result in the acceleration of performance under,
with or without the giving of notice or passage of time or both, any
provision of any mortgage, lease, agreement (including, without limitation,
any reinsurance agreement), note, bond, indenture, guarantee, statute,
regulation, ordinance, writ, injunction, order, judgment, award, license,
permit or decree to which NGM, MSA Financial, the Company or any Subsidiary
is a party or by or to which any of them or any of their respective assets or
properties may be bound or subject, which conflict, breach, modification,
termination, violation, default or right of acceleration would or could
reasonably be expected to have a material adverse effect on the assets,
liabilities (whether absolute, accrued, contingent or otherwise), condition
(financial or otherwise), results of operations, business or prospects of the
Company or any Subsidiary; or (iii) give rise to the imposition of any
security interest or Lien of any nature upon any of the assets of the Company
or any Subsidiary, which imposition would or could reasonably
12
be expected to have a material adverse effect on the assets, liabilities
(whether absolute, accrued, contingent or otherwise), condition (financial or
otherwise), results of operations, business or prospects of the Company or
any Subsidiary.
2.15. Intangible Property and Computer Software. The
Company and the Subsidiaries own, have registered, or have valid rights to
use all trademarks, trade names, copyrights and computer software that are
necessary for the conduct of their businesses as now being conducted. Neither
the Company nor any Subsidiary has received written notice that it is
infringing any trademark, trade name registration, copyright or any
application pending therefor.
2.16. Powers of Attorney, Guarantees. Neither the Company
nor any Subsidiary has any obligation to act under any outstanding power of
attorney or any obligation or liability, either accrued, accruing or
contingent, as guarantor, surety, co-signer, endorser (other than for
purposes of collection in the ordinary course of business of the Company or
the Subsidiary, as the case may be), co-maker or indemnitor in respect of the
obligation of any person, corporation, partnership, joint venture,
association, organization or other entity.
2.17. Operations of the Company. Except as set forth in the
Disclosure Statement, since December 31, 1995, neither the Company nor any
Subsidiary has:
(a) amended its articles of incorporation or
bylaws (except for amendments to the Company's articles of incorporation
increasing the number of its authorized shares of voting common stock and
providing for a class of non-voting common stock and amendments to the
Company's by-laws modifying the provisions regarding election of directors
and participation in board meetings, copies of which amendments have been
provided to the Purchaser) or merged with or into or consolidated with any
other person, subdivided or in any
13
way reclassified any shares of its capital stock or changed or agreed to
change in any manner the rights or privileges of its outstanding capital
stock or the character of its business;
(b) except for the transactions contemplated by
this Agreement, issued or sold or purchased, or issued options or rights to
subscribe to, or entered into any contracts or commitments to issue or sell
or purchase, any shares of its capital stock or any of its bonds, notes,
debentures or other evidences of indebtedness;
(c) entered into or amended any agreement with
any labor union or association representing any employee, made any wage or
salary increase or bonus, or increase in any other direct or indirect
compensation, for or to any of its officers, directors, employees,
consultants, agents or other representatives, or made any commitment or
agreement to make or pay the same, other than in the ordinary course of
business;
(d) incurred any indebtedness for borrowed money
or incurred or assumed any other liability (other than liabilities to
policyholders under policies of insurance and annuities issued by the
Subsidiaries and pursuant to coinsurance and reinsurance treaties entered
into in the ordinary course of business);
(e) except for the transactions contemplated by
this Agreement, declared or paid any dividends or declared or made any other
distributions of any kind to its shareholders or made any direct or indirect
redemption, retirement, purchase or other acquisition of any shares of its
capital stock;
(f) made any change in its accounting methods or
practices, including, without limitation, any change with respect to
establishment of reserves, or made any change in depreciation or amortization
policies or rates adopted by it, except as required by law, generally
14
accepted accounting principles, or statutory accounting practices;
(g) made any loan or advance to its shareholders
or to any of its directors, officers or employees, consultants, agents or
other representatives;
(h) entered into any lease (as lessor or lessee)
under which the Company or any Subsidiary would be obligated to make or would
receive payments in any one year of $100,000 or more; sold, abandoned or made
any other disposition of any of its assets or properties other than in the
ordinary course of business; granted or suffered any Lien on any of its
assets or properties;
(i) made any acquisition of all or a substantial
part of the assets, properties, securities or business of any other person;
(j) paid, directly or indirectly, any of its
material liabilities before the same became due in accordance with its terms
or other than in the ordinary course of business;
(k) terminated or failed to renew, or received
any written threat to terminate or fail to renew, or amended any contract or
other agreement that is or was material to the Company or the Subsidiary; or
(1) entered into any other contract or other
agreement or other transaction that materially increases the liability of the
Company or the Subsidiary.
2.18. Insurance Business. All policies of insurance issued
by the Subsidiaries are, to the extent required under applicable law, on
forms approved by applicable insurance regulatory authorities or which have
been filed and not objected to by such authorities within the period provided
for objection. Any premium rates required to be filed with or approved by
insurance regulatory authorities have been so filed or approved, and the
premiums charged
15
conform thereto.
2.19. Agents. (a) Except as set forth in the Disclosure
Statement, no insurance agent or group of related agents accounted for more
than two percent of the gross premium income of any Subsidiary in the year
ended either December 31, 1994, or December 31, 1995, or for the nine-month
period ended September 30, 1996.
(b) Except as set forth in the Disclosure
Statement, there are no side agreements or other agreements (whether oral or
written) between any Subsidiary and its agents, managers or brokers which
require the payment of total compensation in excess of the highest amount
payable under the most favorable standard form contract offered by the
Subsidiary to its agents, managers or brokers in existence on the date hereof
and on the Closing Date.
(c) Each of the contracts and other agreements
between each Subsidiary and its agents, managers or brokers is valid, binding
and in full force and effect in accordance with its terms except as may be
limited by the effect of bankruptcy, insolvency or similar laws affecting
creditor's rights generally or by general principles of equity. No Subsidiary
is in default in any material respect with respect to any such contract or
other agreement and no such contract or other agreement contains any
provision providing that the other party thereto may terminate the same by
reason of the transactions contemplated by this Agreement or any other
provision which would be altered or otherwise become applicable by reason of
such transactions.
2.20. Reserves. Except as set forth in the Disclosure
Statement, each reserve and other liability item listed in the Subsidiaries'
annual statements and quarterly statements referred to in Section 2.7 of this
Agreement (the "Reserve Liabilities") was computed in
16
accordance with commonly accepted actuarial standards consistently applied,
and is fairly stated in accordance with sound actuarial principles, is based
on actuarial assumptions which produce reserves at least as great as those
called for in any policy or contract provision as to reserve basis and
method, and is in accordance with all other policy or contract provisions and
meets the requirements of the insurance laws and regulations of all
applicable jurisdictions. Adequate provision for all such Reserve Liabilities
has been made (under commonly accepted actuarial principles consistently
applied) to cover the total amount of all matured and unmatured benefits,
claims and other liabilities of the Subsidiaries under all insurance policies
under which any Subsidiary has any liability (including, without limitation,
any liability arising under or as a result of any reinsurance, coinsurance or
other similar agreement) based on commonly accepted actuarial assumptions as
to future contingencies which are reasonable and appropriate under the
circumstances.
2.21. No Undisclosed Liabilities. There are no liabilities
of the Company or any Subsidiary, other than liabilities (i) reflected or
reserved against on the consolidated financial statements of MSA Financial
referred to in Section 2.7, (ii) disclosed in the Disclosure Statement or
(iii) incurred since September 30, 1996 in the ordinary course of business
consistent with past practice and which do not and are not reasonably likely
to have a material adverse effect upon the assets, liabilities (whether
absolute, accrued, contingent or otherwise), condition (financial or
otherwise) , results of operations, business or prospects of the Company or
any Subsidiary.
2.22. ERISA. (a) The Disclosure Statement sets forth each
plan, agreement, arrangement or commitment which is an employment or
consulting agreement, incentive compensation plan, deferred compensation
agreement, employee pension, profit sharing or
17
savings plan, employee stock option or stock purchase plan, group life,
health, or accident insurance, severance, holiday, vacation, Christmas or
other bonus plans or any other employee benefit plan, agreement, arrangement
or commitment, including, without limitation, any commitment arising under
the laws of any jurisdiction (including, but not limited to, "employee
benefit plans", as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), maintained by NGM, MSA
Financial, the Company, or any Subsidiary or by Green Tree Insurance Company
or American Loyalty Insurance Company for any present or former employees,
officers or directors of any of such entities ("Personnel") or with respect
to which the Company or any Subsidiary has liability or makes or has an
obligation to make contributions ("Employee Plans") .
(b) The Company has provided the Purchaser with
(1) copies of all Employee Plans or, in the case of an unwritten plan, a
written description thereof and (2) copies of the most recent annual,
financial and actuarial reports and Internal Revenue Service determination
letters relating to such Employee Plans.
(c) There are no Personnel who are entitled to (1)
any pension benefit that is unfunded or (2) any pension or other benefit to
be paid after termination of employment other than required by Section 601 of
ERISA and no other benefits whatsoever are payable to any Personnel after
termination of employment (including retiree medical and death benefits) .
(d) There are no actions, suits or claims pending
or threatened (other than routine noncontested claims for benefits) and no
set of circumstances exist which may reasonably give rise to such a claim
against an Employee Plan or administrator or fiduciary of any such Employee
Plan. As to each Employee Plan for which an annual report is required to be
18
filed under ERISA or the Internal Revenue Code, all such filings, including
schedules, have been made on a timely basis and with respect to that most
recent report regarding each such Employee Plan liabilities do not exceed
assets, and no material adverse change has occurred with respect to the
financial materials covered thereby.
(e) Neither the Company, any of the Subsidiaries,
nor any other person, including any fiduciary, has engaged in any "prohibited
transaction" (as defined in Section 4975 of the Code or Section 406 of
ERISA), which could subject any of the Employee Plans (or their trusts), the
Company, any Subsidiary, or any person whom the Company or any Subsidiary has
an obligation to indemnify, to any tax or penalty imposed under Section 4975
of the Internal Revenue Code or Section 502 of ERISA.
(f) None of the assets of the Employee Plans is
invested in any property constituting employer real property or an employer
security within the meaning of Section 407(d) of ERISA.
(g) The events contemplated by this Agreement
(either alone or together with any other event) will not (1) entitle any
Personnel to severance pay, unemployment compensation, or other similar
payments, (2) accelerate the time of payment or vesting or increase the
amount of (i) benefits due under any Employee Plan or (ii) compensation to
any Personnel, (3) result in any payments (including parachute payments)
becoming due to any Personnel, or (4) terminate or modify or give a third
party a right to terminate or modify the provisions or terms of any Employee
Plan.
2.23. Environmental Matters. Except as described in the
Disclosure Statement:
(a) No litigation, suits, claims, proceedings or
investigations or private
19
or governmental enforcement actions or orders are pending, or, to NGM's, MSA
Financial's, or the Company's knowledge, threatened against the Company or
any Subsidiary with respect to any Hazardous Material or applicable
Environmental Law (both as defined below).
(b) None of NGM, MSA Financial, the Company or any
Subsidiary has received any notice from any governmental authority or other
person of any claims or potential violations by the Company or any Subsidiary
of (or liability under) any Environmental Law.
(c) Neither NGM, MSA Financial, nor the Company
knows of (i) any activity on any of the properties presently or formerly
owned or operated by the Company or any Subsidiary which was conducted, or is
being conducted, in violation of any Environmental Law, or (ii) any actual or
threatened release (including, without limitation, any spill, discharge,
leak, emission, ejection, escape or dumping) or improper or inadequate
storage of, or contamination caused by, any Hazardous Material on or under
any of the properties of the Company or any Subsidiary, which in any of such
cases would or could reasonably be expected to have a material adverse effect
upon the assets, liabilities (whether absolute, accrued, contingent or
otherwise), condition (financial or otherwise), results of operations,
business or prospects of the Company or any Subsidiary.
For purposes of this Section 2.23, "Environmental
Law" means any applicable law (including regulations thereunder) relating to
environmental matters or Hazardous Materials; "Hazardous Material" means any
material, substance, waste, pollutant or other matter that is defined as a
hazardous material, hazardous substance, hazardous waste, toxic material,
toxic substance or other term having a similar meaning under applicable law
or is otherwise
20
subject to elimination, abatement, removal, remediation or cleanup under
applicable law.
3. Representations of the Purchaser. The Purchaser represents and
warrants as follows:
3.1. Investment. (a) The Purchaser understands that the
Shares have not been registered under the Securities Act of 1933 or qualified
under any state securities laws on the ground, among others, that no
distribution or public offering of the Shares is to be effected, and that in
this connection the Company is relying in part on the representations of the
Purchaser set forth herein.
(b) The Purchaser intends to acquire the Shares
for its own account and for the purpose of investment, and not with a view to
distribution or resale thereof.
(c) The Purchaser is able to bear the economic
risk of an investment in the Shares and can afford to sustain a total loss on
its investment.
(d) The Purchaser is an experienced and
sophisticated investor, is able to fend for itself in the transactions
contemplated by this Agreement, and has sufficient knowledge and experience
in financial and business matters that it is capable of evaluating the risks
and merits of acquiring the Shares. It has not been formed or organized for
the specific purpose of acquiring the Shares. The Purchaser has had, during
the course of this transaction and prior to its purchase of the Shares, the
opportunity to ask questions of, and receive answers from, the Company, NGM,
and NGM's management concerning NGM, the Company and the Subsidiaries and the
terms and conditions of this Agreement. The Purchaser hereby acknowledges
that it or its representatives have received all information that it
considers necessary for evaluating the risks and merits of acquiring the
Shares and for verifying the
21
accuracy of any information furnished to it or to which it had access. The
Purchaser represents and warrants that the nature and amount of the Shares it
is purchasing are consistent with its investment objectives, abilities and
resources.
(e) Immediately prior to the Closing, the
Purchaser or its wholly owned subsidiary, White Mountains Holdings, Inc.,
will be the record and beneficial owner of 90,606 shares of the Company's
capital stock.
(f) The Purchaser represents and warrants that its
purchase of the Shares and its performance of this Agreement and of the
transactions contemplated hereby will not result in the Purchaser's being
deemed an investment company as that term is defined in the Investment
Company Act of 1940.
(g) The Purchaser understands that there is no
public market for the Shares and that there may never be a public market, and
that even if a market develops it may never be able to sell or dispose of the
Shares and may thus have to bear the risk of its investment for a substantial
period of time, or forever. The Purchaser is aware that none of the Shares
may be sold pursuant to Rule 144 adopted under the Securities Act of 1933
unless and until the terms and conditions of the rule have been met.
3.2. Authorization. This Agreement has been duly
authorized, executed, and delivered by the Purchaser, and constitutes the
valid and binding obligation of the Purchaser, enforceable against it in
accordance with its terms.
3.3. Approvals and Consents. Except as stated in Section
2.4, no consent or approval of any court, government body, or other person is
required in connection with the execution, delivery and performance of this
Agreement or the consummation of the transactions
22
contemplated hereby.
4. Agreements Prior to the Closing.
4.1. Conduct of Business. From the date hereof until the
Closing Date or the date of any termination of this Agreement (a) the Company
will not, and NGM and the Company will not permit any Subsidiary to, conduct
their or its operations other than in the ordinary course of business consistent
with past practice, (b) NGM and the Company will not, and NGM and the Company
will not permit any Subsidiary to, knowingly take any action that would, or
could be reasonably expected to, result in any of the representations and
warranties set forth in this Agreement not being true in all material respects
or result in any of the conditions to Closing set forth in this Agreement not
being satisfied, and (c) the Purchaser will not knowingly take any action that
would, or could be reasonably expected to, result in any of the representations
and warranties set forth in this Agreement not being true in all material
respects or result in any of the conditions to closing set forth in this
Agreement not being satisfied. Without limiting the generality of the foregoing,
during the period from the date hereof until the Closing Date, except as
otherwise required or expressly permitted by this Agreement or the transactions
contemplated hereby, the Company will not, and NGM and the Company will not
permit any Subsidiary to directly or indirectly (i) amend its articles of
incorporation or by-laws, (ii) without the consent of the Purchaser, authorize
for issuance, issue, sell, deliver or agree to commit to issue, sell or deliver
(whether through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any stock of any class or any
other securities or equity equivalents, including, without limitation, any stock
options or stock appreciation rights, (iii) split, combine or reclassify any
shares of its capital stock, or declare, set aside or pay any
23
dividend or other distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, or redeem, purchase or
otherwise acquire (or agree to redeem, purchase or otherwise acquire) any of its
securities, (iv) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization,
(v) except as may be required by generally accepted accounting principles or
statutory accounting practices prescribed or permitted by applicable law or
insurance regulatory authorities in its state of domicile, make any material
change in any financial reporting or accounting practices either not in
accordance with past practice or which would or could reasonably be expected to
have a material adverse effect on any of them, or make any tax election which
would or could reasonably be expected to have a material adverse effect on any
of them, (vi) amend or terminate the Pooling Agreement, or (vii) take any of the
actions described in Section 2.17.
4.2. Access to Information; Consultation. From the date hereof
until Closing, NGM, MSA Financial, and the Company will allow the Purchaser and
its authorized representatives to have access to the books, records, facilities
and personnel of the Company and the Subsidiaries, and, as deemed necessary by
the Purchaser in connection with its review of the advisability to it of the
transactions contemplated hereby, NGM and MSA Financial. NGM, MSA Financial, and
the Company will cause their respective employees and representatives and the
employees and representatives of the Subsidiaries to cooperate in good faith
with the Purchaser and its authorized representatives in connection with any
such access.
4.3. Cooperation and Reasonable Best Efforts. Subject to the
terms and conditions hereof, each of the parties hereto will cooperate with each
other in connection with
24
consummating the transactions contemplated by this Agreement, and each of the
parties hereto agrees to use its reasonable best efforts to take, or cause to be
taken, all actions, 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.
4.4. Consents and Approvals With Respect to the Purchaser. As
soon as practicable after the execution of this Agreement, the Purchaser will
use commercially reasonable efforts to obtain all approvals and consents of, and
will make all filings with and give all notices to, all governmental authorities
and other persons, including, without limitation, (a) the insurance departments
of the states of New Hampshire, New York and Florida and of any other state
where approval is required, and (b) pursuant to the HSR Act, the Federal Trade
Commission and the United States Department of Justice, that are necessary
to be made or given by the Purchaser in order to consummate the transactions
contemplated by this Agreement or any other Transaction Agreements contemplated
hereby.
4.5. Consents and Approvals With Respect to the Company. As
soon as practicable after the execution of this Agreement, NGM, MSA Financial,
and the Company will use commercially reasonable efforts to obtain all approvals
and consents of, and make all filings with and give all notices to, all
governmental authorities and other persons including, without limitation, (a)
the insurance departments of the states of New Hampshire, New York and Florida
and of any other state where approval is required with respect to the
contribution by MSA Financial of its equity interest in Guilderland and Old
Dominion to the Company, and (b) pursuant to the HSR Act, the Federal Trade
Commission and the United States Department of Justice, that are necessary to be
made or given by NGM, MSA Financial or the Company in
25
order to consummate the transactions contemplated by this Agreement or any other
Transaction Agreements contemplated hereby.
4.6. Notification of Certain Matters. NGM, MSA Financial, and
the Company will give prompt written notice to the Purchaser and the Purchaser
will give prompt written notice to NGM, MSA Financial, and the Company, in each
case as may be appropriate, of (i) the occurrence or nonoccurrence of any event
which causes or could reasonably be expected to cause any representation or
warranty made by such party contained in this Agreement to be untrue or
inaccurate in any material respect at or prior to the Closing and (ii) any
material failure of the notifying party to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 4.6
will not cure the failure or limit or otherwise affect the remedies available
hereunder to the parties receiving the notice. Without limiting the generality
of the foregoing, from the date hereof through the Closing, NGM, MSA Financial,
and the Company will promptly notify the Purchaser of any action or proceeding
of the type required to be described in Section 2.5 hereof that is commenced or,
to the knowledge of NGM, MSA Financial, or the Company, threatened involving the
business or assets of the Company or any Subsidiary.
4.7. Public Announcements. NGM, MSA Financial, and the Company
will notify the Purchaser and the Purchaser will notify NGM, MSA Financial, and
the Company prior to issuing any press release or making any public statement
pertaining to this Agreement or any other Transaction Agreement contemplated
hereby or the transactions contemplated hereby or thereby, and will not issue
any such press release or make any such public statement without obtaining the
approval of the Purchaser or NGM, MSA Financial, and the Company, as the case
26
may be, which approval will not be unreasonably withheld.
4.8. Guarantee. Subject to the last sentence of this
paragraph, NGM hereby unconditionally guarantees the performance by MSA
Financial and the Company of their obligations under this Agreement and all
other Transaction Agreements contemplated hereby (the "Obligations") at all
times. In the event that MSA Financial or the Company fails to satisfy any
Obligation when any such obligation is required to be satisfied, NGM will
promptly satisfy or cause to be satisfied said Obligation in place of MSA
Financial or the Company. NGM will pay, reimburse and indemnify the Purchaser
for any and all damages, costs, expenses, losses and other liabilities that the
Purchaser may sustain, arising or resulting from the failure of MSA Financial or
the Company to satisfy any of its Obligations. NGM's guaranty of the obligations
of the Company under the Agreement applies only to those Obligations required to
be performed prior to the Closing.
The liability of NGM hereunder is direct, immediate, absolute,
continuing and unconditional. NGM hereby waives diligence, presentment, demand,
protest and notice of any kind and agrees that the Purchaser will not be
required to pursue or exhaust any remedies it may have against MSA Financial or
the Company or to take any other action against MSA Financial or the Company as
a condition to the enforcement of this guarantee. NGM will not be discharged or
released by reason of the discharge or release of MSA Financial or the Company
for any reason, including, without limitation, a discharge in bankruptcy,
receivership or other proceeding.
5. Conditions.
5.1. Conditions to Purchaser's Obligation. The Purchaser's
obligation to
27
purchase the Shares is subject to the satisfaction, prior to or at the Closing,
of each of the following conditions:
(a) Representations and Warranties. The
representations and warranties contained in section 2 will have been true and
correct when made and will be true, correct and complete on and as of the
Closing Date and with the same force and effect as though made at that time.
(b) Officer's Certificate. The Purchaser will have
received a certificate of the President of each of NGM, MSA Financial, and the
Company certifying that NGM, MSA Financial, and the Company, respectively, have
performed and complied with all conditions and agreements required to be
performed or complied with by it prior to the Closing under this Agreement and
certifying as to the matters set forth in subsection 5.1(a).
(c) Articles, By-Laws, Etc. The amendments to the
Company's by- laws set forth in Exhibit 3 will have been adopted and be in
effect at the time of the Closing, and the Purchaser will have received: (i)
copies of the articles of incorporation, as amended, of NGM, MSA Financial, the
Company, and each Subsidiary, certified by the secretary of state of their
respective states of incorporation, listing all amendments to their respective
articles of incorporation then on file in their offices; (ii) certificates of
the appropriate secretaries of state as to the legal existence and/or good
standing of each of NGM, MSA Financial, the Company, and each Subsidiary; (iii)
copies of by-laws, certified by the Secretary of each of NGM, MSA Financial, the
Company and each Subsidiary; (iv) copies, certified by the Secretary of each of
NGM, MSA Financial, and the Company, of the votes adopted by the directors of
each of NGM and the Company relating to the authorization, execution and
delivery of this Agreement, the
28
issuance, sale and delivery of the Shares hereunder, and the performance of all
other transactions contemplated hereby; and (v) such other certificates and
documents as the Purchaser may reasonably request.
(d) Satisfactory Examination. The Purchaser will not
have learned, through its examination of the Company and the Subsidiaries
pursuant to this Agreement, of any information concerning the Company or any
Subsidiary that the Purchaser in its reasonable discretion determines to be
materially adverse.
(e) Legal Opinion. The Purchaser will have received
an opinion dated the Closing Date from counsel to NGM, MSA Financial, the
Company and the Subsidiaries in form and substance acceptable to the Purchaser
and its counsel.
(f) Only Subsidiaries. The only subsidiaries of the
Company will, as of the Closing Date, be the Subsidiaries.
(g) Proceedings and Documents. All corporate and
other proceedings in connection with the transactions contemplated by this
Agreement and all Transaction Agreements contemplated hereby and instruments
incident to this Agreement and the Transaction Agreements will be reasonably
satisfactory in substance and form to the Purchaser and the Purchaser's counsel.
(h) Amendment to Pooling Agreement. MSAAC's
participation under the MSA Group Reinsurance Agreement among NGM, MSAAC, and
Old Dominion (the "Pooling Agreement") will have been increased to fifty-five
percent (55%) from its current level of forty percent (40%). The Pooling
Agreement will have been amended in substantially the form attached as Exhibit
4, and will provide from and after the date established therein (the
29
"Change Date") (which will in no event be later than January 1, 1997), for a
prospective change in the Pooling Agreement, whereby MSAAC will begin to earn
or incur, as the case may be, fifty-five percent (55%) of the premium earned
and losses incurred beginning on the Change Date, MSAAC will participate in
fifty-five percent (55%) of the loss reserve development for losses incurred
up to and including the period ending immediately prior to the Change Date,
and NGM will pay to MSAAC an amount necessary to provide MSAAC with a total
of fifty-five percent (55%) of the unearned premium reserve and the loss and
loss adjustment expense reserve in respect of the business subject to the
Pooling Agreement. Old Dominion will retain its five percent (5%)
participation under the Pooling Agreement.
(i) Management and Investment Management Agreements.
NGM, the Company, and the other parties thereto will have entered into the
Management Agreement attached as Exhibit 5 and the Investment Management
Agreement attached as Exhibit 6; provided, however, that this condition will be
waived if the only remaining impediments to the effectiveness of such agreements
are required regulatory approval that have not yet been received and NGM and the
Company have made a good-faith effort to obtain such approvals. In the event
this condition is waived for the foregoing reason, NGM and the Company will
nevertheless continue to make a good-faith effort to obtain the necessary
approvals as soon as possible after the Closing.
5.2 Conditions to NGM's and the Company's Obligations. NGM's
obligation to effect the reorganization described in section 1 and the Company's
obligation to issue and sell the Shares to the Purchaser are subject to the
satisfaction, prior to or at the Closing, of each of the following conditions:
30
(a) Representations and Warranties. The
representations and warranties contained in section 3 will have been true and
correct when made and will be true, correct and complete on and as of the
Closing Date and with the same force and effect as though made at that time.
(b) Officer's Certificate. NGM and the Company will
have received a certificate of the President of the Purchaser certifying that
the Purchaser has performed and complied with all conditions and agreements
required to be performed or complied with by it prior to the Closing under this
Agreement and certifying as to the matters set forth in subsection 5.2(a).
(c) Articles, By-Laws, Etc.. NGM and the Company will
have received: (i) a copy of the Purchaser's certificate of incorporation, as
amended, certified by the Secretary of State of Delaware, listing all amendments
then on file in his office; (ii) a certificate of the Secretary of State of
Delaware as to the good standing of the Purchaser; (iii) a copy of the
Purchaser's by-laws, certified by the Secretary of the Purchaser; (iv) a copy,
certified by the Secretary of the Purchaser, of the vote or votes of the
directors of the Purchaser relating to the authorization, execution, and
delivery of this Agreement, the purchase of the Shares hereunder, and the
performance of all other transactions contemplated hereby; and (v) such other
certificates and documents as NGM and the Company may reasonably request.
(d) Legal Opinion. NGM and the Company will have
received an opinion dated the Closing Date from counsel to the Purchaser in form
and substance acceptable to NGM and its counsel.
(e) Purchase of Outstanding Shares. MSA Financial
will have
31
succeeded in purchasing all of the outstanding shares of the Company's
outstanding common stock owned by individual shareholders as provided in section
6.2 and will own 183,179 shares of the Company's common stock.
(f) Proceedings and Documents. All corporate and
other proceedings in connection with the transaction contemplated by the
Agreement and all Transaction Agreements contemplated hereby will be reasonably
satisfactory in substance and form to NGM and the Company and their counsel.
5.3. Conditions to All Parties' Obligations. All
parties' obligations hereunder are subject to the satisfaction, prior to or at
the Closing, of the following conditions:
(a) Shareholder Agreement. The Purchaser, MSA
Financial, and the Company will have entered into the New Shareholder Agreement
in substantially the form attached hereto as Exhibit 7 and such agreement will
be in full force and effect.
(b) Approvals and Consents. All approvals and
consents from the New Hampshire, New York and Florida insurance commissioners,
the insurance commissioners or similar officials in other states, and all other
persons or government entities that are required for the execution, delivery,
and performance of the Agreement by any party will have been obtained and will
be in full force and effect, and any waiting period (and any extension thereof)
under the HSR Act applicable to the purchase of the Shares contemplated hereby
will have expired or will have been terminated.
(c) No Orders. No order of any court or
administrative agency will be in effect which restrains or prohibits any
transaction contemplated hereby.
(d) Litigation. No action, suit or proceeding will
have been instituted
32
and be continuing by any governmental or regulatory body or
any other person to restrain, modify or prevent the carrying out of the
transactions contemplated hereby, or to seek damages in connection with such
transactions, or that has or is reasonably likely to have a material adverse
effect upon the assets, liabilities (whether absolute, accrued, contingent or
otherwise), condition (financial or otherwise), results of operations, business
or prospects of the Company or any Subsidiary.
6. Additional Agreements
6.1 Amendment to Articles. Prior to the Closing, the Company
will amend its articles of incorporation to increase the number of authorized
shares of the Company's capital stock to 20 million shares of $.01 par value
common stock.
6.2 Purchase of Shares; Issuance of Non-Voting Stock or Stock
Appreciation Rights. Prior to the Closing, MSA Financial will use its best
efforts to purchase all outstanding shares of the Company's stock owned by the
officers, directors, and key employees of the Company and NGM. Before or after
the Closing, the Company may, in its discretion, implement a plan whereby
officers, directors, and key employees of the Company or NGM may purchase stock
appreciation rights, non-voting common stock, or other securities or instruments
carrying economic benefits comparable to those of the Company's voting common
stock but without any voting rights, and the Company may amend its articles of
incorporation as necessary to accomplish the same; provided that the total
economic value of all securities or instruments issued pursuant to any such plan
and outstanding at any one time will not exceed 10 percent of the value of the
Company's issued and outstanding voting common stock.
6.3 Termination of Prior Agreement. Upon the Closing under
this Agreement,
33
the Old Stock Purchase Agreement will terminate, except that the
representations and warranties in that agreement will survive as stated therein.
7. Right to Participate in Stock Issuances.
7.1. The Company will give the Purchaser and MSA Financial
(hereinafter referred to collectively as the "Shareholders," and each
individually as a "Shareholder") at least ninety (90) days' prior written notice
of any issuance by the Company of any of its voting
common stock or any instrument convertible into voting common stock of the
Company. The notice will identify the number of shares to be issued, the
proposed date of issuance, the name and address of the person or entity to whom
the shares will be issued, and the price and other terms of the issuance. The
notice will also include an offer (the "Offer") to sell to each Shareholder
sufficient shares of voting common stock of the Company (the "Offered Stock") so
that the Shareholder may maintain the Shareholder's Proportionate Percentage (as
hereinafter defined) of the voting common stock of the Company after
consummation of the proposed issuance, at the same price and on the same other
terms as are proposed for the sale or issuance, which Offer by its terms will
remain open for a period of sixty (60) days from the date of receipt of the
notice or, if longer, until the Shareholder has received all regulatory
approvals required to allow the Shareholder to purchase such additional shares,
provided that the Shareholder will use its best efforts to secure such
approvals, up to a maximum of one hundred eighty (180) days in any event.
This Section 7.1 will apply to the initial registered public
offering of the Company's voting common stock, except that in the event that the
Company is unable to provide a notice containing all of the information
described in this Section 7.1 ninety (90) days prior to
34
the commencement of the public offering, it will nevertheless give written
notice of the public offering at least ninety (90) days prior thereto, and will
provide the remaining information (except for the names and addresses of the
purchasers) as soon as practicable thereafter, and each Shareholder may accept
the Offer at the public offering price prior to the commencement of the public
offering.
7.2. Each Shareholder will give notice to the Company of its
intention to accept an Offer prior to the end of the sixty (60) day period of
the Offer to the Shareholders, setting forth the portion of the Offered Stock
which the Shareholder elects to purchase.
7.3. Subject to the second paragraph of Section 7.1, not later
than the closing of the sale or issuance as to which the Company has given
notice under Section 7.1, each Shareholder will purchase from the Company, and
the Company will sell to each Shareholder, the Offered Stock subscribed for by
the Shareholder at the terms specified in the Offer.
7.4. In the event that either Shareholder does not subscribe
for all of its share of the Offered Stock, the Company will have thirty (30)
days from the end of the sixty (60) day period of the Offer to sell all or any
part of the remaining Offered Stock to any other persons or entities, including
the other Shareholder if the other Shareholder has subscribed for all of its
share of the Offered Stock, in all material respects on terms and conditions
which are no more favorable to such other persons or entities or less favorable
to the Company than those set forth in the Offer.
7.5. Any Offered Stock not purchased by the Shareholders or
other persons or entities in accordance with the Section 7 may not be sold or
otherwise disposed of until it is again offered to the Shareholders under the
procedures specified in this Section 7. This Section
35
7.5 will not apply to stock offered in the initial registered public offering.
7.6. For purposes of this Section 7, "Proportionate
Percentage" means (a) the number of shares of voting common stock then owned by
each Shareholder, divided by (b) the aggregate number of shares of the Company's
voting common stock then outstanding.
7.7. The provisions of this Section 7 will terminate at such
time as either Shareholder no longer owns at least five percent (5%) of the
Company's outstanding voting common stock, regardless of whether a public
offering has occurred.
8. Cooperation on Future Projects. The Company, MSA Financial, NGM, and
the Purchaser agree that they will cooperate in good faith to pursue, to the
extent practicable, additional matters of potential mutual benefit, including
but not limited to: (a) making employees of the Purchaser, including John J.
Byrne, available, at and for commercially reasonable times, to consult with the
Company, NGM, and its affiliates; (b) making Philip D. Koerner available, at and
for commercially reasonable times, to consult with the Purchaser and its
affiliates; (c) positioning MSAAC as Fund American's leading personal and small
commercial lines carrier in areas east of the Mississippi River; (d) negotiating
further financial support of the Company by the Purchaser; and (e) exploring
joint opportunities in insurance and non-insurance operations, and other
opportunities that may prove mutually beneficial.
9. Registration Rights.
36
9.1. Piggyback Registration Rights. Whenever the Company proposes to
register any common stock for its own or others' account under the Securities
Act of 1933 (the "Securities Act") for a public offering for cash, the
Company will give each Shareholder (as defined in section 7) prompt written
notice of its intent to do so. Upon the written request of either Shareholder
given within 30 days after receipt of such notice, the Company will use its
best efforts to cause to be included in the registration all of the shares of
the Company's stock held by the Shareholder which such Shareholder requests.
If the Company is advised in writing in good faith by any managing
underwriter of the securities being offered pursuant to any registration
statement under this Section 9.1 (either prior to or subsequent to beginning
the offering) that the number of shares to be sold by persons other than the
Company is greater than the number of such shares which can be offered
without adversely affecting the offering, the Company may reduce pro rata
(based upon the number of shares requested to be included) down to zero the
number of shares offered for the accounts of such persons to a number deemed
satisfactory by the managing underwriter. No agreement of the Company will
permit, nor will the Company permit, any person other than the Company or the
Shareholders to participate in any registration under this paragraph unless
any offering limitation as described in the foregoing sentence either applies
only to the other persons or is apportioned according to the number of shares
of common stock requested to be included in the registration by each
participant.
9.2. Demand Registration Rights. If, on any occasion (up to a maximum of
three such occasions for each Shareholder, and a maximum of one for each
Shareholder in any 12-month period) after the Company has completed a public
offering of any securities under a registration statement under the
Securities Act, either Shareholder requests the Company to file a
37
registration statement under the Securities Act for a public offering of at
least 25 percent of the shares of the Company's stock held by the Shareholder
(but in no event for an aggregate offering price of less than $5 million),
the Company will use its best efforts to register such shares as
expeditiously as possible. No agreement of the Company will permit, nor will
the Company permit, any other person or the Company to participate in any
registration under this paragraph except with the consent of both
Shareholders.
9.3. Registration Procedures. All expenses incurred in connection with
any registration under this Section 9 (including all registration, filing,
qualification, printer's and accounting fees and the reasonable fees of
counsel for the Company, but excluding underwriting commissions and discounts
and excluding the fees and expenses of counsel for the Shareholders) will be
borne by the Company. In connection with any registration under this Section
9, the Company will (i) use its best efforts to prepare and file with the
Securities and Exchange Commission, as soon as reasonably practicable, a
registration statement with respect to the Shareholder's or Shareholders'
shares and use its best efforts to cause the registration to become effective
promptly and remain effective for a period of at least 120 days (or any
shorter period during which the Shareholder(s) sell all of the shares that
they requested to be registered); (ii) use its best efforts to register and
qualify the shares covered by the registration statement under such
applicable state securities laws as are reasonably appropriate for the
distribution of such Shares; and (iii) take any other actions that are
reasonable and necessary to comply with the requirements of the Securities
Act and the regulations thereunder, or the reasonable requests of the
Shareholder(s), with respect to the registration and distribution of their
shares.
9.4. Notification. The Company will promptly notify each Shareholder whose
38
shares are covered by any registration statement of any event which results
in the prospectus included in the registration statement, as then in effect,
containing an untrue statement of a material fact or omitting to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
9.5. Indemnification by the Company. The Company will indemnify and hold
harmless the Shareholders and each person who controls either Shareholder
within the meaning of Section 15 of the Securities Act against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out
of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement relating to the
Shareholders' shares (or in any related registration statement, notification
or the like) or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by the Company of any
rule or regulation promulgated under the Securities Act applicable to the
Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and will
reimburse the Shareholders and each controlling person for any legal or any
other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action and will enter
into an indemnification agreement with the Shareholders containing customary
provisions, including provisions for contribution, as the Shareholders may
reasonably request; provided, however, that the Company will not be liable in
any such case to the extent that any such claim, loss, damage or liability
arises out of or is based on any untrue statement or omission based upon
written information furnished to the Company by either Shareholder or any
controlling person of a Shareholder for inclusion in any registration
39
statement.
9.6. Indemnification by Shareholders. Each Shareholder will indemnify and
hold harmless the Company, each of its directors, each of its officers who
has signed the registration statement and each person, if any, who controls
the Company within the meaning of Section 15 of the Securities Act, against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement)
of a material fact contained in any registration statement relating to such
Shareholder's shares of the Company's stock (or in any related registration
statement, notification or the like) or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse the Company
and each such controlling person for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action and will enter into an
indemnification agreement with the Company and each controlling person
containing customary provisions, including provisions for contribution, as
the Company or controlling person may reasonably request; provided, however,
that a Shareholder will be liable in any case only to the extent that any
such claim, loss, damage or liability arises out of or is based on any untrue
statement or omission based upon written information furnished to the Company
by the Shareholder or a controlling person of the Shareholder for inclusion
in any registration statement; and provided, further, that a Shareholder will
not be liable under this section for any losses, costs, damages or expenses
exceeding in aggregate the proceeds to the Shareholder in such offering.
9.7. Reports Under Securities Exchange Act of 1934. With a view to making
available
40
to the Shareholders the benefits of Rule 144 promulgated under the Securities
Act and any other rule or regulation of the Commission that may at any time
permit the Shareholders to sell securities of the Company to the public
without registration or pursuant to a registration on Form S-3, the Company
agrees to use its best efforts to satisfy the requirements of all such rules
and regulations (including the requirements for public information,
registration under the Securities Exchange Act of 1934, as amended, and
timely reporting to the Commission) at the earliest possible date after its
first registered public offering.
9.8. Termination of Registration Rights. The registration rights of each
Shareholder under sections 9.1 and 9.2 will terminate when all of the shares
of the Company's stock owned by that Shareholder may be sold within a given
three-month period pursuant to Rule 144 or another applicable exemption.
10. Survival; Indemnification.
10.1. Survival of Representations and Warranties. The
representations and warranties contained in this Agreement, the Exhibits
to this Agreement, the Disclosure Statement, and any other certificate,
report or document delivered pursuant to or contemplated by this
Agreement (collectively, the "Transaction Agreements") will survive the
Closing until the third anniversary of the Closing Date; provided,
however, that (i) the representations and warranties contained in
Sections 2.9 (Tax), 2.21 (Undisclosed Liabilities), and 2.23
(Environmental), will survive until the expiration of the relevant
statute of limitations governing such claims and (ii) the representations
and warranties made in the last three sentences of Section 2.3 (Title to
Securities) will survive forever. Neither the period of survival nor the
liability of
41
NGM, MSA Financial, or the Company or the Purchaser with respect to the
representations and warranties of NGM, MSA Financial, and the Company and
of the Purchaser, respectively, will be reduced by any investigation made
at any time by or on behalf of the Purchaser or NGM, MSA Financial, and
the Company, as the case may be. If written notice of a claim has been
given prior to the expiration of the applicable representations and
warranties, then the relevant representations and warranties will survive
as to that claim until the claim has been finally resolved.
10.2. Indemnification. (a) The Purchaser and its affiliates,
officers, directors, employees, agents, successors and assigns will be
indemnified and held harmless by NGM, MSA Financial, and the Company for
all liabilities, losses, damages, claims, costs and expenses, interest,
awards, judgments and penalties (including, without limitation,
attorneys' and consultants' fees and expenses) (hereinafter a "Loss"),
actually suffered or incurred by them (including, without limitation, any
action brought or otherwise initiated by any of them), arising out of or
resulting from:
(i) the breach of any representation or warranty made by NGM, MSA
Financial, or the Company contained in any of the Transaction
Agreements; or
(ii) the breach of any covenant or agreement by NGM, MSA Financial,
or the Company contained in any of the Transaction Agreements.
(b) NGM, MSA Financial, the Company, and their affiliates, officers,
directors, employees, agents, successors and assigns will be
indemnified and held harmless by
42
the Purchaser for all Losses actually suffered or incurred by them
(including, without limitation, any action brought or otherwise
initiated by any of them), arising out of or resulting from:
(i) the breach of any representation or warranty made by the
Purchaser contained in any of the Transaction Agreements; or
(ii) the breach of any covenant or agreement by the Purchaser
contained in the Transaction Agreements.
(c) To the extent that an Indemnifying Party's (as defined below)
undertakings set forth in this Section 10.2 may be unenforceable,
the Indemnifying Party will contribute the maximum amount that it is
permitted to contribute under applicable law to the payment and
satisfaction of all Losses incurred by an Indemnified Party (as
defined below).
(d) Any party seeking indemnification under this Section 10.2 (an
"Indemnified Party") will give each party from whom indemnification
is sought (an "Indemnifying Party") notice of any matter which an
Indemnified Party has determined has given or could give rise to a
right of indemnification under this Agreement, within 45 days of
such determination, stating the amount of Loss, if known, and method
of computation thereof, and containing a reference to the provisions
of this Agreement in respect of which the right of indemnification
is claimed or arises. The obligations and Liabilities of the
Indemnifying Parties under this Section 10.2 with respect to Losses
arising from claims of any third party which are subject to the
indemnification provided for in this Section 10.2 ("Third Party
Claims") will be governed by and contingent upon the following
additional terms and conditions: if an
43
Indemnified Party receives notice of any Third Party Claim, the
Indemnified Party will give the Indemnifying Party notice of the
Third Party Claim within thirty (30) days of the receipt by the
Indemnified Party of such notice; provided, however, that the
failure to provide such notice will not release the Indemnifying
Party from any of its obligations under this Section 10.2 except to
the extent the Indemnifying Party is materially prejudiced by the
failure and will not relieve the Indemnifying Party from any other
obligation or liability under this Section 10.2. If the Indemnifying
Party acknowledges in writing its obligation to indemnify the
Indemnified Party hereunder against any Losses that may result from
such Third Party Claim, then the Indemnifying Party will be entitled
to assume and control the defense of the Third Party Claim at its
expense and through counsel of its choice if it gives written notice
of its intention to do so to the Indemnified Party within ten (10)
days of the receipt of the notice from the Indemnified Party;
provided, however, that if there exists or is reasonably likely to
exist a conflict of interest that would make it inappropriate in the
reasonable judgment of the Indemnified Party for the same counsel to
represent both the Indemnified Party and the Indemnifying Parties,
then the Indemnified Party will be entitled to retain its own
counsel, in each jurisdiction for which the Indemnified Party
reasonably determines counsel is required, at the expense of the
Indemnifying Party. In the event the Indemnifying Party exercises
its right to undertake the defense against any Third Party Claim as
provided above, the Indemnified Party will cooperate with the
Indemnifying Party in the defense and make available to the
Indemnifying Party, at the Indemnifying Party's expense, all
witnesses, pertinent records, materials and information in the
Indemnified Party's possession or under the Indemnified Party's
control relating thereto that are reasonably required by the
Indemnifying Party. So long as the Indemnifying Party is contesting
44
the Third Party Claim in good faith and on a timely basis, the
Indemnified Party will not pay or settle the claim. Similarly, in
the event the Indemnified Party is, directly or indirectly,
conducting the defense against the Third Party Claim, the
Indemnifying Party will cooperate with the Indemnified Party in the
defense and make available to the Indemnified Party, at the
Indemnifying Party's expense, all witnesses, records, materials and
information in the Indemnifying Party's possession or under the
Indemnifying Party's control relating thereto that are reasonably
required by the Indemnified Party, and the Indemnifying Party will
be permitted to join in the defense of the Third Party Claim and
employ counsel at its own expense. No Third Party Claim may be
settled by the Indemnifying Party without the prior written consent
of the Indemnified Party, unless the settlement provides a release
of the Indemnified Party for the claim and the Indemnified Party has
given its prior written consent, which will not be unreasonably
withheld. To the extent that the Indemnifying Party acknowledges its
obligation to indemnify the Indemnified Party in respect of a Third
Party Claim and the Indemnified Party is conducting the defense of
the claim, the Indemnified Party will not settle the claim without
the prior written consent of the Indemnifying Party, which consent
will not be unreasonably withheld.
10.3. Threshold to Indemnification. (a) No amount will be payable by
any Indemnifying Party pursuant to Section 10.2(a) except to the extent
that the aggregate amount of Loss indemnifiable under Section 10.2(a)
exceeds $25,000. No amount will be payable by any Indemnifying Party
pursuant to Section 10.2(b) except to the extent that the aggregate
amount of Loss indemnifiable under Section 10.2(b) exceeds $25,000.
11. Termination.
11.1. Termination. This Agreement may be terminated at any time
prior to the
45
Closing:
(a) by the Purchaser if, between the date of this Agreement and the
time scheduled for the Closing: (i) an event or condition occurs that has
resulted in a material adverse effect upon the business, prospects,
assets, condition (financial or otherwise) of the Company or any
Subsidiary, (ii) any representation or warranty of NGM, MSA Financial, or
the Company contained in this Agreement is not true and correct in all
material respects when made and, in the case of a breach reasonably
susceptible to cure, is not cured within thirty (30) days after the
breaching party receives written notice of the breach, (iii) NGM, MSA
Financial, or the Company does not comply in all material respects with
any covenant or agreement to be complied with by it and contained in this
Agreement and, in the case of a breach reasonably susceptible to cure,
does not cure the breach within thirty (30) days after receiving written
notice of the breach, or (iv) NGM, MSA Financial, the Company, or any
Subsidiary makes a general assignment for the benefit of creditors, or
any proceeding is instituted by or against NGM, MSA Financial, the
Company, or any Subsidiary seeking to adjudicate any of them a bankrupt
or insolvent, or seeking liquidation, winding up or reorganization,
arrangement, adjustment, protection, relief or composition of its debts
under any law relating to bankruptcy, insolvency or reorganization; or
(b) by NGM, MSA Financial, or the Company if, between the date
hereof and the time scheduled for the Closing: (i) any representation or
warranty of the Purchaser contained in this Agreement is not true and
correct in all material respects when made, and, in the case of a breach
reasonably susceptible to cure, is not cured within thirty (30) days
after the Purchaser receives written notice of the breach, (ii) the
Purchaser does not comply in all
46
material respects with any covenant or agreement to be complied with by
it and contained in this Agreement, and, in the case of a breach
reasonably susceptible to cure, does not cure the breach within thirty
(30) days after receiving written notice of the breach, or (iii) the
Purchaser makes a general assignment for the benefit of creditors, or any
proceeding is instituted by or against the Purchaser seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up
or reorganization, arrangement, adjustment, protection, relief or
composition of its debts under any law relating to bankruptcy, insolvency
or reorganization; or
(c) by NGM, MSA Financial, the Company or the Purchaser if the
Closing has not occurred by June 30, 1997; provided, however, that the
right to terminate this Agreement under this Section 11.1(c) will not be
available to any party whose failure to fulfill any obligation under this
Agreement is the cause of, or has resulted in, the failure of the Closing
to occur on or prior to that date; or
(d) by the mutual written consent of all parties.
11.2. Effect of Termination. In the event of termination of this
Agreement as provided in Section 11.1, this Agreement will forthwith
become void and there will be no liability on the part of any party
hereto except (a) as set forth in Section 13 and (b) that nothing herein
will relieve any party from liability for any breach of this Agreement.
In the event of such termination, the Old Stock Purchase Agreement and
the Old Shareholder Agreement will remain in effect until terminated in
accordance with the terms thereof.
12. Amendments and Waivers. This Agreement may be amended by a writing
executed by the Company and the Purchaser. Any provision of this Agreement
may be waived only by a writing executed by the party having the right to
enforce the provision.
47
13. Costs and Expenses. Each party will be responsible for all costs
and expenses incurred by it in connection with the preparation, execution and
delivery of this Agreement and the Shares and other instruments and documents to
be delivered hereunder and all future amendments to any of the foregoing,
including fees for legal counsel, independent public accountants, and other
outside experts.
14. Brokers. There is no broker, finder or similar person who has
represented NGM, MSA Financial, the Company or the Purchaser in connection with
the transactions contemplated by this Agreement, except that Alex. Brown has
represented NGM, MSA Financial, and the Company in connection therewith. Each
party will indemnify and hold harmless the other and its officers, agents, and
employees from any claim, damage, expense, fee or commission asserted by any
person purporting to have acted in any such capacity.
15. Binding Effect; Assignment. This Agreement will be binding upon and
inure to the benefit of NGM, MSA Financial, the Company and the Purchaser and
their respective successors and assigns, but no party will have the right to
assign any of its rights hereunder without the prior written consent of the
others, except that the Purchaser may assign this Agreement and its rights
hereunder to any of its wholly owned subsidiaries.
16. Notices. Any notice required or permitted by this Agreement will be
sent by United States mail, first class postage prepaid, return receipt
requested and addressed to:
The Company, 55 West Street
MSA Financial, Keene, New Hampshire 03431
and/or NGM: Attention: Philip D. Koerner, Chairman and
Chief Executive Officer
With a copy to: Cordell A. Johnston, Esquire
Orr & Reno, P.A.
48
One Eagle Square
P. O. Box 3550
Concord, New Hampshire 03302-3550
The Purchaser: 80 South Main Street
Hanover, New Hampshire 03755
Attention:
K. Thomas Kemp, Executive Vice President
With a copy to: Jon S. Rand, Esquire
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4669
17. Governing Law. This Agreement will be governed by, and construed in
accordance with, the laws of the State of New Hampshire.
18. Severability. In the event that any provision of this Agreement is
declared invalid or unenforceable by a court of competent jurisdiction in any
jurisdiction, the provision will, as to that jurisdiction, be ineffective to the
extent declared invalid or unenforceable without affecting the validity or
enforceability of the other provisions of this Agreement, and the remainder of
this Agreement will remain binding on the parties. However, in the event that
any provision is declared unenforceable due to its scope, breadth or duration,
then it will be limited to the scope, breadth or duration permitted by law or
governmental authority and will continue to be fully enforceable as so limited.
19. No Third Party Beneficiaries. This Agreement is for the benefit of
the parties hereto and is not intended to confer upon any other person any
rights or remedies hereunder.
20. Captions. The article and section headings in this Agreement are
inserted for convenience of reference only, and will not affect the
interpretation of this Agreement.
21. Counterparts. This Agreement may be executed in two or more
counterparts, each
49
of which will be deemed an original and all of which together
will be considered one and the same agreement.
22. Construction of Agreement. None of the parties hereto or their
respective counsel will be deemed to have drafted this Agreement for purposes of
construing the terms hereof. The language in all parts of this Agreement will
in all cases be construed according to its fair meaning, and not strictly for
or against any party hereto.
MAIN STREET AMERICA HOLDINGS, INC.
By_________________________
MAIN STREET AMERICA FINANCIAL
CORPORATION
By_________________________
NATIONAL GRANGE MUTUAL INSURANCE
COMPANY
By_________________________
FUND AMERICAN ENTERPRISES
HOLDINGS, INC.
By_________________________
50
AMENDMENT TO STOCK PURCHASE AGREEMENT
THIS AMENDMENT is entered into as of January 21, 1998, among Main
Street America Holdings, Inc. (the "Company"), National Grange Mutual Insurance
Company ("NGM"), Main Street America Financial Corporation ("MSA Financial") and
Fund American Enterprises Holdings, Inc. (the "Purchaser"), for the purpose of
amending a Stock Purchase Agreement entered into as of November 1, 1996, among
the parties identified above (the "Agreement").
NGM, the Company, MSA Financial, and the Purchaser hereby agree to
adopt the following amendments to the Agreement:
1. Section 1 of the Agreement is amended to read in its entirety
as follows:
1. Purchase and Sale of Stock. In reliance upon the
representations and warranties made herein and subject to the terms and
conditions hereof, (i) MSA Financial agrees to contribute to the
Company, in consideration of the receipt of 50,747 shares of the $.01
par value common stock of the Company, all of the issued and
outstanding stock held by MSA Financial in the following subsidiaries:
Main Street America Capital Corporation ("MSA Capital"), Guilderland
Reinsurance Company ("Guilderland"), and Old Dominion Insurance Company
("Old Dominion") (the forgoing subsidiaries, together with Main Street
America Assurance Company ("MSAAC") being referred to collectively
hereinafter as the "Subsidiaries"); (ii) the Company agrees to issue
and the Purchaser agrees to buy 119,654 shares of the $.01 par value
common stock of the Company at a price of $532.38 per share, for an
aggregate purchase price of $63,701,396; and (iii) MSA Financial agrees
to sell and the Purchaser agrees to buy from MSA Financial 11,833
shares of the $.01 par value common stock of the Company at a price of
$532.38 per
2
share, for an aggregate purchase price of $6,299,652.50. The shares of
common stock to be purchased from the Company and from MSA Financial
hereunder are hereinafter referred to collectively as the "Shares." The
purchase price for all of the Shares will be subject to adjustment as
of December 31, 1999, according to the procedure described in Exhibit 1
attached hereto and incorporated herein. The purchase will occur at a
closing (the "Closing") to be held at 10:00 a.m. at the offices of the
Company, 55 West Street, Keene, New Hampshire, on February 27, 1998, or
at such other place or such other time or on such other date as the
parties may mutually agree upon in writing (the "Closing Date").
Payment will be made by wire transfer to the account of the Company and
of MSA Financial, against delivery to the Purchaser of a certificate or
certificates representing the Shares.
2. Section 2.2 of the Agreement is amended by (a) replacing the
number 533,976 in the third line with the number 444,186; (b) deleting
"MSA-ISS" and the related information from the table and changing the number of
shares of Guilderland common stock shown in the table as being outstanding from
2,426,282 to 2,051,960; (c) in the second line after the table, inserting a
period in place of the comma after the word "Subsidiary," and deleting the
words "except for Guilderland" and the immediately following sentence; and (d)
in the same paragraph, replacing the number 266,988 with the number 222,093.
3. Section 2.7 is amended by changing the years 1994 and 1995,
respectively, to 1995 and 1996, respectively, wherever they appear; by changing
the year 1996 in the first paragraph to 1997; and by changing the dates March 31
and June 30, 1996 in the second paragraph to March 31, June 30, and September
30, 1997.
3
4. Section 2.9(c) is amended by changing the year 1996 to 1998.
5. Section 2.11 is amended by changing the year 1996 to 1998.
6. Section 2.17 is amended by changing the date December 31, 1995 in
the second line to September 30, 1997.
7. Section 2.19 is amended by changing the years 1994, 1995 and
1996, respectively, to 1995, 1996 and 1997, respectively.
8. Section 2.21 is amended by changing the year 1996 to 1997.
9. Section 5.1(h) is amended by changing the year 1997 to 1998.
10. Section 5.1(i) is deleted.
11. Section 5.2 is amended by inserting a comma and the words "MSA
Financial's" after the word "NGM's" in the title, and by inserting the words
"and MSA Financial's" after the word "Company's" in the second line.
12. Section 5.3(a) is amended by changing the exhibit number from 7
to 5.
13. The following new section is inserted immediately after Section
6.3:
6.4 Fee Upon Reduction in Pooling Percentage. For a period of ten
years after the Closing Date, if at any time the aggregate percentage of
premiums, expenses, and net retained business allocated to MSAAC and Old
Dominion (together with any other companies then owned by the Company) under the
Pooling Agreement decreases to an amount lower than 60 percent for any reason
other than the mutual and voluntary agreement of the parties, MSA Financial
will, upon written request from the Purchaser, pay to the Purchaser, in cash,
an amount (the "Fee") determined according to the following formula:
4
$6.3 million x A = Fee
For purposes of this formula, A represents a fraction equal to the
number of days remaining in said ten-year period as of the time of such
decrease, divided by the total number of days in the ten-year period.
14. Section 11.1(c) is amended by changing the year 1997 to 1998.
15. Exhibit 1, Purchase Price Adjustment Formula, is amended by
changing the text to read in its entirety as follows:
The purchase price will be subject to increase or decrease as
of December 31, 1999, based on the results of an actuarial review of
the June 30, 1997, developed loss reserves (loss reserves defined as
reported case loss reserves and incurred but not reported loss
reserves) for the consolidated intercompany pool. To the extent that
the held loss reserve of $305,153,018 as of June 30, 1997, exceeds or
is less than the requires loss reserves as of December 31, 1999, the
purchase price will be increased or decreased. The increase or decrease
in aggregate purchase price will be determined by the following
formula:
[(held loss reserve - required loss reserve)] x 0.0884.
The required loss reserve will be determined by the Company as of
December 31, 1999, with concurrence from Arthur Andersen & Co. The
purchase price adjustment will be payable within thirty days after the
determination of the purchase price adjustment, and payment will be in
the same manner described in section 1 of the Agreement.
16. Exhibits 5 and 6 are deleted, and Exhibit 7 is renumbered as
Exhibit 5. Except as expressly stated above, all provisions of the Agreement
will remain in effect
5
without modification.
MAIN STREET AMERICA HOLDINGS, INC.
By
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MAIN STREET AMERICA FINANCIAL
CORPORATION
By
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NATIONAL GRANGE MUTUAL INSURANCE
COMPANY
By
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FUND AMERICAN ENTERPRISES HOLDINGS,
INC.
By
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