AGREEMENT AND PLAN OF MERGER DATED AS OF APRIL 23, 2008 AMONG LIBERTY MUTUAL INSURANCE COMPANY, BIG APPLE MERGER CORPORATION AND SAFECO CORPORATION
Exhibit
2.1
EXECUTION
COPY
AGREEMENT
AND PLAN OF MERGER
DATED
AS OF APRIL 23, 2008
AMONG
LIBERTY
MUTUAL INSURANCE COMPANY,
BIG
APPLE MERGER CORPORATION
AND
SAFECO
CORPORATION
TABLE
OF CONTENTS
Page
ARTICLE
I
THE
MERGER; CERTAIN RELATED MATTERS
|
Section
1.1
|
The
Merger
|
1
|
|
Section
1.2
|
Closing;
Effective Time
|
1
|
|
Section
1.3
|
Effects
of the Merger
|
2
|
|
Section
1.4
|
Articles
of Incorporation; Bylaws
|
2
|
|
Section
1.5
|
Directors
and Officers of Surviving Corporation
|
2
|
|
Section
1.6
|
Effect
on Capital Stock
|
2
|
|
Section
1.7
|
Treatment
of Options and Other Company Equity Awards
|
3
|
|
Section
1.8
|
Certain
Adjustments
|
3
|
|
Section
1.9
|
Dissenting
Shares
|
4
|
ARTICLE
II
PAYMENT
AND EXCHANGE OF CERTIFICATES; WITHHOLDING
|
Section
2.1
|
Payment
and Exchange of Certificates
|
4
|
|
Section
2.2
|
Withholding
Rights
|
6
|
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
|
Section
3.1
|
Corporate
Existence and Power
|
7
|
|
Section
3.2
|
Corporate
Authorization
|
7
|
|
Section
3.3
|
Governmental
Authorization
|
8
|
|
Section
3.4
|
Non-Contravention
|
9
|
|
Section
3.5
|
Capitalization
|
9
|
|
Section
3.6
|
Subsidiaries
|
10
|
|
Section
3.7
|
[Reserved]
|
10
|
|
Section
3.8
|
Company
SEC Filings, etc.
|
10
|
|
Section
3.9
|
Company
Financial Statements
|
11
|
|
Section
3.10
|
Company
SAP Statements
|
12
|
|
Section
3.11
|
Information
Supplied
|
12
|
|
Section
3.12
|
Absence
of Certain Changes or Events
|
12
|
|
Section
3.13
|
No
Undisclosed Material Liabilities
|
12
|
|
Section
3.14
|
Compliance
with Laws
|
13
|
|
Section
3.15
|
Litigation
|
13
|
|
Section
3.16
|
Insurance
Matters
|
14
|
|
Section
3.17
|
Policy
Reserves
|
15
|
|
Section
3.18
|
Title
to Properties; Absence of Liens
|
16
|
|
Section
3.19
|
Opinion
of Financial Advisor
|
16
|
|
Section
3.20
|
Taxes
|
16
|
|
Section
3.21
|
Employee
Benefit Plans and Related Matters; ERISA
|
17
|
|
Section
3.22
|
Employees,
Labor Matters
|
19
|
i
|
Section
3.23
|
Environmental
Matters
|
19
|
|
Section
3.24
|
Intellectual
Property
|
19
|
|
Section
3.25
|
Material
Contracts
|
20
|
|
Section
3.26
|
Brokers
and Finders' Fees
|
20
|
|
Section
3.27
|
No
Other Representations and Warranties; Disclaimer
|
20
|
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF PARENT AND MERGER SUB
|
Section
4.1
|
Corporate
Existence and Power
|
21
|
|
Section
4.2
|
Corporate
Authorization
|
21
|
|
Section
4.3
|
Governmental
Authorization
|
22
|
|
Section
4.4
|
Non-Contravention
|
23
|
|
Section
4.5
|
Capitalization;
Interim Operations of Merger Sub
|
23
|
|
Section
4.6
|
Information
Supplied
|
23
|
|
Section
4.7
|
Compliance
with Laws
|
23
|
|
Section
4.8
|
Litigation
|
24
|
|
Section
4.9
|
Brokers
and Finders' Fees
|
24
|
|
Section
4.10
|
Financing
|
25
|
|
Section
4.11
|
Interested
Shareholder
|
25
|
|
Section
4.12
|
No
Other Representations and Warranties; Disclaimer
|
25
|
ARTICLE
V
CONDUCT
OF BUSINESS
|
Section
5.1
|
Conduct
of Business by the Company
|
26
|
|
Section
5.2
|
Conduct
of Business by Parent
|
30
|
ARTICLE
VI
ADDITIONAL
AGREEMENTS
|
Section
6.1
|
Preparation
of the Proxy Statement
|
30
|
|
Section
6.2
|
Shareholders
Meeting; Company Board Recommendation
|
31
|
|
Section
6.3
|
No
Solicitation
|
31
|
|
Section
6.4
|
Access
to Information
|
35
|
|
Section
6.5
|
Reasonable
Best Efforts
|
35
|
|
Section
6.6
|
Employee
Matters
|
37
|
|
Section
6.7
|
Expenses
|
40
|
|
Section
6.8
|
Transfer
Taxes
|
40
|
|
Section
6.9
|
Directors'
and Officers' Indemnification and Insurance
|
40
|
|
Section
6.10
|
Public
Announcements
|
42
|
|
Section
6.11
|
Notification
|
42
|
|
Section
6.12
|
State
Takeover Laws
|
43
|
|
Section
6.13
|
Section
16(b)
|
43
|
|
Section
6.14
|
Delisting
|
43
|
|
Section
6.15
|
Principal
Executive Offices of the Surviving Corporation
|
43
|
|
Section
6.16
|
Community
Commitments
|
43
|
ii
|
Section
6.17
|
Branding
|
44
|
|
Section
6.18
|
Agency
Force
|
44
|
ARTICLE
VII
CONDITIONS
|
Section
7.1
|
Conditions
to Each Party's Obligation to Effect the Merger
|
44
|
|
Section
7.2
|
Conditions
to Obligations of Parent and Merger Sub
|
44
|
|
Section
7.3
|
Conditions
to Obligations of the Company
|
45
|
|
Section
7.4
|
Frustration
of Closing Conditions
|
46
|
ARTICLE
VIII
TERMINATION
AND AMENDMENT
|
Section
8.1
|
Termination
|
46
|
|
Section
8.2
|
Effect
of Termination
|
48
|
|
Section
8.3
|
Termination
Fee
|
48
|
|
Section
8.4
|
Procedure
for Termination
|
50
|
ARTICLE
IX
GENERAL
PROVISIONS
|
Section
9.1
|
Non-Survival
of Representations, Warranties, Covenants and Agreements
|
50
|
|
Section
9.2
|
Notices
|
50
|
|
Section
9.3
|
Interpretation
|
52
|
|
Section
9.4
|
Counterparts;
Effectiveness
|
52
|
|
Section
9.5
|
Entire
Agreement; No Third Party Beneficiaries
|
52
|
|
Section
9.6
|
Severability
|
53
|
|
Section
9.7
|
Assignment
|
53
|
|
Section
9.8
|
Amendment
|
53
|
|
Section
9.9
|
Extension;
Waiver
|
54
|
|
Section
9.10
|
Governing
Law and Venue; Waiver Of Jury Trial
|
54
|
|
Section
9.11
|
Specific
Performance
|
55
|
|
Section
9.12
|
Definitions
|
55
|
iii
This
AGREEMENT AND PLAN OF MERGER, dated as of April 23, 2008 (this "Agreement"), is by
and among LIBERTY MUTUAL INSURANCE COMPANY, a Massachusetts stock insurance
company ("Parent"), BIG APPLE
MERGER CORPORATION, a Washington corporation and a wholly owned subsidiary of
Parent ("Merger
Sub"), and SAFECO CORPORATION, a Washington corporation (the "Company" and,
collectively with Parent and Merger Sub, the "parties").
RECITALS
WHEREAS,
the respective Boards of Directors of Parent, Merger Sub and the Company have
approved and declared advisable this Agreement and the merger of Merger Sub with
and into the Company (the "Merger"), upon the
terms and subject to the conditions set forth in this Agreement; and
WHEREAS,
the respective Boards of Directors of Parent, Merger Sub and the Company have
determined that it is in the best interests of their respective companies and
shareholders to consummate the Merger upon the terms and subject to the
conditions set forth in this Agreement.
NOW,
THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements set forth in this Agreement, and intending
to be legally bound hereby, the parties hereby agree as follows:
ARTICLE I
THE
MERGER; CERTAIN RELATED MATTERS
Section 1.1
The
Merger. Upon the
terms and subject to the
conditions set forth in
this Agreement and in
accordance with the WBCA, at the Effective Time, Merger Sub shall be merged with
and into the Company. As a result of the Merger, the separate
corporate existence of Merger Sub will cease and the Company will continue under the name
"Safeco Corporation" as the surviving corporation of the
Merger under the WBCA (the "Surviving
Corporation").
Section 1.2
Closing;
Effective Time. Subject to the provisions of
Article VII, the closing of the Merger (the "Closing") will take place at 10:00 a.m., New
York City time, on the second Business Day after the satisfaction or,
to the extent permitted by Law, waiver of the conditions set forth in Article
VII (excluding conditions that, by their terms, cannot be satisfied until the Closing, but the
Closing shall be subject to the satisfaction or, to the extent permitted by Law,
waiver of those conditions), at the offices of Debevoise & ▇▇▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, unless another time, date or place is agreed to in writing by
the parties. The date on which the Closing actually occurs is
hereinafter referred to as the "Closing Date." Prior to the Closing, Parent
shall prepare in consultation with the Company, and on the Closing Date the
Surviving Corporation shall
cause the Merger to be consummated by filing, the articles of merger (the
"Articles of
Merger") with the Secretary of State of the
State of Washington, in such form as required by, and executed in accordance
with, the relevant provisions of the WBCA (the date and time
of the filing of the Articles of Merger with the Secretary of State of the State
of Washington, or such later time as is specified in the Articles of Merger and
as is agreed to by the parties, being the "Effective
Time"), and the parties shall make all other filings or
recordings required under the WBCA in connection with the
Merger.
Section 1.3
Effects of
the Merger. The Merger shall have the
effects set forth in the applicable provisions of the WBCA. Without
limiting the generality of
the foregoing and subject thereto, at the Effective Time, all the property,
rights, privileges, immunities, powers and franchises of the Company and Merger
Sub shall vest in the Surviving Corporation and all debts, liabilities and
duties of the Company and Merger Sub shall
become the debts, liabilities and duties of the Surviving
Corporation.
Section 1.4
Articles of
Incorporation; Bylaws. At the Effective Time, the Restated Articles of Incorporation of the Company shall
by virtue of the Merger be
amended and restated in their entirety to be identical to the articles of
incorporation of Merger Sub as in effect immediately prior to the Effective Time
and, as so amended and restated, shall be the articles of incorporation of the
Surviving Corporation following the Effective
Time until thereafter amended in accordance with their terms and applicable Law;
provided, however, that at the Effective Time, Article I
of the articles of incorporation of the Surviving Corporation shall be
amended and restated in its entirety to read as
follows: "The corporate name of the corporation
(hereinafter called the "corporation") is Safeco Corporation." 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 and following the Effective Time until thereafter amended in
accordance with the Constituent Documents of the Surviving Corporation and
applicable Law, except that references to Merger Sub's name shall be replaced by references to "Safeco Corporation." This Section 1.4 shall be
subject to the obligations of Parent and the Surviving Corporation under Section
6.9.
Section 1.5
Directors
and Officers of Surviving Corporation. As of the Effective Time, each of
the directors of the
Company shall resign and the directors of Merger Sub, at the Effective Time,
shall be the directors of the Surviving Corporation until their successors have
been duly elected and qualified or until their earlier death, resignation or
removal in accordance with the Constituent
Documents of the Surviving Corporation. The officers of the Company,
at the Effective Time, shall, from and after the Effective Time, be the officers
of the Surviving Corporation until their successors have been duly appointed and qualified or until
their earlier death, resignation or removal in accordance with the Constituent
Documents of the Surviving Corporation.
Section 1.6
Effect on
Capital Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of Parent, Merger
Sub, the Company or the holders of any of the following
securities:
(a) Each share of common stock of Merger Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and become one validly issued, fully paid and
nonassessable share of common stock, no par value per share, of the Surviving
Corporation.
(b) Each share of common stock, no par value
per share, of the Company (such shares, collectively, the "Common
Stock", and each, a "Company
Share") issued and outstanding immediately
prior to the Effective Time (other than any shares of Common Stock to be
canceled pursuant to Section 1.6(c) and any Dissenting Shares) shall be
converted into the right to
receive an amount per
Company Share (subject to any applicable withholding Tax specified
in Section 2.2) equal to $68.25 in cash, without interest (the
"Merger
Consideration"). At the Effective
2
Time, each holder of a certificate
theretofore representing any such Company Shares (each, a "Certificate") or non-certificated Company Shares represented by book-entry
("Book-Entry
Shares") shall cease to have any rights with
respect thereto, except the
right to receive the Merger
Consideration upon surrender of such Certificates or Book-Entry Shares in accordance with Section
2.1(c), without interest (subject to any
applicable withholding Tax specified in Section 2.2).
(c) Each Company Share held in the treasury of the
Company, if any,
or otherwise owned by
Parent or Merger Sub, or owned by any direct or indirect Subsidiary of any such
Person (other than Company
Shares held in an investment portfolio), in each case immediately prior to the
Effective Time, shall automatically be canceled and retired and cease to exist
without any conversion thereof and no consideration shall be paid in
exchange therefor.
Section 1.7
Treatment of
Options and Other
Company Equity Awards.
(a) Prior to the
Effective Time, the Board of Directors of the Company or the appropriate
Board committee shall adopt a
resolution providing that,
at the Effective Time, each Option, whether vested or unvested, shall be
canceled and extinguished, and the holder thereof will be entitled to receive an
amount in cash equal to the product of (i) the excess, if any, of (A) the Merger
Consideration over (B) the per share
exercise price of such Option, multiplied by (ii) the number of Shares subject
to such Option (which amount shall be subject to any applicable withholding Tax
specified in Section 2.2). All payments with respect to
canceled Options shall be made by the
Exchange Agent promptly after the Effective Time (but in no event later than
three (3) Business Days after the Effective Time) from funds deposited by Parent
to pay such amounts in accordance with Section 2.1. No later than five (5) Business Days prior to the
scheduled Closing Date, the Company shall have taken such actions as are necessary to cause each Option
then outstanding to be vested and exercisable subject to the consummation of the
transactions contemplated by this Agreement.
(b) Prior to the Effective Time, the Board
of Directors of the Company or the appropriate Board committee shall adopt a resolution
providing that, at the Effective Time, each restricted stock right in respect of
a Company Share (a "Restricted
Stock
Right") shall vest in full and be converted
into the right to receive the Merger Consideration in respect thereof, without
interest (subject to any applicable withholding Tax specified in Section
2.2). The holder of any Restricted Stock Right shall be paid in accordance with Section
2.1(c) an aggregate amount of cash as such holder would have been entitled to
receive had such Restricted Stock Right been vested in full immediately prior to
the Effective Time.
(c) Prior to the Effective Time, the Company shall terminate the Safeco Agency Stock Purchase Plan.
Section 1.8
Certain
Adjustments. If, between the date of this Agreement
and the Effective Time, the Common Stock is changed into a different number of
shares or a different class by reason of any reclassification, recapitalization,
reorganization, combination or exchange of shares, stock split, reverse stock
split or a stock dividend or dividend payable in any other securities or any
similar transaction or any transaction having the effect of any of the foregoing, the Merger
Consideration shall be appropriately adjusted to provide to the holders of
Common
3
Stock and the holders of Restricted
Stock Rights and Options the same economic effect as contemplated by this
Agreement prior to such action and as so adjusted shall, from and after the
date of such event, be the Merger Consideration.
Section 1.9
Dissenting
Shares.
(a) Notwithstanding anything in this
Agreement to the contrary, no shares of Common Stock issued and outstanding
immediately prior to the
Effective Time, the holder of which (i) has not voted in favor of the Merger or
consented thereto in writing, (ii) has demanded its rights to be paid the fair value of such Company
Shares in accordance with
Section 23B.13 of the WBCA and (iii) has
not effectively withdrawn
or lost its rights to be
paid the fair value of such Company Shares ("Dissenting
Shares") shall be converted into or represent a
right to receive the Merger Consideration. By virtue of the Merger,
all Dissenting Shares shall be cancelled and shall cease to exist and shall
represent the right to receive only those rights provided under Section 23B.13 of the WBCA. From and after the
Effective Time, a holder of Dissenting Shares shall not be entitled to exercise
any of the voting rights or
other rights of a shareholder, member or equity owner of the Surviving
Corporation.
(b) Notwithstanding the provisions of this
Section 1.9, if any holder
of shares of Common Stock
for which such holder has demanded dissenters' rights shall effectively withdraw or lose (through failure to
perfect or otherwise) the right to dissent or its dissenters' rights, then, as of the later of the Effective
Time and the occurrence of such event, such holder's shares of Common Stock shall no longer be
Dissenting Shares and shall
automatically be converted into and represent only the right to receive the
Merger Consideration, without any interest thereon and subject to any applicable
withholding Taxes specified in Section 2.2.
(c) The Company shall give Parent (i) prompt written notice of any notice received by the Company of any
shareholder's intent to demand the fair value of any
shares of Common Stock, any demand received by the Company for payment of the
fair value of any Common Stock, withdrawals of such
demands, and any other
instruments served pursuant to Section 23B.13 of the WBCA and received by the Company
which relate to any such demand for dissenters' rights and (ii) the opportunity to
reasonably participate in negotiations and proceedings with respect to
demands for
dissenters' rights under Section 23B.13 of the WBCA. Unless required by
applicable Law or Order, the Company will not, except with the prior written
consent of Parent (such consent not to be unreasonably withheld,
conditioned or delayed), make any payment with respect to demands for
dissenters' rights or offer to settle or settle any
such demands.
ARTICLE II
PAYMENT
AND EXCHANGE OF CERTIFICATES; WITHHOLDING
Section 2.1
Payment and
Exchange of Certificates.
(a) Following the date of this
Agreement and in any event
not less than five (5) Business Days prior to the mailing of the Proxy Statement
to the shareholders of the Company, Parent shall
designate a bank or trust company reasonably acceptable to the Company to act as
exchange agent (the "Exchange
Agent") for purposes of, among other things,
paying the Merger
4
Consideration. At or prior to
the Effective Time, Parent shall deposit with the Exchange Agent, for the benefit of the holders of
Certificates, Book-Entry
Shares, Options and Restricted Stock Rights, cash in an amount sufficient to pay the
aggregate Merger
Consideration to which
all holders of Company Shares and Restricted Stock Rights become entitled pursuant to Article
I and the aggregate payments to which all
holders of Options become
entitled pursuant to Article I (the "Aggregate
Merger Consideration") (the Aggregate Merger Consideration, and
any proceeds thereof being hereinafter referred to as the "Exchange
Fund").
(b) The Exchange Agent shall invest the cash
included in the Exchange
Fund as directed in writing by Parent in (i) direct obligations of the United
States of America,
(ii) obligations for which
the full faith and credit of the United States of America is pledged to provide
for payment of all principal and interest, and (iii) commercial paper obligations rated
A-1 or P-1 or better by ▇▇▇▇▇'▇ Investors Service, Inc. or Standard
& Poor's Corporation, respectively, or a combination of the foregoing or in
certificates of deposit, bank repurchase agreements or banker's acceptances of commercial banks with capital
exceeding $1,000,000,000 and, in any such case, no such instrument shall have a
maturity exceeding three months. Any interest and other
income resulting from such investments shall be paid to and be income of Parent.
If for any reason
(including losses) the cash in the Exchange Fund shall be insufficient to fully
satisfy all of the payment obligations to be made in cash by the Exchange Agent
hereunder, Parent shall promptly deposit cash into the Exchange Fund in an
amount that is equal to the deficiency in the
amount of cash required to fully satisfy such cash payment
obligations.
(c) Promptly, and in any event no later than three
(3) Business
Days, after the Effective Time, the Surviving
Corporation shall cause the Exchange Agent to (i) mail to each
Person who was a record holder of Company Shares immediately prior to the
Effective Time, whose Company Shares were converted pursuant to
Article I into the right to receive the Merger Consideration, (A) a form of letter of transmittal for use in effecting the
surrender of Certificates in order to receive payment of the Merger
Consideration (which letter of transmittal shall specify that delivery shall be
effected, and risk of loss and title to the Certificate shall pass, only upon actual delivery of the
Certificates to the Exchange Agent (or effective affidavits of loss in lieu
thereof), and shall
otherwise be in customary form and contain customary
provisions), and (B) instructions for use in effecting the
surrender of the
Certificates (or effective affidavits of loss in lieu thereof) in exchange for
payment of the Merger Consideration and (ii) pay to each holder of
Options the amount due to
such holder pursuant to Section 1.7(a) in respect of such Options and to each
holder of Restricted Stock Rights the amount due to such holder pursuant
to Section 1.7(b) in respect of such Restricted Stock Rights. Upon surrender to the
Exchange Agent of a Certificate (or effective affidavit of loss in lieu
thereof), together with a properly completed and executed letter of
transmittal and any other required documents, the Exchange Agent shall promptly
deliver to the holder of the Company Shares represented by the Certificate
(or effective affidavit of loss in lieu thereof), or as otherwise directed in the letter of
transmittal, the Merger Consideration with regard to each Company Share represented by such Certificate,
less any required withholding Taxes as specified in Section 2.2, and the Certificate shall
be canceled. No interest shall be paid or accrued on the Merger
Consideration payable upon the surrender of Certificates. If payment
is to be made to a Person holding a Certificate other than the Person in whose
name a surrendered Certificate is registered, it shall be a condition
of payment that the Certificate so
surrendered must be properly endorsed or otherwise be in proper form for
transfer, and the Person who surrenders the Certificate must provide funds for
payment of any transfer or
5
other Taxes required by reason of the
payment to a Person other than the registered
holder of the surrendered Certificate or establish to the reasonable satisfaction of the Surviving
Corporation that all Taxes have been paid or are not
applicable. Subject to Section 1.9, after the Effective Time, a Certificate shall represent only the right to
receive the Merger Consideration in respect of the Company Shares represented by such
Certificate. Notwithstanding anything to the contrary
contained in this Agreement, any holder of Book-Entry Shares shall not be required to deliver a Certificate
or an executed letter of transmittal to the Exchange Agent in order to receive
the Merger Consideration that such holder is entitled to receive pursuant to
this Article II.
(d) If a Certificate has been lost, stolen
or destroyed, Parent and
the Surviving Corporation will cause the Exchange Agent to accept an affidavit
of that fact by the Person claiming such Certificate to be lost, stolen or
destroyed instead of the Certificate; provided that the Surviving Corporation may require the Person to whom any
Merger Consideration is paid, as a condition precedent to the payment thereof,
to give the Surviving Corporation a bond in such reasonable amount as it may
direct or otherwise indemnify the Surviving Corporation in a manner reasonably satisfactory to the
Surviving Corporation against any claim that may be made against the Surviving
Corporation with respect to the Certificate claimed to have been lost, stolen or
destroyed.
(e) At any time which is more than
one (1) year after the Effective Time, Parent shall be entitled to require the
Exchange Agent to deliver to it any portion of the Exchange Fund that had been deposited with the Exchange
Agent and has not been disbursed in accordance with this Article II (including
interest and other income
received by the Exchange Agent in respect of the funds made available to it),
and after the Exchange Fund has been delivered to Parent, Persons entitled to payment in
accordance with this Article II shall be entitled to look solely to Parent (subject to abandoned property, escheat
or similar Laws) for payment of the Merger Consideration upon surrender of the
Certificates held by them, without any interest thereon. Any portion
of the Exchange Fund deposited with the Exchange Agent remaining unclaimed by holders of Company Shares
five (5) years after the Effective Time (or
such earlier date
immediately prior to such time as such amounts would otherwise escheat to or
become property of any Governmental Entity) shall, to the extent
permitted by applicable
Law, become the property of Parent free and clear of any claims or interest
of any Person previously entitled thereto. None of the Surviving
Corporation, Parent, Merger Sub, any of their respective Affiliates or the
Exchange Agent will be
liable to any Person entitled to payment under this Article II for any
consideration which is delivered, in accordance with the terms of this
Agreement, to Parent in
accordance with the immediately preceding sentence or to a public official or
Governmental Entity
pursuant to any abandoned property, escheat or similar Law.
(f) From and after the Effective Time, the
Surviving Corporation shall not record on the stock transfer books of the
Company or the Surviving Corporation any transfers of shares of Common Stock that were outstanding
immediately prior to the Effective Time. If, after the Effective
Time, Certificates (or effective affidavits of loss in lieu thereof) or
Book-Entry Shares are presented for transfer, they shall be canceled and treated
as having been surrendered for the Merger
Consideration in respect of the Company Shares represented
thereby.
Section 2.2
Withholding
Rights. Each of Parent and the
Exchange Agent shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant
to this
6
Agreement to any holder of Company Shares, Options or Restricted Stock Rights such amounts as it is lawfully required to deduct and withhold with
respect to the making of such payment under the Code or any provision of state
or local Law or the Laws of
any other domestic or foreign jurisdiction. To the extent that
amounts are so withheld and paid to the appropriate taxing authority by Parent
or the Exchange Agent, as the case may be, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid
to the holder of the Company Shares, Options or Restricted Stock Rights in respect of which such deduction and
withholding was made by the Surviving Corporation or Parent, as the case may
be.
ARTICLE III
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
Except
as (x) disclosed in the Company SEC Documents filed with or furnished to the SEC
prior to the date of this Agreement (other than statements in the Risk Factors
sections contained in the Company SEC Documents or any statements included in
any "forward-looking statements" disclaimer contained in the Company SEC
Documents), or (y) set forth in the disclosure letter delivered by the Company
to Parent on or prior to the execution and delivery of this Agreement (the
"Company Disclosure Schedule")
(it being agreed that disclosure of any item in any section or subsection of the
Company Disclosure Schedule shall be deemed disclosure with respect to any
section of this Agreement or any other section or subsection of the Company
Disclosure Schedule to which the relevance of such disclosure to the applicable
representation and warranty or covenant or obligation is reasonably apparent),
the Company represents and warrants to Parent and Merger Sub as
follows:
Section 3.1
Corporate Existence
and Power. The
Company is a corporation duly incorporated and validly existing under the
Laws of the State of
Washington and the Company and its Subsidiaries have all requisite corporate, partnership or other
similar powers and all
governmental licenses, authorizations, permits,
certificates,
registrations, consents,
franchises, variances, exemptions, orders and approvals required to carry on
their business as conducted on the date of this Agreement
(the "Company
Permits"), except for those powers, licenses, authorizations, permits,
consents, franchises, variances, exemptions, orders and approvals the absence of
which would not, individually or in the aggregate, reasonably be expected to
have a Company Material
Adverse Effect. The Company and
its Subsidiaries are in compliance with the
terms of the Company Permits, except where the failure to be in such compliance
would not, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse
Effect. The
Company is duly qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction where such qualification is required, except for those
jurisdictions where the
failure to be so qualified
would not, individually or in the aggregate, reasonably be expected to have a Company Material Adverse
Effect. The Company has made
available to Parent true and complete copies of the Constituent Documents of the
Company and each of its Significant Subsidiaries as in effect on the date of this
Agreement.
Section 3.2
Corporate
Authorization.
(a) The Company has all necessary corporate
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions to which it is a party contemplated hereby subject, in the case of the Merger, to obtaining the
7
affirmative vote of at least two-thirds
of the votes entitled to be cast by the holders of the outstanding shares of
Common Stock voting together as a single class (the "Requisite
Shareholder Vote"). The execution, delivery and performance by the
Company of this Agreement and the consummation by the Company of the
transactions to which it is a party contemplated hereby have been duly and validly authorized by
the Board of Directors of
the Company, and no
other corporate proceedings
on the part of the Company are necessary to authorize this Agreement or to
consummate the transactions
to which it is a party
contemplated
hereby, except that consummation of the Merger
is subject to approval of this Agreement by the Requisite Shareholder Vote, and to the effectiveness of the Articles of Merger with the
Secretary of State of the State of Washington.
(b) The Board of Directors of the Company,
at a meeting duly called and held and at which a quorum of directors was present, has unanimously (i) approved and declared it advisable
and in the best interests of the Company to enter into this Agreement providing
for the Merger, upon the terms and subject to the conditions set forth herein,
(ii) approved the execution, delivery and performance by the Company of
this Agreement and the consummation of the transactions to which it is a party contemplated hereby, upon the terms and subject to the
conditions set forth herein and (iii) resolved, subject to Section 6.3, to recommend approval of this Agreement by the shareholders of the Company (such recommendation, the "Company
Board
Recommendation") and that such matter be submitted for
consideration at the Company Shareholders Meeting.
(c) This Agreement has been duly executed
and delivered by the
Company and, assuming due
power and authority of, and due execution and delivery by, the other
parties, constitutes a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, moratorium, reorganization or similar Laws affecting the rights of
creditors generally and the availability of equitable remedies (regardless of
whether such enforceability is considered in a proceeding in equity or at law) (together, the "Bankruptcy
and Equity Exception"). The approval of this Agreement by the Requisite
Shareholder Vote is the only vote of the holders of
any class or series of capital stock of the Company necessary to approve this Agreement or approve the transactions to which the Company is a party
contemplated
hereby.
Section 3.3
Governmental
Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions
to which it is a party contemplated hereby require at or prior to the Closing no consent or approval by, or filing
with, any Governmental Entity, other than (a) the filing of the Articles of Merger with the Secretary of State
of the State of Washington and appropriate documents with the relevant
authorities of other states in which the Company is qualified to do business,
(b) compliance with any applicable
requirements of the HSR Act, (c) compliance with any applicable
requirements of the Securities Act, the Exchange Act, and any other applicable
federal or state
securities Laws or "blue sky" Laws, (d) compliance with any applicable
requirements of NYSE, (e) approvals or filings under all
applicable state Laws
regulating the business of insurance (collectively, "Insurance
Laws") as set forth in Section 3.3 of the
Company Disclosure Schedule (the "Company
Insurance
Approvals"), (f) the Parent Insurance Approvals (assuming
the accuracy and
completeness of Section
4.3(e)), (g) those
consents, approvals or filings as may be required as a result of the
business or identity of
Parent or any of its Affiliates and (h) any
8
other consents, approvals or filings the
failure of which to be
obtained or made would not,
individually or in the aggregate, reasonably be expected to have a Company Material Adverse
Effect or prevent,
materially delay or materially impair the consummation of the
transactions contemplated by this
Agreement.
Section 3.4
Non-Contravention. The execution, delivery and
performance by the Company of this Agreement do not and the consummation of the transactions to which it is a party contemplated hereby will not, (a) violate or conflict with or result in
any breach of any provision of the Constituent Documents of the Company or any Company Subsidiary, (b) assuming receipt of the Requisite Shareholder
Vote and compliance with
the matters referred to in Section 3.3 and Section 4.3 (and assuming the accuracy of Section
4.3(e)), violate or
conflict with any provision of any applicable Law, Order or Company Permit,
(c) violate or conflict with or result in
any breach or constitute a default, or an event that,
with or without notice or lapse of time or both, would constitute a default,
under, or cause the termination, cancellation, acceleration or other change of
any right or obligation or
the loss of any benefit to which the Company or any of its Subsidiaries is entitled, or require consent by any Person
under any Material Contract
or (d) result in the creation or imposition
of any Lien on any asset of the Company or any of its Subsidiaries, except in the case of clause (b), (c) or (d), as would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse
Effect or prevent,
materially delay or materially impair the consummation of the transactions contemplated by this
Agreement.
Section 3.5
Capitalization.
(a) The authorized capital stock of the
Company consists of (i) 300,000,000 Company Shares and (ii) 10,000,000 shares of preferred stock,
no par value per share (the "Company
Preferred
Stock"). As of April 14, 2008 (the "Company
Capitalization
Date"), (A) 89,836,006 Company Shares were issued and outstanding and
(B) no shares of Company Preferred Stock were issued and
outstanding. As of the Company Capitalization Date, (1) Options to purchase an aggregate of 1,299,362 Company Shares (of which, Options to purchase an aggregate of
339,505 Company Shares were currently exercisable) were issued and
outstanding, (2) Restricted Stock Rights in respect of an aggregate of 1,025,743 Company Shares were issued and
outstanding and (3) no
Company Shares were held by the Company in its treasury. All outstanding shares of capital stock
of the Company have been, and all Company Shares that may be issued pursuant to any
Incentive Plan will be, when issued in accordance with the respective
terms thereof, duly authorized and validly issued and are (or, in the case of
Company Shares that have not yet been issued,
will be) fully paid and nonassessable, and are not subject to and were not
issued in violation
of the Constituent
Documents of the Company. No Subsidiary or controlled Affiliate of the Company owns any Company Shares.
(b) Except as set forth in Section
3.5(a), as of the Company Capitalization Date,
there are no outstanding
(i) shares of capital stock
or voting securities of the Company, (ii) securities of the Company convertible
into or exchangeable for shares of capital stock or voting securities of the
Company or (iii) options or other rights to acquire from the Company, or other
obligations of the Company to issue or pay cash
valued by reference to, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of the
Company (the items in clauses (i), (ii), and (iii) being referred to collectively as the "Company
9
Securities"). As of the date of this Agreement,
there are no binding obligations of the Company or any
of its
Subsidiaries to repurchase,
redeem or otherwise acquire any of the Company
Securities.
Section 3.6
Subsidiaries. Section 3.6 of the Company Disclosure Schedule lists, as of the date of this
Agreement, each of the Company's Subsidiaries and its jurisdiction of incorporation or
formation. All
of the outstanding capital stock of, or other voting securities or
ownership interests in,
each of the Company's Subsidiaries is owned by the Company,
directly or indirectly, free and clear of any Lien and free of any restriction
on the right to vote, sell or otherwise dispose of such capital stock or other
voting securities or ownership interests (other than those
restrictions under applicable Insurance Laws, the Securities Act and the
Exchange Act). There are no outstanding (a) securities of the Company or any
Company Subsidiary convertible into or exchangeable for shares of capital stock or other voting securities
or ownership interests in, any Company Subsidiary or (b) options or other rights to acquire
from the Company or any Company Subsidiary, or other obligation of the Company
or any Company Subsidiary to issue, any capital stock or other voting securities or
ownership interests in, or any securities convertible into or exchangeable for
any capital stock or other voting securities or ownership interests in, any
Company Subsidiary (the items in clauses (a) and (b) being referred to collectively as the "Company
Subsidiary Securities"). As of the date of this Agreement, there
are no binding obligations of the Company or any Company Subsidiary to
repurchase, redeem or otherwise acquire any of the Company Subsidiary
Securities. Each of the Company Insurance
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the Laws of the jurisdiction in which it is organized and has all
requisite power and authority to own, lease and operate its
properties and assets and
to carry on its business as being conducted on the date of this
Agreement. Each
of the Company Subsidiaries is duly qualified, authorized or licensed to do
business in each jurisdiction in which the nature of its business or the
ownership, leasing or
operation of its properties makes such qualification, authorization or licensing
necessary, except to the extent that the failure to be so qualified, authorized
or licensed or to be in good standing would not, individually or in the
aggregate, reasonably be expected to have a
Company Material Adverse Effect.
Section 3.7 [Reserved].
Section 3.8
Company
SEC Filings,
etc.
(a) The Company has timely filed all
reports, schedules, forms, registration statements and other documents required
to be filed by the Company
with the SEC since January 1, 2006 (together with any documents furnished during
such period by the Company to the SEC on a voluntary basis on Current Reports on
Form 8-K and any reports, schedules, forms, registration statements and other documents required to be filed with the SEC subsequent to the
date hereof, collectively, the "Company SEC
Documents"). Each of the Company SEC
Documents, as amended prior to the date of this Agreement, complied (and each
Company SEC Document filed
subsequent to the date hereof will comply) in all material respects with, to the
extent in effect at the time of filing or furnishing, the requirements of the
Securities Act and the Exchange Act applicable to such Company SEC Documents,
and none of the Company SEC Documents when filed or
furnished or, if amended prior to the date of this Agreement, as of the date of
such amendment, contained, or with respect to Company SEC Documents filed
10
subsequent to the date hereof, will
contain, any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading.
(b) The Company maintains a system of
internal control over
financial reporting (within the meaning of Rules 13a-15(f) and 15d-15(f) of the
Exchange Act) designed to provide reasonable assurances regarding
the reliability of financial reporting and the preparation of financial
statements for external
purposes in accordance with GAAP. The Company (i) maintains
disclosure controls and procedures (within the meaning of Rules 13a-15(e) and
15d-15(e) of the Exchange Act) designed to ensure that information required to
be disclosed by the Company in the reports that it files and submits under
the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms, including that
information required to be disclosed by the Company in the reports that
it files and submits under
the Exchange Act is accumulated and communicated to management of the Company as
appropriate to allow timely decisions regarding required disclosure and (ii) has
disclosed, based upon the most recent (prior to the date of this Agreement) evaluation by the chief
executive officer and chief financial officer of the Company of the
Company's internal control over financial
reporting, to its auditors and the audit committee of the Board of Directors of
the Company (A) all significant deficiencies and material weaknesses in
the design or operation of the Company's internal control over financial
reporting which are reasonably likely to adversely affect in any material
respect its ability to record, process, summarize and report financial
data and (B) any fraud,
whether or not material, that involves management or other employees who have a
significant role in the Company's internal control over financial
reporting. The
Company has made available to Parent any such material disclosure made by management to the Company's independent auditors and
the audit committee of the
Board of Directors of the Company since January 1, 2006.
(c) Neither the Company nor any of its
Subsidiaries is a party to, or has any commitment to become a party to,
any joint venture,
off-balance sheet partnership or any similar Contract (including any Contract
relating to any transaction or relationship between or among the Company and any
of its Subsidiaries, on the one hand, and any unconsolidated Affiliate,
including any structured finance, special purpose
or limited purpose entity, on the other hand, or any "off-balance sheet
arrangement" (as defined in Item 303(a) of
Regulation S-K of the SEC)), where the result, purpose or intended effect of
such Contract is to avoid disclosure of any material
transaction involving, or material liabilities of, the Company or any of its
Subsidiaries in the Company SEC Documents.
Section 3.9
Company
Financial
Statements. The consolidated financial statements
(including all related notes thereto) of the Company included in
the Company SEC Documents (if amended, as of the date of the last such amendment
filed prior to the date of this Agreement) fairly present in all material
respects the consolidated financial position of the Company and its consolidated Subsidiaries, as at
the respective dates thereof, and the consolidated results of their operations
and their consolidated cash flows for the respective periods then ended
(subject, in the case of the unaudited statements, to normal year-end audit adjustments and to the
absence of information or notes not required by GAAP to be included in interim
financial statements) in conformity with GAAP (except, in the case of the
unaudited statements, as permitted by the SEC)
11
applied on a consistent basis during the periods involved
(except as may be indicated therein or in the notes
thereto).
Section 3.10
Company SAP
Statements. As
used herein, the term "Company SAP
Statements" means the statutory statements of each
of the Company Insurance Subsidiaries as filed with the insurance departments in their respective jurisdiction of domicile for the years ended December 31, 2007 and 2006. Each of the Company Insurance Subsidiaries has filed or submitted all
Company SAP Statements required to be filed with or submitted to the
insurance departments of
their respective jurisdictions of domicile on forms prescribed or permitted by
such department, except for such failures to file
or submit which would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse
Effect. The
Company SAP Statements were prepared in all material respects in conformity with
SAP applied on a consistent
basis for the periods
covered thereby (except as
may be indicated in the notes thereto), and the Company SAP Statements
fairly present, in all material respects, the
statutory financial position of such Company Insurance Subsidiaries as at the respective dates
thereof and the statutory
results of operations of
such Company Insurance Subsidiaries for the respective periods then
ended. No
material deficiency has been asserted in writing with respect to any Company SAP
Statement by the domiciliary state insurance department
of such filing Company Insurance Subsidiary that has not been remedied. The annual statutory balance sheets and
income statements included in the Company SAP Statements have been, where required by applicable
Insurance Law, audited by
an independent accounting firm of recognized national or international
reputation.
Section 3.11
Information
Supplied. The Proxy Statement will not, at the date it is first mailed to the
shareholders of the Company and at the time of the Company
Shareholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading, except that, in each case, no representation or warranty is made by
the Company with respect to statements made therein based on
information supplied by or on behalf of Parent or Merger Sub specifically for
inclusion in the Proxy Statement. The Proxy Statement will comply as to
form in all material respects with the requirements of the Exchange
Act.
Section 3.12
Absence of
Certain Changes or
Events. Since December 31, 2007, there has not been any event, change, circumstance or effect
that has had or is
reasonably likely to have,
individually or in the aggregate, a Company Material Adverse
Effect.
Section 3.13
No
Undisclosed Material Liabilities. There are no liabilities or obligations of the
Company or any of its
Subsidiaries of any
nature, whether accrued, contingent, absolute,
determined, determinable or otherwise, in each case, that would be required by GAAP to be reflected on a
consolidated balance sheet of the Company and its Subsidiaries other than: (a) liabilities or obligations reflected or
reserved against in the Company's audited consolidated balance sheet as of December 31, 2007 included in the Company SEC Documents or in the notes thereto; (b) insurance claims or related litigation or arbitration arising in the ordinary course of
business since December 31,
2007; (c) liabilities or obligations that were
incurred since December 31, 2007 in the ordinary course of
business; (d) liabilities or obligations which would not, individually or in the
aggregate, reasonably be expected to have a Company Material
12
Adverse Effect; and (e) liabilities or obligations arising or incurred in connection with the transactions contemplated
hereby.
Section 3.14
Compliance
with Laws.
(a) Since January 1, 2006, the business and operations of the
Company and its
Subsidiaries have been
conducted in compliance with all applicable Laws (including Insurance Laws), except where the failure to so conduct
such business and operations would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse
Effect.
(b) All of the Company Permits of each
Company Insurance Subsidiary conducting insurance operations are in full
force and effect in accordance with their terms and there is no proceeding or investigation
to which the Company or any Company Insurance Subsidiary is subject before a
Governmental Entity that is pending or, to the knowledge of the Company, threatened in writing that would reasonably be expected to result
in the revocation, failure to renew or suspension of, or placement of a
restriction on, any such
Company Permits, except
where the failure to be in
full force and effect in
accordance with their terms, revocation, failure to renew, suspension
or restriction would not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect.
(c) There is no proceeding to which the
Company or any Company Insurance Subsidiary is subject before any
Governmental Entity pending
or, to the knowledge of the Company, threatened in writing regarding whether any of the
Company Insurance Subsidiaries has violated any applicable Insurance
Laws, nor to
the knowledge of the
Company, any investigation by any Governmental Entity pending or threatened in writing
with respect to possible violations of
any applicable Insurance
Laws, except for
proceedings or
investigations relating to
violations or possible violations which would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse
Effect. Since January 1, 2006, each Company Insurance Subsidiary has filed all material reports required to
be filed by it with its domiciliary state insurance department or such
failure to file has been remedied. Except as required by
applicable Law and the Company Permits maintained by
the Company Insurance Subsidiaries, there are no written
agreements, memoranda of understanding, commitment letters or similar undertakings
binding on the Company
Insurance Subsidiaries to which the Company or any
Company Insurance Subsidiary is a party, on the one hand,
and any Governmental Entity is a party or addressee, on the other hand, or
Orders specifically with
respect to the Company or any Company Insurance Subsidiary, that (i) limit in any material respect the ability of any of the Company Insurance Subsidiaries to issue insurance
policies under its Company
Permits, (ii) impose any requirements on
the Company or any of the
Company Insurance Subsidiaries in respect of risk-based
capital requirements that materially increase or modify the risk-based capital
requirements imposed under applicable Insurance Laws, (iii) relate to the ability of any of the
Company Insurance Subsidiaries to pay dividends or
(iv) restrict in any material respect the conduct of business of the Company
or any of the Company
Insurance Subsidiaries.
Section 3.15
Litigation. There is no action, suit, investigation,
claim, complaint, demand,
summons, cease and desist letter, subpoena, injunction, notice of violation or
other proceeding pending against, or, to the knowledge of the Company,
threatened in writing against the Company or any of its Subsidiaries, or, to the
knowledge of the Company, pending against or threatened
in writing against
13
any present or former officer or
director of the Company or any Company Subsidiary in connection with which the
Company or any Company Subsidiary has an indemnification obligation pursuant to
its Constituent Documents or a written
agreement, before any Governmental Entity (other than insurance claims
litigation or arbitration arising in the ordinary course of business), which, if
determined or resolved adversely in accordance with the plaintiff's or claimant's demands, would, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse
Effect. As of
the date of this Agreement, there is no Order outstanding against the
Company or any of its Subsidiaries which would, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect or prevent, materially delay or
materially impair the consummation of the transactions contemplated by this
Agreement.
Section 3.16
Insurance
Matters.
(a) To the knowledge of the Company, as of
the date hereof, all ceded reinsurance treaties or agreements to which any
Company Insurance Subsidiary is a party or under which any Company Insurance
Subsidiary has any existing material rights, obligations or liabilities (the "Company
Reinsurance Agreements") are in full force and effect in
accordance with their terms. Neither the Company nor any Company
Insurance Subsidiary is in material default as to any material provision
thereof. Since January 1, 2006 through the third Business Day prior to the
date of this Agreement, neither the Company nor any Company Insurance Subsidiary
has received any written notice to the effect that (i) the financial condition
of any reinsurer party to any such agreement is materially impaired with the result that a default
thereunder may reasonably be anticipated or (ii) there is a material dispute
with respect to any material amounts recoverable by the Company Insurance
Subsidiary pursuant to any Company Reinsurance Agreement. Since January 1, 2005, no Company Insurance
Subsidiary has entered into
any reinsurance treaty or agreement under which it has assumed any material liabilities of any
Person.
(b) With respect to any Company Reinsurance
Agreement for which any Company Insurance Subsidiary has taken credit for reinsurance ceded on its Company SAP Statement, (i) there has been no separate written
or oral agreements between any of the Company or any Company Subsidiary and the
assuming reinsurer that would under any circumstances reduce, limit, mitigate or otherwise affect
any actual or potential loss to the parties under any such Company Reinsurance
Agreement, other than inuring contracts that are explicitly defined in any such
Company Reinsurance Agreement, (ii) for each such Company Reinsurance Agreement entered into,
renewed or amended on or after January 1, 2006, for which risk transfer is not
reasonably considered to be self-evident, documentation concerning the economic
intent of the transaction and the risk transfer analysis evidencing the proper accounting
treatment, as required by SSAP No. 62, is available for review by the
domiciliary state insurance departments for each of the Company Insurance Subsidiaries, (iii) from and after January 1,
2006, each of the Company Insurance Subsidiaries complies and has complied
in all material respects with all of the requirements set forth in SSAP No. 62
and (iv) from and after
January 1, 2006, each of the Company Insurance Subsidiaries has and has had
appropriate controls in place to monitor the use of reinsurance and comply
with the provisions of SSAP No. 62.
14
(c) Prior to the date of this Agreement, the Company has made available to
Parent a true and complete copy of all actuarial reports prepared by actuaries,
independent or otherwise,
with respect to any Company
Insurance Subsidiary since
January 1, 2006, and all material attachments, addenda, supplements and
modifications thereto (the "Company
Actuarial Analyses"). To the knowledge of the
Company, each Company Actuarial Analysis was based upon, in all material respects, an
accurate inventory of policies in force for the Company and the Company
Subsidiaries, as the case may be, at the relevant time of preparation and was
prepared in conformity with generally accepted actuarial principles in effect at such time, consistently
applied (except as may be
noted therein).
(d) Except for regular periodic assessments
in the ordinary course of business or assessments based on developments
that are publicly known within the insurance
industry, as of the date of this Agreement,
no material claim or material assessment is pending or, to the
knowledge of the Company, threatened in writing against any Company Insurance Subsidiary by any state insurance
guaranty association in connection with such association's fund relating to insolvent
insurers.
(e) Since January 1,
2006, to the knowledge of the Company, (i) salaried employees of the Company and
the Company Subsidiaries and each other person, who, in each of the foregoing cases, is
performing the
duties of insurance
producer, agency, agent or
managing general agent for
the Company and the Company Subsidiaries (collectively, "Company
Producers"), at the time such Company Producer
wrote, sold, or produced
business for or on behalf
of the Company or any Company Subsidiary that
requires a License, was duly licensed and
appointed as required by applicable Law, in the particular jurisdiction in which
such Company Producer
wrote, sold or produced
business and (ii)
each of the agency
agreements and appointments
between the Company Producers, including as subagents under the
Company's affiliated insurance agency, and the
Company and any Company Subsidiary, is valid and binding and in full force and effect in
accordance with its terms,
except in the case of clause (i) or (ii), as would not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect. To the knowledge of the
Company, as of the date of this Agreement, no Company Producer has been since
January 1, 2006, or is currently, in violation (or with or
without notice or lapse of time or both, would be in violation) of any term or
provision of any Law applicable to the writing, sale or production of insurance
or other business for the Company or any Company Subsidiary, except for such violations that would
not, individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect. To the knowledge of the
Company, as of the date of
this Agreement, no Company Producer individually accounting
for 1% or more of the total
gross premiums of all Company Subsidiaries for the year ended December 31,
2007 has notified the Company or any Company Subsidiary
that such Company Producer will be unable in any material respect or unwilling to continue its
relationship as a Company
Producer with the Company or any Company Subsidiary within twelve months after
the date hereof.
Section 3.17
Policy
Reserves. The
policy reserves of the Company Insurance Subsidiaries recorded in their
respective Company SAP Statements, as of December 31, 2007, (a) have been computed in all material
respects in accordance with generally accepted actuarial standards in effect on
such date and (b) were in compliance in all material
respects with the requirements for policy reserves established by the domiciliary insurance
regulatory authority of
15
such Company Insurance Subsidiary;
provided, however, that it is acknowledged and agreed by Parent and Merger Sub
that the Company is not making any representation or warranty in this Section
3.17 as to the adequacy or sufficiency of
reserves.
Section 3.18
Title to
Properties; Absence of Liens.
(a) Section
3.18(a) of the Company Disclosure Schedule sets forth a true
and complete list of all real property owned by the Company or any of its Subsidiaries (the "Owned Real
Property"), and includes the address of such Owned Real
Property. The
Company or one of its
Subsidiaries has good and
marketable title to each parcel of Owned Real Property, except as would not,
individually or in the aggregate, reasonably be expected to have a
Company Material Adverse
Effect. The
Owned Real Property is not subject to any material Liens (other then Permitted
Liens).
(b) Section 3.18(b) of the Company Disclosure Schedule sets
forth a true and complete list of all
real property leased to or
by the Company or any of
its Subsidiaries providing
for an annual rent of more than $250,000 (collectively, the "Leased Real
Property"). The Company or one of its Subsidiaries has in all material respects a valid leasehold interest in all Leased Real
Property, in each
case as to such leasehold
interest, free and clear of all material Liens (other than Permitted Liens).
Section 3.19
Opinion of
Financial Advisor. The Board of Directors of
the Company has received an opinion from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co. Incorporated
("▇▇▇▇▇▇
▇▇▇▇▇▇▇"), dated as of the date of this Agreement
and addressed to the Board of Directors of the Company to the effect that, as of
the date hereof and based upon and subject to the limitations, qualifications
and assumptions set forth
therein, the Merger Consideration to be received by the holders of Company Shares pursuant to this
Agreement is
fair, from a financial
point of view, to
such holders of
Company Shares (other than Parent and its
Subsidiaries, except
in the case of Company
Shares held in investment portfolios of Parent or any of its
Subsidiaries). The Company has been
authorized by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ to include such opinion in its entirety in the
Proxy Statement.
Section
3.20
Taxes.
(a) All material Tax Returns required by applicable Law to be
filed with any Taxing Authority by, or on behalf of, the Company or any of its
Subsidiaries have been duly filed when due (including extensions) in accordance
with all applicable Laws, and all such Tax Returns are true, correct and complete in all material
respects.
(b) The Company and each of its Subsidiaries
has duly and timely paid or has duly and timely withheld and remitted to the
appropriate Taxing Authority all material Taxes due and payable, or, where
payment is not yet due, has
established in accordance with the applicable accounting standard an adequate
accrual for all material Taxes on the most recent financial statements contained
in the Company SEC Documents and on the Company SAP Statements.
(c) The federal income Tax Returns of the Company
and its Subsidiaries, through the Tax year ended December 31, 2003, have been
examined and closed or are Tax Returns with
16
respect to which the applicable period
for assessment under applicable Law, after giving effect to extensions or waivers, has
expired.
(d) There is no claim, audit, action, suit,
request for written ruling, proceeding or investigation pending or, to the
knowledge of the Company, threatened in writing against or with respect to the
Company or any of its
Subsidiaries in respect of any Tax or Tax Asset which (except in the case of a request for a
written ruling) if
determined adversely would be expected to result
in a material Tax deficiency.
(e) Neither the Company nor any of its
Subsidiaries has constituted either a "distributing corporation" or a "controlled corporation" (within the meaning of Section
355(a)(1)(A) of the Code) in a distribution of stock qualifying for tax-free
treatment under Section 355 of the Code (i) in the two (2) years prior
to the date of this
Agreement or (ii) in a distribution that would otherwise constitute part of a
"plan" or "series of related
transactions" (within the meaning of Section 355(e)
of the Code) in conjunction with this Agreement.
(f) The Company and each of its Subsidiaries have withheld all
material amounts required to have been withheld by them in connection with
amounts paid or owed to any employee, independent contractor, creditor,
shareholder or any other third party; such withheld amounts were either
duly paid to the appropriate Taxing
Authority or set aside in accounts for such purpose. The Company and
each of its Subsidiaries have reported such withheld amounts to the appropriate
Taxing Authority and to each such employee, independent contractor,
creditor, shareholder or any other third
party, as required under applicable Law.
(g) Neither the Company nor any of its
Subsidiaries is liable for material Taxes of any Person (other than the Company
and its Subsidiaries) as a result of being (i) a transferee or successor of such Person, (ii) a
member of an affiliated, consolidated, combined or unitary group that includes
such Person as a member or (iii) a party to a tax sharing, tax indemnity or tax
allocation agreement or any other agreement to indemnify such Person.
(h) Neither the Company
nor any of its Subsidiaries has entered into any transaction that is a
"listed transaction" as defined in Treasury Regulation
§1.6011-4(b)(2).
Section 3.21
Employee
Benefit Plans and Related Matters; ERISA.
(a) Section 3.21(a) of the Company Disclosure Schedule sets forth
as of the date of
this Agreement a true and complete list of the material Company Benefit Plans, including all Company Benefit Plans
subject to ERISA or similar provisions of non-U.S. Law. With
respect to each such
Company Benefit Plan, the Company has made available to Parent a true and complete copy of such Company Benefit
Plan, if written, or a description of the material terms of such Company Benefit Plan if not
written, and to the extent applicable, (i) all material trust agreements, insurance contracts or
other funding arrangements, (ii) the most recent actuarial and trust reports for
both ERISA funding and financial statement purposes, (iii) the
most recent Form 5500 with
all attachments required to
have been filed with the IRS or the Department of Labor or any similar reports
filed with any comparable Governmental Entity in any non-U.S. jurisdiction having
jurisdiction over any Company Benefit Plan and all schedules thereto, (iv) the
most recent IRS
determination letter, (v) all material current summary plan descriptions, (vi)
any
17
actuarial study of any pension,
disability, post-employment life or medical benefits provided under any such Company Benefit Plan
and (vii) statements or other
communications regarding
withdrawal or other multiemployer plan liabilities (or similar liabilities
pertaining to any non-U.S. employee benefit plan sponsored by the Company or any of its
Subsidiaries, if any).
(b) Each Company Benefit
Plan intended to be qualified under Section 401(a) of the Code, and
the trust (if any) forming a part thereof, has received a favorable
determination letter from the IRS that the Company Benefit Plan is so
qualified, and, to the knowledge of the
Company, there are no
existing circumstances or
any events that
would reasonably be expected to adversely
affect the qualified status of any such plan in a manner which would, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse
Effect. Each
Company Benefit Plan has
been administered and operated in accordance with its terms and with applicable
Law, except as would not,
individually or in the aggregate, reasonably be expected to have a
Company Material Adverse
Effect.
(c) Neither the Company nor any of
its Subsidiaries, nor any
of their ERISA Affiliates contributes to, sponsors or maintains or has in the past sponsored,
maintained, contributed to or had any liability in respect of any pension plan
subject to Section 412 of the Code or Section 302 or Title IV of ERISA or any similar provisions
of non-U.S. Law.
(d) There are no
claims pending, or to the
knowledge of the Company, threatened in writing with respect to any of the Company Benefit Plans by any
employee or otherwise involving any such plan or the assets of any such plan (other than routine claims for
benefits), except as would not, individually or in
the aggregate, reasonably be expected to have a
Company Material Adverse
Effect.
(e) No Company Benefit
Plan is a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA
or is a "multiple employer plan" within the meaning of Section 4063 or
4064 of ERISA. Neither the Company nor any of its Subsidiaries has at any time during the last six
(6) years contributed to or been obligated
to contribute to any such
type of plan.
(f) The consummation of the transactions to which the Company is a party
contemplated
hereby will not, either alone or in combination
with another event, (i) entitle any current or former director, officer or employee of the Company or of any of its Subsidiaries to severance pay, unemployment
compensation or any other payment, (ii) result in any payment becoming due,
accelerate the time of payment or vesting, or increase the amount of
compensation due to any such director, officer or employee, (iii) result in any forgiveness of
indebtedness, trigger any funding obligation under any Company Benefit Plan or
impose any restrictions or limitations on the Company's rights to administer, amend or
terminate any Company Benefit Plan or (iv) result in any payment
(whether in cash or property or the vesting of property) to any "disqualified individual" (as such term is defined in
Treasury Regulation Section
1.280G-1) that
would reasonably be
construed, individually or in combination with any other such payment, to
constitute an "excess parachute payment" (as defined in Section 280G(b)(1) of
the Code). No person is entitled to receive an
additional payment (including any tax gross up or other payment) from the
Company or any of
its Subsidiaries
as a result of the
imposition of the excise tax required by Section 4999(a) of the
Code.
18
Section 3.22
Employees,
Labor Matters.
(a) Neither the Company nor any of its Subsidiaries is a party to or bound by any collective
bargaining agreement,
and, to the knowledge of
the Company, there are no
labor unions or other organizations representing, purporting to represent or
attempting to represent any employees of the Company or any of its Subsidiaries in their capacity as such.
(b) Since January 1, 2006, there has not occurred or, to the
knowledge of the Company, been threatened in writing any material strike, slowdown, work
stoppage, concerted refusal to work overtime or other similar labor activity or
union organizing campaign with respect to any employees of the Company or any
of its Subsidiaries. There are no labor disputes subject to any
formal grievance procedure, arbitration or litigation and there is no
representation petition pending or, to the knowledge of the Company,
threatened in writing with respect to any employee of the
Company or any of its Subsidiaries, in each case, which would reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse
Effect.
Section 3.23
Environmental
Matters. Except as would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect,
(a) neither the Company nor any of its
Subsidiaries has received any written notice, demand, request for information,
citation, summons or order,
and no complaint has been filed, no penalty has been assessed, and no
investigation, action, written claim, suit or proceeding is pending or, to the
knowledge of the Company, is threatened in writing by any Governmental Entity or other
Person with respect to or
arising out of any applicable Environmental Law and (b) to the knowledge of the Company, no
"release" of a "hazardous substance" (as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C.
§ 9601 et seq.) has occurred at, on, above, under or from
any Owned Real Property or
Leased Real Property that
is reasonably likely to result in any material cost, liability or obligation of the
Company or any Company Subsidiary under any applicable Environmental Law.
Section 3.24
Intellectual
Property.
(a) Except as would not,
individually or in the aggregate, reasonably be expected to have a Company Material Adverse
Effect, (i) each of the Company and its Subsidiaries own, license or otherwise possess sufficient rights to use Intellectual
Property used in the respective businesses of the Company and each of its Subsidiaries as conducted on the date of this Agreement
and (ii) to the knowledge
of the Company, all patents and all registrations for trademarks, service marks and copyrights owned by
the Company or its Subsidiaries are valid and
subsisting.
(b) Except as would not, individually or in
the aggregate, reasonably be expected to have a Company Material Adverse
Effect, (i) there are no claims
pending or, to the knowledge of the
Company, threatened in writing by any Person alleging that the Company
or its Subsidiaries or
their respective businesses as conducted on the date of this Agreement
infringes the Intellectual
Property of any Person and (ii) to the knowledge of the Company, no Person
is infringing the Intellectual Property owned by the Company or any of its
Subsidiaries.
19
Section 3.25
Material
Contracts.
(a) The Company has made available to Parent
a true and complete copy of each Contract to which the Company or any of its
Subsidiaries is a party as of the date of this Agreement or by which the
Company, any of its Subsidiaries or any of their respective properties or assets
is bound as of the date of this Agreement, which: (i) is a "material contract" within the meaning of Item 601(b)(10)
of Regulation S-K promulgated by the SEC; (ii) contains covenants of the Company or
any of its Subsidiaries not to compete or engage in any line of business or compete with any Person in any geographic
area, in each case, in a manner that is material to the
Company and its Subsidiaries, taken as a whole, or would bind Parent or its
pre-Closing Affiliates after the Effective Time; or (iii) pursuant to which the Company or
any of its Subsidiaries has entered into a partnership or joint venture with any
other Person (other than the Company or any of its Subsidiaries) that is
material to the business of the Company and its Subsidiaries, taken as a
whole. Each instrument of the type described in
clauses (i) through (iii) of this Section 3.25(a) is referred to herein as a "Material
Contract."
(b) Each Material Contract is (assuming due
power and authority of, and due execution and delivery by, the other party or
parties thereto) a valid and binding obligation of the Company or its Subsidiaries party
thereto, subject to the Bankruptcy and Equity Exception, except (i) to the extent they have previously
expired or terminated in accordance with their terms and (ii) for any failures to be valid and binding which would
not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse
Effect. Neither the Company nor any of its Subsidiaries nor, to the
knowledge of the Company, any other party is in breach of or in default under
any Material Contract, and no event has occurred that,
with the lapse of time
or the giving of
notice or both, would constitute a default thereunder
by any party thereto, except for such breaches and defaults which would not, individually or in the
aggregate, reasonably be
expected to have a Company Material Adverse Effect.
Section 3.26
Brokers and
Finders'
Fees. Except for
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, there is no investment banker, broker,
finder or other intermediary that has been retained by or is authorized to act
on behalf of the Company or
any of its Subsidiaries
who is entitled to any fee or commission from
the Company or any of its
Subsidiaries in connection
with the transactions to which the Company is a party
contemplated
hereby.
Section 3.27
No Other
Representations and Warranties;
Disclaimer.
(a) Except for the
representations and warranties made by the Company in this Article III, neither
the Company nor any other Person makes any express or implied representation or
warranty with respect to the Company or any of its Subsidiaries or their respective
businesses, operations, assets, liabilities, condition (financial or otherwise)
or prospects, and the Company hereby disclaims any such other representations or
warranties. In particular, without limiting the foregoing
disclaimer, except for the representations
and warranties made by the Company in this Article III, neither the Company nor
any other Person makes or has made any
representation or warranty to Parent, Merger Sub, or any of their Affiliates or
Representatives with respect to (i) any financial
projection, forecast, estimate, budget or prospect information relating to the
Company, any of its Subsidiaries or their respective businesses or operations or (ii) any oral or written information
presented to Parent,
20
Merger Sub, or any of their Affiliates or
Representatives in the course of their due diligence investigation of the
Company, the negotiation of this Agreement or in the course of the transactions contemplated
hereby.
(b) Notwithstanding anything contained
in this Agreement to the
contrary, the Company acknowledges and agrees that neither Parent, Merger Sub
nor any other Person has made or is making any
representations or warranties whatsoever, express or implied, beyond those
expressly given by Parent and Merger Sub in Article IV hereof, including any implied
representation or warranty as to the accuracy or completeness of any information
regarding Parent furnished or made available to the Company, or any of its Affiliates or Representatives. Without
limiting the generality of
the foregoing, the Company acknowledges and agrees that no representations or warranties
are made with respect to any projections, forecasts, estimates, budgets or
prospect information that may have been made available to the Company or
any of its Affiliates or Representatives.
ARTICLE IV
REPRESENTATIONS
AND WARRANTIES OF PARENT AND MERGER SUB
Except
as set forth in the disclosure letter delivered by Parent to the Company on or
prior to the execution and delivery of this Agreement (the "Parent Disclosure
Schedule") (it being agreed that disclosure of any item in any section or
subsection of the Parent Disclosure Schedule shall be deemed disclosure with
respect to any section of this Agreement or any other section or subsection of
the Parent Disclosure Schedule to which the relevance of such disclosure to the
applicable representation and warranty or covenant or obligation is reasonably
apparent), Parent and Merger Sub represent and warrant to the Company as
follows:
Section 4.1
Corporate
Existence
and Power. Each of Parent and Merger Sub is duly
organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. Each of Parent and Merger Sub has all
requisite corporate, partnership or other similar powers and all governmental licenses,
authorizations, permits, certificates, registrations,
consents, franchises,
variances, exemptions, orders and approvals required to carry on its business as
conducted on the date of this
Agreement (the "Parent
Permits"), except for those powers, licenses,
authorizations, permits, consents, franchises, variances, exemptions, orders and
approvals the absence of which would not, individually or in the aggregate,
reasonably be expected to have a Parent Material Adverse
Effect. Parent and its Subsidiaries are in
compliance with the terms of the Parent Permits, except where the failure to be
in such compliance would not, individually or in the aggregate, reasonably be
expected to have a Parent Material Adverse Effect. Parent is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where such
qualification is required, except for those jurisdictions where the failure to
be so qualified would not, individually or in the aggregate, reasonably be expected to have a Parent
Material Adverse Effect.
Section 4.2
Corporate
Authorization.
(a) Each of Parent and
Merger Sub have all necessary corporate or other similar power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions
to which it is a party
contemplated
hereby. The
execution,
21
delivery and performance by each of
Parent and Merger Sub of this Agreement and the consummation by each of Parent and Merger Sub of the
transactions to which it is a party contemplated hereby have been duly authorized by all necessary
corporate or other similar action on the part of Parent and Merger
Sub, and no other corporate
proceedings on the part of Parent or Merger Sub are necessary to authorize this Agreement or to consummate
the transactions to which it is a party contemplated hereby. This Agreement has been
duly executed and delivered by each of Parent and Merger Sub and, assuming due power and authority of, and
due execution and delivery
by, the Company,
constitutes a valid and binding obligation of Parent and Merger Sub, enforceable
against Parent and Merger Sub in accordance with its terms, subject to the
Bankruptcy and Equity
Exception.
(b) The respective Boards
of Directors of Parent and
Merger Sub, each at a meeting duly called and held and at which a quorum of
directors was present, have unanimously (i) approved and declared it advisable
and in the best interests of Parent or Merger Sub, as the case may be, to enter
into this Agreement
providing for the Merger, upon the terms and subject to the conditions set forth
herein and (ii) approved the execution, delivery and performance by Parent or
Merger Sub, as the case may be, of this Agreement and the consummation of the
transactions to which Parent or Merger Sub, as
the case may be, is a party contemplated hereby, upon the terms and subject to
the conditions set forth herein.
(c) No vote or other action of any members or Affiliates of Parent or the holders of any class or series
of capital stock of
any Subsidiary of Parent
(including Merger Sub) is required by Law, the Constituent
Documents of Parent or any
Subsidiary of Parent or otherwise in order for Parent and
Merger Sub to consummate the transactions to which they are a party contemplated hereby. Parent, as the sole
shareholder of Merger Sub
as of the date of this Agreement, has approved this Agreement.
Section 4.3
Governmental
Authorization. The execution, delivery and
performance by Parent and Merger Sub of this Agreement and the consummation by each of Parent and Merger Sub of the
transactions to which it is a party contemplated hereby require at or prior to the Closing no consent or approval by, or filing
with, any Governmental Entity, other than (a) the filing of the Articles of Merger with the Secretary of State of
the State of
Washington and appropriate
documents with the relevant authorities of other states in which Parent and
Merger Sub are qualified to do business, (b) compliance with any applicable
requirements of the HSR
Act, (c) compliance with any applicable
requirements of the Securities Act, the Exchange Act, and any other
applicable federal or
state securities
Laws or "blue sky" Laws, (d) compliance with any applicable
requirements of NYSE, (e) approvals or filings under Insurance Laws as set forth
in Section 4.3 of the Parent Disclosure Schedule (the "Parent
Insurance
Approvals" and, with the Company Insurance Approvals, the "Transaction
Approvals"), (f) the Company Insurance Approvals
(assuming the accuracy and completeness of Section 3.3(e)), (g) those consents, approvals or filings as
may be required as a result of the business or identity of the Company or any of
its Affiliates and
(h) any other consents,
approvals or filings the failure of which to be obtained or made would not, individually or in the
aggregate, reasonably be expected to have a Parent Material Adverse
Effect or prevent,
materially delay or materially impair the consummation of the transactions
contemplated by this Agreement.
22
Section 4.4
Non-Contravention. The execution, delivery and
performance by Parent and Merger Sub of this Agreement do not, and the consummation by each of Parent and Merger
Sub of the transactions to which it is a party contemplated hereby will not, (a) violate or conflict with or result in any breach of any
provision of the Constituent Documents of Parent or the Constituent Documents of
Merger Sub, (b) assuming compliance with the matters
referred to in Section
3.3 (and assuming the
accuracy of Section 3.3)
and Section 4.3, violate or conflict with any
provision of any applicable Law or Order, (c) violate or conflict with or result in
any breach or constitute a
default or an event that, with or without notice or lapse of time or both, would
constitute a default under,
or cause the termination, cancellation,
acceleration or other change of any right or obligation or the loss of any
benefit to which Parent or any of its Subsidiaries is entitled, or require consent by any Person
under any material agreement or other material instrument binding upon Parent or any of
its Subsidiaries or (d) result in the creation or imposition of
any Lien on any asset of Parent or any of its Subsidiaries, except in the case of clause (b), (c)
or (d), as would not, individually or in the aggregate, reasonably be expected to have a
Parent Material Adverse
Effect or prevent, materially delay or materially impair the consummation of the
transactions contemplated by this Agreement.
Section 4.5
Capitalization;
Interim Operations of Merger Sub. The authorized capital stock of Merger Sub
consists solely of 10,000 shares of common stock, no par
value per share, all of which are issued and
outstanding. All
of the issued and outstanding shares of capital stock of Parent and Merger Sub
are owned, directly or
indirectly, by Liberty Mutual Holding Company Inc. All of the issued and outstanding shares
of capital stock of Merger Sub have been duly authorized and validly issued and are fully paid and nonassessable and free
and clear of preemptive or other similar rights, and were not issued in violation of
the Constituent Documents of Merger Sub. Merger Sub has not
conducted any business prior to the date of this Agreement and has, and prior to
the Effective Time will have, no assets, liabilities or obligations of any nature other than those
incident to its formation or contemplated by this
Agreement.
Section 4.6
Information
Supplied . None of the information supplied or to
be supplied by or on behalf of Parent or Merger Sub specifically for inclusion
in the Proxy Statement
will, at the date it is first mailed to the shareholders of the Company and at the time of the Company
Shareholders Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading, except that, in each case, no representation or warranty is made by
Parent or Merger Sub with respect to statements made or for incorporation by reference therein based on
information supplied by or on behalf of the Company specifically for inclusion
or incorporation by reference in the Proxy Statement.
Section 4.7
Compliance
with Laws.
(a) Since January 1,
2006, the business and operations of Parent and its
Subsidiaries have been conducted in compliance with all applicable Laws
(including Insurance Laws), except where the failure to so conduct such business
and operations would not, individually or in the aggregate, reasonably
be expected to have a Parent Material
Adverse Effect.
(b) All of the Parent Permits of each Parent
Insurance Subsidiary conducting insurance operations are in full force and
effect in accordance with their terms and there is no
23
proceeding or investigation
to which Parent or any such
Parent Insurance
Subsidiary is subject
before a Governmental Entity that is pending or, to the knowledge of Parent,
threatened in writing that would reasonably be expected to result in the
revocation, failure to renew or suspension of, or placement of a restriction on,
any such Parent Permits, except where the failure to be in full force and effect
in accordance with their terms, revocation, failure to renew, suspension or
restriction would not, individually or in the aggregate, reasonably be expected to have a Parent
Material Adverse Effect.
(c) There is no
proceeding to which Parent or any Parent Insurance Subsidiary is subject before
any Governmental Entity pending or, to the knowledge of Parent,
threatened in writing regarding whether any of the Parent Insurance
Subsidiaries has violated any applicable Insurance Laws, nor to the knowledge of
Parent, any investigation by any Governmental Entity pending or threatened in writing with respect to possible violations of,
any applicable Insurance
Laws, except for proceedings or investigations relating to violations or
possible violations which would not individually or in the
aggregate, reasonably be expected to have a Parent Material Adverse
Effect. Since
January 1, 2006, each Parent Insurance Subsidiary has filed all material reports required to
be filed by it with its domiciliary state insurance department or such failure to file has been
remedied. Except
as required by applicable
Law and the Parent Permits
maintained by the Parent Insurance Subsidiaries, there are no
written agreements, memoranda of understanding, commitment letters or similar
undertakings binding on the Parent Insurance Subsidiaries to which Parent or any
Parent Insurance Subsidiary is a party, on the one hand, and any Governmental Entity is a party or
addressee, on the other hand, or Orders specifically with respect to Parent or
any Parent Insurance Subsidiary, that (i) limit in any material respect the
ability of any of the Parent Insurance Subsidiaries to issue insurance policies under its Parent
Permits, (ii) impose any requirements on Parent or any of the Parent Insurance
Subsidiaries in respect of risk-based capital requirements that materially
increase or modify the risk-based capital requirements imposed under applicable Insurance Laws, (iii)
relate to the ability of any of the Parent Insurance Subsidiaries to pay
dividends or (iv) restrict in any material respect the conduct of business of
Parent or any of the Parent Insurance Subsidiaries.
Section 4.8
Litigation. There is no action, suit, investigation,
claim, complaint, demand, summons, cease and desist letter,
subpoena, injunction,
notice of violation or other proceeding pending against, or, to the knowledge of
Parent, threatened in
writing against
Parent or any of its
Subsidiaries before any Governmental Entity, (other than insurance claims
litigation or
arbitration arising in the
ordinary course of business), that, if determined or resolved adversely in
accordance with the plaintiff's demands, would reasonably be expected to prevent,
materially delay or materially impair the consummation of the transactions contemplated
hereby. As of the date of this Agreement,
there is no Order
outstanding against the Parent or any of its Subsidiaries which would reasonably be expected to prevent, materially
delay or materially impair the consummation of the transactions contemplated
hereby.
Section 4.9
Brokers and
Finders'
Fees. Except for
▇▇▇▇▇▇
Brothers, the fees and
expenses of which will be paid by Parent, there is no investment banker, broker, finder
or other intermediary that has been retained by or is authorized to act on
behalf of Parent or any of its Subsidiaries who is entitled to any fee or commission from
Parent or any of its Affiliates in connection with the transactions to which Parent or Merger Sub is a party
contemplated
hereby.
24
Section 4.10
Financing. Parent has, and will have available at and
at all times prior to Closing, sufficient (a) cash, marketable securities, available lines of credit or
(b) other sources of immediately available
funds to deliver the Aggregate Merger Consideration and any other amounts
incurred or otherwise payable by Parent, Merger Sub or the Surviving Corporation
in connection with the transactions contemplated
hereby. Parent has the financial resources and capabilities
to fully perform its obligations under this
Agreement.
Section 4.11 Interested
Shareholder. At the time immediately
preceding the date of this Agreement, neither Parent nor any of its Affiliates
is, with respect to the
Company, an "acquiring person" as such term is defined in Section 23B.19 of
the WBCA.
Section 4.12
No Other
Representations and Warranties;
Disclaimer.
(a) Except for the
representations and warranties made by Parent and Merger Sub in this
Article IV, neither Parent,
Merger Sub nor any other Person makes any express or implied representation or
warranty with respect to Parent or any of its Subsidiaries or their respective
businesses, operations, assets, liabilities,
condition (financial or otherwise) or prospects, and each of Parent and Merger Sub hereby disclaim any such other
representations or warranties. In particular, without limiting the foregoing
disclaimer, except for the representations and warranties made by Parent and
Merger Sub in this Article IV, neither Parent, Merger
Sub nor any other Person
makes or has made any representation or warranty to the Company or any of their
Affiliates or Representatives with respect to (i) any financial projection,
forecast, estimate, budget or prospect information relating to Parent, any
of its Subsidiaries or their respective businesses, or (ii) any oral or written
information presented to the Company or any of their Affiliates or
Representatives in the course of their due diligence investigation of Parent, the negotiation of this
Agreement or in the course of the transactions contemplated
hereby.
(b) Each of Parent and Merger Sub acknowledge and
agree that it (i) has had the opportunity to meet with the management of the
Company and to discuss the
business, assets and liabilities of the Company and its Subsidiaries, (ii) has
had access to such books and records, facilities, equipment, contracts and other
assets of the Company and its Subsidiaries which it and its Affiliates and Representatives have desired or requested to review, (iii)
has had access to the electronic dataroom maintained by the Company through
▇▇▇▇▇▇▇ DataSite for purposes of the transactions contemplated
hereby, (iv) has been
afforded the opportunity to ask questions of and receive answers from officers of the Company,
and (v) has conducted its own independent investigation of the Company and its
Subsidiaries, their respective businesses, assets, liabilities and the
transactions contemplated hereby.
(c) Notwithstanding
anything contained in this
Agreement to the contrary, each of Parent and Merger Sub acknowledges and agrees
that neither the Company nor any Person has made or is making any
representations or warranties whatsoever, express or implied, beyond those
expressly given by the
Company in Article III hereof, including any implied representation or warranty
as to the accuracy or completeness of any information regarding the Company
furnished or made available to Parent, Merger Sub or any of their respective
Affiliates or Representatives. Without limiting the generality of the
foregoing, each of Parent and Merger Sub acknowledges and agrees that no representations or warranties
are made with respect to any
25
projections, forecasts, estimates,
budgets or prospect information that may have been made available to Parent,
Merger Sub or any of their respective Affiliates or Representatives.
ARTICLE V
CONDUCT
OF BUSINESS
Section 5.1
Conduct of
Business by the Company.
(a) From the date of this
Agreement until the earlier
of the Effective Time and the date, if any, on which this Agreement is earlier
terminated pursuant to Section 8.1, except (x) as prohibited or required by applicable Law or by
any Governmental Entity, (y) as set forth in Section 5.1 of the Company Disclosure Schedule or (z) as otherwise contemplated, required or permitted by this Agreement, unless Parent shall
otherwise consent (which
consent shall not be unreasonably withheld, conditioned or delayed), the Company shall, and shall cause each
of its Subsidiaries to, conduct its business in the ordinary
course consistent with past
practice in all material respects and, to the extent consistent therewith,
use its commercially
reasonable efforts to
preserve intact in all
material respects its business organization and
goodwill and relationship with customers, third party
payors, including Governmental Entities, and others with which it has material business dealings.
(b) In addition to and
without limiting the
generality of the foregoing, from the date of this Agreement
until the earlier of the
Effective Time and the date, if any, on which this Agreement is earlier
terminated pursuant to Section 8.1, except (x) as prohibited or required by
applicable Law or by any Governmental Entity, (y) as set forth in Section 5.1 of
the Company Disclosure Schedule or (z) as otherwise
contemplated, required or permitted by this Agreement, unless Parent shall
otherwise consent (which consent shall not be unreasonably withheld,
conditioned or delayed), the Company shall not, and shall not permit any of its Subsidiaries to, directly or
indirectly:
(i) amend or propose or
agree to amend, in any
material respect, any of its Constituent
Documents;
(ii) (A) declare, set aside, make or pay any
dividend or other distribution (whether in cash, stock or property) in respect of any of its
capital stock, except for (1) dividends or distributions by
any wholly owned Subsidiary of the Company to the Company or to any other wholly owned Subsidiary of the Company or (2) regular quarterly cash dividends
paid by the Company on the
Common Stock not in excess
of $0.40 per share per quarter (appropriately
adjusted to reflect any stock dividends, subdivisions, splits, combinations or
other similar events relating to the Common Stock), with record and payment
dates as set forth in Section 5.1(b)(ii) of
the Company Disclosure Schedule, (B) adjust, split, combine or reclassify
any of its capital stock or issue or propose or authorize the issuance of any
other securities (including options, warrants or any similar security exercisable for, or convertible
into, such other security) in respect of, in lieu of, or in substitution for,
shares of its capital stock or (C) repurchase, redeem or otherwise
acquire any shares of the capital stock of the Company or any of its Subsidiaries, or any other equity interests or any
rights, warrants or options to
26
acquire any such shares or
interests, except
(1) for repurchases of Company Shares in an aggregate amount not to exceed the amount set forth in Section
5.1(b)(ii) of the Company Disclosure Schedule or (2) for repurchases of Company Shares in connection with the exercise
of Options or in connection with the vesting or settlement of other equity and
equity-linked awards outstanding as of the date of this Agreement or awarded
after the date of this
Agreement in accordance with the terms of this
Agreement;
(iii) issue, sell, grant, pledge, amend, grant
any rights in respect of or otherwise encumber any shares of its capital stock
or other securities (including any options, warrants or any similar security exercisable for,
or convertible into, such capital stock or similar security) or make any changes
(by combination, merger, consolidation, reorganization, liquidation or
otherwise) in the capital structure of the Company or any of its Subsidiaries, except for the issuance of
(A) the issuance of Company Shares pursuant to Contracts in effect prior to the
execution and delivery of this Agreement and made available to Parent, (B) the issuance of Company Shares in
connection with the exercise of Options or the vesting or
settlement of other equity or equity-linked awards outstanding as of the date of
this Agreement or (C) issuances by a wholly owned Subsidiary
of the Company of capital stock to such Subsidiary's parent, the Company or
another wholly owned
Subsidiary of the Company;
(iv) merge or consolidate
with any other Person or acquire any material assets or make a material
investment in (whether through the acquisition of stock, assets or otherwise) any other Person,
except for (A) acquisitions of inventory,
equipment and software in the ordinary course of
business or (B) ordinary course investment portfolio
transactions in accordance with the Company's investment
guidelines;
(v) sell, lease, license, subject to
a material Lien, except for a Permitted Lien, or otherwise dispose of any material assets, product lines or businesses
of the Company or any
of its Subsidiaries
(including capital stock or
other equity interests of any Subsidiary) except (A) pursuant to Contracts in effect prior to the execution and delivery of this Agreement and ordinary course renewals
thereof, (B) ordinary course investment portfolio
transactions in accordance with the Company's investment guidelines or (C) sales, leases or licenses of inventory, equipment, software and other assets in the ordinary course
of business;
(vi) (A) make any loans, advances or capital contributions to
any other Person,
except (1) in connection with the agency
loan program of the Company not to exceed $10,000,000 in the
aggregate, (2) by the Company or any of its Subsidiaries to or in the Company or any of its Subsidiaries and (3) for ordinary course investment portfolio
transactions in accordance with the Company's investment guidelines in effect on the date
hereof; (B) create, incur, guarantee or assume any indebtedness, except for (1) transactions among the Company and its
wholly owned Subsidiaries or among the Company's wholly owned Subsidiaries,
27
(2) indebtedness for borrowed money
incurred to replace, renew, extend, refinance or refund any existing indebtedness on
materially no less favorable terms, (3) guarantees by the Company of
indebtedness for borrowed money of Subsidiaries of the Company or (4) indebtedness for borrowed money
incurred pursuant to agreements in effect prior to the execution and delivery of this Agreement and set forth in Section 5.1(b)(vi) of the
Company Disclosure Schedule or the issuance of new commercial paper by the
Company; (C) make or commit to make any capital
expenditure in excess of
$10,000,000 in the aggregate during any twelve (12) month period other than capital expenditures
set forth in the Company's capital budget for fiscal
2008 previously made available to Parent; or (D) cancel any material debts of any Person to the Company or any of
Subsidiary of the
Company or waive any claims
or rights of material value, except for cancellations
or waivers in the ordinary course of
business;
(vii) except as required by Contracts in
effect prior to the execution and delivery of this Agreement or Company
Benefit Plans, (A) increase
the compensation or other benefits payable or provided to the
Company's directors or to employees at or above the Senior
Vice President level; (B)
except in the ordinary course of business consistent with past practice,
materially increase the
compensation or other benefits payable or provided to the Company's employees below the Senior Vice President
level (the ordinary course
including, for this purpose, the employee salary and short- and long-term incentive
compensation review
process and related
adjustments substantially as conducted each year), provided that the Company may make cash
incentive grants to new hires in a value substantially equivalent to the value
of equity awards historically granted to new hires in the ordinary
course of
business; (C) enter into
any employment, change of control, severance or retention agreement with any
employee of the Company (except (1) for an agreement, other than a change of
control agreement, with an employee below the Senior Vice President
level who has been hired to replace a
similarly situated employee, (2) for renewals or replacements of existing
employment agreements with current employees upon expiration of the term of the
applicable agreement on substantially the same terms as the previous agreement, (3) any retention agreement
entered into with an employee in the ordinary course of business which provides
for cash retention awards
permitted by Section 6.6(f) of the Company Disclosure Schedule or (4) separation agreements entered into with
employees in the ordinary
course of business consistent with past practice in connection with terminations
of employment; provided, that the Company shall not enter into any
separation agreement or arrangement without
obtaining a general release of claims from the applicable employee); or (D)
except as permitted pursuant to clause (C) above, establish, adopt, enter into
or amend any collective bargaining agreement, plan, trust, fund, policy or
arrangement for the benefit of any current or former directors, officers or employees or any of their
beneficiaries, except as would not result in a material increase in cost to the
Company or as is required (x) to comply with Section 409A of the
Code or (y) by the terms of such agreement,
plan, trust, fund, policy or arrangement;
28
(viii) (A) settle or compromise any material
claim, audit, arbitration,
suit, investigation, complaint or other proceeding in excess of the amount of the
corresponding reserve established on the consolidated balance sheet of the
Company as reflected in the most recent applicable Company SEC Document plus any applicable third party
insurance proceeds,
except (1) as required by any Contract in effect prior to the execution and
delivery of this Agreement,
(2) for any settlements or compromises of insurance claims or litigation or
arbitration arising in the ordinary course of business or (3) for any settlements or compromises involving total aggregate payments not in excess of the amount set forth in Section 5.1(b)(viii) of the Company
Disclosure Schedule, it being understood that this
subsection (3) shall be in addition to and not in limitation of subsections (1)
and (2) above, or (B) enter into any consent decree,
injunction or similar restraint or form of equitable relief in settlement of any
material claim or
audit that would materially
restrict the operations of the business after the Effective Time;
(ix) except in the ordinary course of
business consistent with
past practice, (a) modify or amend in any
materially
adverse respect or
terminate any Material
Contract, except that,
immediately prior to the Effective Time, the Company shall have the right to
terminate the Credit Agreement and repay all then outstanding indebtedness
thereunder, (b) enter into
any successor agreement to an expiring Material Contract that changes the terms of
the expiring Material Contract in a way that is materially adverse to the
Company or any Company Subsidiary or (c) enter into any new agreement that would have been
considered a Material Contract (other than those described in Section 3.25(a)(ii))
if it were entered into at
or prior to the date hereof;
(x) effect or permit a "plant closing" or "mass layoff" as those terms are defined in
Worker Adjustment and
Retraining Notification Act of 1988 (together with any similar state or local Law, "WARN") without complying with the notice
requirements and all other provisions of WARN;
(xi) enter into any new material reinsurance transaction as cedent that (A) does not contain market cancellation,
termination and commutation
provisions or (B)
materially adversely
changes the existing reinsurance profile of the Company and its Subsidiaries on a consolidated basis
outside of the ordinary course of business;
(xii) alter or amend in any material respect
any existing underwriting,
claim handling, loss control, investment, actuarial, financial reporting or
accounting practices, guidelines or policies (including compliance policies) or
any material assumption underlying an actuarial practice or policy, except as
may be required by (or, in the reasonable good faith
judgment of the Company, advisable under) GAAP or SAP;
(xiii) except in the ordinary course of
business and in a manner consistent with past practice (A) make or rescind any
Tax election, (B) settle or
29
compromise any claim related to Taxes or (C) enter into a
written and legally binding agreement with a Taxing Authority relating to
Taxes;
(xiv) (A) make a request for a written ruling
of a Taxing Authority relating to Taxes or (B) change any of its methods of
reporting income or
deductions (including changes in methods of accounting) for federal income
Tax purposes from those employed in the
preparation of its federal income Tax Returns for the taxable year ended
December 31, 2006;
(xv) enter into or renew or extend any
agreements or arrangements
that materially
limit or
otherwise
materially restrict the
Company or any Company Subsidiary or any of their respective Affiliates or any
successor thereto, or that would, after the Effective Time, materially limit or materially restrict Parent or any of its Affiliates
(including the Surviving Corporation) or any successor thereto, from engaging or
competing in any line of business or in any material geographic area
(xvi) terminate, cancel, amend or modify any
insurance policies maintained by it covering the Company or
any of its Subsidiaries or their respective properties which is not replaced by
a comparable amount of insurance coverage;
(xvii) adopt a plan of complete or partial
liquidation, dissolution, restructuring, recapitalization or other reorganization of the
Company or any of its Subsidiaries; or
(xviii) authorize any of, or commit, resolve,
propose or agree to take any of, the foregoing actions.
Section 5.2
Conduct of
Business by Parent(i) . From the date of this Agreement until the earlier of the
Effective Time and the date, if any, on which this Agreement is earlier
terminated pursuant to Section 8.1, unless the Company shall otherwise
consent (which consent shall not be unreasonably withheld,
conditioned or
delayed), Parent shall not,
and shall not permit any of its Subsidiaries to, directly or
indirectly, acquire or propose to acquire beneficial ownership of shares of
capital stock of the Company or any of its Subsidiaries, except for ordinary course investment
portfolio transactions in
accordance with Parent's investment guidelines.
ARTICLE VI
ADDITIONAL
AGREEMENTS
Section 6.1
Preparation
of the Proxy Statement. As promptly as practicable
after the execution and delivery of this Agreement, the Company shall
prepare (with
Parent's reasonable cooperation) and file with
the SEC the proxy statement (as amended or supplemented from time to time, the
"Proxy
Statement") to be mailed to the shareholders of
the Company relating to the Company Shareholders Meeting. Each
of Parent and the Company
shall use its reasonable best efforts to have the Proxy Statement cleared by the
SEC as promptly as practicable after such filing. Parent shall
furnish to the Company all information as may be reasonably requested by the
Company in connection with any such action and the
preparation, filing and mailing of the
30
Proxy Statement. Subject to
applicable Law, as promptly as reasonably practicable after the SEC or its staff
advises that it has no further comments on the Proxy Statement or that the Company may commence mailing
the Proxy Statement, the Company shall use its reasonable best efforts to cause
the Proxy Statement to be mailed to the shareholders of the
Company. No filing of, or amendment or supplement to the Proxy
Statement shall be made by the Company, and no
response to any comments of the SEC or its staff with respect thereto shall be
submitted by the Company, without providing Parent a reasonable opportunity to
review and comment thereon and giving due consideration to inclusion in the Proxy Statement or any such
response comments reasonably proposed by Parent. If at any time prior
to the Effective Time any information relating to the Company or Parent, or any
of their respective Affiliates, directors or officers, should be discovered by the Company or Parent which
should be set forth in an amendment or supplement to the Proxy Statement, so
that such document would not include any misstatement of a material fact or omit
to state any material fact necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading, the party that
discovers such information shall promptly notify the other party and an
appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent
required by Law, mailed to the shareholders of the Company. The
Company shall notify Parent promptly of the receipt of any comments from the SEC
or the staff of the SEC with respect to the Proxy Statement and of any
request by the SEC or the staff of the SEC
for amendments or supplements to the Proxy Statement or for additional
information. The Company shall respond promptly to any comments or
requests from the SEC or the staff of the SEC and shall supply Parent with
copies of all correspondence between the
Company or any of its Representatives, on the one hand, and the SEC or the staff
of the SEC, on the other hand, with respect to the Proxy
Statement.
Section 6.2
Shareholders
Meeting; Company Board Recommendation. As promptly as reasonably practicable
after the SEC or its staff advises that it has no further comments on the Proxy
Statement or that the Company may commence mailing the Proxy Statement, the
Company, acting through its Board of Directors, and in accordance with applicable Law and the rules and
regulations of NYSE, shall (a) subject to Section 6.3(f), duly call, give notice of, convene
and hold a meeting of the shareholders of the Company for the purpose of
obtaining the Requisite Shareholder Vote (the "Company
Shareholders Meeting"); provided, however, that the Company shall be permitted to
delay or postpone convening the Company Shareholders Meeting if in the good
faith judgment of the Board of Directors of the Company or any committee thereof
(after consultation with
its outside legal advisors) such delay or postponement of the Company
Shareholders Meeting is consistent with its fiduciary duties under applicable
Law and (b) subject to Section 6.3(d) and Section 6.3(f), include in the Proxy Statement the
Company Board
Recommendation.
Section 6.3
No
Solicitation.
(a) The Company agrees that it
shall, and shall cause its Subsidiaries, directors, officers and
employees to, and
shall use its reasonable
best efforts to cause its other Representatives to, immediately cease and cause to be terminated
all existing discussions or negotiations with any Person conducted heretofore
with respect to any Takeover Proposal. Except as permitted by
Section 6.3(b), the Company shall not, and shall cause each of its
Subsidiaries, directors, officers and employees not to, and shall use its reasonable best efforts to
31
cause its other Representatives not to, directly or
indirectly, (i) solicit, initiate or knowingly encourage, or knowingly
facilitate, any Takeover Proposal or the making or consummation thereof or
(ii) enter into, continue or otherwise participate in any discussions (except to
notify such Person of the existence of the provisions of this Section 6.3) or
negotiations regarding, or furnish to any Person any non-public material information in connection
with, any Takeover Proposal. Notwithstanding anything to the contrary
contained herein, the Company shall be permitted to terminate, amend, modify,
waive or fail to enforce any provision of any "standstill" or similar obligation of any Person if the Board
of Directors of the Company determines in good faith, after consultation with
its outside legal counsel, that the failure to take such action would reasonably
be likely to be inconsistent with its fiduciary duties under applicable Law. The
Company agrees that any material violations of the restrictions set forth
in this Section 6.3(a) by any Representative of the Company shall be deemed to
be a breach by the Company.
(b) Notwithstanding the provisions of the
second sentence of Section
6.3(a), at any time prior to obtaining the Requisite Shareholder Vote, in
response to a
written Takeover Proposal
received after the execution and delivery of this Agreement which did not arise
as a result of a material breach of the Company's obligations under Section 6.3(a), (A) the Company and its
Representatives may contact such Person making such Takeover Proposal (and its
representatives) solely to clarify the terms and conditions
thereof and (B) if the
Board of Directors of the Company determines in good faith (after
consultation with its financial advisor and outside legal counsel) that such
Takeover Proposal constitutes, or could reasonably be expected to lead to, a
Superior Proposal, the Company and its Representatives may (1) furnish information with respect to the
Company and its Subsidiaries to the Person making such Takeover Proposal (and
its representatives), provided that (A) prior to so furnishing such
information the Company has entered into a confidentiality agreement
with such Person on terms
not less restrictive in the aggregate to such Person than the provisions of the
Confidentiality Agreement are to Parent, its Affiliates and their respective
personnel and representatives and (B) all such
information has previously been provided or made available to
Parent or its Representatives or is provided or made available to Parent or its
Representatives prior to or substantially concurrent with the time it is
provided to such Person and (2) participate in discussions or negotiations with the Person making such
Takeover Proposal (and its representatives) regarding such Takeover
Proposal.
(c) None of the Board of Directors of the
Company nor any committee thereof shall (i) withdraw (or modify or qualify in a
manner adverse to Parent)
the Company Board Recommendation, (ii) fail to include the Company Board
Recommendation in the Proxy Statement, (iii) approve, adopt or recommend, or
publicly propose to approve, adopt or recommend, any Takeover Proposal (any
action described in these clauses (i), (ii) or (iii) being
referred to as a "Recommendation
Withdrawal"), or (iv) allow the Company or any of
its Subsidiaries to execute or enter into any letter of intent, memorandum of
understanding, agreement in principle, merger agreement, acquisition agreement, option agreement,
joint venture agreement, partnership agreement, or other similar Contract (other
than a confidentiality agreement referred to in Section 6.3(b)) providing for,
with respect to, or in connection with, any Takeover Proposal; provided, however, that (A) the delivery by the Company, the
Board of Directors of the Company or any committee thereof of any notice
specified in Section 6.3(e) shall not be deemed to be or constitute a
Recommendation Withdrawal and (B) the provision of factual information by the Company
to its shareholders shall not be deemed to be or constitute a
32
Recommendation Withdrawal so long as the
disclosure through which such factual information is conveyed, taken as a whole,
is not contrary to or materially inconsistent with the Company Board
Recommendation.
(d) Notwithstanding the provisions of
Section 6.3(c), at any time prior to obtaining the Requisite Shareholder Vote,
and subject in each case to the prior compliance with Section 6.3(e), (i) the Board of Directors of the Company may make a
Recommendation Withdrawal if the Board of Directors of the Company determines in
good faith, after consultation with its outside legal counsel, that the failure
to take such action would be reasonably likely to be inconsistent with its fiduciary duties
under applicable Law; or (ii) without limiting the effect of the
Section 6.3(c) proviso and Section 6.3(d)(i) and the
rights provided for thereunder, in response to a written Takeover
Proposal that the Board of Directors of the Company determines in good faith
(after consultation with its financial advisor and outside legal counsel)
constitutes a Superior Proposal, the Company may terminate this Agreement
pursuant to Section 8.1(d)(ii) and this Section 6.3(d)(ii) and, concurrently with such termination, may
enter into a definitive agreement with respect to such Superior Proposal;
provided, however, that the Company shall not terminate this
Agreement pursuant to Section 8.1(d)(ii) and this Section 6.3(d)(ii), and any such purported termination shall be void and
of no force or effect, unless the Company pays to Parent the fee payable
pursuant to Section 8.3(c) prior to or concurrently with such
termination.
(e) Notwithstanding anything to the contrary
contained in this Agreement, the Board of Directors of the
Company may not make a Recommendation Withdrawal or terminate this Agreement
pursuant to Section 8.1(d)(ii) and Section 6.3(d)(ii), unless (i) if such Recommendation
Withdrawal is not being made as a result of a Superior Proposal, the Company shall have
provided to Parent two (2) Business Days prior written notice advising Parent
that the Board of Directors of the Company intends to take such action and
specifying the reasons therefor or (ii) if such Recommendation Withdrawal or termination is being made as a
result of a Superior Proposal, (A) the Company shall have provided to Parent
four (4) Business Days prior written notice advising Parent that the Board of
Directors of the Company intends to take such action and specifying the reasons therefor as well as
the material terms and conditions of any Superior Proposal (including the
identity of the Person making such Superior Proposal and copies of all documents
or correspondence evidencing such Superior Proposal), (B) during such four (4) Business Day period,
if requested by Parent, the Company shall have engaged in good faith
negotiations with Parent regarding any amendment to this Agreement proposed in
writing by Parent and (C) such Takeover Proposal continues to
constitute (in the good
faith judgment of the Board of Directors) a Superior
Proposal.
(f) Unless this Agreement is terminated by
the Company pursuant to Section 8.1(d)(ii), or Parent pursuant to Section
8.1(c)(ii), and, in each case, subject to Section 6.2, (i) the obligation of the Company to call,
give notice of, convene and hold the Company Shareholders Meeting and to hold a
vote of the shareholders of the Company on the approval of this Agreement and
the Merger at the Company Shareholders Meeting shall not be limited or otherwise affected by the
commencement, disclosure, announcement or submission to it of any Takeover
Proposal (whether or not a Superior Proposal), or by a Recommendation
Withdrawal, and (ii) if the Company makes a Recommendation Withdrawal
pursuant to Section 6.3(d)(i), (A) the Company shall nevertheless submit
this Agreement and the Merger to a vote of the
33
shareholders of the Company and (B) the
Proxy Statement and any and all accompanying materials may include appropriate
disclosure with respect to
such Recommendation Withdrawal.
(g) In addition to the obligations of the
Company set forth in the other provisions of this Section 6.3, the Company shall
as promptly as practicable (and in any event within 24 hours after receipt)
advise Parent orally and in
writing of any Takeover Proposal, the material terms and conditions of any such
Takeover Proposal (including any material changes thereto)
and the identity of the
Person making the Takeover Proposal. The Company shall thereafter
keep Parent reasonably
informed on a reasonably current basis of the status of any such Takeover
Proposal (including any material change to the terms
thereof).
(h) Nothing contained in this Section 6.3
shall prohibit the Company or the Board of Directors of the Company from (i) taking and disclosing to the
shareholders of the Company a position contemplated by Rule 14e-2(a) under the
Exchange Act or making a statement contemplated by Item 1012(a) of Regulation
M-A or Rule 14d-9 under the Exchange Act, (ii) making any disclosure to the shareholders of the
Company if the Board of Directors of the Company determines in good faith, after
consultation with its outside legal counsel, that the failure to make such
disclosure would be reasonably likely to be inconsistent with applicable Law or (iii) informing any
Person of the existence of the provisions contained in this Section 6.3;
provided that any Recommendation Withdrawal may only
be made in accordance with Section 6.3(d); it being understood that a
"stop, look and listen" communication to the shareholders of the
Company pursuant to Rule 14d-9(f) under the Exchange Act (or any similar
communication to the shareholders of the Company) shall not be deemed to be or
constitute a Recommendation Withdrawal.
(i) For purposes of this Agreement:
"Takeover Proposal"
means any proposal or offer from any Person (other than Parent or any of its
Subsidiaries) relating to, or that would reasonably be expected to lead to, (i)
any direct or indirect acquisition or purchase, in one transaction or a series
of related transactions, of assets (including equity securities of any
Subsidiary of the Company) or businesses that constitute 20% or more of the
assets or account for 20% or more of the net income of the Company and its
Subsidiaries, taken as a whole, or 20% or more of any class of equity securities
of the Company, (ii) any tender offer or exchange offer that if consummated
would result in any Person or group of Persons beneficially owning 20% or more
of any class of equity securities of the Company, or (iii) any merger,
consolidation, business combination, recapitalization, liquidation, dissolution,
joint venture, share exchange or similar transaction involving the Company or
any of its Subsidiaries, in each case, pursuant to which any Person or the
shareholders of any Person would own 20% or more of any class of equity
securities of the Company or of any resulting parent company of the Company, in
each case other than the transactions contemplated hereby;
"Superior Proposal"
means a Takeover Proposal (with all references to "20% or more" in the
definition of Takeover Proposal being deemed to be references to "more than
50%") made in writing that is on terms that the Board of Directors of the
Company determines in good faith (after consulting with its financial advisor
and outside legal counsel), taking into account, among other things, all legal,
financial and other aspects of the Takeover Proposal and the Person making the
Takeover Proposal, is more favorable to the shareholders of the Company than the
34
transactions
contemplated hereby (including any written offer by Parent (capable of
acceptance by the Company) to amend this Agreement which is received prior to
the applicable determination by the Company Board of Directors that a Superior
Proposal exists).
Section 6.4
Access to
Information. The
Company shall, and shall cause each of its Subsidiaries to, afford the
Representatives of Parent reasonable access during normal business hours to the
Company's and its Subsidiaries' properties, books, records, Contracts and personnel, and
shall furnish, and shall cause to be furnished, as promptly as reasonably
practicable to Parent (a) a copy of each report, schedule and other document
filed, furnished, published or announced by it during such period pursuant to the requirements of
federal or state securities Laws or any Governmental Entity and (b) all other
information concerning the Company's and its Subsidiaries' business, properties and personnel as
Parent may reasonably request; provided that the Company may restrict the foregoing
access to those Persons who have entered into or are bound by a confidentiality
agreement with the Company and to the extent required by applicable
Law. All such access shall be subject to reasonable restrictions
imposed from time to time with respect to the
provision of privileged communications or any applicable confidentiality
agreement with any Person. In conducting any inspection of any
properties of the Company and its Subsidiaries, Parent and its
Representatives shall not (i) interfere with the
business of the Company or any of its Subsidiaries conducted at such property or
(ii) damage any property or any portion thereof. Prior to the
Effective Time, Parent and its Representatives shall not have the right to
conduct environmental testing or sampling
at any of the facilities or properties of the Company or any of its
Subsidiaries. All information obtained pursuant to this Section 6.4
shall continue to be governed by the Confidentiality Agreement which shall
remain in full force and effect in accordance
with its terms. No investigation pursuant to this Section 6.4 shall
affect the representations and warranties or conditions to the obligations of
the parties contained herein.
Section 6.5
Reasonable
Best Efforts.
(a) Subject to the terms and conditions of
this Agreement, each of the Company, Parent and Merger Sub shall use its
reasonable best efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary, proper or advisable under this Agreement and applicable
Laws and regulations to consummate the transactions contemplated hereby as soon
as reasonably possible
after the date of this
Agreement (and in any event no later than the Outside Date), including (i)
preparing and filing as
promptly as practicable all documents to effect all necessary applications,
notices, petitions, filings and other documents and to obtain as promptly as
practicable all consents, clearances, waivers, licenses, orders, registrations,
authorizations, approvals and permits contemplated by
this Agreement and (ii) taking all reasonable steps as may be necessary or
advisable to make all necessary filings and obtain all such consents,
clearances, waivers, licenses, orders, registrations, authorizations,
approvals and permits (including providing
all necessary information and documentary material and providing personnel as
necessary to attend any regulatory meetings, hearings or other
proceedings). In furtherance and not in limitation of the foregoing,
each of the Company, Parent and Merger Sub
agrees to make, as promptly as reasonably practicable after the date of this
Agreement and in any event
within twenty
five (25) days of the date of this Agreement, (A)
an appropriate filing of a Notification and Report Form pursuant to the HSR Act, (B)
appropriate filings required by the Transaction Approvals and (C) all other
necessary filings with any other Governmental Entity with respect to the
transactions contemplated hereby and to supply as
35
promptly as practicable any additional information and
documentary material that may be reasonably requested pursuant to such
requirements and to use its reasonable best efforts to cause the expiration or
termination of the applicable waiting periods under the HSR Act and the
receipt of the Transaction Approvals to
occur in the most expeditious manner practicable. The Company and
Parent will each request early termination of the waiting period with respect to
the Merger under the HSR Act.
(b) To the extent permissible under
applicable Law or any rule,
regulation or restriction of any Governmental Entity, each of the Company,
Parent and Merger Sub shall, in connection with the efforts referenced above to
obtain all requisite approvals, clearances and authorizations for the
transactions contemplated hereby under the
HSR Act or any other approval of a Governmental Entity (including the
Transaction Approvals), use its reasonable best efforts to (i) cooperate in all
respects with each other party in connection with any filing or submission and in connection with any
investigation or other inquiry, including any proceeding initiated by any
private party, (ii) keep the other parties apprised of the status of matters
relating to completion of the transactions contemplated hereby and
promptly inform the other parties of any
communication received by such party from, or given by such party to, the
Antitrust Division of the Department of Justice (the "DOJ"), the Federal Trade Commission (the
"FTC") or any other Governmental Entity and
of any material
communication received or given in connection with any proceeding by any private
party, in each case regarding any of the transactions contemplated hereby, (iii)
permit the other parties, or the other parties' legal counsel, to review any
communication given by it
to the DOJ, the FTC or any other Governmental Entity or, in connection with any
proceeding by any private party, with any other Person (it being understood that
each party shall have the right to review in advance, subject to
applicable Laws relating to the exchange of
information, all of the information relating to such party, and any of its
respective Subsidiaries, which appears in any filing made with, or materials
submitted to, any third party or any Governmental Entity, with
respect to this Agreement or the Merger), (iv)
consult with the other parties in advance of any meeting, conference, conference
call, discussion or communication with, the DOJ, the FTC or any such other
Governmental Entity or, in connection with any proceeding by any private party, with any other Person
and (v) to the extent permitted by such Governmental Entity or other Person,
give the other parties the opportunity to attend and participate in such
meetings, conferences, conference calls, discussions and communications.
(c) If any objections are asserted with
respect to the transactions contemplated hereby under any applicable Law or if
any suit is instituted by any Governmental Entity or any private party
challenging any of the transactions contemplated hereby as violative of any applicable Law, each
of the Company, Parent and Merger Sub shall use its reasonable best efforts to
resolve any such objections or challenges as such Governmental Entity or private
party may have to such transactions under such applicable Law so as to permit consummation of
the transactions contemplated hereby on the terms set forth in this Agreement as
soon as reasonably possible after the date of this Agreement (and in any event
no later than the Outside Date). Without limiting any other provision hereof, each of Parent and
the Company shall use its reasonable best efforts to (i) avoid the entry of, or
to have vacated or terminated, any decree, order or judgment that would
restrain, prevent or delay the consummation of the transactions contemplated hereby, on or before the
Outside Date, including by defending through litigation on the merits any claim
asserted in any court by any Person, and (ii) avoid or eliminate each and every
material
36
impediment that may be asserted by any
Governmental Entity with
respect to this Agreement and the transactions contemplated hereby, so as to
enable the consummation of the Merger to occur as soon as reasonably possible
after the date of this Agreement (and in any event no later than the Outside
Date). Without limiting the generality of the
foregoing, Parent shall take all actions, including (A) proposing, negotiating,
committing to and effecting, by consent decree, hold separate order, or
otherwise, the sale, divestiture or disposition of such assets or businesses of Parent or any of its
Subsidiaries, or effective as of the Effective Time, the Surviving Corporation
or any of its Subsidiaries, (B) proposing, negotiating, committing to and
effecting obligations and commitments to the communities in which the Company and its Subsidiaries conduct
business and (C) otherwise taking or committing to take actions or agreeing to
any restrictions, limitations or conditions that limit Parent's or its Subsidiaries', or the Surviving
Corporation's or its Subsidiaries', freedom of action with respect to, or
its ability to retain, one or more of its or its Subsidiaries' businesses, product lines or assets, in
each case, as may be required in order to obtain any Transaction Approval, or to
avoid the entry of, or to effect the dissolution of, any Order or
commencement of any action, suit or proceeding, which would otherwise have the
effect of preventing or materially delaying the obtaining of the Transaction
Approvals or the consummation of the transactions contemplated hereby.
(d) Notwithstanding anything to the contrary
herein, Parent shall not be required to take any actions pursuant to this
Section 6.5 which if undertaken would, individually or in the aggregate,
reasonably be expected to have (1) a Company Material Adverse or (2) a Parent Material Adverse Effect
(it being agreed that for purposes of this clause (2) a "Parent Material Adverse
Effect" shall be deemed to occur at the level
of materiality at which the event, change, circumstance or effect in question,
if it were an effect on the
Company and its Subsidiaries instead of Parent and its Subsidiaries, would
constitute a Company Material Adverse Effect (clause (1) or (2), a "Regulatory
Material Adverse Effect").
Section 6.6
Employee
Matters.
(a) Until the second
anniversary of the
Effective Time (the "Benefits
Continuation Period"), the Surviving Corporation shall
provide, or cause to be provided, for those employees of the Company and its
Subsidiaries who continue as employees of the Surviving Corporation or any
of its Subsidiaries during
all or a portion of the Benefits Continuation Period (the "Continuing
Employees"), compensation (including base salary,
bonus and other cash-based
incentive compensation
and the value
of equity-based incentive
compensation) and employee
benefits that in the aggregate (with any bonus or other incentive compensation
measured at target for this purpose) shall not be any less favorable than the
compensation and employee
benefits provided by the
Company or the applicable Subsidiary to the Continuing Employees immediately
prior to the date of this Agreement (excluding, except as provided in Section
6.6(b)(iv) below, retiree
medical benefits). The parties acknowledge and
agree that the Continuing Employees will not participate in
stock-based compensation
plans or programs following
the Effective Time. Nothing herein shall be
deemed to be a guarantee of employment for any current or former employee of the
Company or any of its Subsidiaries, or other than as provided in any applicable
employment agreement or
other Contract, to restrict the right of Parent or the Surviving Corporation to
terminate any such employee or to give any person any right to any specific
terms or conditions of employment.
37
(b) The Surviving
Corporation shall (i) waive
any applicable pre-existing condition exclusions and waiting periods with
respect to participation and coverage requirements in any replacement or
successor welfare benefit plan of the Surviving Corporation (except for the short and long term
disability benefit plans of
the Surviving Corporation or any of its Affiliates, which plans, however, will
recognize prior service for purposes of meeting the time requirements in those
plans' preexisting condition exclusions;
provided, however, any such preexisting condition exclusion shall not apply to
preclude a Continuing Employee who had previously received disability benefits
under a Company disability plan prior to the Effective Time from receiving
coverage for the same condition (as determined using the same criteria as the Company disability plan)
following the Effective Time) that a Continuing Employee is eligible
to participate in following the Effective Time to the extent such exclusions or
waiting periods were inapplicable to, or had been satisfied by, such Continuing Employee immediately prior
to the Effective Time under the analogous Company Benefit Plan in which such
Continuing Employee participated, (ii) provide each Continuing Employee with
credit for any co-payments and deductibles paid prior to the Effective Time (to the same extent such
credit was given under the analogous Company Benefit Plan prior to the Effective
Time) in satisfying any applicable deductible or out-of-pocket requirements, and
(iii) except in connection
with retiree medical benefits which shall be treated in accordance
with clause (iv) below,
recognize service prior to the Effective Time with the Company and any of its
Subsidiaries for purposes of eligibility to participate and vesting and level of
benefits (but not for purposes of benefits accrual under any defined
benefit pension plan or levels of benefits or entitlement to
eligibility or coverage under any post-retirement medical plan) to the
same extent such service was recognized by the Company or any of its
Subsidiaries under the
analogous Company Benefit Plan in which such Continuing Employee participated
immediately prior to the Effective Time; provided that the foregoing shall not apply to the
extent it would result in any duplication of benefits for the same period of
service, and (iv) with
respect to any medical plan of the Surviving Corporation which provides
post-retirement coverage (other than Company Benefit Plans in which such employee participated
prior to the Effective Time), the Surviving Corporation will recognize
service only for periods of
an employee's service with the Surviving Corporation
or its Subsidiaries after
the Effective Time except that service prior to the Effective Time shall be
credited to Eligible Persons (as defined below) with respect to Parent's or its Affiliates pre- and post-age 65
retiree health program and life insurance. Such Eligible Persons shall
be eligible to participate, following termination of employment with the
Surviving Corporation or any of its Subsidiaries, in a retiree health and
life insurance
program. In
addition, to the extent that such an Eligible Person is or, upon continued
employment, would become entitled to cost sharing under such retiree health and
life insurance program, cost sharing will be provided under the program
of Parent or its Affiliates
to allow for a substantially comparable benefit to such Eligible
Person. "Eligible
Persons" shall mean (x) individuals who retired
from the Company on or after January 1, 2004 with 10 or more years of service
and (y) Continuing Employees who retire on or after the
Effective Time, who, in the case of either (x) or (y):
(A)(1) were hired by the Company prior to
January 1, 2004, (2) were age 36 or older as of December 31, 2004, (3) were or
are, as the case may be, age 55 or older on the applicable retirement date, (4)
have years of service at retirement from the Company and are an age that total
at least 75 and (5) were or are a participant in the Company's medical plan on the applicable
retirement date or (B) are
former ASI employees who
were age 50 or
older on December 31, 1998 and had or have at
least 10 years of service on the applicable retirement date. Notwithstanding the
foregoing, nothing in this Section 6.6(b) shall limit the right of Parent and
38
the Surviving Corporation or any of their respective Subsidiaries to amend, terminate or
otherwise modify any such retiree health and life insurance program following
the Effective Time; provided, however, that any amendments, alterations,
modifications, or terminations with respect to any such retiree health and life
insurance program shall be applied in a consistent manner to Eligible Persons
and any Parent retirees who are eligible for coverage under Parent retiree
health and life insurance plans.
(c) From and after the
Effective Time, except as
otherwise agreed in writing between Parent and a Company employee, Parent will
cause the Surviving
Corporation and its
Subsidiaries to honor, in accordance with its terms (including any rights of amendment,
modification or termination provided therein), (i) each existing employment, change
in control, severance and
termination protection plan
or agreement between the Company or any of its Subsidiaries and any officer,
director or employee, (ii) all obligations in effect as of the Effective
Time under any
equity-based, bonus, bonus deferral and vacation plans, programs or agreements of the
Company or any of its Subsidiaries and (iii) all obligations in effect as of the
Effective Time pursuant to outstanding retention or equity-based plans,
programs or agreements, and
all vested and accrued benefits under any employee benefit, employment
compensation or similar plans, programs, agreements or arrangements of the
Company or any of its
Subsidiaries.
(d) With respect to
matters described in this Section 6.6 (and the matters described in
Section 1.7), the Company shall consult with Parent (and consider in good faith
the advice of Parent) prior to sending any material notices or other material
communication materials to its employees or former employees. Prior to the Effective
Time, subject to applicable Law, the Company shall provide Parent with
reasonable access to such employees and contact information for former employees
for purposes of Parent providing reasonable notices or other communication
materials regarding Parent compensation
and benefit plans and the matters described in this (and the matters described
in Section 1.7), provided that such notices or other communication
materials are reasonably approved in advance by the Company.
(e) If and to the extent not paid by the
Company prior to the Closing, Parent shall, or shall cause the Surviving
Corporation to, pay within ten (10) Business Days following the Closing Date, to
each Person who, as of immediately prior to
the Closing, was
eligible to and
participated in
the Leadership Performance
Plan, Sales Incentive Plan, Surety Plan or the Success Sharing Plan (each an "Eligible
Company Employee"), the amount that would have been payable to such Eligible Company Employee
for the performance
period ending December 31,
2008, determined as if all Company, individual and other performance targets
established under such plan in respect of such period were achieved at
target, prorated for the performance period
beginning January 1, 2008 and ending on the Closing Date.
(f) The Company
shall adopt a retention program
for key employees prior to
the Closing in accordance
with Section 6.6(f) of the
Company Disclosure Schedule.
(g) Notwithstanding anything herein to the
contrary, any Continuing Employee who terminates employment during the
period ending on the second anniversary of the Effective Time shall be entitled
to severance pay and benefits no less favorable than the severance pay and
benefits such Continuing Employee would have been entitled to pursuant to the severance plans and
arrangements set forth on Section 6.6(g)(i) of the Company Disclosure Schedule
had such
39
termination of employment occurred
immediately prior to the Effective Time. In particular, with respect
to any Continuing Employee who immediately prior to the Effective Time
had the position of a Company Senior Vice President or Vice President shall be
provided with severance pay and benefits in accordance with the Company
Severance Guidelines set forth on Section 6.6(g)(ii)(a) of the Company Disclosure Schedule, at the
typical benefit level without adjustment, with such severance pay and benefits
payable upon a termination of the Continuing Employee's employment without "Cause" (as defined and set forth on Section 6.6(g)(ii)(b) of the Company Disclosure Schedule) by the Surviving Corporation or by the
Continuing Employee for "Good Reason" (as defined and set forth on Section
6.6(g)(ii)(c) of the Company Disclosure Schedule).
(h) Nothing contained herein, whether
express or implied, (i) shall be treated as an amendment or other
modification of any Company Benefit Plan or (ii) subject to the requirements of
this Section 6.6, shall limit the right of Parent or the Surviving Corporation
or any of its Subsidiaries to amend, terminate or otherwise modify any Company Benefit Plan
following the Closing Date.
Section 6.7
Expenses. Whether or not the Merger
is consummated, all Expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such Expenses. As
used in this Agreement, "Expenses" includes all out-of-pocket expenses
(including all fees and expenses of counsel, accountants, investment bankers,
experts and consultants to a party and its Affiliates) incurred by a party or
on its behalf in connection
with or related to the authorization, preparation, negotiation, execution and
performance of this Agreement and the transactions contemplated hereby,
including the preparation, filing, printing and mailing of the Proxy Statement
and the solicitation of the Requisite
Shareholder Vote.
Section 6.8
Transfer
Taxes. The
Company and Parent shall reasonably cooperate in the preparation, execution and
filing of all returns, questionnaires, applications or other documents regarding
any real property transfer,
sales, use, transfer, value added, stock transfer and stamp Taxes, and transfer,
recording, registration and other fees and any similar Taxes that become payable
in connection with the transactions contemplated hereby.
Section 6.9
Directors' and
Officers'
Indemnification and Insurance.
(a) From and after the Effective Time,
Parent shall, and shall
cause the Surviving
Corporation to, to the fullest extent permitted by
Law (including to the fullest extent authorized or permitted by any amendments to or replacements of the
WBCA adopted after the date of this Agreement that increase the extent to which
a corporation may indemnify its officers and directors), indemnify and hold
harmless (and advance expenses, provided the Person to whom expenses are advanced provides a
reasonable and customary undertaking (which shall not include posting of any
collateral) to repay such advances if it is ultimately determined that such
Person is not entitled to indemnification) the present and former
directors and officers of the Company and its
Subsidiaries, any Person
acting as director,
trustee or officer of the Safeco Insurance Foundation on behalf of the Company or any
fiduciaries under any Company Benefit Plan (each an "Indemnified
Party") against any and all costs or expenses (including
reasonable attorneys' fees and expenses), judgments, fines,
losses, claims, damages, penalties, liabilities and amounts paid in settlement
in connection with any actual or threatened claim, action, suit,
40
proceeding or investigation, whether civil, criminal,
administrative, regulatory or investigative, arising out of, relating to or in
connection with any circumstances, developments or matters in existence, or acts
or omissions occurring or alleged to occur prior to or at the Effective Time, including the
approval of this Agreement or the transactions contemplated hereby or arising
out of or pertaining to the transactions contemplated hereby, whether asserted
or claimed prior to, at or after the Effective Time.
(b) Subject to the next sentence, the Surviving
Corporation shall, and Parent shall cause the Surviving Corporation to, at no
expense to the beneficiaries, either (i) continue to maintain in effect for six
(6) years from the Effective Time directors' and officers' liability insurance and fiduciary
liability insurance having terms and conditions at least as favorable to the Indemnified Parties as the Company's currently existing
directors' and officers' liability insurance and fiduciary
liability insurance (the "Current
Insurance") with respect to matters existing or
occurring at or prior to the Effective Time (including the transactions
contemplated hereby), or (ii) purchase a six (6) year
extended reporting period endorsement with respect to the Current Insurance (a
"Reporting
Tail Endorsement") and maintain this endorsement in full
force and effect for its full term. To the extent purchased after the
date hereof and prior to the Effective Time, such insurance policies shall be
placed through such broker(s) and with such insurance carriers as may be
specified by Parent and as
are reasonably acceptable to the Company; provided that such insurance carrier has at least
an "A" rating by A.M. Best with respect to
directors' and officers' liability insurance and fiduciary
liability
insurance. Notwithstanding the foregoing, in no event shall Parent or
the Surviving Corporation be required to expend for any such policies
contemplated by this Section 6.9(b) an annual premium (measured for "tail" purposes by reference to
1/6th the premium paid therefor) amount in
excess of 300% of the annual premiums currently paid by the Company for such
insurance; provided further that if the annual premiums of such
insurance coverage exceed such amount, Parent or the Surviving Corporation
shall obtain a policy with
the greatest coverage available for a cost not exceeding such
amount. Notwithstanding the first sentence of
this Section 6.9(b), but subject to the second and third sentences of this
Section 6.9(b), the Company shall be permitted at its sole and exclusive option to
purchase a Reporting Tail Endorsement prior to the Effective Time.
(c) The articles of incorporation and bylaws of the
Surviving Corporation shall include provisions for indemnification, advancement
of expenses and exculpation
of the Indemnified Parties on the same basis as set forth in the Constituent
Documents of the Company in effect on the date of this
Agreement. Following the Effective Time, the Surviving Corporation
shall, and Parent shall cause the Surviving Corporation to, maintain in effect the
provisions in its articles
of incorporation and bylaws
providing for indemnification, advancement of expenses and exculpation of
Indemnified Parties, as applicable, with respect to the facts or circumstances
occurring at or prior to
the Effective Time, to the fullest extent permitted from time to time under
applicable Law, which provisions shall not be amended except as required by
applicable Law or except to make changes permitted by applicable Law that would
enlarge the scope of the Indemnified
Parties' indemnification rights
thereunder.
(d) If Parent or the Surviving Corporation
or any of their respective successors or assigns (i) consolidates with or merges
into any other Person and is not the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any Person, then, and in each such case, Parent
41
shall cause proper provisions to be made
prior to the consummation of any transaction of the type described in clause (i)
or clause (ii) of this sentence so that the successors and assigns of Parent or
the Surviving Corporation, as the case may be, shall assume all of the
obligations set forth in this Section 6.9.
(e) From and after the Effective Time, Parent and the
Surviving Corporation agree not to, directly or indirectly, amend, modify, limit
or terminate the advancement of expenses, exculpation and indemnification
provisions of the agreements listed on Section 6.9(e) of the Company Disclosure Schedule between the
Company and any of the Indemnified Parties, or any such provisions contained in
the Surviving Corporation's Constituent
Documents.
(f) This Section 6.9 is intended for the
irrevocable benefit of, and to grant third party rights to, the Indemnified Parties and
shall be binding on all successors and assigns of Parent and the Surviving
Corporation. Each Indemnified Party shall be a third-party
beneficiary of this Section 6.9, and entitled to enforce the covenants contained
in this Section 6.9. If any
Indemnified Party makes any claim for indemnification or advancement of expenses
under this Section 6.9 that is denied by Parent and/or the Surviving
Corporation, and a court of competent jurisdiction determines that the
Indemnified Party is entitled to such
indemnification, then Parent or the Surviving Corporation shall pay such
Indemnified Party's costs and expenses, including
reasonable legal fees and expenses, incurred in connection with pursuing such
claim against Parent and/or
the Surviving Corporation. The rights of the Indemnified Parties
under this Section 6.9 shall be in addition to any rights such Indemnified
Parties may have under the Constituent Documents of the Company, the Constituent
Documents of any of the Company's Subsidiaries or the Surviving
Corporation or under any applicable Contracts, insurance policies or
Laws.
Section 6.10
Public
Announcements. The parties agree that the
initial press release concerning this Agreement and the transactions
contemplated hereby shall
be a joint press release approved in advance by the Company and
Parent. Following such initial press release, Parent and the Company
shall consult with each other before issuing, and give each other the
opportunity to review and comment upon, any press release or other public
statements with respect to the transactions contemplated hereby and shall not
issue any such press release or make any such public statement prior to such
consultation, except as such party may reasonably conclude may be required by applicable Law, court process
or by obligations pursuant to any listing agreement with any national securities
exchange or national securities quotation system; provided, however, that the restrictions set forth in
this Section 6.10 shall not apply to any release or public statement
(a) made or proposed to be made by the Company in accordance with Section 6.3 or
(b) in connection with any dispute between the parties regarding this Agreement
or the transactions contemplated hereby.
Section 6.11
Notification. The Company shall promptly
notify Parent, and Parent shall promptly notify the Company, of (a) any notice
or other communication received by such party from any Governmental Entity in
connection with the transactions contemplated hereby or from any Person alleging that the
consent of such Person is or may be required in connection with the transactions
contemplated hereby, if the subject matter of such communication or the failure
of such party to obtain such consent would reasonably be expected to have a Company Material Adverse
Effect or a Parent Material Adverse Effect, (b) any matter (including a breach
of any
42
representation, warranty, covenant or
agreement contained in this Agreement) that would reasonably be expected to lead
to the failure to satisfy any of the conditions to
Closing in Article VII and (c) any action, suits, claims, investigations or
proceedings commenced or, to such party's knowledge, threatened in writing
against, relating to or involving or otherwise affecting such party or any of its Subsidiaries which
relate to the transactions contemplated hereby. Failure to comply
with this Section 6.11 shall not result in the failure of any condition under
Article VII to be satisfied, unless such condition would have otherwise
been satisfied but for such failure to
comply with this Section 6.11.
Section 6.12
State
Takeover Laws. The Company and the Board
of Directors of the Company shall (a) use reasonable best efforts to ensure that
no state anti-takeover Law is or becomes applicable to this Agreement or any of the
transactions contemplated hereby and (b) if any state anti-takeover Law becomes
applicable to this Agreement or any of the transactions contemplated hereby, use
reasonable best efforts to ensure that the transactions contemplated hereby may be consummated as
promptly as practicable on the terms contemplated by this Agreement and
otherwise to minimize the effect of such Law on this Agreement and the
transactions contemplated hereby.
Section 6.13
Section
16(b). The
Company and Parent shall
take all steps reasonably necessary to cause the transactions contemplated
hereby and any other dispositions of equity securities of the Company (including
derivative securities) in connection with the transactions contemplated
hereby by each individual who is a director or
executive officer of the Company or Parent to be exempt under Rule 16b-3
promulgated under the Exchange Act.
Section 6.14
Delisting. Each of the parties agrees
to cooperate with each other in taking, or causing to be taken, all actions necessary to
delist the Common Stock from NYSE and terminate its registration under the
Exchange Act; provided that such delisting and termination
shall not be effective until after the Effective Time.
Section 6.15
Principal
Executive Offices of
the Surviving Corporation. Parent acknowledges its current
intention to maintain the Surviving Corporation's principal executive offices in
Seattle, Washington following the Effective Time.
Section 6.16
Community
Commitments. Parent acknowledges and agrees that, following the
Effective Time, it will (a) cause the Surviving Corporation to honor and fulfill
all charitable and community commitments made by the Company and its
Subsidiaries prior to the date of this Agreement as set forth in Section 6.16 of the Company Disclosure
Schedule, and (b) support the Safeco Insurance Foundation in engaging in
charitable and community giving and other charitable and community activities in
a manner consistent with that undertaken by the Safeco Insurance Foundation prior to the date of this
Agreement (including by honoring and fulfilling all charitable and community
commitments made by the Safeco Insurance Foundation prior to the date
of this Agreement as set forth in Section 6.16 of the Company Disclosure
Schedule), provided that
any additional contributions by Parent to the Safeco Insurance Foundation following the
Effective Time shall be made in a manner and to the extent consistent with
Parent's charitable giving policies in effect
from time to time.
43
Section 6.17
Branding. Parent acknowledges and agrees, (a) it
intends, following the Effective Time, to use the "Safeco" trademark in association with the
personal lines products and services of Parent's Agency Markets business and (b) for a
period of at least five (5)
years following the Effective Time, Parent shall (or shall cause the Surviving
Corporation to) retain the "Safeco" branding and naming rights set forth in Section 6.17 of the Company
Disclosure Schedule,
including with respect to the naming of Safeco Field.
Section 6.18
Agency
Force. As
promptly as practicable following the date of this Agreement, subject to
applicable Law, Parent and the Company shall use their commercially reasonable
efforts to develop a joint plan for the communication with and retention of the
Company's agency force.
ARTICLE VII
CONDITIONS
Section 7.1
Conditions
to Each Party's Obligation
to Effect the Merger. The respective obligations
of the Company, Parent and Merger Sub to effect the Merger are subject to the
satisfaction or, to the
extent permitted by Law, waiver on or prior to the Closing Date of the following
conditions:
(a) Shareholder
Approval. The
Requisite Shareholder Vote shall have been obtained.
(b) Certain
Regulatory Approvals.
(i) All waiting periods (and any extensions thereof) applicable
to the Merger under the HSR Act shall have been terminated or shall have
expired; and
(ii) The Transaction Approvals shall have
been obtained without
any conditions or
restrictions that would, individually or in the aggregate, reasonably be likely to have a Regulatory Material Adverse Effect
or the waiting periods
applicable thereto shall have terminated or expired.
(c) No
Injunctions or Restraints, Illegality. No Law shall be in effect
and no temporary restraining order, preliminary or permanent
injunction or other Order issued by any court in the United States of America or other United States Governmental
Entity of competent jurisdiction shall be in effect, having the effect of making
consummation of the Merger illegal or otherwise prohibiting
consummation of the Merger; provided that prior to asserting this condition, the
party asserting this condition shall have used its reasonable best efforts to
prevent the entry of any such temporary restraining order, injunction or other Order, including taking any
and all actions required to comply with Section 6.5 and to promptly appeal any
temporary restraining order, injunction or other Order that may be
entered.
Section 7.2
Conditions
to Obligations of Parent and Merger Sub. The obligations of Parent
and Merger Sub to effect the Merger are further subject to the satisfaction or,
to the extent permitted by Law, waiver by Parent on or prior to the Closing Date
of the following conditions:
(a) Representations
and Warranties. The representations and
warranties of the Company set forth in Section 3.12 shall be true and correct in
all respects as of the date of this
44
Agreement and as of the Closing Date as
though made on and as of the Closing Date. Except for the
representations and
warranties of the Company set forth in Section 3.12, each of the representations
and warranties of the Company set forth in this Agreement shall be true and
correct (without giving effect to any qualification or limitation as to
"materiality" or "Company Material Adverse
Effect" set forth therein) as of the date of
this Agreement and as of the Closing Date as though made on and as of the
Closing Date (except to the extent expressly made as of an earlier date, in
which case as of such earlier date), except where the failure of such
representations and warranties to be true and correct (without giving effect to
any qualification or limitation as to "materiality" or "Company Material Adverse
Effect" set forth therein) would not,
individually or in the aggregate, reasonably be expected to have
a Company Material Adverse Effect.
(b) Performance
of Obligations of the Company. The Company shall have
performed or complied in all material respects with all agreements and covenants
required to be performed by
it under this Agreement at or prior to the Closing.
(c) Officer's
Certificate. Parent shall have received
a certificate from an executive officer of the Company confirming the
satisfaction of the conditions set forth in Sections 7.2(a) and
7.2(b).
(d) No Material
Governmental Litigation. There shall not be pending
any material suit, action or proceeding by any United
States Governmental Entity of competent jurisdiction (i) challenging the acquisition by
Parent or Merger Sub of shares of Common Stock, (ii) seeking to restrain or prohibit the
consummation of the Merger or (iii) seeking to prohibit or limit the ownership
or operation by the Company or any of its Subsidiaries or by Parent or any of
its Subsidiaries of any material portion of any business or assets of the Company and its
Subsidiaries, taken as a whole, or Parent and its Subsidiaries, taken as a
whole, which, if determined or resolved adversely in accordance with
plaintiff's or claimant's demands, in the case of clause (iii) above,
would, individually or in
the aggregate, reasonably
be likely to have a
Regulatory Material Adverse Effect; provided that up to the time of its asserting this
condition, Parent shall have taken any and all actions required to comply with
Section 6.5.
Section 7.3
Conditions to
Obligations of the Company. The obligations of the
Company to effect the Merger are further subject to the satisfaction or, to the
extent permitted by Law, waiver by the Company, on or prior to the Closing Date
of the following conditions:
(a) Representations
and Warranties. Each of the representations and warranties of
Parent and Merger Sub set forth in this Agreement shall be true and correct
(without giving effect to any qualification or limitation as to "materiality" or "Parent Material Adverse Effect" set forth therein) as of the date of
this Agreement and as of the Closing Date as though made on and as of the
Closing Date (except to the extent expressly made as of an earlier date, in
which case as of such earlier date), except where the failure of such representations and
warranties to be true and correct (without giving effect to any qualification or
limitation as to "materiality" or "Parent Material Adverse
Effect" set forth therein) would not,
individually or in the aggregate, reasonably be expected to have a Parent Material
Adverse Effect.
45
(b) Performance
of Obligations of Parent and Merger Sub. Each of Parent and Merger
Sub shall have performed or complied in all material respects with all
agreements and covenants required to be performed by it under this Agreement at or
prior to the Closing.
(c) Officer's
Certificate. The
Company shall have received a certificate from an executive officer of Parent
confirming the satisfaction of the conditions set forth in Sections 7.3(a) and
7.3(b).
Section 7.4
Frustration
of Closing Conditions. None of the Company, Parent
or Merger Sub may rely on the failure of any condition set forth in this Article
VII to be satisfied if such party's failure to act in good faith or to use
its reasonable best efforts
to consummate the transactions contemplated hereby in accordance with Section
6.5 has been a principal cause of the failure of such condition to be
satisfied.
ARTICLE VIII
TERMINATION
AND AMENDMENT
Section 8.1
Termination. This Agreement may be
terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Effective Time, whether before or after receipt of the Requisite Shareholder
Vote (with any termination by Parent also being an effective termination by
Merger Sub):
(a) by mutual written consent of Parent and
the Company;
(b) by either Parent or the Company,
if:
(i) the Merger shall not have been
consummated on or before November 15, 2008 (the "Initial
Outside Date"); provided, however, that if on the Initial Outside Date any of the conditions to
Closing set forth in Section 7.1(b), Section 7.1(c) and Section
7.2(d) shall not have been
satisfied but all other conditions to Closing set forth in Article VII shall be
satisfied or capable of being satisfied, then the Initial Outside Date shall be extended
to December 31, 2008 if Parent or the Company notifies
the other in writing on or prior to November 15, 2008 of its election to extend the
Initial Outside Date (as so extended, the "Outside
Date"); provided, however that the right to extend the Initial Outside
Date or terminate this Agreement pursuant to this Section 8.1(b)(i) shall not be
available to (A) the
Company if its breach of any of its obligations under Section 6.2 or Section 6.3
has been a principal cause of the failure of the Merger to be
consummated by the Initial Outside Date or (B) any party whose failure to act in good
faith or to use its reasonable best efforts to consummate the transactions
contemplated hereby in accordance with Section 6.5 has been a principal cause of the failure of the
Merger to be consummated by the Initial Outside Date;
(ii) any Governmental
Entity in the United States of competent jurisdiction issues an Order or takes
any other action permanently restraining, enjoining or otherwise prohibiting the Merger and such
Order or other action shall have become final and non-appealable; provided, however, that the right to terminate this Agreement
pursuant to this Section 8.1(b)(ii) shall not be available
46
to any party whose failure to
act in good faith or to use
its reasonable best efforts to consummate the transactions contemplated hereby
in accordance with Section 6.5 has been a principal cause of the application or
imposition of such Order or action; or
(iii) the Requisite Shareholder Vote shall not have been obtained upon
a vote taken thereon at the Company Shareholders Meeting or at any adjournment
or postponement thereof.
(c) by Parent:
(i) if the Company shall have breached or
failed to perform any of its representations, warranties, covenants or agreements contained
in this Agreement, which breach or failure to perform (A) is incapable of being
cured by the Company by the Outside Date or (B) if capable of being cured, has
not been cured by the Company within forty-five (45) days following written notice to the Company
from Parent or Merger Sub of such breach, which notice states Parent's intention to terminate this Agreement
pursuant to this Section 8.1(c)(i), and, in each case, would result in a failure
of any condition set forth
in Section 7.2(a) or Section 7.2(b); provided that Parent shall not have the right to
terminate this Agreement pursuant to this Section 8.1(c)(i) if it is then in
material breach of any representation, warranty, covenant or agreement
hereunder; or
(ii) prior to the shareholders of the Company
having voted upon approval of this Agreement at the Company Shareholders
Meeting, if (A) the Board of Directors of the Company or any committee thereof
shall have effected a Recommendation Withdrawal or (B) the Company shall have materially breached its
obligations or agreements contained in Section 6.2, Section 6.3(a), Section
6.3(b), Section 6.3(c), Section 6.3(d), or Section 6.3(e) (excluding in each case inadvertent
breaches which are capable of being cured and that are cured within three (3) Business
Days following the receipt of written notice of such breach from Parent);
provided, however, that Parent's right to terminate this Agreement
pursuant to this Section 8.1(c)(ii) in respect of a Recommendation
Withdrawal (other than a
Recommendation Withdrawal in connection with a Takeover Proposal as contemplated
by Section 6.3(c)(iii)) shall terminate ten (10) Business Days following such
Recommendation Withdrawal.
(d) by the Company:
(i) if Parent or Merger Sub shall have breached or failed to perform any
of its representations, warranties, covenants or agreements contained in this
Agreement, which breach or failure to perform (A) is incapable of being cured by
Parent or Merger Sub, as the case may be, by the Outside Date or (B) if capable of being cured,
has not been cured by Parent or Merger Sub, as the case may be, within
forty-five (45) days following written notice to Parent or Merger Sub, as the
case may be, from the Company of such breach, which notice states the Company's intention to terminate this Agreement
pursuant to this Section 8.1(d)(i),
47
and, in each case, would result in a
failure of any condition set forth in Section 7.3(a) or Section 7.3(b);
provided that the Company shall not have the right to
terminate this Agreement
pursuant to this Section 8.1(d)(i) if it is then in material breach of any
representation, warranty, covenant or agreement hereunder;
or
(ii) prior to obtaining the Requisite
Shareholder Vote, in accordance with, and subject to the terms and conditions of, Section
6.3(d)(ii).
Section 8.2
Effect of
Termination. In
the event of any termination of this Agreement as provided in Section 8.1, the
obligations of the parties shall terminate and there shall be no liability on
the part of any party with
respect thereto, except for the confidentiality provisions of Section 6.4 and
the provisions of Sections 3.26, 3.27, 4.9, 4.12, 6.7, this Section 8.2, Section 8.3 and
Article IX, each of which shall survive the termination of this Agreement and
remain in full force and
effect; provided, however, that neither Parent nor the Company
shall be released from any liabilities or damages (including, in the case of
claims by the Company, as contemplated by Section 9.5(b)(ii)) arising out of any
willful or intentional breach of any representation
or warranty, covenant or agreement under this Agreement or, in the case of
Parent, any breach of Section 4.10, or fraud, prior to such
termination.
Section 8.3
Termination
Fee.
(a) In the event that this
Agreement is terminated by
Parent pursuant to Section 8.1(b)(i) and (i) a Takeover Proposal was publicly
proposed or announced by any Person after the date of this Agreement and not
irrevocably withdrawn prior to such termination (provided that for purposes of this Agreement a Takeover Proposal shall
not be deemed to have been irrevocably withdrawn by such Person if within
twelve (12) months of such termination the Company
or any of its Subsidiaries shall have entered into a definitive agreement with
respect to, or shall have
consummated, a Takeover Proposal made by or on behalf of such
Person), and (ii) the Company enters into a
definitive agreement with respect to, or there is consummated, a transaction in
connection with a Takeover Proposal with any Person within twelve (12) months after such termination of this
Agreement, then, on the date of such entering into a definitive agreement or
consummation, the Company shall pay or cause to be paid to Parent (or its
designees) the Termination Fee by wire transfer of immediately available funds to an account
designated in writing by Parent. For purposes of this Section 8.3(a),
each reference to "20% or more" in the definition of "Takeover Proposal" shall be deemed to be a reference to
"more than 50%".
(b) In the event that this Agreement is terminated by
either the Company or Parent pursuant to Section 8.1(b)(iii) and (i) a Takeover
Proposal was publicly proposed or announced by any Person after the date of this
Agreement and not irrevocably withdrawn as of the time of the Company Shareholders Meeting
(provided that for purposes of this Agreement a
Takeover Proposal shall not be deemed to have been irrevocably withdrawn by such
Person if within twelve (12) months of such Company Shareholders
Meeting the Company or any of its Subsidiaries shall have entered
into a definitive agreement with respect to, or shall have consummated, a
Takeover Proposal made by or on behalf of such Person), and (ii) the Company enters into a
definitive agreement with respect to, or there is consummated, a transaction in connection
with a Takeover Proposal with any Person within twelve (12) months after such
48
termination of this Agreement, then, on
the date of such entering into a definitive agreement or consummation, the
Company shall pay or cause
to be paid to Parent (or its designees) the Termination Fee by wire transfer of
immediately available funds to an account designated in writing by
Parent. For purposes of this Section 8.3(b), each reference to
"20% or more" in the definition of "Takeover Proposal" shall be deemed to be a reference to
"more than 50%".
(c) In the event that this Agreement is
terminated by the Company pursuant to Section 8.1(d)(ii), then, immediately
prior to and as a condition to such termination, the Company shall pay
or cause to be paid to
Parent (or its designees) the Termination Fee by wire transfer of immediately
available funds to an account designated in writing by
Parent.
(d) In the event that this Agreement is
terminated by Parent pursuant to Section 8.1(c)(i) and (i) a Takeover Proposal was publicly
proposed or announced by any Person after the date of this Agreement and not
irrevocably withdrawn prior to the Company breach or failure to perform giving
rise to such termination (provided that for purposes of this Agreement a Takeover Proposal shall
not be deemed to have been irrevocably withdrawn by such Person if within
twelve (12) months of such termination the Company
or any of its Subsidiaries shall have entered into a definitive agreement with
respect to, or shall have
consummated, a Takeover Proposal made by or on behalf of such
Person), and (ii) the Company enters into a
definitive agreement with respect to, or there is consummated, a transaction in
connection with a Takeover Proposal with any Person within twelve (12) months after such
termination of this Agreement, then, on the date of such entering into a
definitive agreement or consummation, the Company shall pay or cause to be paid
to Parent (or its designees) the Termination Fee by wire transfer of
immediately available funds to an account
designated in writing by Parent. For purposes of this Section 8.3(d),
each reference to "20% or more" in the definition of "Takeover Proposal" shall be deemed to be a reference to
"more than 50%".
(e) In the event that this Agreement is terminated by
Parent pursuant to Section 8.1(c)(ii)(A), then the Company shall promptly, but
in no event later than two (2) Business Days after the date of such termination,
pay or cause to be paid to Parent (or its designees) the Termination Fee by wire transfer of
immediately available funds to an account designated in writing by
Parent.
(f) The parties agree and understand that in
no event shall the Company be required to pay the Termination Fee on more than
one occasion. Notwithstanding anything to the contrary in
this Agreement, (i) if Parent receives the Termination Fee from the Company
pursuant to this Section 8.3, such payment shall be the sole and exclusive
remedy of Parent and Merger Sub against the Company and its
Subsidiaries and any of
their respective former, current or future officers, directors, partners,
shareholders, managers, members or Affiliates and none of the Company, any of
its Subsidiaries or any of their respective former, current or future officers,
directors, partners, shareholders, managers,
members or Affiliates shall have any further liability or obligation relating to
or arising out of this Agreement or the transactions contemplated
hereby; provided that the foregoing shall not limit the
obligations of the Company
set forth in the last sentence of this Section 8.3; and (ii) if Parent or Merger Sub
receives any payments from the Company in respect of any breach of this
Agreement, and thereafter Parent is entitled to receive the Termination Fee
under this Section 8.3, the
amount of such Termination Fee shall be reduced by the aggregate amount of any
payments made by the Company to Parent or Merger Sub in
49
respect of any such breaches of this
Agreement. The parties acknowledge that the agreements contained
in this Section 8.3 are an integral part
of the transactions contemplated hereby, and that, without these agreements, the
parties would not enter into this Agreement, and that any amounts payable
pursuant to this Section 8.3 do not constitute a
penalty. If the Company fails to pay as directed in
writing by Parent the Termination Fee due to Parent or Merger Sub pursuant to
this Section 8.3 within the time periods specified in this Section 8.3, the
Company shall pay the out-of-pocket costs and expenses (including reasonable legal fees and expenses
of outside counsel) incurred by Parent in connection with any action, including
the filing of any lawsuit, taken to collect payment of such amounts, together
with interest on such unpaid amounts at the prime lending rate prevailing during such period as
published in The Wall Street Journal, calculated on a daily basis from the date
such amounts were required to be paid until the date of actual
payment.
Section 8.4
Procedure
for Termination. A termination of this
Agreement pursuant to
Section 8.1 shall, in order to be effective, require in the case of each of
Parent and Merger Sub, action by its board of directors or, to the extent
permitted by Law, the duly authorized designee of its board of directors, and in
the case of the Company, to the extent
permitted by Law, action by the Board of Directors of the
Company. Termination of this Agreement prior to the Effective Time
shall not require the approval of the shareholders of the Company. A
terminating party shall provide written notice of termination to
the other parties specifying with reasonable particularity the basis for this
termination. If more than one provision in Section 8.1 is available
to a terminating party in connection with a termination, a
terminating party may rely on any or all available
provisions in Section 8.1 for any termination.
ARTICLE IX
GENERAL
PROVISIONS
Section 9.1
Non-Survival
of Representations, Warranties, Covenants and Agreements. None of the
representations, warranties, covenants and other agreements in this Agreement or
in any instrument delivered pursuant to this Agreement, including any rights
arising out of any breach of such representations, warranties, covenants and
other agreements, shall survive the Effective Time, except for those covenants and agreements contained
herein and therein that by their terms apply or are to be performed in whole or
in part after the Effective Time and this Article IX.
Section 9.2
Notices. All notices and other
communications hereunder shall be in writing and shall be deemed duly
given (a) on the date of delivery if delivered personally, or by facsimile, upon
confirmation of receipt, (b) on the first (1st) Business Day following the date
of dispatch if delivered by a recognized next-day courier service or (c) on the third (3rd)
Business Day following the date of mailing if delivered by registered or
certified mail, return receipt requested, postage prepaid. All
notices hereunder shall be delivered as set forth below, or pursuant to such
other instructions as may be designated in
writing by the party to receive such notice:
If
to Parent or Merger Sub, to:
c/o
Liberty Mutual Group Inc.
50
▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇
▇▇▇▇, Executive Vice President
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Vice President
Facsimile
No.: (▇▇▇) ▇▇▇-▇▇▇▇
with
a copy to (which shall not constitute notice):
Liberty
Mutual Group Inc.
▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, General Counsel
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Deputy General Counsel
Facsimile
No: (▇▇▇) ▇▇▇-▇▇▇▇
with
a copy to (which shall not constitute notice):
Debevoise
& ▇▇▇▇▇▇▇▇ LLP
▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
▇▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇, Esq.
Facsimile
No.: (▇▇▇) ▇▇▇-▇▇▇▇
If
to the Company, to:
Safeco
Corporation
Safeco
Plaza
▇▇▇▇
▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇▇▇ ▇▇▇▇▇, Executive Vice President and
Chief Legal Officer
Facsimile
No: (▇▇▇) ▇▇▇-▇▇▇▇
with
a copy to (which shall not constitute notice):
Skadden,
Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention:
▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Facsimile
No.: (▇▇▇) ▇▇▇-▇▇▇▇
and
Skadden,
Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇
▇▇
▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇
▇. ▇▇▇▇▇, Esq.
Facsimile
No.: (▇▇▇) ▇▇▇-▇▇▇▇
Section 9.3
Interpretation.
(a) When a reference is made in this
Agreement to a Section, clause or Schedule, such reference shall be to a Section
or clause of or Schedule to this Agreement unless otherwise
indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. The phrases "the date of this Agreement", "the date hereof" and terms of similar import, will be
deemed to refer to April 23, 2008. Whenever the content
of this Agreement permits, the masculine gender will include the feminine and
neuter genders, and a
reference to singular or plural will be
interchangeable with the
other. Whenever
the words "include", "includes" or "including" are used in this Agreement, they shall
be deemed to be followed by the words "without limitation".
(b) References to any agreement or contract
are to that agreement or contract as amended, modified or
supplemented from time to time in accordance with the terms hereof and
thereof. References to any Person include the successors and
permitted assigns of that Person. References to any statute are to
that statute, as amended from time to time, and to the rules and
regulations promulgated thereunder. References to "$" and "dollars" are to the currency of the United
States of
America. References from or through
any date mean, unless otherwise specified, from and including or through and including,
respectively. The words "hereby," "herein," "hereof," "hereunder" and words of similar import refer to
this Agreement as a whole (including any Schedules delivered herewith) and not
merely to the specific section, paragraph or clause in which such word
appears.
(c) The parties have
participated jointly in negotiating and drafting this Agreement. In
the event that an ambiguity or a question of intent or interpretation arises,
this Agreement shall be construed as if drafted jointly by the parties, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provision of this Agreement.
(d) No summary of this Agreement or Schedule
delivered herewith prepared by or on behalf of any party will affect the meaning or
interpretation of this Agreement or any such Schedule.
Section 9.4 Counterparts;
Effectiveness. This Agreement may be
executed in two (2) or more counterparts, including by facsimile, each of which
shall be deemed to be an
original but all of which shall constitute one and the same
instrument. This Agreement shall become effective when each party has
received counterparts thereof signed and delivered (by electronic communication,
facsimile or otherwise) by all of the other parties.
Section 9.5
Entire
Agreement; No Third Party Beneficiaries.
(a) This Agreement, the Company Disclosure
Schedule, the Parent Disclosure Schedule and the Confidentiality Agreement
constitute the entire agreement, and supersede all
52
prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof and
thereof.
(b) This Agreement shall
be binding upon and inure solely to the benefit of each party and, except for
(i) the provisions of
Section 6.9 (which, from and after the
Effective Time, shall be for the benefit of the Indemnified Parties), and (ii) the right of the Company to recover, solely through an action
brought by the Company, damages from Parent in the event of a willful or
intentional breach of this
Agreement by Parent, any
breach of Section 4.10, or fraud, in which event the damages recoverable
by the Company for itself and on behalf of the holders of Common Stock, Options and
Restricted Stock Rights
shall be determined by reference to the total amount that would have been recoverable by such holders
if all such holders brought
an action against Parent and were recognized as third party beneficiaries
hereunder, this Agreement
is not intended to and shall not confer upon any Person other than the parties any rights or
remedies hereunder.
(c) The representations and warranties in
this Agreement are the product of negotiations among the parties and are for the
sole benefit of the parties. Any inaccuracies in such representations
and warranties are subject
to waiver by the parties in accordance with Section 9.9(b) without notice or
liability to any other Person. In some instances, the representations
and warranties in this Agreement may represent an allocation among the parties
of risks associated with particular matters
regardless of the knowledge of any of the parties. Consequently,
Persons other than the parties may not rely upon the representations and
warranties in this Agreement as characterizations of actual facts or
circumstances as of the date of this Agreement or as
of any other date.
Section 9.6
Severability. If any term or other
provision of this Agreement is invalid, illegal or incapable of being enforced
by any Law or public policy, all other terms and provisions of this
Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Notwithstanding the foregoing, upon
such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties shall negotiate
in good faith to modify this Agreement so as to effect the original intent of
the parties as closely as possible in an acceptable manner in order that the transactions
contemplated hereby are consummated as originally contemplated to the greatest
extent possible.
Section 9.7
Assignment. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by
any of the parties, in
whole or in part (whether by operation of law or otherwise), without the prior
written consent of the other parties, and any attempt to make any such
assignment without such consent shall be null and void. This
Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and
assigns.
Section 9.8
Amendment. This Agreement may be
amended by the parties, by action taken or authorized by their respective boards
of directors, at any time
before or after the Requisite Shareholder Vote is obtained, but after such
approval no amendment shall be made which by Law or in accordance with the rules
of any relevant stock exchange requires further
53
approval by the shareholders of the
Company without such further
approval. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties.
Section 9.9
Extension;
Waiver. At any
time prior to the Effective Time, the parties, by action taken or
authorized by their
respective boards of directors, may, to the extent legally allowed, (a) extend
the time for the performance of any of the obligations or other acts of the
other parties, (b) to the extent permitted by applicable Law, waive any
inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto and (c) to the
extent permitted by applicable Law, waive compliance with any of the agreements
or conditions contained herein. Any agreement on the part
of a party to any such extension or waiver
shall be valid only if set forth in a written instrument signed on behalf of
such party. The failure of any party to this Agreement to assert any
of its rights under this Agreement or otherwise shall not constitute a waiver of such rights, nor shall any
single or partial exercise by any party to this Agreement of any of its rights
under this Agreement preclude any other or further exercise of such rights or
any other rights under this Agreement.
Section 9.10
Governing Law and
Venue; Waiver Of Jury Trial.
(a) Except to the extent
that the WBCA is mandatorily applicable to the Merger and the rights of holders
of Common Stock, this Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to a contract
executed and performed in such State, without giving effect to the conflicts of
law principles thereof (other than Section 5-1401 of the General Obligations
Law).
(b) Each of Parent,
Merger Sub and the Company (i) consents to submit itself to the personal
jurisdiction of the Supreme Court of the State of New York in New York County or
the United States District Court for the Southern District of New York, in the
event that any dispute arises in connection with this Agreement or any of the transactions
contemplated hereby, (ii) irrevocably waives, and agrees not to assert, by way
of motion, as a defense, counterclaim or otherwise, in any action or proceeding
with respect to this Agreement (A) any claim that it is not personally subject to the jurisdiction of the
above-named courts for any reason other than the failure to serve process in
accordance with this Section 9.10(b), (B) that it or its property is exempt or
immune from jurisdiction of any such court or from any legal process commenced in such courts
(whether through service of notice, attachment prior to judgment, attachment in
aid of execution of judgment, execution of judgment or otherwise), and (C) to
the fullest extent permitted by applicable Law that (1) the suit, action or proceeding in such court is
brought in an inconvenient forum, (2) the venue of such suit, action or
proceeding is improper and (3) this Agreement, or the subject matter hereof, may
not be enforced in or by such courts, (iii) agrees that it will not bring any action relating to this
Agreement or any of the transactions contemplated hereby in any court other than
the Supreme Court of the State of New York in New York County or the United
States District Court for the Southern District of New York and (iv) consents to the service of
process to be made in such action or proceeding by delivery of process in
accordance with the notice provisions contained in Section
9.2.
(c) EACH PARTY ACKNOWLEDGES AND AGREES THAT
ANY CONTROVERSY WHICH MAY ARISE IN CONNECTION WITH THIS AGREEMENT IS
LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE
54
EACH SUCH PARTY HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO
THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) EACH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) EACH PARTY
MAKES THIS WAIVER VOLUNTARILY AND (IV) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION
9.10(c).
Section 9.11
Specific
Performance. The
parties agree that irreparable harm would occur and the parties would not have
any adequate remedy at Law
in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It
is accordingly agreed that prior to the valid and effective termination of this
Agreement in accordance with Article VIII, the parties
shall be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions of this
Agreement, this being in addition to any other remedy to which they are entitled at Law or in
equity.
Section 9.12
Definitions. As
used in this Agreement:
An
"Affiliate" of
any Person means another Person that directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with,
such first Person, where "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
a Person, whether through the ownership of voting securities, by contract, as
trustee or executor or otherwise.
"Aggregate Merger
Consideration" has the meaning set forth in Section 2.1(a).
"Agreement" has the
meaning set forth in the preamble hereto.
"Articles of
Incorporation" means the Restated Articles of Incorporation of the
Company, as in effect on the date of this Agreement.
"Articles of Merger"
has the meaning set forth in Section 1.2.
"Bankruptcy and Equity
Exception" has the meaning set forth in Section 3.2(c).
"beneficially own"
(and the related term "beneficial
ownership") has the meaning under Section 13(d) of the Exchange
Act.
"Benefits Continuation
Period" has the meaning set forth in Section 6.6(a).
"Book-Entry Shares"
has the meaning set forth in Section 1.6(b).
55
"Business Day" means
any day other than a Saturday, a Sunday or any day on which the SEC or banking
institutions in the City of New York are authorized or required by Law or
executive order to be closed.
"Bylaws" means the
Bylaws of the Company, as in effect as of the date of this
Agreement.
"Certificate" has the
meaning set forth in Section 1.6(b).
"Closing" has the
meaning set forth in Section 1.2.
"Closing Date" has the
meaning set forth in Section 1.2.
"Code" means the
Internal Revenue Code of 1986.
"Common Stock" has the
meaning set forth in Section 1.6(b).
"Company" has the
meaning set forth in the preamble hereto.
"Company Actuarial
Analyses" has the meaning set forth in Section 3.16(c).
"Company Benefit
Plans" means each written employee benefit plan, scheme, program, policy,
arrangement and contract (including any "employee benefit plan," as defined in
Section 3(3) of ERISA, whether or not subject to ERISA, and any bonus, deferred
compensation, stock bonus, stock purchase, restricted stock, stock option or
other equity-based arrangement, and any collective bargaining, employment,
termination, retention, bonus, change in control or severance agreement, plan,
program, policy, arrangement or contract) under which any current or former
director, officer or employee of the Company or any of its Subsidiaries has any
present or future right to benefits, that is maintained, sponsored or
contributed to by the Company or any of its Subsidiaries or which the Company or
any of its Subsidiaries has any obligation to maintain, sponsor or contribute,
or with respect to which the Company or any of its Subsidiaries would incur any
direct or indirect liability under the Code or ERISA or any similar non-U.S.
law, whether contingent or otherwise.
"Company Board
Recommendation" has the meaning set forth in Section 3.2(b).
"Company Capitalization
Date" has the meaning set forth in Section 3.5(a).
"Company Disclosure
Schedule" has the meaning set forth in the preamble to Article
III.
"Company Insurance
Approvals" has the meaning set forth in Section 3.3.
"Company Insurance
Subsidiary" means any Subsidiary of the Company that issues insurance
policies.
"Company Material Adverse
Effect" means any event, change, circumstance or effect that is
materially adverse to the business, assets, liabilities, financial condition or
results of operations of the Company and its Subsidiaries, taken as a whole,
provided, however, that none of the
following shall constitute or be considered in determining whether a Company
Material Adverse
56
Effect
has occurred: (a) changes or fluctuations in the economy or the securities,
credit or financial markets generally in the United States; (b) national or
international political conditions or changes therein (including the
commencement, continuation or escalation of acts of war, armed hostilities,
sabotage or other acts of terrorism); (c) changes that are the result of factors
generally affecting the property and casualty insurance and/or surety industries
and the geographic areas in which the Company and its Subsidiaries operate; (d)
any loss of, or adverse change in, the relationship of the Company or any of its
Subsidiaries with its customers, employees, agents, suppliers, financing
sources, business partners or regulators caused by the identity of Parent or the
announcement, negotiation, existence or performance of the transactions
contemplated by this Agreement; (e) changes in GAAP or SAP, the rules or
policies of the Public Company Accounting Oversight Board or any applicable Law
or interpretation or application of any of the foregoing after the date of this
Agreement; (f) any failure by the Company to meet any internal or external
projections, forecasts or estimates of revenues or earnings for any period;
provided that the exception in
this clause (f) shall not preclude a determination that any event, change,
circumstance or effect underlying such decline has resulted in, or contributed
to, a Company Material Adverse Effect; (g) the suspension of trading in
securities on NYSE or The NASDAQ National Market System or a decline in the
price, or a change in the trading volume, of the Common Stock on NYSE; provided that the exception in
this clause (g) shall not preclude a determination that any event, change,
circumstance or effect underlying such decline has resulted in, or contributed
to, a Company Material Adverse Effect; (h) effects resulting from earthquakes,
hurricanes, tornados or other natural disasters; (i) any change or announcement
of a potential change in the credit rating or A.M. Best rating of the Company or
any of its Subsidiaries or any of their securities; provided that the exception in
this clause (i) shall not preclude a determination that any event, change,
circumstance or effect underlying such decline has resulted in, or contributed
to, a Company Material Adverse Effect; (j) compliance by the Company with the
terms of this Agreement including the failure of the Company to take any action
as a result of restrictions in Article V of this Agreement, or any actions
taken, or failure to take any action, which Parent has requested in writing or
to which Parent has consented in writing; or (k) any shareholder litigation or
threatened shareholder litigation, in each case, arising from allegations of a
breach of fiduciary duty or similar obligations in connection with this
Agreement or the transactions contemplated hereby; provided that the exceptions
in clauses (a), (b), (c) and (h) shall apply only to the extent such event,
change, circumstance or effect does not (i) relate only to (or have the effect
of relating only to) the Company and its Subsidiaries or (ii) disproportionately
adversely affect the Company and its Subsidiaries, taken as a whole, compared to
other companies of similar size operating in the property and casualty insurance
industry in similar geographic areas in which the Company and its Subsidiaries
operate.
"Company Permits" has
the meaning set forth in Section 3.1.
"Company Producers"
has the meaning set forth in Section 3.16(e).
"Company Preferred
Stock" has the meaning set forth in Section 3.5(a).
"Company Reinsurance
Agreements" has the meaning set forth in Section 3.16(a).
"Company SAP
Statements" has the meaning set forth in Section 3.10.
57
"Company SEC
Documents" has the meaning set forth in Section 3.8(a).
"Company Securities"
has the meaning set forth in Section 3.5(b).
"Company Share" has
the meaning set forth in Section 1.6(b).
"Company Shareholders
Meeting" has the meaning set forth in Section 6.2.
"Company Subsidiary
Securities" has the meaning set forth in Section 3.6.
"Confidentiality
Agreement" means the confidentiality letter agreement, dated as of March
4, 2008, as amended on April 18, 2008, between the Company and Liberty Mutual
Holding Company Inc.
"Constituent
Documents" means, with respect to any entity, the articles or certificate
of incorporation, the bylaws of such entity, or any similar charter or other
governing documents of such entity.
"Continuing Employees"
has the meaning set forth in Section 6.6(a).
"Contract" means all
contracts, agreements, commitments, arrangements, leases and other instruments
to which any Person is a party.
"Credit Agreement"
means that certain Credit Agreement, among Safeco, the Lenders thereto and ▇.▇.
▇▇▇▇▇▇ ▇▇▇▇▇ Bank, N.A., as Administrative Agent, Swing Line Lender and L/C
Issuer, dated as of March 31, 2005.
"Current Insurance"
has the meaning set forth in Section 6.9(b).
"Dissenting Shares"
has the meaning set forth in Section 1.9(a).
"DOJ" has the meaning
set forth in Section 6.5(b).
"Effective Time" has
the meaning set forth in Section 1.2.
"Eligible Company
Employee" has the meaning set forth in Section 6.6(e).
"Eligible Persons" has
the meaning set forth in Section 6.6(b).
"Environmental Law"
means any foreign, federal, state or local law, treaty, statute, rule,
regulation, order, ordinance, decree, injunction, judgment, governmental
restriction or any other requirement of law (including common law) regulating or
relating to the protection of human health from exposure to any hazardous
substance, natural resource damages or the protection of the environment,
including laws relating to the protection of wetlands, pollution, contamination
or the use, generation, management, handling, transport, treatment, disposal,
storage, release or threatened release of hazardous substances.
"ERISA" means the
Employee Retirement Income Security Act of 1974.
58
"ERISA Affiliate" of
any entity means any other entity that, together with such entity, would be
treated as a single employer under Section 414 of the Code.
"Exchange Act" means
the Securities Exchange Act of 1934.
"Exchange Agent" has
the meaning set forth in Section 2.1(a).
"Exchange Fund" has
the meaning set forth in Section 2.1(a).
"Expenses" has the
meaning set forth in Section 6.7.
"FTC" has the meaning
set forth in Section 6.5(b).
"GAAP" means the
United States generally accepted accounting principles.
"Governmental Entity"
means any nation or government, any state, agency, commission, or other
political subdivision thereof, any insurance regulatory authority or any entity
(including a court) of competent jurisdiction properly exercising executive,
legislative, judicial or administration functions of the
government.
"HSR Act" means the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976.
"Incentive Plans"
means the Company's employee or director stock option, stock purchase or equity
compensation plans, arrangements or agreements.
"Indemnified Party"
has the meaning set forth in Section 6.9(a).
"Initial Outside Date"
has the meaning set forth in Section 8.1(b)(i).
"Insurance Laws" has
the meaning set forth in Section 3.3.
"Intellectual
Property" means: (a) trademarks, service marks, logos, trade names and
trade dress, and all goodwill associated with the foregoing, (b) domain names,
(c) copyrights, software and computer programs, (d) patents, (e) trade secrets,
(f) know-how, (g) proprietary information and (h) all registrations and
applications for registration of any of the foregoing.
"IRS" means the
Internal Revenue Service.
"knowledge" means (a)
with respect to Parent, the actual knowledge of the individuals named in Section
9.1 of the Parent Disclosure Schedule and (b) with respect to the Company, the
actual knowledge of the individuals named in Section 9.1 of the Company
Disclosure Schedule, in each case, as of the date of this
Agreement.
"Law" means any
statute, law, ordinance, rule or regulation (domestic or foreign) issued,
promulgated or entered into by or with any Governmental Entity.
"Leadership Performance
Plan" means the Safeco Leadership Performance Plan.
"Leased Real Property"
has the meaning set forth in Section 3.18(b).
59
"License" means any
permit, certification, approval, registration, consent, authorization,
franchise, variance, exemption or order issued by a Governmental
Entity.
"Liens" means any
mortgage, pledge, hypothecation, assignment, encumbrance, lien (statutory or
other), other charge or security interest.
"Material Contract"
has the meaning set forth in Section 3.25(a).
"Merger" has the
meaning set forth in the recitals hereto.
"Merger Consideration"
has the meaning set forth in Section 1.6(b), subject to adjustment pursuant to
Section 1.8, if applicable.
"Merger Sub" has the
meaning set forth in the preamble hereto.
"▇▇▇▇▇▇ ▇▇▇▇▇▇▇" has
the meaning set forth in Section 3.19.
"NYSE" means The New
York Stock Exchange.
"Option" means the
right to receive shares of Common Stock pursuant to the exercise of any stock
options granted pursuant to the Incentive Plans.
"Order" means any
order, writ, injunction, decree, judgment or stipulation issued, promulgated or
entered into by or with any Governmental Entity.
"other party" means,
with respect to the Company, Parent and Merger Sub, and means, with respect to
Parent or Merger Sub, the Company, unless the context otherwise
requires.
"Outside Date" has the
meaning set forth in Section 8.1(b)(i).
"Owned Real Property"
has the meaning set forth in Section 3.18(a).
"Parent" has the
meaning set forth in the preamble hereto.
"Parent Disclosure
Schedule" has the meaning set forth in the Preamble to Article
IV.
"Parent Insurance
Approvals" has the meaning set forth in Section 4.3.
"Parent Insurance
Subsidiary" means any Subsidiary of Parent that issues insurance
policies.
"Parent Material Adverse
Effect" means any event, change, circumstance or effect that is
materially adverse to the business, assets, liabilities, financial condition or
results of operations of Parent and its Subsidiaries, taken as a whole, provided, however, that none of the
following shall constitute or be considered in determining whether a Parent
Material Adverse Effect has occurred: (a) changes or fluctuations in the economy
or the securities, credit or financial markets generally in the United States of
America; (b) national or international political conditions or changes therein
(including the commencement, continuation or escalation of acts of war, armed
hostilities, sabotage or other acts of terrorism); (c) changes that are the
result of factors generally
60
affecting
the property and casualty insurance industry and the geographic areas in which
Parent and its Subsidiaries operate; (d) changes in GAAP or SAP, the rules or
policies of the Public Company Accounting Oversight Board or any applicable Law
or interpretation or application of any of the foregoing after the date of this
Agreement; or (e) effects resulting from earthquakes, hurricanes, tornados or
other natural disasters; provided that the exceptions
in clauses (a), (b), (c) and (e) shall apply only to the extent such event,
change, circumstance or effect does not (i) relate only to (or have the effect
of relating only to) Parent and its Subsidiaries or (ii) disproportionately
adversely effect Parent and its Subsidiaries, taken as a whole, compared to
other companies of similar size operating in the property and casualty insurance
industry in similar geographic areas in which Parent and its Subsidiaries
operate.
"Parent Permits" has
the meaning set forth in Section 4.1.
"parties" has the
meaning set forth in the preamble hereto.
"Permitted Liens"
means (a) any Liens for taxes or other governmental charges not yet due and
payable or the amount or validity of which is being contested in good faith, (b)
carriers', warehousemen's, mechanics', materialmen's, repairmen's, workmen's,
landlords' or other similar Liens, (c) pledges or deposits in connection with
workers' compensation, unemployment insurance and other social security
legislation, (d) Liens that do not, individually or in the aggregate, materially
impair the continued use or operation of the property to which they relate or
the conduct of the business of the Company and its Subsidiaries as conducted on
the date of this Agreement, (e) statutory Liens arising by operation of Law with
respect to a liability incurred in the ordinary course of business and which is
not yet due and payable or which is being contested in good faith and by
appropriate proceedings and (f) immaterial easements, rights of way or other
similar matters or restrictions or exclusions that would be shown by a current
title report or other similar report.
"Person" means an
individual, corporation, limited liability company, partnership, association,
trust, unincorporated organization, or other entity or group (as such term is
defined in the Exchange Act).
"Proxy Statement" has
the meaning set forth in Section 6.1.
"Recommendation
Withdrawal" has the meaning set forth in Section 6.3(c).
"Regulatory Material Adverse
Effect" has the meaning set forth in Section 6.5(d).
"Reporting Tail
Endorsement" has the meaning set forth in Section 6.9(b).
"Representatives"
means, with respect to any party, collectively, each of such party's
Subsidiaries, each of such party's and its Subsidiaries' respective officers,
directors and employees and any advisors, attorneys, consultants or other
representatives (acting in such capacity) retained by such party or any of its
controlled Affiliates.
"Requisite Shareholder
Vote" has the meaning set forth in Section 3.2(a).
"Restricted Stock
Right" has the meaning set forth in Section 1.7(b).
61
"SAP" means statutory
accounting principals prescribed or permitted by the domiciliary state insurance
department of the applicable Company Insurance Subsidiary or the Parent
Insurance Subsidiary, as the case may be.
"SEC" means the
Securities and Exchange Commission.
"Securities Act" means
the Securities Act of 1933.
"Significant
Subsidiary" means a Subsidiary that constitutes a "significant
subsidiary" of the Company within the meaning of Rule 1-02 of Regulation S-X
under the Exchange Act.
"SSAP" means a
statement of standard accounting practice.
"Subsidiary" of any
Person means any corporation, partnership, joint venture, limited liability
company, trust, estate or other Person of which (or in which), directly or
indirectly, more than 50% of (a) the issued and outstanding capital stock having
ordinary voting power to elect a majority of the board of directors of such
corporation (irrespective of whether at the time capital stock of any other
class or classes of such corporation shall or might have voting power upon the
occurrence of any contingency), (b) the interest in the capital or profits of
such partnership, joint venture or limited liability company or other Person or
(c) the beneficial interest in such trust or estate, is at the time owned by
such first Person, or by such first Person and one or more of its other
Subsidiaries or by one or more of such Person's other Subsidiaries.
"Success Sharing Plan"
means the Safeco Success Sharing Plan.
"Superior Proposal"
has the meaning set forth in Section 6.3(i).
"Surviving
Corporation" has the meaning set forth in Section 1.1.
"Takeover Proposal"
has the meaning set forth in Section 6.3(i).
"Tax" means income,
gross receipts, franchise, sales, use, ad valorem, property, payroll,
withholding, excise, severance, transfer, employment, estimated, alternative or
add-on minimum, value added, stamp, occupation, premium, environmental or
windfall profits taxes, and other taxes, charges, fees, levies, imposts,
customs, duties, licenses or other assessments, together with any interest and
any penalties (including penalties for failure to file or late filing of any
return, report or other filing, and any interest in respect of such penalties
and additions, additions to tax or additional amounts imposed by any and all
federal, state, local, foreign or other Taxing Authority).
"Tax Asset" means any
net operating loss, net capital loss, investment tax credit, foreign tax credit,
charitable deduction or any other credit or tax attribute that could be carried
forward or back to reduce Taxes (including deductions and credits related to
alternative minimum Taxes).
"Tax Return" means any
statement, report, return, information return or claim for refund relating to
Taxes (including any elections, declarations, schedules or attachments thereto),
including, if applicable, any combined or consolidated return for any group of
entities that includes the Company or any of its Subsidiaries.
62
"Taxing Authority"
means, with respect to any Tax, the Governmental Entity that imposes such Tax,
and the agency (if any) charged with the collection of such Tax for such
Governmental Entity.
"Termination Fee"
means $182,500,000.
"Transaction
Approvals" has the meaning set forth in Section 4.3.
"WARN" has the meaning
set forth in Section 5.1(b)(x).
"WBCA" means the
Washington Business Corporation Act.
(The remainder of this page is left
blank.)
63
IN
WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
|
LIBERTY
MUTUAL INSURANCE COMPANY
|
||||
|
By:
|
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ | |||
|
Name:
|
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇
|
|||
|
Title:
|
Vice
President
|
|||
|
BIG
APPLE MERGER CORPORATION
|
||||
|
By:
|
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ | |||
|
Name:
|
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇
|
|||
|
Title:
|
President
|
|||
|
SAFECO
CORPORATION
|
||||
|
By:
|
/s/ ▇▇▇▇ ▇. ▇▇▇▇ | |||
|
Name:
|
▇▇▇▇
▇. ▇▇▇▇
|
|||
|
Title:
|
Executive
Vice President and
|
|||
|
Chief
Financial Officer
|
||||