Document:

REPLACEMENT CARRIER AGREEMENT

 

Exhibit 10.4

REPLACEMENT CARRIER AGREEMENT

Among

OHIO CASUALTY OF NEW JERSEY, INC.

And

PROFORMANCE INSURANCE COMPANY

NATIONAL ATLANTIC HOLDINGS CORP.

Dated: December 18, 2001

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	Title
	 	 	 	 	 	Page

	1.	 	Definitions	 	 	1	 
	 
	 	1.1	 	Block of Business	 	 	1	 
	 
	 	1.2	 	Business	 	 	1	 
	 
	 	1.3	 	Closing	 	 	1	 
	 
	 	1.4	 	Closing Date	 	 	1	 
	 
	 	1.5	 	Nonrenewal Date	 	 	1	 
	 
	 	1.6	 	Nonrenewal Period	 	 	1	 
	 
	 	1.7	 	OCIC	 	 	2	 
	 
	 	1.8	 	Prior Business	 	 	2	 
	 
	 	1.9	 	Renewed Business	 	 	2	 
	 
	 	1.10	 	Specified Period	 	 	2	 
	 
	 	1.11	 	UEZ	 	 	2	 
	2.	 	Renewal of OCNJ’s Business by PIC	 	 	2	 
	3.	 	Consideration	 	 	4	 
	 
	 	3.1	 	Payments by OCNJ	 	 	4	 
	 
	 	3.2	 	Certain Potential Additional Payments by OCNJ and Dividend Restrictions on PIC	 	 	4	 
	 
	 	3.3	 	Termination of Funding Obligations	 	 	5	 
	4.	 	Closing	 	 	5	 
	5.	 	Closing Deliveries	 	 	5	 
	 
	 	5.1	 	Closing Deliveries by OCNJ	 	 	5	 
	 
	 	5.2	 	Closing Deliveries by PIC and NAHC	 	 	6	 
	 
	 	5.3	 	Form and Substance of Documents	 	 	6	 
	6.	 	Representations and Warranties by OCNJ	 	 	6	 
	 
	 	6.1	 	Corporate Organization	 	 	6	 
	 
	 	6.2	 	Authorization; Enforceability	 	 	6	 
	 
	 	6.3	 	No Violation	 	 	6	 
	 
	 	6.4	 	Litigation	 	 	7	 
	 
	 	6.5	 	Brokers	 	 	7	 
	 
	 	6.6	 	Disclosure	 	 	7	 
	7.	 	Representations and Warranties by PIC and NAHC	 	 	7	 
	 
	 	7.1	 	Corporate Organization	 	 	7	 
	 
	 	7.2	 	Authorization; Enforceability	 	 	7	 
	 
	 	7.3	 	No Violation	 	 	8	 
	 
	 	7.4	 	Litigation	 	 	8	 

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	Title
	 	 	 	 	 	Page

	 
	 	7.5	 	Brokers	 	 	8	 
	 
	 	7.6	 	Financial Statements	 	 	8	 
	 
	 	7.7	 	Reinsurance and Related Matters	 	 	9	 
	 
	 	7.8	 	Disclosure	 	 	9	 
	8.	 	Covenants of OCNJ	 	 	9	 
	 
	 	8.1	 	Access, Information, Documents, Data and Information Services	 	 	9	 
	 
	 	8.2	 	Consents and Approvals	 	 	10	 
	 
	 	8.3	 	Confidential Information	 	 	10	 
	9.	 	Covenants of PIC and NAHC	 	 	10	 
	 
	 	9.1	 	No Dividends	 	 	10	 
	 
	 	9.2	 	Withdrawal Plan	 	 	11	 
	 
	 	9.3	 	Confidential Information	 	 	11	 
	 
	 	9.4	 	Consents and Approvals	 	 	11	 
	 
	 	9.5	 	Reinsurance and Related Matters	 	 	11	 
	 
	 	9.6	 	Financial Statements	 	 	12	 
	 
	 	9.7	 	Annual Data	 	 	12	 
	 
	 	9.8	 	Investment Policy	 	 	12	 
	 
	 	9.9	 	Use of Proceeds	 	 	12	 
	 
	 	9.10	 	Access, Information and Documents	 	 	13	 
	10.	 	Conditions Precedent to Obligations of OCNJ	 	 	13	 
	 
	 	10.1	 	Performance of PIC and NAHC	 	 	13	 
	 
	 	10.2	 	Regulatory Consents and Approvals	 	 	13	 
	 
	 	10.3	 	Requirements Imposed by Regulatory Authorities	 	 	13	 
	 
	 	10.4	 	Withdrawal	 	 	13	 
	 
	 	10.5	 	Due Diligence	 	 	14	 
	 
	 	10.6	 	Third Party Consents	 	 	14	 
	 
	 	10.7	 	Board of Directors	 	 	14	 
	 
	 	10.8	 	Fairness Opinion	 	 	14	 
	 
	 	10.9	 	Employee Transition Agreement	 	 	14	 
	 
	 	10.10	 	Subscription Agreement	 	 	14	 
	 
	 	10.11	 	Non-Competition Agreement	 	 	14	 
	11.	 	Conditions Precedent to Obligations of PIC and NAHC	 	 	14	 
	 
	 	11.1	 	Performance of OCNJ	 	 	14	 
	 
	 	11.2	 	Regulatory Consents and Approvals	 	 	14	 
	 
	 	11.3	 	Requirements Imposed by Regulatory Authorities	 	 	15	 
	 
	 	11.4	 	Due Diligence	 	 	15	 
	 
	 	11.5	 	Third Party Consents	 	 	15	 
	 
	 	11.6	 	Board of Directors	 	 	15	 
	 
	 	11.7	 	Employee Transition Agreement	 	 	15	 
	 
	 	11.8	 	Subscription Agreement	 	 	15	 
	 
	 	11.9	 	Non-Competition Agreement	 	 	15	 

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	Title
	 	 	 	 	 	Page

	12.	 	Termination	 	 	15	 
	 
	 	12.1	 	Termination Events	 	 	15	 
	 
	 	12.2	 	Effect of Termination	 	 	15	 
	13.	 	Survival of Representations and Warranties; Indemnification	 	 	16	 
	 
	 	13.1	 	Survival of Representations and Warranties	 	 	16	 
	 
	 	13.2	 	Indemnification Obligations of OCNJ	 	 	16	 
	 
	 	13.3	 	Indemnification Obligations of PIC and NAHC	 	 	16	 
	 
	 	13.4	 	Procedure for Indemnification Claims	 	 	17	 
	 
	 	13.5	 	Right of Set-Off	 	 	19	 
	14.	 	Disclosures	 	 	19	 
	15.	 	Names	 	 	19	 
	16.	 	Miscellaneous	 	 	19	 
	 
	 	16.1	 	Assurance of Further Action	 	 	19	 
	 
	 	16.2	 	Expenses	 	 	19	 
	 
	 	16.3	 	Waiver	 	 	19	 
	 
	 	16.4	 	Notices	 	 	20	 
	 
	 	16.5	 	Entire Agreement	 	 	21	 
	 
	 	16.6	 	Rights Under this Agreement; Nonassignability	 	 	21	 
	 
	 	16.7	 	Governing Law	 	 	21	 
	 
	 	16.8	 	Headings: References to Sections, Exhibits and Schedules	 	 	21	 
	 
	 	16.9	 	Counterparts	 	 	22	 
	LIST OF EXHIBITS AND SCHEDULES	 	 	24	 

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REPLACEMENT CARRIER AGREEMENT

     THIS REPLACEMENT CARRIER AGREEMENT (this “Agreement”) is entered into this
18th day of December 2001, among Ohio Casualty of New Jersey, Inc., an Ohio
domestic property and casualty insurance company (“OCNJ”), Proformance
Insurance Company, a New Jersey domestic property and casualty insurance
company (“PIC”), and National Atlantic Holdings Corp., a New Jersey corporation
(“NAHC”);

WITNESSETH

     WHEREAS, the parties desire to enter into a replacement carrier agreement
pursuant to which OCNJ will transfer to PIC the obligations of OCNJ to offer
renewals for all (100%) of the Business (as defined herein) as of the
Nonrenewal Date (as defined herein) together with consideration and fees set
forth herein;

     NOW, THEREFORE, the parties hereto agree as follows:

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

          1.1 “Block of Business” shall mean (a) all private passenger automobile
business as included in the NAIC Annual Statement private passenger automobile
liability and physical damage lines issued by PIC on or after the Closing Date
which was produced by OCNJ Agents who are not appointed by PIC as of the
Closing Date, (b) all Business which is renewed with PIC after the Closing Date
which was produced by OCNJ Agents who were appointed by PIC prior to the
Closing Date, and (c) all Business which is renewed with PIC after the Closing
Date which was produced by Active Cancelled Agents or nonresident OCNJ agents
who are appointed by PIC, regardless of when appointed by PIC.

          1.2 “Business” shall mean OCNJ’s private passenger automobile business,
including assigned risk, UEZ and any associated personal umbrella endorsements
thereto, written in the State of New Jersey.

          1.3 “Closing” shall mean the closing of the transactions contemplated by
this Agreement.

          1.4 “Closing Date” shall mean the latter of November 1, 2001 or the date
on which all conditions to the obligations of the parties to close the
transactions provided for in Sections 10 and 11 have been satisfied.

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

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

 

 

          1.7 “OCIC” shall mean The Ohio Casualty Insurance Company, an Ohio
domestic property and casualty insurance company, which is the parent
corporation of OCNJ.

          1.8 “Prior Business” shall mean the Business issued on or prior to the
Nonrenewal Date and all endorsements issued by OCNJ on such Business prior to
and during the Nonrenewal Period.

          1.9 “Renewed Business” shall mean (a) the Business renewed or required to
be renewed by PIC under this Agreement, and (b) any assignments from the PAIP
(as defined in Section 2.1 below) after the Nonrenewal Date.

          1.10 “Specified Period” shall mean the period beginning on the Nonrenewal
Date and ending on December 31 of the second calendar year following the
calendar year in which the Nonrenewal Date occurs.

          1.11 “UEZ” shall mean urban enterprise zone policies issued as required by
N.J.S.A. 17:33C-2, as implemented by N.J.A.C. 11:3-46.1 et seq.

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

          2.1 On the Closing Date, OCNJ shall cease issuing new private passenger
automobile policies, including UEZ policies, and any associated personal
umbrella endorsements thereon in New Jersey, and OCNJ shall not resume issuing
new private passenger automobile policies in New Jersey until at least five (5)
years after the Closing Date. However, after the Closing Date and during the
Nonrenewal Period, OCNJ shall continue to issue endorsements in the ordinary
course on the Business which has not yet been nonrenewed. Additionally, OCNJ
shall continue to issue assigned risk policies distributed to OCNJ 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 obligations for all
OCNJ assignments from the PAIP on or after the Nonrenewal Date.

          2.2 As of the Nonrenewal Date, OCNJ shall cease renewing the Business in
the State of New Jersey.

          2.3 Within thirty (30) days after the date on which the last nonrenewal
notice has been given by OCNJ and the last policy included within the Business
has expired, an appropriate officer or other representative of OCNJ shall give
notice to the New Jersey Department of Banking and Insurance (the “DOBI”) of
such nonrenewal and expiration in order that the DOBI can withdraw OCNJ’s
rating system.

          2.4 From and after the Nonrenewal Date, PIC shall be the replacement
carrier of OCNJ for the Business within the meaning of NJAC 11:2-29.5, and PIC
shall have the obligation to offer to renew the Business. PIC shall comply
with all requirements as stipulated in the order issued by the DOBI (the “DOBI
Order”)

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approving the transactions contemplated by this Agreement. OCNJ shall
comply with all requirements as stipulated in the DOBI Order.

          2.5 The parties shall jointly send to each policyholder of OCNJ written
notices of nonrenewal substantially in the form of Exhibit 2.5A hereto, along
with notices that offer a guaranteed option to renew their policies with PIC in
the form of Exhibit 2.5B. All of such notices shall be approved by the DOBI
and the parties prior to mailing.

          2.6 OCNJ shall retain all rights and obligations related to the Prior
Business, including but not limited to all unpaid claims (whether reported or
unreported) and all unearned premium reserves. Neither PIC nor NAHC shall
assume any debts, liabilities or obligations of OCNJ or its affiliates with
respect to the Prior Business (other than the renewal, UEZ and assigned risk
obligations referred to herein), and all such debts, liabilities and
obligations shall be and remain the responsibility of OCNJ or its affiliates,
as the case may be.

          2.7 Except only as specifically set forth in Section 2.6 of this
Agreement, PIC shall be solely responsible for all rights and obligations
related to the Renewed Business. OCNJ shall not assume any debts, liabilities
or obligations of PIC, NAHC or any of its or their respective affiliates, and
all debts, liabilities and obligations shall be and remain the responsibility
of PIC, NAHC and its or their respective affiliates, as the case may be. The
sole and exclusive monetary obligation of OCNJ arising out of this Agreement
and the transactions contemplated by this Agreement shall be the consideration
and fees to be paid by OCNJ to PIC and NAHC under Sections 3 and 16.2 hereof.
Without limiting the generality of the foregoing, OCNJ shall have no duties or
liabilities whatsoever with respect to any policyholders of PIC (and/or any
claimants of such policyholders) regarding the Renewed Business, and nothing
contained in this Agreement shall create or be deemed to create any third party
beneficiary or other or similar rights in any such policyholders and/or
claimants against OCNJ.

          2.8 PIC shall renew the Business on a basis by which PIC will not
interfere with any of the expiration rights of the current agents of OCNJ. PIC
will offer to appoint all of OCNJ’s active resident agents who have written the
Business (the “OCNJ Agents”), and will give them a reasonable time to become
equity owners of NAHC. Further, PIC shall offer limited appointments to OCNJ
active cancelled agents (the “Active Cancelled Agents”) for purposes of
servicing their existing books at the time of cancellation by OCNJ, and PIC
shall offer limited appointments to OCNJ non-resident active agents with twenty
(20) or more New Jersey private passenger automobile policies in force on the
Closing Date for purposes of servicing their existing books as of the Closing
Date. PIC shall send to each OCNJ Agent written notice substantially in the
form of Exhibit 2.8A hereto, informing the agent of this Agreement and
encouraging him, her or it to accept the appointment of PIC. PIC shall send to
each Active Cancelled Agent written notice substantially in the form of Exhibit
2.8B hereto, informing the agent
of this Agreement and encouraging him, her or it to accept the limited
appointment of PIC for purposes of servicing his, her or its existing book at
the time of cancellation by OCNJ. OCNJ shall send to each OCNJ Agent and each
Active Cancelled Agent written

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notice substantially in the form of Exhibit 2.8C
hereto, informing the agent of this Agreement and terminating the appointment
of the agent by OCNJ.

     3. Consideration. If and only if the Closing occurs:

          3.1 Payments by OCNJ. Recognizing the New Jersey Department of Banking
and Insurance requirement that the business be supported with adequate surplus,
OCNJ shall pay to PIC $40,600,000, to be paid in twelve (12) equal monthly
installments payable by wire transfer, with the first payment to be made on the
Nonrenewal Date and subsequent payments on the tenth (10th) business day of
each month following the Nonrenewal Date.

          3.2 Certain Potential Additional Payments by OCNJ and Dividend
Restrictions on PIC.

               (a) For the Specified Period, there will be no dividends paid by PIC in
excess of dividends necessary to service and/or pay-off indebtedness of NAHC
which was in existence as of the date of this Agreement and disclosed on
Schedule 3.2(a). Any dividends in excess of this limit shall result in a
dollar-for-dollar reduction in the $15,600,000 aggregate limit described in
Section 3.2(b).

               (b) For the Specified Period, OCNJ 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 “Block of Business” as defined herein and calculated in
(c) below, subject to an aggregate limit of $15,600,000. Said additional sums
shall be calculated and paid annually within forty-five (45) days of the due
date of the NAIC Insurance Expense Exhibit (the “NAIC IEE”) for each calendar
year in the Specified Period.

               (c) (1) The Block of Business premium-to-surplus ratio will be calculated
according to the technique described on the worksheet attached as Schedule
3.2(c). (2) For purposes of calculating (1) above, if the total of the amounts
shown on Schedule 3.2(c), column (D), lines 23, 25, 27 and 29, minus column
(D), line 31, exceeds 30% of column (D), line 1 of Schedule 3.2(c), then the
amount of column (F), line 41 on Schedule 3.2(c) shall be increased by the
following amount: (i) add column (F), lines 23, 25, 27 and 29, and subtract
column (F), line 31, and then (ii) subtract 30% of column (F), line 1 from the
amount calculated under (i).

               (d) The calculation in (c) above 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 Specified Period with a related increase in income subsequent to the end of
the Specified Period.

               (e) The references in this Section 3.2 to columns and lines are to the
NAIC IEE and Annual Statement for the year 2000 and to the analogous or
corresponding columns of the NAIC IEE and Annual Statement for subsequent
years.

4

 

     3.3 Termination of Funding Obligations. Any and all payment and funding
obligations of OCNJ under Sections 3.1 and 3.2 shall terminate immediately upon
the earliest to occur of:

               (a) PIC and/or NAHC voluntarily enter into any rehabilitation,
receivership, conservation or liquidation proceeding under either federal
bankruptcy law or any state insurance law;

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

               (c) Any material breach or default by PIC or NAHC of their
representations, warranties and covenants in this Agreement; or

               (d) The satisfaction of all payment and funding obligations of OCNJ under
Sections 3.1 and 3.2.

     4. Closing. The Closing shall take place at the offices of Vorys, Sater,
Seymour and Pease LLP, Atrium Two, Suite 2100, 221 East Fourth Street,
Cincinnati, Ohio 45201 (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. If the Closing Date is so changed, all references to
the Closing Date in this Agreement shall refer to the changed date.

     5. Closing Deliveries.

          5.1 Closing Deliveries by OCNJ. At the Closing, OCNJ will deliver or
cause to be delivered to PIC and NAHC:

               (a) the DOBI Order, which shall be acceptable in form and substance to
OCNJ, PIC and NAHC;

               (b) a certificate of OCNJ in the form of Exhibit 5.1(b), certifying as to
the accuracy of OCNJ’s representations and warranties as of the Closing Date
and that OCNJ has performed and complied with all of the terms, provisions and
conditions to be performed and complied with by it at or before the Closing
Date;

               (c) a certificate of OCNJ in the form of Exhibit 5.1(c), certifying as to
certain corporate matters, together with all of the attachments referred to
therein; and

               (d) such other certificates and documents as PIC, NAHC and their counsel
may reasonably request.

5

 

          5.2 Closing Deliveries by PIC and NAHC. At the Closing, PIC and NAHC will
deliver or cause to be delivered to OCNJ:

               (a) a certificate of PIC and NAHC in the form of Exhibit 5.2(a),
certifying as to the accuracy of PIC’s and NAHC’s representations and
warranties as of the Closing Date and that PIC and NAHC have performed and
complied with all of the terms, provisions and conditions to be performed and
complied with by them at or before the Closing Date;

               (b) certificates of PIC and NAHC in the forms of Exhibit 5.2(b),
certifying as to certain corporate matters, together with all of the
attachments referred to therein; and

               (c) such other certificates and documents as OCNJ and their counsel may
reasonably request.

          5.3 Form and Substance of Documents. The documents and instruments
referred to in Sections 5.1 and 5.2 shall be in form and substance satisfactory
to counsel for the party to whom they are delivered.

     6. Representations and Warranties by OCNJ. OCNJ represents and warrants,
to PIC and NAHC that the following representations and warranties are true as
of the date of this Agreement and will be true as of the Closing Date:

          6.1 Corporate Organization. OCNJ is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and OCNJ has the corporate power and authority to carry on the business now
being conducted by it.

          6.2 Authorization; Enforceability. OCNJ has the requisite corporate power
and authority to execute, deliver and perform its obligations under this
Agreement and under each of the other documents to be executed by it in
connection with this Agreement, as the case may be. The execution and delivery
by OCNJ of this Agreement and of the other documents to be executed in
connection with this Agreement, and the performance by OCNJ of its obligations
hereunder and thereunder, have been duly authorized by all necessary corporate
action on the part of OCNJ. This Agreement has been duly executed and
delivered by OCNJ and, subject to the due execution and delivery hereof by PIC
and NAHC, is a valid and binding obligation of OCNJ, enforceable against OCNJ
in accordance with its terms. As of the Closing Date, each agreement to be
executed and delivered by OCNJ in connection with this Agreement will have been
duly executed and delivered by OCNJ and, subject to the due execution and
delivery of such agreements by PIC and NAHC, each agreement to be executed and
delivered by OCNJ in connection with this Agreement is a valid and binding
obligation of OCNJ, as the case may be, enforceable against OCNJ, as the case
may be, in accordance with its terms.

          6.3 No Violation. Neither the execution, delivery nor performance of this
Agreement by OCNJ, nor the consummation of any of the transactions provided for
in this Agreement, (a) will violate or conflict with any provision of the
Articles or

6

 

Certificate of Incorporation or Code of Regulations or Bylaws of
OCNJ, or (b) will result in any material breach of or default under any
provision of any contract or agreement of any kind to which OCNJ is a party or
by which OCNJ is bound or to which the properties or assets of OCNJ are
subject.

          6.4 Litigation. There are no actions, suits, proceedings or
investigations, either at law or in equity, or before any commission or other
administrative authority in any United States or foreign jurisdiction, of any
kind now pending or threatened or proposed in any manner, or any circumstances
which could reasonably form the basis of any such action, suit, proceeding or
investigation, except for those actions, proceedings, investigations or
inquiries which would not have a material adverse effect on OCNJ, involving
OCNJ or any of its properties or assets that (a) questions the validity of this
Agreement, or (b) seeks to delay, prohibit or restrict in any manner any action
taken or contemplated to be taken by OCNJ under this Agreement.

          6.5 Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by OCNJ directly with PIC
and NAHC and in such manner as not to give rise to any valid claim against OCNJ
for a finder’s fee, brokerage commission or like payment.

          6.6 Disclosure. There is no event, occurrence or failure to disclose on
the part of OCNJ that would result in the breach of any representation or
warranty made by OCNJ herein.

     7. Representations and Warranties by PIC and NAHC. PIC and NAHC, jointly
and severally, represent and warrant, to OCNJ that the following
representations and warranties are true as of the date of this Agreement and
will be true as of the Closing Date:

          7.1 Corporate Organization. Each of PIC and NAHC is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation, and each of PIC and NAHC has the corporate power and
authority to carry on the business now being conducted by it.

          7.2 Authorization; Enforceability. Each of PIC and NAHC has the requisite
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and under each of the other documents to be executed by it
in connection with this Agreement, as the case may be. The execution and
delivery by PIC and NAHC of this Agreement and of the other documents to be
executed by them in connection with this Agreement, and the performance by PIC
and NAHC of their respective obligations hereunder and thereunder, have been
duly authorized by all necessary corporate action on the part of PIC and NAHC.
This Agreement has been duly executed and delivered by each of PIC and NAHC
and, subject to the due execution and delivery hereof by PIC and NAHC, is a
valid and binding obligation of PIC and NAHC,
enforceable against PIC and NAHC in accordance with its terms. As of the
Closing Date, each agreement to be executed and delivered by PIC and NAHC in
connection with this Agreement will have been duly executed and delivered by
PIC and NAHC and, subject to

7

 

the due execution and delivery of such agreements
by OCNJ, each agreement to be executed and delivered by PIC and NAHC in
connection with this Agreement is a valid and binding obligation of PIC and
NAHC, as the case may be, enforceable against PIC and NAHC, as the case may be,
in accordance with its terms.

          7.3 No Violation. Neither the execution, delivery or performance of this
Agreement by PIC or NAHC, nor the consummation of any of the transactions
provided for in this Agreement, (a) will violate or conflict with any provision
of the Articles or Certificate of Incorporation or Code of Regulations or
Bylaws of PIC or NAHC, or (b) will result in any material breach of or default
under any provision of any contract or agreement of any kind to which either
PIC or NAHC is a party or by which either PIC or NAHC is bound or to which the
properties or assets of PIC or NAHC are subject.

          7.4 Litigation. Except for the defaults on indebtedness disclosed on
Schedule 7.4, and except for those actions, proceedings, investigations or
inquiries which would not have a material adverse effect on PIC or NAHC, there
are no actions, suits, proceedings or investigations, either at law or in
equity, or before any commission or other administrative authority in any
United States or foreign jurisdiction, of any kind now pending or threatened or
proposed in any manner, or any circumstances which could reasonably form the
basis of any such action, suit, proceeding or investigation, involving PIC or
NAHC or any of their respective properties or assets that (a) questions the
validity of this Agreement, or (b) seeks to delay, prohibit or restrict in any
manner any action taken or contemplated to be taken by PIC or NAHC under this
Agreement.

          7.5 Brokers. Except as set forth on Schedule 16.2 referred to below, all
negotiations relative to this Agreement and the transactions contemplated
hereby have been carried on by PIC and NAHC directly with OCNJ and in such
manner as not to give rise to any valid claim against PIC or NAHC for a
finder’s fee, brokerage commission or like payment.

          7.6 Financial Statements.

               (a) PIC previously has delivered to OCNJ true and complete copies of its
(i) annual audited statements as filed with the DOBI for the calendar years
1998, 1999 and 2000, (ii) quarterly unaudited statements as filed with the DOBI
as of and for the calendar quarters ended March 31 and June 30, 2001, and (iii)
NAIC Insurance Expense Exhibits as filed with the DOBI for the calendar years
1998, 1999, and 2000 (collectively, the “PIC Financial Statements”).

               (b) NAHC previously has delivered to OCNJ true and complete copies of its
(i) annual audited financial statements for the years ended 1998, 1999 and
2000, and (ii) quarterly unaudited financial statements as and for the calendar
quarters ended March 31 and June 30, 2001 (collectively, the “NAHC
Financial Statements”).

8

 

               (c) Each of the PIC Financial Statements and NAHC Financial Statements are
in accordance with the books and records of each of PIC and NAHC, respectively,
have been prepared in accordance with statutory accounting principles (“SAP”)
or generally accepted accounting principles (“GAAP”), respectively, applied on
a consistent basis throughout the periods covered by such statements, and
present fairly the financial position of PIC and NAHC, and the results of their
operations, for the periods covered.

               (d) There is no debt, liability, commitment or obligation of any kind,
character or nature whatsoever, whether known or unknown, choate or inchoate,
secured or unsecured, accrued, fixed, absolute, contingent or otherwise, and
whether due or to become due (collectively, “Liabilities”) other than those
which are disclosed in the PIC Financial Statements and/or NAHC Financial
Statements, other than Liabilities that, either individually or in the
aggregate, are not material to the financial conditions and/or operations of
either PIC or NAHC.

               (e) Each of the financial statements to be delivered by PIC and NAHC to
OCNJ under Section 9.6 of this Agreement shall be in accordance with the books
and records of PIC and NAHC, respectively, shall be prepared in accordance with
SAP or GAAP, respectively, applied on a consistent basis throughout the periods
covered by such financial statements, and shall present fairly the financial
position of PIC and NAHC, and the results of their operations, for the periods
covered.

          7.7 Reinsurance and Related Matters. Neither PIC nor NAHC has entered
into any reinsurance transactions, made any reserve adjustments, established a
provision for loss and/or loss adjustment expenses, incurred or obligated
itself to incur any extraordinary expenses (including, without limitation,
deferred compensation or employee bonuses) and/or taken any other actions or
entered into any other transactions that will or could result in a material
reduction in income during the Specified Period.

          7.8 Disclosure. There is no event, occurrence or failure to disclose on
the part of either PIC or NAHC that would result in the breach of any
representation or warranty made by PIC or NAHC herein.

     8. Covenants of OCNJ. OCNJ covenants and agrees with PIC and NAHC as
follows:

          8.1 Access, Information, Documents, Data and Information Services.

               (a) Subject to Section 9.3 and until the first anniversary of the
Nonrenewal Date, OCNJ will give to PIC and NAHC and to 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 OCNJ relating to the Business, to
enable PIC and NAHC to make such examination of the books, records and other
documents of OCNJ as PIC and NAHC
may determine; provided, however, that this Section 8.1(a) shall not
obligate OCNJ to

9

 

disclose information subject to attorney-client privilege
relating to this Agreement and the transactions contemplated hereunder.

               (b) Subject to Section 9.3 and until the first anniversary of the
Nonrenewal Date, OCNJ will provide to PIC, at no cost to PIC, such data of OCNJ
as is required by PIC for underwriting purposes with respect to the Business,
in the format shown on Exhibit 8.1(b). In the event that OCNJ should agree,
from time to time or at any time, at the request of PIC or NAHC, to provide
other data or other information services to PIC or NAHC, OCNJ shall be entitled
to reimbursement from PIC and NAHC for all direct and indirect costs and
expenses (including, without limitation, all employee costs and expenses)
associated with providing such other data or other information services. PIC
and NAHC shall reimburse OCNJ for such costs and expenses within fifteen (15)
days after the end of the month in which such costs and expenses are incurred
by OCNJ. Upon notice to PIC specifying in reasonable detail the basis for such
set-off, OCNJ may set-off any amount to which it may be entitled under this
Section 8.1(b) against amounts otherwise payable under this Agreement. The
exercise of such right of set-off by OCNJ in good faith, whether or not
ultimately determined to be justified, will not constitute an event of default
under this Agreement. Neither the exercise of nor the failure to exercise such
right of set-off will constitute an election of remedies or limit OCNJ in any
manner in the enforcement of any other remedies that may be available to it.

          8.2 Consents and Approvals. OCNJ shall use its best efforts to obtain
prior to the Closing all consents, authorizations and approvals under all
statutes, laws, ordinances, regulations, rules, judgments, decrees and orders
of any court or governmental agency, board, bureau, body, department or
authority or of any other person required to be obtained by OCNJ in connection
with the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby.

          8.3 Confidential Information. OCNJ shall exert reasonable efforts, at
least as stringent as those employed by it for the preservation and maintenance
of its own proprietary information and trade secrets, to preserve and maintain
all proprietary information and trade secrets of PIC and NAHC and its
affiliates received or confirmed in documentary form by OCNJ from PIC or NAHC
and its affiliates and shall not disclose to any third person or use any such
proprietary information or trade secret for personal advantage, except that
OCNJ shall be free to use and disclose all or any of such proprietary
information and trade secrets which (i) were already in its possession at the
time of disclosure to it, (ii) are a matter of public knowledge, (iii) have
been or are hereafter published other than through OCNJ, or (iv) are lawfully
obtained by OCNJ from a third person without restrictions of confidentiality.

     9. Covenants of PIC and NAHC.

          9.1 No Dividends. For the Specified Period, no dividends shall be paid by
PIC in excess of dividends necessary to service and/or pay-off indebtedness of
NAHC existing as of the date first herein above written and disclosed on
Schedule 3.2(a).

10

 

          9.2 Withdrawal Plan. Each of PIC and NAHC shall cooperate with OCNJ to
ensure that OCNJ will be granted a waiver by the Commissioner of the DOBI
pursuant to N.J.A.C. 11:2-29.3(a) obviating the requirement that OCNJ file a
formal plan of withdrawal from the business of private passenger automobile
insurance in accordance with N.J.A.C. 11:2-29.4. The covenants of PIC and NAHC
contained in this Section 9.2 shall survive the Closing.

          9.3 Confidential Information.

               (a) Each of PIC and NAHC shall exert reasonable efforts, at least as
stringent as those employed by it for the preservation and maintenance of its
own proprietary information and trade secrets, to preserve and maintain all
proprietary information and trade secrets of OCNJ and its affiliates received
or confirmed in documentary form by PIC or NAHC from OCNJ and its affiliates
and shall not disclose to any third person or use any such proprietary
information or trade secret for personal advantage, except that PIC and NAHC
shall be free to use and disclose all or any of such proprietary information
and trade secrets which (i) were already in its possession at the time of
disclosure to it, (ii) are a matter of public knowledge, (iii) have been or are
hereafter published other than through PIC or NAHC, or (iv) are lawfully
obtained by PIC or NAHC from a third person without restrictions of
confidentiality.

               (b) Each of PIC and NAHC shall take all actions, if any, required under
the Gramm-Leach-Bliley Act and all New Jersey notice and confidentiality
statutes and regulations, including, without limitation, N.J.S.A.
17:23A-4(a)(2) and N.J.S.A. 17:23A-13, with respect to the transfer by OCNJ to
PIC and/or NAHC of policyholder information related to the Business. Each of
PIC and NAHC agrees to provide notices required by N.J.S.A. 17:23A-4, if any,
and not to disclose any policyholder information obtained from OCNJ unless the
disclosure would otherwise be permitted by (i) N.J.S.A. 17:23A-13 if made by an
“insurance institution,” “agent” or “insurance support organization,” as those
terms are defined in N.J.S.A. 17:23A-2, (ii) the limits on reuse imposed by
Section 502(c) of the Gramm-Leach-Bliley Act, and (iii) the privacy statement
of OCIC and its insurance affiliates, a copy of which is attached hereto as
Exhibit 9.3(b).

               (c) The covenants of PIC and NAHC contained in this Section 9.3 shall
survive the Closing.

          9.4 Consents and Approvals. Each of PIC and NAHC shall use their best
efforts to obtain prior to the Closing all consents, authorizations and
approvals under all statutes, laws, ordinances, regulations, rules, judgments,
decrees and orders of any court or governmental agency, board, bureau, body,
department or authority or of any other person required to be obtained by PIC
and NAHC in connection with the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby.

          9.5 Reinsurance and Related Matters. Neither PIC nor NAHC will enter into
any reinsurance transactions, make any reserve adjustments, establish a

11

 

provision for loss and/or loss adjustment expenses, incur or obligate itself to
incur any extraordinary expenses (including, without limitation, deferred
compensation or employee bonuses) and/or take any other actions or enter into
any other transactions that will or could result in a material reduction in
income during the Specified Period.

          9.6 Financial Statements.

               (a) For the quarter ending September 30, 2001, and for each quarter
thereafter through and including the quarter in which the Closing occurs, each
of NAHC and PIC shall provide to OCNJ, within forty-five (45) days after the
end of each quarter, unaudited financial statements of NAHC and PIC, consisting
of a balance sheet (and the notes thereto) as of the end of such quarter and a
statement of income and retained earnings and changes in financial position
(and the notes thereto) for that quarter and for the portion of the year then
ended.

               (b) For the calendar month in which the Closing occurs and for each of the
next twelve calendar months thereafter, each of NAHC and PIC shall provide to
OCNJ, within thirty (30) days after the end of each calendar month, unaudited
financial statements of NAHC and PIC, consisting of a balance sheet (and the
notes thereto) as of the end of such month and a statement of income and
retained earnings and changes in financial position (and the notes thereto) for
that month and for the portion of the year then ended.

          9.7 Annual Data. For the period ending on December 31 of any year that
includes a portion of the Specified Period, PIC shall provide to OCNJ, by no
later than the due date of the NAIC IEE, all data needed for purposes of the
calculation of net written premiums shown on Part II column 1 (Premium Written)
of PIC’s NAIC IEE, as provided for by Section 3.2(c) hereof, including, without
limitation, the list of premium volume by agent for purposes of such
calculation.

          9.8 Investment Policy. Commencing as of the Closing Date and continuing
until the expiration of the Specified Period, PIC shall invest its assets only
in accordance with the investment guidelines set forth in attached Exhibit 9.8.

          9.9 Use of Proceeds. Commencing as of the Closing Date and continuing
until the expiration of the Specified Period, PIC shall use all (100%) of the
funds transferred to it by OCNJ pursuant to Section 3 of this Agreement solely
and exclusively for the purpose of supporting the Renewed Business and to
service and/or pay-off indebtedness of NAHC disclosed on Schedule 3.2(a), as
permitted under Sections 3.2(a) and 9.1. Without limiting the generality of
the foregoing, 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, including but not limited to, Capital Mutual Insurance
Co., 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.

12

 

          9.10 Access, Information and Documents. At any time, and from time to
time, PIC and NAHC will give to OCNJ and its 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, NAHC 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 required to be made by
OCNJ by Section 3.2. The covenants of PIC and NAHC contained in this Section
9.10 shall survive the Closing.

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

          10.1 Performance of PIC and NAHC. There shall not be any material error,
misstatement or omission in the representations and warranties made by PIC or
NAHC in this Agreement; all representations and warranties by PIC and NAHC
contained in this Agreement or in any written statement delivered by PIC and
NAHC to OCNJ or any of its affiliates pursuant to this Agreement shall be true
in all material respects at and as of the Closing as though such
representations and warranties were made at and as of said time; and each of
PIC and NAHC shall have materially performed and complied with all the terms,
provisions and conditions of this Agreement to be performed and complied with
by PIC and NAHC at or before the Closing.

          10.2 Regulatory Consents and Approvals. OCNJ and OCIC shall have obtained
all consents, authorizations and approvals under all statutes, laws,
ordinances, regulations, rules, judgments, decrees and orders of any court or
governmental agency, board, bureau, body, department or authority or of any
other person required to be obtained by OCNJ and OCIC, including, but not
limited to, the Ohio Department of Insurance and the DOBI, as the case may be,
in connection with the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby, which approvals
will permit OCNJ to cease issuing new private passenger automobile policies as
of the Closing Date and commence issuance of notices of non-renewal as of the
Nonrenewal Date on terms acceptable to OCNJ.

          10.3 Requirements Imposed by Regulatory Authorities. Any terms and
conditions that may be imposed on the transactions contemplated by this
Agreement by the Ohio Department of Insurance or the DOBI shall be acceptable
to OCNJ, in its sole discretion.

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

13

 

          10.5 Due Diligence. OCNJ shall be satisfied with the results of its due
diligence investigation of the financial condition, businesses, prospects and
operations of PIC and NAHC.

          10.6 Third Party Consents. OCNJ and its affiliates shall have secured
approval or consent from all necessary third parties, including, without
limitation, all lenders.

          10.7 Board of Directors. The Boards of Directors of OCNJ and OCIC shall
have approved of the terms and conditions of this Agreement and the
transactions contemplated by this Agreement.

          10.8 Fairness Opinion. OCNJ shall have secured an opinion (or other
assurance acceptable to OCNJ) from its investment bankers regarding the
fairness of the transactions contemplated by this Agreement.

          10.9 Employee Transition Agreement. OCIC, PIC and NAHC shall have
executed and delivered the Employee Transition Agreement in the form of Exhibit
10.9 (the “Employee Transition Agreement”).

          10.10 Subscription Agreement. OCIC and NAHC shall have executed and
delivered the Subscription Agreement in the form of Exhibit 10.10 (the
“Subscription Agreement”).

          10.11 Non-Competition Agreement. OCNJ, OCIC, PIC and NAHC shall have
executed and delivered the Non-Competition Agreement in the form of Exhibit
10.11 (the “Non-Competition Agreement”).

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

          11.1 Performance of OCNJ. There shall not be any material error,
misstatement or omission in the representations and warranties made by OCNJ in
this Agreement; all representations and warranties by OCNJ contained in this
Agreement or in any written statement delivered by OCNJ to PIC or NAHC pursuant
to this Agreement shall be true in all material respects at and as of the
Closing as though such representations and warranties were made at and as of
said time; and OCNJ shall have materially performed and complied with all the
terms, provisions and conditions of this Agreement to be performed and complied
with by OCNJ at or before the Closing.

          11.2 Regulatory Consents and Approvals. PIC and NAHC shall have obtained
all consents, authorizations and approvals under all statutes, laws,
ordinances, regulations, rules, judgments, decrees and orders of any court or
governmental agency, board, bureau, body, department or authority or of any
other person required to be
obtained by PIC and NAHC, including, but not limited to, the Ohio
Department of Insurance and the DOBI, as the case may be, in connection with
the execution, delivery

14

 

and performance of this Agreement and the consummation
of the transactions contemplated hereby, which approvals shall be on terns
acceptable to PIC and NAHC.

          11.3 Requirements Imposed by Regulatory Authorities. Any terns and
conditions that may be imposed on the transactions contemplated by this
Agreement by the Ohio Department of Insurance or the DOBI shall be acceptable
to PIC and NAHC, in their sole discretion.

          11.4 Due Diligence. PIC and NAHC shall be satisfied with the results of
their due diligence investigation of the Business and financial condition of
OCNJ.

          11.5 Third Party Consents. PIC and NAHC and each of their respective
affiliates shall have secured approval or consent from all necessary third
parties.

          11.6 Board of Directors. The Board of Directors of PIC and NAHC shall
have approved of the terms and conditions of this Agreement and the
transactions contemplated by this Agreement.

          11.7 Employee Transition Agreement. OCIC, PIC and NAHC shall have
executed and delivered the Employee Transition Agreement.

          11.8 Subscription Agreement. OCIC and NAHC shall have executed and
delivered, and closed the transactions contemplated by, the Subscription
Agreement.

          11.9 Non-Competition Agreement. OCIC, OCNJ, PIC and NAHC shall have
executed and delivered the Non-Competition Agreement.

     12. Termination.

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

               (a) by either OCNJ, on the one hand, or PIC and NAHC, on the other hand,
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;

               (b) by mutual consent of the parties; or

               (c) 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 December 31, 2001, or such
later date as the parties may agree upon.

          12.2 Effect of Termination. Each party’s right of termination under
Section 12.1 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.

15

 

If this Agreement is terminated pursuant to Section
12.1, all further obligations of the parties under this Agreement shall
terminate, except that the obligations in Sections 9.3 and 13.5 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.

     13. Survival of Representations and Warranties; Indemnification.

          13.1 Survival of Representations and Warranties. All representations and
warranties contained in Section 6 and Section 7 shall survive the Closing for a
period of three years from and after the Nonrenewal Date.

          13.2 Indemnification Obligations of OCNJ. Subject to the terms and
conditions of this Section 13, OCNJ agrees to indemnify and hold PIC and NAHC
harmless against any and all losses, costs and expenses (including, without
limitation, legal and other expenses) resulting from or relating to:

               (a) any material misrepresentation or breach of any warranty of OCNJ
contained in this Agreement or in any schedule of OCNJ or any certificate
delivered by OCNJ at the Closing;

               (b) any material breach of any covenant of OCNJ contained in this
Agreement, including but not limited to the covenants set forth in Section 2.6
hereof;

               (c) the Prior Business (excluding any UEZ quotas and assignments from the
PAIP after the Nonrenewal Date); and

               (d) and any and all actions, suits, demands, assessments or judgments with
respect to any claim arising out of or relating to the subject matter of the
indemnification.

          13.3 Indemnification Obligations of PIC and NAHC. Subject to the terms
and conditions of this Section 13, PIC and NAHC, jointly and severally, agree
to indemnify and hold OCNJ harmless against any and all losses, costs and
expenses (including, without limitation, legal and other expenses) resulting
from or relating to:

               (a) any material misrepresentation or breach of any warranty of PIC or
NAHC contained in this Agreement or in any schedule of PIC or NAHC or any
certificate delivered by PIC or NAHC at the Closing;

               (b) any material breach of any covenant of PIC or NAHC contained in this
Agreement, including but not limited to the covenants set forth in Section 2.7
hereof;

16

 

               (c) the Renewed Business (including any UEZ quotas and assignments from
the PAIP after the Nonrenewal Date); and

               (d) and any and all actions, suits, demands, assessments or judgments with
respect to any claim arising out of or relating to the subject matter of the
indemnification.

          13.4 Procedure for Indemnification Claims. The respective indemnification
obligations of the parties pursuant to Sections 13.2 and 13.3 shall be
conditioned upon compliance by the other parties with the following procedures
for indemnification claims based upon or arising out of any claim, action or
proceeding by any person not a party to this Agreement:

               (a) If at any time a claim shall be made or threatened, or an action or
proceeding shall be commenced or threatened, against a party hereto (the
“Aggrieved Party”) which could result in liability of the other party (the
“Indemnifying Party”) under its indemnification obligations hereunder, the
Aggrieved Party shall give to the Indemnifying Party prompt notice of such
claim, action or proceeding. Such notice shall state the basis for the claim,
action or proceeding and the amount thereof (to the extent such amount is
determinable at the time when such notice is given) and shall permit the
Indemnifying Party to assume the defense of any such claim, action or
proceeding (including any action or proceeding resulting from any such claim).
Failure by the Indemnifying Party to notify the Aggrieved Party of its election
to defend any such claim, action or proceeding within a reasonable time, but in
no event more than fifteen days after notice thereof shall have been given to
the Indemnifying Party, shall be deemed a waiver by the Indemnifying Party of
its right to defend such claim, action or proceeding; provided, however, that
the Indemnifying Party shall not be deemed to have waived its right to contest
and defend against any claim of the Aggrieved Party for indemnification
hereunder based upon or arising out of such claim, action or proceeding.

               (b) If the Indemnifying Party assumes the defense of any such claim,
action or proceeding, the obligation of the Indemnifying Party as to such
claim, action or proceeding shall be limited to taking all steps necessary in
the defense or settlement thereof and, provided the Indemnifying Party is held
to be liable for indemnification hereunder, to holding the Aggrieved Party
harmless from and against any and all losses, damages and liabilities caused by
or arising out of any settlement approved by the Indemnifying Party or any
judgment or award rendered in connection with such claim, action or proceeding.
The Aggrieved Party may participate, at its expense, in the defense of such
claim, action or proceeding provided that the Indemnifying Party shall direct
and control the defense of such claim, action or proceeding. The Aggrieved
Party agrees to cooperate and make available to the Indemnified Party all books
and records and such officers, employees and agents as are reasonably necessary
and useful in connection with the defense. The Indemnifying Party shall not,
in the defense of such
claim, action or proceeding, consent to the entry of any judgment or
award, or enter into any settlement, except in either event with the prior
consent of the Aggrieved Party, which does not include as an unconditional term
thereof the giving by the claimant or the

17

 

plaintiff to the Aggrieved Party of a
release from all liability in respect of such claim, action or proceeding.

               (c) If the Indemnifying Party does not assume the defense of any such
claim, action or proceeding, the Aggrieved Party may defend against such claim,
action or proceeding in such manner as it may deem appropriate. The
Indemnifying Party agrees to cooperate and make available to the Aggrieved
Party all books and records and such officers, employees and agents as are
reasonably necessary and useful in connection with the defense. If the
Indemnifying Party, within ten days after notice shall have been given to it by
the Aggrieved Party of the latter’s intention to effect a settlement of any
such claim, action or proceeding, which notice shall describe with
particularity the terms of any such proposed settlement, shall not deposit with
an escrow mutually satisfactory to the Aggrieved Party and the Indemnifying
Party a sum equivalent to the total amount demanded in such claim, action or
proceeding or deliver to the Aggrieved Party a surety bond or an irrevocable
letter of credit for such sum in form and substance reasonably satisfactory to
the Aggrieved Party, then the Aggrieved Party may settle such claim, action or
proceeding on the terms detailed in its notice to the Indemnifying Party, and
the Indemnifying Party shall be deemed to have agreed to the terms of such
settlement and shall not thereafter in any proceeding by the Aggrieved Party
for indemnification question the propriety of such settlement. If the
Indemnifying Party makes an escrow deposit or delivers a surety bond or letter
of credit as aforesaid and thereafter the Aggrieved Party settles such claim,
action or proceeding, then in any proceeding by the Aggrieved Party for
indemnification in the event the Indemnifying Party is held liable for
indemnification hereunder, the Aggrieved Party shall have the burden of proving
the amount of such liability of the Indemnifying Party, and the amount of the
payments made in settlement of any claim, action or proceeding shall not be
determinative as between the Aggrieved Party and the Indemnifying Party of the
amount of such indemnification liability, except that the amount of the
settlement payments shall constitute the maximum amount of the indemnification
liability of the Indemnifying Party. Such escrow deposit, surety bond or
letter of credit shall by their respective terms be payable to the Aggrieved
Party in an amount determined in accordance with the last sentence of this
paragraph (c) and in the event the Indemnifying Party is held liable for
indemnification hereunder. If the Indemnifying Party neither makes an escrow
deposit or delivers a surety bond or letter of credit as aforesaid, so that no
settlement of such claim, action or proceeding is effected, in any proceeding
by the Aggrieved Party for indemnification in the event the Indemnifying Party
is held liable for indemnification hereunder, such liability shall be for the
amount of any judgment or award rendered with respect to such claim or in such
action or proceeding and of all expenses, legal and otherwise, incurred by the
Aggrieved Party in the defense against such claim, action or proceeding.

               (d) In the event an Aggrieved Party or Indemnifying Party shall cooperate
in the defense or make available books, records, officers, employees or agents,
as required by the terms of paragraphs (b) and (c), respectively, of this
Section
13.4 the party to which such cooperation is provided shall pay the
out-of-pocket costs and expenses (including legal fees and disbursements) of
the party providing such cooperation and of its officers, employees and agents
reasonably incurred in connection

18

 

with providing such cooperation, but shall
not be responsible to reimburse the party providing such cooperation for such
party’s time or the salaries or costs of fringe benefits or other similar
expenses paid by the party providing such cooperation to its officers and
employees in connection therewith.

          13.5 Right of Set-Off. Upon notice to the Indemnifying Party specifying
in reasonable detail the basis for such set-off, an Aggrieved Party may set-off
any amount to which it may be entitled under this Section 13 against amounts
otherwise payable to the Indemnifying Party under this Agreement. Neither the
exercise of nor the failure to exercise such right of set-off will constitute
an election of remedies or limit the Aggrieved Party in any manner in the
enforcement of any other remedies that may be available to it.

     14. Disclosures. Because the shares of OCNJ’s ultimate parent
corporation, Ohio Casualty Corporation (“OCC”), are publicly traded, OCC may be
required to make public disclosure of this Agreement and the transactions
contemplated by this Agreement. Each of PIC and NAHC shall cooperate fully
with OCC and OCNJ, making such public disclosures as OCC and OCNJ conclude from
time to time are necessary and appropriate under the circumstances.

     15. Names. No party to this Agreement shall use the name or any
trademark, trade name, logo or service mark of any other party or any of their
respective affiliates in any manner, without the prior written consent of the
applicable party.

     16. Miscellaneous.

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

          16.2 Expenses. If and only if the transaction closes, and subject to
OCNJ’s review of the consulting arrangement, as identified on Schedule 16.2,
OCNJ shall reimburse PIC for all reasonable success fees, which will not exceed
$822,000, incurred by it and paid to unaffiliated third parties in connection
with the transactions contemplated by this Agreement, with OCNJ, in its sole
discretion, determining whether and in what amounts any such fees may or may
not be reasonable. This reimbursement shall be paid in twelve (12) equal
monthly installments on the first business day of each month by wire transfer,
concurrently with the payments to be made under Section 3.1 hereof. Except as
set forth in the preceding sentence or elsewhere in this Agreement, each party
shall bear its own legal, accounting, administrative and other costs and
expenses incurred by it in connection with the preparation and negotiation of
this Agreement and the terms and provisions of this Agreement.

          16.3 Waiver. The parties hereto may by written agreement (i) extend the
time for or waive or modify the performance of any of the obligations or other
acts of

19

 

the parties hereto, or (ii) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any document
delivered pursuant to this Agreement.

          16.4 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 OCNJ, to:
	 
	 	 	Ohio Casualty of New Jersey, Inc.

9450 Seward Road

Fairfield, Ohio 45014

Attention: Debra K. Crane, Esq.

                 Senior Vice President and General Counsel
	 
	 	 	With a copy to:
	 
	 	 	James A. Yano, Esq.

Vorys, Sater, Seymour and Pease LLP

52 East Gay Street

Columbus, Ohio 43215
	 
	 	 	If to PIC, to:
	 
	 	 	Proformance Insurance Company

303 West Main Street

Freehold, New Jersey 07728

Attention: James V. Gorman

                 Chairman and CEO
	 
	 	 	With a copy to:
	 
	 	 	John M. Pellecchia, Esq.

Riker, Danzig, Sherer, Hyland & Perretti LLP

50 West State Street, Suite 1010

Trenton, New Jersey 08608-1220
	 
	 	 	If to NAHC, to:
	 
	 	 	National Atlantic Holdings Corp.

303 West Main Street

Freehold, New Jersey 07728

Attention: James V. Gonnan

                 Chairman and CEO

20

 

	 	 	With a copy
to:

	 
	 	 	John M. Pellecchia, Esq.

Riker, Danzig, Sherer, Hyland & Perretti LLP

50 West State Street, Suite 1010

Trenton, New Jersey 08608-1220

or to such other address as may have been furnished in writing to the party
giving the notice by the party to whom notice is to be given.

          16.5 Entire Agreement. Except only for the Confidentiality Agreement and
its Addendum among the parties dated June 15, 2001 (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
among the parties dated September 10, 2001). This Agreement embodies the
entire agreement among the parties and there have been and are no agreements,
representations or warranties, oral or written among 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.

          16.6 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 shall not be assignable by any party without the
prior written consent of the other parties, which may be withheld in their 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.

          16.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio, without regard to conflict of
law principles. The parties agree that any dispute regarding this Agreement
shall be submitted to the state or federal courts located in Hamilton County,
Ohio, and each of PIC and NAHC hereby consent to the exercise of jurisdiction
by any such court over it.

          16.8 Headings: References to Sections, Exhibits and Schedules. The
headings of the Sections, Paragraphs and Subparagraphs of this Agreement are
solely for convenience and reference and shall not limit or otherwise affect
the meaning of any of the terms or provisions of this Agreement. The
references herein to Sections, Exhibits and Schedules, unless otherwise
indicated, are references to Sections of and Exhibits and Schedules to this
Agreement. All Exhibits and Schedules referred to in this Agreement are
incorporated herein by reference and made a party hereof.

21

 

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

[Remainder of page intentionally left blank]

22

 

     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.

	 	 	 	 	 	 	 
	 	 	OHIO CASUALTY OF NEW JERSEY, INC.
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/ Elizabeth M. Riczko	 	 
	

	 	 	 	
	 	 
	 	 	Printed Name: Elizabeth M. Riczko
	 	 	Title: Executive Vice President & COO
	 
	 	 	 	 	 	 
	 	 	PROFORMANCE INSURANCE COMPANY
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	

	 	 	 	
	 	 
	 	 	Printed Name:
	

	 	 	 	

	 	 
	

	 	Title:	 	 	 	 
	

	 	 	 	
	 	 
	 
	 	 	 	 	 	 
	 	 	NATIONAL ATLANTIC HOLDINGS CORP.
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	

	 	 	 	
	 	 
	 	 	Printed Name:
	

	 	 	 	

	 	 
	

	 	Title:	 	 	 	 
	

	 	 	 	
	 	 

23

 

     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.

	 	 	 	 	 	 	 
	 	 	OHIO CASUALTY OF NEW JERSEY, INC.
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	

	 	 	 	
	 	 
	 	 	Printed Name:
	

	 	 	 	

	 	 
	

	 	Title:	 	 	 	 
	

	 	 	 	
	 	 
	 
	 	 	 	 	 	 
	 	 	PROFORMANCE INSURANCE COMPANY
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/ James V. Gorman	 	 
	

	 	 	 	
	 	 
	 	 	Printed Name: James V. Gorman
	 	 	Title: Chief Executive Officer
	 
	 	 	 	 	 	 
	 	 	NATIONAL ATLANTIC HOLDINGS CORP.
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/ James V. Gorman	 	 
	

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

24

 

LIST OF EXHIBITS AND SCHEDULES

TO

REPLACEMENT CARRIER AGREEMENT

	 	 	 
	Exhibits
	 	Description

	2.5A (OCNJ)

	 	Notice of Nonrenewal
	 
	 	 
	2.5B (PIC)

	 	Guaranteed Option to Renew
	 
	 	 
	2.8A (PIC)

	 	PIC’s Notice to OCNJ Agents
	 
	 	 
	2.8B (PIC)

	 	PIC’s Notice to Active Cancelled Agents
	 
	 	 
	2.8C (OCNJ)

	 	OCNJ’s Notice to OCNJ Agents and Active Cancelled Agents
	 
	 	 
	5.1(b) (OCNJ)

	 	Certificate of OCNJ of Representations and Warranties
	 
	 	 
	5.1(c) (OCNJ)

	 	Certificate of OCNJ Certifying Certain Corporate Matters
	 
	 	 
	5.2(a) (PIC)

	 	Certificate of PIC and NAHC of Representations and Warranties
	 
	 	 
	5.2(b) (PIC)

	 	Certificate of PIC and NAHC Certifying Certain Corporate Matters
	 
	 	 
	8.1(b) (OCNJ)

	 	Format of Data
	 
	 	 
	9.3(b) (OCNJ)

	 	Privacy Statement of OCIC and its Insurance Affiliates
	 
	 	 
	9.8 (PIC)

	 	Investment Guidelines
	 
	 	 
	10.9 (OCIC)

	 	Employee Transition Agreement
	 
	 	 
	10.10 (PIC)

	 	Subscription Agreement
	 
	 	 
	10.11 (OCIC)

	 	Non-Competition Agreement

	 	 	 
	Schedules
	 	Description

	3.2(a) (PIC)

	 	NAHC Indebtedness
	 
	 	 
	3.2(c) (OCIC)

	 	Worksheet
	 
	 	 
	7.4 (PIC)

	 	Defaults on Indebtedness
	 
	 	 
	16.2 (PIC)

	 	Consulting Arrangements

25INVESTOR RIGHTS AGREEMENT

 

Exhibit 10.5

NATIONAL ATLANTIC HOLDINGS CORP.

INVESTOR RIGHTS AGREEMENT

          This INVESTOR RIGHTS AGREEMENT (the “Agreement”) is entered into as of
this 18th day of December, 2001 by and among NATIONAL ATLANTIC HOLDINGS CORP.,
a New Jersey corporation (the “Company”), The OHIO CASUALTY INSURANCE COMPANY,
an Ohio corporation (the “Investor”), and JAMES V. GORMAN (the “Stockholder”).

R E C I T A L S

          A. The Company proposes to sell and issue to the Investor 20,185 shares of
Nonvoting Common Stock of the Company pursuant to a Subscription Agreement by
and between the Company and the Investor (the “Subscription Agreement”).

          B. As a condition of entering into the Subscription Agreement, the
Investor has requested that the Company and the Stockholder extend to it
certain information rights, governance rights, preemptive rights, redemption
rights, co-sale rights and other rights as set forth below.

A G R E E M E N T

          Now, Therefore, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows:

SECTION 1. General.

     1.1 Definitions. As used in this Agreement, the following terms shall have the
following respective meanings:

          “Affiliate” means, with respect to any Person, any (i) partner, member,
stockholder, director, officer, manager, employee or agent of such Person, (ii)
any Relation of any Person contemplated by the preceding clause (i), or (iii)
any other Person which directly or indirectly controls, is controlled by, or is
under common control with such Person. A person will be deemed to control
another Person if such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of the controlled
Person, whether through ownership of voting securities, by contract or
otherwise.

          “Agreement” has the meaning given it in the first paragraph of this
Agreement.

          “Allocation,” for purposes of Section 4.2, is determined by multiplying
the number of Shares of Available Securities by a fraction, the numerator of
which is the number of shares of Equity Securities held by the Investor and the
denominator of which

 

 

is the total number of shares of Equity Securities then
outstanding (excluding the offered Securities to be issued).

          “Available Securities” is equal to the number of Offered Securities which
the Company intends to issue.

          “Board” means the Board of Directors of the Company.

          “Code” means the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder.

          “Common Stock” means the Voting Common Shares and the Nonvoting Common
Shares.

          “Company” has the meaning given it in the first paragraph of this
Agreement.

          “Company Acceptance Notice” has the meaning given to such term in Section
4.3(b) below.

          “Deal Notice” has the meaning given to such term in Section 6.4.

          “Equity Securities” means (i) the Voting Common Shares or the Nonvoting
Common Shares, (ii) any preferred stock or other capital stock of the Company,
(iii) any security or instrument that is convertible into or exercisable or
exchangeable for, with or without consideration, Voting Common Shares,
Nonvoting Common Shares or any preferred stock or other capital stock of the
Company (including any option, warrant or right to subscribe for or purchase
such a security or instrument), (iv) any security or instrument that carries
any option, warrant or right to subscribe for or purchase Voting Common Shares,
Nonvoting Common Shares or any preferred stock or other capital stock of the
Company, or (v) any such option, warrant or right.

          “Fair Market Value” has the meaning given to such term in Section 5.1.

          “First Offer Notice” has the meaning given to such term in Section 4.3(a)
below.

          “Investor” has the meaning given it in the first paragraph of this
Agreement.

          “Nonvoting Common Shares” means the Company’s Nonvoting Common Stock,
without par value.

          “Notice Of Intent” means a written notice in which the Company sets forth
a detailed description of a proposed issuance of Equity Securities. The Notice
of Intent shall include, as applicable, the name and address of the proposed
purchaser, the number of shares of Offered Securities, the per-share purchase
price therefor, the date on

-2-

 

or about which the proposed issuance or Transfer is
to be made and all other terms and conditions of the proposed issuance or
Transfer.

          “Notice Of Sale” means a written notice in which the Investor or the
Stockholder, as the case may be, sets forth a detailed description of a
proposed Transfer. A Notice of Sale shall include all of the information
contained in a Notice of Intent.

          “Offered Securities” means the Equity Securities desired to be issued by
the Company or Transferred by the Investor.

          “Officers’ Plan” has the meaning given to such term in Section 4.2(e).

          “Person” means an individual, corporation, partnership, limited liability
company, joint venture, trust, unincorporated organization, governmental agency
or authority or any other entity of any kind.

          “Public Offering” means an offering of the Company’s Equity Securities
pursuant to a registration statement that becomes effective under the
Securities Act.

          “Qualified Public Offering” means an offering of the Company’s Equity
Securities pursuant to a registration statement that becomes effective under
the Securities Act in which the net proceeds to the Company (after deducting
underwriting discounts, commissions and fees) are at least $30 million.

          “Redeemable Shares” has the meaning given to such term in Section 5.1.

          “Redemption Notice” has the meaning given to such term in Section 5.1.

          “Relation” means, with respect to any Person, (i) such Person’s spouse and
the parents, grandparents, brothers and sisters, children and grandchildren and
the children and grandchildren of brothers and sisters of such Person and (ii)
the parents, brothers, sisters, children, grandchildren of the spouse of such
Person and the children and grandchildren of such spouse’s brothers and
sisters.

          “Sale” means (i) any consolidation or merger of the Company with or into
any other entity that is not an Affiliate of the Company, or any other
corporate reorganization in which the stockholders of the Company immediately
prior to such consolidation, merger or reorganization own (with their
Affiliates) less than a majority of the voting power of the surviving or
acquiring entity immediately after such consolidation, merger or
reorganization, or (ii) a sale, lease or other disposition of all or
substantially all of the assets of the Company to a Person who is not an
Affiliate of the
Company, so long as any such transaction described in (i) or (ii) above
has been approved by the Board of Directors and stockholders of the Company.

          “SEC” means the United States Securities and Exchange Commission.

-3-

 

          “Securities Act” means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.

          “Subscription Agreement” has the meaning given it in Recital A above.

          “Stockholder” has the meaning given it in the first paragraph of this
Agreement.

          “Stockholder Acceptance Notice” has the meaning given it in Section 4.3(b)
below.

          “Transfer” means any sale, assignment, pledge, hypothecation, encumbrance,
disposition, transfer (including, without limitation, a transfer by will or
intestate distribution), gift or attempt to create or grant a security interest
in Equity Securities, whether voluntary, involuntary, by operation of law or
otherwise.

          “Voting Common Shares” means the Company’s Voting Common Stock, without
par value.

SECTION 2. Information Rights.

     2.1 Basic Financial Information and Reporting.

          (a) The Company will furnish to the Investor (i) within thirty (30) days
prior to the commencement of each fiscal year, an annual budget and operating
plan for such fiscal year (and as soon as available, any subsequent revisions
thereto), (ii) as soon as practicable after the end of each month, and in any
event within twenty (20) days thereafter, a consolidated balance sheet of the
Company as of the end of each such month and a consolidated statement of income
and a consolidated statement of cash flows of the Company for such month and
for the current fiscal year to date, including a comparison to plan figures for
such periods, prepared in accordance with generally accepted accounting
principles consistently applied, with the exception that no notes need be
attached to such statements and year-end audit adjustments may not have been
made, (iii) promptly minutes of all Board meetings, minutes of all stockholders
meetings and all actions taken by written consent in lieu thereof, (iv) copies
of all reports and other written communications delivered to holders of Voting
Common Shares in their capacity as common stockholders, (v) promptly copies of
all Company income tax returns, and (vi) if reasonably requested, other
financial or business information of the Company.

          (b) The Company will furnish to the Investor, as soon as practicable after
the end of the first, second and third quarterly accounting periods in each
fiscal year of the Company and in any event within forty-five (45) days
thereafter, a consolidated
balance sheet of the Company as of the end of each such quarterly period
and a consolidated statement of income and a consolidated statement of cash
flows of the Company for such period and for the current fiscal year to date,
including a comparison to plan figures for such period, prepared in accordance
with generally accepted accounting principles consistently applied.

-4-

 

          (c) The Company will furnish to the Investor, as soon as practicable after
the end of each fiscal year of the Company and in any event within one hundred
twenty (120) days thereafter, an audited consolidated balance sheet of the
Company as of the end of such fiscal year and an audited consolidated statement
of income and an audited consolidated statement of cash flows of the Company
for such year, prepared in accordance with generally accepted accounting
principles consistently applied and setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable detail. Such
financial statements shall be accompanied by a report and opinion thereon by
independent public accountants and a Company-prepared comparison to the
Company’s operating plan for such year.

     2.2 Inspection Rights. The Investor shall have the right to visit the
corporate offices of the Company and its subsidiaries and to discuss the
affairs, finances and accounts of the Company or any of its subsidiaries with
its officers, and to review such information as is requested by the Investor,
all at such reasonable times and as often as may be requested. Moreover, the
Company shall furnish to the Investor such information relating to the
financial condition, business, prospects or corporate affairs of the Company as
the Investor may from time to time request.

SECTION 3. Board of Directors.

     3.1 Notice of Board Meetings. The Company shall furnish in writing to the
Investor notice of and an agenda for each meeting of the Company’s Board of
Directors or any committee thereof. Such notice shall be given by the Company
so that it is received by the Investor at least three business days prior to
the date of each such meeting. The Company shall provide the Investor with a
copy of the minutes of all meetings of the Company’s Board of Directors and its
committees.

     3.2 Investor Representative. The Investor may, from time to time, appoint a
representative to attend meetings of the Board of Directors of the Company or
any committee thereof as an observer.

SECTION 4. Issuance and Transfers of Equity Securities.

     4.1 General Rule. The Company may not issue any Equity Securities except pursuant to the
provisions of this Section 4. The Stockholder may not Transfer any Equity
Securities held by him except pursuant to this Section 4. The Investor may not
Transfer any Equity Securities held by it except pursuant to this Section 4.
Any issuance or Transfer of Equity Securities made in violation of the
provisions of this Section 4 shall be null and void and without effect. The
Company will not recognize or effect such an issuance or Transfer of Equity
Securities on its books or otherwise, nor will it recognize or treat any
transferee thereof as the holder of such Equity Securities.

     4.2 Company Issuances — Preemptive Right.

          (a) If, at any time or from time to time, the Company desires to issue
Offered Securities, it shall first deliver to the Investor a Notice of Intent.

-5-

 

          (b) Upon receipt of the Notice of Intent, the Investor shall be entitled
to subscribe for all or a portion of its Allocation of the Available Securities
at the price and on the terms specified in the Notice of Intent by delivering
written notice of such election to the Company within thirty (30) days after
its receipt of the Notice of Intent. Such election shall be irrevocable. In
its notice to the Company, the Investor shall indicate the maximum number of
shares of Available Securities for which it desires to subscribe (whether less
than, equal to or more than its Allocation). The failure of the Investor to
deliver timely notice to the Company shall be deemed an election by it to
subscribe for none of the Available Securities. In the event the Offered
Securities consist of shares with voting rights, the Company will offer to the
Investor, pursuant to the Investor’s exercise of its pre-emptive right under
this Section 4.2, Available Securities without voting rights (but being
identical to the other Available Securities in every other respect).

          (c) After complying with the provisions of paragraphs (a)-(b) above, the
Company shall be entitled to issue those Offered Securities for which the
Investor did not subscribe pursuant to paragraph (b) to such persons as it may
select.

          (d) Any issuance of Offered Securities by the Company pursuant to
paragraph (c) above shall be consummated within the ninety (90) day period
following the expiration of the thirty (30) day period set forth in paragraph
(b) above. If the Investor has elected to purchase Offered Securities pursuant
to paragraphs (a)-(b) above, then such purchase shall be consummated within the
same ninety (90) day period. All of the foregoing issuances shall be made on
terms and conditions no more favorable than those set forth in the Notice of
Intent. Any issuance of Offered Securities by the Company that is proposed to
be made on terms and conditions more favorable than those set forth in the
Notice of Intent or proposed to be made subsequent to the expiration of the
ninety (90) day period described above shall be subject anew to the provisions
of this Section 4.2.

          (e) Notwithstanding the other provisions of this Section 4.2, the Company
may issue or grant the following Equity Securities free of the restrictions set
forth in paragraphs (a)-(d) above:

               (i) Shares of Common Stock issued pursuant to awards granted to employees,
officers or directors of the Company or any Affiliate of the Company pursuant
to the Company’s Officers Stock Plan (the “Officers’ Plan”) to the extent of
the number of shares of Common Stock available for issuance under the Officers’
Plan on the date of this Agreement.

               (ii) Shares of Common Stock issued upon the exercise of stock purchase
warrants that were issued prior to and are outstanding on the date of this
Agreement so long as such shares are issued pursuant to the terms of such
warrants as in effect on the date hereof.

               (iii) Equity Securities issued pursuant to or upon conversion, exercise or
exchange of any convertible securities, options, warrants or other stock

-6-

 

purchase rights issued or granted after the date of this Agreement, provided
that the initial grant or issuance of such convertible securities, options,
warrants or other stock purchase rights satisfies the requirements of
paragraphs (a) and (b) of this Section 4.2.

               (iv) Nonvoting Common Shares issued to insurance agents appointed by
Proformance Insurance Company (“PIC”) pursuant to the Replacement Carrier
Agreement among PIC, the Company and Ohio Casualty of New Jersey, Inc., as in
effect on the date of this Agreement, so long as such shares are sold in a
manner consistent with the Company’s past practice of offering Nonvoting Common
Shares to insurance agents of PIC and such shares are priced at GAAP book value
per share with a minimum total investment by each such agent of at least
$50,000.

               (v) Shares of Common Stock issued by the Company in a Qualified Public
Offering.

               (vi) Voting Common Shares issued upon conversion of any Nonvoting Common
Shares.

               (vii) Equity Securities issued for consideration other than cash pursuant
to a merger, consolidation, acquisition or similar business combination between
the Company and one or more Persons which are not Affiliates of the Company so
long as such business combination has been approved by the Board of Directors
and stockholders of the Company.

          (f) The Company agrees that it will not (i) amend or modify the Officers’
Plan to increase the number of shares of Common Stock available for issue
thereunder in excess of the number of shares provided for in such plan on the
date hereof or (ii) adopt or implement any new plan or program providing for
the issuance of any Equity Securities to employees, officers, directors or
other service providers to the Company or its subsidiaries, without the prior
written consent of the Investor.

     4.3 Transfers by Investor — Right of First Offer.

          (a) If the Investor desires to Transfer Offered Securities, it shall first
deliver to the Company and to the Stockholder notice thereof. In such notice,
the
Investor shall set forth the number of shares of Offered Securities and
the per-share offer price therefor (the “First Offer Notice”).

          (b) Upon receipt of the First Offer Notice, either (i) the Company or (ii)
the Stockholder in accordance with paragraph (d) below, shall, subject to the
limitations set forth herein, be entitled to purchase for cash all, but not
less than all, of the Offered Securities at the price-per share set forth in
the First Offer Notice. If the Company desires to purchase all or a portion of
the Offered Securities it shall deliver written notice of any such intent to
purchase (the “Company Acceptance Notice”) to the Investor within twenty (20)
days of its receipt of the First Offer Notice setting forth the maximum number
of Offered Securities the Company elects to purchase under this Section 4.3.
If the Stockholder desires to purchase all or a portion of the Offered
Securities he shall also deliver written notice of any such intent to purchase
(the

-7-

 

“Stockholder Acceptance Notice”) to the Investor within twenty (20) days
of his receipt of the First Offer Notice setting forth the maximum number of
Offered Securities the Stockholder elects to purchase under this Section 4.3.
The failure of the Company to deliver the Company Acceptance Notice within the
prescribed period shall be deemed an election by the Company to waive its right
to purchase the Offered Securities pursuant to this Section 4.3. The failure
of the Stockholder to deliver a Stockholder Acceptance Notice within the
prescribed period shall be deemed an election by the Stockholder to waive his
right to purchase any of the Offered Securities pursuant to this Section 4.3.

          (c) If the Company delivers a Company Acceptance Notice for all of the
Offered Securities within the prescribed period, such notice shall be
irrevocable and the purchase of all the Offered Securities shall be consummated
within the forty (40) day period following the expiration of the twenty (20)
days period applicable to the Company set forth in paragraph (b) above. If the
Company delivers a Company Acceptance Notice for all of the Offered Securities,
the Stockholder shall be precluded from exercising any right to purchase the
Offered Securities pursuant to this Section 4.3.

          (d) If (i) the Company does not deliver a Company Acceptance Notice for
all of the Offered Securities, and (ii) the Stockholder Acceptance Notice and
the Company Acceptance Notice (if any) delivered to the Investor within the
prescribed time periods for such notices, indicate an intent of the Stockholder
and, if applicable, the Company, in aggregate, to purchase no less than all of
the Offered Securities, such Stockholder Acceptance Notice shall be an
irrevocable acceptance by the Stockholder and, if applicable, the Company to
purchase the Offered Securities at the per-share purchase price set forth in
the First Offer Notice. The purchase of all the Offered Securities pursuant to
this paragraph (d) shall be consummated within the forty (40) day period
following the expiration of the twenty (20) day periods applicable to the
Company and the Stockholder set forth in paragraph (b) above.

          (e) If neither the Company nor the Stockholder accepts the offer to
purchase all of the Offered Securities within the prescribed time periods by
delivering the requisite Company Acceptance Notice or Stockholder Acceptance
Notice, then the rights of the Company and the Stockholder under paragraphs
(a)-(d) above shall terminate in full and the Investor shall be entitled to
Transfer all of the Offered Securities free of the
restrictions set forth in paragraphs (a)-(d) above. Any such Transfer of
Offered Securities by the Investor shall be consummated (i) within the one
hundred and twenty (120) day period following the expiration of the latest of
the twenty (20) day periods set forth in paragraph (b) above, and (ii) at a
per-share purchase price no less than the price per-share at which the Investor
offered the Offered Securities to the Company and the Stockholder under
paragraph (a) above. In the event that (i) the Company and the Stockholder
fail to timely deliver the requisite Company Acceptance Notice and Stockholder
Acceptance Notice to consummate a sale of the Offered Securities pursuant to
paragraph (b) above, and (ii) the Investor subsequently elects to transfer the
Offered Securities at a per-share purchase price less than the per-share
purchase price indicated in the First Offer Notice within the one hundred
twenty (120) day period set forth in the preceding sentence, then a new First
Offer Notice must be issued in accordance with paragraph (a) above; provided,
however, that each of the twenty (20) day periods and the forty (40) day period
set forth

-8-

 

in the preceding paragraphs (a) through (d) above shall be reduced to
ten (10) and thirty (30) day periods, respectively.

          (f) Notwithstanding the other provisions of this Sections 4.3, the
following Transfers may be made by the Investor free of the restrictions and
other requirements set forth in paragraphs (a)-(e) above:

               (i) Any Transfer to an Affiliate of the Investor.

               (ii) Any Transfer 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.

               (iii) Any Transfer to the Company.

               (iv) Any pledge of Equity Securities made pursuant to a bona fide loan
transaction or any Transfer of such pledged shares to the pledgee pursuant to
the terms of the applicable pledge agreement.

          (g) Any Transfer made by the Investor under paragraphs (a)-(e) and clauses
(i) and (iv) of paragraph (f) of this Section 4.3 shall be subject to the
following: each transferee shall become a party to this Agreement, shall
execute and deliver a counterpart of this Agreement, and shall agree to be
deemed an “Investor” for purposes of this Sections 4.3 and an “Investor” for
all other purposes of this Agreement. Each such transferee shall thereafter
have all of the rights of the “Investor” under this Agreement with respect to
the Equity Securities acquired by it.

     4.4 Transfers by Stockholder — Right of Co-Sale.

          (a) So long as the Stockholder owns at least 10% of the Common Stock on a
fully-diluted basis (assuming exercise or conversion of all outstanding
options, warrants and convertible securities), the Stockholder shall deliver a
Notice of Sale to the Investor and to the Company at least thirty (30) days in
advance of any intended Transfer of Equity Securities by the Stockholder.

          (b) Within fifteen (15) days of its receipt of the Notice of Sale from the
Stockholder, the Investor may notify the Stockholder (the “Co-Sale Notice”)
that the Investor will sell to the buyer named in the Notice of Sale that
amount of Equity Securities equal to the product of (i) the number of shares of
Equity Securities to be transferred pursuant to such Notice of Sale divided by
the number of shares of Equity Securities then held by the Stockholder
multiplied by (ii) the number of shares of Equity Securities then held by the
Investor.

          (c) After compliance with the provisions of this Section 4.4, the
Stockholder may transfer his Equity Securities, but only to the transferee
designated in the Notice of Sale, at the time, at the price, and on the same
terms and conditions as those contained in the Notice of Sale and only if such
transferee agrees prior to the transfer to

-9-

 

become bound by the same terms and
conditions of this Agreement applicable to the Stockholder.

          (d) Notwithstanding the other provisions of this Section 4.4, the
following Transfers of Equity Securities may be made by the Stockholder free of
the restrictions set forth in paragraphs (a)-(c) above (so long as each
transferee under clauses (i) and (ii) below agrees to become a party to this
Agreement and subject to the terms applicable to the “Stockholder” under this
Agreement).

               (i) Any pledge of Equity Securities 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.

               (ii) Any Transfer of Equity Securities to a Relation of the Stockholder or
to a trust, limited liability company or family limited partnership established
for the benefit of the Stockholder or any such Relation.

               (iii) Any redemption of Equity Securities made by the Company or other
transfer of Equity Securities to the Company.

               (iv) 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.

          (e) The provisions of this Section 4.4 are subject to, and shall in no
manner limit, the right of the Company to repurchase Equity Securities from the
Stockholder pursuant to a stock restriction agreement, stock option agreement
or other agreement between the Company and the Stockholder (whether or not such
agreement is now existing).

     4.5 Securities Laws.

          (a) Notwithstanding the other provisions of this Section 4, neither
Stockholder nor the Investor may Transfer any Equity Securities held by him or
it unless and until:

               (i) There is then in effect a registration statement under the Securities
Act covering such proposed Transfer and such Transfer is made in accordance
with such registration statement; or

               (ii) (A) The Stockholder or the Investor shall have notified the Company
of the proposed Transfer and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed Transfer, and (B) if
reasonably requested by the Company, the Stockholder or the Investor shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to
the Company and its counsel, that such Transfer will not require the
registration of such shares under the Securities Act. It is agreed that the
Company will not request opinions of counsel for

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transactions made pursuant to
Rule 144 under the Securities Act except in unusual circumstances.

          (b) Notwithstanding the foregoing, no such registration statement or
opinion of counsel shall be necessary for a Transfer made pursuant to the
provisions of Section 4.3(f) or 4.4(d) above.

     4.6 Legend.

          (a) Each certificate representing Equity Securities now or hereafter owned
by the Investor or the Stockholder or issued to any person in connection with a
Transfer duly made under this Section 4 shall (unless otherwise permitted by
the provisions of the Agreement) be stamped or otherwise imprinted with a
legend substantially similar to the following (in addition to any other legend
required under applicable securities laws or as otherwise required):

	 	 	 	THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS
OF ANY OTHER JURISDICTION AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED OR
QUALIFIED UNDER THE ACT AND THE SECURITIES LAWS OF
ANY OTHER APPLICABLE JURISDICTION OR UNLESS THE
COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR OTHER
EVIDENCE, SATISFACTORY TO THE COMPANY AND ITS
COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
	 
	 	 	 	THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN
INVESTOR RIGHTS AGREEMENT BY AN AMONG THE
COMPANY AND CERTAIN HOLDERS OF STOCK OF THE COMPANY.
A COPY OF SUCH INVESTOR RIGHTS AGREEMENT WILL BE
FURNISHED TO THE RECORD HOLDER OF THIS CERTIFICATE
WITHOUT CHARGE UPON WRITTEN REQUEST TO THE COMPANY
AT ITS PRINCIPAL PLACE OF BUSINESS.

          (b) The Company may instruct its transfer agent to impose transfer
restrictions on securities represented by certificates bearing such legends to
enforce the provisions of this Agreement.

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          (c) The Company shall be obligated to reissue promptly unlegended or
partially unlegended certificates at the request of any holder thereof if the
holder shall have obtained an opinion of counsel (which counsel may be counsel
to the Company) reasonably acceptable to the Company and its counsel to the
effect that (i) the securities proposed to be Transferred may lawfully be so
Transferred without registration, qualification or legend (in the case of the
first legend set forth above), and/or (ii) this Agreement has been terminated
and is no longer in effect (in the case of the second legend set forth above).

          (d) Any legend endorsed on an instrument pursuant to applicable securities
laws, as well as the stop-transfer instructions with respect to such
securities, shall be removed upon receipt by the Company of an order of the
appropriate governmental authority authorizing such removal.

SECTION 5. Redemption Right.

     5.1 Redemption. At any time on or after December 18, 2006 or, prior to
December 18, 2006, at any time during the fifteen days following the Investor’s
Receipt of a Deal Notice (or if the Company should fail to send a Deal Notice
as required by this Agreement, at any time after the Deal Notice should have
been sent to the Investor), the Investor may require the Company to redeem all
Equity Securities of the Company then owned by the Investor (collectively, the
“Redeemable Shares”) for the “Fair Market Value,” as defined below, of such
Redeemable Shares as determined by a qualified third party mutually agreeable
to the Company and the Investor. The Investor shall exercise the redemption
right provided for in this Section 5.1 by giving written notice of such
election to the Company (the “Redemption Notice”). Following the Company’s
receipt of the Redemption Notice, the Company and the Investor shall use their
good faith efforts to agree on the selection of a qualified third party to
appraise the Fair Market Value of the Redeemable Shares. If the Company and
the Investor are unable to agree on the selection of a qualified third party to
appraise the Fair Market Value of the Redeemable Shares within fifteen (15)
days following the Company’s receipt of the Redemption Notice, each of the
Company and the Investor shall promptly select its own valuation advisor of
recognized national or regional standing. The two valuation advisors selected
by the Company and the Investor shall then agree upon a qualified third party,
which shall be a
valuation advisor of recognized national or regional standing, to perform the
valuation, which shall be binding on the Company and the Investor. Should
either the Company or the Investor fail to appoint a valuation advisor, then,
upon ten (10) business days advance notice to the party failing to comply, the
other party may instruct its valuation advisor to complete the valuation and
the results of the valuation shall be binding on all parties. The Company
shall cooperate with the valuation advisors undertaking the valuation pursuant
to this Section 5 and shall provide the valuation advisors access to all
necessary information and personnel upon reasonable advance notice during
normal business hours. All fees and expenses of the valuation advisors shall
be borne equally by the Company on the one hand and the Investor on the other.
For the purposes of this Section 5, “Fair Market Value” of the Redeemable
Shares means (i) the fair market value of all of the outstanding capital stock
of the Company on a fully-diluted basis utilizing the appraisal methodologies
that would be applied by an

-12-

 

investment banking firm of national or regional
reputation in determining the going concern value of the Company (without
regard to restrictions on transfer provided under the terms of this Agreement,
the Investor’s position as a minority stockholder or other liquidity issues
with respect to the Redeemable Shares or the fact that any of the Redeemable
Shares have no or limited voting rights), and then using the median of the
range of values calculated in accordance with the foregoing appraisal
methodologies, multiplied (ii) by the percentage which the number of Redeemable
Shares represents of the total number of issued and outstanding shares of
capital stock of the Company on a fully diluted basis. The closing of the
redemption shall take place within thirty (30) days after the Fair Market Value
is determined in accordance with the provisions of this Section 5.1 and the
Fair Market Value shall be paid in cash at the closing unless the Investor
agrees in writing otherwise.

     5.2 Prohibition of Redemption. If the Company is prohibited by law from
honoring the Investor’s demand pursuant to Section 5.1 for redemption of the
Redeemable Shares, then: (a) the Company shall immediately take all reasonable
steps to remedy the condition causing the prohibition, and (b) the Company
shall redeem the Redeemable Shares within thirty (30) days after the condition
causing the prohibition no longer exists at the Fair Market Value originally
calculated if less than sixty (60) days have passed from the date originally
scheduled for the redemption and the new redemption date, provided that if more
than sixty (60) days have passed, the Investor may require the Company to
calculate a new Fair Market Value pursuant to Section 5.1 at the Company’s sole
expense, which Fair Market Value shall be binding on both the Company and the
Investor.

SECTION 6. COVENANTS RELATING To NONVOTING COMMON SHARES.

     6.1 Agreements Regarding Nonvoting Common Shares. The Company covenants and
agrees that so long as the Nonvoting Common Shares are outstanding, the Company
will not subdivide or combine any shares of Common Stock, or pay any dividend
or retire any shares of Common Stock or make any other distribution on any
shares of Common Stock, or accord any other payment, benefit or preference to
any shares of Common Stock, except by extending such subdivision, combination,
distribution, payment, benefit or preference equally to all classes of Common
Stock, including the Nonvoting Common Shares. In the event of a
reorganization, merger or other transaction which results in a change to or
conversion or exchange of the Voting Common Shares, the same change, conversion
or exchange shall be made or provided to the Nonvoting Common Shares. Except
for voting rights, all shares of Common Stock will entitle the holders thereof
to the same rights and privileges.

     6.2 Conversion Rights. In the event that a public trading market develops for
any class of the Company’s Common Stock or the Company proposes to effect a
Sale, the Company, at the request of the Investor, will promptly take all such
action as may be necessary to permit the Investor promptly to convert its
Nonvoting Common Shares into a like number of Voting Common Shares of the
Company. If required, the Stockholder agrees to vote all of the shares of the
Company’s capital stock held by him in favor of all actions necessary to
effectuate such conversion.

-13-

 

     6.3 Registration Rights. The Company agrees that it will not grant to any
stockholder or proposed stockholder of the Company any “piggyback” or “demand”
registration rights with respect to the registration of such stockholder’s
shares of capital stock of the Company under the Securities Act, unless the
same rights are afforded to the Investor with respect to its shares of the
Company.

     6.4 Notice Of Certain Actions. The Company will notify the Investor in writing
within 25 days prior to the consummation of a Public Offering or Sale (the
“DEAL NOTICE”). The Deal Notice shall set forth in reasonable detail a
description of the proposed transaction and the estimated closing date for the
transaction. With respect to a Public Offering, the Deal Notice shall disclose
the names of the underwriters, the estimated range of pricing for the offering
and the number of shares proposed to be sold by the Company and any selling
stockholders. With respect to a Sale, the Deal Notice shall disclose the
parties to the transaction, the estimated purchase price and form of payment,
the amounts estimated to be received by each of the stockholders and any
non-competition, consulting, employment or similar agreements proposed to be
entered into with any of the officers, directors or employees of the Company or
its Affiliates in connection with the Sale.

SECTION 7. General Provisions.

     7.1 Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given (a)
upon personal delivery to the party to be notified, (b) when sent by confirmed
facsimile if sent during normal business hours of the recipient, or if not,
then on the next business day, (c) if sent by E-mail, when the recipient
thereof confirms receipt thereof by E-mail, (d) upon receipt of the signed or
refused return receipt when sent by registered or certified mail, return
receipt requested, postage prepaid, or (e) one (1) day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
verification of receipt. All communications shall be sent to the Company at
the address set forth on the signature pages hereto and to the Investor and the
Stockholder at the addresses set forth on the signature pages hereto or at such
other address as the Company or the Investor or the Stockholder may designate
by ten (10) days advance written notice to the other parties hereto.

     7.2 Choice of Law. The validity, interpretation, construction and performance
of this Agreement shall be governed by the laws of the State of New Jersey.

     7.3 Severability. If any provision of this Agreement is subsequently
determined by a court of competent jurisdiction to be void or unenforceable for
any reason, that provision shall be deemed stricken and the remainder of this
Agreement shall not be affected thereby and shall be binding upon the parties
hereto insofar as it remains a workable instrument to accomplish the intent and
purposes of the parties. The parties hereto shall negotiate the severed
provision to bring the substance of such provision within the applicable legal
requirements to the extent possible. Each party hereto agrees to take any and
all actions, including, but not limited to, the execution and delivery of any

-14-

 

and all instruments and documents, necessary or advisable to complete, perfect,
evidence or otherwise confirm any of the matters set forth herein.

     7.4 Successors and Assigns. This Agreement shall inure to the benefit of and
be binding upon the Investor and the Stockholder and each of the Investor’s and
the Stockholder’s legal representatives, testate or intestate distributees,
successors and assigns, and this Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns. The term “Company” as
used herein shall include such successors and assigns and also shall include
any corporation or other entity which is at any time the parent or a subsidiary
of the Company, or any corporation or other entity which is an affiliate of the
Company by virtue of common (although not identical) ownership. The term
“Successors And Assigns” as used herein shall include a corporation or other
entity acquiring all or substantially all of the business of, as the case may
be, the Investor or the Company (whether such acquisition is by way of
acquisition of assets, acquisition of stock, merger, consolidation or
otherwise, and whether by operation of law or otherwise).

     7.5 Counterparts. This Agreement may be executed in two or more counterparts
and via facsimile, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

     7.6 Amendment and Waiver. Except as otherwise provided herein, no provision of this Agreement shall be
amended, modified, waived, discharged or terminated unless the modification,
waiver, discharge or termination is agreed to in writing and signed by the
Company and the Investor.

     7.7 Specific Performance. The parties hereto agree that upon a breach of any
of the provisions of this Agreement a remedy at law would not be adequate, and
that the parties hereto are entitled to injunctive relief and specific
performance and any other legal or equitable remedies as remedies for the
enforcement of this Agreement.

     7.8 Assignment of Rights. Provided it complies with any applicable provisions
in this Agreement with respect to a Transfer of Equity Securities, the Investor
may assign any or all of its rights hereunder to a transferee of the Equity
Securities held by it. Subject to the other applicable provisions of this
Agreement, the Stockholder may assign any or all of his rights hereunder to a
transferee of Equity Securities held by him which is an Affiliate or Relation
of the Stockholder or a trust, family limited partnership or limited liability
company established for the benefit of the Stockholder or any such Relation of
the Stockholder.

     7.9 Transfer to Affiliates. Anything contained in this Agreement to the
contrary notwithstanding, the Investor may Transfer any of the Equity
Securities of the Company owned by it to any Affiliate of the Investor (and any
such transferee Affiliate may Transfer any Equity Securities to any other
Affiliate of the Company) without any restriction whatsoever, so long as such
Affiliate shall become a party to this Agreement by executing and delivering to
the Company a counterpart hereof, thereby agreeing to be deemed an “Investor”
for purposes of this Agreement. Upon such transfer, the Affiliate

-15-

 

of the
Investor acquiring Equity Securities from the Investor shall have all of the
rights of the Investor under this Agreement with respect to the Equity
Securities acquired by such Affiliate.

     7.10 Termination. This Agreement and the provisions hereof may be terminated
in a writing executed by the Company and the Investor.

-16-

 

          IN WITNESS WHEREOF the undersigned have executed this Investor Rights
Agreement as of the date set forth in the first paragraph hereof.

COMPANY:

NATIONAL ATLANTIC HOLDINGS CORP.

	 	 	 	 	 	 	 
	By:

	 	/s/ James V. Gorman
	 	Address:
	 	303 W. Main St.
	

	 	

	 	 	 	Freehold, NJ 07728
	Title: CEO	 	 	 	 
	 
	 	 	 	 	 	 
	INVESTOR	 	 	 	 
	 
	 	 	 	 	 	 
	THE OHIO CASUALTY INSURANCE COMPANY	 	 	 	 
	 
	 	 	 	 	 	 
	By:

	 	/s/ Elizabeth M. Riczko
	 	Address:
	 	9450 Seward Road
	

	 	

	 	 	 	Fairfield, Ohio 45014
	Title: Executive VP & COO, Personal Lines
	 	 	 	 
	 	 	 	 	Attention: Debra K. Crane,
	

	 	 	 	 	 	Senior Vice President and
	

	 	 	 	 	 	General Counsel
	 
	 	 	 	 	 	 
	STOCKHOLDER:	 	 	 	 
	 
	 	 	 	 	 	 
	/s/ James V. Gorman	 	Address:	 	1 Pheasant Drive
	
	 	 	 	Colts Neck, NJ 07722
	James V. Gorman	 	 	 	 

-17-

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