Document:

SHARE REPURCHASE AGREEMENT

 

Exhibit 10.10

SHARE REPURCHASE AGREEMENT

          This is an Agreement, made December 8, 2003, between Metropolitan Property
and Casualty Insurance Company, a Rhode Island stock company with offices at
700 Quaker Lane, Warwick, Rhode Island 02887 (the “Shareholder”) and National
Atlantic Holdings Corp., (the “Corporation”), a New Jersey corporation located
at 4 Paragon Way, Freehold, New Jersey 07728.

STATEMENTS OF FACT:

          A. The authorized capital of the Corporation is 100,000 shares of voting
common stock and 100,000 shares of non-voting common stock. The non-voting
common stock and the voting common stock are referred to collectively as the
“Common Stock”.

          B. The Shareholder has purchased 10,000 shares of non-voting Common Stock
of the Corporation, directly from the Corporation.

          C. PROFORMANCE INSURANCE COMPANY, a New Jersey stock insurance company
authorized to transact property and casualty insurance in the State of New
Jersey, is a wholly owned subsidiary of the Corporation.

          D. The parties hereto believe that their best interests will be served by
imposing certain restrictions and limitations on the future sale and purchase
of the Shares.

          NOW, THEREFORE, it is hereby agreed as follows:

1. Definitions. For the purposes of this Agreement the following terms shall
have the meaning defined in this Article 1:

     1.1
“Transfer” shall mean any disposition (including, without limitation,
gifts, sales, assignments, pledges, encumbrances, bequests, and all other
intervivos or testamentary dispositions) whether voluntary or involuntary, of
any Common Stock or any interest therein.

     1.2
“Shares” shall mean all or any shares of capital of the Corporation
now or hereafter acquired by the Shareholder.

     1.3
“Initial Public Offering” shall mean the closing of the first sale of
Common Stock of the Corporation to the public, which constitutes a widespread
distribution of such Common Stock, with the estimated proceeds to the
Corporation of not less than, $25,000,000 pursuant to an effective registration
statement filed under the Securities Act of 1933, after which shares of Common
Stock are publicly held and listed or admitted for trading on a national
securities exchange or quoted for trading by a reputable nationally recognized
quotation service.

     1.4
“Affiliate” means with respect to any Person (i) any other Person that
directly or indirectly through one or more intermediaries controls or is
controlled by or is

 

 

under common control with such Person, and (ii) any other Person owning or
controlling 10% or more of the outstanding voting securities of such Person and
“Person” means an individual, corporation, general or limited partnership,
organization, business, firm, limited liability company, joint venture or other
entity, association or organization, whether constituting a separate legal
entity or not.

2. Entire Agreement. This Agreement, together with the Subscription Agreement,
dated December 8, 2003, and the Replacement Carrier Agreement, dated December
8, 2003 between the parties, represents the sole and entire understanding of
the parties regarding the sale and purchase of the Shares, now or hereafter
acquired by the Shareholder directly from the Corporation, and supersedes any
and all other oral or written agreements among them, which are hereby rendered
null and void.

3. Limitation On Transfer Of Shares.

     3.1 Limitation. Shareholder may not Transfer all or any Shares, except as
expressly permitted by or provided in this Agreement, including without
limitation, the provision of Article 4.

     3.2 Reasonable Restraint. Shareholder recognizes and acknowledges that
the restraints imposed in this Agreement on the disposition of Shares are fair
and reasonable in consideration of their absolute necessity for the proper
conduct of the business of the Corporation, the closeness between the
Shareholder’s Share ownership and relationship with the Corporation, and the
provisions of this Agreement providing a market for the Shares.

4. Permitted Transfers Of Shares.

     4.1 Holding Period. The Shareholder may not Transfer Shares (except for
Transfer of Shares to its Affiliates or any successor in interest) for a period
of two (2) years from and after the date of this Agreement, (the “Holding
Period”) without the prior written consent of the Corporation, which the
Corporation may withhold in its sole discretion.

     4.2 Limitation On Permitted Transfers After The Holding Period But Prior
To An Initial Public Offering.

          (a) If subsequent to the Holding Period but prior to an Initial Public
Offering, the Shareholder desires to Transfer all or any Shares, except for
Transfer of Shares to its Affiliates or any successor in interest, then the
Shareholder shall give the Corporation written notice of its intention to do
so.

          (b) The written notice shall constitute an offer on the part of the
Shareholder to sell to the Corporation all of the Shares it is offering to a
third party. If the Corporation desires to exercise the purchase option herein
contained, it shall give written notice to the Shareholder no later than
forty-five (45) calendar days from the date of the Shareholder’s notice,
stating that it is willing to purchase all of the Offered Shares (as defined
herein).

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          (c) If all of the Offered Shares shall not be purchased by the
Corporation, the Shareholder shall be free to transfer all or any part of such
Shares for a period of six (6) months after the Shareholder’s notice, provided,
however, that the transferee of such Shares must agree, in writing, to be bound
by the terms and conditions of this Agreement. If the Shareholder shall fail
to Transfer all Shares within said six (6) month period, such Shares as it
shall then own shall once again become subject to the provisions hereof.

          (d) If a third party to whom the Shareholder is offering Shares (“Offered
Shares”) agrees to purchase the Offered Shares at price per share greater than
“MetLife Purchase Price Per Share” then the Corporation has the right but not
the obligation to purchase all of the Offered Shares at the price per share
being offered by the third party. If the Corporation decides to purchase all
of the Offered Shares at the price per share being offered by the third party,
then it shall communicate in writing its election to purchase the Offered
Shares to the Shareholder within 45 calendar days of the Shareholder notice to
the Corporation of its intention to Transfer Shares to the third party. The
Corporation and the Shareholder shall within 60 calendar days thereafter reach
an agreement regarding the sale of such Shares to the Corporation. If,
however, the Corporation does not provide a notice of election to purchase the
Offered Shares within the 45 calendar days, then the Shareholder shall be free
to transfer such shares to the third party subject to Section 4.2(c) above.
For the purposes of this Agreement, “MetLife Purchase Price Per Share” is the
average purchase price per share paid by MetLife to the Corporation for
purchase of Shares from the Corporation, as the same may be adjusted equitably
from time to time to give effect to any stock splits, stock dividends,
reclassifications, or reverse stock splits or combinations that are declared or
paid by the Corporation to the Shareholder from and after closing.

          (e) If, however, the third party to whom the Shareholder is offering the
Offered Shares offers to purchase the Offered Shares at a price per share less
than “MetLife Purchase Price Per Share” then the Corporation shall have the
right but not the obligation to purchase all of the Offered Shares at a price
per share to be determined in accordance with Section 5 hereof and subject to
the terms and conditions set forth in Section 6 hereof. If the Corporation
decides to purchase all of the Offered Shares, it shall communicate in writing
its election to purchase the Offered Shares to the Shareholder within 45
calendar days of the Shareholder notice to the Corporation of its intention to
Transfer Shares to the third party. If, however, the Corporation does not
provide a notice of election to purchase the Offered Shares within the 45
calendar days, then the Shareholder shall be free to transfer such shares to
the third party subject to Section 4.2(c) above

          (f) The closing of any transaction of sale to the Corporation pursuant to
this Section 4.2 shall be held in the Corporation counsel’s business office at
10 a.m., one hundred and five (105) calendar days after the date of the
Shareholder’s notice of his or her intention to sell the Shares, provided,
however, if such a day shall not fall on a Business Day, the closing will take
place on the next day succeeding such day which is a Business Day. “Business
Day” shall mean any day other than a day on which banking

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institutions in the State of New York are legally closed for business or
the New York Stock Exchange is excluded for opening or trading.

5. Purchase Price.

     5.1 The phrase “Valuation Date” as used in this Agreement shall mean
insofar as it relates to the purchase of Shares pursuant to Section 4.2(e) of
this Agreement, the date of the end of the fiscal quarter of the Corporation
last preceding the date upon which the Corporation has given notice of its
desire to purchase the Shares.

     5.2 (a) The purchase price of each Share which is purchased by the
Corporation pursuant to Section 4.2(e) of this Agreement shall be the lesser of
the Book Value or Alternate Value per Share as defined in Section 5.3 below,
determined as of the Valuation Date.

     5.3 The following terms shall have the definitions set forth below for the
purposes of this Agreement: (i) “Book Value” per share shall mean the
shareholder equity reflected on the Corporation’s balance sheet prepared in
accordance with generally accepted accounting principles as of the Valuation
Date, as certified by the Corporation’s independent certified accountants,
divided by the number of outstanding shares of the Corporation determined on a
fully diluted basis; and (ii) “Alternate Value” shall mean the average purchase
price per share paid by the Shareholder to the Corporation for purchase of
shares from the Corporation, as the same may be adjusted equitably from time to
time to give effect to any stock splits, stock dividends, reclassifications, or
reverse stock splits or combinations that are declared or paid by the
Corporation to the Shareholder from and after closing.

6. Closing and Payment of Purchase Price.

     6.1 At the closing of any purchase by the Corporation pursuant to this
Agreement, the Shareholder shall deliver:

          (a) Certificates representing the Shares which are being purchased and
sold pursuant to this Agreement, endorsed in blank; and

          (b) All documents which counsel for the Corporation shall reasonably deem
necessary or advisable in order to accomplish a complete Transfer of the Shares
to the Corporation;

     6.2 Payment of the total purchase price due to the Shareholder, in any
sale made to the Corporation pursuant to Section 4.2(e) of this Agreement,
shall be made as follows:

          (a) If the Corporation has assigned its right to purchase the Shares to
any third party as permitted by this Agreement, said third party shall pay at
the closing, an amount equal to the total purchase price as determined by
Section 5 of this Agreement;

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          (b) If the Corporation has not assigned its right to purchase the Shares
to a third party, then the Corporation shall pay at closing such amounts as it
is able to pay, subject to the following conditions precedent:

               (i) The Corporation must have cash on hand to enable it to make a payment
to the Shareholder without adversely impairing the Corporation’s and
PROFORMANCE INSURANCE COMPANY’S ability to operate safely and efficiently
pursuant to the regulations of the New Jersey Department of Banking and
Insurance;

               (ii) Any disbursements made by the Corporation or PROFORMANCE INSURANCE
COMPANY for the purpose of making any payment to the Shareholder shall not
cause the capital and surplus of PROFORMANCE INSURANCE COMPANY to become
“impaired” as defined by N.J.S.A. 17B:32-1(a) and any other applicable New
Jersey law or regulation as amended from time to time; and

               (iii) If required by law, the New Jersey Department of Banking and
Insurance must approve of the payment in writing.

          (c) The Corporation promises to pay interest (computed on the basis of a
360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the
rate of 25 bps over the LIBOR (London Interbank Offered Rate) rate of interest
publicly announced semi-annually from the date the initial purchase price
becomes due, payable semiannually, on the 1st day of the month beginning six
months following the date the balance first becomes due. Payment of principal
and interest on any amounts due are to be made in lawful money of the United
States of America at Community Bank of New Jersey. Any payment of principal
and interest to the Shareholder after closing shall be subject to the same
conditions precedent set forth above regarding the payment of the portion of
the purchase price at closing;

          (d) If at any time during which there is an outstanding balance of the
total purchase due to the Shareholder, the Corporation commences a public or
private offering of shares of any class of its capital, the Corporation shall
be obligated to allocate up to fifty (50%) percent of the net proceeds of the
offering to the Corporation for the exclusive purpose of making payments of the
outstanding balance of the purchase price of the Shares, plus accrued interest,
to Shareholder.

     6.3 The Corporation shall have the right to offset against the payment or
payments of the purchase price due from it to the Shareholder pursuant to
Section 4.2(e), the amount of all sums due from the Shareholder to the
Corporation and/or PROFORMANCE INSURANCE COMPANY, and to the extent so credited
against the purchase price, such loan or other indebtedness shall be deemed to
be and shall be canceled and discharged. Such credit against the purchase
price shall is made regardless of the due date of any such loan or other
indebtedness.

7. Co-Sale Rights.

     7.1 If, at any time prior to the Initial Public Offering, Mr. James V.
Gorman proposes, in a single transaction or series of related transactions, to
Transfer for value

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Common Stock representing at least 10% of the outstanding Common Stock,
then the Shareholder shall have the right, but shall not be obligated, to have
included in the proposed Transfer its pro rata portion of the Common Stock to
be Transferred at the same per share price and for the same consideration that
Mr. Gorman proposes to sell the Common Stock to be Transferred.

     7.2 Notwithstanding the other provisions of this Section 7, the following
Transfers of Common Stock may be made by Mr. Gorman free of the restrictions
set forth above:

          (a) Any pledge of Common Stock made pursuant to a bona fide loan
transaction with a financial institution or any Transfer of such pledged shares
to the pledgee pursuant to the terms of the applicable pledge agreement with
the financial institution.

          (b) Any Transfer of Common Stock to a relative of Mr. Gorman or to a
trust, family limited partnership or corporation established for the benefit of
Mr. Gorman or any relative of Mr. Gorman.

          (c) Any Transfer of Common Stock made in connection with an underwritten
initial public offering of Common Stock pursuant to a registration statement
which has become effective under the Securities Act.

8. Anti-Dilution Provision. If at any time or from time to time, after the
date hereof, the Corporation shall issue or sell any shares of its Common Stock
without consideration or for consideration per share less than MetLife Purchase
Price Per Share, then the Shareholder shall have the right but not the
obligation to purchase, but the Corporation shall be obligated at the same time
to issue and deliver to the Shareholder, for payment by the Shareholder of the
same purchase price per share paid by the party to whom the Corporation has
issued or sold shares of its Common Stock, such additional Common Stock as
would be needed to maintain the Shareholder’s ownership percentage of Common
Stock immediately prior to the issuance or sale of such additional Common
Stock. This Section 8 is not intended to be applicable to the issuance of
Common Stock upon the exercise of an option.

          In case any shares of Common Stock shall be issued or sold for cash, the
consideration received shall be deemed to be the amount received by the
Corporation therefore, without deduction therefrom of any expenses incurred or
any underwriting commissions or concessions paid or allowed by the Corporation
in connection therewith. In case any shares of Common Stock, shall be issued
or sold for a consideration other than cash, the amount of consideration other
than cash received by the Corporation shall be deemed to be the fair value of
such consideration as determined in good faith by the Board of Directors of the
Corporation, without deduction of any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Corporation in connection
therewith; provided that if the Shareholder disagrees with such determination,
such determination shall be referred to an Independent Appraiser (as defined
herein) that is mutually selected by the Shareholder and the Corporation. Such
Independent

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Appraiser shall determine the value of any such consideration within 15
days of the date that such dispute is referred to it and the fees and expenses
of such Independent Appraiser shall be shared equally by the Shareholder and
the Corporation. “Independent Appraiser” means an appraisal firm or any other
financial expert of recognized national standing, selected by the Shareholder
and reasonably acceptable to the Corporation, that does not (or whose
directors, officers, employees, Affiliates or shareholders do not) have a
direct or indirect material financial interest in the Corporation or the
Shareholder, who has not within the prior two years been and, at the time
called upon to give independent financial advice to the Corporation or the
Shareholder, is not (and none of its directors, officers, employees, Affiliates
or shareholders is) a promoter, director or officer of the Corporation.

9. Notice. Whenever under the provisions of this Agreement notice is required
to be given, it shall be in writing and shall be deemed given when mailed,
postage prepaid, by registered or certified mail, return receipt requested,
addressed to the Shareholder at its address as set forth herein, or to such
other address as may appear on the record books of the Corporation, and
addressed to the Corporation at its principal business office.

10. Miscellaneous.

     10.1 Amendments. This Agreement may not be amended or supplemented at any
time unless by a writing executed by the parties hereto, and all such
amendments and supplements shall, except as otherwise provided hereinafter, be
binding upon all other persons interested herein.

     10.2 Impairment Of Rights. No amendment, supplement or termination of
this Agreement shall affect or impair any rights or obligations which have
theretofore matured hereunder.

     10.3 Further Assurances. All parties will take such further action and
execute such other documents as are reasonably necessary to effectuate the
purposes, terms and conditions of this Agreement.

     10.4 Partial Invalidity. The invalidity of any portion of this Agreement
shall not affect the validity of the remainder of this Agreement.

     10.5 Assignment. This Agreement shall not be transferable or assignable,
nor shall any obligations hereunder be delegable, by the Shareholder or the
Corporation, without the prior written consent of the other party except that
either may transfer or assign its rights and obligations hereunder to any
Affiliate or to any successor in interest without the consent of the other
provided that the other is given written notice within 30 days of transfer or
assignment, stating the name and address of such transferee or assignee and
identifying the specific rights being transferred or assigned, and, provided
further, that such transferee or assignee assumes the obligations of the
Shareholder or Corporation, under the Agreement and agrees to be found thereby.
Except as set forth in the preceding sentence, any such purported transfer,
assignment or delegation without the prior written consent of such other
parties shall be null and void.

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     10.6 Binding On Successors. This Agreement shall be binding upon and
shall inure to the benefit of all of the parties hereto, and to their
respective heirs, executors, administrators, successors and assigns, and shall
be binding upon any person to whom any Shares are Transferred in violation of
the provisions of this Agreement (whether voluntarily, pursuant to court order,
by operation of law or otherwise), and the heirs, executors, administrators,
successors or assigns of such person.

     10.7 Termination. This Agreement shall terminate upon the written consent
of the parties or upon the occurrence of any of the following events:

          (a) The adjudication of the Corporation as a bankrupt, or the execution by
the Corporation of an assignment for the benefit of creditors.

          (b) The voluntary or involuntary complete liquidation or dissolution of
the Corporation.

          (c) The passage of five (5) years from the date hereof; provided, that,
the Corporation shall thereafter retain a right of first refusal with respect
to the Shareholder’s Shares, prior to an Initial Public Offering, which
obligates the Shareholder to offer to the Corporation the right to purchase all
of the Offered Shares, on the same terms as offered to such third party, prior
to the Transfer of any shares to such third party. If the Corporation decides
to purchase all of the Offered Shares on the same terms as and at the price per
share being offered by the third party, then it shall communicate in writing
its election to purchase the Offered Shares to the Shareholder within 45
calendar days of the Shareholder notice to the Corporation of its intention to
Transfer Shares to the third party. The Corporation and the Shareholder shall
within 60 calendar days thereafter reach an agreement regarding the sale of
such Shares to the Corporation. If, however, the Corporation does not provide
a notice of election to purchase the Offered Shares within the 45 calendar
days, then the Shareholder shall be free to transfer such shares to the third
party. The right of first refusal provided to the Corporation in this Section
10.7 shall not be subject to the provisions contained in Sections 4, 5, 6, and
10.5 hereof.

     10.8 Governing Law. This Agreement shall be governed by the law of the
State of New Jersey, without regard to conflicts-of-laws principles. Each
party hereto agrees that it shall bring any action or proceeding in respect of
any claim arising out of or related to this Agreement or the transactions
contained in and contemplated by this Agreement, whether in tort or contract or
at law or in equity, exclusively in the United States District Court for the
District of New Jersey or, if such court is not available, the Superior Court
of the State of New Jersey located in Mercer County (the “Chosen Courts”) and
solely in connection with claims arising under this Agreement or the
transactions contained in or contemplated by this Agreement (i) irrevocably
submits to the exclusive jurisdiction of the Chosen Courts, (ii) waives any
objection to laying venue in any such action or proceeding in the Chosen Courts
and agrees not to commence any action in respect of any such claim in any other
court or forum, and (iii) waives any objection that the Chosen Courts are an
inconvenient forum or do not have any jurisdiction over any party hereto.

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     10.9 Captions. Any Paragraph title or caption contained in this Agreement
is for convenience only, and shall not in any way be construed to define,
describe or limit the terms hereof.

     10.10 Restrictive Legend. All certificates representing the Shares now or
hereafter issued shall be endorsed as follows:

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
ISSUED AND HELD SUBJECT TO THE RESTRICTIONS ON
TRANSFERS AND OTHER MATTERS CONTAINED IN THE
CERTIFICATE OF INCORPORATION OF THE CORPORATION, AS
SUCH AS AMENDED AND MAY BE AMENDED FROM TIME TO
TIME, AND A CERTAIN SHARE REPURCHASE AGREEMENT BY
AND AMONG THE CORPORATION AND THIS SHAREHOLDER,
WHICH ARE AVAILABLE FOR INSPECTION AT THE OFFICES OF
THE CORPORATION. TRANSFER OF THE SHARES REPRESENTED
BY THIS CERTIFICATE CANNOT BE MADE EXCEPT UPON
COMPLIANCE WITH SUCH PROVISIONS, OF WHICH NOTICE IS
HEREBY GIVEN. THE CORPORATION WILL MAIL TO ANY
PERSON AFFECTED BY SUCH RESTRICTIONS, A COPY
THEREOF, WITHOUT CHARGE, WITHIN FIVE (5) DAYS AFTER
RECEIPT OF A WRITTEN REQUEST THEREFOR.

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY
NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER THE SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION
THAT AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT IS AVAILABLE.

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          IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and
seal, or caused these presents to be duly executed by their proper corporate
officers, the day and year first above written.

	 	 	 	 	 	 	 
	 	 	METROPOLITAN PROPERTY AND
	 	 	  CASUALTY INSURANCE COMPANY
	 
	 	 	 	 	 	 
	Date: 1/14/04	 	By:	 	/s/ Catherine A. Rein
   
	 
	 	 	 	
	 
	 	 	Title:	 	President & CEO
	

	 	 	 	
	 
	 
	 	 	 	 	 	 
	 	 	NATIONAL ATLANTIC HOLDINGS
	 	 	  CORP.
	 
	 	 	 	 	 	 
	Date: 12/8/03	 	By:	 	/s/ James V. Gorman   
	 
	 	 	 	
	 
	 	 	Title:	 	CEOREPLACEMENT CARRIER AGREEMENT

 

Exhibit 10.11

REPLACEMENT CARRIER AGREEMENT

     This Replacement Carrier Agreement (“Agreement”) is entered into this 14th day
of March, 2003, by Sentry Insurance a Mutual Company, a Wisconsin property and
casualty insurance company (“Sentry”) and Proformance Insurance Company, a New
Jersey property and casualty insurance company (“PIC”);

WITNESSETH

     WHEREAS, the parties desire to enter into a replacement carrier agreement
pursuant to which Sentry will transfer to PIC the obligations of Sentry to
offer renewals for all of Sentry’s NJ Personal Business (as defined herein) as
of the Nonrenewal Date (as defined herein) together with consideration and fees
set forth herein in return for which PIC will assume such obligations as of the
Nonrenewal Date;

     NOW, THEREFORE, the parties hereto agree as follows:

     I. Definitions. The following terms shall have the respective meanings
set forth below throughout this Agreement:

          A. “NJ Personal Business” shall mean all personal automobile, including
personal automobile policies written through producers assigned to Sentry
pursuant to N.J.S.A. 17:33B-9 (“MTF Business”), homeowners’, personal umbrella,
and other miscellaneous personal lines insurance business of whatever nature
issued or renewed by Sentry in the State of New Jersey and remaining in force
on the Nonrenewal Date.

          B. “Closing Date” shall mean the latter of April 1, 2003 or the date on
which all conditions to the obligations of the parties to close the
transactions provided for in Articles VIII and IX have been satisfied.

          C. “Nonrenewal Date” shall mean the effective date set forth in the
initial notices of nonrenewal of the Personal NJ Business, which shall be on or
about 60 days after the Closing Date.

          D. “Nonrenewal Period” shall mean the one-year period commencing on the
Nonrenewal Date and ending on the first anniversary of the Nonrenewal Date.

          E. “Prior Business” shall mean the NJ Personal Business issued by Sentry
prior to the Nonrenewal Date and all endorsements issued by Sentry on such
Business prior to and during the Nonrenewal Period.

          F. “Renewed Business” shall mean (a) the NJ Personal Business renewed or
required to be renewed by PIC under this Agreement, (b) any assignments from
PAIP as set forth in Article II. A. below after the Nonrenewal Date, (c) any
Urban Enterprise Zone (“UEZ”) quota determined by the Commissioner of the NJ
DOBI (“Commissioner”) pursuant to N.J.S.A. 17:33C-1 et seq. and N.J.A.C.
11:3-46.1 et seq. with respect to the Prior Business after the Closing Date;
and (d) any New Jersey Market Assistance Program (“NJ MAP”) applications
distributed by PAIP to

 

 

Sentry under Order No.: A02-132 entered by the Commissioner on September
13, 2002 in connection with nonrenewals by State Farm Indemnity Company with
respect to the Prior Business after the Closing Date.

          G. “Guarantee Period” shall mean the period beginning on the Nonrenewal
Date and ending on December 31 of the third calendar year following the
calendar year in which the Nonrenewal Date occurs.

     II. Renewal of Sentry’s Business by PIC. Upon the terms and conditions of
this Agreement:

          A. On the Closing Date, Sentry shall cease issuing new NJ Personal
Business policies. However, after the Closing Date and during the Nonrenewal
Period, Sentry shall continue to issue endorsements in the ordinary course on.
the NJ Personal Business, which has not yet been nonrenewed. Additionally,
Sentry shall continue to issue assigned risk policies distributed to Sentry by
the Governing Committee of the New Jersey Personal Automobile Insurance Plan
(“PAIP”) pursuant to N.J.A.C. 11:3-2.11 and the PAIP Plan of Operation until
the Nonrenewal Date, at which time PIC shall assume all further obligations for
all Sentry assignments from the PAID on or after the Nonrenewal Date.

          B. The parties shall jointly send to each NJ Personal Business
policyholder of Sentry written notices of nonrenewal, along with notices that
offer a guaranteed option to renew their policies with PIC. The form of all of
such notices shall be approved by the New Jersey Department of Banking and
Insurance (“NJ DOBI”) and the parties, prior to mailing.

          C. Sentry shall retain all rights, debts, liabilities, and obligations
related to the Prior Business, including, but not limited to, all unpaid claims
(whether reported or unreported) and all unearned premium reserves.

          D. PIC shall be solely responsible for all rights, debts, liabilities, and
obligations related to the Renewed Business, including the payment of renewal
commissions to producers on the MTF Business.

     III. Consideration. If, and only if, the Closing occurs:

          A. Payments by Sentry. Recognizing the NJ DOBI requirements that the
business be supported with adequate surplus, Sentry shall pay to PIC $3,500,000
to be paid in four (4) equal quarterly installments payable by wire transfer
over one year, with the first payment to be made on the Closing Date and
subsequent payments to be made at ninety (90) day intervals thereafter.

          B. Certain Potential Additional Payments by Sentry.

     1. During the Guarantee Period, Sentry shall pay to PIC additional
sums of money as are necessary to reduce PIC’s premium-to-surplus ratio to
not less than 2.5 to 1 on the Renewed Business as defined herein
and.calculated in Article III.B.2 below, subject to an aggregate limit of
$1,250,000. Said additional sums shall be calculated and paid annually
within forty-five (45) days of the due date of the National Association of
Insurance

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Commissioners Annual Statement Insurance Expense Exhibit (“NAIC TEE”)
for each calendar year in the Guarantee Period.

     2. The Renewed Business premium-to-surplus ratio will be calculated
according to the technique described on the worksheet attached as Exhibit
A. The references in Exhibit A to columns and lines are to the NAIC IEE
for the year 2003 and to the analogous or corresponding columns and lines
of the NAIC IEE for the subsequent years of the Guarantee Period.

     3. The calculation in Article III. B. 2. above and according to
Exhibit A shall exclude the effect of any reinsurance transactions, any
reserve adjustments, any provisions for loss and/or loss adjustment
expenses, any extraordinary expenses (including, without limitation,
deferred compensation and employee bonuses) or any other actions or
transactions that will or could result in a material reduction in income
during the Guarantee Period with a related increase in income subsequent
to the end of the Guarantee Period.

          C. Termination of Funding Obligations. Any and all payment and funding
obligations of Sentry under Article III.A and III.B.1 above shall terminate
immediately upon the earliest to occur of:

     1. PIC and/or its parent, National Atlantic Holdings Corp. (“NAHC”)
voluntarily enters into any rehabilitation, receivership, conservation, or
liquidation proceeding under either federal bankruptcy law or any state
insurance law;

     2. A court of competent jurisdiction or any insurance regulator, with
or without the consent of PIC and/or NAHC, subjects substantially all of
its or their assets, to rehabilitation, receivership, conservation,
liquidation, or delinquency proceedings (other than administrative
supervision), under either federal bankruptcy law or any state insurance
law;

     3. Any material breach or default of PIC of its representations,
warranties, and covenants in this Agreement; or

     4. The satisfaction of all payment and funding obligations of Sentry
under Article III.A and III.B.I above.

     IV. Closing. The Closing shall take place at the offices of Riker Danzig
Scherer Hyland & Perretti LLP, 50 West State Street, Trenton, New Jersey 08608
(or at such other place as the parties may mutually agree) on the Closing Date.
The Closing Date may be changed by mutual agreement of the parties.

     V. Representation and Warranties by Sentry. Sentry represents and
warrants to PIC that the following are true as of the date of this Agreement
and will be true as of the Closing Date:

          A. Authorization; Enforceability. Sentry has the requisite corporate
power and authority to execute, deliver, and perform its obligations under this
Agreement. This Agreement has been duly executed and delivered by Sentry and,
subject to the due execution and delivery

3

 

hereof by PIC, is a valid and binding obligation of Sentry, enforceable
against Sentry in accordance with its terms.

          B. No Violations. Neither the execution, delivery, nor the performance of
this Agreement by Sentry, nor the consummation of any of the transactions
provided for in this Agreement: (1) will violate or conflict with any provision
of law or of the Articles or Certificate of Incorporation or Bylaws of Sentry,
or (2) will result in any material breach of or default under any provision of
any contract or agreement of any kind to which Sentry is a party or by which
Sentry is bound.

     VI. Representations and Warranties of PIC. PIC represents and warrants to
Sentry that the following are true as of the date of this Agreement and will be
true as of the Closing Date:

          A. Authorization; Enforceability. PIC has the requisite corporate power
and authority to execute, deliver and perform its obligations under this
Agreement. This Agreement has been duly executed and delivered by PIC and,
subject to the due execution and delivery hereof by Sentry, is a valid and
binding obligation of PIC, enforceable against PIC in accordance with its
terms.

          B. No Violation. Neither the execution, delivery, nor the performance of
this Agreement by PIC, nor the consummation of any of the transactions provided
for in this Agreement: (1) will violate or conflict with any provision of law
or of the Articles or Certificate of Incorporation or Bylaws of PIC, or (2)
will result in any material breach of or default under any provision of any
contract or agreement of any kind to which PIC is a party or by, which PIC is
bound.

     VII. Use of Proceeds. Commencing as of the Closing Date and continuing
until the expiration of the Guarantee Period, PIC shall use all (100%) of the
funds transferred to it by Sentry pursuant to Article III of this Agreement
solely and exclusively for the purpose of supporting the Renewed Business. PIC
shall not otherwise, directly or indirectly:

	 	A.	 	Use any of such funds to support the operations of
NAHC and/or any of its subsidiaries or affiliates, and/or
	 
	 	B.	 	Sell, transfer or otherwise assign or cause to be
sold, transferred or otherwise assigned any of such funds in
any way whatsoever (including, but not limited to, by dividend,
distribution or other similar means or methods) to NAHC and/or
any of its subsidiaries or affiliates.

     VIII. Conditions Precedent to Obligations of Sentry. The obligations of
Sentry to close the transactions contemplated by this Agreement are subject to
the fulfillment prior to or at the Closing of the following conditions:

          A. Regulatory Consents and Approvals. Sentry shall have obtained all
consents, authorizations, and approvals under all applicable statutes and
regulations from any governmental agency, department, or authority required to
be obtained by Sentry, including, but not limited to, the Wisconsin Department
of Insurance and the NJ DOBI, as the case may be, in connection with the
execution, delivery, and performance of this Agreement, and the consummation of
the

4

 

transactions contemplated hereby, which approvals will permit Sentry to
cease issuing new private passenger automobile policies as of the Closing Date
and to commence issuance of notices of nonrenewal as of the Nonrenewal Date on
terms acceptable to Sentry. Sentry shall use its best efforts to obtain prior
to closing all consents, authorizations, waivers, and approvals required to be
obtained by Sentry.

          B. Withdrawal. The Commissioner of the NJ DOBI shall have granted a
waiver to Sentry pursuant to N.J.A.C. 11:2-29.3(a) obviating the requirement
that Sentry file a formal plan of withdrawal from the business of private
passenger automobile and other personal lines insurance in New Jersey in
accordance with N.J.A.C. 11:2-29.4.

          C. Performance by PIC. There shall not be any material error,
misstatement, or omission in the representations and warranties made by PIC in
this Agreement; and all such representations and warranties shall. be true in
all material respects at and as of the Closing Date.

     IX. Conditions Precedent to Obligations of PIC. The obligations of PIC to
close the transactions contemplated by this Agreement are subject to the
fulfillment prior to or at the Closing of the following conditions:

          A. Regulatory Consents and Approvals. PIC shall have obtained all
consents, authorizations, and approvals under all applicable statutes and
regulations from any governmental agency, department, or authority required to
be obtained by PIC, including, but not limited to, the NJ DOBI, in connection
with the execution, delivery, and performance of this Agreement and the
consummation of the transactions contemplated hereby, which approvals shall be
on terms acceptable to PIC. PIC shall use its best efforts to obtain prior to
closing all consents, authorizations, waivers, and approvals required to be
obtained by PIC.

          B. Requirements Imposed by Regulatory Authorities. Any terms and
conditions that may be imposed on the transactions contemplated by this
Agreement the NJ DOBI shall be acceptable to PIC, in its sole discretion.

          C. Performance by Sentry. There shall not be any material error,
misstatement, or omission in the representations and warranties made by Sentry
in this Agreement; and all such representations and warranties shall be true in
all material respects at and as of the Closing Date.

     X. Termination.

          A. Termination Events. This Agreement may, by notice given prior to or at
the Closing, be terminated:

     1. By either Sentry or PIC if a material inaccuracy in or breach of,
or any material failure to perform or comply with, any representation,
warranty, covenant, obligation or other provision of this Agreement has
been committed by the other party or parties and such breach or failure
has not been waived in writing and delivered to the other party;

     2. By mutual consent of the parties; or

5

 

     3. By any party if the Closing has not occurred (other than through
the failure of any party seeking to terminate this Agreement to comply
fully with its obligations under this Agreement) on or before April 15,
2003, or such later date as the parties may agree upon.

          B. Effect of Termination. Each party’s right of termination under Article
X. A. 1. above is in addition to any other rights it may have under this
Agreement or otherwise, and the exercise of a right of termination will not be
an election of remedies. If this Agreement is terminated pursuant to Article
X. A. 1. above, all further obligations of the parties under this Agreement
shall terminate, except that the obligations under the Confidentiality
Agreement entered into by the parties on September 23, 2002 (attached as
Exhibit B) shall survive; provided, however, that if this Agreement is
terminated by a party because of such breach or failure by the other party or
because one or more of the conditions to the terminating party’s obligations
under this Agreement is not satisfied as a result of the other party’s failure
to comply with its obligations under this Agreement, the terminating party’s
right to pursue all legal remedies will survive such termination unimpaired.

     XI. Survival of Representations and Warranties; Indemnification.

          A. Survival of Representations and Warranties. All representations and
warranties contained in Articles V. and VI. shall survive the Closing until
the end of the third calendar year following the calendar year in which the
Nonrenewal Date occurs.

          B. Indemnification Obligations of Sentry. Subject to the terms and
conditions of this Article XI, Sentry agrees to indemnify and hold PIC harmless
against any and all losses, costs, and expenses (including, without limitation,
legal, and other expenses) resulting from or relating to:

	 	1.	 	any material misrepresentation or breach of any
warranty of Sentry contained in this Agreement or in any
document delivered by Sentry at or prior to the Closing;
	 
	 	2.	 	any material breach of any covenant of Sentry
contained in this Agreement, including but not limited to the
covenants set forth in Article II C. hereof;
	 
	 	3.	 	the Prior Business (excluding any UEZ quotas and
assignments from the PAIP after the Nonrenewal Date); and
	 
	 	4.	 	and any and all actions, suits, demands,
assessments, or judgements with respect to any claim arising
out of or relating to the subject matter of the
indemnification.

          C. Indemnification Obligations of PIC. Subject to the terms and
conditions of Article XI, PIC agrees to indemnify and hold Sentry harmless
against any and all losses, costs, and expenses (including, without limitation,
legal and other expenses) resulting from or relating to:

6

 

	 	1.	 	any material misrepresentation or breach of any
warranty of PIC contained in this Agreement or in any schedule
of PIC or any document delivered by PIC at or prior to the
Closing;
	 
	 	2.	 	any material breach of any covenant of PIC
contained in the Agreement, including but not limited to the
covenants set forth in Article II. D. hereof;
	 
	 	3.	 	the Renewed Business (including any UEZ quotas and
assignments from the PAIP after the Nonrenwal Date); and
	 
	 	4.	 	any and all actions, suits, demands, assessments,
or judgements with respect to any claim arising out of or
relating to the subject matter of the indemnification.

     XII. Miscellaneous.

          A. Assurance of Further Action. From time to time after Closing, each
party, at its own expense, shall execute and deliver, or cause to be executed
and delivered, to the other party such further documents and take such other
action as the other party may reasonably request in order to more effectively
consummate the transactions contemplated hereby.

          B. Access, Information, and Documents. At any time, and from time to
time, PIC and Sentry will give to each other and their agents and
representatives (including, but not limited to, accountants, lawyers, and
appraisers) full and complete access during normal working hours to any and all
of the books, records, and other documents of PIC, Sentry, and their respective
affiliates, for any and all purposes related to this Agreement and the
transactions contemplated hereunder, including, without limitation, for the
purpose of calculating and confirming the amounts of the payments require to be
made by Sentry by Article III. The covenants of PIC and Sentry contained in
this Article shall survive the Closing.

          C. Waiver. The parties hereto may by written agreement: 1.) extend the
time for, or waive or modify the performance of any of the obligations or other
acts of the parties hereto; or 2.) waive any inaccuracies in the
representations and warranties contained in this Agreement.

          D. Notices. All notices, requests, or other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered or
mailed first class, certified mail, postage prepaid, addressed as follows:

If to Sentry, to:

William J. Lohr

Vice President and Treasurer

Sentry Insurance a Mutual Company

1800 North Pt. Drive

Stevens Point, WI 54481

7

 

With a copy to:

Wesley S. Caldwell, III, Esq.

Law Offices

224 West State Street

Trenton, NJ 08608

If to PIC, to:

James V. Gorman, Chairman and CEO

Proformance Insurance Company

303 West Main Street

Freehold, New Jersey 07728

With a Copy to:

John M. Pellecchia, Esq.

Riker, Danzig, Scherer, Hyland & Perretti LLP

Headquarters Plaza

One Speedwell Avenue

Morristown, New Jersey 07962-1981

          E. Entire Agreement. Except only for the Confidentiality Agreement
between the parties (Exhibit B), which shall survive the execution of this
Agreement and the Closing contemplated hereby, this Agreement supersedes all
prior agreements among the parties with respect to its subject matter,
including, but not limited to, the non-binding Letter of Intent between the
parties dated November 26, 2002. This Agreement embodies the entire agreement
between the parties and there have been and are no agreements, representations,
or warranties, oral or written between the parties, other than those set forth
or provided for in this Agreement. This Agreement may not be modified or
changed, in whole or in part, except by a supplemental agreement signed by each
of the parties.

          F. Rights Under this Agreement; Nonassignability. This Agreement shall
bind and inure to the benefit of the parties hereto and their respective
successors and assigns, but it shall not be assignable by either party without
prior written consent of the other party, which may be withheld in that party’s
sole discretion. Nothing contained in this Agreement is intended to confer
upon any person, other than the parties to this Agreement and their respective
successors and assigns, any rights remedies, obligations, or liabilities under
or by reason of this Agreement.

          G. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey, without regard to
conflicts-of-law principles. The parties agree that any dispute regarding this
Agreement shall be submitted to the state or federal courts located in Mercer
County, New Jersey.

          H. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but which together shall
constitute one and the same instrument.

8

 

     IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers, effective as of the day and year set forth
above.

	 	 	 	 	 
	 	 	SENTRY INSURANCE A MUTUAL COMPANY
	 
	 	 	 	 
	

	 	By:
	 	/s/ William J. Lohr
	

	 	 	 	
 
	 
	 	 	 	 
	 	 	Printed Name: William J. Lohr
	 
	 	 	 	 
	 	 	Title: Vice President & Treasurer
	 
	 	 	 	 
	 	 	PROFORMANCE INSURANCE COMPANY
	 
	 	 	 	 
	

	 	By:
	 	/s/ James V. Gorman
	

	 	 	 	
 
	 
	 	 	 	 
	 	 	Printed Name: James V. Gorman
	 
	 	 	 	 
	 	 	Title: Chief Executive Officer

9

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