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TRIPLE-S MANAGEMENT CORPORATION
US$35,000,000
6.70% Senior Unsecured Notes due January 2021
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NOTE PURCHASE AGREEMENT
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Dated January 23, 2006
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TABLE OF CONTENTS
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Section
Page
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1. AUTHORIZATION OF
NOTES............................................... 1
2. SALE AND PURCHASE
OF NOTES........................................... 1
3.
CLOSING..............................................................
1
4. CONDITIONS TO
CLOSING................................................
2
4.1.
Representations and
Warranties................................. 2
4.2.
Performance; No
Default........................................ 2
4.3.
Compliance
Certificates and Organizational Documents........... 2
4.4.
Opinions of
Counsel............................................ 3
4.5.
Purchase Permitted by
Applicable Law, etc...................... 3
4.6.
Private Placement
Number....................................... 3
4.7.
Changes in Corporate
Structure................................. 3
4.8.
Proceedings and
Documents...................................... 3
5. REPRESENTATIONS AND
WARRANTIES OF THE COMPANY........................ 3
5.1.
Organization; Power
and Authority.............................. 3
5.2.
Authorization,
etc............................................. 4
5.3.
Financial
Statements........................................... 4
5.4.
Compliance with Laws,
Other Instruments, etc................... 5
5.5.
Governmental
Authorizations, etc............................... 5
5.6.
Litigation; Observance
of Statutes and Orders.................. 5
5.7.
Taxes..........................................................
6
5.8.
Title to Property;
Leases...................................... 6
5.9.
Licenses, Permits,
etc......................................... 6
5.10.
Compliance with ERISA..........................................
6
5.11.
Private Offering by the Company................................
7
5.12. Use
of Proceeds................................................
7
5.13.
Existing Indebtedness for Borrowed Money.......................
7
5.14.
Investment Company Act.........................................
8
5.15.
Disclosure.....................................................
8
5.16.
Labor Disputes.................................................
8
5.17.
Source of Income...............................................
8
6. REPRESENTATIONS OF
THE PURCHASER..................................... 8
6.1.
Purchase for
Investment; Accredited Investor................... 8
6.2.
Source of
Funds................................................ 9
6.3.
Anti-Money
Laundering.......................................... 10
6.4.
Transferee.....................................................
11
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7. INFORMATION AS TO
THE COMPANY........................................ 11
7.1.
Financial and Business
Information............................. 11
7.2.
Inspection.....................................................
12
8. PAYMENT OF
INTEREST..................................................
13
9. REDEMPTION OF THE
NOTES PRIOR TO MATURITY............................ 13
9.1.
Optional
Redemption............................................ 13
9.2.
Allocation of Partial
Redemptions.............................. 13
9.3.
Maturity; Surrender,
etc....................................... 14
9.4.
Purchase of
Notes.............................................. 14
10. BUSINESS
COVENANTS...................................................
14
10.1.
Compliance with Laws...........................................
14
10.2.
Insurance......................................................
14
10.3.
Payment of Taxes...............................................
15
10.4. Use of
Proceeds................................................
15
10.5.
Corporate Existence, etc.......................................
15
10.6.
Source of Income...............................................
15
10.7.
Lines of Business..............................................
15
11. NEGATIVE
COVENANTS...................................................
16
11.1.
Transactions with Affiliates...................................
16
11.2.
Consolidation, Merger and Sale of Assets.......................
16
11.3.
Limitation Upon Creation of Liens on Voting Stock of
Significant Subsidiaries.......................................
16
11.4.
Limitation Upon Disposition of Voting Stock of, and Merger and
Sale of Assets of, Principal Insurance Subsidiary..............
17
11.5.
Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries.........................................
18
11.6.
Limitation on Additional Indebtedness..........................
19
11.7.
Waiver of Certain Covenants....................................
19
12. EVENTS OF
DEFAULT....................................................
19
13. REMEDIES ON DEFAULT,
ETC............................................. 21
13.1.
Acceleration...................................................
21
13.2.
Other Remedies.................................................
21
13.3.
Rescission.....................................................
21
13.4. No
Waivers or Election of Remedies, Expenses, etc..............
22
14. REGISTRATION; EXCHANGE; SUBSTITUTION OF
NOTES........................ 22
14.1.
Registration of Notes..........................................
22
14.2.
Transfer and Exchange of Notes.................................
22
14.3.
Replacement of Notes...........................................
23
15. PAYMENTS ON
NOTES....................................................
23
15.1.
Place of Payment...............................................
23
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15.2. Home
Office Payment............................................
23
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE
AGREEMENT......... 24
17. AMENDMENT AND
WAIVER.................................................
24
17.1.
Requirements...................................................
24
17.2.
Solicitation of Holders of Notes...............................
25
17.3.
Binding Effect, etc............................................
25
17.4.
Notes held by Company, etc.....................................
25
17.5.
Consent of Majority Holders....................................
25
18.
NOTICES..............................................................
26
19. REPRODUCTION OF
DOCUMENTS............................................ 26
20. CONFIDENTIAL
INFORMATION.............................................
26
21.
MISCELLANEOUS........................................................
27
21.1.
Successors and Assigns.........................................
27
21.2.
Payments Due on Non-Business Days..............................
28
21.3.
Severability...................................................
28
21.4.
Construction...................................................
28
21.5.
Counterparts...................................................
28
21.6.
Governing Law..................................................
28
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SCHEDULE A
-- INFORMATION RELATING TO PURCHASER
SCHEDULE B
-- DEFINED TERMS
SCHEDULE 5.3 --
Financial Statements of the Company
SCHEDULE 5.6 -
Litigation
SCHEDULE 5.13 -- Existing Indebtedness for Borrowed Money
EXHIBIT 1 -- Form of 6.70%
Senior Unsecured Notes due January 2021
EXHIBIT 2-A --
Form of Opinion of Pietrantoni Mendez & Alvarez LLP
EXHIBIT 2-B --
Form of Opinion of Enrique R. Ubarri Baragano
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TRIPLE-S MANAGEMENT CORPORATION
6.70% Senior Unsecured Notes due January 2021
January 23, 2006
THE PURCHASERS NAMED IN
THE ATTACHED SCHEDULE A:
Ladies and Gentlemen:
Triple-S Management Corporation (the "COMPANY"), a corporation
organized
under the laws of the Commonwealth of Puerto Rico, agrees with you
as follows:
1. AUTHORIZATION
OF NOTES.
The
Company has authorized the issuance and sale of an aggregate
principal
amount of Thirty-Five Million United States Dollars (US$35,000,000)
of its 6.70%
Senior Unsecured Notes due January 2021 (the "NOTES," such term to
include each
Note delivered pursuant to this Agreement and each Note delivered
in
substitution or exchange for any such Note pursuant to Section 14
of this
Agreement). The Notes shall be substantially in the form of Exhibit
1 hereto and
shall have the terms as herein and therein provided. Certain
capitalized terms
used in this Agreement are defined in Schedule B hereto; references
to a
"SCHEDULE" or an "EXHIBIT" are, unless otherwise specified, to a
Schedule or an
Exhibit attached to this Agreement and all Schedules and Exhibits
are deemed to
be a part of this Agreement. References herein to this "AGREEMENT"
mean this
Agreement as from time to time amended or supplemented or as the
terms hereof
may be waived, in accordance with Section 17 hereof.
2. SALE AND
PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the Company
agrees
to issue and sell to you and you agree to purchase from the
Company, at the
Closing provided for in Section 3, Notes in the aggregate principal
amount
specified opposite your name in Schedule A at the purchase price of
one hundred
percent (100%) of the principal amount thereof.
3. CLOSING.
The
closing (the "CLOSING") of the sale and purchase of the Notes to
be
purchased by you shall occur at the offices of Pietrantoni Mendez
& Alvarez LLP,
Popular Center Building, 209 Munoz Rivera Avenue, 19th Floor, San
Juan, Puerto
Rico 00918, at 10:00 a.m., local time, on January 31, 2006. At the
Closing, the
Company will deliver to you the Notes to be purchased by you in the
form of a
single Note for each Purchaser (or such greater number of Notes in
denominations
of at least Five Hundred Thousand United States Dollars
(US$500,000) as you may
request) dated the date of the Closing (the "CLOSING DATE") and
registered in
your name (or in the name of your nominee), against delivery by you
to the
Company of immediately available
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funds in the amount of the purchase price therefor by wire transfer
to account
number 10991506, maintained by the Company at Citibank, N.A.,
Puerto Rico
Branch, ABA Number 02100089.
4. CONDITIONS TO
CLOSING.
Your
obligation to purchase and pay for the Notes to be delivered to you
at
the Closing is subject to the fulfillment, prior to or at the
Closing, of the
following conditions:
4.1. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company contained in
Section
5 of this Agreement shall have been true and correct in all
material respects as
of the date of this Agreement and shall be true and correct at the
time of the
Closing.
4.2. PERFORMANCE; NO DEFAULT.
The Company shall have performed and complied in all material
respects
with all agreements and conditions contained in this Agreement
required to be
performed or complied with by it prior to or at the Closing and,
after giving
effect to the issuance and sale of the Notes (and the application
of the
proceeds thereof as contemplated by Section 5.12), no Default or
Event of
Default shall have occurred and be continuing. The Company shall
not have
entered into any transaction since September 30, 2005, that would
have been
prohibited by Section 10 hereof had such Section applied since such
date.
4.3. COMPLIANCE CERTIFICATES AND ORGANIZATIONAL DOCUMENTS.
(a) Officer's
Certificate. The Company shall have delivered to you an
Officer's Certificate, dated as of the Closing Date, certifying
on behalf of the Company that the conditions specified in
Sections 4.1, 4.2 and 4.7 have been fulfilled.
(b) Secretary's
Certificates. The Company shall have delivered to you
copies of the by-laws of the Company and each of its
Subsidiaries
(collectively, the "GROUP MEMBERS") and of the resolutions of
the
Board of Directors of the Company relating to the
authorization,
execution and delivery of the Notes, certified by the Secretary
or Assistant Secretary of the Company, and an incumbency
certificate executed by such Secretary or Assistant Secretary.
(c) Organizational
Documents. The Company shall have delivered to you
copies of the articles of incorporation of each of the Group
Members, certified as of a recent date by the Secretary of
State
of the Commonwealth of Puerto Rico or, if a copy certified by
the
Secretary of State is unavailable on the Closing Date,
certified
by the Secretary or Assistant Secretary of each Group Member,
and
good standing certificates for each Group Member from such
Secretary of State or, in the case of each Subsidiary that is
an
insurance company, from the Commissioner of Insurance of Puerto
Rico.
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4.4. OPINIONS OF COUNSEL.
You shall have received opinions from (a) Pietrantoni Mendez &
Alvarez
LLP, special counsel to the Company, and (b) Enrique R. Ubarri
Baragano, Senior
Vice President, Legal Affairs, of the Company, each dated as of the
Closing
Date, substantially in the respective forms set forth as Exhibits
2-A and 2-B.
This Section 4.4 shall constitute direction by the Company to such
counsel named
in the foregoing clauses (a) and (b) to deliver the opinions
specified to you at
the Closing.
4.5. PURCHASE PERMITTED BY APPLICABLE LAW, ETC.
On the Closing Date, your purchase of Notes shall (i) be permitted
by
the laws and regulations of each jurisdiction to which you are
subject, without
recourse to provisions of law permitting limited investments by
financial
institutions without restriction as to the character of the
particular
investment, (ii) not violate any applicable law or regulation and
(iii) not
subject you to any tax, penalty or liability under or pursuant to
any applicable
law or regulation, which law or regulation was not in effect on the
date hereof.
4.6.
PRIVATE PLACEMENT NUMBER.
A Private Placement number issued by Standard & Poor's CUSIP
Service
Bureau shall have been obtained for the Notes.
4.7. CHANGES IN CORPORATE STRUCTURE.
The Company shall not have changed its jurisdiction of
incorporation
or been a party to any merger or consolidation. The Company shall
not have
succeeded to all or any substantial part of the liabilities of any
other entity
following the date of the most recent financial statements referred
to in
Schedule 5.3.
4.8. PROCEEDINGS AND DOCUMENTS.
All corporate and other proceedings in connection with the
transactions contemplated by this Agreement and all documents and
instruments
incident to such transactions shall be reasonably satisfactory to
you and your
counsel, and you and your counsel shall have received all such
counterpart
originals or certified or other copies of such documents as you or
they may
reasonably request.
5.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The
Company represents and warrants to you as follows:
5.1. ORGANIZATION; POWER AND AUTHORITY.
Each Group Member is a corporation duly organized, validly
existing
and in good standing under the laws of the Commonwealth of Puerto
Rico, and is
duly qualified as a foreign corporation and is in good standing in
each
jurisdiction in which such qualification is required by law, other
than those
jurisdictions as to which the failure to be so qualified or in good
standing
3
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would not, individually or in the aggregate, reasonably be expected
to have a
Material Adverse Effect. The Company and each Subsidiary has the
corporate power
and authority to conduct its business as presently conducted and as
proposed to
be conducted after the Acquisition. The Company has the corporate
power and
authority to execute and deliver this Agreement and the Notes and
to perform the
provisions hereof and thereof.
5.2. AUTHORIZATION, ETC.
This
Agreement has been, and on the Closing Date the Notes will be,
duly authorized by all necessary corporate action on the part of
the Company,
and this Agreement constitutes, and upon execution and delivery
thereof by the
Company each Note issued to you will constitute, a legal, valid and
binding
obligation of the Company (assuming with respect to this Agreement
and any Notes
issued to you, the due authorization, execution and delivery of
this Agreement
by you), enforceable against the Company in accordance with its
terms, except as
such enforceability may be limited by (i) applicable bankruptcy,
insolvency,
reorganization, moratorium or other similar laws affecting the
enforcement of
creditors' rights generally from time to time in effect and (ii)
the application
of equitable principles and the availability of equitable
remedies.
5.3. FINANCIAL STATEMENTS.
(a) The Company has
delivered to you copies of the financial
statements of the Company listed on Schedule 5.3 (such
financial
statements collectively the "FINANCIAL STATEMENTS").
(b) The Financial
Statements (including in each case the related
schedules and notes) fairly present in all material respects
the
consolidated financial
position of the Company and its
Subsidiaries as of the respective dates specified in such
Financial Statements and the consolidated results of its
operations and cash flows for the respective periods so
specified
in accordance with GAAP consistently applied throughout such
periods except as set forth in the notes thereto (subject, in
the
case of any interim financial statements, to normal year-end
adjustments).
(c) Since the date of
the most recent Financial Statement, there has
been no material adverse change in the business, operations or
condition (financial or otherwise) of the Company and its
Subsidiaries taken as a whole, and no event that could
reasonably
be expected to have a Material Adverse Effect, and the Company
has not incurred any material Indebtedness for Borrowed Money
or
entered into any material transaction other than as disclosed
to
the Purchasers.
(d) The Company
maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i)
transactions
are executed in accordance with management's general or
specific
authorization, (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with
GAAP and to
4
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maintain accountability for assets, (iii) access to assets is
permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability
for
assets is compared with existing assets at reasonable intervals
and appropriate action is taken with respect to any
differences.
5.4. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.
The execution, delivery and performance by the Company of this
Agreement and the Notes will not (i) in any material respect
contravene, result
in any breach of, or constitute a default under, or result in the
creation of
any Lien in respect of any property of the Company or any of its
Significant
Subsidiaries under, any indenture, mortgage, deed of trust, loan,
purchase or
credit agreement, lease, corporate charter or by-laws, or any other
material
agreement or instrument to which the Company or any such
Significant Subsidiary
is bound or by which the Company or any such Significant Subsidiary
or their
respective properties may be bound or affected, (ii) conflict with
or result in
a material breach of any of the terms, conditions or provisions of
any order,
judgment, decree or ruling of any court, arbitrator or Governmental
Authority
applicable to the Company or any of its Significant Subsidiaries,
or (iii)
violate any provision of any statute or other rule or regulation of
any
Governmental Authority applicable to the Company or any of its
Significant
Subsidiaries.
5.5. GOVERNMENTAL AUTHORIZATIONS, ETC.
No consent, approval or authorization of, or registration, filing
or
declaration with, any Governmental Authority is required for the
due execution,
delivery or performance by the Company of this Agreement or the
Notes.
5.6. LITIGATION; OBSERVANCE OF STATUTES AND ORDERS.
(a) Except as
disclosed in Schedule 5.6, there are no actions, suits
or proceedings pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its
Significant Subsidiaries or any property of the Company or of
its
Significant Subsidiaries in any court or before any arbitrator
or
administrative agency of any kind or before or by any
Governmental Authority that, if determined adversely to the
Company or any of its Significant Subsidiaries, individually or
in the aggregate, would reasonably be expected to have a
Material
Adverse Effect.
(b) Neither the
Company nor any of its Significant Subsidiaries is in
default under any order, judgment, decree or ruling of any
court,
arbitrator or Governmental Authority or in violation of any
applicable law, ordinance, rule or regulation of any
Governmental
Authority, which default or violation, individually or in the
aggregate, would reasonably be expected to have a Material
Adverse Effect.
5
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5.7. TAXES.
Each of the Company and its Significant Subsidiaries has filed
all
income tax returns that are required to have been filed, except for
any filings
which failure to make would not be reasonably expected to have a
Material
Adverse Effect, and has paid all taxes shown to be due and payable
on such
returns and all other taxes payable by it, to the extent such taxes
have become
due and payable, except for any taxes (i) the amount of which would
not
individually or in the aggregate reasonably be expected to have a
Material
Adverse Effect or (ii) the amount, applicability or validity of
which is
currently being contested in good faith by appropriate proceedings
and with
respect to which the Company and each such Significant Subsidiary
has
established adequate reserves in accordance with GAAP. The Company
is not aware
of any tax deficiency that, if determined adversely to the Company
or any
Significant Subsidiary, could reasonably be expected to result in a
Material
Adverse Effect.
5.8. TITLE TO PROPERTY; LEASES.
Each of the Company and its Significant Subsidiaries has good
and
sufficient title to its respective material properties, free and
clear of Liens,
except for (i) Liens described in Schedule 5.8, and (ii) defects in
title that,
individually or in the aggregate, would not have a Material Adverse
Effect. All
material leases entered into by the Company and its Significant
Subsidiaries are
valid and subsisting and are in full force and effect in all
material respects.
5.9. LICENSES, PERMITS, ETC.
The Company and each of its Significant Subsidiaries owns or
possesses
all licenses, permits, franchises, authorizations, patents,
copyrights, service
marks, trademarks and trade names, or rights thereto, that are
material to its
business, without known conflict with the rights of others, except
for those
conflicts that, individually or in the aggregate, would not have a
Material
Adverse Effect.
5.10. COMPLIANCE WITH ERISA.
(a) Each of the
Company, its Significant Subsidiaries and each of
their respective ERISA Affiliates has operated and administered
each Plan in compliance in all material respects with all
applicable laws except for such instances of noncompliance as
have not resulted in and would not reasonably be expected to
result in a Material Adverse Effect. None of the Company, its
Significant Subsidiaries nor their respective ERISA Affiliates
has incurred any liability pursuant to Title I or IV of ERISA
or
applicable penalty or excise tax provisions of the PRIRC
relating
to employee benefit plans (as defined in section 3 of ERISA),
and
no event, transaction or condition has occurred or exists that
would reasonably be expected to result in the incurrence of any
such liability by the Company, its Significant Subsidiaries or
any of such ERISA Affiliates, or in the imposition of any Lien
on
any of the rights, properties or assets of the Company, its
Significant Subsidiaries or any of such ERISA Affiliates, in
either case pursuant to Title I or IV of ERISA or to such
penalty
or excise
6
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tax provisions of the PRIRC, other than in any of such cases,
such liabilities or Liens as would not reasonably be expected
to
result, individually or in the aggregate, in a Material Adverse
Effect.
(b) None of the
Company, its Significant Subsidiaries nor their
respective ERISA Affiliates has incurred withdrawal liabilities
(or is subject to contingent withdrawal liabilities) under
section
4201 or 4204 of ERISA in respect of Multiemployer Plans
that individually or in the aggregate would reasonably be
expected to result in a Material Adverse Effect.
(c) The execution and
delivery of this Agreement and the issuance and
sale of the Notes hereunder will not involve any transaction
that
is subject to the prohibitions of section 406 of ERISA or in
connection with which a tax could be imposed pursuant to the
PRIRC. The representation by the Company in the first sentence
of
this Section 5.10(c) is made in reliance upon and subject to
(i)
the accuracy of your representation in Section 6.2 as to the
sources of
the funds to be used to pay the purchase price of the
Notes to be purchased by you and (ii) the assumption, made
solely
for the purpose of making such representation, that Department
of
Labor Interpretive Bulletin 75-2 with respect to prohibited
transactions remains valid in the circumstances of the
transactions contemplated herein.
5.11. PRIVATE OFFERING BY THE COMPANY.
Neither the Company nor UBS Financial Services Incorporated of
Puerto
Rico, as placement agent (the only Person authorized or employed by
the Company
as agent, broker, dealer or finder in connection with the offering
or sale of
the Notes) has offered any of the Notes or any similar securities
(other than
the Company's 6.60% Senior Unsecured Notes due December 2020) for
sale to, or
solicited any offer to buy any of the same from, or otherwise
approached or
negotiated in respect thereof with, any Person other than you. As
used in the
preceding sentence, "SIMILAR SECURITY" means a security which would
be
integrated with the offering of the Notes under applicable
securities laws.
Neither the Company nor such agent has taken, or will take, any
action that
would subject the issuance or sale of the Notes to the registration
requirements
of Section 5 of the Securities Act.
5.12. USE OF PROCEEDS.
The Company will apply the proceeds from the sale of the Notes
to
finance the acquisition of 100% of the capital stock of Great
American Life
Assurance Company of Puerto Rico and to pay a portion of the
related transaction
expenses.
5.13. EXISTING INDEBTEDNESS FOR BORROWED MONEY.
Schedule 5.13 sets forth a complete and correct list of all
outstanding Indebtedness for Borrowed Money in the principal amount
of at least
Five Million United States Dollars (US$5,000,000) of the Company
and its
Significant Subsidiaries as of September 30, 2005, since which date
there has
been no material change in the amounts, interest rates, sinking
funds,
installment payments or maturities of such Indebtedness for
Borrowed Money.
Neither
7
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the Company nor any of its Significant Subsidiaries is in default
(and no waiver
of any such default is currently in effect) in the payment of any
principal or
interest on, and no Event of Default exists with respect to, any
such
Indebtedness for Borrowed Money.
5.14. INVESTMENT COMPANY ACT.
The Company is not subject to regulation under the Investment
Company
Act of 1940, as amended.
5.15. DISCLOSURE.
No statement or information contained in this Agreement or any
other
document, certificate or statement furnished to the Purchasers or
any of them,
by or on behalf of the Company in connection with the transactions
contemplated
by this Agreement contained as of the date such statement,
information, document
or certificate was so furnished any untrue statement of a material
fact or
omitted to state a material fact necessary in order to make the
statements
contained herein or therein in the light of the circumstances in
which they were
made not misleading. The projections and pro forma financial
information
contained in the materials referenced above are based upon good
faith estimates
and assumptions believed by management of the Company to be
reasonable at the
time made, it being recognized by the Purchasers that such
financial information
as it relates to future events is not to be viewed as fact and that
actual
results during the period or periods covered by such financial
information may
differ from the projected results set forth therein by a material
amount.
5.16. LABOR DISPUTES.
None of the Company nor its Significant Subsidiaries is engaged in
any
labor dispute that could reasonably be expected to have a Material
Adverse
Effect.
5.17. SOURCE OF INCOME.
The Company has derived more than 20 percent of its gross income
from
Commonwealth of Puerto Rico sources on an annual basis since its
incorporation
in accordance with the applicable sourcing rules under the
Code.
6.
REPRESENTATIONS OF THE PURCHASER.
You
hereby represent and warrant to the Company as follows:
6.1. PURCHASE FOR INVESTMENT; ACCREDITED INVESTOR.
(a) You are purchasing
the Notes for your own account and not with a
view to, or for sale in connection with, the distribution
thereof
within the meaning of the Securities Act, provided that you
have
the right to dispose of the Notes, or any part thereof, if you
deem it advisable to do so, either pursuant to a registration
of
the Notes under the Securities Act or pursuant to an applicable
exemption from the registration requirements of the
8
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Securities Act. You understand that the Notes have not been
registered under the Securities Act or the Puerto Rico Uniform
Securities Act, as amended ("PRUSA"), and you understand and
agree that the Notes may be resold only if registered pursuant
to
the provisions of the Securities Act or if an exemption from
registration is available thereunder.
(b) You are an
"ACCREDITED INVESTOR" as defined in Rule 501(a) under
the Securities Act.
(c) It is understood
that, in making the representations set out in
Sections 5.4, 5.5 and 5.10 hereof, the Company is relying, to
the
extent applicable, upon your representations set forth in this
Section 6.1.
(d) (i) You have
consulted with your own legal and tax advisers in
connection herewith to the extent you have deemed necessary,
(ii)
you have had a reasonable opportunity to ask questions of and
receive answers from officers and representatives of the
Company
and its Subsidiaries concerning their respective financial
condition and results of operations and any other matter
relevant
to the purchase of the Notes, and any such questions have been
answered to your satisfaction, (iii) you have had the
opportunity
to review all publicly available records and filings concerning
the Company and its Subsidiaries, and (d) you have made your
own
investment decisions based upon your own judgment, due
diligence
and advice from such advisers as you have deemed necessary and
upon the representations made by the Company herein.
6.2. SOURCE OF FUNDS.
At least one of the following statements is an accurate
representation
as to each source of funds (a "SOURCE") to be used by you to pay
the purchase
price of the Notes to be purchased by you hereunder:
(a) all or part of the
Source constitutes assets of a bank collective
investment fund, as contemplated by PTE 91-38, maintained by
you,
and you have disclosed to the Company the names of such
employee
benefit plans whose assets in such bank collective investment
fund exceed ten percent of the total assets or are expected to
exceed ten percent of the total assets of such fund as of the
date of such purchase (for the purpose of this clause (a), all
employee benefit plans maintained by the same employer or
employee organization are deemed to be a single plan);
(b) all or part of the
Source constitutes assets of one or more
employee benefit plans, each of which has been identified to
the
Company in writing;
(c) you are acquiring
the Notes for the account of one or more
pension funds, trust funds or agency accounts, each of which is
a
"GOVERNMENTAL PLAN" (as defined in section 3(32) of ERISA) and
the investment does not give rise to any violation of any
federal, state or local law which is substantially
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similar to Title I of ERISA, section 4975 of the Code or
comparable provisions of the PRIRC;
(d) the Source is an
"INVESTMENT FUND" managed by a "QUALIFIED
PROFESSIONAL ASSET MANAGER" or "QPAM" (as defined in Part V of
PTE 84-14, issued March 13, 1984), provided that (i) no other
party to the transaction described in this Agreement and no
"AFFILIATE" of such party (as defined in Part V(c) of PTE
84-14)
has at this time, and during the immediately preceding one year
none has exercised,
the authority to appoint or terminate said
QPAM as manager of the assets of any plan identified in writing
pursuant to this clause (d) or to negotiate the terms of said
QPAM's management agreement on behalf of any such identified
plans, (ii) the conditions set forth in paragraphs (c), (d),
(e),
(f) and (g) of Part I of PTE 84-14 are satisfied; and (iii) you
have disclosed to the Company the name of the QPAM and of all
employee benefit plans whose assets are included in such
investment fund;
(e) the Source is a
"PLAN" managed by an "IN-HOUSE ASSET MANAGER" or
"INHAM" (as defined in Part IV of PTE 96-23, issued April 10,
1996), provided that the conditions set forth in paragraphs
(a),
(c), (d), (e), (f), (g) and (h) of Part I of PTE 96-23 are
satisfied; or
(f) none of such funds
consists of assets of any "EMPLOYEE BENEFIT
PLAN" as defined in ERISA or any "PLAN" as defined in section
4975 of the Code or comparable provisions of the PRIRC, other
than an employee benefit plan or plan exempt from the coverage
of
ERISA and section 4975 of the Code.
As used in this Section 6.2, the terms "EMPLOYEE BENEFIT PLAN,"
"GOVERNMENTAL
PLAN," "PARTY IN INTEREST" and "SEPARATE ACCOUNT" shall have the
respective
meanings assigned to such terms in section 3 of ERISA. If you
breach any
representation made by you under this Section 6.2, your purchase of
the Notes
shall be void ab initio.
6.3. ANTI-MONEY LAUNDERING.
(a) The funds that you
are using to purchase the Notes were not
directly or indirectly derived from activities that may
contravene federal, state and international laws and
regulations,
including Anti-Money Laundering Laws; and
(b) to the best of
your knowledge, neither:
(i) you, nor
(ii) any person controlling, controlled by, or under common
control with you,
(1) is a country, territory, individual or entity named on an
Office
of Foreign Assets Control ("OFAC") list, or is an individual or
entity
that resides or has a
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place of business in a country or territory named on such lists,
(2)
is a "senior foreign political figure," or any "immediate
family
member" or "close associate" (as such terms are defined in the
Patriot
Act) of a senior foreign political figure or (3) is a "foreign
shell
bank" (as defined in the Patriot Act) or transacts business with
a
foreign shell bank.
You understand that the Company may not accept any payments for
the
Notes from you if you cannot make the representations set forth
above.
6.4. TRANSFEREE.
Any transferee of a Note shall, by its acceptance of such Note,
be
deemed to have made the same representations regarding the purchase
of the Notes
as the original holder thereof made pursuant to Sections 6.1, 6.2
and 6.3 above.
7. INFORMATION
AS TO THE COMPANY.
7.1. FINANCIAL AND BUSINESS INFORMATION.
The Company shall deliver to you and to any subsequent holder of
Notes
that is an Institutional Investor, subject to the proviso contained
at the end
of Section 7.2 hereof:
(a) SEC and Other
Reports--for so long as the Company is subject to
reporting obligations under the Securities Exchange Act of
1934,
as amended (the "EXCHANGE ACT") with respect to any of its
securities, within ten (10) days after it files them with the
U.S. Securities and Exchange Commission (the "SEC"), one copy
of
its annual report and of the information, documents and other
reports which the Company is required to file with the SEC
pursuant to Section 13 or 15(d) of the Exchange Act; provided
that no such delivery shall be required as to any of such
reports
and documents which have been filed and are available in
electronic format at
the SEC's EDGAR database. In the event that
the Company is at any time no longer subject to the reporting
requirements of Section 13 or 15(d) the Exchange Act, the
Company
shall provide to you and each subsequent note holder that is an
Institutional Investor, (1)(i) within sixty (60) days after the
end of each of the first three quarterly fiscal periods in each
fiscal year of the Company: an unaudited consolidated balance
sheet of the Company as at the end of such quarter, and the
related unaudited consolidated statements of income and cash
flows of the Company for such quarter; and (ii) within one
hundred twenty (120) days after the end of each fiscal year of
the Company, the consolidated audited balance sheet of the
Company and the related consolidated statements of income and
cash flows of the Company for such year; and (2) at your
request,
(i) a quarterly presentation which shall include a discussion
by
the Company's management of the most recent financial and
operational results of the Company and its Significant
Subsidiaries on a consolidated basis and a discussion of the
Company's
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most recent business plans and projections, and (ii) on a
yearly
basis, a written report reflecting a discussion by the
Company's
management of the financial and operational results of the
Company and its Significant Subsidiaries on a consolidated
basis
as of the year ended. In addition, on a quarterly basis, the
Company's designated legal counsel, at your request, will
provide
you and your designated legal counsel, access to material and
recent information so as to provide an update to the status of
all material legal actions, suits or proceedings;
(b) Notice of Default
or Event of Default--within ten (10) days after
a Responsible Officer becomes aware of the existence of any
condition or event which constitutes a Default or Event of
Default, a written notice specifying the nature thereof and
what
action the Company is taking or proposes to take with respect
thereto;
(c)
Compliance
Certificate--concurrently with the delivery of any
financial statements pursuant to Section 7.1(a), a certificate
of
a Responsible Officer stating that, to the best of such
Responsible Officer's knowledge, the Company and each
Subsidiary
during such period has observed or performed all of its
covenants
and other agreements, and satisfied every condition, contained
in
this Agreement, and that such Responsible Officer has obtained
no
knowledge of any Default or Event of Default except as
specified
in such certificate; and
(d) Notice of
Reduction in Risk-based Capital Ratio--within fifteen
(15) days after the end of any month in which the Company's
Risk-based Capital Ratio shall be lower than 375%, a written
notice specifying the Company's Risk-based Capital Ratio as of
the end of such month and what action the Company is taking or
proposes to take with respect thereto.
7.2. INSPECTION.
The Company shall permit each holder of Notes that is an
Institutional
Investor, or a group of Institutional Investors that are (i) Puerto
Rico
licensed investment companies advised by the same investment
adviser and (ii)
Purchasers and holders of Notes, and holds Notes with an aggregate
principal
amount of at least Ten Million United States Dollars
(US$10,000,000), or at
least Five Million United States Dollars (US$5,000,000) in the case
of such
group, together with their respective representatives, at the
expense of the
Company if done in connection with an Event of Default, to visit
and inspect any
of the offices or properties of the Company and its Significant
Subsidiaries to
examine their books and records, and to discuss their affairs,
finances and
accounts with their officers, employees and independent public
accountants (and
by this provision, the Company authorizes said accountants to
discuss the
finances and affairs of the Company and its Significant
Subsidiaries, but any
such discussions shall be arranged by the Company and the Company
shall have the
opportunity to participate therein) all at such reasonable times
and as may be
reasonably requested in relation to the performance by the Company
of its
obligations under the Notes or under this Agreement;
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<PAGE>
provided, however, that the Company (or any such Significant
Subsidiary) shall
not be required to disclose to any such holder of Notes (or to any
of its
representatives) information to the extent that the Company (or any
such
Significant Subsidiary) is advised by internal or external legal
counsel that it
is prohibited from disclosing such information at such time to its
creditors
generally under applicable laws, rules, regulations or orders (or
other binding
restrictions imposed by Governmental Authorities or agreements
entered into in
good faith with third parties that are not Affiliates of the
Company).
8. PAYMENT OF
INTEREST.
The Company shall pay interest (computed on the basis of a
360-day
year of twelve 30-day months) (a) on the unpaid balance of the
Notes at the rate
of 6.70% per annum from the date of the Notes, payable monthly in
arrears, on
the first (1st) day of each month, commencing on March 1, 2006,
until the
principal of the Notes shall have become due and payable and (b) to
the extent
permitted by law, on any overdue payment (including any overdue
prepayment) of
principal and any overdue payment of interest, payable monthly as
aforesaid (or,
at the option of the registered holder hereof, on demand), at a
rate per annum
from time to time equal to the Default Rate. Notwithstanding the
above, in the
event that the Company's Risk-based Capital Ratio is less than 375%
during a
period of at least one year, the interest rate payable on the Notes
on any
interest payment date after the expiration of such year shall
increase to 6.85%
per annum while such condition exists. The interest so payable on
any interest
payment date will be paid to the Holder in whose name a Note is
registered at
the close of business on the fifteenth (15th) calendar day (whether
or not a
Business Day) next preceding such interest payment date.
9. REDEMPTION OF
THE NOTES PRIOR TO MATURITY.
9.1. OPTIONAL REDEMPTION.
The Company may, at its option, upon notice as provided below,
redeem
and prepay prior to maturity from time to time, all or any part of
the Notes on
or after February 1, 2011, at a price equal to 100% of the
principal amount of
the Notes to be redeemed together with accrued and unpaid interest,
if any, to
the date of redemption specified by the Company (the "REDEMPTION
DATE").
The Company will give each holder of Notes written notice of
any
redemption under this Section 9.1 not less than thirty (30) days
and not more
than sixty (60) days prior to any Redemption Date. Each such notice
shall
specify the Redemption Date, the aggregate principal amount of the
Notes to be
redeemed on such Redemption Date, the principal amount of each Note
held by such
holder to be redeemed (determined in accordance with Section 9.2),
and the
interest to be paid on such Redemption Date with respect to such
principal
amount being redeemed.
9.2. ALLOCATION OF PARTIAL REDEMPTIONS.
In the case of any partial redemption of the Notes, the
principal
amount of the Notes to be redeemed shall be allocated among all of
the Notes at
the time outstanding in
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proportion, as nearly as practicable, to the respective unpaid
principal amounts
thereof not theretofore called for redemption.
9.3. MATURITY; SURRENDER, ETC.
In the case of each redemption of Notes pursuant to this Section
9,
the principal amount of each Note to be redeemed shall mature and
become due and
payable on the respective Redemption Date, together with interest
on such
principal amount accrued to such date. From and after such date,
unless the
Company shall fail to pay such principal amount when so due and
payable,
together with the interest thereon, interest on such principal
amount shall
cease to accrue. Any Note paid or redeemed in full shall be
surrendered to the
Company and cancelled and shall not be reissued, and no Note shall
be issued in
lieu of any prepaid principal amount of any Note.
9.4. PURCHASE OF NOTES.
The Company will not, and the Company will not permit any of
its
Affiliates to, purchase, redeem, prepay or otherwise acquire,
directly or
indirectly, any of the outstanding Notes except (i) pursuant to an
offer made to
all holders of the Notes or (ii) upon the payment or redemption of
the Notes in
accordance with the terms of this Agreement and the Notes. The
Company will
promptly cancel all Notes acquired by it or any of its Affiliates
pursuant to
any payment, redemption or purchase of Notes pursuant to any
provision of this
Agreement and no Notes may be issued in substitution or exchange
for any such
Notes.
10. BUSINESS
COVENANTS.
The
Company covenants that, so long as the Notes are outstanding, it
will,
and it will cause each of its Significant Subsidiaries to:
10.1. COMPLIANCE WITH LAWS.
Comply with all laws, ordinances and governmental rules and
regulations to which it is subject and obtain and maintain in
effect all
licenses, certificates, permits, franchises and other
governmental
authorizations necessary to the ownership of its properties or to
the conduct of
its businesses, in each case to the extent necessary to ensure
that
non-compliance with such laws, ordinances or governmental rules or
regulations
or failures to obtain or maintain in effect such licenses,
certificates,
permits, franchises and other governmental authorizations would not
reasonably
be expected, individually or in the aggregate, to have a Material
Adverse
Effect.
10.2. INSURANCE.
Except where the failure to comply would not reasonably be expected
to
have a Material Adverse Effect, maintain, with financially sound
and reputable
insurers, insurance with respect to its properties and business
against such
casualties and contingencies, of such types, on such terms and in
such amounts
(including deductibles, co-insurance and self-insurance, if
adequate reserves
are maintained with respect thereto) as is customary in the case of
entities of
established reputations engaged in the same or a similar business
and similarly
situated.
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<PAGE>
10.3. PAYMENT OF TAXES.
File all tax returns required to be filed and pay and discharge
or
cause to be paid or discharged all taxes shown to be due and
payable on such
returns and all other taxes and assessments payable by it, to the
extent such
taxes and assessments have become due and payable, provided that
the Company or
such Significant Subsidiary need not (a) make any filing the
failure to make
which would not be reasonably expected to have a Material Adverse
Effect or (b)
pay any such tax or assessment if (i) the amount, applicability or
validity
thereof is contested by the Company or such Significant Subsidiary
on a timely
basis in good faith and in appropriate proceedings, and the Company
or such
Significant Subsidiary has established adequate reserves therefor
in accordance
with GAAP on their respective books, or (ii) the nonpayment of all
such taxes
and assessments in the aggregate would not reasonably be expected
to have a
Material Adverse Effect.
10.4. USE OF PROCEEDS.
Apply the proceeds from the sale of the Notes for the purposes
set
forth in Section 5.12 hereof within twenty-four (24) months from
the date of the
issuance of the Notes. The Company will notify Treasury of such use
as required
by Section 1013A of the PRIRC.
If a favorable ruling from Treasury is obtained after the
Closing
Date, by purchasing the Notes, the subsequent holders of the Notes,
other than
the Purchasers, will be deemed to have made an election under
Section 1013A of
the PRIRC and the 10 percent preferential withholding tax will be
made on the
interest on the Notes unless such holders elect out of such
withholding by
providing a written statement to that effect to the Company,
through certified
mail, in the form set forth in Exhibit 3.
10.5. CORPORATE EXISTENCE, ETC.
Subject to the provisions of Sections 11.2 and 11.4 hereof, the
Company will do or cause to be done all things necessary to
preserve and keep in
full force and effect the corporate existence, rights (charter and
statutory)
and franchises of the Company and each Significant Subsidiary;
provided,
however, that the Company shall not be required to preserve any
such right or
franchise or corporate existence of a Significant Subsidiary if the
Company
shall determine that the preservation thereof is no longer
desirable in the
conduct of the business of the Company and that the loss thereof is
not
disadvantageous in any material respect to the holders of the
Notes.
10.6. SOURCE OF INCOME.
The Company shall do or cause to be done all things necessary
or
proper within its control to ensure that, for purposes of the Code,
interest
paid on the Notes will constitute income from sources within the
Commonwealth of
Puerto Rico.
10.7. LINES OF BUSINESS.
The Company will continue to be a Blue Cross/Blue Shield licensee
and
will be principally engaged in the business of providing health,
life and
property and casualty insurance.
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<PAGE>
11. NEGATIVE
COVENANTS.
The
Company covenants that, so long as any of the Notes is outstanding,
it
will not:
11.1. TRANSACTIONS WITH AFFILIATES.
Enter into, or permit any of its Significant Subsidiaries to
enter
into, directly or indirectly, into any transaction or group of
related
transactions which, in the opinion of the management of the
Company, is material
to the Company and its Subsidiaries taken as a whole (including
without
limitation the purchase, lease, sale or exchange of properties of
any kind or
the rendering of any service) with any of its Affiliates, except
(i) pursuant to
its reasonable business requirements and (ii) in the case of
transactions with
Affiliates other than wholly owned Subsidiaries, on arm's length
terms.
11.2. CONSOLIDATION, MERGER AND SALE OF ASSETS.
Not consolidate with or merge into, or convey, transfer or lease
its
properties and assets substantially as a whole to, any Person,
unless:
(a) the Company is the
surviving or continuing entity, or the entity
formed by such consolidation or into which the Company is
merged
or to which the Company has conveyed, transferred or leased its
properties and assets substantially as an entirety is an entity
organized and validly existing under the laws of the United
States of America, any province or state thereof or the
District
of Columbia or the Commonwealth of Puerto Rico, and such entity
expressly assumes the Company's obligations under the Notes by
an
agreement supplemental hereto;
(b) immediately after
giving effect to the transaction, no Default
shall have occurred and be continuing; and
(c) the Company shall
have delivered to each holder an Officer's
Certificate and an opinion of counsel, each stating that such
consolidation, merger or transfer and such supplemental
agreement
(if any) comply with this Agreement.
Notwithstanding the provisions of this Section 11.2, any wholly
owned
Subsidiary may merge or consolidate with the Company or another
wholly owned
Subsidiary so long as the Company or such wholly owned Subsidiary
shall be the
surviving or continuing corporation.
11.3. LIMITATION UPON CREATION OF LIENS ON VOTING STOCK OF
SIGNIFICANT
SUBSIDIARIES.
Incur, issue, assume or guarantee, nor permit any Significant
Subsidiary to incur, issue, assume or guarantee, any Indebtedness
for Borrowed
Money, directly or indirectly secured by a Lien in any shares of
voting stock of
any Significant Subsidiary without making effective provision
whereby the Notes
(an
