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AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF
FEBRUARY 27, 1998
BY AND AMONG
HCC INSURANCE HOLDINGS, INC.,
THE ▇▇▇▇▇▇▇ CORPORATION
(A DELAWARE CORPORATION
"MERGER SUB")
AND
THE ▇▇▇▇▇▇▇ CORPORATION
(A TEXAS CORPORATION)
AND
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇ ▇. GETTY
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇
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TABLE OF CONTENTS
PAGE
ARTICLE I THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 The Merger.. . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Conversion of Shares . . . . . . . . . . . . . . . . . . 2
Section 1.3 Exchange of Certificates . . . . . . . . . . . . . . . . 3
ARTICLE II THE SURVIVING CORPORATION . . . . . . . . . . . . . . . . . . 4
Section 2.1 Certificate of Incorporation . . . . . . . . . . . . . . 4
Section 2.2 Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.3 Directors and Officers . . . . . . . . . . . . . . . . . 4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
▇▇▇▇▇▇▇, AFFILIATED COMPANIES AND SHAREHOLDERS. . . . . . . . 4
Section 3.1 Corporate Existence and Power. . . . . . . . . . . . . . 4
Section 3.2 Authorization. . . . . . . . . . . . . . . . . . . . . . 5
Section 3.3 Governmental Authorization . . . . . . . . . . . . . . . 5
Section 3.4 Non-Contravention. . . . . . . . . . . . . . . . . . . . 6
Section 3.5 Capitalization . . . . . . . . . . . . . . . . . . . . . 6
Section 3.6 Subsidiaries and Joint Ventures. . . . . . . . . . . . . 7
Section 3.7 ▇▇▇▇▇▇▇ Financial Statements . . . . . . . . . . . . . . 7
Section 3.8 Absence of Certain Changes . . . . . . . . . . . . . . . 8
Section 3.9 No Undisclosed Liabilities . . . . . . . . . . . . . . . 9
Section 3.10 Litigation . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.11 Accounting Matters . . . . . . . . . . . . . . . . . . . 9
Section 3.12 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.13 Employee Benefit Plans, ERISA. . . . . . . . . . . . . . 10
Section 3.14 Material Agreements. . . . . . . . . . . . . . . . . . . 12
Section 3.15 Properties . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.16 Environmental Matters. . . . . . . . . . . . . . . . . . 13
Section 3.17 Labor Matters. . . . . . . . . . . . . . . . . . . . . . 14
Section 3.18 Compliance with Laws . . . . . . . . . . . . . . . . . . 14
Section 3.19 Trademarks, Tradenames, Etc. . . . . . . . . . . . . . . 14
Section 3.20 Sale of ▇▇▇▇▇▇▇. . . . . . . . . . . . . . . . . . . . . 14
Section 3.21 Broker's Fees. . . . . . . . . . . . . . . . . . . . . . 14
Section 3.22 Investment Representation. . . . . . . . . . . . . . . . 14
Section 3.23 Total Assets . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.24 Year 2000 Issues . . . . . . . . . . . . . . . . . . . . 15
Section 3.25 Assignment of Commissions. . . . . . . . . . . . . . . . 15
Section 3.26 Knowledge of ▇▇▇▇▇▇▇ . . . . . . . . . . . . . . . . . . 15
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF HCCH. . . . . . . . . . . . 15
Section 4.1 Corporate Existence and Power. . . . . . . . . . . . . . 16
Section 4.2 Corporate Authorization. . . . . . . . . . . . . . . . . 16
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TABLE OF CONTENTS (CONT.)
PAGE
Section 4.3 Governmental Authorization . . . . . . . . . . . . . . . 16
Section 4.4 Non-Contravention. . . . . . . . . . . . . . . . . . . . 17
Section 4.5 Capitalization of HCCH . . . . . . . . . . . . . . . . . 17
Section 4.6 Organization of Merger Sub . . . . . . . . . . . . . . . 18
Section 4.7 SEC Filings. . . . . . . . . . . . . . . . . . . . . . . 18
Section 4.8 Financial Statements . . . . . . . . . . . . . . . . . . 19
Section 4.9 Absence of Certain Changes . . . . . . . . . . . . . . . 19
Section 4.10 No Undisclosed Liabilities . . . . . . . . . . . . . . . 19
Section 4.11 Litigation . . . . . . . . . . . . . . . . . . . . . . . 19
Section 4.12 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 4.13 Employee Benefit Plans; ERISA. . . . . . . . . . . . . . 20
Section 4.14 Material Agreements. . . . . . . . . . . . . . . . . . . 22
Section 4.15 Properties . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.16 Environmental Matters. . . . . . . . . . . . . . . . . . 23
Section 4.17 Labor Matters. . . . . . . . . . . . . . . . . . . . . . 23
Section 4.18 Compliance with Laws . . . . . . . . . . . . . . . . . . 23
Section 4.19 Trademarks, Tradenames, Etc. . . . . . . . . . . . . . . 23
Section 4.20 Broker's Fees. . . . . . . . . . . . . . . . . . . . . . 23
Section 4.21 Knowledge of HCCH and Merger Sub . . . . . . . . . . . . 23
ARTICLE V COVENANTS OF ▇▇▇▇▇▇▇, ETC.. . . . . . . . . . . . . . . . . . 24
Section 5.1 Conduct of ▇▇▇▇▇▇▇ . . . . . . . . . . . . . . . . . . . 24
Section 5.2 Shareholder Approval . . . . . . . . . . . . . . . . . . 25
Section 5.3 Access to Financial and Operational Information. . . . . 25
Section 5.4 Other Offers . . . . . . . . . . . . . . . . . . . . . . 26
Section 5.5 Maintenance of Business. . . . . . . . . . . . . . . . . 26
Section 5.6 Compliance with Obligations. . . . . . . . . . . . . . . 26
Section 5.7 Notices of Certain Events. . . . . . . . . . . . . . . . 27
Section 5.8 Affiliates Agreement . . . . . . . . . . . . . . . . . . 27
Section 5.9 Necessary Consents . . . . . . . . . . . . . . . . . . . 27
Section 5.10 Regulatory Approval. . . . . . . . . . . . . . . . . . . 27
Section 5.11 Satisfaction of Conditions Precedent . . . . . . . . . . 28
ARTICLE VI COVENANTS OF HCCH AND MERGER SUB. . . . . . . . . . . . . . . 28
Section 6.1 Conduct of HCCH. . . . . . . . . . . . . . . . . . . . . 28
Section 6.2 Access to Financial and Operation Information. . . . . . 28
Section 6.3 Maintenance of Business. . . . . . . . . . . . . . . . . 28
Section 6.4 Compliance with Obligations. . . . . . . . . . . . . . . 29
Section 6.5 Notices of Certain Events. . . . . . . . . . . . . . . . 29
Section 6.6 Obligations of Merger Sub. . . . . . . . . . . . . . . . 29
Section 6.7 Notice to Affiliates . . . . . . . . . . . . . . . . . . 29
Section 6.8 Regulatory Approval. . . . . . . . . . . . . . . . . . . 29
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TABLE OF CONTENTS (CONT.)
PAGE
ARTICLE VII COVENANTS OF HCCH, ▇▇▇▇▇▇▇ AND AFFILIATED
COMPANIES . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 7.1 Advice of Changes. . . . . . . . . . . . . . . . . . . . 30
Section 7.2 Regulatory Approvals . . . . . . . . . . . . . . . . . . 30
Section 7.3 Actions Contrary to Stated Intent. . . . . . . . . . . . 30
Section 7.4 Certain Filings. . . . . . . . . . . . . . . . . . . . . 30
Section 7.5 Communications . . . . . . . . . . . . . . . . . . . . . 31
Section 7.6 Satisfaction of Conditions Precedent . . . . . . . . . . 31
Section 7.7 Tax Cooperation. . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VIII POST-CLOSING COVENANTS. . . . . . . . . . . . . . . . . . . . 31
Section 8.1 Listing of HCCH Common Stock . . . . . . . . . . . . . . 31
Section 8.2 Publication of Post-Merger Results . . . . . . . . . . . 31
Section 8.3 Employee Benefits. . . . . . . . . . . . . . . . . . . . 31
Section 8.4 Officers and Directors Insurance . . . . . . . . . . . . 31
Section 8.5 Securities Act Reports . . . . . . . . . . . . . . . . . 32
Section 8.6 Assignment of Commissions. . . . . . . . . . . . . . . . 32
ARTICLE IX CONDITIONS TO THE MERGER. . . . . . . . . . . . . . . . . . . 32
Section 9.1 Conditions to Obligations of HCCH and Merger Sub . . . . 32
Section 9.2 Conditions to Obligations of ▇▇▇▇▇▇▇ and Shareholders. . 33
Section 9.3 Conditions to Obligations of Each Party. . . . . . . . . 34
ARTICLE X TERMINATION OF AGREEMENT. . . . . . . . . . . . . . . . . . . 35
Section 10.1 Termination. . . . . . . . . . . . . . . . . . . . . . . 35
Section 10.2 Effect of Termination. . . . . . . . . . . . . . . . . . 35
ARTICLE XI CLOSING MATTERS . . . . . . . . . . . . . . . . . . . . . . . 36
Section 11.1 The Closing. . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE XII INDEMNIFICATION AND REMEDIES. . . . . . . . . . . . . . . . . 36
Section 12.1 General Indemnification by the Shareholders. . . . . . . 36
Section 12.2 Limitation and Expiration. . . . . . . . . . . . . . . . 37
Section 12.3 Agreement to Indemnify . . . . . . . . . . . . . . . . . 38
Section 12.4 HCCH Agreement to Indemnify. . . . . . . . . . . . . . . 38
Section 12.5 Procedure for Indemnification; Third Party Claims. . . . 39
Section 12.6 Limitation on Liability. . . . . . . . . . . . . . . . . 39
ARTICLE XIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 13.1 Appointment of Representative. . . . . . . . . . . . . . 40
Section 13.2 Further Assurances.. . . . . . . . . . . . . . . . . . . 41
Section 13.3 Fees and Expenses. . . . . . . . . . . . . . . . . . . . 41
iii
TABLE OF CONTENTS (CONT.)
PAGE
Section 13.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 13.5 Governing Law. . . . . . . . . . . . . . . . . . . . . . 43
Section 13.6 Binding upon Successors and Assigns, Assignment. . . . . 43
Section 13.7 Severability . . . . . . . . . . . . . . . . . . . . . . 43
Section 13.8 Entire Agreement . . . . . . . . . . . . . . . . . . . . 43
Section 13.9 Amendment and Waivers. . . . . . . . . . . . . . . . . . 43
Section 13.10 No Waiver. . . . . . . . . . . . . . . . . . . . . . . . 44
Section 13.11 Construction of Agreement. . . . . . . . . . . . . . . . 44
Section 13.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . 44
Section 13.13 Shareholder Control of Stock . . . . . . . . . . . . . . 44
Section 13.14 Knowledge. . . . . . . . . . . . . . . . . . . . . . . . 44
iv
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is entered
into as of the 27th day of February, 1998 by and among HCC Insurance Holdings,
Inc., a Delaware corporation ("HCCH"), The ▇▇▇▇▇▇▇ Corporation, a Delaware
corporation and a wholly owned subsidiary of HCCH ("Merger Sub"), The ▇▇▇▇▇▇▇
Corporation ("▇▇▇▇▇▇▇"), a Texas corporation, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ("LMK"), ▇▇▇▇ ▇.
Getty ("Getty"), and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇"), ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
("▇▇▇▇▇▇▇"), ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇▇") and ▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇
("▇'▇▇▇▇▇▇") (LMK, Getty, Manning, Schanen, Kleiderer and ▇'▇▇▇▇▇▇ being
collectively referred to as the "Shareholders").
RECITALS:
A. The Boards of Directors of each of HCCH, Merger Sub and ▇▇▇▇▇▇▇ have
determined to engage in a transaction pursuant to which (i) ▇▇▇▇▇▇▇ will merge
with and into Merger Sub (the "Merger"), (ii) at the Effective Time the capital
stock of ▇▇▇▇▇▇▇ shall be converted into shares of common stock, par value $1.00
per share, of HCCH (the "HCCH Common Stock") in the manner herein described, all
upon the terms and subject to the conditions set forth herein.
B. The Board of Directors of ▇▇▇▇▇▇▇ has approved, and the Board of
Directors of ▇▇▇▇▇▇▇ has resolved, subject to the terms of this Agreement, to
recommend that shareholders of ▇▇▇▇▇▇▇ approve, the Merger, this Agreement and
the Articles of Merger (as defined herein).
C. The Board of Directors of HCCH has approved the Merger, this
Agreement and the Articles of Merger. HCCH, as the sole shareholder of Merger
Sub, has approved the Merger, this Agreement and the Articles of Merger.
D. The parties intend for the transactions contemplated by this
Agreement to qualify as a plan of reorganization in accordance with the
provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), and to be accounted for as a "pooling-of-interests" for accounting
purposes.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein, the
parties hereto do hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER.
(a) Subject to the terms and conditions of this Agreement, ▇▇▇▇▇▇▇ will
be merged into Merger Sub in accordance with the laws of the State of Delaware
("Delaware Law"), whereupon
the separate existence of ▇▇▇▇▇▇▇ shall cease, and Merger Sub shall be the
surviving corporation (the "Surviving Corporation").
(b) As soon as practicable after satisfaction or, to the extent
permitted hereunder, waiver of all conditions to the Merger, ▇▇▇▇▇▇▇ and Merger
Sub shall file articles of merger, in substantially the form attached hereto as
Exhibit "A" (the "Articles of Merger"), in the Office of the Secretary of the
State of Delaware, and make all such other filings or recordings required by
Delaware Law and as required by the Texas Business Corporation Act in connection
with the Merger. The Merger shall become effective upon completion of the
filing of an executed original of the Plan of Merger and the Articles of Merger
with the Secretary of State of the State of Texas and the Articles of Merger
with the Office of the Secretary of the State of Delaware, in accordance with
the relevant provisions of Delaware Law (the "Effective Time"). The date on
which the Effective Time shall occur is referred to herein as the "Effective
Date."
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises and be subject to all
of the restrictions, disabilities and duties of ▇▇▇▇▇▇▇ and Merger Sub, all as
provided under Delaware Law. Without limiting the generality of the foregoing,
and subject thereto, at the Effective Time (i) all the rights, privileges,
immunities, powers and franchises, of a public as well as of a private nature,
and all property, real, personal and mixed, and all debts due on whatever
account, including without limitation subscriptions to shares, and all other
choses in action, and all and every other interest of or belongings to or due to
the Merger Sub or ▇▇▇▇▇▇▇ shall be taken and deemed to be transferred to, and
vested in, the Surviving Corporation without further act or deed; and all
property, rights and privileges, immunities, powers and franchises, and all and
every other interest shall be thereafter as effectually the property of the
Surviving Corporation, as they were of Merger Sub and ▇▇▇▇▇▇▇, and (ii) all
debts, liabilities, duties and obligations of Merger Sub and ▇▇▇▇▇▇▇, subject to
the terms hereof, shall become the debts, liabilities and duties of the
Surviving Corporation, and the Surviving Corporation shall thenceforth be
responsible and liable for all the debts, liabilities, duties and obligations of
Merger Sub and ▇▇▇▇▇▇▇, and neither the rights of creditors nor any liens upon
the property of Merger Sub or ▇▇▇▇▇▇▇ shall be impaired by the Merger, and may
be enforced against the Surviving Corporation.
SECTION 1.2 CONVERSION OF SHARES. At the Effective Time, each share of
common stock of ▇▇▇▇▇▇▇ outstanding immediately prior to the Effective Time
shall automatically and without any action on the part of the holder thereof
cease to be outstanding and be converted into the right to receive 9.8064 shares
of HCCH Common Stock (the "Merger Consideration").
No fractional shares shall be issued and each holder of ▇▇▇▇▇▇▇ Common Stock
shall be entitled to the nearest whole share of HCCH Common Stock rounded
upwards if such fractional share exceeds .5 and otherwise rounded downwards,
PROVIDED, HOWEVER, that HCCH shall under no circumstances be obligated hereunder
to issue shares of HCCH Common Stock in excess of an aggregate of 1,600,000
shares of HCCH Common Stock.
Each share of Common Stock of Merger Sub issued and outstanding immediately
prior to the Effective Time shall continue to be issued and outstanding as one
share of Common Stock of the Surviving Corporation.
2
SECTION 1.3 EXCHANGE OF CERTIFICATES.
(a) Prior to the Effective Date, HCCH shall appoint ▇▇▇▇▇▇ Trust and
Savings Bank ("▇▇▇▇▇▇") to act as exchange agent (the "Exchange Agent") in the
Merger.
(b) As of the Effective Time, all shares of ▇▇▇▇▇▇▇ Common Stock that
are outstanding immediately prior thereto will, by virtue of the Merger and
without further action, cease to exist, and all such shares of ▇▇▇▇▇▇▇ will be
converted into the right to receive from HCCH the number of shares of HCCH
Common Stock determined as set forth in Section 1.2 hereof.
(c) At and after the Effective Time, each certificate representing
outstanding shares of ▇▇▇▇▇▇▇ Common Stock will represent the number of shares
of HCCH Common Stock into which such shares of ▇▇▇▇▇▇▇ Common Stock will be
deemed registered in the name of the holder of such certificate. At the
Effective Time, the holder of shares of ▇▇▇▇▇▇▇ Common Stock will surrender the
certificates for such shares (the "▇▇▇▇▇▇▇ Certificates") to HCCH for
cancellation. Promptly following the Effective Time and receipt of the ▇▇▇▇▇▇▇
Certificates, HCCH will cause ▇▇▇▇▇▇ to issue to such surrendering holder
certificates for the number of shares of HCCH Common Stock to which such holder
is entitled pursuant to the terms hereof.
(d) All shares of HCCH Common Stock delivered upon the surrender of
▇▇▇▇▇▇▇ Certificates in accordance with the terms hereof will be delivered to
the registered holder. After the Effective Time, there will be no further
registration of transfers of the shares of ▇▇▇▇▇▇▇ Common Stock on the stock
transfer books of ▇▇▇▇▇▇▇. If, after the Effective Time, ▇▇▇▇▇▇▇ Certificates
are presented for transfer or for any other reason, they will be canceled and
exchanged and certificates therefor will be delivered as provided for herein.
(e) Until ▇▇▇▇▇▇▇ Certificates representing ▇▇▇▇▇▇▇ Common Stock
outstanding prior to the Merger are surrendered pursuant to this Section 1.3,
such certificates will be deemed, for all purposes, to evidence ownership of
the number of whole shares of HCCH Common Stock into which the shares of
▇▇▇▇▇▇▇ Common Stock will have been converted.
(f) If prior to the Merger, HCCH recapitalizes either through a split-up
of its outstanding shares into a greater number, or through a combination of its
outstanding shares into a lesser number, or reorganizes, reclassifies or
otherwise changes its outstanding shares into the same or a different number of
shares of other classes, or declares a dividend on its outstanding shares
payable in shares or securities convertible into shares (but not cash), the
number of shares of HCCH Common Stock into which the shares of ▇▇▇▇▇▇▇ Common
Stock are to be converted will be adjusted in proportion to such change.
3
ARTICLE II
THE SURVIVING CORPORATION
SECTION 2.1 CERTIFICATE OF INCORPORATION. At the Effective Time, the
Certificate of Incorporation of Merger Sub as in effect immediately prior to the
Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation.
SECTION 2.2 BYLAWS. At the Effective Time, the Bylaws of Merger Sub as
in effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation.
SECTION 2.3 DIRECTORS AND OFFICERS. From and after the Effective Time,
until successors are duly elected or appointed and qualified in accordance with
Delaware Law, the directors and officers of Merger Sub at the Effective Time
shall become directors and the officers of the Surviving Corporation. In
addition, HCCH shall take all necessary action to cause LMK to be appointed
President of the Surviving Corporation, such appointment to become effective as
of the Effective Time.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ▇▇▇▇▇▇▇,
AFFILIATED COMPANIES AND SHAREHOLDERS
Except as disclosed in a document referring specifically to this Agreement
(the "▇▇▇▇▇▇▇ Disclosure Schedule") which has been delivered to HCCH on or
before the date hereof, each of ▇▇▇▇▇▇▇ and each Shareholder (severally and not
jointly) represents and warrants to HCCH as set forth below:
SECTION 3.1 CORPORATE EXISTENCE AND POWER. ▇▇▇▇▇▇▇ is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Texas, and has all corporate powers and all material governmental licenses,
authorizations, consents and approvals (collectively, "Governmental
Authorizations") required to carry on its business as now conducted, except such
Governmental Authorizations the failure of which to have obtained would not have
a Material Adverse Effect, as hereinafter defined, on ▇▇▇▇▇▇▇. ▇▇▇▇▇▇▇ has
delivered to HCCH true and complete copies of ▇▇▇▇▇▇▇'▇ Articles of
Incorporation and Bylaws as currently in effect. ▇▇▇▇▇▇▇ is duly qualified to
do business as a foreign corporation and possesses all Governmental
Authorizations, including, without limitation, licenses to act as a life
insurance agent in those states in which it does business and is in good
standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification necessary,
except where the failure to be so qualified would not have a Material Adverse
Effect on ▇▇▇▇▇▇▇. For purposes of this Agreement, a "Material Adverse Effect,"
with respect to any person or entity (including without limitation ▇▇▇▇▇▇▇ and
HCCH), means a material adverse effect on the condition (financial or
otherwise), business, properties, assets, liabilities (including contingent
liabilities), results of operations or prospects of such person or entity and
its affiliated companies and subsidiaries and/or parent corporation and/or
corporations under the same stock
4
ownership, taken as a whole; and "Material Adverse Change" means a change or
a development involving a prospective change which would result in a Material
Adverse Effect.
SECTION 3.2 AUTHORIZATION.
(a) The execution, delivery and performance by ▇▇▇▇▇▇▇ of this Agreement
and the Articles of Merger, and the consummation by ▇▇▇▇▇▇▇ of the transactions
contemplated hereby and thereby including the execution of the Confidentiality
Agreement (as hereinafter defined), are within ▇▇▇▇▇▇▇'▇ corporate powers and
have been duly authorized by all necessary corporate action, excluding approval
by the Shareholders in connection with the consummation of the Merger. This
Agreement, the Articles of Merger, and the Confidentiality Agreement constitute,
or upon execution will constitute, valid and binding agreements of ▇▇▇▇▇▇▇,
enforceable against ▇▇▇▇▇▇▇ in accordance with their respective terms, except as
such enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally or by general
principles of equity.
(b) Each of the Shareholders, severally, represents and warrants that he
has full right, power and authority to enter into this Agreement, the Affiliates
Agreement (as hereinafter defined) to be entered into by him, and each other
agreement to be entered into by him in connection with the transactions
contemplated hereby and that this Agreement, the Affiliates Agreement, and such
other agreements contemplated hereby constitute, or upon execution will
constitute, valid and binding agreements of such Shareholder, enforceable
against him in accordance with their respective terms, except as such
enforcement may be limited by bankruptcy, insolvency or other similar laws
effecting the enforcement of creditors' rights generally or by general
principles of equity.
SECTION 3.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by ▇▇▇▇▇▇▇, and each Shareholder of this Agreement, the execution,
delivery and performance by ▇▇▇▇▇▇▇ of the Articles of Merger and the
Confidentiality Agreement and the consummation of the Merger by ▇▇▇▇▇▇▇ require
no action by or in respect of, or filing with, any governmental body, agency,
official or authority other than:
(a) the filing of Articles of Merger in accordance with Texas and
Delaware Law;
(b) compliance with any applicable requirements of the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇
Antitrust Improvements Act of 1976, as amended (the "HSR Act");
(c) compliance with any applicable requirements of the Securities Act of
1993, as amended (the "Securities Act") and the rules and regulations
promulgated thereunder;
(d) compliance with any applicable foreign or state securities or "blue
sky" laws;
(e) compliance with any requirements of any federal, state, foreign or
other insurance laws, insurance agency including agent's licensing or other
related laws;
5
(f) such other filings or registrations with, or authorizations,
consents or approvals of, governmental bodies, agencies, officials or
authorities, the failure of which to make or obtain (i) would not reasonably
be expected to have a Material Adverse Effect on ▇▇▇▇▇▇▇ or the Surviving
Corporation, or (ii) would not materially adversely affect the ability of
▇▇▇▇▇▇▇, HCCH or Merger Sub to consummate the transactions contemplated
hereby and operate their businesses as heretofore operated.
SECTION 3.4 NON-CONTRAVENTION. The execution, delivery and
performance by ▇▇▇▇▇▇▇ of this Agreement, the execution, delivery and
performance by ▇▇▇▇▇▇▇ of the Articles of Merger and the consummation by
▇▇▇▇▇▇▇ of the transactions contemplated hereby and thereby do not and will
not:
(a) contravene or conflict with ▇▇▇▇▇▇▇'▇ Articles of Incorporation
or Bylaws;
(b) assuming compliance with the matters referred to in Section 3.3 and
assuming the requisite approval by the Shareholders of the Merger, contravene or
conflict with or constitute a violation of any provision of any law,
regulation, judgment, injunction, order or decree binding upon or applicable to
▇▇▇▇▇▇▇;
(c) conflict with or result in a breach or violation of, or constitute a
default under, or result in a contractual right to cause the termination or
cancellation of or loss of a material benefit under, or right to accelerate, any
material agreement, contract or other instrument binding upon ▇▇▇▇▇▇▇ or any
material license, franchise, permit or other similar authorization held by
▇▇▇▇▇▇▇; or
(d) result in the creation or imposition of any Lien (as hereinafter
defined) on any material asset of ▇▇▇▇▇▇▇,
except, with respect to clauses (b), (c) and (d) above, for contraventions,
defaults, losses, Liens and other matters referred to in such clauses that in
the aggregate would not be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect on ▇▇▇▇▇▇▇. For purposes of this
Agreement, the term "Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset.
SECTION 3.5 CAPITALIZATION.
(a) As of December 31, 1997, the authorized, issued and outstanding
capital stock of ▇▇▇▇▇▇▇ was as follows:
The ▇▇▇▇▇▇▇ Corp.
$0.01 par value, 500,000 shares Common Stock authorized;
163,159 shares issued and outstanding
(c) All outstanding shares set forth in (a) above have been, or will be
prior to the Effective Date, duly authorized and validly issued and are fully
paid and nonassessable and free from any preemptive rights. Except as set forth
in this Agreement, ▇▇▇▇▇▇▇ has no outstanding
6
(i) shares of capital stock or other voting securities, (ii) securities
convertible into or exchangeable for shares of its capital stock or voting
securities), (iii) options or other rights to acquire, or obligations to
issue, any capital stock, voting securities or securities convertible into or
exchangeable for its capital stock or other voting securities (the items in
clauses (i), (ii) and (iii) being referred to collectively as the "▇▇▇▇▇▇▇
Securities"), (iv) obligations to repurchase, redeem or otherwise acquire any
of its outstanding securities and (v) contractual rights of any person or
entity to include any such securities in any registration statement proposed
to be filed under the Securities Act.
SECTION 3.6 SUBSIDIARIES AND JOINT VENTURES.
(a) For purposes of this Agreement, (i) "Subsidiary" means, with respect
to any entity, any corporation of which securities or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are directly or indirectly owned by
such entity, and (ii) "Joint Venture" means, with respect to any entity, any
corporation or organization (other than such entity and any Subsidiary thereof)
of which such entity or any Subsidiary thereof is, directly or indirectly, the
beneficial owner of 25% or more of any class of equity securities or equivalent
profit participation interest.
(b) As of the date hereof, ▇▇▇▇▇▇▇ has no Subsidiaries or Joint
Ventures. ▇▇▇▇▇▇▇ owns, directly or indirectly, no outstanding capital stock or
equity interest in any corporation, partnership, Joint Venture or other entity.
(c) All of the outstanding stock of ▇▇▇▇▇▇▇ owned by the Shareholders
directly or indirectly, is or will be owned, free and clear of any material Lien
and free of any other material limitation or restriction on their rights as
owner thereof (including any restriction on the right to vote, sell or otherwise
dispose of such capital stock or other ownership interests), other than those
imposed by applicable law or this Agreement or the Affiliates Agreement (defined
below). Each Shareholder represents and warrants only as to his or her
individual ownership of ▇▇▇▇▇▇▇ Common Stock for purposes of this Section.
SECTION 3.7 ▇▇▇▇▇▇▇ FINANCIAL STATEMENTS. ▇▇▇▇▇▇▇ has delivered to
HCCH ▇▇▇▇▇▇▇'▇ audited balance sheet as of December 31, 1997 (the "Balance
Sheet Date"), ▇▇▇▇▇▇▇'▇ audited income statements for the twelve month period
ended December 31, 1997 (collectively, the "▇▇▇▇▇▇▇ Financial Statements").
The ▇▇▇▇▇▇▇ Financial Statements present fairly in all material respects,
substantially in conformity with generally accepted accounting principles
consistently applied (except as indicated in the notes thereto), the
financial position of ▇▇▇▇▇▇▇ as of the dates thereof and results of
operations and cash flows for the periods therein indicated (subject to
normal year-end adjustments in the case of any interim financial statements
and the absence of certain footnotes in the case of unaudited financial
statements). ▇▇▇▇▇▇▇ has no material debt, liability or obligation of any
nature, whether accrued, absolute, contingent or otherwise, and whether due
or to become due, that is not reflected, reserved against or disclosed in the
▇▇▇▇▇▇▇ Financial Statements, except for (i) those that are not required to
be reported in accordance with the aforesaid accounting principles; (ii)
normal or recurring liabilities incurred since December 31, 1997 in the
ordinary course of business or (iii) as disclosed in the ▇▇▇▇▇▇▇ Disclosure
Schedule.
7
SECTION 3.8 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the
▇▇▇▇▇▇▇ Disclosure Schedule, since March 31, 1997, ▇▇▇▇▇▇▇ has in all
material respects conducted its business in the ordinary course and there has
not been:
(a) any Material Adverse Change with respect thereto or any event,
occurrence or development of a state of circumstances or facts known to
▇▇▇▇▇▇▇, which as of the date hereof could reasonably be expected to have a
Material Adverse Effect on ▇▇▇▇▇▇▇;
(b) any declaration, setting aside or payment or any dividend or
other distribution in respect of any shares of capital stock of ▇▇▇▇▇▇▇ other
than the declaration, setting aside or payment of dividends or bonuses in
accordance with its existing dividend or bonus policy or practice, which
policy or practice is not inconsistent with ▇▇▇▇▇▇▇'▇ past policy or practice
or any declaration, setting aside or payment (collectively a "Payment") of
distributions or dividends to the Shareholders, which has been disclosed to
HCCH prior to such Payment;
(c) any repurchase, redemption or other acquisition by ▇▇▇▇▇▇▇ of any
outstanding shares of capital stock or other securities of or other ownership
interests in ▇▇▇▇▇▇▇;
(d) any amendment of any term of any outstanding securities of ▇▇▇▇▇▇▇;
(e) any damage, destruction or other property or casualty loss
(whether or not covered by insurance) affecting the business, assets,
liabilities, earnings or prospects of ▇▇▇▇▇▇▇ which, individually or in the
aggregate, has had or would reasonably be expected to have a Material Adverse
Effect on ▇▇▇▇▇▇▇;
(f) any increase in indebtedness for borrowed money or capitalized
lease obligations of ▇▇▇▇▇▇▇, except in the ordinary course of business,
consistent with past practices;
(g) any sale, assignment, transfer or other disposition of any
tangible or intangible asset material to the business of ▇▇▇▇▇▇▇, except in
the ordinary course of business consistent with past practices, and for a
fair and adequate consideration;
(h) any amendment, termination or waiver by ▇▇▇▇▇▇▇ of any right of
substantial value under any agreement, contract or other written commitment
to which it is a party or by which it is bound;
(i) any material reduction in the amounts of coverage provided by
existing casualty and liability insurance policies with respect to the
business or properties of ▇▇▇▇▇▇▇;
(j) any (i) grant of any severance or termination pay to any director,
officer or employee of ▇▇▇▇▇▇▇, (ii) entering into of any employment, deferred
compensation or other similar agreement (or any amendment to any such existing
agreement) with any director, officer or employee of ▇▇▇▇▇▇▇, (iii) any increase
in benefits payable under any existing severance or termination pay policies or
employment agreements, or (iv) any increase in compensation, bonus or other
benefits payable to directors, officers or employees of ▇▇▇▇▇▇▇, in each case
other than in the ordinary course of business consistent with past practice;
8
(k) any new or amendment to or alteration of any existing bonus,
incentive, compensation, severance, stock option, stock appreciation right,
pension, matching gift, profit-sharing, employee stock ownership, retirement,
pension group insurance, death benefit, or other fringe benefit plan,
arrangement or trust agreement adopted or implemented by ▇▇▇▇▇▇▇ which would
result in a material increase in cost;
(l) any capital expenditures, capital additions or capital improvements
incurred or undertaken by ▇▇▇▇▇▇▇, except in the ordinary course of business; or
(m) the entering into of any agreement by ▇▇▇▇▇▇▇ or any person on
behalf of ▇▇▇▇▇▇▇ to take any of the foregoing actions.
SECTION 3.9 NO UNDISCLOSED LIABILITIES. There are no liabilities of
▇▇▇▇▇▇▇ of any kind whatsoever that are, individually or in the aggregate,
material to ▇▇▇▇▇▇▇, taken as a whole, other than:
(a) liabilities disclosed or provided for in the ▇▇▇▇▇▇▇ Financial
Statements as of and for the year ended December 31, 1997 (including the notes
thereto);
(b) liabilities of ▇▇▇▇▇▇▇ incurred in the ordinary course of business
consistent with past practice since December 31, 1997; and
(c) liabilities under this Agreement or indicated in the ▇▇▇▇▇▇▇
Disclosure Schedule or as permitted under Section 3.7.
SECTION 3.10 LITIGATION. Except as set forth in the ▇▇▇▇▇▇▇ Disclosure
Schedule and other than actions, suits, proceedings, claims or investigation
occurring in the ordinary course of business involving respective amounts in
controversy of less than $10,000 each and $100,000 in the aggregate, there is no
action, suit, proceeding, claim or investigation pending or, to the knowledge of
▇▇▇▇▇▇▇, or the Shareholders, overtly threatened, against ▇▇▇▇▇▇▇ or any of its
assets or against or involving any of its officers, directors or employees in
connection with the business or affairs of ▇▇▇▇▇▇▇, including, without
limitation, any such claims for indemnification arising under any agreement to
which ▇▇▇▇▇▇▇ is a party. ▇▇▇▇▇▇▇ is not subject, or in default with respect,
to any writ, order, judgment, injunction or decree which could, individually or
in the aggregate, have a Material Adverse Effect on ▇▇▇▇▇▇▇.
SECTION 3.11 ACCOUNTING MATTERS. Except for all actions disclosed to and
approved by HCCH, neither ▇▇▇▇▇▇▇, nor any of the Shareholders knowingly has
taken or agreed to take any action that (without giving effect to any action
taken or agreed to be taken by HCCH or any of its affiliates) would prevent HCCH
from accounting for the business combination to be effected by the Merger as a
pooling-of-interests.
9
SECTION 3.12 TAXES.
(a) ▇▇▇▇▇▇▇ (i) has filed when due (taking into account extensions)
with the appropriate federal, state, local, foreign and other governmental
agencies, all tax returns, estimates and reports required to be filed by it,
(ii) either paid when due and payable or established adequate reserves or
otherwise, accrued on the ▇▇▇▇▇▇▇ Financial Statements, all federal, state,
local or foreign taxes, levies, imposts, duties, licenses and registration
fees and charges of any nature whatsoever, Texas franchise taxes, and
unemployment and social security taxes and payroll and income tax withholding
obligations, including interest and penalties thereon ("Taxes") and there are
no tax deficiencies claimed in writing by any Taxing authority and received
by ▇▇▇▇▇▇▇ that, in the aggregate, would result in any tax liability in
excess of the amount of the reserves or accruals and (iii) has or will
establish in accordance with its normal accounting practices and procedures
accruals and reserves that, in the aggregate, are adequate for the payment of
all Taxes not yet due and payable and attributable to any period preceding
the Effective Time. The ▇▇▇▇▇▇▇ Disclosure Schedule sets forth those tax
returns for all periods that currently are the subject of audit by any
federal, state, local or foreign taxing authority.
(b) There are no Taxes, interest, penalties, assessments or deficiencies
claimed in writing by any Taxing authority and received by ▇▇▇▇▇▇▇ to be due in
respect of any tax returns filed by ▇▇▇▇▇▇▇ (or any predecessor corporations).
Neither ▇▇▇▇▇▇▇ nor any predecessor corporation, has executed or filed with the
IRS or any other Taxing authority any agreement or other document extending, or
having the effect of extending, the period of assessment or collection of any
Taxes.
(c) ▇▇▇▇▇▇▇ is not a party to or bound by (or will prior to the
Effective Date become a party to or bound by) any Tax indemnity, Tax sharing or
Tax allocation agreement or other similar arrangement. ▇▇▇▇▇▇▇ has not been a
member of an affiliated group or filed or been included in a combined,
consolidated or unitary Tax return.
SECTION 3.13 EMPLOYEE BENEFIT PLANS, ERISA.
(a) ▇▇▇▇▇▇▇ is not a party to any oral or written (i) employment,
severance, collective bargaining or consulting agreement not terminable on 60
days' or less notice, (ii) agreement with any executive officer or other key
employee of ▇▇▇▇▇▇▇ (A) the benefits of which are contingent, or the terms of
which are materially altered, upon the occurrence of a transaction involving
▇▇▇▇▇▇▇ of the nature of any of the transactions contemplated by this Agreement,
(B) providing any term of employment or compensation guarantee extending for a
period longer than one year, or (C) providing severance benefits or other
benefits after the termination of employment of such executive officer or key
employee regardless of the reason for such termination of employment,
(iii) agreement, plan or arrangement under which any person may receive payments
subject to the tax imposed by Section 4999 of the Code, or (iv) agreement or
plan, including, without limitation, any stock option plan, stock appreciation
right plan, restricted stock plan or stock purchase plan, the benefits of which
would be increased, or the vesting of benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
10
(b) Neither ▇▇▇▇▇▇▇, nor any corporation or other entity which under
Section 4001(b) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), is under common control with ▇▇▇▇▇▇▇ (a "▇▇▇▇▇▇▇ ERISA
Affiliate") maintains or within the past five years has maintained, contributed
to, or been obligated to contribute to, any "Employee Pension Benefit Plan"
("Pension Plan") or any "Employee Welfare Benefit Plan" ("Welfare Plan") as such
terms are defined in Sections 3(2) and 3(1) respectively of ERISA, which is
subject to ERISA, except as described in the ▇▇▇▇▇▇▇ Disclosure Schedule. Each
Pension Plan and Welfare Plan disclosed in the ▇▇▇▇▇▇▇ Disclosure Schedule
(which Plans have been heretofore delivered to HCCH) and maintained by ▇▇▇▇▇▇▇
has been maintained in all material respects in compliance with their terms and
all provisions of ERISA and the Code (including rules and regulations
thereunder) applicable thereto.
(c) No Pension Plan or Welfare Plan is currently subject to an audit or
other investigation by the Internal Revenue Service ("IRS"), the Department of
Labor, the Pension Benefit Guaranty Corporation or any other governmental agency
or office nor are any such Plans subject to any lawsuits or legal proceedings of
any kind or to any material pending disputed claims by employees or
beneficiaries covered under any such Plan or by any other parties.
(d) No "prohibited transaction," as defined in Section 406 of ERISA or
Section 4975 of the Code, resulting in liability to ▇▇▇▇▇▇▇ or any ▇▇▇▇▇▇▇ ERISA
Affiliate has occurred with respect to any Pension Plan or Welfare Plan. Each
of ▇▇▇▇▇▇▇ or any Shareholder has no knowledge of any breach of fiduciary
responsibility under Part 4 of Title I of ERISA which has resulted in liability
of ▇▇▇▇▇▇▇, and any ▇▇▇▇▇▇▇ ERISA Affiliate, any trustee, administrator or
fiduciary of any Pension Plan or Welfare Plan.
(e) Neither ▇▇▇▇▇▇▇, nor any ▇▇▇▇▇▇▇ ERISA Affiliate, since January 1,
1986, has maintained or contributed to, or been obligated or required to
contribute to, a "Multiemployer Plan," as such term is defined in
Section 4001(a)(3) of ERISA. Neither ▇▇▇▇▇▇▇, nor any ▇▇▇▇▇▇▇ ERISA Affiliate
has either withdrawn, partially or completely, or instituted steps to withdraw,
partially or completely, from any Multiemployer Plan nor has any event occurred
which would enable a Multiemployer Plan to give notice of and demand payment of
any withdrawal liability with respect to ▇▇▇▇▇▇▇, or any ▇▇▇▇▇▇▇ ERISA
Affiliate.
(f) There is no contract, agreement, plan or arrangement covering any
employee or former employee of ▇▇▇▇▇▇▇ or any ▇▇▇▇▇▇▇ ERISA Affiliate that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to the terms of Sections 162(a)(1) or 280G of
the Code, or that would give rise to any benefits after termination.
(g) With respect to ▇▇▇▇▇▇▇, and each ▇▇▇▇▇▇▇ ERISA Affiliate, the
▇▇▇▇▇▇▇ Disclosure Schedule correctly identifies each material agreement,
policy, plan or other arrangement, whether written or oral, express or implied,
fixed or contingent, to which ▇▇▇▇▇▇▇ is a party or by which ▇▇▇▇▇▇▇ or any
property or asset of ▇▇▇▇▇▇▇ is bound, which is or relates to a pension, option,
bonus, deferred compensation, retirement, stock purchase, profit-sharing,
severance pay, health, welfare, incentive, vacation, sick leave, medical
disability, hospitalization, life or other insurance or fringe benefit plan,
policy or arrangement. Each such agreement, policy, plan or other
11
arrangement has been maintained in all material respects in compliance with
its terms and all provisions of ERISA and the Code (including rules and
regulations thereunder) applicable thereto.
(h) Neither ▇▇▇▇▇▇▇ nor any ▇▇▇▇▇▇▇ ERISA Affiliate maintains or has
maintained or contributed to any Pension Plan that is or was subject to
Section 302 of Title IV of ERISA or Section 412 of the Code. ▇▇▇▇▇▇▇ has
made available to HCCH, for each Pension Plan which is intended to be
"qualified" within the meaning of Section 401(a) of the Code, a copy of the
most recent determination letter issued by the IRS to the effect that each
such Plan is so qualified and that each trust created thereunder is tax
exempt under Section 501 of the Code, and ▇▇▇▇▇▇▇ is unaware of any fact or
circumstances that would jeopardize the qualified status of each such Pension
Plan or the tax exempt status of each trust created thereunder.
(i) ▇▇▇▇▇▇▇ does not provide retiree benefits of any kind, including
health, medical, life, etc. and ▇▇▇▇▇▇▇ has not agreed to continue any
employee benefits after termination of employment other than under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"),
if applicable.
(j) Neither ▇▇▇▇▇▇▇ nor any ▇▇▇▇▇▇▇ ERISA Affiliate has sponsored or
maintained the New York Life's Agent Pension Plan, the New York Life's
Progress Sharing Retirement Plan (401(k)), the NYLARC Agents Reinsurance
Stock or the New York Life's Deferred 1st Year Commission Plan or any other
arrangement or plan maintained or sponsored by New York Life Insurance
Company or its affiliates. No Pension Plan maintained or sponsored by ▇▇▇▇▇▇▇
or any ▇▇▇▇▇▇▇ Affiliate has received funds from any such arrangement of New
York Life Insurance Company or its affiliates in a rollover, trust-to-trust
transfer or any other transfer or deposit.
SECTION 3.14 MATERIAL AGREEMENTS.
(a) The ▇▇▇▇▇▇▇ Disclosure Schedule includes a complete and accurate
list of all contracts, agreements, leases (other than ▇▇▇▇▇▇▇ Property
Leases, as hereinafter defined), and instruments to which ▇▇▇▇▇▇▇ is a party
or by which it or its properties or assets are bound which individually
involve net payments or receipts in excess of $25,000 per annum, inclusive of
contracts entered into with customers and suppliers in the ordinary course of
business, or that pertain to employment or severance benefits for any
officer, director or employee of ▇▇▇▇▇▇▇, whether written or oral, but
exclusive of contracts, agreements, leases and instruments terminable without
penalty upon 60 days' or less prior written notice to the other party or
parties thereto (the "Material ▇▇▇▇▇▇▇ Agreements").
(b) Neither ▇▇▇▇▇▇▇ nor to its knowledge, any other party is in
default under any Material ▇▇▇▇▇▇▇ Agreement and no event has occurred which
(after notice or lapse of time or both) would become a breach or default
under, or would permit modification, cancellation, acceleration or
termination of, any Material ▇▇▇▇▇▇▇ Agreement or result in the creation of
any security interest upon, or any person obtaining any right to acquire, any
properties, assets or rights of ▇▇▇▇▇▇▇, which, in any such case, has had or
would reasonably be expected to have a Material Adverse Effect.
12
(c) To the knowledge of ▇▇▇▇▇▇▇, each such Material ▇▇▇▇▇▇▇ Agreement is
in full force and effect and is valid and legally binding and there are no
material unresolved disputes involving or with respect to any Material ▇▇▇▇▇▇▇
Agreement. No party to a Material ▇▇▇▇▇▇▇ Agreement has advised ▇▇▇▇▇▇▇ that it
intends either to terminate a Material ▇▇▇▇▇▇▇ Agreement or to refuse to renew a
Material ▇▇▇▇▇▇▇ Agreement upon the expiration of the term thereof.
(d) ▇▇▇▇▇▇▇ is not in violation of, or in default with respect to, any
term of its Articles or Certificate of Incorporation, as the case may be, or
Bylaws.
SECTION 3.15 PROPERTIES. To the knowledge of ▇▇▇▇▇▇▇, it owns no real
estate, and all leases of real property to which ▇▇▇▇▇▇▇ is a party or by
which it is bound ("▇▇▇▇▇▇▇ Property Leases") are in full force and effect.
To the knowledge of ▇▇▇▇▇▇▇ there exists no default under such ▇▇▇▇▇▇▇
Property Leases, nor any event which with notice or lapse of time or both
would constitute a default thereunder, which default would have a Material
Adverse Effect. All of the properties and assets, both real and personal,
(collectively "Properties") which are owned by ▇▇▇▇▇▇▇ are owned free and
clear of any Lien, except for Liens which do not have a Material Adverse
Effect. ▇▇▇▇▇▇▇ has good and indefeasible title with respect to such
Properties subject to no Liens, other than those permitted under this Section
3.15, to all of the Properties necessary for the conduct of its business other
than to the extent that the failure to have such title would not have a
Material Adverse Effect.
SECTION 3.16 ENVIRONMENTAL MATTERS.
(a) For the purposes of this Agreement, the following terms have the
following meanings:
"Environmental Laws" shall mean any and all federal, state, local
and foreign statutes, laws (including case law), regulations, ordinances,
rules, judgments, orders, decrees, codes, plans, injunctions, permits,
concessions, grants, franchises, licenses, agreements and governmental
restrictions relating to human health, the environment or to emissions,
discharges or releases of pollutants, contaminants, Hazardous Substances
(as hereinafter defined) or wastes into the environment or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants,
Hazardous Substances or wastes or the clean-up or other remediation
thereof.
"Environmental Liabilities" shall mean all liabilities, whether
vested or unvested, contingent or fixed, actual or potential, which
(i) arise under or relate to Environmental Laws and (ii) relate to actions
occurring or conditions existing on or prior to the Effective Time.
"Hazardous Substances" shall mean any toxic, radioactive, caustic or
otherwise hazardous substance, including petroleum, its derivatives,
by-products and other hydrocarbons, or any substance having any constituent
elements displaying any of the foregoing characteristics.
13
"Regulated Activity" shall mean any generation, treatment, storage,
recycling, transportation, disposal or release of any Hazardous Substances.
(b) No notice, notification, demand, request for information, citation,
summons, complaint or order has been received, no complaint has been filed, no
penalty has been assessed and no investigation or review is pending, or to any
such party's knowledge, has been threatened by any governmental entity or other
party with respect to any (i) alleged violation of any Environmental Law,
(ii) alleged failure to have any environmental permit, certificate, license,
approval, registration or authorization required in connection with the conduct
of its business or (iii) Regulated Activity.
(c) ▇▇▇▇▇▇▇ has no material Environmental Liabilities and there has been
no release of Hazardous Substances into the environment by ▇▇▇▇▇▇▇ or with
respect to any of their respective properties which has had, or would reasonably
be expected to have, a Material Adverse Effect.
SECTION 3.17 LABOR MATTERS. ▇▇▇▇▇▇▇ is not a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by ▇▇▇▇▇▇▇, nor does it know of any activities or proceedings of any
labor union to organize any such employees.
SECTION 3.18 COMPLIANCE WITH LAWS. Except for violations which do not
have and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect, ▇▇▇▇▇▇▇ is not in violation of, or has
violated, any applicable provisions of any laws, statutes, ordinances or
regulations or any term of any judgment, decree, injunction or order binding
against it.
SECTION 3.19 TRADEMARKS, TRADENAMES, ETC. ▇▇▇▇▇▇▇ owns or possesses, or
hold a valid right or license to use, all intellectual property, patents,
trademarks, tradenames, servicemarks, copyrights and licenses, and all rights
with respect to the foregoing, necessary for the conduct of its business as now
conducted, without any known conflict with the rights of others.
SECTION 3.20 SALE OF ▇▇▇▇▇▇▇. Except as contemplated by this Agreement,
there are currently no discussions to which ▇▇▇▇▇▇▇, LMK or any Shareholder is a
party relating to (a) the sale of any material portion of its assets or (b) any
merger, consolidation, sale of any ▇▇▇▇▇▇▇ Stock, liquidation, dissolution or
similar transaction involving ▇▇▇▇▇▇▇ whereby ▇▇▇▇▇▇▇ will issue any securities
or for which it is required to obtain the approval sale of any ▇▇▇▇▇▇▇ Stock.
SECTION 3.21 BROKER'S FEES. Neither ▇▇▇▇▇▇▇ nor any Shareholder nor
anyone acting on the behalf or at the request thereof has any liability to any
broker, finder, investment banker or agent, or has agreed to pay any brokerage
fees, finder's fees or commissions, or to reimburse any expenses of any broker,
finder, investment banker or agent in connection with the Merger.
SECTION 3.22 INVESTMENT REPRESENTATION. The shares of HCCH Common Stock
to be acquired by the Shareholders pursuant to the Merger will be acquired
solely for the account of each of such Shareholders, for investment purposes
only and not with a view to the distribution thereof. The Shareholders are not
participating, directly or indirectly, in any distribution or
14
transfer of such HCCH Common Stock, nor are they participating, directly or
indirectly, in underwriting any such distribution of HCCH Common Stock within
the meaning of the Securities Act. Each Shareholder has such knowledge and
experience in business matters that he is capable of evaluating the merits
and risks of an investment in HCCH and the acquisition of the shares of HCCH
Common Stock, and he is making an informed investment decision with respect
thereto. The Shareholders have been informed by HCCH that the shares of HCCH
Common Stock to be issued pursuant to this Agreement and the documents to be
executed in connection herewith will not be registered under the Securities
Act at the time of their issuance and may not be transferred, assigned or
otherwise disposed of absent registration under the Securities Act or
availability of an appropriate exemption therefrom. The Shareholders have
further been informed that HCCH will be under no obligation to register the
shares of HCCH Common Stock under the Securities Act.
SECTION 3.23 TOTAL ASSETS. The total assets of LMK are not greater
than $10 million as determined in accordance with 16 C.F.R. Section 801.11.
SECTION 3.24 YEAR 2000 ISSUES. Any software of ▇▇▇▇▇▇▇ will perform in
all material respects in accordance with published technical specifications
and any applicable related documentation, both prior to and following,
January 1, 2000. ▇▇▇▇▇▇▇ will not experience software ending and/or invalid
and/or incorrect results from any such software in the operation of its
business based upon changing dates. The software program in design and
performance capabilities of such software to ensure year 2000 capability
includes, but is not limited to, date, data century recognition, calculations
which accommodate same century and multi-century formulas and date values,
and date data interface values which reflect the correct century.
SECTION 3.25 ASSIGNMENT OF COMMISSIONS. Each Shareholder represents
and warrants that all commissions, fees or other amounts due for business
which each such Shareholder has written as an employee or agent of ▇▇▇▇▇▇▇ or
New ▇▇▇▇▇▇▇, as herein defined, and LMK represents and warrants that any
other commissions, fees or other amounts attributable to persons other than
Shareholders who are agents or employees of ▇▇▇▇▇▇▇ or New ▇▇▇▇▇▇▇, has been
irrevocably assigned by such Shareholder or person to ▇▇▇▇▇▇▇ or New ▇▇▇▇▇▇▇.
SECTION 3.26 KNOWLEDGE OF ▇▇▇▇▇▇▇. As used in this Agreement
"knowledge" of ▇▇▇▇▇▇▇ means the actual knowledge of any Shareholder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HCCH
Except as disclosed in a document referring specifically to this
Agreement or in a document, exhibit, or appendix filed with the Securities
and Exchange Commission ("SEC") which has been filed on or before the date
hereof, (collectively referred to herein as the "HCCH Disclosure Schedule")
which has been delivered or made available to ▇▇▇▇▇▇▇ on or before the date
hereof, each of HCCH and Merger Sub represents and warrants to ▇▇▇▇▇▇▇ and
the Shareholders as set forth below.
15
SECTION 4.1 CORPORATE EXISTENCE AND POWER. HCCH is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of Delaware. Merger Sub is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware. HCCH and Merger
Sub have all corporate powers and all material Governmental Authorizations
required to carry on its business as now conducted, except such Governmental
Authorizations the failure of which to have obtained would not have a Material
Adverse Effect on HCCH. HCCH has delivered to ▇▇▇▇▇▇▇ true and complete copies
of HCCH's Certificate of Incorporation and Bylaws and Merger Sub's Certificate
of Incorporation and Bylaws, each as currently in effect. Each of HCCH and
Merger Sub is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification necessary,
except where the failure to be so qualified would not have a Material Adverse
Effect on HCCH.
SECTION 4.2 CORPORATE AUTHORIZATION. The execution, delivery and
performance by HCCH and Merger Sub of this Agreement, the Articles of Merger and
the Confidentiality Agreement and the consummation by HCCH and Merger Sub of the
transactions contemplated hereby and thereby are within the corporate powers of
HCCH and Merger Sub and have been duly authorized by all necessary corporate
action. This Agreement, the Articles of Merger and the Confidentiality
Agreement constitute, or upon execution will constitute, valid and binding
agreements of HCCH and Merger Sub, respectively, enforceable in each case
against each in accordance with their respective terms, except as such
enforcement may be limited by bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally or by general
principles of equity.
SECTION 4.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by HCCH and Merger Sub of this Agreement, the Articles of Merger and
the Confidentiality Agreement and the consummation of the Merger by HCCH and
Merger Sub, require no action by or in respect of, or filing with, any
governmental body, agency, official or authority other than:
(a) the filing of the Articles of Merger in accordance with Texas and
Delaware Law;
(b) compliance with any applicable requirements of the HSR Act;
(c) compliance with any applicable requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the rules and
regulations promulgated thereunder;
(d) compliance with any applicable requirements of the Securities Act
and the rules and regulations promulgated thereunder;
(e) compliance with any applicable foreign or state securities or "blue
sky" laws and the rules and regulations of the NYSE;
(f) compliance with the requirements of applicable insurance regulatory
agencies, if any, having authority over HCCH; and
16
(g) registration of Merger Sub as an insurance agency under the laws of
the state of Illinois;
(h) such other filings or registrations with, or authorizations,
consents or approvals of, governmental bodies, agencies, officials or
authorities, the failure of which to make or obtain (i) would not reasonably be
expected to have a Material Adverse Effect on HCCH or (ii) would not materially
adversely affect the ability of ▇▇▇▇▇▇▇, HCCH or Merger Sub to consummate the
transactions contemplated hereby and operate their businesses as heretofore
operated.
SECTION 4.4 NON-CONTRAVENTION. The execution, delivery and performance
by HCCH and Merger Sub of this Agreement and the Articles of Merger and the
consummation by HCCH and Merger Sub of the transactions contemplated hereby and
thereby do not and will not:
(a) contravene or conflict with the Articles or Certificate of
Incorporation, as the case may be, or Bylaws of HCCH or Merger Sub;
(b) assuming compliance with the matters referred to in Section 4.3,
contravene or conflict with or constitute a violation of any provision of any
law, regulation, judgment, injunction, order or decree binding upon or
applicable to HCCH or Merger Sub;
(c) conflict with or result in a breach or violation of, or constitute a
default under, or result in a contractual right to cause the termination or
cancellation of or loss of a material benefit under, or right to accelerate, any
material agreement, contract or other instrument binding upon HCCH or Merger Sub
or any material license, franchise, permit or other similar authorization held
by HCCH or Merger Sub; or
(d) result in the creation or imposition of any Lien on any material
asset of HCCH or Merger Sub;
except, with respect to clauses (b), (c) and (d) above, for contraventions,
defaults, losses, Liens and other matters referred to in such clauses that in
the aggregate would not be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect on HCCH.
SECTION 4.5 CAPITALIZATION OF HCCH.
(a) The authorized capital stock of HCCH consists of 100,000,000 shares
of HCCH Common Stock. As of December 31, 1997, there were 46,117,454 shares of
HCCH Common Stock issued and outstanding. All outstanding shares of HCCH Common
Stock have been duly authorized and validly issued and are fully paid and
nonassessable and free from any preemptive rights. Except as set forth in this
Section and as otherwise contemplated by this Agreement and except as disclosed
in public filings made by HCCH with the SEC prior to the Closing Date, and
except for changes since December 31, 1997 resulting from the exercise of
employee and director stock options or such other changes resulting from any
other proposed or consummated merger or acquisition where HCCH shall survive,
there are outstanding (i) no shares of capital stock or other voting securities
of HCCH, (ii) no securities of HCCH convertible into or exchangeable for shares
of capital stock or voting securities of HCCH and (iii) no options or other
rights to acquire
17
from HCCH, and no obligation of HCCH to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock
or other voting securities of HCCH (the items in clauses (i), (ii) and (iii)
being referred to collectively as the "HCCH Securities"). There are no
outstanding obligations of HCCH to repurchase, redeem or otherwise acquire
any HCCH Securities.
(b) All shares of HCCH Common Stock issued in the Merger shall, upon
issuance, be fully paid, validly issued and nonassessable. HCCH has sufficient
authorized and unissued shares of HCCH Common Stock for issuance pursuant to the
Merger.
SECTION 4.6 ORGANIZATION OF MERGER SUB. The authorized capital stock of
Merger Sub consists of 1,000 shares of common stock, par value $1.00 per share,
all of which are issued and outstanding. All the issued and outstanding capital
stock of Merger Sub is owned by HCCH. Merger Sub has not conducted any business
prior to the date hereof and has no assets, liabilities or obligations of any
nature other than those incident to its formation and pursuant to this
Agreement.
SECTION 4.7 SEC FILINGS.
(a) HCCH has since October 28, 1992 filed all forms, proxy statements,
schedules, reports and other documents required to be filed by it with the SEC
pursuant to the Exchange Act.
(b) HCCH has made available to ▇▇▇▇▇▇▇ and to all Shareholders:
(i) its annual reports on Form 10-K for its fiscal years ended
December 31, 1996, 1995 and 1994;
(ii) its quarterly report on Form 10-Q for its fiscal quarters
ending March 31, June 30, and September 30, 1997;
(iii) any current reports on Form 8-K since January 1, 1997 and its
proxy or information statements relating to meetings of, or actions taken
without a meeting by, the shareholders of HCCH held since January 1, 1997;
and
(iv) all of its other reports, statements, schedules and
registration statements filed with the SEC since December 31, 1996.
(c) As of its filing date, no such report or statement filed pursuant to
the Exchange Act contained any untrue statement of a material fact or omitted to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
(d) No registration statement filed pursuant to the Securities Act, if
declared effective by the SEC, as of the date such statement or amendment became
effective, contained any untrue
18
statement of a material fact or omitted to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading.
SECTION 4.8 FINANCIAL STATEMENTS. The audited consolidated financial
statements of HCCH included in its annual reports on Form 10-K and the unaudited
financial statements of HCCH included in its quarterly reports on Form 10-Q
referred to in Section 4.7 present fairly, in conformity with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
in the notes thereto), the consolidated financial position of HCCH and its
consolidated subsidiaries as of the dates thereof and their consolidated results
of operations and cash flows for the periods then ended (subject to normal
year-end adjustments and failure to include footnote disclosures in the case of
any interim financial statements). For purposes of this Agreement, "HCCH
Balance Sheet" means the consolidated balance sheet of HCCH as of September 30,
1997, and the notes thereto, contained in HCCH's quarterly report on Form 10-Q
filed for its fiscal quarter then ended, and "HCCH Balance Sheet Date" means
September 30, 1997.
SECTION 4.9 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the HCCH
Disclosure Schedule, since the HCCH Balance Sheet Date, HCCH has in all material
respects conducted its business in the ordinary course and there has not been:
(a) any Material Adverse Change with respect to HCCH or any event,
occurrence or development of a state of circumstances or facts known to HCCH,
which as of the date hereof could reasonably be expected to have a Material
Adverse Effect on HCCH;
(b) any amendment of any material term of any outstanding HCCH
Securities;
(c) any action by HCCH or, to HCCH's knowledge, any affiliate of HCCH
which would preclude the ability of HCCH to account for the business combination
to be effected by the Merger as a "pooling of interests" under generally
accepted accounting principles; or
(d) the entering into of any agreement by HCCH or any person on behalf
of HCCH to take any of the foregoing actions.
SECTION 4.10 NO UNDISCLOSED LIABILITIES. There are no liabilities of HCCH
of any kind whatsoever that are, individually or in the aggregate, material to
HCCH, other than:
(a) liabilities disclosed or provided for in the HCCH Balance Sheet
(including the notes thereto);
(b) liabilities incurred in the ordinary course of business consistent
with past practice since the HCCH Balance Sheet Date; and
(c) liabilities under this Agreement or as indicated in the HCCH
Disclosure Schedule.
SECTION 4.11 LITIGATION. Other than actions, suits, proceedings, claims
or investigations occurring in the ordinary course of business or such actions,
suits, proceedings, claims or
19
investigations involving respective amounts in controversy of less than
$10,000,000 each, there is no action, suit, proceeding, claim or
investigation pending or, to the knowledge of HCCH, overtly threatened,
against HCCH or any of its assets or against or involving any of its
officers, directors or employees in connection with the business or affairs
of HCCH, including, without limitation, any such claims for indemnification
arising under any agreement to which HCCH is a party, which could,
individually or in the aggregate, have a Material Adverse Effect on HCCH.
HCCH is not subject to or in default with respect to any writ, order,
judgment, injunction or decree which could, individually or in the aggregate,
have a Material Adverse Effect on HCCH.
SECTION 4.12 TAXES.
(a) HCCH (i) has filed when due (taking into account extensions) with
the appropriate federal, state, local, foreign and other governmental agencies,
all material tax returns, estimates and reports required to be filed by it,
(ii) either paid when due and payable or established adequate reserves or
otherwise accrued on the HCCH Balance Sheet all material Taxes, and there are no
tax deficiencies claimed in writing by any Taxing authority and received by HCCH
that, in the aggregate, would result in any tax liability in excess of the
amount of the reserves or accruals, and (iii) has or will establish in
accordance with its normal accounting practices and procedures accruals and
reserves that, in the aggregate, are adequate for the payment of all Taxes not
yet due and payable and attributable to any period preceding the Effective Time.
The HCCH Disclosure Schedule sets forth those tax returns of HCCH (or any
predecessor entities) for all periods that currently are the subject of audit by
any federal, state, local or foreign taxing authority.
(b) There are no material Taxes, interest, penalties, assessments or
deficiencies claimed in writing by any taxing authority and received by HCCH to
be due in respect of any tax returns filed by HCCH (or any predecessor
corporations). Neither HCCH nor any predecessor corporation, has executed or
filed with the IRS or any other Taxing authority any agreement or other document
extending, or having the effect of extending, the period of assessment or
collection of any Taxes.
(c) HCCH is not a party to or bound by (or will prior to the Effective
Date become a party to or bound by) any Tax indemnity, Tax sharing or Tax
allocation agreement or other similar arrangement which includes a party other
than HCCH and its Subsidiaries. HCCH has not been a member of an affiliated
group other than one of which HCCH was the parent, or filed or been included in
a combined, consolidated or unitary Tax return other than one filed by HCCH (or
a return for a group consisting solely of its Subsidiaries and predecessors).
SECTION 4.13 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Except as otherwise disclosed neither HCCH nor any corporation or
other entity which under Section 4001(b) of ERISA is under common control with
HCCH (an "HCCH ERISA Affiliate") maintains or within the past five years has
maintained, contributed to, or been obligated to contribute to, any Pension Plan
or any Welfare Plan which is subject to ERISA. Each Pension Plan and Welfare
Plan disclosed in the HCCH Disclosure Schedule and maintained
20
by HCCH has been maintained in all material respects in compliance with their
terms and all provisions of ERISA and the Code (including rules and
regulations thereunder) applicable thereto.
(b) Except as otherwise disclosed neither HCCH nor any HCCH ERISA
Affiliate maintains or has maintained or contributed to any Pension Plan that is
or was subject to Section 302 or Title IV of ERISA or Section 412 of the Code.
HCCH has made available to ▇▇▇▇▇▇▇ and the Affiliated Companies, for each
Pension Plan which is intended to be "qualified" within the meaning of
Section 401(a) of the Code, a copy of the most recent determination letter
issued by the IRS to the effect that each such Plan is so qualified and that
each trust created thereunder is tax exempt under Section 501 of the Code, and
HCCH is unaware of any fact or circumstances that would jeopardize the qualified
status of each such Pension Plan or the tax exempt status of each trust created
thereunder.
(c) To the knowledge of HCCH, no Pension Plan or Welfare Plan is
currently subject to an audit or other investigation by the IRS, the Department
of Labor, the Pension Benefit Guaranty Corporation or any other governmental
agency or office nor are any such Plans subject to any lawsuits or legal
proceedings of any kind or to any material pending disputed claims by employees
or beneficiaries covered under any such Plan or by any other parties.
(d) No "prohibited transaction," as defined in Section 406 of ERISA or
Section 4975 of the Code, resulting in liability to HCCH or any HCCH ERISA
Affiliate has occurred with respect to any Pension Plan or Welfare Plan. HCCH
has no knowledge of any breach of fiduciary responsibility under Part 4 of
Title I of ERISA which has resulted in liability of HCCH, any HCCH ERISA
Affiliate, any trustee, administrator or fiduciary of any Pension Plan or
Welfare Plan.
(e) Neither HCCH nor any HCCH ERISA Affiliate, since January 1, 1986,
has maintained or contributed to, or been obligated or required to contribute
to, a "Multiemployer Plan," as such term is defined in Section 4001(a)(3) of
ERISA. Neither HCCH nor any HCCH ERISA Affiliate has either withdrawn,
partially or completely, or instituted steps to withdraw, partially or
completely, from any Multiemployer Plan nor has any event occurred which would
enable a Multiemployer Plan to give notice of and demand payment of any
withdrawal liability with respect to HCCH or any HCCH ERISA Affiliate.
(f) With respect to HCCH and each HCCH ERISA Affiliate, the HCCH
Disclosure Schedule correctly identifies each material agreement, policy, plan
or other arrangement, whether written or oral, express or implied, fixed or
contingent, to which HCCH is a party or by which HCCH or any property or asset
of HCCH is bound, which is or relates to a pension, option, bonus, deferred
compensation, retirement, stock purchase, profit-sharing, severance pay, health,
welfare, incentive, vacation, sick leave, medical disability, hospitalization,
life or other insurance or fringe benefit plan, policy or arrangement.
21
SECTION 4.14 MATERIAL AGREEMENTS.
(a) The HCCH Disclosure Schedule includes a complete and accurate list
of all contracts, agreements, leases (other than HCCH Property Leases, as
hereinafter defined) and instruments to which HCCH is a party or by which it or
its properties or assets are bound which individually involve net payments or
receipts in excess of $15,000,000 per annum, inclusive of contracts that pertain
to employment or severance benefits for any officer, director or employee of
HCCH, whether written or oral, but exclusive of contracts entered into with
customers and suppliers in the ordinary course of business or contracts,
agreements, leases and instruments terminable without penalty by HCCH upon 60
days or less prior written notice to the other party or parties thereto (the
"Material HCCH Agreements").
(b) Neither HCCH, nor, to the knowledge of HCCH, any other party is in
default under any Material HCCH Agreement and no event has occurred which (after
notice or lapse of time or both) would become a breach or default under, or
would permit modification, cancellation, acceleration or termination of any
Material HCCH Agreement or result in the creation of any security interest upon,
or any person obtaining any right to acquire, any properties, assets or rights
of HCCH which, in any such case, has had or would reasonably be expected to have
a Material Adverse Effect on HCCH.
(c) To the knowledge of HCCH, each such Material HCCH Agreement is in
full force and effect and is valid and legally binding and there are no material
unresolved disputes involving or with respect to any Material HCCH Agreement.
No party to a Material HCCH Agreement has advised HCCH that it intends either to
terminate a Material HCCH Agreement or to refuse to renew a Material HCCH
Agreement upon the expiration of the term thereof.
(d) Each of HCCH and Merger Sub, is not in violation of, or in default
with respect to, any term of its Articles or Certificate of Incorporation or
Bylaws.
SECTION 4.15 PROPERTIES. To the knowledge of HCCH, all leases of real
property to which HCCH is a party or by which it is bound ("HCCH Property
Leases") which are material to the business of HCCH are in full force and
effect. To the knowledge of HCCH, there exists no default under such HCCH
Property Leases, nor any event which with notice or lapse of time or both would
constitute a default thereunder by HCCH, which default would have a Material
Adverse Effect on HCCH. All of the properties and assets which are owned by
HCCH are owned free and clear of any Lien, except for Liens which do not have a
Material Adverse Effect on HCCH or which have been disclosed in the HCCH
Disclosure Schedule. HCCH has good and indefeasible title with respect to such
owned properties and assets subject to no Liens, other than those permitted
under this Section 4.15, to all of the properties and assets necessary for the
conduct of their business other than to the extent that the failure to have such
title would not have a Material Adverse Effect on HCCH.
22
SECTION 4.16 ENVIRONMENTAL MATTERS.
(a) To the knowledge of HCCH, no notice, notification, demand, request
for information, citation, summons, complaint or order has been received, no
complaint has been filed, no penalty has been assessed and no investigation or
review is pending, or to HCCH's knowledge, has been threatened by any
governmental entity or other party with respect to any (i) alleged violation by
HCCH or any of its Subsidiaries of any Environmental Law, (ii) alleged failure
by HCCH or any such Subsidiary to have any environmental permit, certificate,
license, approval, registration or authorization required in connection with the
conduct of its business or (iii) Regulated Activity.
(b) To the knowledge of HCCH, HCCH has no material Environmental
Liabilities and there has been no release of Hazardous Substances into the
environment by HCCH or with respect to any of its properties which has had, or
would be reasonably expected to have, a Material Adverse Effect on HCCH.
SECTION 4.17 LABOR MATTERS. HCCH is not a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by HCCH, nor do the executive officers of HCCH know of any activities
or proceedings of any labor union to organize any such employees.
SECTION 4.18 COMPLIANCE WITH LAWS. Except for violations which do not
have and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on HCCH, HCCH is not in violation of, or
has violated, any applicable provisions of any laws, statutes, ordinances or
regulations or any term of any judgment, decree, injunction or order binding
against it.
SECTION 4.19 TRADEMARKS, TRADENAMES, ETC. HCCH owns or possesses, or
holds a valid right or license to use, all intellectual property, patents,
trademarks, tradenames, servicemarks, copyrights and licenses, and all rights
with respect to the foregoing, necessary for the conduct of its business as now
conducted, without any known conflict with the rights of others.
SECTION 4.20 BROKER'S FEES. Neither HCCH nor Merger Sub, nor anyone
acting on the behalf or at the request thereof has any liability to any broker,
finder, investment banker or agent, or has agreed to pay any brokerage fees,
finder's fees or commissions, or to reimburse any expenses of any broker,
finder, investment banker or agent in connection with the Merger.
SECTION 4.21 KNOWLEDGE OF HCCH AND MERGER SUB. As used in this
Agreement, "knowledge" of either HCCH or Merger Sub means the actual knowledge
of the Chief Executive Officer, President, Chief Operating Officer, Chief
Financial Officer, or any Executive Vice President of HCCH or Merger Sub,
respectively.
23
ARTICLE V
COVENANTS OF ▇▇▇▇▇▇▇, ETC.
From the date hereof until the occurrence of the earlier of (i) the
Effective Time or (ii) termination of this Agreement pursuant to Section 10.1
hereof, (a) ▇▇▇▇▇▇▇ agrees, except as otherwise permitted with the written
consent of HCCH, which consent shall not be unreasonably withheld, (b) with
respect to Sections 5.1(i), 5.1(k) and 5.8, each Shareholder agrees and (c) with
respect to Sections 5.4 and 5.10, LMK agrees that:
SECTION 5.1 CONDUCT OF ▇▇▇▇▇▇▇. ▇▇▇▇▇▇▇ shall in all material respects
conduct its business in the ordinary course. Without limiting the generality of
the foregoing, from the date hereof until the Effective Time, except as
contemplated by this Agreement:
(a) ▇▇▇▇▇▇▇ will not adopt or propose any change in its Articles of
Incorporation or Bylaws;
(b) ▇▇▇▇▇▇▇ will not enter into or amend any employment agreements (oral
or written) or increase the compensation payable or to become payable by it to
any of its officers, directors, or consultants over the amount payable as of
December 31, 1997, or increase the compensation payable to any other employees
(other than (i) increases in the ordinary course of business which are not in
the aggregate material to ▇▇▇▇▇▇▇, or (ii) pursuant to plans disclosed in
▇▇▇▇▇▇▇ Disclosure Schedule), or adopt or amend any employee benefit plan or
arrangement (oral or written) or adopt or amend any employee benefit plan or
arrangement (oral or written), except that ▇▇▇▇▇▇▇ agrees to terminate the
▇▇▇▇▇▇▇ Corporation 401(k) Plan ("▇▇▇▇▇▇▇ Plan") by appropriate action of its
Board of Directors prior to the Closing Date (although the parties understand
that liquidation of the ▇▇▇▇▇▇▇ Plan and a determination letter filing with the
IRS will occur after the Closing Date);
(c) ▇▇▇▇▇▇▇ will not issue any ▇▇▇▇▇▇▇ Securities;
(d) ▇▇▇▇▇▇▇ will keep in full force and effect any existing directors'
and officers' liability insurance and will not modify or reduce the coverage
thereunder;
(e) Other than the payment of dividends in accordance with its existing
dividend policy or practice, which policy or practice is consistent with past
policy or practice and as consented to by HCCH, ▇▇▇▇▇▇▇ will not pay any
dividend or make any other distribution to holders of its capital stock nor
redeem or otherwise acquire any ▇▇▇▇▇▇▇ Securities;
(f) ▇▇▇▇▇▇▇ will not, directly or indirectly, dispose of or acquire any
properties or assets except in the ordinary course of business;
(g) ▇▇▇▇▇▇▇ will not incur any additional indebtedness for borrowed
money except pursuant to existing arrangements which have been disclosed to HCCH
prior to the date hereof;
24
(h) ▇▇▇▇▇▇▇ will not amend or change the period of exercisability or
accelerate the exercisability of any outstanding options or warrants to acquire
shares of capital stock, or accelerate, amend or change the vesting period of
any outstanding restricted stock;
(i) ▇▇▇▇▇▇▇, and each Shareholder will not knowingly take any action,
other than those which have been disclosed to and approved by HCCH, that would
prevent the accounting for the business combination to be effected by the Merger
as a pooling-of-interests;
(j) ▇▇▇▇▇▇▇ will not (i) change accounting methods except as
necessitated by changes which ▇▇▇▇▇▇▇ is required to make in order to prepare
its federal, state and local Tax returns; (ii) amend or terminate any contract,
agreement or license to which it is a party (except pursuant to arrangements
previously disclosed in writing to HCCH or disclosed in the ▇▇▇▇▇▇▇ Disclosure
Schedule) except those amended or terminated in the ordinary course of business,
consistent with past practices, or involving changes which are not materially
adverse in amount or effect to ▇▇▇▇▇▇▇; (iii) lend any amount to any person or
entity, other than advances for travel and expenses which are incurred in the
ordinary course of business consistent with past practices, and which are not
material in amount which travel and expenses shall be documented by receipts for
the claimed amounts; (iv) enter into any guarantee or suretyship for any
obligation except for the endorsements of checks and other negotiable
instruments in ordinary course of business, consistent with past practice;
(v) waive or release any material right or claim except in the ordinary course
of business, consistent with past practice; (vi) issue or sell any shares of its
capital stock of any class or any other of its securities, or issue or create
any warrants, obligations, subscriptions, options, convertible securities, stock
appreciation rights or other commitments to issue shares of capital stock, or
take any action other than this transaction to accelerate the vesting of any
outstanding option or other security (except pursuant to existing arrangements
disclosed in writing to HCCH before the date of this agreement); (vii) except
for the Merger, merge, consolidate or reorganize with or acquire any entity;
(viii) agree to any audit assessment by any tax authority or file any federal or
state income or franchise tax return unless copies of such returns have been
delivered to HCCH for its review prior to such agreement or filing; and
(ix) terminate the employment of any key executive employee; and
(k) ▇▇▇▇▇▇▇, and each of the Shareholders will not, directly or
indirectly, agree or commit to do any of the foregoing.
SECTION 5.2 SHAREHOLDER APPROVAL. At the earliest practicable date,
▇▇▇▇▇▇▇ will duly call and hold a special shareholders meeting, or duly take
action by the written consent of its shareholders, whereby this Agreement, the
Merger and related matters will be submitted for the consideration and approval
of its shareholders (the "Shareholder Vote") which approval will be recommended
by the board of directors of ▇▇▇▇▇▇▇, subject to Section 5.4. The Shareholder
Vote will be effected in compliance with applicable law.
SECTION 5.3 ACCESS TO FINANCIAL AND OPERATIONAL INFORMATION. ▇▇▇▇▇▇▇
will give HCCH, its counsel, financial advisors, auditors and other authorized
representatives reasonable access during normal business hours to its offices,
properties, books and records, will furnish to HCCH, its counsel, financial
advisors, auditors and other authorized representatives such financial and
operating data as such persons may reasonably request and will instruct its
employees,
25
counsel and financial advisors to cooperate with HCCH in its investigation of
the business of ▇▇▇▇▇▇▇ and in the planning for the combination of the
businesses of ▇▇▇▇▇▇▇ and HCCH following the consummation of the Merger;
PROVIDED that no investigation pursuant to this Section shall affect any
representation or warranty given hereunder. In addition, ▇▇▇▇▇▇▇ will
cooperate in arranging joint meetings among representatives of ▇▇▇▇▇▇▇ and
HCCH and persons with whom ▇▇▇▇▇▇▇ maintain business relationships. All
information obtained pursuant to this Section 5.3 shall be governed by the
confidentiality provisions of the Parties' letter of intent dated December
24, 1997 (the "Confidentiality Agreement").
SECTION 5.4 OTHER OFFERS.
(a) ▇▇▇▇▇▇▇, and LMK will not, and will use their best efforts to cause
their respective officers, directors, employees or other agents not to, directly
or indirectly, (i) take any action to solicit, initiate or discuss any
Acquisition Proposal (as hereinafter defined), or (ii) subject to the fiduciary
duties of the Board of Directors under applicable law as advised by counsel,
engage in negotiations with, or disclose any nonpublic information relating to,
▇▇▇▇▇▇▇ or afford access to the properties, books or records of ▇▇▇▇▇▇▇ to, any
person or entity that may be considering making, or has made, an Acquisition
Proposal. To the extent that ▇▇▇▇▇▇▇ or any of their respective officers,
directors, employees or other agents, or LMK are currently involved in any
discussions with respect to any Acquisition Proposal or contemplated or proposed
Acquisition Proposal, ▇▇▇▇▇▇▇ and LMK shall terminate, and shall use its or his
best efforts to cause its respective officers, directors, employees or other
agents to terminate, such discussions immediately. The term "Acquisition
Proposal" as used herein means any offer or proposal for, or any indication of
interest in, a merger or other business combination involving ▇▇▇▇▇▇▇ or the
acquisition of any equity interest in, or a substantial portion of the assets of
▇▇▇▇▇▇▇ other than the transactions contemplated by this Agreement.
(b) Subject to their fiduciary duties, the Board of Directors of
▇▇▇▇▇▇▇, and each Shareholder shall not (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to HCCH, the approval or recommendation
by such Board of Directors or Shareholder, of this Agreement, the Merger or the
other documents or transactions contemplated hereby, (ii) approve or recommend,
or propose to approve or recommend, any Acquisition Proposal (other than an
Acquisition Proposal made by HCCH or an affiliate of HCCH) or (iii) approve or
authorize the entering into any agreement with respect to any Acquisition
Proposal.
SECTION 5.5 MAINTENANCE OF BUSINESS. ▇▇▇▇▇▇▇ will use its reasonable
best efforts to carry on its business, keep available the services of its
officers and employees and preserve its relationships with those of its
customers, agents, suppliers, licensors and others having business relationships
with it that are material to its business in substantially the same manner as it
has prior to the date hereof. If ▇▇▇▇▇▇▇ becomes aware of a material
deterioration or facts which are likely to result in a material deterioration in
the relationship with any customers, supplier, licensor or others having
business relationships with it, it will promptly bring such information to the
attention of HCCH in writing.
SECTION 5.6 COMPLIANCE WITH OBLIGATIONS. ▇▇▇▇▇▇▇ shall use its
reasonable best efforts to comply in all material respects with (i) all
applicable federal, state, local and foreign laws,
26
rules and regulations, (ii) all material agreements and obligations,
including its respective charter and bylaws, by which it, its properties or
its assets may be bound, and (iii) all decrees, orders, writs, injunctions,
judgments, statutes, rules and regulations applicable to ▇▇▇▇▇▇▇ and its
properties or assets.
SECTION 5.7 NOTICES OF CERTAIN EVENTS. ▇▇▇▇▇▇▇ shall, upon obtaining
knowledge of any of the following, promptly notify HCCH of:
(a) any notice or other communication from any person alleging that the
consent of such person is or may be required in connection with the Merger,
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the Merger, and
(c) any actions, suits, claims, investigations or other judicial
proceedings commenced or threatened against ▇▇▇▇▇▇▇ which, if pending on the
date of this Agreement, would have been required to have been disclosed pursuant
hereto or which relate to the consummation of the Merger.
SECTION 5.8 AFFILIATES AGREEMENT. To facilitate the treatment of the
Merger for accounting purposes as a pooling-of-interests, ▇▇▇▇▇▇▇ and each
Shareholder shall deliver to HCCH simultaneously with the execution of this
Agreement, a written agreement (the "Affiliates Agreement") in form and
substance reasonably satisfactory to HCCH and such Affiliates.
SECTION 5.9 NECESSARY CONSENTS. ▇▇▇▇▇▇▇ shall use reasonable best
efforts to obtain such written consent and take such other actions as may be
necessary or appropriate for ▇▇▇▇▇▇▇ to facilitate and allow the consummation
of the transactions provided for herein and to facilitate and allow HCCH to
carry on the acquired business after the Closing Date (as defined in Section
11.1 hereof).
SECTION 5.10 REGULATORY APPROVAL. ▇▇▇▇▇▇▇, and, where required pursuant
to the HSR Act or the rules or regulations of any regulatory agency, LMK, will
execute and file, or join in the execution and filing, with any application or
other document that may be necessary in order to obtain the authorization,
approval or consent of any governmental body, federal, state, local or foreign
which may be reasonably required, or which HCCH may reasonably request, in
connection with the consummation of the transaction provided for in this
Agreement. ▇▇▇▇▇▇▇ and LMK, will use reasonable best efforts to obtain or
assist HCCH in obtaining all such authorizations, approvals and consents. LMK
shall utilize his best efforts to organize a new corporation under the laws of
the State of Texas ("New ▇▇▇▇▇▇▇") and license such corporation as a life,
accident and health insurance agent, and HMO agent, writing accident and health
business in the State of Texas. Upon the Closing, LMK shall execute and enter
into and shall cause New ▇▇▇▇▇▇▇ to enter into the Option Agreement and the
Administrative Services and Facilities Agreement (the "Facilities Agreement")
attached hereto as Exhibits "B" and "C," respectively.
27
SECTION 5.11 SATISFACTION OF CONDITIONS PRECEDENT. ▇▇▇▇▇▇▇ and LMK shall
use all reasonable best efforts to cause the transactions provided for in this
Agreement to be consummated, and, without limiting the generality of the
foregoing to obtain all consents and authorizations of third parties and to make
all filings with, and give all notices to, third parties that may be necessary
or reasonably required on its part in order to effect the transactions provided
for herein.
ARTICLE VI
COVENANTS OF HCCH AND MERGER SUB
From the date hereof until the occurrence of the earlier of (i) the
Effective Time or (ii) the termination of this Agreement pursuant to Section
10.1 hereof, HCCH and Merger Sub agree that, except as otherwise permitted
with the written consent of ▇▇▇▇▇▇▇, which consent shall not be unreasonably
withheld:
SECTION 6.1 CONDUCT OF HCCH. HCCH shall in all material respects conduct
its business in the ordinary course PROVIDED, HOWEVER, THAT nothing in this
Agreement shall be construed to prohibit or otherwise restrain HCCH in any
manner from acquiring other businesses or substantially all of the assets
thereof. Without limiting the generality of the foregoing, from the date hereof
until the Effective Time, except as contemplated hereby or previously disclosed
by HCCH to ▇▇▇▇▇▇▇ in writing:
(a) HCCH will not adopt or propose any change in its Certificate of
Incorporation or Bylaws;
(b) HCCH will not take any action that would result in a failure to
maintain the trading of HCCH Common Stock on the NYSE; and
(c) HCCH will not agree or commit to do any of the foregoing.
SECTION 6.2 ACCESS TO FINANCIAL AND OPERATION INFORMATION. HCCH will
give ▇▇▇▇▇▇▇, its counsel, financial advisors, auditors and other authorized
representatives reasonable access during normal business hours to the public
information HCCH has filed with the Commission and will make available to
▇▇▇▇▇▇▇ copies of all reports, schedules, registration statements,
correspondence and other documents filed with or delivered to the SEC, PROVIDED
that no investigation pursuant to this Section shall affect any representation
or warranty given by HCCH to ▇▇▇▇▇▇▇ or the Shareholders hereunder. All
information obtained pursuant to this Section 6.2 shall be governed by the
Confidentiality Agreement.
SECTION 6.3 MAINTENANCE OF BUSINESS. HCCH will use its reasonable best
efforts to carry on its business, keep available the services of its officers
and employees and preserve its relationships with those of its customers,
suppliers, licensors and others having business relationships with it that are
material to its business in substantially the same manner as it has prior to the
date hereof. If HCCH becomes aware of a material deterioration or facts which
are
28
likely to result in a material deterioration in the relationship with any
material customer, supplier, licensor or others having business relationships
with it, it will promptly bring such information to the attention of ▇▇▇▇▇▇▇
in writing.
SECTION 6.4 COMPLIANCE WITH OBLIGATIONS. HCCH shall use its reasonable
best efforts to comply in all material respects with (i) all applicable federal,
state, local and foreign laws, rules and regulations, (ii) all material
agreements and obligations, including its respective charter and bylaws, by
which it, its properties or its assets may be bound, and (iii) all decrees,
orders, writs, injunctions, judgments, statutes, rules and regulations
applicable to HCCH and its respective properties or assets; except to the
extent that the failure to comply with matters in clauses (i), (ii) and (iii)
would not have a Material Adverse Effect on HCCH.
SECTION 6.5 NOTICES OF CERTAIN EVENTS. HCCH shall, upon obtaining
knowledge of any of the following, promptly notify ▇▇▇▇▇▇▇ of:
(a) any notice or other communication from any person alleging that the
consent of such person is or may be required in connection with the Merger;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the Merger; and
(c) any actions, suits, claims, investigations or other judicial
proceedings commenced or threatened against HCCH which, if pending on the date
of this Agreement, would have been required to have been disclosed pursuant to
Section 4.12 or which relate to the consummation of the Merger.
SECTION 6.6 OBLIGATIONS OF MERGER SUB. HCCH will take all action
necessary to cause Merger Sub to perform its obligations under this Agreement
and to consummate the Merger on the terms and conditions set forth in this
Agreement. Merger Sub will not issue any shares of its capital stock, any
securities convertible into or exchangeable for its capital stock, or any
option, warrant or other right to acquire its capital stock to any person or
entity other than HCCH or a wholly owned Subsidiary of HCCH. Merger Sub shall
not incur any indebtedness or liabilities of any kind except pursuant to this
Agreement.
SECTION 6.7 NOTICE TO AFFILIATES. HCCH shall, at least 30 days prior to
the Effective Date, cause to be delivered to each person HCCH believes to be an
"affiliate," as that term is used in paragraphs (c) and (d) of Rule 145 under
the Securities Act, of HCCH a notice informing such persons of restrictions on
transfer resulting from the Merger being accounted for as a pooling-of-interests
in accordance with generally accepted principles and all published rules,
regulations and policies of the SEC.
SECTION 6.8 REGULATORY APPROVAL. HCCH will execute and file, or join in
the execution and filing, with any application or other document that may be
necessary in order to obtain the authorization, approval or consent of any
governmental body, federal, state, local or foreign which may be reasonably
required in connection with the consummation of the transaction provided for in
this Agreement. HCCH will use reasonable best efforts to obtain or assist
29
▇▇▇▇▇▇▇ in obtaining all such authorizations, approvals and consents, including,
without limitation, the licensing of New ▇▇▇▇▇▇▇ under Texas law.
ARTICLE VII
COVENANTS OF HCCH, ▇▇▇▇▇▇▇ AND AFFILIATED COMPANIES
From the date hereof until the occurrence of the earlier of (i) the
Effective Time or (ii) termination of this Agreement pursuant to Section 10.1
hereof, each of ▇▇▇▇▇▇▇, and HCCH agree that:
SECTION 7.1 ADVICE OF CHANGES. It will promptly advise the other in
writing (i) of any event known to any of its executive officers or the
Shareholders occurring subsequent to the date of this Agreement that in its
reasonable judgment renders any representation or warranty of such party
contained in this Agreement, if made on or as of the date of such event or the
Effective Date, untrue, inaccurate or misleading in any material respect and
(ii) of any Material Adverse Change in the business condition of the party.
SECTION 7.2 REGULATORY APPROVALS. It shall execute and file, or
join in the execution and filing of, any application or other document that
may be necessary in order to obtain the authorization, approval or consent of
any governmental body, federal, state, local or foreign, which may be requested
in connection with the consummation of the Merger. Each party shall use its
best efforts to obtain all such authorizations, approvals and consents.
SECTION 7.3 ACTIONS CONTRARY TO STATED INTENT. It shall not, from or
after the date hereof and either before or after the Effective Time, take any
action that would prevent the Merger from qualifying as a reorganization under
Section 368(a) of the Code or prevent the business combination to be effected by
the Merger from being accounted for as a pooling-of-interests under generally
accepted accounting principles. Each of HCCH and, ▇▇▇▇▇▇▇ shall use its
reasonable best efforts to cause its affiliates not to take any action that
would preclude the ability of HCCH to account for the business combination to be
effected by the Merger as a pooling-of-interests.
SECTION 7.4 CERTAIN FILINGS. ▇▇▇▇▇▇▇ and HCCH shall cooperate with one
another:
(a) in connection with the preparation of any filing required by the HSR
Act;
(b) in determining whether any action by or in respect of, or filing
with, any governmental body, agency or official, or authority is required, or
any actions, consents, approvals or waivers are required to be obtained from
parties to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement; and
(c) in seeking any such actions, consents, approvals or waivers or
making any such filings, furnishing information required in connection therewith
and seeking timely to obtain any such actions, consents, approvals or waivers.
30
SECTION 7.5 COMMUNICATIONS. HCCH will not furnish any communication, if
the subject matter thereof relates to the transactions contemplated by this
Agreement and is not in the ordinary course of business, without the prior
notice to ▇▇▇▇▇▇▇ as to the content thereof.
SECTION 7.6 SATISFACTION OF CONDITIONS PRECEDENT. HCCH and ▇▇▇▇▇▇▇ will
each use its reasonable best efforts to satisfy or cause to be satisfied all the
conditions precedent that are applicable to each of them, and to cause the
transactions contemplated by this Agreement to be consummated, and, without
limiting the generality of the foregoing, to obtain all material consents and
authorizations of third parties and to make filings with, and give all notices
to, third parties that may be necessary or reasonably required on its part in
order to effect the transactions contemplated hereby.
SECTION 7.7 TAX COOPERATION. HCCH and ▇▇▇▇▇▇▇ shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any transfer or gains, sales, use, transfer, value
added, stock transfer and stamp taxes, any transfer, recording, registration and
other fees, and any similar taxes or fees which become payable in connection
with the transactions contemplated by this Agreement that are required or
permitted to be filed on or before the Effective Time.
ARTICLE VIII
POST-CLOSING COVENANTS
SECTION 8.1 LISTING OF HCCH COMMON STOCK. HCCH shall cause the shares of
HCCH Common Stock to be issued in the Merger to be approved for listing on the
NYSE.
SECTION 8.2 PUBLICATION OF POST-MERGER RESULTS. HCCH shall use
commercially reasonable efforts to cause financial results covering at least
thirty days of post Merger combined operations to be published in its first
report of quarterly financial statements as soon as practicable and by the date
such information is required to be filed with the SEC.
SECTION 8.3 EMPLOYEE BENEFITS. Following the consummation of the Merger,
as soon as reasonably practicable, HCCH shall arrange to make generally
available to the employees of ▇▇▇▇▇▇▇ the benefits generally applicable to
employees of HCCH.
SECTION 8.4 OFFICERS AND DIRECTORS INSURANCE. (a) Except as set forth
below, commencing upon the Effective Date, to the extent HCCH provides, in its
sole discretion, liability insurance coverage to officers, directors and
employees of HCCH, HCCH shall provide those persons who are officers, directors
and employees of ▇▇▇▇▇▇▇ and who become officers, directors or employees of HCCH
with liability insurance coverage identical to that which it provides to other
officers, directors and employees of HCCH.
(b) HCCH and the Surviving Corporation shall, until the second
anniversary of the Closing Date, maintain or cause to be maintained in effect
errors and omissions or malpractice insurance policies maintained by ▇▇▇▇▇▇▇ as
of the Closing Date (or policies of at least the same
31
coverage and amounts containing terms that are no less advantageous to the
insured party) with respect to claims arising from facts or events that
occurred on or prior to the Closing Date.
SECTION 8.5 SECURITIES ACT REPORTS. For so long as the HCCH Common Stock
held by the Shareholders is required to be sold pursuant to Rule 144 or Rule 145
of the Exchange Act, HCCH shall file such reports and take such further actions
as may be required pursuant to such Rule 144 or Rule 145 to allow the continued
sale of such HCCH Common Stock by such Shareholders thereunder.
SECTION 8.6 ASSIGNMENT OF COMMISSIONS. Each Shareholder and each other
person who is entitled to commissions, fees or other amounts attributable to
business written by such Shareholder and/or other person for business written on
behalf of ▇▇▇▇▇▇▇ or New ▇▇▇▇▇▇▇ shall irrevocably assign the rights to such
fees, commissions or other amounts to ▇▇▇▇▇▇▇ or New ▇▇▇▇▇▇▇.
ARTICLE IX
CONDITIONS TO THE MERGER
SECTION 9.1 CONDITIONS TO OBLIGATIONS OF HCCH AND MERGER SUB. The
obligations of HCCH and Merger Sub hereunder are subject to the fulfillment or
satisfaction, on and as of the Effective Date, of each of the following
conditions (any one or more of which may be waived by HCCH, but only in a
writing signed by HCCH):
(a) The representations and warranties of ▇▇▇▇▇▇▇ and each Shareholder
contained in Article III shall be true and accurate in all material respects on
and as of the Effective Date with the same force and effect as if they had been
made on the Effective Date (except to the extent a representation or warranty
speaks specifically as of an earlier date and except for changes contemplated by
this Agreement) and ▇▇▇▇▇▇▇ and each Shareholder shall have provided HCCH with a
certificate executed by the President of the corporation or individually, as the
case may be, dated as of the Effective Date, to such effect.
(b) ▇▇▇▇▇▇▇ and each Shareholder shall have performed and complied in
all material respects with all of the covenants contained herein on or before
the Effective Date, and HCCH shall receive a certificate to such effect signed
by the President of the corporation or individually, as the case may be.
(c) Except as set forth in the ▇▇▇▇▇▇▇ Disclosure Schedule, there shall
have been no Material Adverse Change in ▇▇▇▇▇▇▇ or any of the Affiliated
Companies since December 31, 1997.
(d) HCCH shall have received from (i) each person or entity who may be
deemed pursuant to Section 5.8 to be an affiliate of ▇▇▇▇▇▇▇ a duly executed
Affiliates Agreement and (ii) each Shareholder the written agreement
contemplated to be entered into by such person pursuant to Section 5.8 and such
agreements shall remain in full force and effect.
32
(e) All written consents, assignments, waivers or authorizations, other
than Governmental Authorizations, that are required as a result of the Merger
for the continuation in full force and effect of the material contracts set
forth on the ▇▇▇▇▇▇▇ Disclosure Schedule hereto or leases of ▇▇▇▇▇▇▇ shall have
been obtained.
(f) HCCH shall have received the opinion of ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇,
L.L.P. in form and substance satisfactory to HCCH.
(g) All underwriting agreements of ▇▇▇▇▇▇▇ in force on the date hereof
shall be in force on the Effective Date, except for such agreements which have
been replaced with agreements of similar like and kind.
(h) LMK shall be alive and not, in any way, Disabled. For purposes of
this Agreement, LMK shall be deemed to be "Disabled" if he is unable to engage
in any substantial portion of his regular duties for ▇▇▇▇▇▇▇ and each Affiliated
Company by reason of any medically determinable physical or mental impairment
which can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than 12 months.
(i) ▇▇▇▇▇▇▇ shall have received the unqualified opinion of ▇▇▇▇,
Frankfort ▇▇▇▇▇ & ▇▇▇▇, independent public accountants to ▇▇▇▇▇▇▇ on its audited
financial statements for the most recent fiscal year end.
(j) ▇▇▇▇▇▇▇ shall have delivered to HCCH its audited or unaudited, as
the case may be balance sheet and its audited or unaudited, as the case may be
income statement for the most recent fiscal year end and as of and at
December 31, 1997.
(k) ▇▇▇▇▇▇▇, on an adjusted pro-forma basis and giving effect to this
transaction, shall have earned no less than $4.8 million before taxes and
bonuses for the period ended December 31, 1997.
(l) HCCH shall have received executed Employment, Non-competition and
Confidentiality Agreements (in form and substance satisfactory to HCCH) from
each Shareholder and such other employees of ▇▇▇▇▇▇▇ as HCCH shall reasonably
request.
(m) HCCH shall have received such documents which it believes necessary
to confirm that all commissions relating to the business of ▇▇▇▇▇▇▇ shall be
assigned to HCCH from any licensed agent or otherwise.
(n) LMK shall have completed the organization and licensing of New
▇▇▇▇▇▇▇, and both LMK and New ▇▇▇▇▇▇▇ shall have executed and entered into the
Option Agreement and the Facilities Agreement.
SECTION 9.2 CONDITIONS TO OBLIGATIONS OF ▇▇▇▇▇▇▇ AND SHAREHOLDERS.
▇▇▇▇▇▇▇'▇, and each Shareholder's obligations hereunder are subject to the
fulfillment or satisfaction, on and as of the Effective Date, of each of the
following conditions (any one or more of which may be waived, but only in a
writing signed by such party):
33
(a) The representations and warranties of HCCH set forth herein shall be
true and accurate in all material respects on and as of the Effective Date with
the same force and effect as if they had been made on the Effective Date (except
to the extent a representation or warranty speaks specifically as of an earlier
date and except for changes contemplated by this Agreement) and HCCH shall have
provided ▇▇▇▇▇▇▇ with a certificate executed by the President or, any Executive
Vice President and the Chief Financial Officer of HCCH, dated as of the
Effective Date, to such effect. For the purposes of determining the accuracy of
the representations and warranties of HCCH, any change or effect in the business
of HCCH that results in substantial part as a consequence of the public
announcement or pendency of the intended acquisition of ▇▇▇▇▇▇▇ by HCCH shall
not be deemed a Material Adverse Change or Material Adverse Effect or other
breach of representation or warranty with respect to HCCH.
(b) HCCH shall have performed and complied with all of its covenants
contained herein in all material respects on or before the Effective Date, and
▇▇▇▇▇▇▇ shall receive a certificate to such effect signed by HCCH's President
or, any Executive Vice President and the Chief Financial Officer.
(c) Except as set forth in the HCCH Disclosure Schedule, there shall
have been no Material Adverse Change in HCCH since the HCCH Balance Sheet Date.
(d) ▇▇▇▇▇▇▇ shall have received a written opinion in form and substance
satisfactory to it from ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ to the effect that the Merger will
be treated for federal income tax purposes as a tax-free reorganization within
the meaning of Section 368 of the Code. In preparing such opinion, counsel may
rely on (and to the extent reasonably required, ▇▇▇▇▇▇▇, and the Shareholders
shall make) reasonable representations as to facts related thereto.
(e) ▇▇▇▇▇▇▇ shall have received from ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ P.C.,
counsel to HCCH, an opinion in form and substance satisfactory to the
Shareholders.
(f) LMK shall have been appointed President of ▇▇▇▇▇▇▇.
SECTION 9.3 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of the parties hereunder are subject to the fulfillment, on and as
of the Effective Date, of each of the following conditions (any one or more of
which may be waived by such parties, but only in a writing signed by such
parties):
(a) Each of ▇▇▇▇▇▇▇ and the Shareholders shall have duly approved, where
applicable, this Agreement, the Articles of Merger and the Merger, all in
accordance with applicable laws and regulatory requirements.
(b) No statute, rule, regulation, executive order, decree, injunction or
restraining order shall have been enacted, promulgated or enforced (and not
repealed, superseded or otherwise made inapplicable) by any court or
governmental authority which prohibits the consummation of the Merger (each
party agreeing to use its reasonable best efforts to have any such order, decree
or injunction lifted).
34
(c) There shall have been obtained any and all Governmental
Authorizations, permits, approvals and consents of securities or "blue sky"
commissions of any jurisdiction and of any other governmental body or agency,
that may reasonably be deemed necessary so that the consummation of the Merger
will be in compliance with applicable laws, the failure to comply with which
would have a Material Adverse Effect on HCCH, ▇▇▇▇▇▇▇, or the Surviving
Corporation, or would be reasonably likely to subject any of HCCH, Merger Sub,
▇▇▇▇▇▇▇, or any of their respective directors or officers to penalties or
criminal liability.
(d) The waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act, if applicable, shall have expired
or been terminated.
ARTICLE X
TERMINATION OF AGREEMENT
SECTION 10.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time whether before or after the approval by the
shareholders of ▇▇▇▇▇▇▇ and the Affiliated Companies:
(a) By the mutual consent of the Boards of Directors of HCCH and
▇▇▇▇▇▇▇.
(b) By the Board of Directors of either HCCH or ▇▇▇▇▇▇▇ if there has
been a material breach by the other or, in the case of HCCH, by any Shareholder,
of any representation or warranty contained in this Agreement, which in either
case cannot be, or has not been, cured within 15 days after written notice of
such breach is given to the party committing such breach, provided that the
right to effect such cure shall not extend beyond the date set forth in
subparagraph (c) below.
(c) By the Board of Directors of either HCCH or ▇▇▇▇▇▇▇ if (i) all
conditions of Closing required by Article 0 hereof have not been met or waived
by March 31, 1998, or (ii) the Merger has not occurred by such date; provided,
however, that neither HCCH nor ▇▇▇▇▇▇▇, shall be entitled to terminate this
Agreement pursuant to this subparagraph (c) if such party is in willful and
material violation of any of its representations, warranties or covenants in
this Agreement.
(d) If any Governmental Authority shall have issued an order, decree or
ruling or taken any other action permanently enjoining, restraining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall have
become final and nonappealable.
(e) By the Board of Directors of HCCH, if LMK shall have become Disabled
or shall have died.
SECTION 10.2 EFFECT OF TERMINATION. Upon termination of this Agreement
pursuant to this Article X, this Agreement shall be void and of no effect and
shall result in no obligation of or liability to any party or their respective
directors, officers, employees, agents or shareholders,
35
other than the obligations pursuant to the Confidentiality Agreement, unless
such termination was the result of an intentional breach of any
representation, warranty or covenant in this Agreement, in which case the
party who breached the representation, warranty or covenant shall be liable
to the other party for damages, and all costs and expenses incurred in
connection with the preparation, negotiation, execution and performance of
this Agreement.
ARTICLE XI
CLOSING MATTERS
SECTION 11.1 THE CLOSING. Subject to termination of this Agreement as
provided in Article IX above, the closing of the transactions provided for
herein (the "Closing") will take place at the offices of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇ P.C., ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ at 10:00 a.m.,
Houston Time on February 27, 1998, or, if all conditions to Closing have not
been satisfied or waived by such date, such other place, time and date as
▇▇▇▇▇▇▇ and HCCH may mutually select (the "Closing Date"). Such Closing may,
with the consent of all Parties, take place by delivery and exchange of
documents by facsimile transmission with originals to follow by overnight mail
service courier. Prior to or concurrently with the Closing, the Agreement of
Merger and such officers' certificates or other documents as may be required to
effect the Merger will be filed in the office of the Secretary of the State of
Texas. Accordingly, the Merger will become effective at the Effective Time.
ARTICLE XII
INDEMNIFICATION AND REMEDIES
SECTION 12.1 GENERAL INDEMNIFICATION BY THE SHAREHOLDERS. Each
Shareholder, jointly and severally to the extent hereinafter set forth,
covenants and agrees to indemnify, defend, protect and hold harmless HCCH,
Merger Sub and the Surviving Corporation and their respective officers,
directors, employees, shareholders, members, assigns, successors and affiliates
(individually, an "Indemnified Party" and collectively, "Indemnified Parties")
from, against and in respect of:
(a) all liabilities, losses, claims, damages, punitive damages, causes
of action, lawsuits, administrative proceedings (including informal
proceedings), investigations, audits, demands, assessments, adjustments,
judgments, settlement payments, deficiencies, penalties, fines, interest
(including interest from the date of such damages) and costs and expenses
(including without limitation reasonable attorneys' fees and disbursements of
every kind, nature and description) (collectively, "Damages") suffered,
sustained, incurred or paid by the Indemnified Parties in connection with,
resulting from or arising out of, directly or indirectly:
(i) any breach of any representation or warranty of ▇▇▇▇▇▇▇ or
the Shareholders set forth in this Agreement or any schedule or certificate,
delivered by or on behalf of ▇▇▇▇▇▇▇ or the Shareholders in connection herewith;
or
36
(ii) any nonfulfillment of any covenant or agreement by the
Shareholders, or, prior to the Effective Time, ▇▇▇▇▇▇▇, under this Agreement; or
(iii) the business, operations or assets of ▇▇▇▇▇▇▇ prior to the
Closing Date or the actions or omissions of ▇▇▇▇▇▇▇'▇ officers, employees or
agents prior to the Closing Date, other than Damages arising from matters
expressly disclosed in the ▇▇▇▇▇▇▇ Financial Statements, this Agreement or the
▇▇▇▇▇▇▇ Disclosure Schedules; or
(iv) the matters disclosed on the Disclosure Schedule (Taxes) or
the nonfulfillment of any representation, covenant or agreement described in
Sections 3.12 (Taxes), 3.25 (Commissions) and 8.6 (Assignment of Commissions);
or
(v) the failure of ▇▇▇▇▇▇▇ or any Shareholder to obtain any
necessary consent relating to the leasing by ▇▇▇▇▇▇▇ of the leasehold property
utilized by ▇▇▇▇▇▇▇; and
(b) any and all Damages incident to any of the foregoing or to the
enforcement of this Section 12.1.
SECTION 12.2 LIMITATION AND EXPIRATION. Notwithstanding the above:
(a) (i) there shall be no liability for indemnification under
Section 12.1 unless the aggregate amount of Damages exceeds $75,000 (the
"Franchise Deductible"); provided, however, if Damages exceed the Franchise
Deductible, the Indemnifying Persons shall be liable for all such Damages and
(ii) provided, further that the Franchise Deductible shall not apply to
Damages arising out of any breaches of the covenants of the Shareholders set
forth in this Agreement or representations and warranties made in Sections
3.12 (Taxes) and 3.25 (Commissions) (the "Deductible Exclusions");
(b) the aggregate amount of the Shareholders' liability under this
Article XII except for matters referred to as Deductible Exclusions and for
matters of fraud as described in Section 12.6 shall not exceed an amount equal
to one-half the Merger Consideration received by such Shareholder;
(c) the indemnification obligations under this Article XII, or under any
certificate or writing furnished in connection herewith, shall terminate at the
date that is the later of clause (i) or (ii) of this Section 12.2(c):
(i) (1) with respect to claims relating to or arising out of
(i) any Taxes arising out of or relating to the business of ▇▇▇▇▇▇▇ or (ii) the
irrevocable assignment of all commissions, fees or other amounts due to ▇▇▇▇▇▇▇
for business for which a Shareholder has written as an employee or agent of
▇▇▇▇▇▇▇ that relates to business that has been written prior to the Closing
Date: (A) the date that is six (6) months after the expiration of the longest
applicable federal or state statute of limitation (including extensions
thereof), or (B) if there is no applicable statute of limitation, ten (10) years
after the Closing Date; or
37
(2) with respect to claims other than those specified in
clause (i)(1) of this Section 12.2(c) that are of a nature and of sufficient
materiality typically expected to be encountered in the audit process, on the
completion of the first independent audit of financial statements containing
combined operations of HCCH and ▇▇▇▇▇▇▇; or
(3) with respect to all claims other than those referred
to in clause (i)(1) or (2) of this Section 12.2(c), twelve (12) months after the
Effective Time; or
(ii) the final resolution of claims or demands pending as of
the relevant dates described in clause (i) of this Section 12.2(c) (such
claims referred to as "Pending Claims").
SECTION 12.3 AGREEMENT TO INDEMNIFY. Subject to the limitations set
forth in this Article XII and except as set forth in Section 12.2, each
Shareholder shall be liable severally and Pro Rata (as hereinafter defined),
net of any recoveries under insurance policies recovered from third parties
and tax savings (hereafter in this Section 12.3 referred to as "HCCH
Damages"). "Pro Rata" for purposes of Sections 12.1 and 12.2 with respect to
each Shareholder shall mean the proportion that such Shareholder's holdings
of ▇▇▇▇▇▇▇ Common Stock as of the time immediately prior to the Effective
Time bears to the total shares of ▇▇▇▇▇▇▇ Common Stock held by all
Shareholders as of the time immediately prior to the Effective Time. In
seeking indemnification for HCCH Damages under this Article XII following the
Closing, the Indemnified Persons' remedy will be limited to receiving up to
that number of shares of HCCH Common Stock determined by dividing (a) the
amount of the HCCH Damages by (b) the closing sale price of HCCH's Common
Stock on the New York Stock Exchange on the Effective Date (the "Closing Date
Price"). Provided, however, that irrespective as to the number of claims
asserted by Indemnified Persons hereunder and the amount of the HCCH Damages
for which indemnification is sought, any such Shareholder, in the aggregate,
shall under no circumstances be required to make indemnification payments
hereunder beyond the Closing Date Price multiplied by one-half the number of
shares of HCCH Common Stock received by such Shareholder at the time of the
Merger (the "Maximum Shareholder Liability"). Notwithstanding anything to
the contrary set forth herein, in the event that at the time of the
resolution of any such indemnification claim, such Shareholder does not hold
the number of shares of HCCH Common Stock (including any shares otherwise
acquired at any time before or after the Effective Time or at any time after
any claim is made for indemnification) necessary to settle any
indemnification claim, then such Shareholder shall pay in cash or other
immediately available funds the cash equivalent of the remainder of his
in-stock indemnification obligations under this Section 12.3 up to his
Maximum Shareholder Liability. In lieu of HCCH Common Stock, any Shareholder
shall have the option to pay in cash or other immediately available funds the
cash equivalent of all or any part of his in-stock Maximum Shareholder
Liability.
SECTION 12.4 HCCH AGREEMENT TO INDEMNIFY. Subject to the limitations
set forth in this Article XII, HCCH will indemnify and hold harmless ▇▇▇▇▇▇▇,
and the ▇▇▇▇▇▇▇ Shareholders and their officers, shareholders, directors,
administrators, successors and assigns from and against any and all claims,
demands, actions, causes of action, losses, costs, damages, liabilities and
expenses including, without limitation, reasonable legal fees, net of any
recoveries under insurance policies, recoveries from third parties and tax
savings (hereafter in this Section 12.4 referred to as "▇▇▇▇▇▇▇ Damages")
arising out of any misrepresentation or breach of or default under any of
38
the representations, warranties, covenants and agreements given or made by
HCCH or Merger Sub in this Agreement or any certificate or exhibit delivered
by or on behalf of HCCH or Merger Sub pursuant hereto. In seeking
indemnification for ▇▇▇▇▇▇▇ Damages under this Section 12.4 following the
Closing, the Indemnified Person's remedy will be limited to receiving that
number of additional shares of HCCH Common Stock determined by dividing (a)
the amount of the ▇▇▇▇▇▇▇ Damages by (b) the Closing Date Price. Provided,
however, that irrespective of the number of claims asserted by Indemnified
Persons hereunder in the amount of the ▇▇▇▇▇▇▇ Damages for which
indemnification is sought, HCCH, in the aggregate, shall under no
circumstances be obligated to make an indemnification payment hereunder
beyond that number of additional shares of HCCH Common Stock equal to
one-half of the total number of shares of HCCH Common Stock provided to the
▇▇▇▇▇▇▇ Shareholders on the Effective Date (the "Maximum HCCH Liability").
The indemnification provided for in this Section 12.4 will not apply unless and
until the aggregate ▇▇▇▇▇▇▇ Damages for which one or more Indemnified Person
seeks indemnification exceeds $75,000 in the aggregate, in which event the
indemnification provided for will include all ▇▇▇▇▇▇▇ Damages (a franchise
deductible) up to the Maximum HCCH Liability.
SECTION 12.5 PROCEDURE FOR INDEMNIFICATION; THIRD PARTY CLAIMS.
(a) Promptly after receipt by an Indemnified Party under this Article
XII of notice of a claim against it for indemnification brought under this
Article XII (a "Claim"), the Indemnified Party will, if a claim is to be made
against an Indemnifying Party, give prompt written notice to the Indemnified
Party of the Claim, but the failure to promptly notify the Indemnified Party
will not relieve the Indemnified Party of any liability that it may have to
any Indemnified Party, except to the extent that the Indemnifying Party
demonstrates that the defense of such action is prejudice by the Indemnifying
Party's failure to give such prompt notice. Such notice shall contain a
description in reasonable detail of facts upon which such Claim is based and,
to the extent known, the amount thereof.
(b) If any Claim referred to in this Article XII is made by a third
party against an Indemnified Party and such Indemnified Party gives written
notice to the Indemnifying Party of the Claim, the Indemnifying Party will be
entitled to participate in the defense of Claim but under all circumstances
HCCH shall be entitled to assume the defense of the Claim and, thereafter, if
HCCH has so assumed the defense, no other party hereto will be liable under
this Article XII for any fees of counsel or any other expenses with respect
to the defense of the Claim in each case subsequently incurred in connection
with the defense of the Claim unless such other party elects to retain its
separate counsel. If HCCH is not the Indemnifying Party and elects, in
writing, not to assume the defense, the Indemnifying Party shall assume the
defense and HCCH will not be liable for any fees or expenses with respect to
the Defense of the Claim, unless HCCH elects to retain its separate counsel.
SECTION 12.6 LIMITATION ON LIABILITY. (a) It is a fundamental point of
mutual agreement among all Parties hereto that the Parties' liability for and in
respect of this Agreement and the Merger shall, except for matters of proved
fraud, be limited to the absolute, fixed dollar amounts and for the absolute,
fixed time limitations specified in this Article XII. These limitations of
amount of liability and time to assert any such liability shall apply to all
claims and other
39
demands, charges, allegations, liabilities, responsibilities, exposures and
the like (collectively "Claims Against A Party") no matter how any and all of
such Claims Against A Party may be brought or asserted, whether sounding in
contract, tort or otherwise, including, without limitation, Claims Against A
Party based on breach of contract, breach of representation, warranty or
covenant, misrepresentation, fraudulent inducement, negligent
misrepresentation, indemnity (contractual or otherwise), contribution
(contractual or otherwise), or loss in reliance. A Party's liability in
matters of fraud shall be limited to two times the Maximum Shareholders
Liability or the Maximum HCCH Liability, as the case may be.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1 APPOINTMENT OF REPRESENTATIVE. Subject to the
successorship provisions of this Section 13.1, LMK (the "Representative") is
hereby irrevocably appointed as the attorney-in-fact and representative of
the interests of the Shareholders for all purposes of this Agreement, and
notice is hereby given thereof to HCCH and Merger Sub, and, without
independent verification, HCCH and Merger Sub may rely upon Representative's
undertakings in such capacity. The Representative shall have full and
irrevocable authority on behalf of the Shareholders, and shall promptly and
completely exercise such authority in a timely fashion to:
(a) participate in, represent and bind the Shareholders in all respects
with respect to any arbitration or legal proceeding relating to this Agreement,
including, without limitation, the defense and settlement of any matter, and the
calculation thereof for every purpose thereunder, consent to jurisdiction, enter
into any settlement, and consent to entry of judgment, each with respect to any
or all of the Shareholders;
(b) receive, accept and give notices and other communications relating
to this Agreement;
(c) take any action that the Representative deems necessary or desirable
in order to fully effectuate the transactions contemplated by this Agreement;
(d) execute and deliver any instrument or document that the
Representative deems necessary or desirable in the exercise of his authority
under this Section 13.1; and
(e) waive the fulfillment of any condition or conditions to the Closing.
Those Shareholders who, as of the Effective Date, hold a majority of the
▇▇▇▇▇▇▇ Common Stock may, at any time and by written action delivered to HCCH,
remove the Representative or any successor thereto, but such removal shall be
effective only upon the replacement of such Representative or successor by a new
Representative designated, by written notice delivered to HCCH, by those
Shareholders who, as of the date hereof hold a majority of ▇▇▇▇▇▇▇ Common Stock,
PROVIDED, however, that any such notice shall be effective upon actual receipt
by HCCH. Any such written notice shall be delivered to HCCH in accordance with
the
40
notice provisions set forth in Section 13.4 hereof. If any Representative
shall have died, become Disabled or unable to serve, those Shareholders who,
as of the date hereof, hold a majority of ▇▇▇▇▇▇▇ Common Stock shall promptly
designate by written notice delivered to HCCH, a replacement Representative.
Any costs and expenses incurred by the Representative in connection with
actions taken pursuant to or permitted by this Section 13.1 will be borne by
the Shareholders and paid or reimbursed to the Representative Pro Rata.
The foregoing authorization is granted and conferred in consideration
for the various agreements and covenants of HCCH and Merger Sub contained
herein. In consideration of the foregoing, and subject to the successorship
provisions of this Section 13.1, this authorization granted to the
Representative shall be irrevocable and shall not be terminated by any act of
any of the Shareholders or by operation of law, whether by death or
incompetence of any Shareholder or by the occurrence of any other event
except the termination of this Agreement pursuant to Section 10.1 hereof. If
after the execution hereof any such Shareholder shall die or become
incompetent, the Representative is nevertheless authorized and directed to
exercise the authority granted in this Section 13.1 as if such death or
incompetence had not occurred and regardless of notice thereof. The
Representative shall have no liability to any Shareholder for any act or
omission or obligation hereunder, provided that such action or omission is
taken by the Representative in good faith and without willful misconduct.
SECTION 13.2 FURTHER ASSURANCES. Each party agrees to cooperate
fully with the other parties and to execute such further instruments,
documents and agreements and to give such further written assurances as may
be reasonably requested by any other party to better evidence and reflect the
transactions described herein and contemplated hereby and to carry into effect
the intents and purposes of this Agreement.
SECTION 13.3 FEES AND EXPENSES. Until otherwise agreed by the parties,
each party shall bear its own fees and expenses, including counsel fees and fees
of brokers and investment bankers contracted by such party, in connection with
the transaction contemplated hereby.
SECTION 13.4 NOTICES. Whenever any party hereto desires or is required to
give any notice, demand, or request with respect to this Agreement, each such
communication shall be in writing and shall be effective only if it is delivered
by personal service or mailed, United States registered or certified mail,
postage prepaid, or sent by prepaid overnight courier addressed as follows:
HCCH and Merger Sub:
HCC Insurance Holdings, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Executive Vice President
41
With a copy (which shall not constitute notice) to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ P.C.
▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇ and LMK:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Getty:
▇▇▇▇ ▇. Getty
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, #▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, #▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Kleiderer:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇'▇▇▇▇▇▇:
▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
42
With a copy (which shall not constitute notice) of any notice to ▇▇▇▇▇▇▇ or
any Shareholder to:
▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, L.L.P.
South Tower Pennzoil Place
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇, Esq.
Such communications shall be effective when they are received by the
addressee thereof. Any party may change its address for such communications
by giving notice thereof to other parties in conformity with this Section. In
the event LMK is no longer the Representative, such successor Representative's
address shall be the address for the Shareholders.
SECTION 13.5 GOVERNING LAW. The internal laws of the State of Texas
(irrespective of its choice of law principles) will govern the validity of this
Agreement, the construction of its terms, and the interpretation and enforcement
of the rights and duties of the parties hereto. Any dispute arising hereunder
shall lie exclusively in the state courts of the State of Texas.
SECTION 13.6 BINDING UPON SUCCESSORS AND ASSIGNS, ASSIGNMENT. This
Agreement and the provisions hereof shall be binding upon each of the parties,
their permitted successors and assigns. This Agreement may not be assigned by
any party without the prior consent of the others, PROVIDED, HOWEVER, that HCCH
shall be permitted at any time prior to the Effective Time to cause the
assignment of Merger Sub's rights and obligations under this Agreement to
another wholly owned Subsidiary of HCCH (without in any way relieving HCCH of
its obligations under this Agreement with respect to Merger Sub or the Merger).
SECTION 13.7 SEVERABILITY. If any provision of this Agreement, or the
application thereof, shall for any reason or to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall continue in full force and effect and in
no way be affected, impaired or invalidated.
SECTION 13.8 ENTIRE AGREEMENT. This Agreement, together with the
Confidentiality Agreement, and the other agreements and instruments referenced
herein constitute the entire understanding and agreement of the parties with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between parties with respect hereto.
SECTION 13.9 AMENDMENT AND WAIVERS. Any amendment or waiver affecting the
Shareholders shall be valid if consented to in writing by Shareholders holding a
majority of the shares of ▇▇▇▇▇▇▇ Common Stock (i) if given or made prior to the
Effective Time, such majority as determined as of the date of such amendment or
waiver, and (ii) if given or made at or after the Effective Time, such majority
as determined immediately prior to the Effective Time. Any term or provision of
this Agreement may be amended, and the observance of any term of this
43
Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively) only by a writing signed by those
persons as provided in this Section 13.9. The waiver by a party of any
breach hereof or default in the performance hereof shall not be deemed to
constitute a waiver of any other default or any succeeding breach or default,
unless such waiver so expressly states. At any time before the Effective
Time, this Agreement may be amended or supplemented by ▇▇▇▇▇▇▇, the
Shareholders or HCCH with respect to any of the terms contained in this
Agreement.
SECTION 13.10 NO WAIVER. The failure of any party to enforce any of the
provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
SECTION 13.11 CONSTRUCTION OF AGREEMENT. A reference to an Article,
Section or an Exhibit shall mean an Article of, a Section in, or Exhibit to,
this Agreement unless otherwise explicitly set forth. The titles and headings
herein are for reference purposes only and shall not in any manner limit the
construction of this Agreement which shall be considered as a whole. The words
"include," "includes" and "including" when used herein shall be deemed in each
case to be followed by the words "without limitation."
SECTION 13.12 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all the parties reflected hereon as signatories.
SECTION 13.13 SHAREHOLDER CONTROL OF STOCK. The Shareholders severally,
and not jointly, represent and warrant with respect to their respective shares
of ▇▇▇▇▇▇▇ Common Stock as follows:
(a) ▇▇▇▇▇▇▇, ▇'▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇: (i) that, although such shares of
▇▇▇▇▇▇▇ Common Stock constitute community property with his spouse, the
Shareholder has sole management rights with respect to such shares of ▇▇▇▇▇▇▇
Common Stock; and (ii) that his spouse is not required to consent to or join in
this Agreement or any of the transactions herein contemplated;
(b) ▇▇▇▇▇▇▇, Getty and ▇▇▇▇▇▇▇: (i) that he owns all such shares of
▇▇▇▇▇▇▇ Common Stock as his separate property and not as community property with
his spouse; and (ii) accordingly his spouse has no legal interest in such
shares.
Notwithstanding anything to the contrary in this Agreement, this Section
13.13 will survive the Closing, will have no expiration or termination date,
and will not be subject to any deductible amount (including the Franchise
Deductible) or any limitation on liability of the Shareholders.
SECTION 13.14 KNOWLEDGE. THE SHAREHOLDERS FURTHER ACKNOWLEDGE THAT THEY
(a) HAVE KNOWLEDGE AND EXPERIENCE IN BUSINESS AND
44
FINANCIAL MATTERS THAT ENABLE THEM TO EVALUATE THE MERITS AND RISKS OF
ENTERING INTO THIS AGREEMENT, (b) HAVE READ AND UNDERSTAND THE PROVISIONS
HEREOF, (c) ARE NOT IN A DISPARATE BARGAINING POSITION, AND (d) HAVE BEEN
REPRESENTED BY, OR HAVE HAD THE OPPORTUNITY TO BE REPRESENTED BY, LEGAL
COUNSEL IN CONNECTION WITH THE NEGOTIATION AND EXECUTION OF THIS AGREEMENT.
THE SHAREHOLDERS EACH FURTHER ACKNOWLEDGE AND AGREE THAT IN EXECUTING THIS
AGREEMENT, NO PROMISE OR AGREEMENT WHICH IS NOT HEREIN EXPRESSED HAS BEEN
MADE TO HIM AND HE HAS NOT RELIED UPON ANY STATEMENT OR REPRESENTATION
PERTAINING TO THE SUBJECT MATTER HEREOF MADE BY HCCH, OR ANY OTHER PARTY.
THE SHAREHOLDERS FURTHER ACKNOWLEDGE THAT THEY UNDERSTAND THAT THE LAW FIRM
OF ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, L.L.P. DOES NOT REPRESENT THEIR INDIVIDUAL
INTERESTS AND REPRESENTS ONLY THE ▇▇▇▇▇▇▇ CORPORATION AND THE STOCKHOLDERS
GENERALLY. THE SHAREHOLDERS AGREE THAT TO THE EXTENT REQUIRED BY APPLICABLE
LAW TO BE EFFECTIVE, THIS PARAGRAPH CONSTITUTES A CONSPICUOUS NOTICE.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
45
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
"HCC INSURANCE HOLDINGS, INC."
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Executive Vice President
"THE ▇▇▇▇▇▇▇ CORPORATION,"
(a Delaware corporation)
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Executive Vice President
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
"THE ▇▇▇▇▇▇▇ CORPORATION"
(a Texas corporation)
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President
"SHAREHOLDERS"
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇. Getty
------------------------------------------
▇▇▇▇ ▇. Getty
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇
------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]