AGENCY AGREEMENT

Exhibit 1.1

 

Up to 8,305,556 Shares

 

EASTERN INSURANCE HOLDINGS, INC.

(a Pennsylvania corporation)

 

Common Stock

(no par value per share)

 

AGENCY AGREEMENT

 

___________, 2005

 

KEEFE, BRUYETTE & WOODS

 

Ladies and Gentlemen:

 

Eastern Insurance Holdings, Inc., a Pennsylvania corporation (the “Company”), and Educators Mutual Life Insurance Company, a Pennsylvania mutual insurance company (“Educators”) and Eastern Holding Company, Ltd. (“EHC”), hereby confirm their agreement with Keefe, Bruyette & Woods (“KBW” or the “Agent”) with respect to the offer and sale by the Company of up to 8,305,556 shares of the Company’s Common Stock, no par value (the “Common Stock”). The shares of Common Stock to be sold by the Company are hereinafter called the “Securities.”

 

The Company is the proposed holding company for Educators. The Securities are being offered in connection with the conversion of Educators from mutual to stock form (the “Conversion”) and the simultaneous acquisition of the capital stock of Educators by the Company pursuant to a plan of conversion which has been adopted by the Board of Directors of Educators (the “Plan”).

 

The Securities to be issued in the Conversion will be offered by the Company at $10.00 per share (the “Purchase Price”) in a subscription offering (the “Subscription Offering”) pursuant to nontransferable subscription rights in the following order of priority: (i) eligible members under policies of insurance issued by Educators and in force as of the close of business on March 17, 2005 (“Eligible Members”), (ii) a tax-qualified employee stock ownership plan of the Company (the “ESOP”), and (iii) directors, officers and employees of Educators as of March 17, 2005 and as of the closing date of the Subscription Offering; (iv) directors, officers and

employees of EHC (defined below) as of March 17, 2005 and as of the closing date of the Subscription Offering; and (v) shareholders of record of EHC as of the close of business on March 17, 2005. Subscription rights in any category will be subordinated to subscription rights in a prior category.

 

Concurrently, and subject to the prior rights of holders of subscription rights, any Securities not subscribed for in the Subscription Offering may be offered to members of the general public at the Purchase Price in a direct community offering (the “Community Offering,” and together with the Subscription Offering, as each may be extended, the “Subscription and Community Offering”) to be commenced concurrently with the Subscription Offering. Preference will be given in the Community Offering to (i) natural persons and trusts of natural persons who are permanent residents of Lancaster County, Pennsylvania, (ii) licensed insurance agencies and/or brokers that have been appointed by or otherwise are under contract with Educators or any of the EHC Companies (defined below) to market and distribute policies of insurance (iii) named insureds under policies of insurance issued by Educators after March 17, 2005.

 

It is currently anticipated by the Company and Educators that any Securities not subscribed for in the Subscription and Community Offering will be offered in a syndicated community offering (the “Syndicated Community Offering”). The Subscription and Community Offering and the Syndicated Community Offering are hereinafter referred to collectively as the “Offerings.”

 

Immediately following the completion of the Conversion, the Company will acquire EHC in a merger transaction (the “Merger”) pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) dated as of March 17, 2005. EHC is the direct or indirect holding company for Eastern Re Ltd. S.P.C., Eastern Services Corporation, Global Alliance Holdings Ltd., Eastern Alliance Insurance Co., Allied Eastern Indemnity Co. and Employers Alliance, Inc. (EHC and its subsidiaries are collectively referred to as the “EHC Companies”). The Merger will be accomplished in accordance with the laws of the Commonwealth of Pennsylvania and applicable regulations of the Pennsylvania Insurance Department (the “Department”), which laws and regulations are collectively referred to as the “Merger Regulations,” and together with the Pennsylvania Insurance Company Mutual-to-Stock Conversion Act (the “Conversion Act”), the “Reorganization Regulations.” KBW is serving as financial advisor to Educators in connection with the Merger. Pursuant to the terms of the Merger Agreement, upon consummation of the Merger, each outstanding share of common stock of EHC (“EHC Common Stock”) will be converted into the right to receive [$_______] in cash and shares of Company Common Stock (the “Merger Shares”). The Conversion and the Merger are separate, distinct transactions, but are collectively referred to herein as the “Reorganization.” The Reorganization will not be consummated until all conditions to the consummation of both the Conversion and the Merger have been satisfied or waived. The Merger shall be consummated immediately following the consummation of the Conversion.

 

The Company has filed with the Securities and Exchange Commission (the “Commission”) a registration statement on Form S-1 (No. 333-128913), including a related prospectus, for the registration of the Securities under the Securities Act of 1933, as amended (the “Securities Act”), has filed such amendments thereto and such amended prospectuses as

 

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may have been required to the date hereof by the Commission in order to declare such registration statement effective, and will file such additional amendments thereto and such amended prospectuses and prospectus supplements as may hereafter be required. Such registration statement (as amended to date, if applicable, and as from time to time amended or supplemented hereafter) and the prospectuses constituting a part thereof (including in each case all documents incorporated or deemed to be incorporated by reference therein and the information, if any, deemed to be a part thereof pursuant to the rules and regulations of the Commission under the Securities Act, as from time to time amended or supplemented pursuant to the Securities Act or otherwise (the “Securities Act Regulations”)), are hereinafter referred to as the “Registration Statement” and the “Prospectus,” respectively, except that if any revised prospectus shall be used by the Company in connection with the Subscription and Community Offering or the Syndicated Community Offering which differs from the Prospectus on file at the Commission at the time the Registration Statement becomes effective (whether or not such revised prospectus is required to be filed by the Company pursuant to Rule 424(b) of the Securities Act Regulations), the term “Prospectus” shall refer to such revised prospectus from and after the time it is first provided to the Agent for such use.

 

The Company has also filed with the Commission a registration statement on Form S-4 (No. 333-______), including a related prospectus, for the registration under the Securities Act of the shares of Common Stock to be issued in the Merger, has filed such amendments thereto and such amended prospectuses as may have been required to the date hereof by the Commission in order to declare such registration statement effective, and will file such additional amendments thereto and such amended prospectuses and prospectus supplements as may hereafter be required. Such registration statement (as amended to date, if applicable, and as from time to time amended or supplemented hereafter) and the prospectuses constituting a part thereof (including in each case all documents incorporated or deemed to be incorporated by reference therein and the information, if any, deemed to be a part thereof pursuant to the Securities Act Regulations), are hereinafter referred to as the “S-4 Registration Statement” and the “S-4 Prospectus,” respectively. The Registration Statement and the S-4 Registration Statement are individually and collectively referred to as the “Registration Statements,” and the Prospectus and the S-4 Prospectus are individually and collectively referred to as the “Prospectuses.”

 

Concurrently with the execution of this Agreement, the Company is delivering to the Agent copies of the Prospectus of the Company to be used in the Subscription and Community Offering. Such prospectus contains information with respect to the Company, Educators, the EHC Companies, the Offerings, the Common Stock and the Merger.

 

SECTION 1. REPRESENTATIONS AND WARRANTIES.

 

(a) The Company and Educators jointly and severally represent and warrant to the Agent as of the date hereof as follows:

 

(i) The Registration Statements have been declared effective by the Commission, no stop order has been issued with respect thereto and no proceedings therefor have been initiated or, to the knowledge of the Company or Educators, threatened by the Commission. At the respective times that the Registration

 

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Statements became effective and at the Closing Time referred to in Section 2 hereof, the Registration Statements complied and will comply in all material respects with the requirements of the Securities Act and the Securities Act Regulations and the Conversion Act and did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. At the date hereof the Prospectuses do not and at the Closing Time referred to in Section 2 hereof, will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or Prospectus made in reliance upon and in conformity with information with respect to the Agent and the services to be provided by the Agent furnished to the Company in writing by the Agent expressly for use in the Registration Statement or Prospectus (the “Agent Information,” which the Company and Educators acknowledge appears only in the third sentence of the second paragraph in the section of the Prospectus captioned “Market for Eastern Holdings Common Stock,” and the penultimate paragraph in the section of the Prospectus captioned “The Offering—Marketing Arrangements.”

 

(ii) Pursuant to the Conversion Act, Educators has filed with the Department an application requesting approval of the Plan, and has filed such amendments thereto and supplementary materials as may have been required to the date hereof (such application, as amended to date, if applicable, and as from time to time amended or supplemented hereafter, is hereinafter referred to as the “Conversion Application”), including copies of Educators’ Notice and Proxy Statement relating to the Conversion (the “Proxy Statement”). The Department has, by written order dated ____________, 2006, approved the Plan, such approval remains in full force and effect and no order has been issued by the Department suspending or revoking such approval and no proceedings therefor have been initiated or, to the knowledge of the Company or Educators, threatened by the Department. At the date of such approval and at the Closing Time referred to in Section 2, the Plan complied and will comply in all material respects with the applicable provisions of the Conversion Act.

 

(iii) The Company has filed with the Department the Company’s application for approval of its acquisition of Educators (the “Educators Application”) on the appropriate form promulgated under the insurance holding company provisions of the insurance law of the Commonwealth of Pennsylvania, as amended (the “PA Insurance Law”) and the regulations promulgated thereunder. The Company has received written notice from the Department of its approval of the acquisition of Educators, such approval remains in full force and effect and no order has been issued by the Department suspending or revoking such approval and no proceedings therefor have been initiated or, to the knowledge of the Company or Educators, threatened by the Department. At the date of such approval and at the Closing Time referred to in Section 2, the Educators Application complied and will comply in all material respects with the applicable provisions of PA Insurance Law and the regulations promulgated thereunder.

 

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(iv) The Company has filed with the Department Educators’ application for approval of its merger with EHC (the “PA Merger Application”) on the appropriate form of application promulgated under the insurance company merger provisions of the PA Insurance Law and the regulations promulgated thereunder. Educators has received written notice from the Department of its approval of the Merger with EHC, such approval remains in full force and effect and no order has been issued by the Department suspending or revoking such approval and no proceedings therefor have been initiated or, to the knowledge of the Company or Educators, threatened by the Department. At the date of such approval and at the Closing Time referred to in Section 2, the PA Merger Application complied and will comply in all material respects with the applicable provisions of the PA Insurance Law and the regulations promulgated thereunder.

 

(v) At the time of their use, the Proxy Statement and any other proxy solicitation materials will comply in all material respects with the applicable provisions of the Conversion Act and will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Company and Educators will promptly file the Prospectus and any supplemental sales literature with the Commission and the Department. The Prospectus and all supplemental sales literature, as of the date the Registration Statement became effective and at the Closing Time referred to in Section 2, will have received all required authorizations for use in final form. The Prospectus and all supplemental sales literature, as of the date the Registration Statement became effective and at the Closing Time referred to in Section 2, complied and will comply in all material respects with the applicable requirements of the Conversion Act and, at or prior to the time of their first use, will have received all required authorizations of the Department for use in final form.

 

(vi) Neither the Commission nor the Department has, by order or otherwise, prevented or suspended the use of the Prospectus or any supplemental sales literature authorized by the Company or Educators for use in connection with the Offerings and no action by or before any such governmental entity to prevent or suspend the use of the Proxy Statement, the Prospectus or any supplemental sales literature is pending, or to the best knowledge of the Company and Educators, threatened.

 

(vii) At the Closing Time referred to in Section 2, the Company and Educators will have completed the conditions precedent to the Conversion in accordance with the Plan, the Conversion Act and all other applicable laws, regulations, decisions and orders, including all material terms, conditions, requirements and provisions precedent to the Conversion imposed upon the Company or Educators by any regulatory authority, other than those which the regulatory authority permits to be completed after the Conversion.

 

(viii) At the Closing Time, the Company, Educators and EHC will have satisfied all their respective conditions precedent to the Merger in accordance with the Merger Agreement (other than the delivery of the exchange shares), and all applicable laws, regulations, decisions and orders, including all material terms,

 

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conditions, requirements and provisions precedent to the Merger imposed upon the Company, Educators or EHC by the Department or any other regulatory authority, other than those which the regulatory authority permits to be completed after the effective time of the Merger (the “Effective Time”).

 

(ix) Feldman Financial Advisors, Inc. (“Feldman”), which prepared the valuation of Educators as part of the Conversion, has advised the Company and Educators in writing that it believes it is independent of Educators. Educators believes that Feldman is a “qualified expert” within the meaning of the Conversion Act.

 

(x) The accountants who certified the consolidated financial statements and supporting schedules of Educators included in the Registration Statement have advised the Company and Educators in writing that they are independent public accountants within the meaning of the Code of Ethics of the American Institute of Certified Public Accountants (the “AICPA”), and such accountants are, with respect to the Company and Educators, independent certified public accountants as required by the Securities Act and the Securities Act Regulations and such accountants are not in violation of the auditors independence requirements of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). The accountants who certified the consolidated financial statements and supporting schedules of EHC included in the Registration Statement have advised the Company and EHC in writing that they are independent public accountants within the meaning of the Code of Ethics of the AICPA, and such accountants are, with respect to the Company and each of the EHC Companies, independent certified public accountants as required by the Securities Act and the Securities Act Regulations and such accountants are not in violation of the auditors independence requirements of the Sarbanes-Oxley Act of 2002.

 

(xi) Educators does not, directly or indirectly, control any other corporation, limited liability company, partnership, joint venture, association, trust or other business organization. Upon consummation of the Reorganization, Educators and the EHC Companies will be the only subsidiaries of the Company.

 

(xii) The consolidated financial statements and the related notes thereto included in the Registration Statements and the Prospectuses present fairly the financial position of each of (i) the Company and Educators and (ii) the EHC Companies at the respective dates indicated and the results of operations, retained earnings, equity and cash flows for the periods specified, and comply as to form in all material respects with the applicable accounting requirements of the Securities Act Regulations; except as otherwise stated in the Registration Statements, said financial statements have been prepared in conformity with accounting principles generally accepted in the United States applied on a consistent basis and are consistent with financial statements and other reports filed by Educators and EHC with the Department; and the supporting schedules and tables included in the Registration Statements present fairly the information required to be stated therein. The other financial, statistical and pro forma information and related notes included in the Prospectuses present fairly the information shown therein on a basis consistent with the audited and unaudited financial statements included in the Prospectuses, and as to the pro forma adjustments, the

 

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adjustments made therein have been consistently applied on the basis described therein. The capitalization, liabilities, assets, properties and business of each of the Company, Educators and EHC conform in all material respects to the descriptions contained in the Prospectuses and, neither the Company, Educators nor EHC has any material liabilities of any kind, contingent or otherwise, except as disclosed in the Registration Statements or the Prospectuses.

 

(xiii) Since the respective dates as of which information is given in the Registration Statements and the Prospectuses, except as otherwise stated therein (A) there has been no material adverse change in the financial condition, results of operations, business affairs or prospects of the Company and Educators, considered as one enterprise, or of the EHC Companies, considered as one enterprise, whether or not arising in the ordinary course of business, consistent with past practice, (B) except for transactions specifically referred to or contemplated in the Prospectus, there have been no transactions entered into by the Company and Educators, other than those in the ordinary course of business consistent with past practice, which are material with respect to the Company and Educators, considered as one enterprise, and (C) except for transactions specifically referred to or contemplated in the Prospectuses, there have been no transactions entered into by any of the EHC Companies, other than those in the ordinary course of business, which are material with respect to the EHC Companies, considered as one enterprise.

 

(xiv) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the Commonwealth of Pennsylvania, with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectuses and to enter into and perform its obligations under this Agreement; the Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify in any other jurisdiction would not have a material adverse effect on the financial condition, results of operations or business affairs or prospects of the Company and Educators, considered as one enterprise, on the one hand, or the financial condition, results of operations or business affairs of the EHC Companies, considered as one enterprise, on the other hand.

 

(xv) Educators is a Pennsylvania chartered mutual life insurance company, and, upon consummation of the Conversion, will be a Pennsylvania chartered life insurance company in stock form, in both instances with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectuses; each of the Company and Educators has obtained all licenses, permits and other governmental authorizations (including, without limitation, from the insurance regulatory agencies of the various jurisdictions where it conducts business) currently required for the conduct of their respective businesses or required for the conduct of their respective businesses as contemplated by the Prospectuses and, except where the failure to obtain such licenses, permits or other governmental authorizations would not have a material adverse effect on the financial condition, results of operations, business affairs or prospects of the Company and Educators, considered as

 

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one enterprise; all such licenses, permits and other governmental authorizations are in full force and effect and the Company and Educators are in all material respects in compliance therewith; neither the Company nor Educators has received notice of any proceeding or action relating to the revocation or modification of any such license, permit or other governmental authorization which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, might have a material adverse effect on the financial condition, results of operations, business affairs or prospects of the Company and Educators, considered as one enterprise; and Educators is validly existing and in good standing under the laws of Pennsylvania and is qualified as a foreign corporation in any jurisdiction in which the failure to so qualify would have a material adverse effect on the financial condition, results of operations, business affairs or prospects of the Company and the Educators, considered as one enterprise.

 

(xvi) EHC is a Cayman Islands holding company with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectuses; each of the EHC Companies has obtained all licenses, permits and other governmental authorizations (including, as applicable, from the insurance regulatory agencies of the various jurisdictions where it conducts insurance business) currently required for the conduct of their respective businesses or required for the conduct of their respective businesses as contemplated by the Prospectuses and, except where the failure to obtain such licenses, permits or other governmental authorizations would not have a material adverse effect on the financial condition, results of operations, business affairs or prospects of the EHC Companies, considered as one enterprise; all such licenses, permits and other governmental authorizations are in full force and effect and the EHC Companies are in all material respects in compliance therewith; none of the EHC Companies has received notice of any proceeding or action relating to the revocation or modification of any such license, permit or other governmental authorization which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, might have a material adverse effect on the financial condition, results of operations, business affairs or prospects of the EHC Companies, considered as one enterprise; and each of the EHC Companies is qualified as a foreign corporation in any jurisdiction in which the failure to so qualify would have a material adverse effect on the financial condition, results of operations, business affairs or prospects of the EHC Companies, considered as one enterprise.

 

(xvii) Except as disclosed in the Prospectuses, the authority of Educators or any of the EHC Companies that are insurance companies to write the classes and lines of insurance authorized by such licenses, certificates, permits and other authorizations as described in the Prospectuses is unrestricted and neither Educators nor any of such EHC Companies is a party to any agreement, formal or informal, with any regulatory official or other person limiting the ability of such company from making full use of the licenses, certificates, permits and other authorizations issued to it or requiring any such company to comply with regulatory standards or procedures or requirements different from those applicable to companies with comparable or similar licenses, certificates, permits and other authorizations.

 

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(xviii) Each of the Company, Educators and the EHC Companies conducts its business in compliance in all material respects with applicable federal, state, local and foreign laws and regulations (including, without limitation, all regulation, directive and orders of the Department or any other regulatory authority), except where the failure to be in compliance would not have a material adverse effect on the financial condition, results of operations or business affairs of the Company and Educators, considered as one enterprise, or of the EHC Companies, considered as one enterprise.

 

(xix) Upon consummation of the Conversion and the Merger and issuance of the Merger Shares, the authorized, issued and outstanding capital stock of the Company will be within the ranges set forth in the Prospectus under “Capitalization” (except for subsequent issuances, if any, pursuant to reservations, agreements or employee benefit plans referred to in the Prospectus); no shares of Common Stock have been or will be issued and outstanding prior to the Closing Time referred to in Section 2; at the time of Conversion, the Securities will have been duly authorized for issuance and, when issued and delivered by the Company pursuant to the Plan against payment of the consideration calculated as set forth in the Plan and stated on the cover page of the Prospectus, will be duly and validly issued and fully paid and non-assessable; at the time of Merger, the Merger Shares will have been duly authorized for issuance and, when issued and delivered by the Company pursuant to the Merger Agreement against payment of the consideration calculated as set forth in the Merger Agreement, will be duly and validly issued and fully paid and non-assessable; the terms and provisions of the Common Stock and the capital stock of the Company conform to all statements relating thereto contained in the Prospectuses; the certificates representing the shares of Common Stock conform to the requirements of applicable law and regulations; and the issuance of the Securities and the Merger Shares is not subject to preemptive or other similar rights. There are no options, agreements, contracts or other rights in existence to acquire from the Company any shares of Common Stock, except as set forth in the Prospectus.

 

(xx) Upon consummation of the Conversion, the authorized capital stock of Educators will be 150,000 shares of common stock, par value $10.00 per share (the “Educators Common Stock”), and no shares of Educators Common Stock have been or will be issued prior to the Closing time referred to in Section 2. The shares of Educators Common Stock to be issued to the Company will have been duly authorized for issuance and, when issued and delivered by Educators pursuant to the Plan against payment of the consideration calculated as set forth in the Plan and as described in the Prospectus, will be duly and validly issued and fully paid and nonassessable, and all such Educators Common Stock will be owned beneficially and of record by the Company free and clear of any security interest, mortgage, pledge, lien, encumbrance or legal or equitable claim; the certificates representing the shares of Educators Common Stock will conform with the requirements of applicable laws and regulations; and the issuance of Educators Common Stock is not subject to preemptive or similar rights. Upon consummation of the transactions contemplated by the Merger Agreement, there will be no issued and outstanding shares of capital stock of EHC and the separate corporate existence of EHC shall have ceased.

 

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(xxi) Upon completion of the Reorganization, the issuance of the Securities and the Merger Shares will be in compliance with all conditions imposed upon the Company under the terms of their written approval or notice of intention not to object, as applicable, of the Conversion Application, the Educators Application and the PA Merger Application (collectively, the “Reorganization Applications”).

 

(xxii) The Company and Educators have the corporate power to enter into and to perform this Agreement and have taken all corporate action necessary for them to execute, deliver and perform this Agreement, and this Agreement has been duly executed and delivered by, and is the valid and binding agreement of, the Company and Educators, enforceable in accordance with its terms, except as may be limited by bankruptcy, insolvency or other laws affecting the enforceability of the rights of creditors generally and judicial limitations on the right of specific performance and except as the enforceability of indemnification and contribution provisions may be limited by applicable securities laws.

 

(xxiii) Subsequent to the respective dates as of which information is given in the Registration Statements and the Prospectuses and prior to the Closing Time, except as otherwise may be indicated or contemplated therein, none of the Company, Educators or any of the EHC Companies will have (A) issued any securities or incurred any liability or obligation, direct or contingent, or borrowed money, except liabilities, obligations and borrowings in the ordinary course of business consistent with past practices or as indicated in the Prospectuses, or (B) entered into any transaction or series of transactions which is material in light of the business of the Company and Educators, considered as one enterprise, on the one hand, or in light of the business of EHC and its subsidiaries, considered as one enterprise, on the other hand.

 

(xxiv) No approval of any regulatory or supervisory or other public authority is required in connection with the execution and delivery of this Agreement or the issuance of the Securities and the Merger Shares that has not been obtained and a copy of which has been delivered to the Agent, except as may be required under the “blue sky” or state securities laws of various jurisdictions.

 

(xxv) None of the Company, Educators, nor any of the EHC Companies is in violation of its certificate of incorporation, organization certificate, articles of incorporation or charter, as the case may be, or bylaws (and Educators will not be in violation of its charter or bylaws upon consummation of the Conversion); and none of the Company, Educators, nor any of the EHC Companies is in default (nor has any event occurred which, with notice or lapse of time or both, would constitute a default) in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Company, Educators, or any of the EHC Companies is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company, Educators, or any of the EHC Companies is subject, except for such defaults that would not, individually or in the aggregate, have a material adverse effect on the financial condition, results of operations or business of the Company and Educators, considered as one enterprise, on the one hand, or the financial condition, results of

 

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operations, business affairs or prospects of the EHC Companies, considered as one enterprise, on the other hand; and there are no contracts or documents of the Company or Educators which are required to be filed as exhibits to the Registration Statements or the Conversion Application which have not been so filed.

 

(xxvi) The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein do not and will not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or Educators pursuant to any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Company or Educators is a party or by which either of them may be bound, or to which any of the property or assets of the Company or Educators is subject, except for such defaults that would not, individually or in the aggregate, have a material adverse effect on the financial condition, results of operations or business affairs of the Company and Educators, considered as one enterprise; nor will such action result in any violation of the provisions of certificate of incorporation, organization certificate, articles of incorporation or charter or by-laws of the Company or Educators, or any applicable law, administrative regulation or administrative or court decree.

 

(xxvii) No labor dispute with the employees of the Company, Educators or of any of the EHC Companies exists or, to the knowledge of the Company or Educators, is imminent or threatened; and the Company and Educators are not aware of any existing or threatened labor disturbance by the employees of any of Educators or any of the EHC Companies principal suppliers or contractors which might be expected to result in any material adverse change in the financial condition, results of operations or business affairs of the Company and Educators, considered as one enterprise, or of the EHC Companies, considered as one enterprise.

 

(xxviii) Each of the Company and Educators has good and marketable title to all properties and assets for which ownership is material to the business of the Company or Educators and to those properties and assets described in the Prospectus as owned by them, free and clear of all liens, charges, encumbrances or restrictions, except such as are described in the Prospectus or are not material in relation to the business of the Company and Educators, considered as one enterprise; and all of the leases and subleases material to the business of the Company or Educators under which the Company or Educators hold properties, including those described in the Prospectuses, are valid and binding agreements of the Company and Educators, in full force and effect, enforceable in accordance with their terms.

 

(xxix) Each of the EHC Companies has good and marketable title to all properties and assets for which ownership is material to their respective businesses and to those properties and assets described in the Prospectus as owned by them, free and clear of all liens, charges, encumbrances or restrictions, except such as are described in the Prospectuses or are not material in relation to their respective businesses, considered as one enterprise; and all of the leases and subleases material to the business of the EHC Companies under which any of the EHC Companies hold properties,

 

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including those described in the Prospectuses, are valid and binding agreements of the EHC Companies, in full force and effect, enforceable in accordance with their terms.

 

(xxx) Neither the Company, Educators nor any of the EHC Companies is in violation of any directive from the Department or any other regulatory authority to make any material change in the method of conducting their respective businesses.

 

(xxxi) Except as disclosed in the Prospectus, there is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company or Educators, threatened, against or affecting the Company, Educators or any of the EHC Companies which is required to be disclosed in the Registration Statement (other than as disclosed therein), or which might result in any material adverse change in the financial condition, results of operations or business affairs of the Company and Educators, considered as one enterprise, or of the EHC Companies, considered as one enterprise, which might materially and adversely affect the properties or assets thereof or which might materially and adversely affect the consummation of the Conversion, the Merger or the performance of this Agreement; and all pending legal or governmental proceedings to which the Company or Educators is a party or of which any of their respective property or assets is the subject which are not described in the Registration Statements, including ordinary routine litigation incidental to the business, are considered in the aggregate not material.

 

(xxxii) The Company has obtained an opinion of its counsel, Stevens and Lee, with respect to the legality of the Securities and the Merger Shares to be issued, a copy of which is filed as an exhibit to the Registration Statement. The Company has obtained from the Internal Revenue Service a private letter ruling (the “PLR”), concerning the material tax effects of the Conversion and the Subscription Offering to Educators, Eligible Policyholders, and certain other participants in the Subscription Offering. All material aspects of the aforesaid opinion and PLR are accurately summarized in the Prospectuses; the facts and representations upon which such opinion and PLR are based are truthful, accurate and complete in all material respects; and neither Educators nor the Company has taken or will take any action inconsistent therewith.

 

(xxxiii) The Company is not, and upon completion of the Conversion, the Merger and the Offerings and sale of the Common Stock and the application of the net proceeds therefrom, will not be, required to be registered under the Investment Company Act of 1940, as amended.

 

(xxxiv) To the knowledge of the Company and Educators, with the exception of the intended loan to Educators’ ESOP by the Company to enable the ESOP to purchase shares of Common Stock in an amount of up to 10% of the Common Stock issued in the Conversion, none of the Company, Educators or employees of Educators has made any payment of funds of the Company or Educators as a loan for the purchase of the Common Stock or made any other payment of funds prohibited by law, and no funds have been set aside to be used for any payment prohibited by law.

 

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(xxxv) Neither the Company, Educators nor any of the EHC Companies nor any properties owned or operated by any such company is in violation of or liable under any Environmental Law (as defined below), except for such violations or liabilities that, individually or in the aggregate, would not have a material adverse effect on the financial condition, results of operations or business affairs of the Company and Educators, considered as one enterprise, or of any of the EHC Companies, considered as one enterprise. There are no actions, suits or proceedings, or demands, claims, notices or investigations (including, without limitation, notices, demand letters or requests for information from any environmental agency) instituted or pending, or to the knowledge of the Company or Educators threatened, relating to the liability of any property owned or operated by the Company, Educators or any of the EHC Companies under any Environmental Law. For purposes of this subsection, the term “Environmental Law” means any federal, state, local or foreign law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, order, judgment, decree, injunction or agreement with any regulatory authority relating to (i) the protection, preservation or restoration of the environment (including, without limitation, air, water, vapor, surface water, groundwater, drinking water supply, surface soil, subsurface soil, plant and animal life or any other natural resource), and/or (ii) the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of any substance presently listed, defined, designated or classified as hazardous, toxic, radioactive or dangerous, or otherwise regulated, whether by type or by quantity, including any material containing any such substance as a component.

 

(xxxvi) The Company, Educators and each of the EHC Companies has filed all federal income and state and local franchise tax returns required to be filed and have made timely payments of all taxes shown as due and payable in respect of such returns, and no deficiency has been asserted with respect thereto by any taxing authority.

 

(xxxvii) The Company has received approval, subject to completion of the Conversion, to have the Securities quoted on the National Market Tier of the Nasdaq Stock Market (“Nasdaq Stock Market”) effective as of the Closing Time referred to in Section 2 hereof.

 

(xxxviii) The Company has filed a registration statement on Form 8-A to register the Common Stock under Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and has requested that such registration statement be effective concurrent with the effectiveness of the Registration Statement.

 

(xxxix) There is no contract or other document of a character required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement or the Conversion Application which is not described or filed as required.

 

(xl) The Company, Educators and each of the EHC Companies maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management’s

 

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general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets, (iii) access to cash and other liquid assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded ledger assets are compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

 

(xli) Except as described in the Prospectuses, (i) there are no contractual encumbrances or contractual restrictions on the ability of the Company to pay dividends or make any other distributions on the Company’s capital stock and (ii) none of Educators or any of the EHC Companies are prohibited or restricted, directly or indirectly, from paying dividends to the Company, or from making any other distribution with respect to any of their respective capital stock or from repaying to the Company any amounts which may from time to time become due under any loans or advances made by the Company, or from transferring any of their respective property or assets to the Company or otherwise.

 

(xlii) To the knowledge of the Company, there are no affiliations or associations (as such terms are defined by the National Association of Securities Dealers, Inc. (“NASD”)) between any member of the NASD and any of the Company’s officers or directors.

 

(xliii) The Company and Educators carry, or are covered by, insurance in such amounts and covering such risks as is adequate for the conduct of their respective businesses and the value for their respective properties as is customary for companies engaged in similar industries.

 

(xliv) The Company, Educators and each of the EHC Companies are in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder (“ERISA”); no “reportable event” (as defined in ERISA) has occurred with respect to any “pension plan” (as defined in ERISA) for which the Company, Educators or any of the EHC Companies would have any liability; each of the Company, Educators and each of the EHC Companies has not incurred and does not expect to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any “pension plan” or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the “Code”); and each “pension plan” for which the Company, Educators or any of the EHC Companies would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification.

 

(xlv) To the knowledge of the Company, there are no actions, suits, proceedings or investigations of any nature pending or threatened that challenge the validity or legality of the transactions contemplated by the Merger Agreement that seek or threaten to restrain, enjoin or prohibit (or obtain substantial damages in connection with) the consummation of such transactions.

 

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(xlvi) The Merger Agreement has been duly authorized, executed and delivered by each of Educators and the Company, and the Merger Agreement constitutes the valid and binding obligation of each of Educators and the Company enforceable in accordance with its terms subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights and remedies generally and subject, as to enforceability, to general principles of equity, whether applied in a court of law or a court of equity. Other than approval by EHC’s shareholders, no further corporate, shareholder or regulatory approval is required in order to consummate the Merger pursuant to the Merger Agreement.

 

(b) Any certificate signed by any officer of the Company or Educators and delivered to either of the Agent or to counsel for the Agent shall be deemed a representation and warranty by the Company or Educators to the Agent as to the matters covered thereby.

 

SECTION 2. APPOINTMENT OF KBW; SALE AND DELIVERY OF THE SECURITIES; CLOSING.

 

On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby appoints KBW as its Agent to consult with and advise the Company, and to assist the Company with the solicitation of subscriptions and purchase orders for Securities, in connection with the Company’s sale of Common Stock in the Subscription and Community Offering and the Syndicated Community Offering. On the basis of the representations and warranties herein contained, and subject to the terms and conditions herein set forth, KBW accepts such appointment and agrees to use its best efforts to assist the Company with the solicitation of subscriptions and purchase orders for Securities in accordance with this Agreement; provided, however, that the Agent shall not be obligated to take any action which is inconsistent with any applicable laws or regulations, or decisions or orders of any governmental department, private or public arbitral tribunal, court, governmental commission, governmental agency or other governmental entity or authority. The services to be rendered by KBW pursuant to this appointment include the following: (i) consulting as to the securities marketing implications of any aspect of the Plan or related corporate documents; (ii) reviewing with the Board of Directors the independent appraiser’s appraisal of the Common Stock; (iii) reviewing all offering documents, including the Prospectus, stock order form and related offering materials (it being understood that such documents are the sole responsibility of the Company and Educators); (iv) assisting in the design and implementation of a marketing strategy for the Offerings; (v) assisting the Company and Educators in obtaining all requisite regulatory approvals; (vi) assisting management in preparing for meetings with potential investors and broker-dealers; and (vii) providing such other general advice and assistance as may be requested to promote the successful completion of the Offerings.

 

The appointment of the Agent hereunder shall terminate upon the earlier to occur of (a) forty-five (45) days after the last day of the Subscription and Community Offering, unless the Company and the Agent agree in writing to extend such period, or (b) the receipt and acceptance of subscriptions and purchase orders for all of the Securities, or (c) the completion of the Syndicated Community Offering.

 

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If any of the Securities remain available after the expiration of the Subscription and Community Offering, at the request of the Company and Educators, KBW will seek to form a syndicate of registered brokers or dealers (“Selected Dealers”) to assist in the solicitation of purchase orders of such Securities on a best efforts basis, subject to the terms and conditions set forth in a selected dealers’ agreement (the “Selected Dealers’ Agreement”), substantially in the form set forth in Exhibit A to this Agreement. KBW will be paid a fee not to exceed 5.5% of the aggregate Purchase Price of the shares of Common Stock sold by them. From this fee, KBW will pass onto selected broker-dealers, who assist in the syndicated community offering, an amount competitive with gross underwriting discounts charged at such time for comparable amounts of stock sold at a comparable price per share in a similar market environment. KBW will endeavor to distribute the Securities among the Selected Dealers in a fashion which best meets the distribution objective of the Company and the requirements of the Plan, which may result in limiting the allocation of stock to certain Selected Dealers. It is understood that in no event shall KBW be obligated to act as a Selected Dealer or to take or purchase any Securities.

 

In the event the Company is unable to sell at least the total minimum of the Securities, as set forth on the cover page of the Prospectus, within the period herein provided, this Agreement shall terminate and the Company shall refund to any persons who have subscribed for any of the Securities the full amount which it may have received from them, without interest, and no party to this Agreement shall have any obligation to the others hereunder, except for the obligations of the Company and Educators as set forth in Sections 4, 6(a) and 7 hereof and the obligations of the Agent as provided in Sections 6(b) and 7 hereof. Arrangements for placing the funds received from subscriptions for Securities or other offers to purchase Securities in a separate escrow account with Christiana Corporate Services, Inc. until all Securities are sold and paid for were made prior to the commencement of the Subscription Offering, with provision for refund to the purchasers as set forth above, or for delivery to the Company if all Securities are sold.

 

If at least the total minimum of Securities, as set forth on the cover page of the Prospectus, are sold, the Company agrees to issue or have issued the Securities sold and to release for delivery certificates for such Securities at the Closing Time against payment therefor by release of funds from the escrow account referred to above. The closing shall be held at the [                        ] offices of [                        ], at 10:00 a.m., local time, or at such other place and time as shall be agreed upon by the parties hereto, on a business day to be agreed upon by the parties hereto. The Company shall notify the Agent by telephone, confirmed in writing, when funds shall have been received for all the Securities. Certificates for Securities shall be delivered directly to the purchasers thereof in accordance with their directions. Notwithstanding the foregoing, certificates for Securities purchased through Selected Dealers shall be made available to the Agent for inspection at least 48 hours prior to the Closing Time at such office as the Agent shall designate. The hour and date upon which the Company shall release for delivery all of the Securities, in accordance with the terms hereof, is herein called the “Closing Time.”

 

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