EXHIBIT 2.1
FINAL
AGREEMENT AND PLAN OF MERGER
Among
USF&G CORPORATION,
THE ST. ▇▇▇▇ COMPANIES, INC.
and
SP MERGER CORPORATION
Dated as of January 19, 1998
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (hereinafter called this
"Agreement"), dated as of January 19, 1998 among USF&G Corporation, a Maryland
corporation (the "Company"), The St. ▇▇▇▇ Companies, Inc., a Minnesota
corporation ("Parent"), and SP Merger Corporation, a Maryland corporation and
a wholly-owned subsidiary of Parent ("Merger Subsidiary," the Company and
Merger Subsidiary sometimes being hereinafter collectively referred to as the
"Constituent Corporations").
RECITALS
WHEREAS, the respective boards of directors of each of
Parent, Merger Subsidiary and the Company have determined that the merger of
Merger Subsidiary with and into the Company (the "Merger") upon the terms and
subject to the conditions set forth in this Agreement is advisable and have
approved the Merger;
WHEREAS, contemporaneously with the execution and delivery
of this Agreement, as a condition and inducement to Parent's and Merger
Subsidiary's willingness to enter into this Agreement, the Company is entering
into a stock option agreement with Parent (the "Stock Option Agreement"),
pursuant to which the Company has granted to Parent an option to purchase
Shares (as defined in Section 4.1(a)) under the terms and conditions set forth
in the Stock Option Agreement;
WHEREAS, it is intended that, for federal income tax
purposes, the Merger shall qualify as a reorganization under the provisions of
Section 368(a) of the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder (the "Code");
WHEREAS, for financial accounting purposes, it is intended
that the Merger shall be accounted for as a "pooling-of-interests;" and
WHEREAS, the Company, Parent and Merger Subsidiary desire to
make certain representations, warranties, covenants and agreements in
connection with this Agreement.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
The Merger; Closing; Effective Time
1.1. The Merger. Upon the terms and subject to the
conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.3) Merger Subsidiary shall be merged with and into the Company and
the separate corporate existence of Merger Subsidiary shall thereupon cease.
The Company shall be the surviving corporation in the Merger (sometimes
hereinafter referred to as the "Surviving Corporation"), and the separate
corporate existence of the Company with all its rights, privileges,
immunities, powers and franchises shall continue unaffected by the Merger,
except as set forth in Article III. The Merger shall have the effects
specified in the Maryland General Corporation Law, as amended (the "MGCL").
1.2. Closing. The closing of the Merger (the "Closing")
shall take place (i) at the offices of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ at 9:00 A.M. on the first business day after the day on
which the last to be fulfilled or waived of the conditions set forth in
Article VII (other than those conditions that by their nature are to be
satisfied at the Closing, but subject to the fulfillment or waiver of those
conditions) shall be satisfied or waived in accordance with this Agreement or
(ii) at such other place and time and/or on such other date as the Company and
Parent may agree in writing (the "Closing Date").
1.3. Effective Time. As soon as practicable following
the Closing, the Company and Parent will cause Articles of Merger (the
"Maryland Articles of Merger") to be executed, acknowledged and filed with and
accepted for record by the State Department of Assessments and Taxation of
Maryland (the "Department") as provided in Section 3-107 of the MGCL. The
Merger shall become effective at the time the Department accepts for record
the Maryland Articles of Merger or at such later time agreed by the Company
and Parent and established under the Maryland Articles of Merger, not to
exceed 30 days after the Maryland Articles of Merger are accepted for record
by the Department (the "Effective Time").
ARTICLE II
Charter and Bylaws
of the Surviving Corporation
2.1. The Charter. The charter of the Company as in effect
immediately prior to the Effective Time shall be the Charter of the Surviving
Corporation (the "Charter"), until duly amended as provided therein or by
applicable law, except that (i) Article Fifth of the Charter shall be amended
to read in its entirety as follows: "The name and address of the resident
agent of the Corporation in this state are ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇., ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, (ii) Article Sixth of the Charter
shall be amended to read in its entirety as follows: "The aggregate number of
shares that the Corporation shall have the authority to issue is 1,000 shares
of Common Stock, par value $1.00 per share", and (iii) Article Seventh shall
be deleted in its entirety with all subsequent Articles renumbered accordingly.
2.2. The Bylaws. The bylaws of Merger Subsidiary in
effect at the Effective Time shall be the bylaws of the Surviving Corporation
(the "Bylaws"), until thereafter amended as provided therein or by applicable
law.
ARTICLE III
Officers and Directors
of the Surviving Corporation
3.1. Directors. The directors of Merger Subsidiary at
the Effective Time shall, from and after the Effective Time, be the directors
of the Surviving Corporation until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation or removal
in accordance with the Charter and the Bylaws.
3.2. Officers. The officers of the Company at the
Effective Time shall, from and after the Effective Time, be the officers of
the Surviving Corporation until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation or removal
in accordance with the Charter and the Bylaws.
ARTICLE IV
Effect of the Merger on Stock;
Exchange of Certificates
4.1. Effect on Stock. At the Effective Time, as a result
of the Merger and without any action on the part of the holder of any stock of
the Company:
(a) Merger Consideration. Each share of common stock,
par value $2.50 per share, of the Company (each a "Share" or, collectively,
the "Shares") issued and outstanding immediately prior to the Effective Time
(other than Shares owned by Parent or any direct or indirect Subsidiary of
Parent (collectively, the "Parent Companies") or Shares that are owned by the
Company or any direct or indirect Subsidiary of the Company (and in each case
not held on behalf of third parties) ("Excluded Shares")) shall be converted
into, and become exchangeable for the right to receive (the "Merger
Consideration") that number of shares (the "Exchange Ratio") of common stock,
no par value ("Parent Common Stock"), of Parent determined by dividing $22 by
the average of the daily average per share high and low sales prices of one
share of Parent Common Stock as reported on the New York Stock Exchange, Inc.
(the "NYSE") composite transactions reporting system (as reported in the New
York City edition of The Wall Street Journal or, if not reported thereby,
another authoritative source) for each of the 20 trading days ending on the
third trading day prior to the Stockholders Meeting (as defined in Section 6.4
hereof) rounded to the fourth decimal place (the "Average Parent Price"),
provided, that, (i) if the Average Parent Price is less than $74 (the "Lower
Collar"), the Exchange Ratio shall be 0.2973; and (ii) if the Average Parent
Price is greater than $78 (the "Upper Collar" and, together with the Lower
Collar, the "Collars"), the Exchange Ratio shall be 0.2821. At the Effective
Time, all Shares shall no longer be outstanding and shall be canceled and
retired and shall cease to exist, and each certificate (a "Certificate")
formerly representing any of such Shares (other than Excluded Shares) shall
thereafter represent only the right to receive the Merger Consideration, cash
in lieu of fractional shares pursuant to Section 4.2(e), if any, and any
distribution or dividend pursuant to Section 4.2(c).
(b) Cancellation of Shares. Each Share issued and
outstanding immediately prior to the Effective Time and owned by any of the
Parent Companies or owned by the Company or any direct or indirect Subsidiary
of the Company (in each case other than Shares that are owned on behalf of
third parties), shall, by virtue of the Merger and without any action on the
part of the holder thereof, cease to be outstanding, shall be canceled and
retired without payment of any consideration therefor and shall cease to exist.
(c) Merger Subsidiary. At the Effective Time, each
share of Common Stock, par value $1.00 per share, of Merger Subsidiary issued
and outstanding immediately prior to the Effective Time shall be converted
into one share of common stock of the Surviving Corporation.
4.2. Exchange of Certificates for Shares.
(a) Exchange Agent. Promptly after the Effective Time,
Parent shall deposit, or shall cause to be deposited, with an exchange agent
selected by Parent prior to the Effective Time with the Company's prior
approval, which shall not be unreasonably withheld (the "Exchange Agent"), for
the benefit of the holders of Shares, certificates representing the shares of
Parent Common Stock and, after the Effective Time, if applicable, any cash,
dividends or other distributions with respect to the Parent Common Stock to be
issued or paid pursuant to the last sentence of Section 4.1(a) (including cash
in lieu of fractional Shares) in exchange for Shares outstanding immediately
prior to the Effective Time upon due surrender of the Certificates (or
affidavits of loss in lieu thereof) pursuant to the provisions of this Article
IV (such certificates for shares of Parent Common Stock, together with the
amount of any dividends or other distributions payable with respect thereto
and any cash in lieu of fractional Shares, being hereinafter referred to as
the "Exchange Fund").
(b) Exchange Procedures. Promptly after the Effective
Time, Parent and the Surviving Corporation shall cause the Exchange Agent to
mail to each holder of record of Shares (other than holders of Excluded
Shares) (i) a letter of transmittal specifying that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates (or affidavits of loss in lieu thereof) to the
Exchange Agent, such letter of transmittal to be in such form and have such
other provisions as Parent and the Company may reasonably agree prior to the
Effective Time, and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for (A) certificates representing shares of Parent
Common Stock and (B) any unpaid dividends and other distributions and cash in
lieu of fractional shares. Subject to Section 4.2(h), upon surrender of a
Certificate for cancellation to the Exchange Agent together with such letter
of transmittal, duly executed, the holder of such Certificate shall be
entitled to receive in exchange therefor (x) a certificate representing that
number of whole shares of Parent Common Stock that such holder is entitled to
receive pursuant to this Article IV, (y) a check in the amount (after giving
effect to any required tax withholdings) of (A) any cash in lieu of fractional
shares plus (B) any unpaid dividends or other distributions that such holder
has the right to receive pursuant to the provisions of this Article IV, and the
Certificate so surrendered shall forthwith be canceled. No interest will be
paid or accrued on any amount payable upon due surrender of the Certificates.
In the event of a transfer of ownership of Shares that is not registered in
the transfer records of the Company, a certificate representing the proper
number of shares of Parent Common Stock, together with a check for any cash to
be paid upon due surrender of the Certificate and any other dividends or
distributions in respect thereof, may be issued and/or paid to such a
transferee if the Certificate formerly representing such Shares is presented
to the Exchange Agent, accompanied by all documents required to evidence and
effect such transfer and to evidence that any applicable stock transfer taxes
have been paid. If any certificate for shares of Parent Common Stock is to be
issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it shall be a condition of such exchange that
the Person (as defined below) requesting such exchange shall pay any transfer
or other taxes required by reason of the issuance of certificates for shares
of Parent Common Stock in a name other than that of the registered holder of
the Certificate surrendered, or shall establish to the satisfaction of Parent
or the Exchange Agent that such tax has been paid or is not applicable.
For the purposes of this Agreement, the term "Person" shall
mean any individual, corporation (including not-for-profit), general or
limited partnership, limited liability company, joint venture, estate, trust,
association, organization, Governmental Entity (as defined in Section 5.1(d))
or other entity of any kind or nature.
(c) Distributions with Respect to Unexchanged Shares;
Voting. (i) All shares of Parent Common Stock to be issued pursuant to the
Merger shall be deemed issued and outstanding as of the Effective Time and
whenever a dividend or other distribution is declared by Parent in respect of
the Parent Common Stock, the record date for which is at or after the
Effective Time, that declaration shall include dividends or other
distributions in respect of all shares issuable pursuant to this Agreement.
No dividends or other distributions in respect of the Parent Common Stock
shall be paid to any holder of any unsurrendered Certificate until such
Certificate is surrendered for exchange in accordance with this Article IV.
Subject to the effect of applicable laws, following surrender of any such
Certificate, there shall be issued and/or paid to the holder of the
certificates representing whole shares of Parent Common Stock issued in
exchange therefor, without interest, (A) at the time of such surrender, the
dividends or other distributions with a record date after the Effective Time
and a payment date on or prior to such time of surrender payable with respect
to such whole shares of Parent Common Stock and not paid and (B) at the
appropriate payment date, the dividends or other distributions payable with
respect to such whole shares of Parent Common Stock with a record date after
the Effective Time but with a payment date subsequent to surrender.
(ii) Holders of unsurrendered Certificates who
were the registered holders at the Effective Time shall be entitled to vote
after the Effective Time at any meeting of Parent stockholders (or consent in
connection with any consent in lieu of meeting) the number of whole shares of
Parent Common Stock represented by such Certificates, regardless of whether
such holders have exchanged their Certificates.
(d) Transfers. After the Effective Time, there shall be
no transfers on the stock transfer books of the Company of the Shares that were
outstanding immediately prior to the Effective Time.
(e) Fractional Shares. Notwithstanding any other
provision of this Agreement, no fractional shares of Parent Common Stock will
be issued and any holder of Shares entitled to receive a fractional share of
Parent Common Stock but for this Section 4.2(e) shall be entitled to receive a
cash payment in lieu thereof, which payment shall represent such holder's
proportionate interest in the net proceeds from the sale by the Exchange Agent
on behalf of such holder of the aggregate fractional shares of Parent Common
Stock that such holder otherwise would be entitled to receive. Any such sale
shall be made by the Exchange Agent within five business days after the date
upon which the Certificate(s) (or affidavit(s) of loss in lieu thereof) that
would otherwise result in the issuance of such fractional shares of Parent
Common Stock have been received by the Exchange Agent.
(f) Termination of Exchange Fund. Any portion of the
Exchange Fund (including the proceeds of any investments thereof and any
Parent Common Stock) that remains unclaimed by the stockholders of the Company
for 180 days after the Effective Time shall be paid to Parent. Any
stockholders of the Company who have not theretofore complied with this
Article IV shall thereafter look only to Parent for payment of their shares of
Parent Common Stock and any cash, dividends and other distributions in respect
thereof payable and/or issuable pursuant to Section 4.1 and Section 4.2(c)
upon due surrender of their Certificates (or affidavits of loss in lieu
thereof), in each case, without any interest thereon. Notwithstanding the
foregoing, none of Parent, the Surviving Corporation, the Exchange Agent or
any other Person shall be liable to any former holder of Shares for any amount
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(g) Lost, Stolen or Destroyed Certificates. In the
event any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such Certificate to
be lost, stolen or destroyed and, if required by Parent, the posting by such
Person of a bond in customary amount as indemnity against any claim that may
be made against it with respect to such Certificate, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed Certificate the shares of
Parent Common Stock and any cash payable and any unpaid dividends or other
distributions in respect thereof pursuant to Section 4.2(c) upon due surrender
of and deliverable in respect of the Shares represented by such Certificate
pursuant to this Agreement.
(h) Affiliates. Notwithstanding anything herein to the
contrary, Certificates surrendered for exchange by any "affiliate" (defined to
mean, with respect to any Person, any Person that, directly or indirectly,
controls or is controlled by or is under common control with such Person) (as
determined pursuant to Section 6.8) of the Company shall not be exchanged
until Parent has received a written agreement from such Person as provided in
Section 6.8 hereof.
4.3. Dissenters' Rights. In accordance with Section
3-202 of the MGCL, no appraisal rights shall be available to holders of Shares
in connection with the Merger.
4.4. Adjustments to Prevent Dilution. In the event that
after the date hereof and prior to the Effective Time the Company changes the
number of Shares or securities convertible or exchangeable into or exercisable
for Shares, or Parent changes the number of shares of Parent Common Stock or
securities convertible or exchangeable into or exercisable for shares of
Parent Common Stock, issued and outstanding prior to the Effective Time as a
result of a reclassification, stock split (including a reverse split), stock
dividend or distribution, recapitalization, merger, subdivision, issuer tender
or exchange offer, or other similar transaction, the Merger Consideration and
the Collars shall be equitably adjusted.
4.5. Treatment of the Convertible Notes. The Convertible
Notes (as defined in Section 5.1(b)) shall be treated as set forth in Section
6.15.
ARTICLE V
Representations and Warranties
5.1. Representations and Warranties of the Company.
Except as set forth in the corresponding sections or subsections of the
disclosure letter delivered to Parent by the Company on or prior to entering
into this Agreement (the "Company Disclosure Letter"), the Company hereby
represents and warrants to Parent and Merger Subsidiary that:
(a) Organization, Good Standing and Qualification. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Maryland and each of its Subsidiaries is a
corporation or other entity duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of organization and
each of the Company and each of its Subsidiaries has all requisite corporate
or similar power and authority to own and operate its properties and assets
and to carry on its business as presently conducted and is qualified to do
business and is in good standing in each jurisdiction where the ownership or
operation of its properties or conduct of its business requires such
qualification, except where the failure to be so qualified or in such good
standing, when taken together with all other such failures, is not reasonably
likely to have a Company Material Adverse Effect (as defined below). The
Company has made available to Parent a complete and correct copy of the
Company's and its Subsidiaries' charter and by-laws or other organizational
documents, each as amended to the date hereof. The Company's and its
Subsidiaries' charter and by-laws or other organizational documents so made
available are in full force and effect.
As used in this Agreement, the term (i) "Subsidiary" means,
with respect to the Company, Parent or Merger Subsidiary, as the case may be,
any entity, whether incorporated or unincorporated, of which at least a
majority of the securities or ownership interests having by their terms
ordinary voting power to elect a majority of the board of directors or other
persons performing similar functions is directly or indirectly owned or
controlled by such party or by one or more of its respective Subsidiaries or
by such party and any one or more of its respective Subsidiaries and (ii)
"Company Material Adverse Effect" means a material adverse effect on the
financial condition, properties, business or results of the operations of the
Company and its Subsidiaries taken as a whole, other than effects caused by
changes in general economic or securities markets conditions, changes that
affect the insurance industry in general, changes resulting from any event
that is designated to be a "catastrophe" by the Property Claims Services
Division of the American Insurance Services Group, Inc., changes resulting
from insurance exposures not known to any of the Responsible Executive
Officers of the Company after due inquiry on or prior to the date of this
Agreement or, if known, disclosed on or prior to the date of this Agreement to
an employee of Parent having substantial responsibility for due diligence in
connection with the transactions contemplated by this Agreement, and changes
resulting from the announcement or proposed consummation of this Agreement and
the transactions contemplated hereby.
For purposes of this Agreement, the term "Responsible
Executive Officers of the Company" shall mean the persons designated as such
in Section 5.1(a) of the Company Disclosure Letter.
The Company conducts its insurance operations through the
Subsidiaries listed in Section 5.1(a) of the Company Disclosure Letter
(collectively, the "Company Insurance Subsidiaries"). Each of the Company
Insurance Subsidiaries is, where required, (i) duly licensed or authorized as
an insurance company or reinsurer in its jurisdiction of incorporation, (ii)
duly licensed or authorized as an insurance company and, where applicable, a
reinsurer in each other jurisdiction where it is required to be so licensed or
authorized, and (iii) duly authorized in its jurisdiction of incorporation and
each other applicable jurisdiction to write each line of business reported as
being written in the Company SAP Statements (as hereinafter defined), except,
in any such case, where the failure to be so licensed or authorized is not
reasonably likely to result in a Company Material Adverse Effect. The Company
has made all required filings under applicable insurance holding company
statutes except where the failure to file is not reasonably likely to have a
Company Material Adverse Effect.
Except for the Company Insurance Subsidiaries, the Company
does not directly or indirectly own any equity or similar interest in, or any
interest convertible into or exchangeable or exercisable for any equity or
similar interest in, any corporation, partnership, joint venture or other
business association or entity that directly or indirectly conducts any
activity which is material to the Company or the ownership of which would
require Parent to file a notification form under or observe applicable waiting
periods under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as
amended (the "HSR Act").
(b) Capital Structure. The authorized stock of the
Company consists of 240,000,000 Shares, of which 116,470,432 Shares were
outstanding as of the close of business on January 15, 1998, and 12,000,000
shares of Preferred Stock, par value $50.00 per share (the "Preferred
Shares"), of which no shares were outstanding as of the close of business on
January 15, 1998. All of the outstanding Shares have been duly authorized and
are validly issued, fully paid and nonassessable. Other than Shares reserved
for issuance under the Stock Option Agreement, the Company has no commitments
to issue or deliver Shares or Preferred Shares, except that, as of January 15,
1998, there were 10,116,531 Shares subject to issuance pursuant to the
Company's Stock Incentive Plan of 1997, Amended and Restated 1993 Stock Plan
for Non-Employee Directors, the 1992 Employee Stock Option Plan, Stock
Incentive Plan of 1991, Stock Option Plan of 1990, Stock Option Plan of 1987,
1994 Stock Plan for Employees of the Company and Titan Stock Option Plans (the
"Company Stock Plans"), 2,400,000 Preferred Shares subject to issuance
pursuant to the Amended and Restated Rights Agreement, dated as of March 11,
1997, between the Company and The Bank of New York, as Rights Agent (the
"Rights Agreement"), and 5,181,588 Shares subject to issuance pursuant to the
Company's Zero Coupon Convertible Notes due 2009 (the "Convertible Notes").
The Company Disclosure Letter contains a list, which is complete and accurate
in all material respects as of the date specified therein, of each outstanding
option to purchase or acquire Shares under each of the Company Stock Plans
(each a "Company Option"), including the plan, the holder, date of grant,
exercise price and number of Shares subject thereto. Each of the outstanding
shares of capital stock or other securities of each of the Company's
Subsidiaries is duly authorized, validly issued, fully paid and nonassessable
and owned by the Company or a direct or indirect wholly-owned subsidiary of
the Company, free and clear of any lien, pledge, security interest, claim or
other encumbrance. Except as described above, there are no preemptive or
other outstanding rights, options, warrants, conversion rights, stock
appreciation rights, redemption rights, repurchase rights, agreements,
arrangements or commitments to issue or sell any shares of capital stock or
other securities of the Company or any of its Subsidiaries or any securities or
obligations convertible or exchangeable into or exercisable for, or giving any
Person a right to subscribe for or acquire, any securities of the Company or
any of its Subsidiaries, and no securities or obligations evidencing such
rights are authorized, issued or outstanding. The Company does not have
outstanding any bonds, debentures, notes or other obligations the holders of
which have the right to vote (or, except as referred to in this subsection
(b), convertible into or exercisable for securities having the right to vote)
with the stockholders of the Company on any matter.
(c) Corporate Authority; Approval and Fairness. (i) The
Company has all requisite corporate power and authority and has taken all
corporate action necessary in order to execute, deliver and perform its
obligations under this Agreement and the Stock Option Agreement and to
consummate, subject only to approval of the Merger by the holders of at least
two-thirds of the outstanding Shares (the "Company Requisite Vote"), the
Merger. This Agreement and the Stock Option Agreement are valid and binding
agreements of the Company enforceable against the Company in accordance with
their respective terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles
(the "Bankruptcy and Equity Exception").
(ii) The board of directors of the Company (A)
has approved this Agreement, the Stock Option Agreement and the Merger and the
other transactions contemplated hereby and thereby, (B) has declared that the
Merger and the other transactions contemplated by this Agreement are advisable
and (C) has received the opinions of each of its financial advisors, ▇▇▇▇▇▇▇,
▇▇▇▇▇ & Co. and BT Alex. ▇▇▇▇▇ Incorporated, to the effect that, as of the
dates of such opinions, the Exchange Ratio is fair from a financial point of
view to the holders of Shares.
(d) Governmental Filings; No Violations. (i) Other
than the filings and/or notices (A) pursuant to Section 1.3 hereof, (B) under
the HSR Act, the Securities Exchange Act of 1934 (the "Securities Exchange
Act") and the Securities Act of 1933, as amended (the "Securities Act"), (C)
to comply with state securities or "blue-sky" laws, (D) required to be made
with the NYSE, the Pacific Stock Exchange, the London Stock Exchange or the
Swiss Stock Exchange and (E) of appropriate documents with, and approval of,
the respective Commissioners of Insurance of the states of Maryland, Illinois,
Indiana, Iowa, Michigan, Mississippi, New York, Ohio, Texas, Vermont and
Wisconsin and such notices and consents as may be required under the insurance
laws of any jurisdiction in which the Company, Parent or any of their
respective subsidiaries is domiciled or does business or is licensed or
authorized as an insurance company, no notices, reports or other filings are
required to be made by the Company with, nor are any consents, registrations,
approvals, permits or authorizations required to be obtained by the Company
from, any governmental or regulatory authority, agency, commission, body or
other governmental entity ("Governmental Entity"), in connection with the
execution and delivery of this Agreement and the Stock Option Agreement by the
Company and the consummation by the Company of the Merger and the other
transactions contemplated hereby and thereby, except those that the failure to
make or obtain are not, individually or in the aggregate, reasonably likely to
have a Company Material Adverse Effect or prevent, materially delay or
materially impair the ability of the Company to consummate transactions
contemplated by this Agreement and the Stock Option Agreement.
(ii) The execution, delivery and performance of
this Agreement and the Stock Option Agreement by the Company do not, and the
consummation by the Company of the Merger and the other transactions
contemplated hereby and thereby will not, constitute or result in (A) a breach
or violation of, or a default under, the charter or by-laws of the Company or
the comparable governing instruments of any of its Subsidiaries, (B) a breach
or violation of, or a default under, the acceleration of any obligations or
the creation of a lien, pledge, security interest or other encumbrance on the
assets of the Company or any of its Subsidiaries (with or without notice,
lapse of time or both) pursuant to, any agreement, lease, contract, note,
mortgage, indenture, arrangement or other obligation ("Contracts") binding
upon the Company or any of its Subsidiaries or (provided, as to consummation,
the filings and notices are made, and approvals are obtained, as referred to
in Section 5.1(d)(i)) any Law (as defined in Section 5.1(i)) or governmental
or non-governmental permit or license to which the Company or any of its
Subsidiaries is subject or (C) any change in the rights or obligations of any
party under any of the Contracts, except, in the case of clause (B) or (C)
above, for any breach, violation, default, acceleration, creation or change
that, individually or in the aggregate, is not reasonably likely to have a
Company Material Adverse Effect or prevent, materially delay or materially
impair the ability of the Company to consummate the transactions contemplated
by this Agreement and the Stock Option Agreement. Section 5.1(d)(ii) of the
Company Disclosure Letter sets forth, to the knowledge of the executive
officers of the Company, a good faith list of contracts (by category and type,
where applicable) material to the Company and its Subsidiaries, taken as a
whole, pursuant to which consents or waivers are or may be required prior to
consummation of the transactions contemplated by this Agreement and the Stock
Option Agreement (whether or not subject to the exception set forth with
respect to clauses (B) and (C) above).
(e) Company Reports; Financial Statements. The Company
has delivered or made available to Parent each registration statement, report,
proxy statement or information statement prepared by it since December 31,
1996 (the "Audit Date"), including (i) the Company's Annual Report on Form
10-K for the year ended December 31, 1996 and (ii) the Company's Quarterly
Reports on Form 10-Q for the periods ended March 31, 1997, June 30, 1997 and
September 30, 1997, each in the form (including exhibits, annexes and any
amendments thereto) filed with the Securities and Exchange Commission (the
"SEC") (collectively, including any such reports filed subsequent to the date
hereof, the "Company Reports"). As of their respective dates, the Company
Reports did not, and any Company Reports filed with the SEC subsequent to the
date hereof will not, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were
made, not misleading. Each of the consolidated balance sheets included in or
incorporated by reference into the Company Reports (including the related
notes and schedules) fairly presents, or will fairly present, the consolidated
financial position of the Company and its Subsidiaries as of its date and each
of the consolidated statements of income and of changes in financial position
included in or incorporated by reference into the Company Reports (including
any related notes and schedules) fairly presents, or will fairly present, the
consolidated results of operations, retained earnings and changes in financial
position, as the case may be, of the Company and its Subsidiaries for the
periods set forth therein (subject, in the case of unaudited statements, to
notes and normal year-end audit adjustments that will not be material in
amount or effect), in each case in accordance with generally accepted
accounting principles ("GAAP") consistently applied during the periods
involved, except as may be noted therein.
The Company has delivered or made available to Parent true
and complete copies of the annual and quarterly statements of each of the
Company Insurance Subsidiaries as filed with the applicable insurance
regulatory authorities for the years ended December 31, 1994, 1995 and 1996
and the quarterly periods ended March 31, 1997, June 30, 1997 and September
30, 1997, including all exhibits, interrogatories, notes, schedules and any
actuarial opinions, affirmations or certifications or other supporting
documents filed in connection therewith (collectively, the "Company SAP
Statements"). The Company SAP Statements were prepared in conformity with
statutory accounting practices prescribed or permitted by the applicable
insurance regulatory authority consistently applied for the periods covered
thereby and present fairly the statutory financial position of such Company
Insurance Subsidiaries as at the respective dates thereof and the results of
operations of such Subsidiaries for the respective periods then ended. The
Company SAP Statements complied in all material respects with all applicable
laws, rules and regulations when filed, and no material deficiency has been
asserted with respect to any Company SAP Statements by the applicable
insurance regulatory body or any other governmental agency or body. The
annual statutory balance sheets and income statements included in the Company
SAP Statements have been audited by Ernst & Young LLP, and the Company has
delivered or made available to Parent true and complete copies of all audit
opinions related thereto. The Company has delivered or made available to
Parent true and complete copies of all examination reports of insurance
departments and any insurance regulatory agencies since January 1, 1994
relating to the Company Insurance Subsidiaries.
(f) Absence of Certain Changes. Except as disclosed in
the Company Reports filed prior to the date hereof, since the Audit Date, the
Company and its Subsidiaries have conducted their respective businesses only
in, and have not engaged in any material transaction other than according to,
the ordinary and usual course of such businesses and there has not been (i)
any change in the financial condition, properties, business or results of
operations of the Company and its Subsidiaries or any development or
combination of developments of which any executive officer of the Company has
knowledge that, individually or in the aggregate, has had or is reasonably
likely to result in a Company Material Adverse Effect; (ii) any material
damage, destruction or other casualty loss with respect to any material asset
or property owned, leased or otherwise used by the Company or any of its
Subsidiaries, whether or not covered by insurance; (iii) any authorization,
declaration, setting aside or payment of any dividend or other distribution in
respect of the stock of the Company, except as permitted by Section 6.1(a)
hereof; (iv) any change by the Company in accounting principles, practices or
methods other than as required by changes in applicable GAAP or statutory
accounting principles; (v) any material addition to the Company's consolidated
reserves for future policy benefits or other policy claims and benefits prior
to the date of this Agreement; or (vi) any material change in the accounting,
actuarial, investment, reserving, underwriting or claims administration
policies, practices, procedures, methods, assumptions or principles of any
Company Insurance Subsidiary. Since June 30, 1997, except as provided for
herein or as disclosed in the Company Reports filed prior to the date hereof,
there has not been any increase in the compensation payable or that could
become payable by the Company or any of its Subsidiaries to officers at the
senior vice president level or above or any amendment of any of the
Compensation and Benefit Plans other than increases or amendments in the
ordinary course.
(g) Litigation and Liabilities. Except as disclosed in
the Company Reports filed prior to the date hereof, there are no (i) civil,
criminal or administrative actions, suits, claims, hearings, investigations or
proceedings pending or, to the knowledge of any executive officer of the
Company, threatened against the Company or any of its affiliates or (ii)
obligations or liabilities of any nature, whether or not accrued, contingent
or otherwise and whether or not required to be disclosed, including those
relating to environmental and occupational safety and health matters, or any
other facts or circumstances of which any executive officer of the Company has
knowledge that could reasonably be expected to result in any claims against, or
obligations or liabilities of, the Company or any of its affiliates, except
for insurance claims litigation arising in the ordinary course for which
claims reserves have been established and except for such actions, suits,
claims, hearings, investigations, proceedings, obligations and liabilities as
are not, individually or in the aggregate, reasonably likely to have a Company
Material Adverse Effect or prevent or materially impair the ability of the
Company to consummate the transactions contemplated by this Agreement and the
Stock Option Agreement.
(h) Employee Benefits.
(i) A copy of each bonus, deferred
compensation, pension, retirement, profit-sharing, thrift, savings, employee
stock ownership, stock bonus, stock purchase, restricted stock, stock option,
employment, termination, severance, change of control, compensation, medical,
health or other plan, agreement, policy or arrangement that covers employees,
directors, former employees or former directors of the Company and its
Subsidiaries (the "Compensation and Benefit Plans") and any trust agreement or
insurance contract forming a part of such Compensation and Benefit Plans has
been made available to Parent prior to the date hereof. The Compensation and
Benefit Plans are listed in Section 5.1(h) of the Company Disclosure Letter
and any "change of control" or similar provisions therein are specifically
identified in Section 5.1(h) of the Company Disclosure Letter.
(ii) All Compensation and Benefit Plans are in
substantial compliance with all applicable law, including, to the extent
applicable, the Code and the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"). Each Compensation and Benefit Plan that is an "employee
pension benefit plan" within the meaning of Section 3(2) of ERISA (a "Pension
Plan") and that is intended to be qualified under Section 401(a) of the Code
has received a favorable determination letter from the Internal Revenue
Service (the "IRS"), and the Company is not aware of any circumstances likely
to result in revocation of any such favorable determination letter. There is
no pending or, to the knowledge of the executive officers of the Company,
threatened material litigation relating to the Compensation and Benefit Plans.
Neither the Company nor any of its Subsidiaries has engaged in a transaction
with respect to any Compensation and Benefit Plan that, assuming the taxable
period of such transaction expired as of the date hereof, would subject the
Company or any of its Subsidiaries to a material tax or penalty imposed by
either Section 4975 of the Code or Section 502 of ERISA.
(iii) As of the date hereof, no liability under
Subtitle C or D of Title IV of ERISA has been or is expected to be incurred by
the Company or any of its Subsidiaries with respect to any ongoing, frozen or
terminated "single-employer plan", within the meaning of Section 4001(a)(15)
of ERISA, currently or formerly maintained by any of them, or the
single-employer plan of any entity which is considered one employer with the
Company under Section 4001 of ERISA or Section 414 of the Code (an "ERISA
Affiliate"). The Company and its Subsidiaries have not incurred and do not
expect to incur any withdrawal liability with respect to a multiemployer plan
under Subtitle E to Title IV of ERISA. The Company and its Subsidiaries have
not contributed, or been obligated to contribute, to a multiemployer plan
under Subtitle E of Title IV of ERISA at any time since September 26, 1980. No
notice of a "reportable event", within the meaning of Section 4043 of ERISA for
which the 30-day reporting requirement has not been waived, has been required
to be filed for any Pension Plan or by any ERISA Affiliate within the 12-month
period ending on the date hereof or will be required to be filed in connection
with the transactions contemplated by this Agreement and the Stock Option
Agreement.
(iv) All contributions required to be made
under the terms of any Compensation and Benefit Plan as of the date hereof
have been timely made or have been reflected on the most recent consolidated
balance sheet filed or incorporated by reference in the Company Reports prior
to the date hereof. Neither any Pension Plan nor any single-employer plan of
an ERISA Affiliate has an "accumulated funding deficiency" (whether or not
waived) within the meaning of Section 412 of the Code or Section 302 of ERISA.
Neither the Company nor its Subsidiaries has provided, or is required to
provide, security to any Pension Plan or to any single-employer plan of an
ERISA Affiliate pursuant to Section 401(a)(29) of the Code.
(v) Under each Pension Plan which is a
single-employer plan, as of the last day of the most recent plan year ended
prior to the date hereof, the actuarially determined present value of all
"benefit liabilities", within the meaning of Section 4001(a)(16) of ERISA (as
determined on the basis of the actuarial assumptions contained in the Pension
Plan's most recent actuarial valuation), did not exceed the then current value
of the assets of such Pension Plan, and there has been no material change in
the financial condition of such Pension Plan since the last day of the most
recent plan year.
(vi) Neither the Company nor its Subsidiaries
have any obligations for retiree health and life benefits under any
Compensation and Benefit Plan, except as set forth in the Company Disclosure
Letter. The Company or its Subsidiaries may amend or terminate any such plan
under the terms of such plan at any time without incurring any material
liability thereunder.
(vii) The change in control contemplated by the
Merger will not (x) entitle any employees of the Company or its Subsidiaries
to severance pay, (y) accelerate the time of payment or vesting or trigger any
payment of compensation or benefits under, increase the amount payable or
trigger any other material obligation pursuant to, any of the Compensation and
Benefit Plans or (z) result in any breach or violation of, or a default under,
any of the Compensation and Benefit Plans.
(viii) All Compensation and Benefit Plans covering
current or former non-U.S. employees of the Company and its Subsidiaries
comply in all material respects with applicable local law. The Company and
its Subsidiaries have no material unfunded liabilities with respect to any
Pension Plan that covers such non-U.S. employees.
(ix) The number of individuals who perform
services for the Company or any of its Subsidiaries on a full-time basis but
who are not employees of the Company or any of its Subsidiaries does not
exceed 10% of the workforce of the Company and its Subsidiaries.
(x) Any amount that could be received (whether
in cash or property or the vesting of property) as a result of any of the
transactions contemplated by this Agreement by any employee, officer, director
or independent contractor of the Company who is a "disqualified individual"
(as such term is defined in proposed Treasury Regulation Section 1.280G-1)
under any employment arrangement would not be characterized as an "excess
parachute payment" (as such term is defined in Section 280G(b)(1) of the Code).
(i) Compliance with Laws; Permits. (i) The business and
operations of the Company and the Company Insurance Subsidiaries have been
conducted in compliance with all applicable statutes and regulations
regulating the business of insurance and all applicable orders and directives
of insurance regulatory authorities (including federal authorities with
respect to variable insurance and annuity products) and market conduct
recommendations resulting from market conduct examinations of insurance
regulatory authorities (including federal authorities with respect to variable
insurance and annuity products) (collectively, "Insurance Laws"), except where
the failure to so conduct such business and operations would not, individually
or in the aggregate, be reasonably likely to have a Company Material Adverse
Effect. Notwithstanding the generality of the foregoing, except where the
failure to do so would not, individually or in the aggregate, be reasonably
likely to have a Company Material Adverse Effect, each Company Insurance
Subsidiary and, to the knowledge of the executive officers of the Company its
agents have marketed, sold and issued insurance products in compliance, in all
material respects, with Insurance Laws applicable to the business of such
Company Insurance Subsidiary and in the respective jurisdictions in which such
products have been sold, including, without limitation, in compliance with (a)
all applicable prohibitions against "redlining" or withdrawal of business
lines, (b) all applicable requirements relating to the disclosure of the
nature of insurance products as policies of insurance and (c) all applicable
requirements relating to insurance product projections and illustrations. In
addition, (i) there is no pending or, to the knowledge of the executive
officers of the Company, threatened charge by any insurance regulatory
authority that any of the Company Insurance Subsidiaries has violated, nor any
pending or, to the knowledge of the executive officers of the Company,
threatened investigation by any insurance regulatory authority with respect to
possible violations of, any applicable Insurance Laws where such violations
would, individually or in the aggregate, be reasonably likely to have a
Company Material Adverse Effect; (ii) none of the Company Insurance
Subsidiaries is subject to any order or decree of any insurance regulatory
authority relating specifically to such Company Insurance Subsidiary (as
opposed to insurance companies generally) which would, individually or in the
aggregate, be reasonably likely to have a Company Material Adverse Effect; and
(iii) the Company Insurance Subsidiaries have filed all reports required to be
filed with any insurance regulatory authority on or before the date hereof as
to which the failure to file such reports would individually or in the
aggregate, be reasonably likely to have a Company Material Adverse Effect.
(ii) In addition to Insurance Laws, except as
set forth in the Company Reports filed prior to the date hereof, the
businesses of each of the Company and its Subsidiaries have not been, and are
not being, conducted in violation of any federal, state, local or foreign law,
statute, ordinance, rule, regulation, judgment, order, injunction, decree,
arbitration award, agency requirement, license or permit of any Governmental
Entity (collectively with Insurance Laws, "Laws"), except for violations or
possible violations that, individually or in the aggregate, are not
reasonably likely to have a Company Material Adverse Effect or prevent or
materially impair the ability of the Company to consummate the transactions
contemplated by this Agreement and the Stock Option Agreement. Except as set
forth in the Company Reports filed prior to the date hereof, no investigation
or review by any Governmental Entity with respect to the Company or any of its
Subsidiaries is pending or, to the knowledge of the executive officers of the
Company, threatened, nor has any Governmental Entity indicated an intention to
conduct the same, except for those the outcome of which are not, individually
or in the aggregate, reasonably likely to have a Company Material Adverse
Effect or prevent or materially burden or materially impair the ability of the
Company to consummate the transactions contemplated by this Agreement and the
Stock Option Agreement. To the knowledge of the executive officers of the
Company, no material change is required in the Company's or any of its
Subsidiaries' processes, properties or procedures in connection with any such
Laws, and the Company has not received any notice or communication of any
material noncompliance with any such Laws that has not been cured as of the
date hereof. The Company and its Subsidiaries each has all permits, licenses,
trademarks, patents, trade names, copyrights, service marks, franchises,
variances, exemptions, orders and other governmental authorizations, consents
and approvals necessary to conduct its business as presently conducted except
those the absence of which are not, individually or in the aggregate,
reasonably likely to have a Company Material Adverse Effect or prevent or
materially burden or materially impair the ability of the Company to
consummate the Merger and the other transactions contemplated by this Agreement
and the Stock Option Agreement.
(j) Takeover Statutes. No restrictive provision of any
"fair price," "moratorium," "control share acquisition" or other similar
anti-takeover statute or regulation (including Section 3-602 of the MGCL)
(each a "Takeover Statute") or restrictive provision of any applicable
anti-takeover provision in the charter or by-laws of the Company is, or at the
Effective Time will be, applicable to the Company, the Shares, the Merger or
any other transaction contemplated by this Agreement or the Stock Option
Agreement.
(k) Environmental Matters. Except as disclosed in the
Company Reports filed prior to the date hereof and except for such matters
that, alone or in the aggregate, are not reasonably likely to have a Company
Material Adverse Effect: (i) the Company and its Subsidiaries have complied
with all applicable Environmental Laws; (ii) the properties currently owned or
operated by the Company (including soils, groundwater, surface water,
buildings or other structures) are not contaminated with any Hazardous
Substances; (iii) the properties formerly owned or operated by the Company or
any of its Subsidiaries were not contaminated with Hazardous Substances during
the period of ownership or operation by the Company or any of its
Subsidiaries; (iv) neither the Company nor any of its Subsidiaries is subject
to liability for any Hazardous Substance disposal or contamination on any
third party property (excluding policies written in connection with the
insurance business); (v) no Hazardous Substance has been transported from any
of the properties owned or operated by the Company or any of its Subsidiaries
other than as permitted under applicable Environmental Law; (vi) neither the
Company nor any of its Subsidiaries has received any written notice, demand,
letter, claim or request for information from any Governmental Entity or third
party indicating that the Company or any of its Subsidiaries may be in
violation of or liable under any Environmental Law; (vii) the Company and its
Subsidiaries are not subject to any court order, administrative order or
decree arising under any Environmental Law and are not subject to any indemnity
or other agreement with any third party relating to liability under any
Environmental Law or relating to Hazardous Substances (excluding policies
written in connection with the insurance business); and (viii) there are no
circumstances or conditions involving the Company or any of its Subsidiaries
that could reasonably be expected to result in any claims, liability,
investigations, costs or restrictions on the ownership, use, or transfer of
any property of the Company pursuant to any Environmental Law.
As used herein, the term "Environmental Law" means any
federal, state, local or foreign law, statute, ordinance, regulation,
judgment, order, decree, arbitration award, agency requirement, license,
permit, authorization or opinion, relating to: (A) the protection,
investigation or restoration of the environment, health and safety, or natural
resources, (B) the handling, use, presence, disposal, release or threatened
release of any Hazardous Substance or (C) noise, odor, wetlands, pollution,
contamination or any injury or threat of injury to persons or property.
As used herein, the term "Hazardous Substance" means any
substance that is: (A) listed, classified or regulated pursuant to any
Environmental Law; (B) any petroleum product or by-product,
asbestos-containing material, lead-containing paint or plumbing,
polychlorinated biphenyls, radioactive materials or radon; or (C) any other
substance which may be the subject of regulatory action by any Government
Authority pursuant to any Environmental Law.
(l) Accounting and Tax Matters. As of the date hereof,
neither the Company nor any of its affiliates has taken or agreed to take any
action, nor do the executive officers of the Company have any knowledge of any
fact or circumstance, that would prevent Parent from accounting for the
business combination to be effected by the Merger as a "pooling-of-interests"
or prevent the Merger and the other transactions contemplated by this
Agreement from qualifying as a "reorganization" within the meaning of Section
368(a) of the Code.
(m) Taxes. Except as provided in Section 5.1(m) of the
Company Disclosure Letter:
(i) the Company and each of its Subsidiaries
have filed completely and correctly in all material respects all Tax Returns
(as defined below) which are required by all applicable laws to be filed by
them, and have paid, or made adequate provision for the payment of, all
material Taxes (as defined below) which have or may become due and payable
pursuant to said Tax Returns and all other Taxes, governmental charges and
assessments received to date other than those Taxes being contested in good
faith for which adequate provision has been made on the most recent balance
sheet included in the Company Reports. The Tax Returns of the Company and its
Subsidiaries have been prepared, in all material respects, in accordance with
all applicable laws consistently applied;
(ii) all material Taxes which the Company and
its Subsidiaries are required by law to withhold and collect have been duly
withheld and collected, and have been paid over, in a timely manner, to the
proper Taxing Authorities (as defined below) to the extent due and payable;
(iii) no liens for a material amount of Taxes
exist with respect to any of the assets or properties of the Company or its
Subsidiaries, except for statutory liens for Taxes not yet due or payable or
that are being contested in good faith;
(iv) all of the U.S. Federal income Tax Returns
filed by or on behalf of each of the Company and its Subsidiaries have been
examined by and settled with the Internal Revenue Service, or the statute of
limitations with respect to the relevant Tax liability expired, for all
taxable periods through and including the period ending on the date on which
the Effective Time occurs; and
(v) there is no audit, examination,
deficiency, or refund litigation pending with respect to any material amount
of Taxes and during the past three years no Taxing Authority has given written
notice of the commencement of any audit, examination, deficiency or refund
litigation, with respect to any material amount of Taxes;
As used in this Agreement, (i) the term "Tax" (including,
with correlative meaning, the terms "Taxes" and "Taxable") shall mean, with
respect to any Person, (a) all taxes, domestic or foreign, including without
limitation any income (net, gross or other, including recapture of any tax
items such as investment tax credits), alternative or add-on minimum tax,
gross income, gross receipts, gains, sales, use, leasing, lease, user, ad
valorem, transfer, recording, franchise, profits, property (real or personal,
tangible or intangible), fuel, license, withholding on amounts paid to or by
such Person, payroll, employment, unemployment, social security, excise,
severance, stamp, occupation, premium, environmental or windfall profit tax,
custom, duty or other tax, or other like assessment or charge of any kind
whatsoever, together with any interest, levies, assessments, charges,
penalties, additions to tax or additional amounts imposed by any Taxing
Authority, (b) any joint or several liability of such Person with any other
Person for the payment of any amounts of the type described in (a) of this
definition and (c) any liability of such Person for the payment of any amounts
of the type described in (a) as a result of any express or implied obligation
to indemnify any other Person; (ii) the term "Tax Return(s)" shall mean all
returns, consolidated or otherwise (including without limitation informational
returns), required to be filed with any Taxing Authority; and (iii) the term
"Taxing Authority" shall mean any authority responsible for the imposition of
any Tax.
(n) Labor Matters. Neither the Company nor any of its
Subsidiaries is a party to or otherwise bound by any collective bargaining
agreement, contract or other agreement or understanding with a labor union or
labor organization.
(o) Intellectual Property. (i) The Company and/or each
of its Subsidiaries owns, or is licensed or otherwise possesses legally
enforceable rights to use all patents, trademarks, trade names, service marks,
copyrights, and any applications therefor, technology, know-how, computer
software programs or applications, and tangible or intangible proprietary
information or materials that are used in the business of the Company and its
Subsidiaries as currently conducted, except for any such failures to own, be
licensed or possess that, individually or in the aggregate, are not reasonably
likely to have a Company Material Adverse Effect, and to the knowledge of the
executive officers of the Company all patents, trademarks, trade names,
service marks and copyrights held by the Company and/or its Subsidiaries are
valid and subsisting.
(ii) Except as disclosed in Company Reports
filed prior to the date hereof or as is not reasonably likely to have a
Company Material Adverse Effect:
(A) the Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its
obligations hereunder, in violation of any licenses, sublicenses
and other agreements as to which the Company is a party and
pursuant to which the Company is authorized to use any third-party
patents, trademarks, service marks, and copyrights ("Third-Party
Intellectual Property Rights");
(B) no claims with respect to (I) the patents, registered and
material unregistered trademarks and service marks, registered
copyrights, trade names, and any applications therefor owned by
the Company or any its Subsidiaries (the "Company Intellectual
Property Rights"); (II) any trade secret material to the Company;
or (III) Third-Party Intellectual Property Rights are currently
pending or, to the knowledge of the executive officers of the
Company, are threatened by any Person;
(C) the executive officers of the Company do not know of any
valid grounds for any bona fide claims (I) to the effect that the
sale, licensing or use of any product as now used, sold or
licensed or proposed for use, sale or license by the Company or
any of its Subsidiaries, infringes on any copyright, patent,
trademark, service ▇▇▇▇ or trade secret; (II) against the use by
the Company or any of its Subsidiaries, of any trademarks, trade
names, trade secrets, copyrights, patents, technology, know-how or
computer software programs and applications used in the business
of the Company or any of its Subsidiaries as currently conducted
or as proposed to be conducted; (III) challenging the ownership,
validity or effectiveness of any of the Company Intellectual
Property Rights or other trade secret material to the Company; or
(IV) challenging the license or legally enforceable right to use
of the Third-Party Intellectual Rights by the Company or any of
its Subsidiaries; and
(D) to the knowledge of the executive officers of the Company,
there is no unauthorized use, infringement or misappropriation of
any of the Company Intellectual Property Rights by any third
party, including any employee or former employee of the Company or
any of its Subsidiaries.
(p) Material Contracts. All of the material contracts
of the Company and its Subsidiaries that are required to be described in the
Company Reports or to be filed as exhibits thereto are described in the
Company Reports or filed as exhibits thereto and are in full force and effect.
True and complete copies of all such material contracts have been delivered or
have been made available by the Company to Parent. Neither the Company nor
any of its Subsidiaries nor any other party is in breach of or in default
under any such contract except for such breaches and defaults as individually
or in the aggregate have not had and are not reasonably likely to have a
Company Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is party to any agreement containing any provision or covenant
limiting in any material respect the ability of the Company or any of its
Subsidiaries to (A) sell any products or services of or to any other person,
(B) engage in any line of business or (C) compete with or to obtain products
or services from any person or limiting the ability of any person to provide
products or services to the Company or any of its Subsidiaries.
(q) Rights Plan. (i) The Company has amended the Rights
Agreement to provide that Parent shall not be deemed an Acquiring Person, the
Distribution Date (each as defined in the Rights Agreement) shall not be
deemed to occur and the rights issuable pursuant to the Rights Agreement (the
"Rights") will not separate from the Shares, as a result of entering into this
Agreement and/or the Stock Option Agreement or consummating the Merger and/or
the other transactions contemplated hereby and/or thereby.
(ii) The Company has taken all necessary action
with respect to all of the outstanding Rights so that, as of immediately prior
to the Effective Time, (A) neither the Company nor Parent will have any
obligations under the Rights or the Rights Agreement and (B) the holders of
the Rights will have no rights under the Rights or the Rights Agreement.
(r) Brokers and Finders. Neither the Company nor any of
its executive officers, directors or employees has employed any broker or
finder or incurred any liability for any brokerage fees, commissions or
finders fees in connection with the Merger or the other transactions
contemplated in this Agreement or the Stock Option Agreement, except that the
Company has employed ▇▇▇▇▇▇▇, Sachs & Co. and BT Alex. ▇▇▇▇▇ Incorporated as
its financial advisors, the arrangements with which have been disclosed to
Parent prior to the date hereof.
(s) Insurance Matters. (i) Except as otherwise
would not, individually or in the aggregate, be reasonably likely to have a
Company Material Adverse Effect, all policies, binders, slips, certificates,
annuity contracts and participation agreements and other agreements of
insurance, whether individual or group, in effect as of the date hereof
(including all applications, supplements, endorsements, riders and ancillary
agreements in connection therewith) that are issued by the Company Insurance
Subsidiaries (the "Company Insurance Contracts") and any and all marketing
materials, are, to the extent required under applicable law, on forms approved
by applicable insurance regulatory authorities or which have been filed and
not objected to by such authorities within the period provided for objection,
and such forms comply in all material respects with the insurance statutes,
regulations and rules applicable thereto and, as to premium rates established
by the Company or any Company Insurance Subsidiary which are required to be
filed with or approved by insurance regulatory authorities, the rates have
been so filed or approved, the premiums charged conform thereto in all
material respects, and such premiums comply in all material respects with the
insurance statutes, regulations and rules applicable thereto.
(ii) All reinsurance and coinsurance treaties or
agreements, including retrocessional agreements, to which the Company or any
Company Insurance Subsidiary is a party or under which the Company or any
Company Insurance Subsidiary has any existing rights, obligations or
liabilities are in full force and effect except for such treaties or
agreements the failure to be in full force and effect as individually or in
the aggregate are not reasonably likely to have a Company Material Adverse
Effect. Neither the Company nor any Company Insurance Subsidiary, nor, to the
knowledge of the Company, any other party to a reinsurance or coinsurance
treaty or agreement to which the Company or any Company Insurance Subsidiary
is a party, is in default in any material respect as to any provision thereof,
and no such agreement contains any provision providing that the other party
thereto may terminate such agreement by reason of the transactions
contemplated by this Agreement. The Company has not received any notice to
the effect that the financial condition of any other party to any such
agreement is impaired with the result that a default thereunder may reasonably
be anticipated, whether or not such default may be cured by the operation of
any offset clause in such agreement. No insurer or reinsurer or group of
affiliated insurers or reinsurers accounted for the direction to the Company
and the Company Insurance Subsidiaries or the ceding by the Company and the
Company Insurance Subsidiaries of insurance or reinsurance business in an
aggregate amount equal to two percent or more of the consolidated gross
premium income of the Company and the Company Insurance Subsidiaries for the
year ended December 31, 1996.
(iii) Prior to the date hereof, the Company has
delivered or made available to Parent a true and complete copy of any
actuarial reports prepared by actuaries, independent or otherwise, with
respect to the Company or any Company Insurance Subsidiary since December 31,
1994, and all attachments, addenda, supplements and modifications thereto (the
"Company Actuarial Analyses"). To the knowledge of the executive officers of
the Company, the information and data furnished by the Company or any Company
Insurance Subsidiary to its independent actuaries in connection with the
preparation of the Company Actuarial Analyses were accurate in all material
respects. Furthermore, to the knowledge of the executive officers of the
Company, each Company Actuarial Analysis was based upon an accurate inventory
of policies in force for the Company and the Company Insurance Subsidiaries,
as the case may be, at the relevant time of preparation, was prepared using
appropriate modeling procedures accurately applied and in conformity with
generally accepted actuarial standards consistently applied, and the
projections contained therein were properly prepared in accordance with the
assumptions stated therein.
(iv) As of the date hereof, the Company has no
reason to believe that any rating presently held by the Company Insurance
Subsidiaries is likely to be modified, qualified, lowered or placed under
surveillance for a possible downgrade for any reason other than as a result of
the transactions contemplated hereby.
(v) Except as would not reasonably be expected
to have a Company Material Adverse Effect, all annuity contracts and life
insurance policies issued by each Company Insurance Subsidiary meet all
definitional or other requirements for qualification under the Code section
applicable (or intended to be applicable) to such annuity contracts or life
insurance policies, including, without limitation, the following: (A) each
life insurance policy meets the requirements of sections 101(f), 817(h) or
7702 of the Code, as applicable; (B) no life insurance contract issued by any
Company Insurance Company is a "modified endowment contract" within the
meaning of section 7702A of the Code unless and to the extent that the holders
of the policies have been notified of their classification; (C) each annuity
contract issued, entered into or sold by any Company Insurance Subsidiary
qualifies as an annuity under federal tax law; (D) each annuity contract meets
the requirements of, and has been administered consistent with section 817(h)
and 72 of the Code including but not limited to section 72(s) of the Code
(except for those contracts specifically excluded from such requirement
pursuant to section 72(s)(5) of the Code); (E) each annuity contract intended
to qualify under sections 130, 403(a), 403(b) or 408(b) of the Code contains
all provisions required for qualification under such sections of the Code; (F)
each annuity contract marketed as, or in connection with, plans that are
intended to qualify under section 401, 403, 408 or 457 of the Code complies
with the requirements of such section; and (G) none of the Company Insurance
Subsidiaries have entered into any agreement or are involved in any
discussions or negotiations and there are no audits, examinations,
investigations or other proceedings with the IRS with respect to the failure
of any life insurance policy under section 7702 or 817(h) of the Code or the
failure of any annuity contract to meet the requirements of section 72(s) of
the Code. There are no "hold harmless" indemnification agreements respecting
the tax qualification or treatment of any product or plan sold, issued,
entered into or administered by the Company Insurance Subsidiaries, and there
have been no claims asserted by any Person under such "hold harmless"
indemnification agreements so set forth.
(t) Liabilities and Reserves. (i) The reserves
carried on the Company SAP Statements of each Company Insurance Subsidiary for
the year ended December 31, 1996 for future insurance policy benefits, losses,
claims and similar purposes (including claims litigation) are in compliance in
all material respects with the requirements for reserves established by the
insurance departments of the state of domicile of such Company Insurance
Subsidiary, were determined in all material respects in accordance with
generally accepted actuarial standards and principles consistently applied,
and are fairly stated in all material respects in accordance with sound
actuarial and statutory accounting principles. Such reserves were adequate in
the aggregate to cover the total amount of all reasonably anticipated
liabilities of the Company and each Company Insurance Subsidiary under all
outstanding insurance, reinsurance and other applicable agreements as of the
respective dates of such Company SAP Statements. The admitted assets of the
Company and each Company Insurance Subsidiary as determined under applicable
Laws are in an amount at least equal to the minimum amounts required by
applicable Laws.
(ii) Except for regular periodic assessments in
the ordinary course of business or assessments based on developments which are
publicly known within the insurance industry, to the knowledge of the
executive officers of the Company, no claim or assessment is pending or
threatened against any Company Insurance Subsidiary which is peculiar or
unique to such Company Insurance Subsidiary by any state insurance guaranty
associations in connection with such association's fund relating to insolvent
insurers which if determined adversely would, individually or in the
aggregate, be reasonably likely to have a Company Material Adverse Effect.
(u) Investment Advisory Matters. (i) No Company
Insurance Subsidiary maintains any separate account or accounts.
(ii) Each of the Company Insurance Subsidiaries
is treated for federal tax purposes as the owner of the assets underlying the
respective life insurance policies and annuity contracts issued, entered into
or sold by it.
(iii) Neither the Company nor any of its
Subsidiaries conducts activities of or is otherwise deemed under applicable
law to control an "investment adviser," as such term is defined in Section
2(a)(20) of the Investment Company Act of 1940 (the "1940 Act"), whether or
not registered under the Investment Advisers Act of 1940, as amended, of any
Person required to be registered under the 1940 Act, except that the Company
has an indirect 50% general partnership interest in Pacholder & Company
("Pacholder"), which advises one registered investment company. Neither the
Company nor any of its Subsidiaries is an "investment company" as defined in
the 1940 Act, and neither the Company nor any of its Subsidiaries is a
promoter (as such term is defined in Section 2(a)(30) of the ▇▇▇▇ ▇▇▇) of any
Person that is such an investment company.
(iv) Neither the Company nor any of its
Subsidiaries conducts activities of, controls, owns more than a 20% interest
in, or is deemed under applicable law to control any Person that is, an
investment adviser as defined in the Investment Advisers Act of 1940, as
amended (whether or not registered under such Act), other than Pacholder
(which has no clients other than Pacholder Fund, Inc.), Pacholder Associates,
Inc., Falcon Asset Management Inc. and USF&G Realty Advisers, Inc. (together,
the "Asset Management Subsidiaries").
5.2. Representations and Warranties of Parent and Merger
Subsidiary. Except as set forth in the corresponding sections or subsections
of the disclosure letter delivered to the Company by Parent on or prior to
entering into this Agreement (the "Parent Disclosure Letter"), Parent and
Merger Subsidiary each hereby represent and warrant to the Company that:
(a) Capitalization of Merger Subsidiary. The authorized
stock of Merger Subsidiary consists of 1,000 shares of Common Stock, par value
$1.00 per share, all of which are validly issued and outstanding. All of the
issued and outstanding stock of Merger Subsidiary is, and at the Effective
Time will be, owned by Parent, and there are (i) no other shares of stock or
voting securities of Merger Subsidiary, (ii) no securities of Merger
Subsidiary convertible into or exchangeable for shares of stock or voting
securities of Merger Subsidiary and (iii) no options or other rights to
acquire from Merger Subsidiary, and no obligations of Merger Subsidiary to
issue or deliver, any stock, voting securities or securities convertible into
or exchangeable for stock or voting securities of Merger Subsidiary. Merger
Subsidiary has not conducted any business prior to the date hereof and has no,
and prior to the Effective Time will have no, assets, liabilities or
obligations of any nature other than those incident to its formation and
pursuant to this Agreement and the Merger and the other transactions
contemplated by this Agreement.
(b) Organization, Good Standing and Qualification.
Parent is a corporation duly organized, validly existing and in good standing
under the laws of the State of Minnesota and each of its Subsidiaries is a
corporation or other entity duly organized, validly existing and in good
standing under the laws of its respective jurisdiction of organization and
each of Parent and each of its Subsidiaries has all requisite corporate or
similar power and authority to own and operate its properties and assets and
to carry on its business as presently conducted and is qualified to do
business and is in good standing in each jurisdiction where the ownership or
operation of its properties or conduct of its business requires such
qualification, except where the failure to be so qualified or in such good
standing, when taken together with all other such failures, is not reasonably
likely to have a Parent Material Adverse Effect (as defined below). Parent
has made available to the Company a complete and correct copy of Parent's and
its Subsidiaries' charter and by-laws or other organizational documents, each
as amended to the date hereof. Parent's and its Subsidiaries' charter and
by-laws or other organizational documents so made available are in full force
and effect.
As used in this Agreement, the term "Parent Material Adverse
Effect" means a material adverse effect on the financial condition,
properties, business or results of the operations of Parent and its
Subsidiaries taken as a whole, other than effects caused by changes in general
economic or securities markets conditions, changes that affect the insurance
industry in general, changes resulting from any event that is designated to be
a "catastrophe" by the Property Claims Services Division of the American
Insurance Services Group, Inc., changes resulting from insurance exposures not
known to any of the Responsible Executive Officers of Parent after due inquiry
on or prior to the date of this Agreement or, if known, disclosed on or prior
to the date of this Agreement to an employee of the Company having substantial
responsibility for due diligence in connection with the transactions
contemplated by this Agreement, and changes resulting from the announcement or
proposed consummation of this Agreement and the transactions contemplated
hereby.
For purposes of this Agreement, the term "Responsible
Executive Officers of Parent" shall mean the persons designated as such in
Section 5.2(b) of the Parent Disclosure Letter.
Parent conducts its insurance operations through the
Subsidiaries listed in Section 5.2(b) of the Parent Disclosure Letter
(collectively, the "Parent Insurance Subsidiaries"). Each of the Parent
Insurance Subsidiaries is, where required, (i) duly licensed or authorized as
an insurance company or a reinsurer in its jurisdiction of incorporation, (ii)
duly licensed or authorized as an insurance company and, where applicable, a
reinsurer in each other jurisdiction where it is required to be so licensed
or authorized, and (iii) duly authorized in its jurisdiction of incorporation
and each other applicable jurisdiction to write each line of business reported
as being written in the Parent SAP Statements (as hereinafter defined),
except, in any such case, where the failure to be so licensed or authorized is
not reasonably likely to result in a Parent Material Adverse Effect. Parent
has made all required filings under applicable insurance holding company
statutes except where the failure to file is not reasonably likely to have a
Parent Material Adverse Effect.
Except for the Parent Insurance Subsidiaries, Parent does
not directly or indirectly own any equity or similar interest in, or any
interest convertible into or exchangeable or exercisable for any equity or
similar interest in, any corporation, partnership, joint venture or other
business association or entity that directly or indirectly conducts any
activity which is material to Parent.
(c) Capital Structure. The authorized capital stock of
Parent consists of 240,000,000 shares of Parent Common Stock, of which
83,733,652 shares were outstanding as of the close of business on January 16,
1998, and shares of preferred stock, of which 50,000 shares have been
designated as Series A Junior Participating Preferred Stock (the "Parent
Series A Preferred Stock"), 1,450,000 shares have been designated as Series B
Convertible Preferred Stock (the "Parent Series B Preferred Stock") and 41,400
shares have been designated as Series C Cumulative Convertible Preferred Stock
(the "Parent Series C Preferred Stock" and, collectively with the Parent
Series A Preferred Stock and the Parent Series B Preferred Stock, the "Parent
Preferred Shares"). As of the close of business on January 16, 1998, there
were no shares of Parent Series A Preferred Stock outstanding, 955,594 shares
of Parent Series B Stock outstanding and no shares of Parent Series C
Preferred Stock outstanding. All of the outstanding Parent Common Stock and
Parent Preferred Shares have been duly authorized and are validly issued,
fully paid and nonassessable. Parent has no commitments to issue or deliver
Common Stock or Parent Preferred Shares, except that, as of January 16, 1998,
there were 5,651,858 shares of Parent Common Stock reserved for issuance
pursuant to the Parent stock option and other plans listed on Section 5.2(c)
of the Parent Disclosure Letter (the "Parent Stock Plans"), 7,331,026 shares
of Parent Common Stock subject to issuance upon conversion of shares of Parent
Series B Preferred Stock and Parent Series C Preferred Stock or Parent's 6%
Convertible Subordinated Debentures due 2025, 41,400 shares of Parent Series C
Preferred Stock reserved for issuance upon the exchange of Parent's 6%
Convertible Subordinated Debentures due 2025 and 50,000 shares of Parent
Series A Preferred Stock reserved for issuance pursuant to the Amended and
Restated Shareholder Protection Rights Agreement, dated as of December 4,
1989, as amended as of March 9, 1990 and as amended and restated as of August
1, 1995, between Parent and First Chicago Trust Company of New York (the
"Parent Rights Agreement"). Each of the outstanding shares of capital stock
of each of Parent's Subsidiaries is duly authorized, validly issued, fully
paid and nonassessable and, except for directors' qualifying shares, owned by
Parent or a direct or indirect wholly-owned subsidiary of Parent, free and
clear of any lien, pledge, security interest, claim or other encumbrance.
Except as described above, there are no preemptive or other outstanding
rights, options, warrants, conversion rights, stock appreciation rights,
redemption rights, repurchase rights, agreements, arrangements or commitments
to issue or sell any shares of capital stock or other securities of Parent or
any of its Subsidiaries or any securities or obligations convertible or
exchangeable into or exercisable for, or giving any Person a right to
subscribe for or acquire, any securities of the Company or any of its
Subsidiaries, and no securities or obligations, evidencing such rights are
authorized, issued or outstanding. Parent does not have outstanding any
bonds, debentures, notes or other obligations the holders of which have the
right to vote (or, except as referred to in this subsection (c), convertible
into or exercisable for securities having the right to vote) with the
stockholders of Parent on any matter.
(d) Corporate Authority; Fairness.
(i) Each of the Parent and Merger Subsidiary
has all requisite corporate power and authority and has taken all corporate
action necessary in order to execute, deliver and perform its obligations
under this Agreement and, with respect to Parent, under the Stock Option
Agreement, and to consummate, subject only to approval at a meeting of
stockholders of the issuance of the shares of Parent Common Stock required to
be issued pursuant to Article IV hereof by the holders of a majority of the
shares of Parent Common Stock present and voting at the meeting (the "Parent
Requisite Vote"), the Merger. This Agreement is a valid and binding agreement
of Parent and Merger Subsidiary, enforceable against each of Parent and Merger
Subsidiary in accordance with its terms, subject to the Bankruptcy and Equity
Exception. The Stock Option Agreement is a valid and binding agreement of
Parent, enforceable against Parent in accordance with its terms, subject to
the Bankruptcy and Equity Exception.
(ii) Prior to the Effective Time, Parent will
have taken all necessary action to permit it to issue the number of shares of
Parent Common Stock required to be issued pursuant to Article IV. The Parent
Common Stock, when issued, will be validly issued, fully paid and
nonassessable, and no stockholder of Parent will have any preemptive right of
subscription or purchase in respect thereof. The Parent Common Stock, when
issued, will be registered under the Securities Act and Exchange Act and
registered or exempt from registration under any applicable state securities
or "blue sky" laws.
(iii) The board of directors of Parent has
received the opinion of its financial advisors, Credit Suisse First Boston
Corporation, to the effect that as of the date hereof the Exchange Ratio is
fair to Parent from a financial point of view.
(e) Governmental Filings; No Violations. (i) Other
than the filings and/or notices (A) pursuant to Section 1.3 hereof, (B) under
the HSR Act, the Securities Exchange Act and the Securities Act, (C) to comply
with state securities or "blue sky" laws, (D) required to be made with the
NYSE or the London Stock Exchange and (E) of appropriate documents with, and
approval of, the respective Commissioners of Insurance of the states of
Maryland, Illinois, Indiana, Iowa, Michigan, Mississippi, New York, Ohio,
Texas, Vermont and Wisconsin and such notices and consents as may be required
under the insurance laws of any jurisdiction in which the Company, Parent or
any of their respective subsidiaries is domiciled or does business or is
licensed or authorized as an insurance company, no notices, reports or other
filings are required to be made by Parent or Merger Subsidiary with, nor are
any consents, registrations, approvals, permits or authorizations required to
be obtained by Parent or Merger Subsidiary from, any Governmental Entity, in
connection with the execution and delivery of this Agreement by Parent and
Merger Subsidiary and of the Stock Option Agreement by Parent and the
consummation by Parent and Merger Subsidiary of the Merger and the other
transactions contemplated hereby and thereby, except those that the failure to
make or obtain are not, individually or in the aggregate, reasonably likely to
have a Parent Material Adverse Effect or prevent, materially delay or
materially impair the ability of Parent or Merger Subsidiary to consummate the
transactions contemplated by this Agreement and the Stock Option Agreement.
(ii) The execution, delivery and performance of
this Agreement by Parent and Merger Subsidiary and of the Stock Option
Agreement by Parent do not, and the consummation by Parent and Merger
Subsidiary of the Merger and the other transactions contemplated hereby and
thereby will not, constitute or result in (A) a breach or violation of, or a
default under, the charter or by-laws of Parent and Merger Subsidiary or the
comparable governing instruments of any of its Subsidiaries, (B) a breach or
violation of, or a default under, the acceleration of any obligations or the
creation of a lien, pledge, security interest or other encumbrance on the
assets of Parent or any of its Subsidiaries (with or without notice, lapse of
time or both) pursuant to, any Contracts binding upon Parent or any of its
Subsidiaries or (provided, as to consummation, the filings and notices are
made, and approvals are obtained, as referred to in Section 5.2(e)(i)) any Law
or governmental or non-governmental permit or license to which Parent or any
of its Subsidiaries is subject or (C) any change in the rights or obligations
of any party under any of the Contracts, except, in the case of clause (B) or
(C) above, for any breach, violation, default, acceleration, creation or
change that, individually or in the aggregate, is not reasonably likely to
have a Parent Material Adverse Effect or prevent, materially delay or
materially impair the ability of Parent or Merger Subsidiary to consummate the
transactions contemplated by this Agreement and the Stock Option Agreement.
(f) Parent Reports; Financial Statements. Parent has
delivered or made available to the Company each registration statement,
report, proxy statement or information statement prepared by it since December
31, 1996 (the "Parent Audit Date"), including (i) Parent's Annual Report on
Form 10-K for the year ended December 31, 1996 and (ii) Parent's Quarterly
Reports on Form 10-Q for the periods ended March 31, 1997, June 30, 1997 and
September 30, 1997, each in the form (including exhibits, annexes and any
amendments thereto) filed with the SEC (collectively, including any such
reports filed subsequent to the date hereof, the "Parent Reports"). As of
their respective dates, the Parent Reports did not, and any Parent Reports
filed with the SEC subsequent to the date hereof will not, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of
the circumstances in which they were made, not misleading. Each of the
consolidated balance sheets included in or incorporated by reference into the
Parent Reports (including the related notes and schedules) fairly presents, or
will fairly present, the consolidated financial position of Parent and its
Subsidiaries as of its date and each of the consolidated statements of income
and cash flows included in or incorporated by reference into the Parent
Reports (including any related notes and schedules) fairly presents, or will
fairly present, the consolidated results of operations and cash flows as the
case may be, of Parent and its Subsidiaries for the periods set forth therein
(subject, in the case of unaudited statements, to notes and normal year-end
audit adjustments that will not be material in amount or effect), in each case
in accordance with GAAP consistently applied during the periods involved,
except as may be noted therein.
Parent has delivered or made available to the Company true
and complete copies of the annual and quarterly statements of each of the
Parent Insurance Subsidiaries as filed with the applicable insurance
regulatory authorities for the years ended December 31, 1994, 1995 and 1996
and the quarterly periods ended March 31, 1997, June 30, 1997 and September
30, 1997, including all exhibits, interrogatories, notes, schedules and any
actuarial opinions, affirmations or certifications or other supporting
documents filed in connection therewith (collectively, the "Parent SAP
Statements"). The Parent SAP Statements were prepared in conformity with
statutory accounting practices prescribed or permitted by the applicable
insurance regulatory authority consistently applied for the periods covered
thereby and present fairly the statutory financial position of such Parent
Insurance Subsidiaries as at the respective dates thereof and the results of
operations of such Subsidiaries for the respective periods then ended. The
Parent SAP Statements complied in all material respects with all applicable
laws, rules and regulations when filed, and no material deficiency has been
asserted with respect to any Parent SAP Statements by the applicable insurance
regulatory body or any other governmental agency or body. The statutory
financial statements of certain Parent Insurance Subsidiaries have been
audited by KPMG Peat Marwick LLP, and Parent has delivered to the Company true
and complete copies of such audited statutory financial statements and the
audit opinions relating thereto. Parent has delivered or made available to
the Company true and complete copies of all examination reports of insurance
departments and any insurance regulatory agencies since January 1, 1994
relating to the Parent Insurance Subsidiaries.
(g) Absence of Certain Changes. Except as disclosed in
the Parent Reports filed prior to the date hereof, since the Parent Audit
Date, Parent and its Subsidiaries have conducted their respective businesses
only in, and have not engaged in any material transaction other than according
to, the ordinary and usual course of such businesses and there has not been
(i) any change in the financial condition, properties, business or results of
operations of Parent and its Subsidiaries or any development or combination of
developments of which any executive officer of Parent has knowledge that,
individually or in the aggregate, has had or is reasonably likely to result in
a Parent Material Adverse Effect; (ii) any material damage, destruction or
other casualty loss with respect to any material asset or property owned,
leased or otherwise used by Parent or any of its Subsidiaries, whether or not
covered by insurance; (iii) any declaration, setting aside or payment of any
dividend or other distribution in respect of the stock of Parent except as
permitted by Section 6.1(b) hereof; (iv) any change by Parent in accounting
principles, practices or methods other than as required by changes in
applicable GAAP or statutory accounting principles; (v) any material addition
to Parent's consolidated loss reserves or other policy claims and benefits
prior to the date of this Agreement; or (vi) any material change in the
accounting, actuarial, investment, reserving, underwriting or claims
administration policies, practices, procedures, methods, assumptions or
principles of any Parent Insurance Subsidiary.
(h) Litigation and Liabilities. Except as disclosed in
the Parent Reports filed prior to the date hereof, there are no (i) civil,
criminal or administrative actions, suits, claims, hearings, investigations or
proceedings pending or, to the knowledge of any executive officer of Parent,
threatened against Parent or any of its affiliates or (ii) obligations or
liabilities of any nature, whether or not accrued, contingent or otherwise and
whether or not required to be disclosed, including those relating to
environmental and occupational safety and health matters, or any other facts
or circumstances of which any executive officer of Parent has knowledge that
could reasonably be expected to result in any claims against, or obligations
or liabilities of, Parent or any of its affiliates, except for insurance
claims litigation arising in the ordinary course for which claims reserves
have been established and except for such actions, suits, claims, hearings,
investigations, proceedings, obligations and liabilities as are not,
individually or in the aggregate, reasonably likely to have a Parent Material
Adverse Effect or prevent or materially impair the ability of Parent or Merger
Subsidiary to consummate the transactions contemplated by this Agreement and
the Stock Option Agreement.
(i) Employee Benefits.
(i) Each bonus, deferred compensation, pension,
retirement, profit-sharing, thrift, savings, employee stock ownership, stock
bonus, stock purchase, restricted stock, stock option, employment,
termination, severance, change of control, compensation, medical, health or
other plan, agreement, policy or arrangement that covers employees, directors,
former employees or former directors of Parent and its Subsidiaries (the
"Parent Compensation and Benefit Plans") is in substantial compliance with all
applicable law, including the Code and ERISA. Each Parent Compensation and
Benefit Plan that is an "employee pension benefit plan" within the meaning of
Section 3(2) of ERISA (a "Parent Pension Plan") and that is intended to be
qualified under Section 401(a) of the Code has received a favorable
determination letter from the IRS, and Parent is not aware of any
circumstances likely to result in revocation of any such favorable
determination letter. There is no pending or, to the knowledge of the
executive officers of Parent, threatened material litigation relating to the
Parent Compensation and Benefit Plans. Neither Parent nor any of its
Subsidiaries has engaged in a transaction with respect to any Parent
Compensation and Benefit Plan that, assuming the taxable period of such
transaction expired as of the date hereof, would subject Parent or any of its
Subsidiaries to a material tax or penalty imposed by either Section 4975 of
the Code or Section 502 of ERISA.
(ii) As of the date hereof, no liability under
Subtitle C or D of Title IV of ERISA has been or is expected to be incurred by
Parent or any of its Subsidiaries with respect to any ongoing, frozen or
terminated "single-employer plan," within the meaning of Section 4001(a)(15)
of ERISA, currently or formerly maintained by any of them, or the
single-employer plan of an entity which is considered one employer with Parent
under Section 4001 of ERISA or Section 414 of the Code (a "Parent ERISA
Affiliate"). Parent and its Subsidiaries have not incurred and do not expect
to incur any withdrawal liability with respect to a multiemployer plan under
Subtitle E to Title IV of ERISA. No notice of a "reportable event," within
the meaning of Section 4043 of ERISA for which the 30-day reporting
requirement has not been waived, has been required to be filed for any Parent
Pension Plan or by any Parent ERISA Affiliate within the 12-month period
ending on the date hereof or will be required to be filed in connection with
the transactions contemplated by this Agreement.
(iii) All contributions required to be made
under the terms of any Parent Compensation and Benefit Plan as of the date
hereof have been timely made or have been reflected on the most recent
consolidated balance sheet filed or incorporated by reference in the Parent
Reports prior to the date hereof. Neither any Parent Pension Plan nor any
single-employer plan of a Parent ERISA Affiliate has an "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 412 of the
Code or Section 302 of ERISA. Neither Parent nor its Subsidiaries has
provided, or is required to provide, security to any Parent Pension Plan or to
any single-employer plan of a Parent ERISA Affiliate pursuant to Section
401(a)(29) of the Code.
(iv) Under each Parent Pension Plan which is a
single-employer plan, as of the last day of the most recent plan year ended
prior to the date hereof, the actuarially determined present value of all
"benefit liabilities", within the meaning of Section 4001(a)(16) of ERISA (as
determined on the basis of the actuarial assumptions contained in the Parent
Pension Plan's most recent actuarial valuation), did not exceed the then
current value of the assets of such Parent Pension Plan, and there has been no
material change in the financial condition of such Parent Pension Plan since
the last day of the most recent plan year.
(v) All Parent Compensation and Benefit Plans
covering current or former non-U.S. employees or former employees of Parent
and its Subsidiaries comply in all material respects with applicable local
law. Parent and its Subsidiaries have no material unfunded liabilities with
respect to any Parent Pension Plan that covers such non-U.S. employees.
(j) Compliance with Laws; Permits. (i) The business and
operations of Parent and the Parent Insurance Subsidiaries have been conducted
in compliance with all applicable Insurance Laws, except where the failure to
so conduct such business and operations would not, individually or in the
aggregate, be reasonably likely to have a Parent Material Adverse Effect.
Notwithstanding the generality of the foregoing, except where the failure to
do so would not, individually or in the aggregate, be reasonably likely to
have a Parent Material Adverse Effect, each Parent Insurance Subsidiary and,
to the knowledge of the executive officers of Parent, its agents have
marketed, sold and issued insurance products in compliance, in all material
respects, with Insurance Laws applicable to the business of such Parent
Insurance Subsidiary and in the respective jurisdictions in which such
products have been sold, including, without limitation, in compliance with (a)
all applicable prohibitions against "redlining" or withdrawal of business
lines, (b) all applicable requirements relating to the disclosure of the
nature of insurance products as policies of insurance and (c) all applicable
requirements relating to insurance product projections and illustrations. In
addition, (i) there is no pending or, to the knowledge of the executive
officers of Parent, threatened charge by any insurance regulatory authority
that any of the Parent Insurance Subsidiaries has violated, nor any pending
or, to the knowledge of the executive officers of Parent, threatened
investigation by any insurance regulatory authority with respect to possible
violations of, any applicable Insurance Laws where such violations would,
individually or in the aggregate, be reasonably likely to have a Parent
Material Adverse Effect; (ii) none of the Parent Insurance Subsidiaries is
subject to any order or decree of any insurance regulatory authority relating
specifically to such Parent Insurance Subsidiary (as opposed to insurance
companies generally) which would, individually or in the aggregate, be
reasonably likely to have a Parent Material Adverse Effect; and (iii) the
Parent Insurance Subsidiaries have filed all reports required to be filed with
any insurance regulatory authority on or before the date hereof as to which
the failure to file such reports would, individually or in the aggregate, be
reasonably likely to have a Parent Material Adverse Effect.
(ii) In addition to Insurance Laws, except as
set forth in the Parent Reports filed prior to the date hereof, the businesses
of each of Parent and its Subsidiaries have not been, and are not being,
conducted in violation of any Laws, except for violations or possible
violations that, individually or in the aggregate, are not reasonably likely
to have a Parent Material Adverse Effect or prevent or materially impair the
ability of Parent or Merger Subsidiary to consummate the transactions
contemplated by this Agreement and the Stock Option Agreement. Except as set
forth in the Parent Reports filed prior to the date hereof, no investigation or
review by any Governmental Entity with respect to Parent or any of its
Subsidiaries is pending or, to the knowledge of the executive officers of
Parent, threatened, nor has any Governmental Entity indicated an intention to
conduct the same, except for those the outcome of which are not, individually
or in the aggregate, reasonably likely to have a Company Material Adverse
Effect or prevent or materially burden or materially impair the ability of
Parent or Merger Subsidiary to consummate the transactions contemplated by
this Agreement and the Stock Option Agreement. To the knowledge of the
executive officers of Parent, no material change is required in Parent's or
any of its Subsidiaries' processes, properties or procedures in connection
with any such Laws, and Parent has not received any notice or communication of
any material noncompliance with any such Laws that has not been cured as of
the date hereof. Parent and its Subsidiaries each has all permits, licenses,
trademarks, patents, trade names, copyrights, service marks, franchises,
variances, exemptions, orders and other governmental authorizations, consents
and approvals necessary to conduct its business as presently conducted except
those the absence of which are not, individually or in the aggregate,
reasonably likely to have a Parent Material Adverse Effect or prevent or
materially burden or materially impair the ability of Parent or Merger
Subsidiary to consummate the Merger and the other transactions contemplated by
this Agreement and the Stock Option Agreement.
(k) Environmental Matters. Except as disclosed in the
Parent Reports filed prior to the date hereof and except for such matters
that, alone or in the aggregate, are not reasonably likely to have a Parent
Material Adverse Effect: (i) Parent and its Subsidiaries are in substantial
compliance with all applicable Environmental Laws; (ii) the properties
currently owned or operated by Parent (including soils, groundwater, surface
water, buildings or other structures) are not contaminated with any Hazardous
Substances; (iii) the properties formerly owned or operated by Parent or any
of its Subsidiaries were not contaminated with Hazardous Substances during the
period of ownership or operation by Parent or any of its Subsidiaries; (iv)
neither Parent nor any of its Subsidiaries is subject to liability for any
Hazardous Substance disposal or contamination on any third party property
(excluding policies written in connection with the insurance business); (v) no
Hazardous Substance has been transported from any of the properties owned or
operated by Parent or any of its Subsidiaries other than as permitted under
applicable Environmental Law; (vi) neither Parent nor any of its Subsidiaries
has received any written notice, demand, letter, claim or request for
information from any Governmental Entity or third party indicating that Parent
or any of its Subsidiaries may be in violation of or liable under any
Environmental Law; (vii) Parent and its Subsidiaries are not subject to any
court order, administrative order or decree arising under any Environmental
Law and are not subject to any indemnity or other agreement with any third
party relating to liability under any Environmental Law or relating to
Hazardous Substances (excluding policies written in connection with the
insurance business); and (viii) there are no circumstances or conditions
involving Parent or any of its Subsidiaries that could reasonably be expected
to result in any claims, liability, investigations, costs or restrictions on
the ownership, use, or transfer of any property of Parent pursuant to any
Environmental Law.
(l) Accounting and Tax Matters. As of the date hereof,
neither Parent nor any of its affiliates has taken or agreed to take any
action, nor do the executive officers of Parent have any knowledge of any fact
or circumstance, that would prevent Parent from accounting for the business
combination to be effected by the Merger as a "pooling-of-interests" or
prevent the Merger and the other transactions contemplated by this Agreement
from qualifying as a "reorganization" within the meaning of Section 368(a) of
the Code.
(m) Taxes. Except as provided in Section 5.2(m) of the
Parent Disclosure Letter:
(i) Parent and each of its Subsidiaries have
filed completely and correctly in all material respects all Tax Returns which
are required by all applicable laws to be filed by them, and have paid, or
made adequate provision for the payment of, all material Taxes which have or
may become due and payable pursuant to said Tax Returns and all other Taxes,
governmental charges and assessments received to date other than those Taxes
being contested in good faith for which adequate provision has been made on
the most recent balance sheet included in the Parent Reports. The Tax Returns
of Parent and its Subsidiaries have been prepared, in all material respects,
in accordance with all applicable laws consistently applied;
(ii) all material Taxes which Parent and its
Subsidiaries are required by law to withhold and collect have been duly
withheld and collected, and have been paid over, in a timely manner, to the
proper Taxing Authorities to the extent due and payable;
(iii) no liens for a material amount of Taxes
exist with respect to any of the assets or properties of Parent or its
Subsidiaries, except for statutory liens for Taxes not yet due or payable or
that are being contested in good faith;
(iv) all of the U.S. Federal income Tax Returns
filed by or on behalf of each of Parent and its Subsidiaries have been
examined by and settled with the Internal Revenue Service, or the statute of
limitations with respect to the relevant Tax liability expired, for all
taxable periods through and including the period ending on the date on which
the Effective Time occurs; and
(v) there is no audit, examination,
deficiency, or refund litigation pending with respect to any material amount
of Taxes and during the past three years no Taxing Authority has given written
notice of the commencement of any audit, examination, deficiency or refund
litigation, with respect to any material amount of Taxes.
(n) Labor Matters. Neither Parent nor any of its
Subsidiaries is a party to or otherwise bound by any collective bargaining
agreement, contract or other agreement or understanding with a labor union or
labor organization.
(o) Material Contracts. All of the material contracts
of Parent and its Subsidiaries that are required to be described in the Parent
Reports or to be filed as exhibits thereto are described in the Parent Reports
or filed as exhibits thereto and are in full force and effect. Neither
Parent nor any of its Subsidiaries nor any other party is in breach of or in
default under any such contract except for such breaches and defaults as
individually or in the aggregate have not had and are not reasonably likely to
have a Parent Material Adverse Effect.
(p) Ownership of Shares. Neither Parent nor any of its
Subsidiaries "Beneficially Owns" or is the "Beneficial Owner" of (as such
terms are defined in the Rights Agreement, as amended, or for purposes of
Section 3-601 of the MGCL) 10% of more of the outstanding Shares.
(q) Brokers and Finders. Neither Parent nor any of its
executive officers, directors or employees has employed any broker or finder
or incurred any liability for any brokerage fees, commissions or finders fees
in connection with the Merger or the other transactions contemplated by this
Agreement or the Stock Option Agreement, except that Parent has employed
Credit Suisse First Boston Corporation as its financial advisor, the
arrangements with which have been disclosed to the Company prior to the date
hereof.
(r) Insurance Matters. (i) Except as otherwise
would not, individually or in the aggregate, be reasonably likely to have a
Parent Material Adverse Effect, all policies, binders, slips, certificates,
annuity contracts and participation agreements and other agreements of
insurance, whether individual or group, in effect as of the date hereof
(including all applications, supplements, endorsements, riders and ancillary
agreements in connection therewith) that are issued by the Parent Insurance
Subsidiaries (the "Parent Insurance Contracts") and any and all marketing
materials, are, to the extent required under applicable law, on forms approved
by applicable insurance regulatory authorities or which have been filed and
not objected to by such authorities within the period provided for objection,
and such forms comply in all material respects with the insurance statutes,
regulations and rules applicable thereto and, as to premium rates established
by Parent or any Parent Insurance Subsidiary which are required to be filed
with or approved by insurance regulatory authorities, the rates have been so
filed or approved, the premiums charged conform thereto in all material
respects, and such premiums comply in all material respects with the insurance
statutes, regulations and rules applicable thereto.
(ii) All reinsurance and coinsurance treaties or
agreements, including retrocessional agreements, to which Parent or any Parent
Insurance Subsidiary is a party or under which Parent or any Parent Insurance
Subsidiary has any existing rights, obligations or liabilities are in full
force and effect except for such treaties or agreements the failure to be in
full force and effect as individually or in the aggregate are not reasonably
likely to have a Parent Material Adverse Effect.
(iii) Prior to the date hereof, Parent has
delivered or made available to the Company a true and complete copy of any
actuarial reports prepared by actuaries, independent or otherwise, with
respect to Parent or any Parent Insurance Subsidiary since December 31, 1994,
and all attachments, addenda, supplements and modifications thereto (the
"Parent Actuarial Analyses"). To the knowledge of the executive officers of
Parent, the information and data furnished by Parent or any Parent Insurance
Subsidiary to its independent actuaries in connection with the preparation of
the Parent Actuarial Analyses were accurate in all material respects.
Furthermore, to the knowledge of the executive officers of Parent, each Parent
Actuarial Analysis was based upon an accurate inventory of policies in force
for Parent and the Parent Insurance Subsidiaries, as the case may be, at the
relevant time of preparation, was prepared using appropriate modeling
procedures accurately applied and in conformity with generally accepted
actuarial standards consistently applied, and the projections contained
therein were properly prepared in accordance with the assumptions stated
therein.
(iv) As of the date hereof, Parent has no
reason to believe that any rating presently held by the Parent Insurance
Subsidiaries is likely to be modified, qualified, lowered or placed under
surveillance for a possible downgrade for any reason other than as a result of
the transactions contemplated hereby.
(s) Liabilities and Reserves. (i) The reserves carried
on the Parent SAP Statements of each Parent Insurance Subsidiary for the year
ended December 31, 1996 for losses, claims and similar purposes (including
claims litigation) are in compliance in all material respects with the
requirements for reserves established by the insurance departments of the
state of domicile of such Company Insurance Subsidiary, were determined in all
material respects in accordance with generally accepted actuarial standards
and principles consistently applied, and are fairly stated in all material
respects in accordance with sound actuarial and statutory accounting
principles. Such reserves were adequate in the aggregate to cover the total
amount of all reasonably anticipated liabilities of Parent and each Parent
Insurance Subsidiary under all outstanding insurance, reinsurance and other
applicable agreements as of the respective dates of such Parent SAP
Statements. The admitted assets of Parent and each Parent Insurance
Subsidiary as determined under applicable Laws are in an amount at least equal
to the minimum amounts required by applicable Laws.
(ii) Except for regular periodic assessments in
the ordinary course of business or assessments based on developments which are
publicly known within the insurance industry, to the knowledge of the
executive officers of Parent, no claim or assessment is pending or threatened
against any Parent Insurance Subsidiary which is peculiar or unique to such
Parent Insurance Subsidiary by any state insurance guaranty associations in
connection with such association's fund relating to insolvent insurers which
if determined adversely, would, individually or in the aggregate, be
reasonably likely to have a Parent Material Adverse Effect.
ARTICLE VI
Covenants
6.1.(a) Interim Operations of the Company. The Company
covenants and agrees as to itself and its Subsidiaries that, after the date
hereof and prior to the Effective Time (except as otherwise expressly
contemplated by this Agreement or the Stock Option Agreement or set forth in
Section 6.1(a) of the Company Disclosure Letter), without the prior written
consent of Parent, which consent shall not be unreasonably withheld or delayed:
(i) its and its Subsidiaries' businesses shall be
conducted in all material respects in the ordinary and usual course (it being
understood and agreed that nothing contained herein shall permit the Company
to enter into or engage (through acquisition, product extension or otherwise),
in any material respect, in any new line of business);
(ii) to the extent consistent with (a) above it and its
Subsidiaries shall use their reasonable best efforts to preserve its business
organization intact and maintain its existing relations and goodwill with
customers, suppliers, reinsurers, distributors, creditors, lessors, employees
and business associates;
(iii) it shall not (i) issue, sell, pledge, dispose of or
encumber any capital stock owned by it in any of its Subsidiaries; (ii) amend
its charter or by-laws or amend, modify or terminate the Rights Agreement;
(iii) split, combine or reclassify its outstanding shares of stock; (iv)
authorize, declare, set aside or pay any dividend payable in cash, stock or
property in respect of any capital stock other than dividends from its direct
or indirect wholly-owned Subsidiaries and other than regular quarterly cash
dividends paid by the Company not in excess of $.07 per share; or (v)
repurchase, redeem or otherwise acquire, except in connection with any of the
Company Stock Plans, or permit any of its Subsidiaries to purchase or
otherwise acquire, any shares of its stock or any securities convertible into
or exchangeable or exercisable for any shares of its stock;
(iv) neither it nor any of its Subsidiaries shall (i)
except as permitted under clause (v), issue, sell, pledge, dispose of or
encumber any (x) shares of, or securities convertible into or exchangeable or
exercisable for, or options, warrants, calls, commitments or rights of any
kind to acquire any shares of, its capital stock of any class or (y)
securities convertible into or exchangeable for any other property or assets
(other than Shares issuable pursuant to options outstanding on the date hereof
under any of the Company Stock Plans or upon conversion of the Convertible
Notes); (ii) other than in the ordinary and usual course of business,
transfer, lease, license, guarantee, sell, mortgage, pledge, dispose of or
encumber any other material property or assets (including capital stock of any
of its Subsidiaries) or take any action to incur or modify any material
indebtedness or other material liability; (iii) other than for information
systems, make or authorize or commit for any capital expenditures other than
in amounts less than $20.0 million individually and $20.0 million in the
aggregate; or (iv) make or authorize or commit for any capital expenditures
for information systems except for amounts which, individually or in the
aggregate, are less than $25.0 million; or (v) make any acquisition of, or
investment in, the assets or stock of any other Person or entity (other than a
Subsidiary) except for ordinary course investment activities or as otherwise
permitted by Section 6.1(a);
(v) neither it nor any of its Subsidiaries shall
terminate, establish, adopt, enter into, make any new grants or awards under,
amend or otherwise modify, any Compensation and Benefit Plans or increase the
salary, wage, bonus or other compensation of any employees except increases
for employees of the Company occurring in the ordinary and usual course of
business (which shall include, but not be limited to, (i) regular annual
grants of options under the Company Stock Plans, the number of Company Options
subject to and the recipient of each such grant to be determined in
consultation with Parent; provided that the vesting of such options shall not
accelerate as a result of the change in control contemplated by the Merger and
provided, further, that the maximum number of Shares issuable pursuant to such
options shall be calculated in accordance with past practice and the terms of
the Company Stock Plans and shall not exceed 3,300,000 Shares (each such
option, when granted, shall be a Company Option), (ii) grants and payment of
awards under the Company's Management Incentive Plan and Long-Term Incentive
Plan in accordance with the terms of such plans and (iii) salary increases for
those employees who have a rank of vice president or higher in accordance with
the Company's normal salary guidelines and annual salary pool which, in the
aggregate, do not exceed 4% of their aggregate current salaries, and salary
increases for other employees which do not exceed, in the aggregate, 3.5% of
their aggregate current salaries) and except reasonable retention arrangements
which are necessary for the operation of the Company entered into with the
prior written consent of Parent, which consent shall not be unreasonably
withheld.
(vi) neither it nor any of its Subsidiaries shall pay,
discharge, settle or satisfy (x) any insurance claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise) for
amounts in excess of $2,500,000 or (y) any non-insurance claim, liability or
obligation (including extra-contractual obligations), other than (I) the
payment, discharge or satisfaction of such claims, liabilities or obligations
in the ordinary and usual course of business for amounts not in excess of
$500,000 or (II) ordinary course repayment of indebtedness or payment of
contractual obligations when due;
(vii) neither it nor any of its Subsidiaries shall make or
change any Tax election, settle any material audit, file any amended tax
returns or permit any insurance policy naming it as a beneficiary or
loss-payable payee to be canceled or terminated except in the ordinary and
usual course of business;
(viii) neither it nor any of its Subsidiaries shall enter
into any agreement containing any provision or covenant limiting in any
material respect the ability of the Company or any Subsidiary or affiliate to
(A) sell any products or services of or to any other person, (B) engage in any
line of business or (C) compete with or to obtain products or services from
any person or limiting the ability of any person to provide products or
services to the Company or any of its Subsidiaries or affiliates;
(ix) neither it nor any of its Subsidiaries shall enter
into any (x) new quota share or reinsurance transaction pursuant to which
$2,000,000 or more in annual ceded written premiums are ceded by the Company
Insurance Subsidiaries or (y) renewal, extension or modification of an
existing treaty or other program pursuant to which $15,000,000 or more in
annual ceded written premiums are ceded by the Company Insurance Subsidiaries;
(x) neither it nor any of its Subsidiaries shall take
any action that would cause any of its representations and warranties herein
to become untrue in any material respect; and
(xi) neither it nor any of its Subsidiaries will
authorize or enter into an agreement to do any of the foregoing.
6.1.(b) Interim Operations of Parent. Parent covenants and
agrees as to itself and its Subsidiaries that, after the date hereof and prior
to the Effective Time (except as otherwise expressly contemplated by this
Agreement or the Stock Option Agreement or as set forth in Section 6.1(b) of
the Parent Disclosure Letter), without the prior written consent of the
Company, which consent shall not be unreasonably withheld or delayed:
(i) its and its Subsidiaries' businesses shall be
conducted in the ordinary and usual course;
(ii) to the extent consistent with (i) above, each of it
and its Subsidiaries shall use their reasonable best efforts to preserve its
business organization intact and maintain its existing relations and goodwill
with customers, suppliers, reinsurers, distributors, creditors, lessors,
employees and business associates;
(iii) it shall not (v) issue, sell, pledge, dispose of or
encumber any capital stock owned by it in any of its Significant Subsidiaries
(as defined in Regulation S-X under the Securities Exchange Act); (w) amend
its charter; (x) split, combine or reclassify its outstanding shares of stock;
(y) authorize, declare, set aside or pay any dividend payable in cash, stock
or property in respect of any capital stock other than dividends from its
direct or indirect wholly-owned Subsidiaries and other than regular quarterly
cash dividends paid by Parent not in excess of $0.47 per share; or (z)
repurchase, redeem or otherwise acquire, except in connection with any of the
Parent Stock Plans, or permit any of its Subsidiaries to purchase or otherwise
acquire, any shares of its stock or any securities convertible into or
exchangeable or exercisable for any shares of its stock if such purchase,
redemption or acquisition would preclude Parent's accounting for the Merger as
a pooling-of-interests;
(iv) except for ordinary course investment activities,
neither it nor any of its Subsidiaries shall make any acquisition of, or
investment in, assets or stock of any other Person or entity (other than a
Subsidiary) in excess of $2.0 billion in the aggregate;
(v) neither it nor any of its Subsidiaries shall take
any action that would cause any of its representations and warranties herein
to become untrue in any material respect; and
(vi) neither it nor any of its Subsidiaries will
authorize or enter into an agreement to do any of the foregoing.
6.2. Company Acquisition Proposals. From the date hereof
until the termination hereof and except as expressly permitted by the
following provisions of this Section 6.2, the Company will not, and will not
permit or cause any of its Subsidiaries or any of the executive officers and
directors of it or its Subsidiaries to, and shall direct and use its best
efforts to cause its and its Subsidiaries' employees, agents and
representatives (including any investment banker, attorney or accountant
retained by it or any of its Subsidiaries) not to, directly or indirectly,
initiate, solicit, or knowingly encourage or otherwise intentionally
facilitate any inquiries or the making of any proposal or offer (other than
the Merger) with respect to a merger, reorganization, share exchange,
consolidation or similar transaction involving, or any purchase of all or a
substantial portion of the assets or any equity securities of, it or any of
its Subsidiaries (any such proposal or offer being hereinafter referred to as a
"Company Acquisition Proposal"). The Company will not, and will not permit or
cause any of its Subsidiaries or any of the officers and directors of it or its
Subsidiaries to and shall direct and use its best efforts to cause its and its
Subsidiaries' employees, agents and representatives (including any investment
banker, attorney or accountant retained by it or any of its Subsidiaries) not
to, directly or indirectly, engage in any negotiations concerning, or provide
any confidential information or data to, or have any discussions with, any
Person relating to a Company Acquisition Proposal, whether made before or
after the date of this Agreement, or otherwise intentionally facilitate any
effort or attempt to make or implement a Company Acquisition Proposal
(including, without limitation, by means of an amendment to the Rights
Agreement); provided, however, that nothing contained in this Agreement shall
prevent the Company or its Board of Directors from complying with Rule 14e-2
promulgated under the Exchange Act with regard to a Company Acquisition
Proposal or at any time prior to the time that the Merger shall have been
approved by the Company Requisite Vote (A) providing information in response
to a request therefor by a Person who has made an unsolicited bona fide
written Company Acquisition Proposal if the Board of Directors receives from
the Person so requesting such information an executed confidentiality
agreement the terms of which are (without regard to the terms of the Company
Acquisition Proposal) (x) no less favorable to the Company and (y) no less
restrictive on the Person requesting such information than those contained in
the Company Confidentiality Letter (as defined in Section 9.7); (B) engaging
in any negotiations or discussions with any Person who has made an unsolicited
bona fide written Company Acquisition Proposal; or (C) recommending such a
Company Acquisition Proposal to the stockholders of the Company, if and only
to the extent that, (i) in each such case referred to in clause (A), (B) or
(C) above, the Board of Directors of the Company determines in good faith
after consultation with outside legal counsel that such action is necessary in
order for its directors to comply with their respective fiduciary duties under
applicable law and (ii) in each case referred to in clause (B) or (C) above,
the Board of Directors of the Company determines in good faith (after
consultation with its financial advisor) that such Company Acquisition
Proposal, if accepted, is reasonably likely to be consummated, taking into
account all legal, financial and regulatory aspects of the proposal and the
Person making the proposal and would, if consummated, result in a transaction
more favorable to the Company's stockholders from a financial point of view
than the transaction contemplated by this Agreement (any such more favorable
Company Acquisition Proposal being referred to in this Agreement as a
"Superior Proposal"). The Company will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing. The
Company agrees that it will take the necessary steps to promptly inform the
individuals or entities referred to in the first sentence hereof of the
obligations undertaken in this Section 6.2 and in the Confidentiality
Agreements (as defined in Section 9.7). The Company will promptly notify
Parent if after the date hereof any such inquiries, proposals or offers are
received by, any such information is requested from, or any such discussions
or negotiations are sought to be initiated or continued with, any of its
representatives indicating, in connection with such notice, the name of such
Person and the material terms and conditions of any proposals or offers and
thereafter shall keep Parent informed, on a current basis, on the status and
terms of any such proposals or offers and the status of any such negotiations
or discussions. The Company also will promptly request each Person that has
heretofore executed a confidentiality agreement in connection with its
consideration of a Company Acquisition Proposal to return or destroy all
confidential information heretofore furnished to such Person by or on behalf
of it or any of its Subsidiaries. Notwithstanding the foregoing, nothing in
this Section 6.2 shall be deemed to prevent the Company from selling or
disposing of the capital stock or assets of any Subsidiary (or any actions in
preparation or contemplation thereof) to the extent such sale or disposition
is permitted by Section 6.1(a).
6.3. Information Supplied. The Company and Parent each
agrees, as to itself and its Subsidiaries, that none of the information
supplied or to be supplied by it or its Subsidiaries for inclusion or
incorporation by reference in (i) the Registration Statement on Form S-4 to be
filed with the SEC by Parent in connection with the issuance of shares of
Parent Common Stock in the Merger (including the joint proxy statement and
prospectus (the "Prospectus/Proxy Statement") constituting a part thereof)
(the "S-4 Registration Statement") will, at the time the S-4 Registration
Statement becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and (ii) the
Prospectus/Proxy Statement and any amendment or supplement thereto will, at
the date of mailing to stockholders and at the times of the meetings of
stockholders of the Company and Parent to be held in connection with the
Merger, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
6.4. Stockholders Meetings. The Company will take, in
accordance with its charter and bylaws, all action necessary to convene a
meeting of holders of Shares (the "Stockholders Meeting") as promptly as
practicable after the S-4 Registration Statement is declared effective to
consider and vote upon the approval of the Merger, and the Company's board of
directors, subject to fiduciary obligations under applicable law, will
recommend such approval by its stockholders, will not withdraw or modify such
recommendation and shall take all lawful action to solicit such approval;
provided that the Company's board of directors may modify or withdraw such
recommendation following receipt of a Superior Proposal. Parent will take, in
accordance with its charter and by-laws, all action necessary to convene a
meeting of holders of Parent Common Stock (the "Parent Stockholders Meeting")
as promptly as practicable after the S-4 Registration Statement is declared
effective to consider and vote upon the approval of the issuance of Parent
Common Stock in the Merger, and Parent's board of directors, subject to
fiduciary obligations under applicable law, will recommend such approval by
its stockholders, will not withdraw or modify such recommendation and will
take all lawful action to solicit such approval. Prior to the Parent
Stockholders Meeting, Parent shall not enter into any agreement relating to a
Parent Acquisition Proposal that is conditioned upon the Merger not being
consummated (it being understood the Parent shall remain obligated both before
and after the date of the Parent Stockholders Meeting to perform the covenants
set forth in Section 6.5(c) in accordance with the provisions thereof).
6.5. Filings; Other Actions; Notification. (a) Parent
and the Company shall promptly prepare and file with the SEC the
Prospectus/Proxy Statement, and Parent shall prepare and file with the SEC the
S-4 Registration Statement as promptly as practicable. Parent and the Company
each shall use its reasonable best efforts to have the S-4 Registration
Statement declared effective under the Securities Act as promptly as
practicable after such filing, and promptly thereafter mail the
Prospectus/Proxy Statement to the respective stockholders of each of the
Company and Parent. Parent shall also use its reasonable best efforts to
obtain prior to the effective date of the S-4 Registration Statement all
necessary state securities law or "blue sky" permits and approvals required in
connection with the Merger and to consummate the other transactions
contemplated by this Agreement and the Stock Option Agreement and will pay all
expenses incident thereto.
(b) The Company and Parent each shall use all reasonable
efforts to cause to be delivered to the other party and its directors a letter
of its independent auditors, dated (i) the date on which the S-4 Registration
Statement shall become effective and (ii) the Closing Date, and addressed to
the other party and its directors, in form and substance customary for
"comfort" letters delivered by independent public accountants in connection
with registration statements similar to the S-4 Registration Statement.
(c) The Company and Parent each shall from the date
hereof until the Effective Time cooperate with the other and use (and shall
cause their respective Subsidiaries to use) its reasonable best efforts to
cause to be done all things, necessary, proper or advisable on its part under
this Agreement, the Stock Option Agreement and applicable Laws to consummate
and make effective the Merger and the other transactions contemplated by this
Agreement and the Stock Option Agreement as soon as practicable, including
preparing and filing as promptly as practicable all documentation to effect
all necessary notices, reports and other filings and to obtain as promptly as
practicable all consents, registrations, approvals, permits and authorizations
necessary or advisable to be obtained from any third party and/or any
Governmental Entity in order to consummate the Merger or any of the other
transactions contemplated by this Agreement and the Stock Option Agreement;
provided, however, that nothing in this Section 6.5 shall require, or be
construed to require, Parent, in connection with the receipt of any regulatory
approval, to proffer to, or agree to (i) sell or hold separate and agree to
sell or to discontinue or limit, before or after the Effective Time, any
assets, businesses, or interest in any assets or businesses of Parent, the
Company or any of their respective affiliates (or to consent to any sale, or
agreement to sell, or discontinuance or limitation by the Company of any of its
assets or businesses) or (ii) agree to any conditions relating to, or changes
or restriction in, the operations of any such asset or businesses which, in
either case would be reasonably expected to materially and adversely impact
the economic or business benefits to Parent of the transactions contemplated
by this Agreement. Subject to applicable laws relating to the exchange of
information, Parent and the Company shall have the right to review in advance,
and to the extent practicable each will consult the other on, all the
information relating to Parent or the Company, as the case may be, and any of
their respective Subsidiaries, that appear in any filing made with, or written
materials submitted to, any third party and/or any Governmental Entity in
connection with the Merger and the other transactions contemplated by this
Agreement and the Stock Option Agreement. In exercising the foregoing right,
each of the Company and Parent shall act reasonably and as promptly as
practicable.
(d) The Company and Parent each shall, upon request by
the other, furnish the other with all information concerning itself, its
Subsidiaries, directors, executive officers and stockholders and such other
matters as may be reasonably necessary or advisable in connection with the
Prospectus/ Proxy Statement, the S-4 Registration Statement or any other
statement, filing, notice or application made by or on behalf of Parent,
the Company or any of their respective Subsidiaries to any third party
and/or any Governmental Entity in connection with the Merger and the
transactions contemplated by this Agreement and the Stock Option Agreement.
(e) The Company and Parent each shall keep the other
apprised of the status of matters relating to completion of the transactions
contemplated hereby, including promptly furnishing the other with copies of
notice or other communications received by Parent or the Company, as the case
may be, or any of its Subsidiaries, from any third party and/or any
Governmental Entity with respect to the Merger and the other transactions
contemplated by this Agreement and the Stock Option Agreement. The Company
and Parent each shall give prompt notice to the other of any change that is
reasonably likely to result in a Company Material Adverse Effect or Parent
Material Adverse Effect, respectively.
6.6. Taxation and Accounting. Subject to Section 6.2 and
Parent's rights under the Stock Option Agreement, neither Parent nor the
Company shall take or cause to be taken any action, whether before or after
the Effective Time, that would disqualify the Merger as a "pooling of
interests" for accounting purposes or as a "reorganization" within the meaning
of Section 368(a) of the Code. Each of Parent and the Company agrees to use
its reasonable best efforts to cure any impediment to the qualification of the
Merger as a "pooling of interests" for accounting purposes or as a
"reorganization" within the meaning of Section 368(a) of the Code.
6.7. Access. Upon reasonable notice, and except as may
otherwise be required by applicable law, the Company and Parent each shall
(and shall cause its Subsidiaries to) afford the other's executive officers,
employees, counsel, accountants and other authorized representatives
("Representatives") access, during normal business hours throughout the period
prior to the Effective Time, to its properties, books, contracts and records
and, during such period, each shall (and shall cause its Subsidiaries to)
furnish promptly to the other all information concerning its business,
properties and personnel as may reasonably be requested, provided that no
investigation pursuant to this Section shall affect or be deemed to modify any
representation or warranty made by the Company, Parent or Merger Subsidiary,
and provided, further, that the foregoing shall not require the Company or
Parent to permit any inspection, or to disclose any information, that (i) in
the reasonable judgment of the Company or Parent, as the case may be, would
result in the disclosure of any trade secrets of third parties or violate any
of its obligations with respect to confidentiality if the Company or Parent,
as the case may be, shall have used all reasonable efforts to obtain the
consent of such third party to such inspection or disclosure or (ii) would
violate any attorney-client privilege of the Company or Parent, as the case
may be. All requests for information made pursuant to this Section shall be
directed to an executive officer of the Company or Parent, as the case may be,
or such Person as may be designated by either of its executive officers, as
the case may be. All such information shall be governed by the terms of the
Confidentiality Agreements (as hereinafter defined).
6.8. Affiliates. (i) At least 45 days prior to the
Effective Time, the Company shall deliver to Parent a list of names and
addresses of those Persons who will be, in the opinion of the Company,
"affiliates" of the Company within the meaning of Rule 145 under the
Securities Act and for the purposes of applicable interpretations regarding
the pooling-of-interests method of accounting. The Company shall exercise its
best efforts to deliver or cause to be delivered to Parent, at least 30 days
prior to the Effective Time, from each affiliate of the Company identified in
the foregoing list, a letter in the form attached as Exhibit A-1 (the "Company
Affiliates Letter"). The certificates representing Parent Common Stock
received by such affiliates shall bear a customary legend regarding applicable
Securities Act restrictions and "pooling restrictions."
(ii) At the election of an affiliate of the Company who
is an employee of the Company at the Effective Time and who is required to and
so provides a letter in the form attached as Exhibit A-1, Parent shall employ,
or shall cause the Surviving Corporation to employ, such affiliate of the
Company until the date of publication of results covering at least 30 days of
combined operations of the Company and Parent in the form of a quarterly
earnings report, an effective registration statement filed with the
Commission, a report on Form 8-K or any other public filing or announcement
which includes such combined results of operations.
(iii) At least 45 days prior to the Effective Time, Parent
shall deliver to the Company a list of names and addresses of those Persons
who will be, in the opinion of the Parent, "affiliates" of Parent for the
purposes of applicable interpretations regarding the pooling-of-interests
method of accounting. Parent shall exercise its best efforts to deliver or
cause to be delivered to the Company, at least 30 days prior to the Effective
Time, from each of such affiliates of Parent identified in the foregoing list,
a letter in the form attached as Exhibit A-2 (the "Parent Affiliates Letter").
6.9. Stock Exchange Listing. Parent shall use its best
efforts to cause the shares of Parent Common Stock to be issued in the Merger
to be approved for listing on the NYSE subject to official notice of issuance,
prior to the Closing Date.
6.10. Publicity. The initial press release shall be a
joint press release in the form previously agreed upon by the Company and
Parent and thereafter the Company and Parent shall consult with each other
prior to issuing, and will provide each other with a meaningful opportunity to
review, comment upon and concur with, any press releases or otherwise making
public announcements with respect to the Merger and the other transactions
contemplated by this Agreement and the Stock Option Agreement and prior to
making any filings with any third party and/or any Governmental Entity
(including any national securities exchange) with respect thereto, except as
may be required by law, court process or by obligations pursuant to any
listing agreement with or rules of any national securities exchange
interdealer quotation service.
6.11. Benefits. (a) Stock Options.
(i) At the Effective Time, each Company Option whether
vested or unvested, without any action on the part of the holder, shall be
deemed to constitute an option to acquire, on the same terms and conditions as
were applicable under such Company Option, a number of shares of Parent Common
Stock equivalent to (x) the number of Shares that could have been purchased
immediately prior to the Effective Time under such Company Option multiplied
by (y) the Exchange Ratio (rounded down to the nearest whole number), at a
price per share of Parent Common Stock (rounded up to the nearest whole cent)
equal to the aggregate exercise price for the Shares otherwise purchasable
pursuant to such Company Option divided by the number of shares of Parent
Common Stock determined above; provided, however, that the foregoing
provisions shall be subject to such adjustments as are necessary in order to
satisfy the requirements of Section 424(a) of the Code in the case of any
Company Option to which Section 422 of the Code applies. At or prior to the
Effective Time, the Company shall make all necessary arrangements with respect
to the Company Stock Plans to permit the assumption of the unexercised Company
Options by Parent pursuant to this Section.
(ii) Effective at the Effective Time, Parent shall assume
each Company Option in accordance with the terms of the relevant Company Stock
Plan under which it was issued and the stock option agreement by which it is
evidenced. At or prior to the Effective Time, Parent shall take all corporate
action necessary to reserve for issuance a sufficient number of shares of
Parent Common Stock for delivery upon exercise of Company Options and payment
of Vested Stock Units (as defined below) assumed by it in accordance with this
Section. At the Effective Time, all vested stock units allocated to each
director's account under the Company's Amended and Restated 1993 Stock Plan
for Non-Employee Directors ("Vested Stock Units"), without any action on the
part of the director, shall be paid, on the same terms and conditions as are
applicable under such plan, in a number of shares of Parent Common Stock equal
to the number of Vested Stock Units allocated to the director's account in
such plan multiplied by the Exchange Ratio (rounded down to the nearest whole
number). As soon as practicable, and in no event later than 10 days after the
Effective Time, Parent shall file a registration statement on Form S-3 or Form
S-8, as the case may be (or any successor or other appropriate forms), or
another appropriate form (or shall cause such Company Option or Vested Stock
Unit to be deemed to be issued pursuant to a Parent Stock Plan for which
shares of Parent Common Stock have previously been registered pursuant to an
appropriate registration form) with respect to the Parent Common Stock subject
to such Company Options or payable pursuant to such Vested Stock Unit, and
shall use its best efforts to maintain the effectiveness of such registration
statements (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as such Company Options remain outstanding.
(b) Employee Benefits. Parent agrees that, during the
period commencing at the Effective Time and ending on the first anniversary
thereof, the employees of the Company and its Subsidiaries will continue to be
provided with benefits under employee benefit plans (other than plans
involving the issuance of Shares) that are no less favorable in the aggregate
than those benefits currently provided by the Company and its Subsidiaries to
such employees. For a period of one year following the Effective Time, Parent
shall provide, or cause the Surviving Corporation to provide, severance
benefits for Company employees whose employment is terminated during such
period which are at least equal to the severance benefits provided on Section
6.11(b) of the Company Disclosure Letter. Following the Effective Time,
Parent shall honor, or shall cause the Surviving Corporation to honor, all
individual employment or severance agreements in effect for employees (or
former employees) of the Company as of the date hereof to the extent that such
individual agreements are listed in Section 6.11(b) of the Company Disclosure
Letter; provided, however, that nothing contained herein shall prevent Parent
from amending or terminating any such agreement in accordance with its terms.
6.12. Expenses. The Surviving Corporation shall pay all
charges and expenses, including those of the Exchange Agent, in connection
with the transactions contemplated in Article IV, and Parent shall reimburse
the Surviving Corporation for such charges and expenses. Except as otherwise
provided in Sections 8.5(b) and 8.5(c), whether or not the Merger is
consummated, all costs and expenses incurred in connection with this
Agreement, the Stock Option Agreement and the Merger and the other
transactions contemplated by this Agreement and the Stock Option Agreement
shall be paid by the party incurring such expense, except that expenses
incurred in connection with the filing fee for the S-4 Registration Statement
and printing and mailing the Prospectus/Proxy Statement and the S-4
Registration Statement shall be shared equally by Parent and the Company.
6.13. Indemnification; Directors' and Officers' Insurance.
(a) From and after the Effective Time, Parent agrees that it will indemnify
and hold harmless each present and former director and officer of the Company,
(when acting in such capacity) determined as of the Effective Time (each, an
Indemnified Party and, collectively, the "Indemnified Parties"), against any
costs or expenses (including reasonable attorneys' fees and expenses),
judgments, fines, losses, amounts paid in settlement claims, damages or
liabilities (collectively, "Costs") incurred in connection with any claim,
action, suit, proceeding or investigation, actual or threatened, whether
civil, criminal, administrative or investigative, in whole or in part based on
or arising in whole or in part out of matters existing or occurring at or
prior to the Effective Time, whether asserted or claimed prior to, at or after
the Effective Time, to the fullest extent that the Company would have been
permitted under Maryland law and its charter or by-laws in effect on the date
hereof to indemnify such Person (and Parent shall also advance expenses as
incurred to the fullest extent permitted under applicable law provided the
Person to whom expenses are advanced provides (x) a written affirmation of his
or her good faith belief that the standard of conduct necessary for
indemnification has been met, and (y) an undertaking to repay such advances if
it is ultimately determined that such Person is not entitled to
indemnification).
(b) Parent shall cause to be maintained, for a period of
not less than six years from the Effective Time, the Company's current
directors' and officers' liability insurance policy to the extent that it
provides coverage for events occurring prior to the Effective Time (the "D&O
Insurance") for all present and former directors and officers of the Company
or any subsidiary thereof, so long as the annual premium therefor would not be
in excess of 200% of the last annual premium paid for the D&O Insurance prior
to the date of this Agreement (200% of such premium, the "Maximum Premium");
provided that Parent may, in lieu of maintaining such existing D&O Insurance
as provided above, cause no less favorable coverage to be provided under any
policy maintained for the benefit of the directors and officers of Parent or a
separate policy provided by the same insurer. If the existing D&O Insurance
expires, is terminated or canceled by the insurer or if the annual premium
would exceed the Maximum Premium during such six-year period, Parent shall
obtain, in lieu of such D&O Insurance, such comparable directors' and
officers' liability insurance as can be obtained for the remainder of such
period for an annualized premium not in excess of the Maximum Premium and on
terms and conditions no less advantageous than the existing D&O Insurance.
(c) The provisions of this Section are in addition to
the rights that an Indemnified Party may have under the certificate of
incorporation, bylaws or agreements of or with the Company or any of its
Subsidiaries or under applicable law. Parent agrees to pay all costs and
expenses (including fees and expenses of counsel) that may be incurred by any
Indemnified Party in successfully enforcing the indemnity or other obligations
under this Section. The provisions of this Section shall survive the Merger
and are intended to be for the benefit of, and shall be enforceable by, each
of the Indemnified Parties, their heirs and their representatives.
6.14. Election to Parent's Board of Directors. Promptly
after the Effective Time of the Merger, Parent shall increase the size of its
Board of Directors and shall cause ▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇. and two additional
directors of the Company determined by the Board Governance Committee of
Parent to be appointed to Parent's board of directors (such directors to be
appointed to such committees of the Board of Directors as the Board Governance
Committee of the Board of Directors of Parent shall determine). In addition,
subject to its fiduciary duties under applicable law, Parent agrees to
nominate two, or if the Effective Time occurs on or after August 15, 1998,
three, of such directors for election to Parent's Board of Directors at its
first annual meeting with a mailing date after the Effective Time.
6.15. Convertible Notes. The Company shall take all
necessary action to enter into a supplemental indenture prior to the Effective
Time with the Trustee (as defined in the Convertible Notes) pursuant to the
indenture under which the Convertible Notes were issued to provide, among
other things, that on and after the Effective Time the Convertible Notes will
be convertible only into the Merger Consideration.
6.16. Satisfaction of Section 15 of the 1940 Act.
(a) The Company shall use commercially reasonable
efforts to cause Pacholder to use commercially reasonable efforts to cause the
board of directors of Pacholder Fund, Inc. ("Pacholder Fund") to approve, and
to solicit the shareholders of Pacholder Fund as promptly as practicable with
regard to the approval of, a new investment advisory agreement with Pacholder,
to be effective on or as promptly as practicable after the Effective Time,
pursuant to the provisions of Section 15 of the 1940 Act, and consistent with
all requirements of the 1940 Act applicable thereto, provided that such
agreement is identical in all respects to the existing agreement other than
the term of the agreement.
(b) The Company shall use commercially reasonable
efforts to cause Pacholder to use commercially reasonable efforts to secure
the satisfaction of the conditions set forth in Section 15(f)(1) of the 1940
Act with respect to Pacholder Fund.
(c) In the alternative, the covenant contained in this
Section 6.16 shall be deemed to be complied with if Parent and Merger
Subsidiary shall have received an opinion from counsel reasonably acceptable
to Parent and Merger Subsidiary in form and substance satisfactory to such
Persons and dated the Closing Date, to the effect that consummation of the
Merger will not result in an "assignment" (within the meaning of the ▇▇▇▇ ▇▇▇)
of the investment advisory agreement between Pacholder and Pacholder Fund.
6.17. Advisory Contract Consents. As promptly as
practicable, the Company shall cause the non-registered investment company
advisory clients of the Asset Management Subsidiaries to be informed of the
transactions contemplated by this Agreement and shall give such clients an
opportunity to terminate their advisory contracts with such Asset Management
Subsidiaries or any of their affiliates. Unless written consent is required
by the terms of such advisory contracts, the Company shall satisfy this
obligation to the extent that applicable law permits insofar as it relates to
non-registered investment company advisory clients by providing them with the
notice contemplated by the first sentence of this Section and obtaining such
clients' consent in the form of actual or implied consent by way of informing
such clients of the Asset Management Subsidiaries' intention to continue the
advisory services, pursuant to the Asset Management Subsidiaries' existing
contracts with such clients, subject to such clients' right to terminate such
contracts within sixty (60) days of receipt of such notice, and that each such
client's consent will be implied if it continues to accept the services
without rejection during such specified sixty-day period.
6.18. Other Actions by the Company and Parent.
(a) Rights. The Company shall take all necessary action
with respect to all of the outstanding Rights so that, immediately prior to
the Effective Time, (x) neither the Company nor Parent will have any
obligations under the Rights or the Rights Agreement and (y) the holders of
the Rights will have no rights under the Rights or the Rights Agreement.
(b) Takeover Statute. If any Takeover Statute is or may
become applicable to the Merger or the other transactions contemplated by this
Agreement or the Stock Option Agreement, each of Parent and the Company and
its board of directors shall grant such approvals and take such actions as are
necessary so that such transactions may be consummated as promptly as
practicable on the terms contemplated by this Agreement or by the Stock Option
Agreement, as the case may be, or by the Merger and otherwise act to
eliminate or minimize the effects of such statute or regulation on such
transactions.
(c) Dividends. The Company shall coordinate with Parent
the declaration, setting of record dates and payment dates of dividends on
Shares so that holders of Shares do not receive dividends on both Shares and
Parent Common Stock received in the Merger in respect of any calendar quarter
or portion thereof or fail to receive a dividend on either Shares or Parent
Common Stock received in the Merger in respect of any calendar quarter.
ARTICLE VII
Conditions
7.1. Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger is
subject to the satisfaction or waiver at or prior to the Effective Time of
each of the following conditions:
(a) Stockholder Approval. The Merger shall have been
duly approved by holders of Shares constituting the Company Requisite Vote and
shall have been duly approved by the sole stockholder of Merger Subsidiary in
accordance with applicable law, and the issuance of Parent Common Stock
pursuant to the Merger shall have been duly approved by the holders of Parent
Common Stock constituting the Parent Requisite Vote.
(b) NYSE Listing. The shares of Parent Common Stock
issuable to the Company stockholders pursuant to this Agreement shall have
been authorized for listing on the NYSE upon official notice of issuance.
(c) Regulatory Consents. The waiting period applicable
to the consummation of the Merger under the HSR Act shall have expired or been
terminated. Other than the filing provided for in Section 1.3, all other
notices, reports and other filings required to be made prior to the Effective
Time by the Company or Parent or any of their respective Subsidiaries with,
and all consents, registrations, approvals, permits and authorizations
required to be obtained prior to the Effective Time by the Company or Parent
or any of their respective Subsidiaries from, any Governmental Entity
(collectively, "Governmental Consents"), in connection with the execution and
delivery of this Agreement and the consummation of the Merger and the other
transactions contemplated by this Agreement or by the Stock Option Agreement
shall have been made or obtained (as the case may be), except where the
failure to make any such filing(s) or obtain any such Governmental Consent(s)
would not reasonably be expected to result in an aggregate loss of $50.0
million or more in annual net written premiums for Parent, the Company and
their respective Subsidiaries in all jurisdictions requiring such filing(s) or
Governmental Consent(s) in the event such filing(s) is (are) not made or such
Consent(s) is (are) not obtained.
(d) Litigation. No court or Governmental Entity of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any law, statute, ordinance, rule, regulation, judgment, decree,
injunction or other order (whether temporary, preliminary or permanent) that
is in effect and restrains, enjoins or otherwise prohibits consummation of the
Merger (collectively, an "Order") and no Governmental Entity shall have
instituted any proceeding which continues to be pending seeking any such Order.
(e) S-4. The S-4 Registration Statement shall have
become effective under the Securities Act. No stop order suspending the
effectiveness of the S-4 Registration Statement shall have been issued, and no
proceeding for that purpose shall have been initiated or be threatened, by the
SEC.
7.2. Conditions to Obligations of Parent and Merger
Subsidiary. The obligations of Parent and Merger Subsidiary to effect the
Merger are also subject to the satisfaction or waiver by Parent at or prior to
the Effective Time of the following conditions:
(a) Representations and Warranties. (i) To the actual
knowledge of the Responsible Executive Officers of the Company on the date of
this Agreement, the representations and warranties of the Company set forth in
this Agreement shall not have been untrue or incorrect in any material respect
as of the date of this Agreement; and (ii) the representations and warranties
of the Company set forth in this Agreement shall be true and correct as of the
Closing Date as though made on and as of the Closing Date (except to the
extent any such representation or warranty expressly speaks as of an earlier
date) except where the failure of such representations and warranties to be so
true and correct (without giving effect to any qualifications as to "Company
Material Adverse Effect", "material" or similar qualifications) would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect; and Parent shall have received a certificate signed
on behalf of the Company by an executive officer of the Company to the effect
stated in the foregoing clauses (i) and (ii).
(b) Performance of Obligations of the Company. The
Company shall have performed in all material respects all obligations required
to be performed by it under this Agreement and the Stock Option Agreement at
or prior to the Closing Date, and Parent shall have received a certificate
signed on behalf of the Company by an executive officer of the Company to such
effect.
(c) Consents. The Company shall have obtained the
consent or approval of each Person whose consent or approval shall be required
under any Contract (other than as set forth on Section 7.2(c) of the Company
Disclosure Letter) to which the Company or any of its Subsidiaries is a party,
except those for which the failure to obtain such consents or approvals,
individually or in the aggregate, is not reasonably likely to have a Company
Material Adverse Effect or is not reasonably likely to prevent or materially
impair the ability of the Company to consummate the transactions contemplated
by this Agreement.
(d) Tax Opinion. Parent shall have received the opinion
of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, counsel to Parent, dated the Closing Date, to the
effect that the Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, and that each
of Parent, Merger Subsidiary and the Company will be a party to that
reorganization within the meaning of Section 368(b) of the Code. In
rendering such opinion, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ shall require delivery of and rely
upon the representations letters delivered by Parent, Merger Subsidiary and
the Company substantially in the forms of Section 7.3(d)(1) and Section
7.3(d)(2) of the Company Disclosure Letter prior to the Closing Date.
(e) Accountant Letters. Parent shall have received, in
form and substance reasonably satisfactory to Parent, from each of KPMG Peat
Marwick LLP (or its successor) and Ernst & Young (or its successor) a
favorable letter, dated the Closing Date, regarding the appropriateness of
"pooling-of-interests" accounting treatment for the Merger.
7.3. Conditions to Obligation of the Company. The
obligation of the Company to effect the Merger is also subject to the
satisfaction or waiver by the Company at or prior to the Effective Time of the
following conditions:
(a) Representations and Warranties. (i) To the actual
knowledge of the Responsible Executive Officers of Parent on the date of this
Agreement, the representations and warranties of Parent and Merger Subsidiary
set forth in this Agreement shall not have been untrue or incorrect in any
material respect as of the date of this Agreement; and (ii) the
representations and warranties of Parent and Merger Subsidiary set forth in
this Agreement shall be true and correct as of the Closing Date as though made
on and as of the Closing Date (except to the extent any such representation or
warranty expressly speaks as of an earlier date) except where the failure of
such representations and warranties to be so true and correct (without giving
effect to any qualifications as to "Parent Material Adverse Effect," "material"
or similar qualifications) would not, individually or in the aggregate,
reasonably be expected to have a Parent Material Adverse Effect; and the
Company shall have received a certificate signed on behalf of Parent by an
executive officer of Parent and on behalf of Merger Subsidiary by an executive
officer of Merger Subsidiary to the effect stated in the foregoing clauses (i)
and (ii).
(b) Performance of Obligations of Parent and Merger
Subsidiary. Each of Parent and Merger Subsidiary shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and the Company shall have received
a certificate signed on behalf of Parent by an executive officer of Parent and
on behalf of Merger Subsidiary by an executive officer of Merger Subsidiary to
such effect.
(c) Consents Under Agreements. Parent shall have
obtained the consent or approval of each Person whose consent or approval
shall be required in order to consummate the transactions contemplated by this
Agreement under any Contract to which Parent or any of its Subsidiaries is a
party, except those for which failure to obtain such consents and approvals,
individually or in the aggregate, is not reasonably likely to have a Parent
Material Adverse Effect or is not reasonably likely to prevent or to
materially burden or materially impair the ability of Parent to consummate the
transactions contemplated by this Agreement.
(d) Tax Opinion. The Company shall have received the
opinion of Piper & Marbury L.L.P., counsel to the Company, dated the Closing
Date, to the effect that the Merger will be treated for Federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code,
and that each of Parent, Merger Subsidiary and the Company will be a party to
that reorganization within the meaning of Section 368(b) of the Code. In
rendering such opinion, Piper & Marbury L.L.P. shall require delivery of and
rely upon the representations letters delivered by Parent, Merger Subsidiary
and the Company substantially in the forms of Section 7.3(d)(1) and Section
7.3(d)(2) of the Company Disclosure Letter prior to the Closing Date.
(e) Accountant Letters. The Company shall have
received, in form and substance reasonably satisfactory to the Company, from
each of KPMG Peat Marwick LLP (or its successor) and Ernst & Young (or its
successor) a favorable letter, dated the Closing Date, regarding the
appropriateness of "pooling-of-interests" accounting treatment for the Merger.
ARTICLE VIII
Termination
8.1. Termination by Mutual Consent. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, whether before or after the approval by stockholders of the Company and
Parent referred to in Section 7.1(a), by mutual written consent of the Company
and Parent by action of their respective Boards of Directors.
8.2. Termination by Either Parent or the Company. This
Agreement may be terminated and the Merger may be abandoned at any time prior
to the Effective Time by action of the Board of Directors of either Parent or
the Company if (i) the Merger shall not have been consummated by August 15,
1998, whether such date is before or after the date of approval by the
stockholders of the Company or Parent (the "Termination Date"); provided,
however, that if either Parent or the Company determines that additional time
is necessary in connection with obtaining any Governmental Consents, the
Termination Date may be extended by Parent or the Company from time to time by
written notice to the other party to a date not beyond December 15, 1998, (ii)
the approval of the Company's stockholders required by Section 7.1(a) shall
not have been obtained at a meeting duly convened therefor or at any
adjournment or postponement thereof, (iii) the approval of Parent's
stockholders as required by Section 7.1(a) shall not have been obtained at a
meeting duly convened therefor or at any adjournment or postponement thereof
or (iv) any Order permanently restraining, enjoining or otherwise prohibiting
consummation of the Merger shall become final and non-appealable (whether
before or after the approval by the stockholders of the Company or Parent);
provided, that the right to terminate this Agreement pursuant to clause (i)
above shall not be available to any party that has breached in any material
respect its obligations under this Agreement in any manner that shall have
proximately contributed to the occurrence of the failure of the Merger to be
consummated.
8.3. Termination by the Company. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, whether before or after the approval by stockholders of the Company
referred to in Section 7.1(a), by action of the Board of Directors of the
Company:
(a) if (i) the Company is not in material breach of
Section 6.2, (ii) the Merger shall not have been approved by the Company
Requisite Vote, (iii) the Board of Directors of the Company authorizes the
Company, subject to complying with the terms of this Agreement, to enter into
a binding written agreement concerning a transaction that constitutes a
Superior Proposal and the Company notifies Parent in writing that it intends
to enter into such an agreement, attaching the most current version of such
agreement to such notice, (iv) Parent does not make, within five business days
of receipt of the Company's written notification of its intention to enter
into a binding agreement for a Superior Proposal, an offer that the Board of
Directors of the Company determines, in good faith after consultation with its
financial advisors, is at least as favorable, from a financial point of view,
to the stockholders of the Company as the Superior Proposal and (v) if so
requested in writing by Parent prior to the Company's termination pursuant to
this Section 8.3(a), the Company prior to such termination pays to Parent in
immediately available funds the fees required to be paid pursuant to Section
8.5. The Company agrees (x) that it will not enter into a binding agreement
referred to in clause (iii) above until at least the sixth business day after
it has provided the notice to Parent required thereby and (y) to notify Parent
promptly if its intention to enter into a written agreement referred to in its
notification shall change at any time after giving such notification.
(b) if there is a breach by Parent or Merger Subsidiary
of any representation, warranty, covenant or agreement contained in this
Agreement that cannot be cured and would cause a condition set forth in
Section 7.3(a) or 7.3(b) to be incapable of being satisfied.
8.4. Termination by Parent. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, whether before or after the approval by the stockholders of Parent
referred to in Section 7.1(a), by action of the Board of Directors of Parent
if (a) the Company enters into a binding agreement for a Superior Proposal or
the Board of Directors of the Company shall have withdrawn or adversely
modified its approval or recommendation of this Agreement or the Merger or
failed to reconfirm its recommendation of this Agreement or the Merger within
five business days after a written request by Parent to do so or (b) there is
a breach by the Company of any representation, warranty, covenant or agreement
contained in this Agreement that cannot be cured and would cause a condition
set forth in Section 7.2(a) or 7.2(b) to be incapable of being satisfied.
8.5. Effect of Termination and Abandonment. (a) In the
event of termination of this Agreement and the abandonment of the Merger
pursuant to this Article VIII, this Agreement (other than as set forth in
Section 9.1) shall become void and of no effect with no liability on the part
of any party hereto (or of any of its directors, officers, employees, agents,
legal and financial advisors or other representatives); provided, however,
except as otherwise provided herein, no such termination shall relieve any
party hereto of any liability or damages resulting from any willful or grossly
negligent breach of this Agreement.
(b) In the event that (i) a Company Acquisition Proposal
shall have been made to the Company or any of its Subsidiaries or any of its
stockholders or any Person shall have publicly announced an intention (whether
or not conditional) to make a Company Acquisition Proposal with respect to the
Company or any of its Subsidiaries and thereafter this Agreement is terminated
by either Parent or the Company pursuant to Section 8.2(ii) or (ii) this
Agreement is terminated (x) by the Company pursuant to Section 8.3(a) or (y)
by Parent pursuant to Section 8.4 (a), then the Company shall promptly, but in
no event later than two days after the date Parent makes a written request for
payment, pay Parent a termination fee of $70,000,000 and shall promptly, but
in no event later than two days after being notified of such by Parent, pay to
Parent an amount equal to all of the charges and expenses incurred by Parent
or Merger Subsidiary in connection with this Agreement and the Stock Option
Agreement and the transactions contemplated by this Agreement and the Stock
Option Agreement up to a maximum amount of $5,000,000, in each case payable by
wire transfer of same day funds.
(c) In the event that (i) a proposal or offer with respect
to a merger, reorganization, share exchange, consolidation or similar
transaction involving, or any purchase of all or a substantial portion of the
assets or equity securities of, Parent or any of its Subsidiaries (a "Parent
Acquisition Proposal") shall have been made to Parent or any of its
Subsidiaries or any Person shall have publicly announced an intention (whether
or not conditional) to make a Parent Acquisition Proposal with respect to
Parent or any of its Subsidiaries and thereafter this Agreement is terminated
by either Parent or the Company pursuant to Section 8.2(iii) or (ii) Parent has
withdrawn or modified in a manner adverse to the Company its recommendation
contemplated by Section 6.4 and thereafter this Agreement is terminated by
either Parent or the Company pursuant to Section 8.2(iii), then Parent shall
promptly, but in no event later than two days after the date the Company makes
a written request for payment, pay the Company a termination fee of
$70,000,000 and shall promptly, but in no event later than two days after
being notified of such by the Company, pay to the Company an amount equal to
all of the charges and expenses incurred by the Company in connection with
this Agreement and the Stock Option Agreement and the transactions
contemplated by this Agreement and the Stock Option Agreement up to a maximum
amount of $5,000,000, in each case payable by wire transfer of same day funds.
(d) The Company and Parent each acknowledge that the
agreements contained in Sections 8.5(b) and (c) are an integral part of the
transactions contemplated by this Agreement, and that, without these
agreements, the Company, Parent and Merger Subsidiary would not enter into
this Agreement; accordingly, if the Company fails to promptly pay the amount
due pursuant to Section 8.5(b), or Parent fails to promptly pay the amount due
pursuant to Section 8.5(c), and, in order to obtain such payment, Parent or
the Company, as the case may be, commences a suit which results in a judgment
against Parent or the Company, as the case may be, for the fee set forth in
this Section 8.5, the Company shall pay to Parent or Parent shall pay to the
Company, as the case may be, its costs and expenses (including attorneys'
fees) in connection with such suit, together with interest from the date of
termination of this Agreement on the amounts owed at the prime rate of
Chemical Bank in effect from time to time during such period plus two percent.
ARTICLE IX
Miscellaneous and General
9.1. Survival. This Article IX and the agreements of the
Company, Parent and Merger Subsidiary contained in Sections 6.6 (Taxation and
Accounting), Sections 6.11 (Benefits), 6.13 (Indemnification; Directors' and
Officers' Insurance) and 6.14 (Election to Parent's Board of Directors) shall
survive the consummation of the Merger. This Article IX, the agreements of
the Company, Parent and Merger Subsidiary contained in Sections 6.12
(Expenses), and Section 8.5 (Effect of Termination and Abandonment) shall
survive the termination of this Agreement. All other representations,
warranties, covenants and agreements in this Agreement shall not survive the
consummation of the Merger or the termination of this Agreement.
9.2. Modification or Amendment. Subject to the
provisions of the applicable law, at any time prior to the Effective Time, the
parties hereto may modify or amend this Agreement, by written agreement
executed and delivered by duly authorized officers of the respective parties.
9.3. Waiver of Conditions. The conditions to each of the
parties' obligations to consummate the Merger are for the sole benefit of such
party and may be waived by such party in whole or in part to the extent
permitted by applicable law.
9.4. Counterparts. This Agreement may be executed in any
number of counterparts, each such counterpart being deemed to be an original
instrument, and all such counterparts shall together constitute the same
agreement.
9.5. GOVERNING LAW; WAIVER OF JURY TRIAL. (a) THIS
AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE
INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE
STATE OF MARYLAND WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR THE STOCK OPTION AGREEMENT
IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH
PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE STOCK OPTION AGREEMENT, OR
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR THE STOCK OPTION AGREEMENT.
EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY,
AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE
STOCK OPTION AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 9.5.
9.6. Notices. Any notice, request, instruction or other
document to be given hereunder by any party to the others shall be in writing
and delivered personally or sent by registered or certified mail, postage
prepaid, or by facsimile:
if to Parent or Merger Subsidiary
The St. ▇▇▇▇ Companies, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
fax: (▇▇▇) ▇▇▇-▇▇▇▇
(with a copy to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.,
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
fax: (▇▇▇) ▇▇▇-▇▇▇▇.)
if to the Company
USF&G Corporation
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
fax: (▇▇▇) ▇▇▇-▇▇▇▇
(with a copy to ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.,
▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
fax: (▇▇▇) ▇▇▇-▇▇▇▇
and a copy to
▇.▇. ▇▇▇▇▇ ▇▇., Esq.
Piper & Marbury L.L.P.
▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ 21201)
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
9.7. Entire Agreement; No Other Representations. This
Agreement (including any exhibits hereto), the Company Disclosure Letter, the
Parent Disclosure Letter, the Stock Option Agreement and the Confidentiality
Agreement, dated March 28, 1997, (the "Company Confidentiality Letter") and
October 28, 1997 (the "Parent Confidentiality Letter"), between Parent and the
Company (the "Confidentiality Agreements") constitute the entire agreement,
and supersede all other prior agreements, understandings, representations and
warranties both written and oral, among the parties, with respect to the
subject matter hereof. The parties hereto agree that the Confidentiality
Agreements shall be hereby amended to provide that any provision therein which
in any manner would be inconsistent with this Agreement, the Stock Option
Agreement or the transactions contemplated hereby or thereby shall terminate
as of the date hereof; provided, however, that such provisions of the
Confidentiality Agreements shall be reinstated in the event of any termination
of this Agreement.
9.8. No Third Party Beneficiaries. Except as provided in
Section 6.13 (Indemnification; Directors' and Officers' Insurance) and Section
6.14 (Election to Parent's Board of Directors), this Agreement is not intended
to confer upon any Person other than the parties hereto any rights or remedies
hereunder.
9.9. Obligations of Parent and of the Company. Whenever
this Agreement requires a Subsidiary of Parent to take any action, such
requirement shall be deemed to include an undertaking on the part of Parent to
cause such Subsidiary to take such action. Whenever this Agreement requires a
Subsidiary of the Company to take any action, such requirement shall be deemed
to include an undertaking on the part of the Company to cause such Subsidiary
to take such action and, after the Effective Time, on the part of the
Surviving Corporation to cause such Subsidiary to take such action.
9.10. Severability. The provisions of this Agreement
shall be deemed severable and the invalidity or unenforceability of any
provision shall not affect the validity or enforceability or the other
provisions hereof. If any provision of this Agreement, or the application
thereof to any Person or any circumstance, is invalid or unenforceable, (a) a
suitable and equitable provision shall be substituted therefor in order to
carry out, so far as may be valid and enforceable, the intent and purpose of
such invalid or unenforceable provision and (b) the remainder of this
Agreement and the application of such provision to other Persons or
circumstances shall not be affected by such invalidity or unenforceability,
nor shall such invalidity or unenforceability affect the validity or
enforceability of such provision, or the application thereof, in any other
jurisdiction.
9.11. Interpretation. The table of contents and headings
herein are for convenience of reference only, do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof. Where a reference in this Agreement is made to a Section
or Exhibit, such reference shall be to a Section of or Exhibit to this
Agreement unless otherwise indicated. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation."
9.12. Assignment. This Agreement shall not be assignable
by operation of law or otherwise; provided, however, that Parent may
designate, by written notice to the Company, another wholly-owned direct or
indirect Subsidiary to be a Constituent Corporation in lieu of Merger
Subsidiary, in which event all references herein to Merger Subsidiary shall be
deemed references to such other Subsidiary, except that all representations
and warranties made herein with respect to Merger Subsidiary as of the date of
this Agreement shall be deemed representations and warranties made with
respect to such other Subsidiary as of the date of such designation.
9.13. Location of Certain Definitions.
Section
affiliate...................................................4.2(e)
Agreement.................................................Preamble
Asset Management Subsidiaries...........................5.1(u)(iv)
Audit Date..................................................5.1(e)
Average Parent Price........................................4.1(a)
Bankruptcy and Equity Exception..........................5.1(c)(i)
Beneficially Owns...........................................5.2(p)
Beneficial Owner............................................5.2(p)
Bylaws.........................................................2.2
Certificate.................................................4.1(a)
Charter........................................................2.1
Closing........................................................1.2
Closing Date...................................................1.2
Code......................................................Recitals
Collars.....................................................4.1(a)
Company...................................................Preamble
Company Acquisition Proposal...................................6.2
Company Actuarial Analyses.............................5.1(s)(iii)
Company Affiliates Letter...................................6.8(i)
Company Confidentiality Letter.................................9.7
Company Disclosure Letter......................................5.1
Company Insurance Contracts..............................5.1(s)(i)
Company Insurance Subsidiaries..............................5.1(a)
Company Intellectual Property Rights.................5.1(o)(ii)(B)
Company Material Adverse Effect.............................5.1(a)
Company Option..............................................5.1(b)
Company Reports.............................................5.1(e)
Company Requisite Vote...................................5.1(c)(i)
Company SAP Statements......................................5.1(e)
Company Stock Plans.........................................5.1(b)
Compensation and Benefit Plans...........................5.1(h)(i)
Confidentiality Agreements.....................................9.7
Constituent Corporations..................................Preamble
Convertible Notes...........................................5.1(b)
Contracts...............................................5.1(d)(ii)
Costs......................................................6.13(a)
D&O Insurance..............................................6.13(b)
Department.....................................................1.3
Effective Time.................................................1.3
Environmental Law...........................................5.1(k)
ERISA...................................................5.1(h)(ii)
ERISA Affiliate........................................5.1(h)(iii)
Exchange Agent..............................................4.2(a)
Exchange Fund...............................................4.2(a)
Exchange Ratio..............................................4.1(a)
Excluded Shares.............................................4.1(a)
GAAP........................................................5.1(e)
Governmental Consents.......................................7.1(c)
Governmental Entity......................................5.1(d)(i)
Hazardous Substance.........................................5.1(k)
HSR Act.....................................................5.1(a)
Indemnified Parties........................................6.13(a)
Insurance Laws...........................................5.1(i)(i)
IRS.....................................................5.1(h)(ii)
Laws....................................................5.1(i)(ii)
Lower Collar................................................4.1(a)
Maryland Articles of Merger....................................1.3
Maximum Premium............................................6.13(b)
Merger....................................................Recitals
Merger Consideration........................................4.1(a)
Merger Subsidiary.........................................Preamble
MGCL...........................................................1.1
NYSE........................................................4.1(a)
Order.......................................................7.1(d)
Pacholder..............................................5.1(u)(iii)
Pacholder Fund.............................................6.16(a)
Parent....................................................Preamble
Parent Acquisition Proposal.................................8.5(c)
Parent Actuarial Analyses..............................5.2(r)(iii)
Parent Affiliates Letter..................................6.8(iii)
Parent Audit Date...........................................5.2(f)
Parent Common Stock.........................................4.1(a)
Parent Companies............................................4.1(a)
Parent Compensation and Benefits Plans...................5.2(i)(i)
Parent Confidentiality Letter..................................9.7
Parent Disclosure Letter.......................................5.2
Parent ERISA Affiliate..................................5.2(i)(ii)
Parent Insurance Contracts...............................5.2(r)(i)
Parent Insurance Subsidiaries...............................5.2(b)
Parent Material Adverse Effect..............................5.2(b)
Parent Pension Plan......................................5.2(i)(i)
Parent Preferred Shares.....................................5.2(c)
Parent Reports..............................................5.2(f)
Parent Requisite Vote....................................5.2(d)(i)
Parent Rights Agreement.....................................5.2(c)
Parent SAP Statements.......................................5.2(f)
Parent Series A Preferred Stock.............................5.2(c)
Parent Series B Preferred Stock.............................5.2(c)
Parent Series C Preferred Stock.............................5.2(c)
Parent Stockholder Meeting.....................................6.4
Parent Stock Plans..........................................5.2(c)
Pension Plan............................................5.1(h)(ii)
Person......................................................4.2(b)
Preferred Shares............................................5.1(b)
Prospectus/ Proxy Statement....................................6.3
Representatives................................................6.7
Responsible Executive Officers of Parent....................5.2(b)
Responsible Executive Officers of the Company...............5.1(a)
Rights...................................................5.1(q)(i)
Rights Agreement............................................5.1(b)
S-4 Registration Statement.....................................6.3
SEC.........................................................5.1(e)
Securities Act...........................................5.1(d)(i)
Securities Exchange Act..................................5.1(d)(i)
Share, Shares...............................................4.1(a)
Stockholders Meeting...........................................6.4
Stock Option Agreement....................................Recitals
Subsidiary..................................................5.1(a)
Superior Proposal..............................................6.2
Surviving Corporation..........................................1.1
Takeover Statute............................................5.1(j)
Tax, Taxes, Taxable.........................................5.1(m)
Taxing Authority............................................5.1(m)
Tax Return(s)...............................................5.1(m)
Termination Date...............................................8.2
Third-Party Intellectual Property Rights.............5.1(o)(ii)(A)
Vested Stock Units.....................................6.11(a)(ii)
Upper Collar................................................4.1(a)
1940 Act...............................................5.1(u)(iii)
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the date
first written above.
USF&G CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
-----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
Title: Chairman of the Board, President
and Chief Executive Officer
THE ST. ▇▇▇▇ COMPANIES, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
Title: Chairman of the Board, President
and Chief Executive Officer
SP MERGER CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇
Title: Chairman of the Board, President
and Chief Executive Officer
EXHIBIT A-1
[FORM OF COMPANY AFFILIATE LETTER]
[Date]
USF&G Corporation
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
The St. ▇▇▇▇ Companies, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇. ▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
I have been advised that as of the date hereof, I may be
deemed to be an "affiliate" of USF&G Corporation, a Maryland corporation (the
"Company"), as such term (i) is defined for purposes of paragraphs (c) and (d)
of Rule 145 of the Rules and Regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"), or (ii) is used in and for
purposes of Accounting Series Releases 130 and 135, as amended, of the
Commission. Pursuant to the terms of the Agreement and Plan of Merger dated
as of January 19, 1998, as it may be amended, supplemented or modified from
time to time (the "Merger Agreement"), among the Company, The St. ▇▇▇▇
Companies, Inc., a Minnesota corporation ("Parent"), and SP Merger
Corporation, a Maryland corporation and a wholly owned subsidiary of Parent
("Merger Sub"), Merger Sub will be merged with and into the Company (the
"Merger"). Capitalized terms used herein but not defined herein shall have the
meanings ascribed to such terms in the Merger Agreement.
I further understand that the Merger will be treated for
financial accounting purposes as a "pooling of interests" in accordance with
generally accepted accounting principles and that the Staff of the Commission
has issued certain guidelines that should be followed to ensure the pooling of
the entities.
In consideration of the agreements contained herein,
Parent's reliance on this letter in connection with the consummation of the
Merger and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, I hereby represent, warrant and
agree that (i) I will not make any sale or transfer or otherwise dispose of my
interests in, or acquire or sell options or other securities relating to
securities of the Company or Parent that would be intended to reduce my risk
relative to, any shares of Common Stock, without par value, of Parent (the
"Parent Common Stock") or Common Stock, par value $2.50 per share, of the
Company ("Company Common Stock") until after such time as results covering at
least 30 days of combined operations of the Company and Parent have been
published by Parent, in the form of a quarterly earnings report, an effective
registration statement filed with the Commission, a report to the Commission
on Form 10-K, 10-Q or 8-K, or any other public filing or announcement which
includes such combined results of operations, and (ii) I will not make any
sale, transfer or other disposition of any shares of Parent Common Stock
received by me pursuant to the Merger in violation of the Securities Act or
the rules and regulations thereunder. I have been advised that the issuance of
the shares of Parent Common Stock pursuant to the Merger will have been
registered with the Commission under the Securities Act on a Registration
Statement on Form S-4. I have also been advised, however, that since I may be
deemed to be an affiliate of the Company at the time the Merger is submitted
for a vote of the shareholders of the Company, the Parent Common Stock
received by me may be disposed by me only (i) pursuant to an effective
registration under the Securities Act, (ii) in conformity with the volume and
other limitations of Rule 145 promulgated by the Commission under the
Securities Act, or (iii) in reliance upon an exemption from registration that
is available under the Securities Act.
I also understand that instructions will be given to
Parent's transfer agent with respect to the Parent Common Stock to be received
by me pursuant to the Merger and that there may be placed on the certificates
representing such shares of Parent Common Stock, or any substitutes therefor,
a legend stating in substance as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ISSUED IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, APPLIES AND MAY ONLY
BE SOLD OR OTHERWISE TRANSFERRED IN COMPLIANCE WITH THE
REQUIREMENTS OF RULE 145 OR PURSUANT TO A REGISTRATION
STATEMENT UNDER THAT ACT OR AN EXEMPTION FROM SUCH
REGISTRATION."
It is understood and agreed that the legend set forth above
shall be removed upon surrender of certificates bearing such legend by
delivery of substitute certificates without such legend if I shall have
delivered to Parent an opinion of counsel, in form and substance reasonably
satisfactory to Parent, to the effect that the sale or disposition of the
shares represented by the surrendered certificates may be effected without
registration of the offering, sale and delivery of such shares under the
Securities Act.
I further understand and agree that Parent is under no
obligation to register the sale, transfer or other disposition of the Parent
Common Stock by me or on my behalf under the Securities Act or to take any
other action necessary in order to make compliance with an exemption form such
registration available.
Execution of this letter should not be considered an
admission on my part that I am an "affiliate" of the Company as described in
the first paragraph of this letter, or as a waiver of any rights I may have to
object to any claim that I am such an affiliate on or after the date of this
letter.
This letter agreement constitutes the complete understanding
between Parent and me concerning the subject matter hereof. Any notice
required to be sent to either party hereunder shall be sent by registered or
certified mail, return receipt requested, using the addresses set forth herein
or such other address as shall be furnished in writing by the parties. This
letter agreement shall be governed by and construed and interpreted in
accordance with, the laws of the State of Maryland.
If you are in agreement with the foregoing, please so
indicate by signing below and returning a copy of this letter to the
undersigned, at which time this letter shall become a binding agreement
between us.
Very truly yours,
By:_______________________
Name:
Address:
Accepted this ____ day
of __________, 1998.
USF&G Corporation
By:_______________________
Name:
Title:
The St. ▇▇▇▇ Companies, Inc.
By:_______________________
Name:
Title:
EXHIBIT A-2
[FORM OF PARENT AFFILIATE LETTER]
[Date]
USF&G Corporation
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▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
The St. ▇▇▇▇ Companies, Inc.
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▇▇. ▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
I have been advised that as of the date hereof, I may be
deemed to be an "affiliate" of The St. ▇▇▇▇ Companies, Inc., a Minnesota
corporation ("Parent"), as such term (i) is defined for purposes of paragraphs
(c) and (d) of Rule 145 of the Rules and Regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Securities Act"), or (ii)
is used in and for purposes of Accounting Series Releases 130 and 135, as
amended, of the Commission. Pursuant to the terms of the Agreement and Plan
of Merger (the "Merger Agreement"), dated as of January 19, 1998, as it may be
amended, supplemented or modified from time to time, among USF&G Corporation,
a Maryland corporation (the "Company"), Parent, and SP Merger Corporation, a
Maryland corporation and a wholly owned subsidiary of Parent ("Merger Sub"),
Merger Sub will be merged with and into the Company (the "Merger").
Capitalized terms used herein but not defined herein shall have the meanings
ascribed to such terms in the Merger Agreement.
I further understand that the Merger will be treated for
financial accounting purposes as a "pooling of interests" in accordance with
generally accepted accounting principles and that the Staff of the Commission
has issued certain guidelines that should be followed to ensure the pooling of
the entities.
In consideration of the agreements contained herein, the
Company's reliance on this letter in connection with the consummation of the
Merger and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, I hereby represent, warrant and
agree that I will not make any sale or transfer or otherwise dispose of my
interests in, or acquire or sell options or other securities relating to
securities of the Company or Parent that would be intended to reduce my risk
relative to, any shares of Common Stock, without par value, of Parent (the
"Parent Common Stock") or Common Stock, par value $2.50 per share, of the
Company (the "Company Common Stock") 30 days of combined operations of the
Company and Parent have been published by Parent, in the form of a quarterly
earnings report, an effective registration statement filed with the
Commission, a report to the Commission on Form 10-K, 10-Q or 8-K, or any other
public filing or announcement which includes such combined results of
operations.
Execution of this letter should not be considered an
admission on my part that I am an "affiliate" of Parent as described in the
first paragraph of this letter, or as a waiver of any rights I may have to
object to any claim that I am such an affiliate on or after the date of this
letter.
This letter agreement constitutes the complete understanding
between the Company and me concerning the subject matter hereof. Any notice
required to be sent to either party hereunder shall be sent by registered or
certified mail, return receipt requested, using the addresses set forth herein
or such other address as shall be furnished in writing by the parties. This
letter agreement shall be governed by and construed and interpreted in
accordance with, the laws of the Commonwealth of Minnesota.
If you are in agreement with the foregoing, please so
indicate by signing below and returning a copy of this letter to the
undersigned, at which time this letter shall become a binding agreement
between us.
Very truly yours,
________________________
Name:
Address:
Accepted this ____ day of ___________, 1998.
The St. ▇▇▇▇ Companies, Inc.
By:______________________
Name:
Title:
USF&G Corporation
By:______________________
Name:
Title:
Table of Contents
Page
RECITALS
ARTICLE I
The Merger; Closing; Effective Time
1.1. The Merger.......................................................2
1.2. Closing..........................................................2
1.3. Effective Time...................................................2
ARTICLE II
Charter and Bylaws
of the Surviving Corporation
2.1. The Charter......................................................3
2.2. The Bylaws.......................................................3
ARTICLE III
Officers and Directors
of the Surviving Corporation
3.1. Directors........................................................3
3.2. Officers.........................................................3
ARTICLE IV
Effect of the Merger on Stock;
Exchange of Certificates
4.1. Effect on Stock..................................................4
(a) Merger Consideration...............................4
(b) Cancellation of Shares.............................4
(c) Merger Subsidiary..................................4
4.2. Exchange of Certificates for Shares..............................5
(a) Exchange Agent.....................................5
(b) Exchange Procedures................................5
(c) Distributions with Respect to Unexchanged Shares;
Voting...........................................6
(d) Transfers..........................................6
(e) Fractional Shares..................................7
(f) Termination of Exchange Fund.......................7
(g) Lost, Stolen or Destroyed Certificates.............7
(h) Affiliates.........................................7
4.3. Dissenters' Rights...............................................8
4.4. Adjustments to Prevent Dilution..................................8
4.5. Treatment of the Convertible Notes...............................8
ARTICLE V
Representations and Warranties
5.1. Representations and Warranties of the Company....................8
(a) Organization, Good Standing and Qualification......8
(b) Capital Structure.................................10
(c) Corporate Authority; Approval and Fairness........10
(d) Governmental Filings; No Violations...............11
(e) Company Reports; Financial Statements.............12
(f) Absence of Certain Changes........................13
(g) Litigation and Liabilities........................14
(h) Employee Benefits.................................14
(i) Compliance with Laws; Permits.....................16
(j) Takeover Statutes.................................18
(k) Environmental Matters.............................18
(l) Accounting and Tax Matters........................19
(m) Taxes.............................................19
(n) Labor Matters.....................................21
(o) Intellectual Property.............................21
(p) Material Contracts................................22
(q) Rights Plan.......................................22
(r) Brokers and Finders...............................23
(s) Insurance Matters.................................23
(t) Liabilities and Reserves..........................25
(u) Investment Advisory Matters.......................25
5.2. Representations and Warranties of Parent and Merger Subsidiary..26
(a) Capitalization of Merger Subsidiary...............26
(b) Organization, Good Standing and Qualification.....27
(c) Capital Structure.................................28
(d) Corporate Authority; Fairness.....................29
(e) Governmental Filings; No Violations...............29
(f) Parent Reports; Financial Statements..............30
(g) Absence of Certain Changes........................32
(h) Litigation and Liabilities........................32
(i) Employee Benefits.................................32
(j) Compliance with Laws; Permits.....................34
(k) Environmental Matters.............................35
(l) Accounting and Tax Matters........................36
(m) Taxes.............................................36
(n) Labor Matters.....................................37
(o) Material Contracts................................37
(p) Ownership of Shares...............................37
(q) Brokers and Finders...............................37
(r) Insurance Matters.................................37
(s) Liabilities and Reserves..........................38
ARTICLE VI
Covenants
6.1.(a) Interim Operations of the Company...............................39
6.1.(b) Interim Operations of Parent....................................41
6.2. Company Acquisition Proposals...................................42
6.3. Information Supplied............................................44
6.4. Stockholders Meetings...........................................44
6.5. Filings; Other Actions; Notification............................45
6.6. Taxation and Accounting.........................................46
6.7. Access..........................................................47
6.8. Affiliates......................................................47
6.9. Stock Exchange Listing..........................................48
6.10. Publicity.......................................................48
6.11. Benefits........................................................48
(a) Stock Options.....................................48
(b) Employee Benefits.................................49
6.12. Expenses........................................................49
6.13. Indemnification; Directors' and Officers' Insurance.............50
6.14. Election to Parent's Board of Directors.........................51
6.15. Convertible Notes...............................................51
6.16. Satisfaction of Section 15 of the 1940 Act......................51
6.17. Advisory Contract Consents......................................52
6.18. Other Actions by the Company and Parent.........................52
(a) Rights............................................52
(b) Takeover Statute..................................52
(c) Dividends.........................................53
ARTICLE VII
Conditions
7.1. Conditions to Each Party's Obligation to Effect the Merger......53
(a) Stockholder Approval..............................53
(b) NYSE Listing......................................53
(c) Regulatory Consents...............................53
(d) Litigation........................................54
(e) S-4...............................................54
7.2. Conditions to Obligations of Parent and Merger Subsidiary.......54
(a) Representations and Warranties....................54
(b) Performance of Obligations of the Company.........54
(c) Consents..........................................54
(d) Tax Opinion.......................................55
(e) Accountant Letters................................55
7.3. Conditions to Obligation of the Company.........................55
(a) Representations and Warranties....................55
(b) Performance of Obligations of Parent and Merger
Subsidiary...................................55
(c) Consents Under Agreements.........................56
(d) Tax Opinion.......................................56
(e) Accountant Letters................................56
ARTICLE VIII
Termination
8.1. Termination by Mutual Consent...................................56
8.2. Termination by Either Parent or the Company.....................56
8.3. Termination by the Company......................................57
8.4. Termination by Parent...........................................58
8.5. Effect of Termination and Abandonment...........................58
ARTICLE IX
Miscellaneous and General
9.1. Survival........................................................59
9.2. Modification or Amendment.......................................60
9.3. Waiver of Conditions............................................60
9.4. Counterparts....................................................60
9.5. GOVERNING LAW; WAIVER OF JURY TRIAL.............................60
9.6. Notices.........................................................61
9.7. Entire Agreement; No Other Representations......................61
9.8. No Third Party Beneficiaries....................................62
9.9. Obligations of Parent and of the Company........................62
9.10. Severability....................................................62
9.11. Interpretation..................................................62
9.12. Assignment......................................................63
9.13. Location of Certain Definitions.................................63
EXHIBITS
Exhibit A-1 - Form of Company Affiliate Letter
Exhibit A-2 - Form of Parent Affiliate Letter