Exhibit 2
EXECUTION COPY
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AGREEMENT AND PLAN OF
MERGER
AMONG
AMERICAN INTERNATIONAL GROUP, INC.,
ENGINE ACQUISITION CORPORATION
AND
HSB GROUP, INC.
dated as of August 17, 2000
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<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
PLAN OF MERGER
1.1 The Merger...........................................................2
1.2 Conversion of Shares.................................................3
1.3 Exchange of Certificates.............................................5
1.4 Dividends............................................................6
1.5 Termination of Exchange Fund.........................................7
1.6 Investment of Exchange Fund..........................................7
1.7 Lost Certificates....................................................7
1.8 Withholding Rights...................................................7
ARTICLE 2
CLOSING
2.1 Time and Place of Closing............................................8
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1 Organization, Good Standing and Power................................8
3.2 Capitalization......................................................10
3.3 Subsidiaries........................................................11
3.4 Authority; Enforceability...........................................12
3.5 Non-Contravention; Consents.........................................12
3.6 SEC Documents; GAAP Financial Statements............................14
3.7 Statutory Statements................................................15
3.8 Absence of Certain Changes or Events................................16
3.9 Taxes and Tax Returns...............................................17
3.10 Litigation..........................................................19
3.11 Contracts and Commitments...........................................20
3.12 Registration Statement, Etc.........................................20
3.13 Employee Benefit Plans..............................................21
3.14 Collective Bargaining; Labor Disputes; Compliance...................24
3.15 No Violation of Law.................................................24
3.16 Environmental Matters...............................................26
3.17 Fairness Opinion; Board Recommendation..............................28
3.18 Brokers and Finders.................................................28
3.19 Takeover Statutes; Rights Agreement.................................28
3.20 Voting Requirements.................................................29
3.21 Intellectual Property...............................................29
3.22 Insurance Matters...................................................30
3.23 Investment Company..................................................33
3.24 Insurance...........................................................33
3.25 Transactions with Affiliates........................................33
3.26 Agents and Brokers..................................................33
3.27 Threats of Cancellation.............................................34
3.28 Risk-Based Capital; IRIS Ratios.....................................34
3.29 Company Investment Assets...........................................34
3.30 Surplus Relief Agreements...........................................34
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
4.1 Organization, Good Standing and Power...............................35
4.2 Capitalization......................................................35
4.3 Authority; Enforceability...........................................36
4.4 Non-Contravention; Consents.........................................36
4.5 SEC Documents; GAAP Financial Statements............................37
4.6 Absence of Certain Changes or Events................................38
4.7 Registration Statement, Etc.........................................38
4.8 Brokers and Finders.................................................39
4.9 Interim Operations of Merger Sub....................................39
4.10 Tax-Free Reorganization.............................................39
4.11 Headquarters........................................................39
ARTICLE 5
CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE TIME; CERTAIN COVENANTS
5.1 Access and Information..............................................40
5.2 Conduct of Business Pending Merger..................................40
5.3 No Solicitations....................................................44
5.4 Fiduciary Duties....................................................46
5.5 Certain Fees........................................................46
5.6 Takeover Statutes...................................................47
5.7 Consents............................................................47
5.8 Further Assurances..................................................48
5.9 New York Stock Exchange Listing.....................................49
5.10 Registration Statement; Stockholder Approvals.......................49
5.11 Expenses............................................................50
5.12 Press Releases......................................................50
5.13 Indemnification of Officers and Directors...........................50
5.14 Tax Treatment.......................................................52
5.15 Employee Benefits...................................................52
5.16 Rule 145............................................................54
5.17 Stock Options and Other Incentive Programs..........................55
5.18 Other Actions by the Company and Parent.............................56
ARTICLE 6
CONDITIONS PRECEDENT TO MERGER
6.1 Conditions to Each Party's Obligations..............................57
6.2 Conditions to Obligations of the Company............................57
6.3 Conditions to Obligations of Parent.................................59
ARTICLE 7
TERMINATION AND ABANDONMENT OF THE MERGER
7.1 Termination.........................................................61
7.2 Effect of Termination and Abandonment...............................63
ARTICLE 8
GENERAL PROVISIONS
8.1 Non-Survival........................................................63
8.2 Notices.............................................................63
8.3 Entire Agreement....................................................64
8.4 Waivers and Amendments; Non-Contractual Remedies; Preservation
of Remedies.........................................................65
8.5 Governing Law.......................................................65
8.6 Waiver of Jury Trial................................................65
8.7 Binding Effect; Assignment..........................................66
8.8 Interpretation......................................................66
8.9 No Third-Party Beneficiaries........................................66
8.10 Counterparts........................................................67
8.11 Severability........................................................67
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of August 17,
2000 by and among American International Group, Inc., a Delaware corporation
("Parent"), Engine Acquisition Corporation, a Delaware corporation and a wholly
owned subsidiary of Parent ("Merger Sub"), and HSB Group, Inc., a Connecticut
corporation (the "Company").
WHEREAS, Parent and the Company have determined that it would be in
their respective best interests and in the interests of their respective
stockholders to effect the transactions contemplated by this Agreement;
WHEREAS, in furtherance thereof, the respective Boards of Directors of
Parent, the Company and Merger Sub have approved the merger of the Company with
and into Merger Sub (the "Merger"), upon the terms and subject to the conditions
of this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qua1ify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), and this Agreement
is intended to be and is adopted as a plan of reorganization;
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, as a condition and inducement to Parent's and Merger Sub's
willingness to enter into this Agreement, the Company is entering into a stock
option agreement with Parent (the "Stock Option Agreement"), pursuant to which
the Company has granted to Parent an option to purchase shares of Company Common
Stock (as defined in Section 1.2) under the terms and conditions set forth in
the Stock Option Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements herein contained, the
parties hereto agree as follows:
<PAGE>
ARTICLE 1
PLAN OF MERGER
1.1 The Merger
(a) Upon the terms and subject to the conditions of this Agreement, at the
Effective Time (as defined herein) and in accordance with the provisions of this
Agreement, the Connecticut Business Corporation Act (the "CBCA") and the
Delaware General Corporation Law ("DGCL"), the Company shall be merged with and
into Merger Sub, with Merger Sub as the surviving corporation (sometimes
referred to hereinafter as the "Surviving Corporation") in the Merger, and the
separate corporate existence of the Company shall cease. Subject to the
provisions of this Agreement, a certificate of merger complying with Section
33-819 of the CBCA shall be duly prepared, executed and filed with the Secretary
of State of the State of Connecticut as provided in the CBCA (the "Connecticut
Certificate of Merger") and a certificate of merger complying with Section 252
of the DGCL shall be duly prepared, executed, acknowledged and filed with the
Secretary of State of Delaware as provided in the DGCL (the "Delaware
Certificate of Merger"), in each case on the Closing Date (as defined in Section
2.1). The Merger shall become effective on the date and at the time at which the
last of the following actions shall have been completed: (i) the Connecticut
Certificate of Merger has been duly filed with the Secretary of State of
Connecticut and (ii) the Delaware Certificate of Merger has been duly filed with
the Secretary of State of Delaware (the "Effective Time").
(b) From and after the Effective Time, the Merger shall have all the
effects set forth in the CBCA and the DGCL. Without limiting the generality of
the foregoing, and subject thereto, by virtue of the Merger and in accordance
with the CBCA and the DGCL, all of the properties, rights, privileges, powers
and franchises of the Company and Merger Sub shall vest in the Surviving
Corporation and all of the debts, liabilities and duties of the Company and
Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
(c) The Certificate of Incorporation of the Surviving Corporation shall be
the Certificate of Incorporation of Merger Sub in effect immediately prior to
the Effective Time until thereafter amended in accordance with the provisions
thereof and the DGCL; provided that such Certificate of Incorporation shall be
amended to change the name of the Surviving Corporation to the name of the
Company.
<PAGE>
(d) The by-laws of the Surviving Corporation shall be the by-laws of Merger
Sub in effect immediately prior to the Effective Time until altered, amended or
repealed as provided therein or in the Certificate of Incorporation of the
Surviving Corporation and the DGCL, provided that such by-laws shall be amended
to change the name of the Surviving Corporation to the name of the Company.
(e) The officers of the Company and the directors of Merger Sub immediately
prior to the Effective Time, respectively, shall be the initial officers and
directors of the Surviving Corporation, respectively, until their respective
successors are duly elected and qualified.
1.2 . As of the Effective Time, by virtue of the Merger and without any
action on the part of any holder thereof:
(a) Each share of capital stock of Merger Sub that is issued and
outstanding immediately prior to the Effective Time shall be converted into one
validly issued, fully paid and non-assessable share of common stock, par value
$0.01 per share, of the Surviving Corporation, and the Surviving Corporation
shall be a wholly owned subsidiary of Parent.
(b) All shares of common stock, no par value per share, of the Company
("Company Common Stock"), including each attached right (a "Company Right")
issued pursuant to the Rights Agreement dated as of November 28, 1998 between
the Company and BankBoston, N.A. (the "Company Rights Agreement"), that are
owned by the Company or by any direct or indirect subsidiary of the Company
(other than shares held in the investment portfolio of a direct or indirect
subsidiary of the Company) and any shares of Company Common Stock owned by
Parent, Merger Sub or any other direct or indirect subsidiary of Parent (other
than shares held in the investment portfolio of a direct or indirect subsidiary
of Parent) shall, by virtue of the Merger and without any action on the part of
the holder thereof, be canceled and retired and shall cease to exist and no
stock of Parent or other consideration shall be delivered in exchange therefor.
<PAGE>
(c) Each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time, including any attached Company Right (other than
Dissenting Shares (as defined in Section 1.2(e)) and shares of Company Common
Stock canceled in accordance with Section 1.2(b)), shall be converted into, and
become exchangeable for, that portion of a share of Common Stock, par value
$2.50 per share, of Parent ("Parent Common Stock") equal to the lesser of (i)
.4683 (the "Maximum Exchange Ratio") and (ii) the amount (the "Closing Price
Exchange Ratio") derived by dividing $41.00 by the average of the closing prices
per share of Parent Common Stock as reported on the NYSE composite transactions
reporting system (as reported in the New York City edition of The Wall Street
Journal) for each of the 10 consecutive trading days in the period ending five
trading days prior to the Closing Date (as defined in Section 2.1) (the "Base
Period Stock Price"); provided, however, if the Maximum Exchange Ratio is less
than the Closing Price Exchange Ratio, Parent shall elect either (i) in addition
to the issuance of a portion of a share of Parent Company Common Stock equal to
the Maximum Exchange Ratio, to pay a cash amount equal to the Per Share Cash
Top-Up Amount or (ii) (x) to increase the Maximum Exchange Ratio (the "Adjusted
Maximum Exchange Ratio") such that the product of the Adjusted Maximum Exchange
Ratio times the Base Period Stock Price (the "Product") equals or is less than
$41.00 and (y) if the Product is less than $41.00 pay a cash amount equal to the
difference between $41.00 and such Product. The portion of a share of Parent
Common Stock exchanged and, if applicable, the cash amount paid for each share
of Company Common Stock pursuant to this Section 1.2(c) shall be referred to as
the "Merger Consideration".
For purposes of this Section 1.2(c) "Per Share Cash Top-Up
Amount" means the greater of (i) $0 and (ii) (x) $41.00 minus (y) the product of
(A) the Base Period Stock Price and (B) the Maximum Exchange Ratio. Prior to the
Closing, Parent will notify the Exchange Agent, if applicable, of the Adjusted
Maximum Exchange Ratio and any Per Share Cash Top-Up Amount or the Closing Price
Exchange Ratio.
(d) In the event that, subsequent to the date hereof but prior to the
Effective Time, the outstanding shares of Parent Common Stock or Company Common
Stock, respectively, shall have been changed into a different number of shares
or a different class as a result of a stock-split, reverse stock split, stock
dividend, subdivision, reclassification, combination, exchange, recapitalization
or other similar transaction, the Merger Consideration shall be appropriately
adjusted to provide holders of Company Common Stock with the same economic
effect as contemplated by this Agreement.
(e) Each outstanding share of Company Common Stock, including any attached
Company Right, the holder of which has perfected his right to dissent under
applicable Law (as defined in Section 3.15(b)) and has not effectively withdrawn
or lost such right as of the Effective Time (the "Dissenting Shares") shall not
be converted into or represent a right to receive the Merger Consideration, and
the holder thereof shall be entitled only to such rights as are granted by
applicable Law; provided, however, that any Dissenting Share held by a person at
the Effective Time who shall, after the Effective Time, withdraw the demand for
payment for shares or lose the right to payment for shares, in either case
pursuant to the CBCA, shall be deemed to be converted into, as of the Effective
Time, the right to receive Merger Consideration pursuant to Section 1.2(c). The
Company shall give Parent (i) prompt notice upon receipt by the Company of any
such written demands for payment of the fair value of such shares of Company
Common Stock and of attempted withdrawals of such notice and any other
instruments provided pursuant to applicable Law and (ii) the opportunity to
direct all negotiations and proceedings with respect to demand for appraisal
under the CBCA. Any payments made in respect of Dissenting Shares shall be made
by the Surviving Corporation. The Company shall not, except with the prior
written consent of Parent, offer to settle or settle any such demands or approve
any withdrawal of any such demands. (1)
<PAGE>
1.3 Exchange of Certificates
(a) From time to time after the Effective Time, Parent shall when and as
required make available to a bank or trust company designated by Parent and
reasonably acceptable to the Company (the "Exchange Agent"), for the benefit of
the holders of shares of Company Common Stock, for exchange in accordance with
this Article 1 through the Exchange Agent, certificates representing the shares
of Parent Common Stock and cash sufficient to pay the aggregate Merger
Consideration (such shares of Parent Common Stock and cash, if any, together
with any dividends or distributions with respect thereto made available by
Parent in accordance with this Section 1.3, being hereinafter referred to as the
"Exchange Fund"). Certificates (as defined herein) shall be surrendered and
exchanged as follows:
(i) As soon as reasonably practicable after the Effective Time, the
Exchange Agent will mail to each holder of record of a certificate
representing shares of Company Common Stock (a "Certificate"), whose shares
of Company Common Stock were converted into the right to receive Merger
Consideration, (x) a letter of transmittal (which will specify that
delivery will be effected, and risk of loss and title to the Certificates
will pass, only upon delivery of the Certificates to the Exchange Agent and
will be in such form and have such other provisions as Parent and the
Company may specify consistent with this Agreement) and (y) instructions
for use in effecting the surrender of the Certificates in exchange for the
Merger Consideration and any unpaid dividends and other distributions.
<PAGE>
(ii) At the Effective Time, and upon surrender in accordance with
Section 1.3(a)(i) of a Certificate for cancellation to the Exchange Agent
or to such other agent or agents as may be appointed by Parent and the
Company, together with such letter of transmittal, duly executed, and such
other documents as may reasonably be required by the Exchange Agent, the
holder of such Certificate will be entitled to receive in exchange therefor
the Merger Consideration and any unpaid dividends or other distributions
that such holder has the right to receive pursuant to the provisions of
this Article 1, and the Certificate so surrendered will forthwith be
canceled. No interest will be paid or accrue on any amount payable upon due
surrender of the Certificates. In the event of a transfer of ownership of
shares of Company Common Stock that are not registered in the transfer
records of the Company, payment may be issued to a person other than the
person in whose name the Certificate so surrendered is registered if such
Certificate is properly endorsed or otherwise in proper form for transfer
and the person requesting such issuance pays any transfer or other Taxes
(as defined in Section 3.9) required by reason of such payment to a person
other than the registered holder of such Certificate or establishes to the
satisfaction of the Exchange Agent that such Tax has been paid or is not
applicable. Until surrendered as contemplated by this Section 1.3, each
Certificate (other than a Certificate representing shares of Company Common
Stock to be canceled in accordance with Section 1.2(b) and other than
Dissenting Shares) will be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the Merger
Consideration and any unpaid dividends or other distributions that the
holder thereof has the right to receive in respect of such Certificate
pursuant to the provisions of this Article 1.
(b) No certificate or scrip representing fractional shares of Parent Common
Stock shall be issued upon the surrender for exchange of Certificates, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights as a stockholder of Parent. All fractional shares of Parent Common Stock
that a holder of Company Common Stock would otherwise be entitled to receive as
a result of the Merger shall be aggregated, and, if a fractional share results
from such aggregation, such holder shall be entitled to receive, in lieu
thereof, an amount in cash (without interest) determined by multiplying (i) the
fractional share interest to which such holder would otherwise be entitled by
(ii) the Base Period Stock Price. No such cash in lieu of fractional shares of
Parent Common Stock shall be paid to any holder of Company Common Stock until
Certificates are surrendered and exchanged in accordance with Section 1.3(a).
(c) The Merger Consideration paid upon the surrender for exchange of
Certificates in accordance with the terms of this Article 1 shall be deemed to
have been paid in full satisfaction of all rights pertaining to the shares of
Company Common Stock theretofore represented by such Certificates, subject,
however, to any obligation of Parent or the Surviving Corporation to pay any
dividends or make any other distributions with a record date prior to the
Effective Time which may have been authorized or made with respect to shares of
Company Common Stock which remain unpaid or unsatisfied at the Effective Time,
and there shall be no further registration from and after the Effective Time of
transfers on the stock transfer books of the Surviving Corporation of shares of
Company Common Stock which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to Parent, the
Surviving Corporation or the Exchange Agent for any reason, they shall be
canceled and exchanged as provided in this Section 1.3, except as otherwise
provided by applicable Law.
<PAGE>
1.4 Dividends. All shares of Parent Common Stock to be issued pursuant to
the Merger shall be deemed issued and outstanding as of the Effective Time and
whenever a dividend or other distribution is declared by Parent in respect of
the Parent Common Stock, the record date for which is at or after the Effective
Time, that declaration shall include dividends or other distributions in respect
of all shares of Parent Common Stock issuable pursuant to this Agreement. No
dividends or other distributions that are declared or made after the Effective
Time with respect to Parent Common Stock payable to holders of record thereof
after the Effective Time shall be paid to a Company stockholder entitled to
receive certificates representing Parent Common Stock until such stockholder has
properly surrendered such stockholders' Certificates. Upon such surrender, there
shall be paid to the stockholder in whose name the certificates representing
such Parent Common Stock shall be issued any dividends with a record date at or
after the Effective Time which shall have become payable with respect to such
Parent Common Stock between the Effective Time and the time of such surrender,
without interest. After such surrender, there shall also be paid to the
stockholder in whose name the certificates representing such Parent Common Stock
shall be issued any dividend on such Parent Common Stock that shall have a
record date subsequent to the Effective Time and prior to such surrender and a
payment date after such surrender; provided that such dividend payments shall be
made on such payment dates. In no event shall the stockholders entitled to
receive such dividends be entitled to receive interest on such dividends.
1.5 Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for six months after
the Effective Time shall be delivered by the Exchange Agent to Parent, and any
holders of the Certificates who have not theretofore complied with this Article
1 shall thereafter look only to Parent for payment of their claim for any Merger
Consideration and, if applicable, any unpaid dividends or other distributions
which such holder may be due, subject to applicable Law. None of Parent, the
Surviving Corporation or the Exchange Agent shall be liable to any Person (as
defined herein) in respect of any such shares of Parent Common Stock or funds
from the Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar Law. As used in this Agreement, "Person"
shall mean any natural person, corporation, general or limited partnership,
limited liability company, joint venture, trust, association or entity of any
kind.
1.6 Investment of Exchange Fund. The Exchange Agent will invest any cash
included in the Exchange Fund, as directed by Parent. Any interest and other
income resulting from such investments will be paid to Parent.
1.7 Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by Parent, the
posting of a reasonable amount as Parent may direct as indemnity against any
claim that may be made against it with respect to such Certificate, the Exchange
Agent shall issue in exchange for such lost, stolen or destroyed Certificate the
Merger Consideration and, if applicable, any unpaid dividends or distributions
on shares of Parent Common Stock deliverable in respect thereof, in each case
pursuant to this Agreement.
<PAGE>
1.8 Withholding Rights. The Surviving Corporation or the Parent, as the
case may be, shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any Person such amounts as it is
required to deduct and withhold with respect to the making of such payment under
the Code, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by the Surviving Corporation or Parent, as the case
may be, such amounts withheld shall be treated for purposes of this Agreement as
having been paid to such Person in respect of which such deduction and
withholding was made by the Surviving Corporation or Parent as the case may be.
ARTICLE 2
CLOSING
2.1 Time and Place of Closing. Unless otherwise mutually agreed upon in
writing by Parent and the Company, the closing of the Merger (the "Closing")
will be held at 10:00 a.m., local time, on the first business day following the
date that all of the conditions precedent specified in Article VI (other than
those conditions that by their nature are to be satisfied at the Closing, but
subject to the fulfillment or waiver of those conditions) have been satisfied or
waived by the party or parties permitted to do so (such date being referred to
hereinafter as the "Closing Date"). The place of Closing shall be at the offices
of Sullivan & Cromwell, 125 Broad Street, New York, New York, or at such other
place as may be agreed between Parent and the Company.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in the Company's Form 10-K for the year ended December
31, 1999, or the Company's Form 10-Qs and Form 8-Ks filed since December 31,
1999 and prior to the date hereof or as set forth in the disclosure letter
delivered to Parent concurrent with the execution of this Agreement (the
"Company Disclosure Letter"), the Company hereby represents and warrants to
Parent and Merger Sub as follows:
3.1 Organization, Good Standing and Power
<PAGE>
(a) The Company is a corporation duly organized, validly existing and in
good standing under the Laws of the State of Connecticut and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted. The Company is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties make
such qualification or licensing necessary, except where the failure to be so
qualified or licensed or to be in good standing is not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect on the Company
(as defined herein). The Company has delivered to Parent complete and correct
copies of its Amended and Restated Certificate of Incorporation ("Certificate of
Incorporation") and its By-Laws, as amended to the date hereof. As used in this
Agreement, the phrase "Material Adverse Effect on the Company" means a material
adverse effect on the condition (financial or otherwise), properties, business,
or results of the operations of the Company and its subsidiaries (as defined
below) taken as a whole, other than (i) effects caused by changes in general
economic or securities markets conditions, (ii) changes or conditions that
affect the U.S. property-casualty insurance industry in general, (iii) changes
in generally accepted accounting principles, consistently applied ("GAAP") or
statutory accounting practices prescribed or permitted by the applicable
insurance regulatory authority and (iv) effects resulting from the announcement
of this Agreement and the transactions contemplated hereby.
For purposes of this Agreement; the term "Responsible Executive Officers"
shall mean the persons designated as such in Schedule 3.1 of the Company
Disclosure Letter. As used in this Agreement, the term "subsidiary" of a party
shall mean any corporation or other entity (including joint ventures,
partnerships and other business associations) in which such party directly or
indirectly owns outstanding capital stock or other voting securities having the
power to elect a majority of the directors or similar members of the governing
body of such corporation or other entity, or otherwise direct the management and
policies of such corporation or other entity.
(b) Each subsidiary of the Company (a "Company Subsidiary") is a
corporation duly organized, validly existing and in good standing under the Laws
of its jurisdiction of incorporation, and has the corporate or other power and
authority necessary for it to own or lease its properties and assets and to
carry on its business as it is now being conducted, except where the failure to
be so organized, existing or in good standing or to have such power and
authority is not, individually or in the aggregate, reasonably likely to have a
Material Adverse Effect on the Company. Each Company Subsidiary is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, except where the
failure to be so qualified or licensed or to be in good standing is not,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect on the Company. The Company has delivered or made available to Parent
complete and correct copies of the certificate of incorporation and any by-laws
(or comparable organizational documents for each Company Subsidiary).
<PAGE>
(c) Joint Ventures. Neither the Company nor any Company Subsidiary is a
party to or member of, or otherwise holds, any Joint Venture. With respect to
the joint ventures of the Company and the Company Subsidiaries that are not
Joint Ventures (A) except as set forth on Schedule 3.1(c) of the Company
Disclosure Letter, neither the Company nor any Company Subsidiary is liable for
any material obligations or material liabilities of any such joint ventures, (B)
except as set forth on Schedule 3.1(c) of the Company Disclosure Letter, neither
the Company nor any Company Subsidiary is obligated to make any loans or capital
contributions to, or to undertake any guarantees or obligations with respect to,
such joint ventures, (C) none of such joint ventures own any assets that are
material to the continued conduct of the business of the Company and the Company
Subsidiaries, taken as a whole, substantially as it is presently conducted, (D)
except as set forth on Schedule 3.1(c) of the Company Disclosure Letter, neither
the Company nor any Company Subsidiary is subject to any material limitation on
its right to compete or any material limitation on its right to otherwise
conduct business by reason of any agreement relating to such joint venture and
(E) to the knowledge of the Responsible Executive Officers after due inquiry,
each joint venture is in material compliance with all Laws of all Governmental
Entities. As used herein, "Joint Venture" shall mean those direct or indirect
joint ventures of the Company or any Company Subsidiary (i) that are not
otherwise a direct or indirect Company Subsidiary and (ii) in which the Company
or any Company Subsidiary as of the date of this Agreement have invested, or
made commitments to invest, $25 million or more, but "Joint Venture" and "joint
venture" shall not include any entities whose securities are held solely for
passive investment purposes by the Company or any Company Subsidiary. Schedule
3.1(c) of the Company Disclosure Letter contains, as of the date of this
Agreement, a correct and complete list of each joint venture of the Company or
any Company Subsidiary that is not a Joint Venture.
(d) The Company conducts its insurance operations through the subsidiaries
set forth on Schedule 3.1(d) of the Company Disclosure Letter (collectively, the
"Company Insurance Subsidiaries"). Each of the Company Insurance Subsidiaries is
(i) duly licensed or authorized as an insurance company and, where applicable, a
reinsurance company, in its jurisdiction of incorporation, (ii) duly licensed or
authorized as an insurance company and, where applicable, a reinsurance company,
in each other jurisdiction where it is required to be so licensed or authorized
and (iii) duly authorized in its jurisdiction of incorporation and each other
applicable jurisdiction to write each line of business reported as being written
in the Company SAP Statements (as defined in Section 3.7(a)), except, in any
such case, where the failure to be so licensed or authorized is not,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect on the Company or to prevent, materially hinder or materially delay the
ability of the Company to consummate the transactions contemplated by this
Agreement. The Company has made all required filings under applicable insurance
holding company statutes, except where the failure to file is not, individually
or in the aggregate, reasonably likely to have a Material Adverse Effect on the
Company.
<PAGE>
3.2 Capitalization. The authorized capital stock of the Company as of the
date hereof consists of 50,000,000 shares of Company Common Stock, of which as
of August 16, 2000, 29,037,767 shares were issued and outstanding; 500,000
shares of preferred stock, no par value per share, of which as of the date
hereof 250,000 shares have been designated as "Series A Junior Participating
Preferred Stock" and 2,000 shares have been designated as "Series B Convertible
Preferred Stock," of which as of August 16, 2000, no shares were issued and
outstanding. The Company has no commitments to issue or deliver Company Common
Stock or any other securities, except that, as of August 16, 2000 there were (i)
4,011,150 shares of Company Common Stock subject to issuance upon exercise of
outstanding Company Options (as defined in Section 5.17(a)) pursuant to the
Company 1985 Stock Option Plan, as amended and restated effective September 21,
1998, and to the Company 1995 Stock Option Plan, as amended and restated
effective September 21, 1998 (together, the "Company Option Plans");(ii) 69,444
shares of Company Common Stock subject to issuance pursuant to the Company
Directors Stock and Deferred Compensation Plan, as amended and restated
effective September 21, 1998; and (iii) 5,294,118 shares issuable upon
conversion of the 7.0% Convertible Subordinated Deferrable Interest Debentures
due December 31, 2017 ("Capital Securities") or any securities or obligations
convertible or exchangeable into or exercisable for, or giving any Person a
right to subscribe for or acquire, any securities of the Company. The shares of
Company Common Stock issuable pursuant to the Stock Option Agreement have been
duly reserved for issuance by the Company, and upon any issuance of such shares
in accordance with the terms of the Stock Option Agreement, such shares will be
duly authorized, validly issued, fully paid and nonassessable and free and clear
of any liens, charges, pledges, security interests or other encumbrances. All
outstanding shares of Company Common Stock are, and all shares which may be
issued prior to the Effective Time pursuant to any outstanding Company Options
will be when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to any preemptive rights. Other than the Company
Options and the Capital Securities, there are no preemptive or other outstanding
options, warrants or rights to purchase or acquire from the Company any capital
stock of the Company, there are no existing registration covenants with the
Company with respect to outstanding shares of the Company Common Stock or other
securities, and there are no convertible securities or other contracts,
commitments, agreements, understandings, arrangements or restrictions by which
the Company is bound to issue or sell any additional shares of its capital stock
or other securities. The Company has provided to Parent a correct and complete
list of each Company Option, including the holder, date of grant, exercise price
and number of shares of Company Common Stock subject thereto.
<PAGE>
3.3 Subsidiaries. The only direct or indirect subsidiaries of the Company
and (except for portfolio investments and joint ventures) other ownership
interests held directly or indirectly by the Company in any other Person are
those listed in Schedule 3.3 of the Company Disclosure Letter. The Company owns,
directly or indirectly, all of such outstanding voting securities or other
ownership interests of each Company Subsidiary free and clear of all liens,
charges, pledges, security interests or other encumbrances. All of the capital
stock or other ownership interests of each Company Subsidiary has been duly
authorized, and is validly issued, fully paid and nonassessable. Except as set
forth in Schedule 3.3 of the Company Disclosure Letter, there are no preemptive
or other outstanding options, warrants or rights to subscribe to, or any
contracts or commitments to issue or sell any shares of the capital stock or any
securities or obligations convertible into or exchangeable for, or giving any
Person any right to acquire, any shares of the capital stock of any Company
Subsidiary to which the Company or any Company Subsidiary is a party. Except as
set forth in Schedule 3.3 of the Company Disclosure Letter, there are no voting
trusts or other agreements or understandings with respect to the voting of
capital stock of the Company or any Company Subsidiary to which the Company or
any Company Subsidiary is a party. The Company does not own, directly or
indirectly, any voting interest that may require a filing by Parent under the
HSR Act.
3.4 Authority; Enforceability. The Company has the corporate power and
authority to enter into this Agreement and, subject to obtaining the required
approval of the stockholders of the Company with respect to the consummation of
the Merger, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the Stock Option Agreement, and the
consummation of the transactions contemplated hereby and thereby, have been duly
authorized by all necessary corporate action on the part of the Company, and
this Agreement and the Stock Option Agreement have been duly executed and
delivered by the Company and each constitutes the valid and binding obligation
of the Company, enforceable against it in accordance with its terms, (i) except
as may be limited by bankruptcy, insolvency, moratorium or other similar Laws
affecting or relating to enforcement of creditors' rights generally and (ii)
subject to general principles of equity.
3.5 Non-Contravention; Consents
(a) Except as set forth in Schedule 3.5 of the Company Disclosure Letter,
neither the execution, delivery and performance by the Company of this Agreement
or the Stock Option Agreement, nor the consummation by the Company of the
transactions contemplated hereby or thereby, nor compliance by the Company with
any of the provisions hereof or thereof, will:
<PAGE>
(i) violate, conflict with, result in a breach of any provision of,
constitute a default (or an event that, with notice or lapse of time or
both, would constitute a default) under, result in the termination of,
accelerate the performance required by, result in a change in the rights or
obligations of any party under, or result in a right of termination or
acceleration, or the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company or any
Company Subsidiary, under any of the terms, conditions or provisions of,
(x) the Certificate of Incorporation or By-Laws of the Company or the
comparable charter or organizational documents of any Company Subsidiary,
or (y) any note, bond, mortgage, indenture, deed of trust, licence, lease,
contracts, agreement or other instrument or obligation to which the Company
or any of the Company Subsidiaries is a party, or by which the Company or
any of the Company Subsidiaries may be bound, or to which the Company or
any of the Company Subsidiaries or the properties or assets of any of them
may be subject, and that, in any such event specified in this clause (y),
is reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on the Company or to prevent, materially hinder or
materially delay the ability of the Company to consummate the transactions
contemplated by this Agreement; or
(ii) violate any valid and enforceable judgment, ruling, order, writ,
injunction, decree, or any statute, rule or regulation applicable to the
Company or any of the Company Subsidiaries or any of their respective
properties or assets where such violation is, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect on the
Company or to prevent, materially hinder or materially delay the ability of
the Company to consummate the transactions contemplated by this Agreement.
<PAGE>
(b) Except for (i) the filing of the applications and notices with
applicable foreign, federal and state regulatory authorities governing insurance
(including the Commissioners of Insurance in Texas and Connecticut, and the
insurance regulatory authorities and other applicable regulatory authorities in
the United Kingdom, Canada, Bermuda, Malaysia, Australia, Spain and Hong Kong)
(the "Insurance Authorities") and the approval of such applications or the grant
of required licenses by such authorities or the expiration of any applicable
waiting periods thereunder, (ii) the filing of notification and report forms
with the United States Federal Trade Commission and the United States Department
of Justice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and the expiration or termination of any applicable
waiting period thereunder, (iii) the filing with the Securities and Exchange
Commission (the "SEC") of a proxy statement (the "Proxy Statement") in
definitive form relating to the meeting of the Company's stockholders to be held
in connection with this Agreement and the transactions contemplated hereby (the
"Stockholders' Meeting") and the filing and declaration of effectiveness of the
registration statement on Form S-4 relating to the shares of Parent Common Stock
to be issued in the Merger, (iv) filings with state securities or "blue sky"
laws, (v) the filing of the Connecticut Certificate of Merger with the Secretary
of State of the State of Connecticut pursuant to the CBCA, (vi) the filing of
the Delaware Certificate of Merger with the Secretary of State of the State of
Delaware pursuant to the DGCL, (vii) the approval of the listing of the Parent
Common Stock to be issued in the Merger on the New York Stock Exchange or (viii)
the filing with the SEC of a Schedule 13D, (the "Schedule 13D"), no notices to,
consents or approvals of, or filings or registrations with, any court, federal,
state, local or foreign governmental or regulatory body (including a
self-regulatory body) or authority (each, a "Governmental Authority") or with
any third party are necessary in connection with the execution and delivery by
the Company of this Agreement or the Stock Option Agreement and the consummation
by the Company of the transactions contemplated hereby and thereby, except for
such notices, consents, approvals, filings or registrations, the failure of
which to be made or obtained are not, individually or in the aggregate,
reasonably likely to have a Material Adverse Effect on the Company or to
prevent, materially hinder or materially delay the ability of the Company to
consummate the transactions contemplated by this Agreement.
3.6 SEC Documents; GAAP Financial Statements. The Company has timely filed
all required forms, reports, schedules, statements and other documents
(including exhibits and all other information incorporated therein) with the SEC
since January 1, 1998. The Company has delivered or made available to Parent all
registration statements, proxy statements, annual reports, quarterly reports and
reports on Form 8-K and other forms, reports, schedules and documents, if any,
filed by the Company with the SEC since January 1, 1998 and prior to the date
hereof (as such documents have been amended since the time of their filing,
collectively, the "Company Reports"). As of their respective dates or, if
amended, as of the date of the last such amendment, the Company Reports (i) were
timely filed and complied in all material respects with the applicable
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as the
case may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such Company Reports, and (ii) did not contain any untrue
statement of a material fact or omit 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. The consolidated
financial statements of the Company included in the Company Reports complied, as
of their respective dates of filing with the SEC, in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles (except, in the case of unaudited consolidated
quarterly statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present in all material respects the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited quarterly
statements, to normal year-end adjustments). Except for those obligations and
liabilities that are reflected or reserved against on the balance sheet included
in the Company's Annual Report on Form 10-K for the year ended December 31, 1999
or in the footnotes to the financial statements included therein, neither the
Company nor any Company Subsidiary has any liabilities or obligations of any
nature whatsoever (whether accrued, absolute, contingent, known, unknown or
otherwise), except for liabilities or obligations incurred since December 31,
1999 in the ordinary course of business consistent with past practice, that are
not, individually or in the aggregate, reasonably likely to have a Material
Adverse Effect on the Company or to prevent, materially hinder or materially
delay the ability of the Company to consummate the transactions contemplated by
this Agreement.
<PAGE>
3.7 Statutory Statements
(a) The Company has previously furnished or made available to Parent true
and complete copies of the annual statements or other comparable statements for
each of the years ended December 31, 1997, December 31, 1998, and December 31,
1999, and for the quarterly periods ended March 31, 2000 and June 30, 2000,
together with all exhibits and schedules thereto (collectively, the "Company SAP
Statements"), with respect to each of the Company Insurance Subsidiaries, in
each case as filed with the Governmental Authority charged with supervision of
insurance companies of such Company Insurance Subsidiary's jurisdiction of
domicile. The Company SAP Statements were prepared in conformity with statutory
or other applicable accounting practices prescribed or permitted by such
Governmental Authority applied on a consistent basis ("SAP") and present fairly,
to the extent required by and in conformity with SAP in all material respects
the statutory financial condition of such Company Insurance Subsidiary (in the
case of domestic U.S. Company Insurance Subsidiaries) or applicable regulatory
financial condition (in the case of non-U.S. Company Insurance Subsidiaries) at
their respective dates and the results of operations, changes in capital and
surplus and cash flow of such Company Insurance Subsidiary for each of the
periods then ended. No deficiencies or violations material to the financial
condition of any of the Company Insurance Subsidiaries, individually, whether or
not material in the aggregate, have been asserted in writing by any Governmental
Authority which have not been cured or otherwise resolved to the satisfaction of
such Governmental Authority (unless not currently pending). The Company has made
available to Parent true and complete copies of all financial examination and
other reports of Governmental Authorities, including the most recent reports of
state insurance regulatory authorities, relating to each Company Insurance
Subsidiary. The quarterly statements of each Company Insurance Subsidiary for
the quarter ending March 31, 2000 as filed and the quarterly statements of each
Company Insurance Subsidiary thereafter filed prior to the Closing, when filed
with the Governmental Authorities, including insurance regulatory authorities,
of the applicable jurisdictions, presented and will present fairly, to the
extent required by and in conformity with SAP in all material respects the
statutory financial condition of such Company Insurance Subsidiary (in the case
of domestic U.S. Company Insurance Subsidiaries) or applicable regulatory
financial condition (in the case of non-U.S. Company Insurance Subsidiaries) at
their respective dates indicated and the results of operations, changes in
capital and surplus and cash flow of such Company Insurance Subsidiary for each
of the periods therein specified (subject to normal year-end adjustments).
<PAGE>
(b) All reserves for claims, losses (including, without limitation,
incurred but not reported losses) and loss adjustment expenses, (whether
allocated or unallocated) as reflected in the Company SAP Statements, were
determined in accordance with SAP, consistently applied, and made reasonable
provision in the aggregate to cover the total amount of liabilities under all
outstanding policies and contracts of insurance, reinsurance and retrocession as
of the dates of such statutory statements except for any deficiency which is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on the Company or to prevent, materially hinder or materially delay the
ability of the Company to consummate the transactions contemplated by this
Agreement. Each Company Insurance Subsidiary owns assets that qualify as
admitted assets under applicable Insurance Laws in an amount at least equal to
any such required reserves plus its minimum statutory capital and surplus as
required under applicable Insurance Laws. No Company Insurance Subsidiary's
reserves have been discounted on either a tabular or non-tabular basis.
3.8 Absence of Certain Changes or Events. Since December 31, 1999, the
Company and the Company Subsidiaries have conducted their respective businesses
only in, and have not engaged in any material transaction other than according
to, the ordinary course of such business consistent with past practice, and
there has not been (i) any change, event, condition (financial or other) or
state of circumstances or facts which, individually or in the aggregate, has had
or is reasonably likely to have a Material Adverse Effect on the Company, (ii)
any declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of the Company's
outstanding capital stock other than regular quarterly dividends with respect to
the Company Common Stock which do not exceed $0.44 per share per quarter, (iii)
any split, combination or reclassification of any of the Company's outstanding
capital stock or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of the
Company's outstanding capital stock, (iv) except as set forth in Schedule 3.8 of
the Company Disclosure Letter, (w) any material change to any Company Employee
Plan, (x) any granting by the Company or any Company Subsidiary of any increase
in compensation or benefits or the opportunity to earn compensation or benefits
to any executive officers, except for increases in the ordinary course of
business consistent with prior practice or as was required under employment
agreements in effect as of December 31, 1999, (y) any granting by the Company or
any Company Subsidiary to any such executive officer or other employee of any
increase in severance or termination pay, except as was required under any
employment, severance or termination agreements in effect as of December 31,
1999, which agreements are identified in the Company Disclosure Letter, or (z)
any entry by the Company or any Company Subsidiary into any new severance or
termination agreement with any such executive officer or other employee, (v) any
material addition, or any development involving a prospective material addition,
to the Company's aggregate reserves for policy claims, (vi) any material change
in accounting methods, principles or practices by the Company or any Company
Subsidiary, except insofar as may be appropriate to conform to changes in
statutory accounting rules or generally accepted accounting principles, or (vii)
any material change in the practices, policies, methods, assumptions or
principles of any Company Subsidiary with respect to underwriting, pricing,
reserving, claims administration or investment.
<PAGE>
3.9 Taxes and Tax Returns
(a) As used in this Agreement, "Tax" shall mean any federal, state, county,
local or foreign taxes, charges, fees, levies, or other assessments, including
all net income, gross income, premium, sales and use, ad valorem, transfer,
gains, profits, windfall profits, excise, franchise, real and personal property,
gross receipts, capital stock, production, business and occupation, employment,
disability, payroll, license, estimated, stamp, customs duties, severance or
withholding taxes, other taxes or similar charges of any kind whatsoever imposed
by any Governmental Authority, whether imposed directly on a Person or resulting
under Treasury Regulation Section 1.1502-6 (or any similar Law), as a transferee
or successor, by contract or otherwise and includes any interest and penalties
(civil or criminal) on or additions to any such taxes or in respect of a failure
to comply with any requirement relating to any Tax Return and any expenses
incurred in connection with the determination, settlement or litigation of any
tax liability. "Tax Return" shall mean a report, return or other information
required to be supplied to a Governmental Authority with respect to Taxes
including, where permitted or required, combined or consolidated returns for any
group of entities;
(b) The Company and the Company Subsidiaries have (i) duly filed (or there
has been filed on their behalf) with appropriate Governmental Authorities all
Tax Returns required to be filed by them, on or prior to the date hereof, and
all Tax Returns were in all material respects true, complete and correct and
filed on a timely basis except to the extent that any failure to file is not,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect on the Company, and (ii) duly paid in full within the time and in the
manner prescribed by Law or made provisions in accordance with generally
accepted accounting principles with respect to Taxes not yet due and payable (or
there has been paid or provision has been made on their behalf) for the payment
of all Taxes for all periods ending on or prior to the date hereof, except to
the extent that any failure to fully pay or make provision for the payment of
such Taxes is not, individually or in the aggregate, reasonably likely to have a
Material Adverse Effect on the Company;
(c) No federal, state, local or foreign audits, investigations or other
administrative proceedings or court proceedings are presently pending or
threatened with regard to any Taxes or Tax Returns of the Company or the Company
Subsidiaries, and no issues have been raised in writing by any taxing authority
in connection with any Tax or Tax Return wherein an adverse determination or
ruling in any one such proceeding or in all such proceedings in the aggregate is
reasonably likely to have a Material Adverse Effect on the Company;
<PAGE>
(d) The federal income tax returns of the Company and the Company
Subsidiaries have been examined by the Internal Revenue Service ("IRS") (or the
applicable statutes of limitation for the assessment of federal income taxes for
such periods have expired) for all periods through and including December 31,
1995, and no material deficiencies for any Taxes were proposed, assessed or
asserted as a result of such examinations that have not been resolved and fully
paid. Neither the Company nor any of the Company Subsidiaries has granted any
requests, agreements, consents or waivers to extend the statutory period of
limitations applicable to the assessment of any Taxes with respect to any Tax
Returns of the Company or any of the Company Subsidiaries, which period (after
giving effect to such extension) has not yet expired;
(e) Except as set forth in Schedule 3.9(e) of the Company Disclosure
Letter, neither the Company nor any Company Subsidiary is a party to any
agreement relating to the allocation or sharing of Taxes. Neither the Company
nor any Company Subsidiary (i) has been a member of an affiliated group filing a
U.S. consolidated federal income tax return or an affiliated, consolidated,
combined or unitary group for state income tax return purposes (other than a
group the common parent of which was the Company) or (ii) has any liability for
Taxes of any Person under Treasury Regulation Section 1.1502-6 (or any provision
of state, local or foreign law in respect of an affiliated, consolidated,
combined or unitary group for state income tax return purposes), as a transferee
or successor, by contract or otherwise. Neither the Company nor any Company
Subsidiary is currently under (i) any obligation to pay any amounts as a result
of being party, or having been party, to any Tax sharing agreement or (ii) any
express or implied obligation to indemnify any other Person for Taxes except for
such indemnification obligations which are not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect on the Company;
(f) There are no Tax liens upon any asset of the Company or any Company
Subsidiary except liens for Taxes not yet due and payable, liens which are not,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect on the Company or liens which otherwise are being contested in good
faith;
(g) Neither the Company nor any Company Subsidiary has received a Tax
Ruling (as defined herein) or entered into a Closing Agreement (as defined
herein) with any taxing authority. "Tax Ruling," as used in this Agreement,
shall mean a written ruling of a taxing authority relating to Taxes. "Closing
Agreement," as used in this Agreement, shall mean a written and legally binding
agreement with a taxing authority relating to Taxes;
(h) All transactions that could give rise to an understatement of federal
income tax have been adequately disclosed on the Tax Returns of the Company and
any Company Subsidiary in accordance with Section 6662(d)(2)(B) of the Code
except for such understatements which are not, individually or in the aggregate,
reasonably likely to have a Material Adverse Effect on the Company;
<PAGE>
(i) Except as set forth on Schedule 3.9(i) of the Company Disclosure
Letter, neither the Company nor any Company Subsidiary is required to include in
income any adjustment pursuant to Section 481(a) of the Code by reason of a
voluntary change in accounting method initiated by the Company or any Company
Subsidiary, and the IRS has not proposed any such adjustment or change in
accounting method;
(j) Except as set forth in Schedule 3.9(j) of the Company Disclosure
Letter, any amount that could be received (whether in cash or property or the
vesting of property) as a result of any of the transactions contemplated by this
Agreement by any employee, officer or director of the Company or any Company
Subsidiary who is a "disqualified individual" (as such term is defined in
proposed Treasury Regulation Section 1.280G-1) under any employment, severance
or termination agreement, other compensation arrangement or benefit plan of the
Company or a Company Subsidiary currently in effect would not be characterized
as an "excess parachute payment" (as such term is defined in Section 280G(b)(1)
of the Code). In addition, except as set forth in Schedule 3.9(j) of the Company
Disclosure Letter, Section 162(m) of the Code will not apply to any amount paid
or payable by the Company or any Company Subsidiary under any contract or
Company Employee Plan (as defined in Section 3.13(a)) currently in effect;
(k) Neither the Company nor any Company Subsidiary has taken any action or
failed to take any action which action or failure to take action could
jeopardize the qualification of the Merger as a reorganization within the
meaning of Section 368(a) of the Code; and
(l) The Company is not a "United States real property holding corporation"
as defined in Section 897(b)(2) of the Code.
(m) HSB Engineering Insurance Limited is a party to a gain recognition
agreement dated December 21, 1995, which expires December 31, 2008. A copy of
the agreement is included in Schedule 3.9(m) of the Company Disclosure Letter.
<PAGE>
3.10 Litigation. Except as set forth in Schedule 3.10 of the Company
Disclosure Letter, neither the Company nor any Company Subsidiary is a party to
any pending or, to the knowledge of the Responsible Executive Officers after due
inquiry, threatened claim, action, suit, investigation or proceeding which is,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect on the Company or to prevent, materially hinder or materially delay the
ability of the Company to consummate the transactions contemplated by this
Agreement. There is no outstanding order, writ, judgment, stipulation,
injunction, decree, determination, award or other decision against the Company
or any Company Subsidiary which is, individually or in the aggregate, reasonably
likely to have a Material Adverse Effect on the Company or to prevent,
materially hinder or materially delay the ability of the Company to consummate
the transactions contemplated by this Agreement. In the reasonable judgment of
the Responsible Executive Officers the aggregate case reserves maintained by the
Company and its Subsidiaries for cases in litigation are adequate to cover the
reasonably likely expenses of the Company and its subsidiaries with respect to
such cases based on the facts currently known by the Company, provided, however,
that this representation shall not be deemed to be a representation as to the
adequacy of reserves under outstanding policies and contracts of insurance,
reinsurance and retrocession in the aggregate.
3.11 Contracts and Commitments. All of the contracts, agreements or
arrangements of the Company and the Company Subsidiaries that are required to be
described in the Company Reports or to be filed as exhibits thereto (the
"Contracts") are described in the Company Reports or filed as exhibits thereto
and are in full force and effect. True and complete copies of all such Contracts
have been delivered or have been made available by the Company to Parent.
Neither the Company nor any Company Subsidiary has violated, is in breach of any
provision of, or is in default (or, with notice or lapse of time or both, would
be in default) under, or has taken any action resulting in the termination of,
acceleration of performance required by, or resulting in a right of termination
or acceleration under, any of the Contracts, except for such violations,
breaches, defaults, terminations or accelerations which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
the Company or to prevent, materially hinder or materially delay the ability of
the Company to consummate the transactions contemplated by this Agreement.
Except as set forth in Schedule 3.11 of the Company Disclosure Letter, neither
the Company nor any of the Company Subsidiaries is party to any contract,
agreement or arrangement containing any provision or covenant limiting in any
manner the ability of the Company or any Company Subsidiary to (a) sell any
products or services of or to any other Person, (b) engage in any line of
business, or (c) compete with or to obtain products or services from any Person
or limiting the ability of any Person to provide products or services to the
Company or any Company Subsidiary. Except as set forth in Schedule 3.11 of the
Company Disclosure Letter, neither the Company nor any of the Company
Subsidiaries is a party to any contract, agreement or arrangement which provides
for payments in the event of a change of control.
<PAGE>
3.12 Registration Statement, Etc. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in (i) the
Registration Statement to be filed by Parent with the SEC in connection with the
Parent Common Stock to be issued in the Merger (the "Registration Statement"),
(ii) the Proxy Statement to be mailed to the Company's stockholders in
connection with the Stockholders' Meeting to be called to consider the Merger,
and (iii) any other documents to be filed with the SEC in connection with the
transactions contemplated hereby will, at the respective times such documents
are filed and at the time such documents become effective or at the time any
amendment or supplement thereto becomes effective contain any untrue statement
of a material fact, or omit to state any material fact required or necessary in
order to make the statements therein not misleading; and, in the case of the
Registration Statement, when it becomes effective or at the time any amendment
or supplement thereto becomes effective, cause the Registration Statement or
such supplement or amendment to 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 not misleading; or, in the case of the
Proxy Statement, when first mailed to the stockholders of the Company, or in the
case of the Proxy Statement or any amendment thereof or supplement thereto, at
the time of the Stockholders' Meeting, cause the Proxy Statement or any
amendment thereof or supplement thereto to contain any untrue statement of a
material fact, or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. All documents that the
Company is responsible for filing with the SEC and any other regulatory agency
in connection with the Merger will comply as to substance and form in all
material respects with the provisions of applicable Law, except that no
representation is made by the Company with respect to statements made therein
based on information supplied by or on behalf of Parent expressly for inclusion
therein or with respect to information concerning Parent or Merger Sub which is
included or incorporated by reference in the Registration Statement or the Proxy
Statement.
3.13 Employee Benefit Plans
(a) Schedule 3.13(a) of the Company Disclosure Letter contains a list of
each plan, program, arrangement, practice and contract which is maintained by
the Company or any Company Subsidiary under which the Company or any Company
Subsidiary is obligated to make contributions and which provides benefits or
compensation to or on behalf of current or former employees, officers or
directors, including but not limited to (i) all bonus, incentive compensation,
stock option, stock purchase, deferred compensation, retirement, fringe
benefits, commission, severance, golden parachute plans, programs, contracts or
arrangements, (ii) executive compensation plans, programs, contracts or
arrangements and (iii) "employee benefit plans" as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). All
such plans, programs, arrangements, practices or contracts are referred to
herein as "Company Employee Plans." The Company has made available to Parent the
plan documents or other writing constituting each Company Employee Plan and, if
applicable, the trust, insurance contract or other funding arrangement, the most
recently prepared ERISA summary plan description, the three most recent Forms
5500, any summary of material modifications, and the most recently prepared
actuarial report, financial statements, and annual reports for each such Plan.
The Company has identified those Company Employee Plans which the Company
intends to satisfy the requirements of Section 401(a) of the Code and has made
available to Parent accurate copies of the most recent favorable determination
letters for such plans.
<PAGE>
(b) No liability under Title IV or Section 302 of ERISA that is reasonably
likely, in the aggregate, to have a Material Adverse Effect on the Company has
been incurred by the Company or any entity (each, an "ERISA Affiliate") which
together with the Company would be deemed to be a "single employer" with the
Company within the meaning of Section 4001 of ERISA that has not been satisfied
in full, and no condition exists that presents a material risk to the Company or
any ERISA Affiliate of incurring any such liability.
(c) Neither the Company nor any ERISA Affiliate has at any time within the
last six years contributed or had any obligation to contribute to a
"multiemployer plan," as defined in Section 3(37) of ERISA, and no Company
Employee Plan is a plan described in Section 4063(a) of ERISA. All contributions
required to be made under the terms of any Company Employee Plan have been
timely made or have been reflected on the Company SAP Statements. Under each
Company Employee Plan that is an "employee pension benefit plan" (within the
meaning of Section 3(2) of ERISA, as of the last day of the most recent plan
year ended prior to the date hereof, the actuarially determined present value of
all "benefit liabilities", within the meaning of Section 4001(1)(16) of ERISA
(as determined on the basis of the actuarial assumptions contained in the Plan's
most recent actuarial valuation), did not exceed the then current value of the
assets of such Plan, and there has been no material change in the financial
condition of such Plan since the last day of the most recent plan year. There
has been no amendment to, announcement by the Company or any Company Subsidiary
relating to, or change in employee participation or coverage under, any Company
Employee Plan which would increase materially the expense of maintaining such
Plan above the level of the expense incurred therefor for the most recent fiscal
year.
(d) Except as set forth in Schedule 3.13(d) of the Company Disclosure
Letter, neither the Company nor any Company Subsidiary is obligated to provide
post-employment or retirement medical benefits or any other unfunded welfare
benefits to or on behalf of any Person who is no longer an employee of Company
or any Company Subsidiary, except for health continuation coverage as required
by Section 4980B of the Code or Part 6 of Title I of ERISA. In respect of any
Company Employee Plan set forth on Schedule 3.13(d) of the Company Disclosure
Letter pursuant to the preceding sentence, other than the Employee Agreements
listed therein, the Company or any Company Subsidiary may amend or terminate
such Plan at any time without incurring any liability thereunder except for
benefits incurred through such amendment or termination date.
<PAGE>
(e) Neither the Company nor any other "disqualified person" or "party in
interest" (as defined in Section 4975(e)(2) of the Code and Section 3(14) of
ERISA, respectively) has engaged in any transaction in connection with any
Company Employee Plan that could reasonably be expected to result in the
imposition of a penalty pursuant to Section 502(i) of ERISA, damages pursuant to
Section 409 of ERISA or a Tax pursuant to Section 4975 of the Code which are,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect. Each Company Employee Plan subject to the requirements of Section 601 of
ERISA has been operated in substantial compliance therewith. The Company has not
contributed to a "nonconforming group health plan" (as defined in Section
4000(c) of the Code).
(f) Each Company Employee Plan has at all times been maintained, by its
terms and in operation, in substantial compliance with all applicable Laws, and
each of those Company Employee Plans which is intended to be qualified under
Section 401(a) of the Code is so qualified and has at all times been maintained,
by its terms and in operation, in accordance with Section 401(a) of the Code.
(g) Schedule 3.13(g) of the Company Disclosure Letter contains a true and
complete summary or list of all material employment contracts and other
arrangements or agreements (including Company Employee Plans) that contain
"change in control" arrangements or other provisions pursuant to which benefits
or protections are triggered as a result of transactions affecting the ownership
of the Company or the composition of its Board of Directors.
(h) There are no pending, or, to the knowledge of the Responsible Executive
Officers, threatened or anticipated, claims that are, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect by or on behalf
of any Company Employee Plan, by any employee or beneficiary covered under any
such Plan, or otherwise involving any Company Employee Plan (other than routine
claims for benefits).
(i) Except as set forth in Schedule 3.13(i) of the Company Disclosure
Letter, the execution of or performance of the transactions contemplated by this
Agreement, whether alone or in conjunction with a termination of employment,
will not create, (A) accelerate or increase any obligations under any Company
Employee Plan, (B) accelerate the time of payment or vesting or trigger any
payment or funding (through a grantor trust or otherwise) of compensation or
benefits under, or trigger any other material obligation pursuant to, any of the
Company Employee Plans, (C) result in any breach or violation of, or default
under, any of the Company Employee Plans or (D) require the Company (or after
the Merger, Parent) to recognize any compensation expense, or to change the
basis on which compensation expense is charged, in respect of any outstanding
stock option or other equity-based award.
<PAGE>
(j) The trust agreement between the Company and Fleet National Bank dated
January 29, 1988, amended and restated as of May 30, 1997 and further amended as
of October 28, 1998 (the "Trust"), has been amended effective as of August 16,
2000 to provide that the execution of this Agreement shall not constitute a
"Potential Change in Control" (as defined in the Trust) of the Company and the
consummation of any of the transactions contemplated by this agreement shall not
constitute a charge in control of the Company.
3.14 Collective Bargaining; Labor Disputes; Compliance. There are no
collective bargaining agreements to which the Company or any of the Company
Subsidiaries is a party or under which it is bound. The employees of the Company
and the Company Subsidiaries are not represented by any unions. Neither the
Company nor any of the Company Subsidiaries is currently, nor has been during
the past three years, the subject of any union organizing drive. Neither the
Company nor any of the Company Subsidiaries is currently, nor has been during
the past five years, the subject of any strike, dispute, walk-out, work
stoppage, slow down or lockout involving the Company or any of the Company
Subsidiaries nor, to the knowledge of the Responsible Executive Officers after
due inquiry, is any such activity threatened. Each of the Company and each
Company Subsidiary has substantially complied with all Laws relating to the
employment and safety of labor, including the National Labor Relations Act and
other provisions relating to wages, hours, benefits, collective bargaining and
all applicable occupational safety and health acts and Laws. Neither the Company
nor any Company Subsidiary has engaged in any unfair labor practice or
discriminated on the basis of race, age, sex, disability or otherwise in its
employment conditions or practices with respect to its employees in a manner
which is, individually or in the aggregate, reasonably likely to have a Material
Adverse Effect on the Company. No action, suit, complaint, charge, grievance,
arbitration, employee proceeding or investigation by or before any court,
governmental entity, administrative agency or commission, brought by or on
behalf of any employee, prospective employee, former employee, retired employee,
labor organization or other representative of the Company's employees is pending
or, to the knowledge of the Responsible Executive Officers after due inquiry,
threatened against the Company except as disclosed in Schedule 3.14 to the
Company Disclosure Letter. The Company is not a party to or otherwise bound by
any consent decree with or citation by any government entity relating to the
Company's employees or employment practices relating to the Company's employees.
The Company is in compliance with its obligations with respect to the Company's
employees pursuant to the Worker Adjustment and Retraining Notification Act of
1988, and all other notification and bargaining obligations arising under any
collective bargaining agreement, statute or otherwise.
3.15 No Violation of Law
<PAGE>
(a) The business and operations of the Company, and the Company Insurance
Subsidiaries, have been conducted in compliance with all applicable domestic and
foreign statutes, regulations and rules regulating the business and products of
insurance and reinsurance and all applicable orders and directives of insurance
regulatory authorities and market conduct recommendations resulting from market
conduct examinations by insurance regulatory authorities (collectively,
"Insurance Laws"), except where the failure to so conduct such business and
operations is not, individually or in the aggregate, reasonably likely to have a
Material Adverse Effect on the Company or to prevent, materially hinder or
materially delay the ability of the Company to consummate the transactions
contemplated by this Agreement. Notwithstanding the generality of the foregoing,
each Company Insurance Subsidiary and its agents (including, to the knowledge of
the Responsible Executive Officers, any fronting company or anyone acting as
agent in selling insurance products on the Company's or any Company Subsidiary's
behalf) have marketed, sold and issued insurance products in compliance in all
material respects with all Laws applicable to the business of such Company
Insurance Subsidiary and in the respective jurisdictions in which such products
have been sold, including, without limitation, in compliance in all material
respects with all applicable prohibitions against "redlining" or withdrawal of
business lines. In addition (i) there is no pending or, to the knowledge of the
Responsible Executive Officers, threatened charge by any insurance regulatory
authority that any of the Company Insurance Subsidiaries has violated, nor any
pending or, to the knowledge of the Responsible Executive Officers, threatened
investigation by any insurance regulatory authority with respect to possible
violations of, any applicable Insurance Laws where such violations are,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect on the Company or to prevent, materially hinder or materially delay the
ability of the Company to consummate the transactions contemplated by this
Agreement; and (ii) none of the Company Insurance Subsidiaries is subject to any
agreement, order or decree of any insurance regulatory authority relating
specifically to such Company Insurance Subsidiary (as opposed to insurance
companies generally) which are, individually or in the aggregate, reasonably
likely to have a Material Adverse Effect on the Company or to prevent,
materially hinder or materially delay the ability of the Company to consummate
the transactions contemplated by this Agreement.
<PAGE>
(b) In addition to Insurance Laws, the business and operations of the
Company and the Company Subsidiaries have been, and are being, conducted in
compliance with all other applicable federal, state, local or foreign laws,
statutes, ordinances, rules, regulations and orders of all Governmental
Authorities (collectively, with Insurance Laws, "Laws"), except where such
noncompliance, individually or in the aggregate, is not reasonably likely to
have a Material Adverse Effect on the Company or to prevent, materially hinder
or materially delay the ability of the Company to consummate the transactions
contemplated by this Agreement. In addition to Insurance Laws: (i) neither the
Company nor any Company Subsidiary has been charged with or, to the knowledge of
the Responsible Executive Officers is now under investigation with respect to, a
violation of any applicable Law of a Governmental Authority or other regulatory
body, which violations or penalties are reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on the Company or to prevent,
materially hinder or materially delay the ability of the Company to consummate
the transactions contemplated by this Agreement; (ii) neither the Company nor
any Company Subsidiary is a party to or bound by any order, judgment, decree or
award of a Governmental Authority or other regulatory body which has or would
reasonably be likely to have, individually or in the aggregate, a Material
Adverse Effect on the Company or to prevent, materially hinder or materially
delay the ability of the Company to consummate the transactions contemplated by
this Agreement; (iii) neither the Company nor any Company Subsidiary is a party
to any written agreement, consent agreement or memorandum of understanding with,
or is a party to any commitment letter or similar undertaking to, or is subject
to any order or directive by, or is a recipient of any supervisory letter from
or has adopted any resolutions at the request of any Governmental Authority that
restricts in any material respect the conduct of its business or that in any
manner relates to its capital adequacy, its credit policies, its management or
its business (each, a "Regulatory Agreement"), nor has the Company or any of the
Company Subsidiaries been advised in writing or, to the knowledge of the
Responsible Executive Officers, verbally, since January 1, 1998 by any
Governmental Authority that it is considering issuing or requesting any such
Regulatory Agreement; and (iv) the Company and the Company Subsidiaries have
filed all reports required to be filed with any Governmental Authority on or
before the date hereof as to which the failure to file such reports is
reasonably likely to result, individually or in the aggregate, in a Material
Adverse Effect on the Company or to prevent, materially hinder or materially
delay the ability of the Company to consummate the transactions contemplated by
this Agreement. The Company and the Company Subsidiaries have all permits,
certificates, licenses, approvals and other authorizations required in
connection with the operation of the business of the Company and the Company
Subsidiaries, except for permits, certificates, licenses, approvals and other
authorizations the failure of which to have are not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect on the Company or
to prevent, materially hinder or materially delay the ability of the Company to
consummate the transactions contemplated by this Agreement and except for such
permits, certificates, licenses, approvals and other authorizations required to
be obtained in connection with the consummation of the transactions contemplated
hereby.
3.16 Environmental Matters. Except as is not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect on the Company:
(a) to the knowledge of the Responsible Executive Officers, there are no
past, present or anticipated conditions or circumstances that could reasonably
be expected to interfere with or prevent the conduct of the business of the
Company and each of the Company Subsidiaries from being in compliance with (i)
any Environmental Law (as defined herein), or (ii) the terms or conditions of
any Environmental Permit (as defined herein);
<PAGE>
(b) to the knowledge of the Responsible Executive Officers, there are no
past or present conditions or circumstances at, arising out of, or related to,
any current or former business, assets or properties of the Company or any
Company Subsidiary, including but not limited to on-site or off-site use,
generation, storage, treatment, disposal or the release or threatened release of
any Hazardous Material (as defined herein), which are, individually or in the
aggregate, reasonably likely to give rise to (i) liabilities or obligations for
any investigation, cleanup, remediation, disposal or any other methods of
corrective action or any monitoring requirements under any Environmental Law, or
(ii) claims arising for personal injury, property damage, or damage to natural
resources;
(c) neither the Company nor any Company Subsidiary has (i) received any
notice of noncompliance with, violation of, or liability or potential liability
under any Environmental Law from any Governmental Authority or any other person
or entity or (ii) entered into any consent agreement, decree, settlement or
order or is subject to any order of any court or other Governmental Authority or
tribunal under any Environmental Law or relating to the cleanup of any Hazardous
Materials;
(d) there are no Persons whose liability, for any environmental matters or
under any applicable Environmental Law, the Company or any Company Subsidiary
may have retained or assumed contractually or by operation of law;
(e) neither the Company nor any Company Subsidiary has handled or directed
the management of or participated in any decisions with respect to or exercised
any influence or control over the use, generation, storage, treatment or
disposal of any Hazardous Materials at or related to any of their business,
assets or properties; and
(f) the Company and all Company Subsidiaries have made available to Parent
copies of all environmental inspections, audits, studies, plans, records, data
analyses or reports conducted or prepared by, on behalf of or related to the
Company or any Company Subsidiary and which are in their possession or control.
(g) As used in this Agreement, the terms identified in this Section 3.16
shall have the following meanings:
(i) "Environmental Law" means any applicable federal, state, local or
foreign statute, rule, regulation, directive, ordinance or judicial,
administrative or ministerial order, or common law, pertaining to: (v) the
protection of health, safety or the indoor or outdoor environment; (w) the
conservation, management, development, control and/or use of land, natural
resources and wildlife; (x) the protection or use of surface water or
groundwater; (y) the management, manufacture, possession, presence, use,
generation, storage, transportation, treatment, disposal, release,
threatened release, abatement, removal, remediation, or handling of, or
exposure to, any Hazardous Material; or (z) pollution or contaminants
(including any release to air, land or surface water or ground water);
<PAGE>
(ii) "Environmental Permit" means any permit, license, registration,
consent, approval or other authorization of any Governmental Authority with
jurisdiction over any Environmental Law or pertaining to any environmental
matter; and
(iii) "Hazardous Material" means any substance, chemical, compound,
product, solid, liquid, waste, by-product, pollutant, contaminant or
material which is hazardous, toxic or dangerous, and includes without
limitation, asbestos or any substance containing asbestos, polychlorinated
biphenyls, petroleum (including crude oil or any fraction thereof),
lead-based paint, radon and any hazardous, toxic or dangerous waste,
material or substance regulated under any Environmental Law.
3.17 Fairness Opinion; Board Recommendation
(a) The Board of Directors of the Company has received an opinion dated
August 17, 2000 from Goldman, Sachs & Co. to the effect that as of such date the
Merger Consideration is fair to the holders of Company Common Stock from a
financial point of view.
(b) The Board of Directors of the Company, at a meeting duly called and
held, has by unanimous vote of those directors present (i) determined that this
Agreement, the Stock Option Agreement and the transactions contemplated hereby
and thereby, including the Merger, are advisable and fair to and in the best
interests of the Company and its stockholders, and (ii) resolved to recommend
that the holders of Company Common Stock approve this Agreement and the
transactions contemplated herein, including the Merger, and directed that the
Merger be submitted for consideration by the Company's stockholders at the
Stockholders' Meeting.
3.18 Brokers and Finders. Neither the Company nor any of the Company
Subsidiaries, nor any of their respective officers, directors or employees, has
employed any broker or finder or incurred any liability for any financial
advisory fees, brokerage fees, commissions, or finder's fees, and no broker or
finder has acted directly or indirectly for the Company or any of the Company
Subsidiaries, in connection with this Agreement, the Stock Option Agreement or
any of the transactions contemplated hereby or thereby, except that the Company
has retained Goldman, Sachs & Co. as its financial advisor, whose terms of
engagement have been disclosed to Parent and whose fees and expenses will be
paid by the Company.
3.19 Takeover Statutes; Rights Agreement
<PAGE>
(a) The Company has taken all actions necessary and within its authority
such that no restrictive provision of any "fair price," "moratorium," "control
share acquisition," "business combination," "stockholder protection,"
"interested shareholder" or other similar anti-takeover statute or regulation
(including, without limitation, Sections 33-841 and 33-844 of the CBCA) (each a
"Takeover Statute") or restrictive provision of any applicable provision in the
Certificate of Incorporation or By-Laws of the Company is, or at the Effective
Time will be, applicable to the Company, Parent, the Company Common Stock, the
Merger or any other transaction contemplated by this Agreement or the Stock
Option Agreement.
(b) The Company has taken all action required so that the entering into of
this Agreement or the Stock Option Agreement and the consummation of the
transactions contemplated hereby and thereby do not and will not enable or
require the Company Rights to be separated from the shares of Company Common
Stock with which the Company Rights are associated, or to be distributed,
exercisable, exercised, or nonredeemable or result in the Company Rights
associated with any Company Common Stock beneficially owned by Parent or any of
its Affiliates or Associates (as such terms are defined in the Rights Agreement)
to be void or voidable. The Company has taken all necessary action with respect
to all of the outstanding Company Rights so that, as of immediately prior to the
Effective Time, the holders of the Company Rights will have no rights under the
Company Rights or the Rights Agreement as a result of the execution and delivery
of this Agreement or the Stock Option Agreement, or the consummation of the
Merger or the other transactions contemplated by this Agreement or the Stock
Option Agreement.
3.20 Voting Requirements. The affirmative vote of the holders of a majority
of the issued and outstanding shares of Company Common Stock with respect to
this Agreement and the Merger is the only vote of the holders of any class or
series of the Company's capital stock necessary to approve this Agreement and
the transactions contemplated by this Agreement.
<PAGE>
3.21 Intellectual Property. The Company owns, or possesses valid license
rights to, all Intellectual Property that is material to the conduct of the
businesses of the Company and the Company Subsidiaries own or possess valid
license rights to all Intellectual Property that is material to the conduct of
the business of the Company Subsidiaries taken as a whole. The Company has not
received any notice of any conflict with or violation or infringement of, any
asserted rights of any other Person with respect to any Intellectual Property
owned or licensed by the Company or any Company Subsidiary, which, if determined
adversely, is reasonably likely to have, either individually or in the
aggregate, a Material Adverse Effect on the Company. The Company is not, nor
will it be as a result of the execution and delivery of this Agreement or the
Stock Option Agreement or the performance of its obligations hereunder or
thereunder, in violation of any material licenses, sublicenses and other
agreements as to which the Company is a party and pursuant to which the Company
is authorized to use any third-party's Intellectual Property. The conduct of the
Company's and the Company Subsidiaries' respective businesses as currently
conducted does not conflict with any patents, patent rights, licenses,
trademarks, trademark rights, trade names, trade name rights or copyrights of
others, or any other rights with respect to Intellectual Property, in any way
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on the Company or to prevent, materially hinder or materially delay the
ability of the Company to consummate the transactions contemplated by this
Agreement. There is no infringement of any proprietary right owned by or
licensed by or to the Company or any Company Subsidiary which is, individually
or in the aggregate, reasonably likely to have a Material Adverse Effect on the
Company or to prevent, materially hinder or materially delay the ability of the
Company to consummate the transactions contemplated by this Agreement. To the
knowledge of the Responsible Executive Officers, there is no unauthorized use,
infringement or misappropriation of any of the Intellectual Property of the
Company by any third party, including any employee or former employee of the
Company or any of its Subsidiaries. As used in this Agreement, the phrase
"Intellectual Property" means all intellectual property or other proprietary
rights of every kind, including, without limitation, all domestic or foreign
patents, patent applications, inventions (whether or not patentable), processes,
products, technologies, discoveries, copyrightable and copyrighted works,
apparatus, trade secrets, trademarks (registered and unregistered) and trademark
applications and registrations, brand names, certification marks, service marks
and service mark applications and registrations, trade names, trade dress,
copyright registrations, design rights, customer lists, marketing and customer
information, mask works, rights, know-how, licenses, technical information
(whether confidential or otherwise), software, and all documentation thereof and
tangible and intangible proprietary information or materials.
3.22 Insurance Matters
(a) Except as otherwise is not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on the Company or to prevent,
materially hinder or materially delay the ability of the Company to consummate
the transactions contemplated by this Agreement, all policies, binders, slips,
certificates, and other agreements of insurance, in effect as of the date hereof
(including all applications, supplements, endorsements, riders and ancillary
agreements in connection therewith) that are issued by the Company Insurance
Subsidiaries (the "Company Insurance Contracts") and any and all marketing
materials, are, to the extent required under applicable Law, on forms approved
by applicable insurance regulatory authorities which have been filed and not
objected to by such authorities within the period provided for objection (the
"Forms"). The Forms comply in all material respects with the Insurance Laws
applicable thereto and, as to premium rates established by the Company or any
Company Insurance Subsidiary which are required to be filed with or approved by
insurance regulatory authorities, the rates have been so filed or approved and
the premiums charged are within the amount permitted by insurance statutes,
regulations and rules applicable thereto, except where the failure to be so
filed or approved is not, individually or in the aggregate, reasonably likely to
have a Material Adverse Effect on the Company. (1)
<PAGE>
(b) All reinsurance and coinsurance treaties or agreements, including
retrocessional agreements, to which the Company or any Company Insurance
Subsidiary is a party or under which the Company or any Company Insurance
Subsidiary has any existing rights, obligations or liabilities are in full force
and effect, except for such treaties or agreements the failure to be in full
force and effect of which is not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on the Company. Except as set forth on
Schedule 3.22(b) of the Company Disclosure Letter, all material amounts
recoverable under reinsurance, coinsurance or other similar agreements to which
any Company Insurance Subsidiary is a party (including, but not limited to,
amounts based on paid and unpaid losses) are fully collectible. Except as is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on the Company or to prevent, materially hinder or materially delay the
ability of the Company to consummate the transactions contemplated by this
Agreement, neither the Company nor any Company Insurance Subsidiary, nor, to the
knowledge of the Responsible Executive Officers after due inquiry, any other
party to a material reinsurance or coinsurance treaty or agreement to which the
Company or any Company Insurance Subsidiary is a party, is in default in any
material respect as to any provision thereof, and no such agreement contains any
provision providing that the other party thereto may terminate such agreement by
reason of the transactions contemplated by this Agreement or the Stock Option
Agreement. The Company has not received any notice to the effect that the
financial condition of any other party to any such agreement is impaired with
the result that a default thereunder may reasonably be anticipated, whether or
not such default may be cured by the operation of any offset clause in such
agreement, that is, individually or in the aggregate, reasonably likely to have
a Material Adverse Effect on the Company. Except as set forth on Schedule
3.22(b) to the Company Disclosure Letter, no insurer or reinsurer or group of
affiliated insurers or reinsurers accounted for the direction to the Company and
the Company Insurance Subsidiaries of insurance or reinsurance business in an
aggregate amount equal to three percent or more of the combined statutory net
written premiums of the Company and the Company Insurance Subsidiaries for the
year ended December 31, 1999. Except as set forth on the Company SAP Statements
or as set forth on Schedule 3.22(b) of the Company Disclosure Letter, as of
December 31, 1999 each of the Company Insurance Subsidiaries was able to obtain
full reserve credit for financial statement purposes under accounting practices
prescribed or permitted by the applicable insurance regulatory authority with
respect to reinsurance. Since December 31, 1999, there has not occurred any
material change in the ability of the Company Insurance Subsidiaries to obtain
reserve credit for financial statement purposes under accounting practices
prescribed or permitted by the applicable insurance regulatory authority with
respect to reinsurance.
<PAGE>
(c) Prior to the date hereof, the Company has delivered or made available
to Parent a true and complete copy of any actuarial reports prepared by
actuaries, independent or otherwise, with respect to the Company or any Company
Insurance Subsidiary since January 1, 1998, and all attachments, addenda,
supplements and modifications thereto (the "Company Actuarial Analyses"). The
information and data furnished by the Company or any Company Insurance
Subsidiary to its independent actuaries in connection with the preparation of
the Company Actuarial Analyses were accurate in all material respects.
Furthermore, each Company Actuarial Analysis was based upon an accurate
inventory of policies in force for the Company and the Company Insurance
Subsidiaries, as the case may be, at the relevant time of preparation and
conforms to the requirements of Applicable Law.
(d) None of Standard & Poor's Corporation, Fitch Investors, or A.M. Best
Company has announced that it has under surveillance or review its rating of the
financial strength or claims-paying ability of any Company Insurance Subsidiary
or imposed conditions (financial or otherwise) on retaining any currently held
rating assigned to any Company Insurance Subsidiary which is rated as of the
date of this Agreement, and the Company has no reason (other than the entry into
the Agreement and the transactions contemplated hereby) to believe that any
rating presently held by the Company Insurance Subsidiaries is likely to be
modified, qualified, lowered or placed under such surveillance for any reason.
(e) Except as reflected in the financial statements included in the Company
Reports, neither the Company nor any Company Subsidiary has any material accrued
and unreported liability or obligation with respect to assessments by or from
state insurance guaranty funds.
(f) The Company and the Company Insurance Subsidiaries have filed all
reports, statements, documents, registrations, filings or submissions (including
without limitation any sales material) required to be filed with any
Governmental Authority in the manner prescribed by applicable Laws, except for
any such non-compliance or failure to make any such filing or filings which is
not, individually or in the aggregate, reasonably likely to have a Material
Adverse Effect on the Company. All such reports, registrations, filings and
submissions were in compliance with Law when filed or as amended or
supplemented, and no deficiencies have been asserted in writing by any such
Governmental Authority with respect to such reports, registrations, filings or
submissions that have not been remedied, except for any non-compliance or
deficiencies which is not, individually or in the aggregate, reasonably likely
to have a Material Adverse Effect on the Company.
(g) The Company has made available to Parent true, correct and complete
copies of each report dated after January 1, 1998 (or the most recent draft
thereof, to the extent any final report is not available) reflecting the results
of any financial examinations or market-conduct examinations of any of the
Company Insurance Subsidiaries conducted by any Governmental Authority.
<PAGE>
3.23 Investment Company. Neither the Company nor any Company Subsidiary is
an "investment company" as defined under the Investment Company Act of 1940, as
amended.
3.24 Insurance. The Company and the Company Subsidiaries maintain insurance
coverage adequate for the operation of their respective businesses. The
insurance maintained by the Company and the Company Subsidiaries insures against
risks and liabilities to the extent and in the manner reasonably deemed
appropriate and sufficient by the Company or such Company Subsidiary.
3.25 Transactions with Affiliates.
(a) All transactions, agreements, arrangements or understandings between
the Company or any of the Company's Subsidiaries, on the one hand, and the
Company's affiliates (other than wholly owned subsidiaries of the Company) or
other Persons, on the other hand, that are required to be disclosed in the
Company Reports in accordance with Item 404 of Schedule S-K under the Securities
Act have been so disclosed. Since December 31, 1999, there have been no
transactions, agreements, arrangements or understandings between the Company or
any of its Subsidiaries, on the one hand, and the Company's affiliates (other
than wholly owned subsidiaries of the Company) or other Persons, on the other
hand, that are required to be disclosed under the Exchange Act pursuant to Item
404 of Schedule S-K under the Securities Act which have not already been
disclosed in the Company Reports.
(b) Each Company Insurance Subsidiary has filed any required notices or
amendments to filings with and has received any required approvals or consents
from appropriate Insurance Authorities under applicable holding company system
laws with respect to each transaction, agreement, arrangement or understanding
(an "Affiliate Transaction") between such Company Insurance Subsidiary, on the
one hand, and the Company or any affiliate of such Company Insurance Subsidiary,
on the other hand. The terms and conditions of each such Affiliate Transaction
complied in all material respects with the requirements of the applicable
Insurance Laws. For purposes of this Section, "affiliate" of a Company Insurance
Subsidiary has the meaning provided for under the applicable insurance holding
company system laws of the domiciliary state of such Company Insurance
Subsidiaries.
3.26 Agents and Brokers. Except as set forth in Schedule 3.26 of the
Company Disclosure Letter, no insurance agent, manager, reinsurance
intermediary, broker or distributor, or group of related agents, reinsurance
intermediaries, brokers or distributors singly or in the aggregate, accounted
for more than five percent of the consolidated gross written premium income of
the Company and the Company Insurance Subsidiaries for the year ended December
31, 1999.
<PAGE>
3.27 Threats of Cancellation. Except as set forth in Schedule 3.27 of the
Company Disclosure Letter, since December 31, 1999 no policyholder, affiliated
group of policyholders, or Persons writing, selling, or producing, either
directly or through reinsurance assumed, insurance business that individually or
in the aggregate for each such policyholder, group or Person, respectively,
accounted for (i) 5% or more of the annual gross written premium income (as
determined in accordance with SAP) of the Company and the Company Insurance
Subsidiaries or (ii) 1% of the unearned premium reserves of the Company and the
Company Insurance Subsidiaries, in each case at or for the twelve-month period
then ended, has terminated or, to the knowledge of the Responsible Executive
Officers after due inquiry, threatened to terminate its relationship with the
Company or any Company Insurance Subsidiary either as a result of the
transactions contemplated by this Agreement, the Stock Option Agreement or
otherwise.
3.28 Risk-Based Capital; IRIS Ratios. Prior to the date hereof, the Company
has included in the data room made available to Parent true and complete copies,
or true and accurate summaries of any analyses, reports and other data prepared
by any Company Subsidiary which is an insurance company or submitted by any
Company Subsidiary which is an insurance company to any insurance regulatory
authority relating to risk-based capital calculations or IRIS ratios as of
December 31, 1999.
3.29 Company Investment Assets. The Company SAP Statements for each Company
Insurance Company for the year ended December 31, 1999, to the extent required
by law, set forth a list, which list is accurate and complete in all material
respects, of all Company Investment Assets owned by such Company Insurance
Company as of December 31, 1999, together with the cost basis book or amortized
value, as the case may be, of such Company Investment Assets as of December 31,
1999. As used in this Agreement, "Company Investment Assets" means bonds,
stocks, mortgage loans or other investments that are carried on the books and
records of the Company and the Company Insurance Companies.
3.30 Reinsurance Agreements. Except as set forth on Schedule 3.30 of the
Company Disclosure Letter, other than for reimbursements in the nature of
salvage, subrogation and other similar recoveries, none of the Company Insurance
Subsidiaries has any written or oral agreements, commitments or understandings
other than those provided or otherwise disclosed to Parent prior to the date
hereof, with any of their respective reinsurers which obligate any of them to
reimburse any reinsurer for negative experience under the reinsurance agreements
or otherwise reimburse the reinsurer for liabilities transferred under the
reinsurance agreements.
<PAGE>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUB
Except as disclosed in Parent's Form 10-K for the year ended December 31,
1999 or Parent's Form 10-Qs and Form 8-Ks filed since December 31, 1999 and
prior to the date hereof, each of Parent and Merger Sub hereby represents and
warrants to the Company as follows:
4.1 Organization, Good Standing and Power
(a) Parent is a corporation duly organized, validly existing and in good
standing under the Laws of the State of Delaware and has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Parent is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties make such qualification
or licensing necessary, except where the failure to be so qualified or licensed
or to be in good standing is not, individually or in the aggregate, reasonably
likely to have a Material Adverse Effect on Parent (as defined below). As used
in this Agreement, the phrase "Material Adverse Effect on Parent" means a
material adverse effect on the condition (financial or otherwise), properties,
business, or results of operations of Parent and its subsidiaries taken as a
whole, other than (i) effects caused by changes in general economic or
securities markets conditions, (ii) changes or conditions that affect the U.S.
property-casualty insurance industry in general, (iii) changes in GAAP or
statutory accounting practices prescribed or permitted by the applicable
insurance regulatory authority and (iv) effects resulting from the announcement
of this Agreement and the transactions contemplated hereby. Parent has delivered
to the Company complete and correct copies of its certificate of incorporation,
by-laws or other organizational documents and all amendments thereto to the date
hereof.
(b) Merger Sub is a corporation, validly existing and in good standing
under the Laws of the State of Delaware.
4.2 Capitalization.
<PAGE>
(a) The authorized capital stock of Parent as of June 30, 2000, as adjusted
on a pro forma basis to reflect the Parent Common Stock split in the form of a
50 percent Parent Common Stock dividend paid July 28, 2000 consists of 5 billion
shares of Parent Common Stock, of which 2,313,833,718 were issued and
outstanding and 177,225,831 were held in treasury and 6,000,000 preferred
shares, of which no shares were outstanding. All outstanding shares of Parent
Common Stock are duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights. All of the shares of Parent Common Stock
to be issued in exchange for Company Common Stock at the Effective Time in
accordance with this Agreement will be, when so issued, duly authorized, validly
issued, fully paid and nonassessable and free of preemptive rights. As of June
30, 2000, there were 38,513,647 shares of Parent Common Stock, as adjusted on a
pro forma basis to reflect the Parent Common Stock split in the form of a 50
percent Parent Common Stock dividend paid July 28, 2000, reserved for issuance
pursuant to various Parent employee benefit plans, and there were no other
options, convertible securities, warrants or rights to purchase or acquire from
Parent any capital stock of Parent or other contracts, commitments, agreements,
understandings, arrangements or restrictions by which Parent is bound to issue
any additional shares of its capital stock or other securities.
(b) As of the date hereof, the authorized capital stock of Merger Sub
consists of 100 shares of common stock, par value $0.01 per share, all of which
are issued and outstanding and owned by Parent. All such outstanding shares are
duly authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights.
4.3 Authority; Enforceability. Each of Parent and Merger Sub has the
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the Stock Option Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of each of Parent and Merger Sub, as applicable,
and this Agreement and the Stock Option Agreement have been duly executed and
delivered by Parent and Merger Sub, as applicable, and constitute the valid and
binding obligation of each such party, enforceable against it in accordance with
its terms, (i) except as may be limited by bankruptcy, insolvency, moratorium or
other similar Laws affecting or relating to enforcement of creditors' rights
generally and (ii) subject to general principles of equity.
4.4 Non-Contravention; Consents.
(a) Neither the execution, delivery and performance by Parent or Merger Sub
of this Agreement or the Stock Option Agreement, nor the consummation by the
Parent or Merger Sub of the transactions contemplated hereby or thereby, nor
compliance by Parent or Merger Sub with any of the provisions hereof, will:
<PAGE>
(i) violate, conflict with, result in a breach of any provision of,
constitute a default (or an event that, with notice or lapse of time or
both, would constitute a default) under, result in the termination of,
accelerate the performance required by, result in a change in the rights or
obligations of any party under, or result in a right of termination or
acceleration, or the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of Parent or Merger Sub,
under any of the terms, conditions or provisions of (x) its respective
organizational documents, or (y) any note, bond, mortgage, indenture, deed
of trust, license, lease, contract, agreement or other instrument or
obligation to which Parent is a party, or by which Parent may be bound, or
to which Parent or its properties or assets may be subject, and that, in
any such event specified in this clause (y), is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Parent; or
(ii) violate any valid and enforceable judgement, ruling, order, writ,
injunction, decree, or any statute, rule or regulation applicable to Parent
or any of its respective properties or assets where such violation is,
individually or in the aggregate, reasonably likely to have a Material
Adverse Effect on Parent or to prevent, hinder or materially delay the
ability of Parent to consummate the transactions contemplated by this
Agreement.
(b) Except for (i) the filing of the applications and notices, with
applicable Insurance Authorities and the approval of such applications or the
grant of required licenses by such authorities or the expiration of any
applicable waiting periods thereunder, (ii) the filing of notification and
report forms under the HSR Act and the expiration or termination of any
applicable waiting period thereunder, (iii) the filing with the SEC of a Proxy
Statement relating to the meeting of the Company's stockholders to be held in
connection with this Agreement and the transactions contemplated hereby and the
filing and declaration of effectiveness of the Registration Statement relating
to the shares of Parent Common Stock to be issued in the Merger, (iv) filings
with state securities or "blue sky" laws, (v) the filing of the Connecticut
Certificate of Merger with the Secretary of State of the State of Connecticut
pursuant to the CBCA, (vi) the filing of the Delaware Certificate of Merger with
the Secretary of State of the State of Delaware pursuant to the DGCL, (vii) the
approval of the listing of the Parent Common Stock to be issued in the Merger on
the New York Stock Exchange and (viii) the filing of the Schedule 13D, no
notices to, consents or approvals of, or filings or registrations with, any
Governmental Authority or with any third party are necessary in connection with
the execution and delivery by Parent of this Agreement or the Stock Option
Agreement and the consummation by Parent of the transactions contemplated hereby
and thereby, except for such notices, consents, approvals, filing or
registrations, the failure of which to be made or obtained is not, individually
or in the aggregate, reasonably likely to have a Material Adverse Effect on
Parent.
<PAGE>
4.5 SEC Documents; GAAP Financial Statements. Parent has timely filed all
required forms, reports, schedules, statements and other documents (including
exhibits and all other information incorporated therein) with the SEC since
January 1, 1998. Parent has delivered or made available to the Company all
registration statements, proxy statements, annual reports, quarterly reports and
reports on Form 8-K filed by Parent with the SEC since January 1, 1998 and prior
to the date hereof (as such documents have been amended since the time of their
filing, collectively, the "Parent Reports"). As of the respective dates or, if
amended, as of the date of the last such amendment, the Parent Reports (i) were
timely filed and complied in all material respects with the applicable
requirements of the Securities Act and the Exchange Act, as the case may be, and
the rules and regulations of the SEC promulgated thereunder applicable to such
Parent Reports, and (ii) did not contain any untrue statement of a material fact
or omit 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. The consolidated financial statements of Parent
included in the Parent Reports complied, as of their respective dates of filing
with the SEC, in all material respects with applicable accounting requirements
and the published ruled and regulations of the SEC with respect thereto, have
been prepared in accordance with generally accepted accounting principles
(except, in the case of unaudited consolidated quarterly statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present in all material respects the consolidated financial position of Parent
and its consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited quarterly statements, to normal year-end adjustments).
4.6 Absence of Certain Changes or Events. Except as disclosed in the Parent
Reports, since December 31, 1999, there has not been any change, event,
condition (financial or otherwise) or state of circumstances or facts which,
individually or in the aggregate, has had or is reasonably likely to have, a
Material Adverse Effect on Parent.
<PAGE>
4.7 Registration Statement, Etc. None of the information supplied or to be
supplied by Parent for inclusion or incorporation by reference in (i) the
Registration Statement, (ii) the Proxy Statement and (iii) any other documents
to be filed with the SEC in connection with the transactions contemplated hereby
will, at the respective times such documents are filed and at the time such
documents become effective or at the time any amendment or supplement thereto
becomes effective 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 not misleading and, in the case of the Registration
Statement, when it becomes effective or at the time any amendment or supplement
thereto becomes effective, cause the Registration Statement or such supplement
or amendment to 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 not misleading, or, in the case of the Proxy
Statement, when first mailed to the stockholders of the Company, or in the case
of the Proxy Statement or any amendment thereof or supplement thereto, at the
time of the Stockholders' Meeting, cause the Proxy Statement or any amendment
thereof or supplement thereto to contain any untrue statement of a material
fact, or omit to state any material fact required or be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. All documents that Parent is
responsible for filing with the SEC and any other regulatory agency in
connection with the Merger will comply as to form in all material respects with
the provisions of applicable Law, except that no representation is made by
Parent with respect to statements made therein based on information supplied by
or on behalf of Company expressly for inclusion therein or with respect to
information concerning the Company which is included or incorporated by
reference in the Registration Statement or the Proxy Statement.
4.8 Brokers and Finders. Neither Parent nor any of its officers, directors
or employees, has employed any broker or finder or incurred any liability for
any financial advisory fees, brokerage fees, commissions, or finder's fees, and
no broker or finder has acted directly or indirectly for Parent, in connection
with this Agreement, the Stock Option Agreement or any of the transactions
contemplated hereby or thereby, except that Parent has retained Morgan Stanley
Dean Witter as its financial advisor, whose fees and expenses will be paid by
Parent.
4.9 Interim Operations of Merger Sub. Merger Sub was formed solely for the
purpose of engaging in the transactions contemplated hereby, has engaged in no
other business activities and has conducted its operations only as contemplated
hereby.
4.10 Tax-Free Reorganization. Neither the Parent, Merger Sub or any other
subsidiary of Parent has taken any action or failed to take any action which
action or failure to take action could jeopardize the qualification of the
Merger within the meaning of Section 368(a) of the Code.
4.11 Headquarters. Parent's current intention is to maintain the
headquarters of the Surviving Corporation at its existing Hartford location for
the foreseeable future.
<PAGE>
ARTICLE 5
CONDUCT AND TRANSACTIONS PRIOR TO
EFFECTIVE TIME; CERTAIN COVENANTS
5.1 Access and Information. Upon reasonable notice to a Responsible
Executive Officer and for any purpose reasonably related to the transactions
contemplated by the Agreement, the Company shall (and shall cause the Company
Subsidiaries to) give to Parent and Parent's accountants, counsel and other
representatives reasonable access during normal business hours throughout the
period prior to the Effective Time to all of its and its Subsidiaries'
properties, books, contracts, information systems, commitments and records
(including Tax Returns, audit work papers and insurance policies) and shall
permit them to consult with its and its Subsidiaries' respective officers,
employees, auditors, actuaries, attorneys and agents; provided, however, that
any such access shall be conducted in such a manner as not to interfere
unreasonably with the business or operations of the Company or the Company
Subsidiaries. All information provided pursuant to this Section 5.1 shall be
deemed "Evaluation Material" subject to the Confidentiality Agreement dated as
of June 23, 2000 (the "Confidentiality Agreement"), between the Company and
Parent. No information received pursuant to this Section 5.1 shall affect or be
deemed to modify any representations or warranties of the Company herein.
5.2 Conduct of Business Pending Merger
(a) The Company agrees that from the date hereof through the Effective
Time, except as expressly contemplated by this Agreement (including the Company
Disclosure Letter) or to the extent that Parent shall otherwise consent in
writing, the Company and the Company Subsidiaries will operate their businesses
only in the ordinary course consistent with past practice (including in respect
of underwriting standards and reserving guidelines); and, consistent with such
operation, will use reasonable best efforts consistent with past practices to
preserve their business organizations intact and maintain their existing
relations and goodwill with their officers, employees, brokers and agents, third
party administrators, policyholders, insureds and reinsurers, borrowers,
customers, client companies, distributors, creditors, lessors and others with
whom business relationships exist and will further exercise reasonable best
efforts to maintain their existing relationships with their employees in
general.
<PAGE>
(b) The Company agrees that from the date hereof through the Effective
Time, except as expressly contemplated by this Agreement, the Company Disclosure
Letter or the Stock Option Agreement or as otherwise consented to by Parent in
writing (i) neither it nor any Company Subsidiary will change any provision of
its Certificate of Incorporation or by-laws or similar or comparable governing
or organizational documents or, in the case of the Company, amend, modify or
terminate the Rights Agreement; (ii) it will not make, declare or pay dividend
or make any other distribution with respect to any shares of capital stock,
except regular quarterly cash dividends with respect to the Company Common Stock
(not to exceed $0.44 per share per quarter); (iii) split, combine or reclassify
its outstanding shares of capital stock; and (iv) except in connection with the
issuance of shares of Company Common Stock pursuant to the exercise of presently
outstanding Company Options and except actions taken involving the Capital
Securities pursuant to Section 5.18(a), it will not directly or indirectly sell,
issue, encumber or otherwise dispose or redeem, purchase or otherwise acquire
any shares of its outstanding capital stock, change the number of shares of its
authorized or issued capital stock or issue or grant any option, warrant, call,
commitment, subscription, right to purchase or agreement of any character
relating to its authorized or issued capital stock or any securities convertible
into shares of such stock.
(c) The Company agrees that from the date hereof through the Effective Time
it will not take or permit any Company Subsidiary to take any of the following
actions, except to the extent consented to by Parent in writing:
(i) except in the ordinary course of business consistent with past
practices, enter into any agreement representing an obligation for
indebtedness for borrowed money or increase the principal amount of
indebtedness under any existing agreement or assume, guarantee, endorse or
otherwise become responsible for the obligations of any other individual,
firm or corporation, or take any of the actions specified in this Section
5.2(c)(i) providing for obligations which, individually or in the
aggregate, are in excess of $250,000;
(ii) except in the ordinary course of business consistent with past
practices, mortgage, pledge or encumber any of its properties or assets;
(iii) except as may be required by Law or except in the ordinary course
of business consistent with past practices previously disclosed to Parent,
(x) take any action to amend or terminate any Company Employee Plan or
grant new or additional incentive compensation awards or increase the
compensation (including bonuses) of any of its current or former officers,
employees or directors or (y) adopt any other plan, program, arrangement or
practice providing new or increased benefits or compensation to its current
or former officers, employees or directors;
<PAGE>
(iv) materially amend or cancel or agree to the material amendment or
cancellation of any agreement, treaty or arrangement which is material to
the Company and the Company Subsidiaries on a consolidated basis or to the
Company Insurance Subsidiaries on a consolidated basis, or enter into any
new agreement, treaty or arrangement which is material to the Company and
the Company Subsidiaries on a consolidated basis or to the Company
Insurance Subsidiaries on a consolidated basis (other than the renewal of
any existing agreements, treaties or arrangements);
(v) enter into any negotiation with respect to, or adopt or amend in
any material respect, any collective bargaining agreement;
(vi) make any material change in any underwriting, investment,
reserving, claims administration, financial reporting or accounting
methods, principles or practices used by the Company or any Company
Subsidiary in connection with the business of the Company or such Company
Subsidiary, including without limitation any change with respect to
establishment of reserves for losses and loss adjustment expenses, except
insofar as may be required by a change in generally accepted accounting
principles, tax accounting principles or statutory accounting practices
prescribed by any applicable Governmental Authority or as may be required
by Law;
(vii) except for transactions between or among the Company and a Company
Subsidiary, pay, loan or advance (other than the payment of compensation,
directors' fees or reimbursements of expenses in the ordinary course of
business and other than as may be required by any agreement in effect as of
the date hereof) any amount to, or sell, transfer or lease any properties
or assets (real, personal or mixed, tangible or intangible) to, or enter
into any material agreement or arrangement with, any of its officers or
directors or any "affiliate" or "associate" of any of its officers or
directors (as such terms are defined in Rule 405 promulgated under the
Securities Act);
(viii) make or rescind any express or deemed election relating to Taxes;
make a request for a Tax Ruling or enter into a Closing Agreement; settle
or compromise any material claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes; or make
a material change to any of its methods of reporting income, deductions or
accounting for federal income tax purposes from those employed in the
preparation of its federal income tax return for the taxable year ending
December 31, 1998, except as may be required by applicable Law;
(ix) pay, discharge, settle or satisfy any material claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise) other than policy claims in the ordinary course of business;
(x) other than consistent with past practice, materially alter the
mix of investment assets of the Company or any Company Subsidiary or the
duration or credit quality of such assets or alter or amend in any material
respect their existing investment guidelines or policies which have been
previously provided to Parent;
<PAGE>
(xi) materially alter the profile of the insurance liabilities of the
Company Insurance Subsidiaries or materially alter the pricing practices or
policies of the Company Insurance Subsidiaries (it being understood and
agreed that nothing contained herein shall permit the Company or any of the
Company Subsidiaries to enter into or engage in (through acquisition,
product extension or otherwise) the business of selling any products or
services materially different from existing products or services of the
Company and its Subsidiaries or to enter into or engage in new lines of
business (as such term is defined in the National Association of Insurance
Commissioner s instructions for the preparation of the annual statement
form) without Parent's prior written approval);
(xii) except in the ordinary course of business, lease or otherwise
dispose of or transfer any of its assets (including capital stock of the
Company Subsidiaries);
(xiii) make, authorize or agree to make any capital expenditure or
expenditures, or enter into any agreement or agreements providing for
payments which, individually are in excess of $50,000, or in the aggregate
are in excess of $1,000,000;
(xiv) except pursuant to contractual commitments in effect on the date
hereof and disclosed in the Company Disclosure Letter, acquire or agree to
acquire by merging or consolidating with, or by purchasing a substantial
equity interest in or a substantial portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof or except in the ordinary
course of business consistent with past practices otherwise acquire or
agree to acquire any assets or securities in each case other than portfolio
investments or venture capital investments;
(xv) take any action or omit to take any action that would, or is
reasonably likely to, result in any of its representations and warranties
in this Agreement becoming untrue, or in any of the conditions to the
Merger set forth in Article 6 not being satisfied;
(xvi) enter into any agreement containing any provision or covenant
limiting in any respect the ability of the Company or any Company
Subsidiary or affiliate to (x) sell any products or services of or to any
other Person, (y) engage in any line of business or (z) compete with or to
obtain products or services from any Person or limiting the ability of any
Person to provide products or services to the Company or any of its
Subsidiaries or Affiliates; and
<PAGE>
(xvii) authorize or enter into any agreement, or commit or agree, to
take any of the actions described in Section 5.2(b) or elsewhere in this
Section 5.2(c).
(f) The Company agrees that from the date hereof through the Effective
Time, the Company shall, and shall cause the Company Subsidiaries to:
(i) promptly notify Parent of the occurrence of or any fact or
circumstance reasonably likely to result in the occurrence of any material
change in its condition (financial or other), business, results of
operations or prospects or any Material Adverse Effect on the Company, or
any material litigation or material governmental complaints, investigations
or hearings (or communications in writing indicating that such litigation,
complaints, investigations or hearings may be contemplated), the breach of
any representation or warranty contained herein or any material failure of
it to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder, and shall use reasonable best
efforts to prevent or remedy the same; provided, however, that the delivery
of notice pursuant to this Section 5.2 shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice;
(ii) promptly deliver to Parent true and correct copies of any report,
statement or schedule filed with the SEC and any public communication
released by the Company or the Company Subsidiaries subsequent to the date
of this Agreement; and
(iii) use reasonable best efforts to maintain insurance with financially
responsible companies in such amounts and against such risks and losses as
are customary for such party.
<PAGE>
5.3 No Solicitations. The Company agrees that neither it nor any of the
Company Subsidiaries, nor any of their respective officers or directors shall,
and that it shall direct and use its best efforts to cause its and the Company
Subsidiaries' employees, agents and representatives (including any investment
banker, attorney or accountant) not to, directly or indirectly, (i) solicit,
initiate, encourage or otherwise facilitate any inquiries or the submission of
any Acquisition Proposal (as defined herein) or (ii) participate in any
discussions or negotiations regarding, or furnish to any Person any information
with respect to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Acquisition Proposal; provided, however, that nothing contained in this
Section 5.3 shall prohibit the Board of Directors of the Company (and its
authorized representatives) from: (x) furnishing information to, or entering
into discussions or negotiations with, any Person that makes an unsolicited bona
fide written Acquisition Proposal from and after the date of this Agreement
which did not result from a breach of this Section 5.3 if, and only to the
extent that (A) the Board of Directors of the Company after consultation with
and taking into account the advice of outside counsel, determines in good faith
that in order for the Board of Directors of the Company to comply with its
fiduciary duties to stockholders under applicable Law it is necessary to take
such action, (B) prior to taking such action, the Company receives from such
Person an executed confidentiality agreement having substantially the same terms
as the Confidentiality Agreement and (C) the Company determines in good faith
(after consultation with and taking into account the advice of its financial
advisor and after receipt of, and taking into account the advice of, outside
counsel) that such Acquisition Proposal, if accepted, is reasonably likely to be
consummated, taking into account all legal, financial and regulatory aspects of
the proposal and the Person making the proposal, and the proposal would, if
consummated, result in a more favorable transaction than the transactions
contemplated by this Agreement, taking into account the long term prospects and
interests of the Company and its stockholders (such more favorable Acquisition
Proposal hereinafter referred to as a "Superior Proposal"); or (y) complying
with Rule 14e-2 promulgated under the Exchange Act with regard to an Acquisition
Proposal. The Company will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing. The Company agrees that it will
take the necessary steps to promptly inform the individuals or entities referred
to in the first sentence hereof of the obligations undertaken in this Section
5.3 and in the Confidentiality Agreement (as defined in Section 5.1). The
Company agrees that it will notify Parent immediately if any such inquiries,
proposals or offers are received by, any such information is requested from, or
any such discussions or negotiations are sought to be initiated or continued
with any of its representatives indicating, in connection with such notice, the
name of such Person and the material terms and conditions of any proposals or
offers and thereafter shall keep Parent informed, on a current basis, on the
status and terms of any such proposals or offers and the status of any such
discussions or negotiations. The Company also agrees that it will promptly
request each Person that has heretofore executed a confidentiality agreement in
connection with its consideration of acquiring it or any of its Subsidiaries to
return all written confidential information heretofore furnished to such Person
by or on behalf of it or any of its Subsidiaries. For purposes of this
Agreement, "Acquisition Proposal" means any inquiry, proposal or offer from any
Person relating to any direct or indirect acquisition or purchase of a business
that constitutes 15% or more of the net revenues, net income or the assets of
the Company or any of its significant Subsidiaries (as defined in Rule 1-02(w)
of Regulation S-X promulgated under the Exchange Act) (a "Significant
Subsidiary"), or 15% or more of any class of equity securities of the Company or
any of its Significant Subsidiaries, any tender offer or exchange offer that if
consummated would result in any Person beneficially owning 15% or more of any
class of equity securities of the Company or any of its Significant
Subsidiaries, any reinsurance transaction entered into outside the ordinary
course of business involving more than 15% of any Significant Subsidiary's
assets or policyholder liabilities, or any merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving the Company or any of its Significant Subsidiaries; provided that (w)
the transactions contemplated by this Agreement, (x) any activities of
Employees' Reinsurance Corporation taken with respect to its existing interest
in the Company in accordance with the terms of existing arrangements, (y) any
discussions conducted by or on behalf of the Company and Employees' Reinsurance
Corporation with a view to satisfying the condition contained in Section 6.3(l),
or (z) any activities in connection with the proposed disposition of Integrated
Process Technologies LLC, shall not be deemed to be an Acquisition Proposal.
5.4 Fiduciary Duties. Except if the Board of Directors of the Company
determines in good faith, following consultation with and taking into account
the advice of outside counsel and its financial advisor, that it is necessary to
do so in order to comply with its fiduciary duties to stockholders under
applicable law, the Board of Directors of the Company shall not (i) withdraw or
modify in a manner adverse to Parent, the approval or recommendation by such
Board of Directors of this Agreement or the Merger, or (ii) approve, recommend
or cause the Company to enter into any agreement with respect to any Acquisition
Proposal. If the Board of Directors determines in good faith (after consultation
with and taking into account the advice of its financial advisors) that an
Acquisition Proposal is a Superior Proposal, the Board of Directors may (w)
withdraw or modify its approval or recommendation of this Agreement and the
Merger, (x) approve or recommend such Superior Proposal or (y) cause the Company
to enter into a definitive agreement providing for the consummation of a
transaction with respect to such Superior Proposal and terminate this Agreement
in accordance with Section 7.1(b)(iv). Notwithstanding anything contained in
this Agreement to the contrary, any action by or on behalf of the Board of
Directors of the Company permitted by this Section 5.4 shall not constitute a
breach of this Agreement by the Company.
<PAGE>
5.5 Certain Fees. In the event that (i) an Acquisition Proposal shall have
been made to the Company or any of its subsidiaries or any of its stockholders
or any Person shall have publicly announced an intention (whether or not
conditional) to make an Acquisition Proposal and thereafter this Agreement is
terminated by either Parent or the Company pursuant to Section 7.1(b)(v) or
Section 7.1(c)(iv) or (ii) this Agreement is terminated (x) by the Company
pursuant to Section 7.1(b)(iv) or (y) by Parent pursuant to Section 7.1(c)(ii)
(only in the case of termination due to willful or intentional breach), Section
7.1(c)(v) or Section 7.1(c)(vi), then the Company shall promptly, but in no
event later than two days after the date of such termination, pay Parent a
termination fee of $45 million and shall promptly, but in no event later than
two days after being notified of such by Parent, pay or reimburse all of the
reasonable out-of-pocket charges and expenses, including those of the Exchange
Agent, incurred by Parent or Merger Sub in connection with this Agreement and
the Stock Option Agreement and the transactions contemplated by this Agreement
and the Stock Option Agreement up to a maximum amount of $5 million (the "Parent
Expenses"), in each case payable by wire transfer of same day funds or (iii)
Parent terminates this Agreement pursuant to Section 7.1(c)(ii) other than due
to willful or intentional breaches, then the Company shall promptly, but in no
event later than two days after being notified of such termination by Parent,
pay to Parent the Parent Expenses; provided, however, that no fee shall be
payable to Parent pursuant to clause (i) of this Section 5.5 unless and until
(I) any Person (other than Parent) (an "Acquiring Party") has acquired, by
purchase, merger, consolidation, sale, assignment, lease, transfer or otherwise,
in one transaction or any related series of transactions within 15 months of
such termination, a majority of the voting power of the outstanding securities
of the Company or all or substantially all of the assets of the Company or (II)
the Company or one of its subsidiaries and an Acquiring Party have entered into
a definitive agreement with respect to a merger, consolidation or similar
business combination within 15 months of such termination. The Company
acknowledges that the agreements contained in this Section 5.5 are an integral
part of the transactions contemplated by this Agreement, and that, without these
agreements, Parent and Merger Sub would not enter into this Agreement;
accordingly, if the Company fails to promptly pay the amount due pursuant to
this Section 5.5, and, in order to obtain such payment, Parent or Merger Sub
commences a suit which results in a judgment against the Company for the fee set
forth in this Section 5.5, the Company shall pay to Parent or Merger Sub its
costs and expenses (including reasonable attorneys' fees) in connection with
such suit, together with interest on the amount of the fee at the prime rate of
Citibank N.A. in effect on the date such payment was required to be made.
5.6 Takeover Statutes. If any "fair price," "moratorium," "control share
acquisition," "business combination," "stockholder protection," "interested
shareholder" or other similar antitakeover statute or regulation enacted under
state or federal Law shall become applicable to the Merger or any of the other
transactions contemplated hereby and the Stock Option Agreement, each of the
Company and Parent and the Board of Directors of each of the Company and Parent
shall grant such approvals and take such actions as are necessary so that the
Merger and the other transactions contemplated hereby and the Stock Option
Agreement may be consummated as promptly as practicable on the terms
contemplated hereby and otherwise use reasonable efforts to eliminate or
minimize the effects of such statute or regulation on the Merger and the other
transactions contemplated hereby.
<PAGE>
5.7 Consents. Each of the Company and Parent will cooperate with each other
and use their respective reasonable best efforts to obtain the written consent
or approval of each and every Governmental Authority and other regulatory body,
the consent or approval of which shall be required in order to permit Parent,
Merger Sub and the Company to consummate the transactions contemplated by this
Agreement. The Company will use reasonable best efforts to obtain the written
consent or approval, in form and substance reasonably satisfactory to Parent, of
each Person whose consent or approval shall be required in order to permit
Parent, Merger Sub and the Company to consummate the transactions contemplated
by this Agreement; provided, however, that nothing in this Section 5.7 shall
require, or be construed to require, Parent in connection with the receipt of
any regulatory approval, to proffer to, or agree to any conditions relating to
the Company or Parent, in either case, imposed by or in connection with such
consents on the operations of any asset or businesses of the parties which is
reasonably likely to materially and adversely impact the economic or business
benefits to Parent and its subsidiaries of the transactions contemplated hereby.
5.8 Further Assurances. Subject to the terms and conditions herein
provided, each of the parties hereto will promptly file and prosecute diligently
the applications and related documents required to be filed by such party with
any third party or applicable Governmental Authority in order to effect the
transactions contemplated hereby and the Stock Option Agreement, including
filings under the HSR Act requesting early termination of the applicable waiting
period and filings with Insurance Authorities. Each party hereto agrees to
cooperate with each other and to use reasonable best efforts to take, or cause
to be taken, all action and to do, or cause to be done, all things necessary,
proper or advisable under applicable Laws and regulations to consummate and make
effective the Merger and other transactions contemplated by this Agreement and
the Stock Option Agreement. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement or the Stock Option Agreement, the proper officers and directors of
each corporation which is a party to this Agreement shall take all such
necessary action. Each of the parties hereto agrees to defend vigorously against
any actions, suits or proceedings in which such party is named as defendant
which seeks to enjoin, restrain or prohibit the transactions contemplated hereby
or seeks damages with respect to such transactions.
The Company and Parent shall promptly advise each other upon receiving any
communication from any third party or Governmental Authority whose consent or
approval is required for consummation of the transactions contemplated by this
Agreement or the Stock Option Agreement. The Company and Parent shall furnish to
the other such necessary information and reasonable assistance as the other may
reasonably request in connection with its preparation of necessary filings or
submissions to any third party or Governmental Authority. The Company and the
Parent shall provide the other with a draft copy before submission and as-filed
copies of all filings and submissions with third parties and Governmental
Authorities and shall provide the other with a reasonable opportunity to comment
upon all such draft copies. The Company and Parent agree that, to the extent
permitted and feasible and reasonable, all meetings with any third party or
Governmental Authority (whether in person, by telephone or other means of
instantaneous communication) regarding the transactions contemplated hereby
shall include representatives of the Company and Parent unless such parties
jointly decide otherwise.
<PAGE>
The Company and Parent each shall, upon request by the other, furnish the
other with all information concerning itself, its Subsidiaries, directors,
officers and stockholders and such other matters as may be reasonably necessary
or advisable in connection with any statement, filing, notice or application
made by or on behalf of Parent, the Company or any of their respective
subsidiaries to any third party and/or any Governmental Entity in connection
with the Merger and the transactions contemplated by this Agreement and the
Stock Option Agreement.
5.9 New York Stock Exchange Listing. Parent will use reasonable best
efforts to cause to be approved for listing on the New York Stock Exchange
subject to official notice of issuance, a sufficient number of shares of Parent
Common Stock to be issued in the Merger.
5.10 Registration Statement; Stockholder Approvals.
(a) As soon as is reasonably practicable after the execution of this
Agreement, Parent shall prepare and file with the SEC the Registration Statement
and Parent and the Company shall prepare and file with the SEC the
Prospectus/Proxy Statement. Parent and the Company shall use reasonable best
efforts to cause the Registration Statement to become effective under the
Securities Act as promptly as practicable after such filing and promptly
thereafter mail the Prospectus/Proxy Statement to the stockholders of the
Company. Parent shall also take all reasonable actions required to be taken
under any applicable state blue sky or securities Laws in connection with the
issuance of the shares of Parent Common Stock pursuant to this Agreement. Each
party hereto shall furnish all information concerning it and the holders of its
capital stock as the other party hereto may reasonably request in connection
with such actions.
(b) The Company shall call a Stockholders' Meeting to be held as soon as
practicable after the date hereof for the purpose of voting upon the Merger and
this Agreement. Subject to Section 5.4, (i) the Company shall mail the Proxy
Statement to its stockholders, (ii) the Board of Directors of the Company shall
recommend to its stockholders the approval of the Merger and this Agreement, and
(iii) the Company shall use reasonable best efforts to obtain such stockholder
approval. Without limiting the generality of the foregoing, the Company agrees
that, subject to its right to terminate this Agreement pursuant to Section
7.1(b)(iv), its obligations pursuant to this Section 5.10(b) shall not be
affected by the commencement, public proposal, public disclosure or
communication to Company of any Acquisition Proposal.
(c) The Company shall use reasonable best efforts to cause to be delivered
to Parent a letter from PricewaterhouseCoopers LLP, dated a date within two
business days before each of the date of the Registration Statement and the
Closing, and addressed to Parent, in form and substance reasonably satisfactory
to Parent and customary in scope and substance for "cold comfort" letters
delivered by independent public accountants in connection with registration
statements on Form S-4.
<PAGE>
(d) Parent shall use reasonable best efforts to cause to be delivered to
the Company a letter of PricewaterhouseCoopers LLP, dated a date within two
business days before each of the date of the Registration Statement and the
Closing, and addressed to the Company, in form and substance reasonably
satisfactory to the Company and customary in scope and substance for "cold
comfort" letters delivered by independent public accountants in connection with
registration statements on Form S-4.
5.11 Expenses. Subject to Section 5.5, if this Agreement is terminated for
any reason without breach by any party, each party hereto shall pay its own
expenses incident to preparing for, entering into, and carrying out this
Agreement and the Stock Option Agreement and to consummating the Merger, except
that the Company and Parent shall divide equally the costs incurred in
connection with the printing and mailing of the Registration Statement, the
Prospectus/Proxy Statement and related documents.
5.12 Press Releases. Without the consent of the other parties, prior to the
Effective Time none of the parties shall issue, and shall instruct their
respective officers, directors, employees, investment bankers, attorneys or
other advisers or representatives not to issue, any press release or make any
public announcement or statement with regard to this Agreement and the Stock
Option Agreement or the Merger or any of the transactions contemplated hereby or
thereby; provided, however, that nothing in this Section 5.12 shall be deemed to
(i) prohibit the Company or Parent from making any disclosures, press releases
or announcements relating to their respective businesses or operations, or (ii)
prohibit any party hereto from making any disclosure which its counsel deems
necessary or advisable in order to fulfill such party's disclosure obligations
imposed by Law or the rules of any national securities exchange or automated
quotation system.
5.13 Indemnification of Officers and Directors
(a) Until such time as the applicable statute of limitations shall have
expired, Parent shall cause the Surviving Corporation to provide with respect to
each present or former director and officer of the Company or any Company
Subsidiary (the "Indemnified Parties"), the indemnification rights (including
any rights to advancement of expenses) which such Indemnified Parties had or was
made available to such Indemnified Parties, from the Company or any Company
Subsidiary, immediately prior to the Merger, whether available under the CBCA,
the corporate laws governing any Company Subsidiary, the Certificate of
Incorporation or the By-Laws of the Company or the comparable organizational
documents of any Company Subsidiary or by any contract, agreement, arrangement
or course of dealing set forth on Schedule 5.13 to the Company Disclosure
Letter, in each case as in effect on the date hereof.
<PAGE>
(b) Any Indemnified Party wishing to claim indemnification under paragraph
(a) of this Section 5.13, upon learning of any such claim, action, suit
proceeding or investigation, shall promptly notify Parent thereof. In the event
of any such claim, action, suit, proceeding or investigation (whether arising
before or after the Effective Time), (i) subject to subsections (i) and (ii)
below, Parent or the Surviving Corporation shall have the right to assume the
defense thereof and neither Parent nor the Surviving Corporation shall be liable
to such Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Parties in connection with
the defense thereof, unless the defenses available to such Indemnified Party are
different from or in addition to any defenses available to Parent or the
Surviving Corporation, which in such case, Parent or the Surviving Corporation
shall pay the costs and expenses of one counsel and up to one local counsel for
such Indemnified Party, (ii) subject to the last clause of subsection (i) above,
the Indemnified Party shall have the right to maintain a joint defense with the
Indemnified Party paying its own costs and expenses, (iii) the Indemnified
Parties will cooperate in the defense of any such matter and (iv) neither Parent
nor the Surviving Corporation shall be liable for any settlement effected
without its prior written consent; and provided, further, that neither Parent
nor the Surviving Corporation shall have any obligation hereunder to any
Indemnified Party if and when a court of competent jurisdiction shall ultimately
determine, and such determination shall have become final, that the
indemnification of such Indemnified Party in the manner contemplated hereby is
prohibited by applicable law.
(c) In the event that the Surviving Corporation or any of its 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 or conveys all or substantially all of its properties and assets
to any Person, then, and in each such case, proper provision will be made so
that the successors and assigns of the Surviving Corporation assume the
obligations set forth in this Section 5.13.
(d) Immediately following the Effective Time, Parent shall cause the
Surviving Corporation to (i) maintain the Company's current policies of
directors' and officers' liability insurance for a period of six years after the
Effective Time or (ii) maintain a run-off or tail policy or endorsement with
respect to covering claims asserted within six years after the Effective Time
arising from facts or events occurring at or before the Effective Time;
provided, however, that in no event shall Parent be required to expend pursuant
to this Section 5.13(d) on an annual basis more than an amount equal to 150% of
the current annual premiums paid by the Company for such insurance and, in the
event the cost of such coverage shall exceed that amount, Parent shall purchase
as much coverage as possible for such amount.
<PAGE>
(e) This Section 5.13 shall survive the Closing and is intended to benefit
the Company, the Surviving Corporation and each of the Indemnified Parties and
his or her heirs and representatives (each of whom shall be entitled to enforce
this Section 5.13 against Parent or the Surviving Corporation to the extent
specified herein) and shall be binding on all successors and assigns of Parent
and the Surviving Corporation.
5.14 Tax Treatment. Parent and the Company agree to treat the Merger as a
reorganization within the meaning of Section 368(a) of the Code. Except as may
result from Parent's determination to pay a portion of the Merger Consideration
in cash in accordance with Section 1.2(c) and subject to the Company's right to
terminate this Agreement pursuant to Section 7.1(d)(vi), during the period from
the date of this Agreement through the Effective Time, none of Parent, the
Company or any of their respective subsidiaries shall knowingly take or fail to
take any action which action or failure to act would be reasonably likely to
jeopardize qualification of the Merger as a reorganization within the meaning of
Section 368(a) of the Code.
5.15 Employee Benefits.
(a) (i) Merger Sub hereby agrees to honor and Parent shall cause Merger Sub
to honor, and to make required payments when due under, all contracts,
agreements, arrangements, policies, plans and commitments of the Company or any
Company Subsidiary, in effect immediately prior to the Effective Time which are
applicable with respect to any employee, officer, director or executive or
former employee, officer, director or executive of the Company or any Company
Subsidiary (each a "Company Employee"), including the Company Employee Plans set
forth on Schedule 3.13 of the Company Disclosure Letter.
(ii) Merger Sub hereby agrees to assume and honor and Parent shall
cause Merger Sub to honor, each employment, retention, consulting or
severance agreement or arrangement set forth on Schedule 3.13 of the
Disclosure Letter that was entered into by and between the Company and any
Company Employee that is in effect immediately prior to the Effective Time
(each such agreement or arrangement, an "Employee Agreement").
(b) Merger Sub hereby agrees that for a period of one year immediately
following the Effective Time, it shall continue to provide benefits under
employee benefit, incentive compensation, welfare and fringe benefit plans,
programs and policies for the benefit of Company Employees (other than stock
options or other plans involving the issuance of securities by Parent or Merger
Sub) which in the aggregate provide benefits that are no less favorable than
those provided to them under the Company Employee Plans immediately prior to the
Effective Time.
(c) Merger Sub hereby agrees that following the Effective Time, no Company
Employee shall be entitled to fewer annual vacation days than those to which
such individual was entitled on the date hereof.
<PAGE>
(d) Merger Sub hereby agrees that for a period of two years immediately
following the Effective Time, it shall, or shall cause the Surviving Corporation
to, provide severance benefits to employees of the Company and any Company
Subsidiary who are terminated by Parent or the Surviving Corporation at any time
during such two year period in an amount equal to the severance payable under
the Company's Employees' Severance Plan as in effect on the Effective Time.
(e) Parent hereby agrees that following the Effective Time, it shall or
shall cause Merger Sub to, continue to maintain the Company's Directors
Charitable Endowment Program as in effect on the Effective Time, without any
amendment thereto which is adverse to the participants therein. Any and all
obligations of the Company under such program may be satisfied by Parent or any
other entity designated by Parent.
(f) For purposes of all employee benefit plans, programs and arrangements
maintained by or contributed to by Parent and its Subsidiaries (including,
without limitation, the Surviving Corporation) and for which Company Employees
become eligible, Parent shall, or shall cause its Subsidiaries to, cause each
such plan, program or arrangement to treat the prior service with the Company or
any Company Subsidiary of each Company Employee (to the same extent such service
is recognized under analogous plans, programs or arrangements of the Company or
any Company Subsidiary prior to the Effective Time) as service rendered to
Parent or its Subsidiaries, as the case may be, for purposes of eligibility to
participate, vesting, benefit accrual (other than benefit accrual under any
defined benefit pension plan) and determination of benefit levels thereunder;
provided, however, that any benefits provided by Parent under any (i) employee
benefit plans, as defined in section 3(3) of ERISA, (ii) nonqualified employee
benefit or deferred compensation plans, stock option, bonus or incentive plans
or (iii) other employee benefit or fringe benefit programs, that may be in
effect generally for employees of Parent or its Subsidiaries from time to time,
shall be reduced by benefits in respect of the same years of service under
analogous plans, programs and arrangements maintained by or contributed to by
the Company, the Surviving Corporation or their Subsidiaries. Parent and Merger
Sub shall (x) waive all limitations as to preexisting conditions exclusions and
waiting periods with respect to participation and coverage requirements
applicable to the Company Employees under any welfare benefit plans that such
Company Employees may be eligible to participate in after the Effective Time,
other than limitations or waiting periods that are already in effect with
respect to such employees and that have not been satisfied as of the Effective
Time under any welfare benefit plan maintained for the Company Employees
immediately prior to the Effective Time and (y) provide each Company Employee
with credit for any co-payments and deductibles paid prior to the Effective Time
in satisfying any applicable deductible or out-of-pocket requirements under any
welfare plans that such employees are eligible to participate in after the
Effective Time.
<PAGE>
(g) As soon as practicable following the Effective Time, Parent shall, or
shall cause Merger Sub, to pay each participant in the Company's long term and
short term incentive plans, in accordance with the terms and conditions of such
plans, a lump sum amount in cash with respect to each performance cycle which
includes the Effective Time, calculated based upon the assumption of achievement
of target performance levels under each applicable plan with respect to each
applicable performance cycle. Where the award with respect to the target
performance level is denominated as a range, such payment shall be the amount
(within such range) mutually agreed to by Parent and the Company.
(h) With respect to each Company Employee who, immediately prior to the
Effective Time, is a participant in the Company Employees' Retirement Plan and
Trust, the Company Excess Retirement Plan, or the Company Top Hat Plan
(collectively, the "Company Pension Plans"), the Company Pension Plans shall not
be terminated or amended in any manner which is adverse in more than a de
minimis way to such participant for a period of one year immediately following
the Effective Time. At no time shall any benefits which are accrued by the
participants in the Company Pension Plans prior to such one year anniversary be
reduced. With respect to each Company Employee who, immediately prior to the
Effective Time, has attained at least age 50, the Company Retiree Life and
Health Insurance Program shall not, for a period of one year immediately
following the Effective Time, be terminated or amended in any manner which is
adverse in more than a de minimis way to any such individual.
<PAGE>
5.16 Rule 145. The Company shall use reasonable best efforts to cause each
Person who the Company or Parent believes, at the time of the Stockholders
Meeting, is an "affiliate" for purposes of Rule 145 under the Securities Act, to
deliver to Parent on or prior to such date a written agreement in terms
reasonably satisfactory to Parent, that such Person will not offer to sell,
transfer or otherwise dispose of any of the shares of Parent Common Stock issued
to such Person pursuant to the Merger, except in accordance with the applicable
provisions of Rule 145, and except in other transactions that are not in
violation of the Securities Act. Schedule 5.16 of the Company Disclosure Letter
sets forth a list of those persons who the Company believes, at the date hereof,
are "affiliates" for purposes of Rule 145 under the Securities Act. The Company
shall provide to Parent such information and documents as Parent shall
reasonably request for purposes of identifying "affiliates". There shall be
added to Section 5.16 of the Company Disclosure Letter the names and addresses
of any other Person subsequently identified by either Parent or the Company as a
Person who may be deemed to be such an affiliate of the Company; provided,
however, that no such Person identified by Parent shall be added to the list of
affiliates of the Company if Parent shall receive from the Company, on or before
the date of the Stockholders' Meeting, an opinion of counsel reasonably
satisfactory to Parent to the effect that such Person is not such an affiliate.
Parent shall not be required to maintain the effectiveness of the Registration
Statement or any other registration statement under the Securities Act for the
purpose of resale of Parent Common Stock by such affiliates received in the
Merger and the certificates representing Parent Common Stock received by such
affiliates shall bear a customary legend regarding applicable Securities Act
restrictions and the provisions of this Section.
5.17 Stock Options and Other Incentive Programs
(a) Prior to the Effective Time, the Company shall have taken all necessary
actions so that at the Effective Time, each unexpired and unexercised stock
option under the Company Stock Plans, or otherwise granted by the Company
outside of any Company Stock Plan (the "Company Stock Options"), shall become
immediately exercisable and will be assumed by Parent as hereinafter provided.
At the Effective Time, by virtue of the Merger and without any further action on
the part of the Company or the holder thereof, each Company Stock Option will be
automatically converted into an option to purchase Parent Common Stock (the "New
Parent Stock Options"). With respect to each such New Parent Stock Option (i)
the number of shares of Parent Common Stock subject to such New Parent Stock
Option will be determined by multiplying the number of shares of Company Common
Stock that could have been purchased under such Company Stock Option by the
Option Exchange Ratio (as hereinafter defined), and rounding any fractional
share up to the nearest whole share, and (ii) the exercise price per share of
such New Parent Stock Option will be determined by dividing the exercise price
per share specified in the Company Stock Option by the Option Exchange Ratio,
and rounding the exercise price thus determined up to the nearest whole cent.
Such New Parent Stock Option shall otherwise be subject to the same terms and
conditions as such Company Stock Option. At the Effective Time, (i) all
references in the Company Stock Plans, the applicable stock option or other
awards agreements issued thereunder and in any other Company Stock Options to
the Company shall be deemed to refer to Parent; and (ii) Parent shall assume the
Company Stock Plans and all of the Company's obligations with respect to the
Company Stock Options. The Option Exchange Ratio shall mean $41.00 divided by
the Base Period Stock Price.
(b) As soon as practicable after the Effective Time, to the extent
necessary to provide for the registration of shares of Parent Common Stock
subject to such substituted New Parent Stock Options, Parent shall file a
registration statement on Form S-8 (or any successor form) with respect to such
shares of Parent Common Stock and shall use its best efforts to maintain such
registration statement on Form S-8 (or any successor form), including the
current status of any related prospectus or prospectuses, for so long as New
Parent Stock Options remain outstanding.
<PAGE>
(c) Parent and the Company shall take all such steps as may be required to
cause the transactions contemplated by this Section 5.17(c) and any other
dispositions of equity securities of the Company (including derivative
securities) or acquisitions of Parent equity securities (including derivative
securities) in connection with this Agreement by each individual who (i) is a
director or officer of Company or (ii) at the Effective Time, will become a
director or officer of Parent, to be exempt under Rule 16b-3 promulgated under
the Exchange Act, such steps to be taken in accordance with the No-Action Letter
dated January 12, 1999, issued by the SEC to Skadden, Arps, Slate, Meagher &
Flom LLP.
(d) The restrictions with respect to all Company restricted stock awards
shall lapse immediately prior to the Effective Time and the shares of previously
restricted stock shall be converted in accordance with the provisions of Section
1.2(c).
5.18 Other Actions by the Company and Parent
(a) Prior to the Effective Time, the board of directors of the Company
shall take all necessary action to redeem, or the Company shall use its best
efforts to take such other steps as Parent reasonably requests with respect to,
all of the outstanding Capital Securities. Any actions taken by the Company in
order to effect the intent of this Section 5.18(a) shall not be deemed to
violate any other provision of this Agreement.
(b) The Company shall coordinate with Parent the declaration, setting of
record dates and payment dates of dividends on Company Common Stock so that
holders of Company Common Stock do not receive dividends on both Company Common
Stock and Parent Common Stock received in the Merger in respect of any calendar
quarter or fail to receive a dividend on either Company Common Stock or Parent
Common Stock received in the Merger in respect of any calendar quarter.
(c) Within five (5) days of the date hereof, the Company shall deliver to
Parent a list of its unadmitted reinsurance recoverables as of December 31,
1999.
(d) Notwithstanding any provision of this Agreement to the contrary, the
Company may take such actions as are necessary to donate (or to irrevocably
commit to donate) the Company's collection of art to an organization recognized
under Section 501(c)(3) of the Code that is not a private foundation under
Section 509 of the Code, such contribution not to be covered by Section
170(e)(1)(B)(i) of the Code.
<PAGE>
ARTICLE 6
CONDITIONS PRECEDENT TO MERGER
6.1 Conditions to Each Party's Obligations. The respective obligations of
each party to effect the Merger shall be subject to the satisfaction on or prior
to the Closing Date of each of the following conditions:
(a) This Agreement and the Merger shall have been approved and adopted
by the affirmative vote of the holders of at least a majority of the
outstanding shares of Company Common Stock.
(b) No Governmental Authority shall have enacted, issued, promulgated,
enforced or entered any law, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent)
which is in effect and has the effect of making illegal, materially
restricting or in any way preventing or prohibiting the Merger or the
transactions contemplated by this Agreement.
(c) The Registration Statement shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall be in effect and no proceedings for such
purpose, or under the proxy rules of the SEC pursuant to the Exchange Act
and with respect to the transactions contemplated hereby, shall be pending
before or threatened by the SEC. At the effective date of the Registration
Statement, the Registration Statement shall not contain any untrue
statement of a material fact, or omit to state any material fact necessary
in order to make the statements therein not misleading, and, at the mailing
date of the Prospectus/Proxy Statement and the date of the Stockholders'
Meeting, the Prospectus/Proxy Statement (as amended or supplemented to that
date) shall not contain any untrue statement of a material fact, or omit to
state any material fact necessary in order to make the statements therein
not misleading.
(d) The shares of Parent Common Stock to be issued in the Merger shall
have been authorized for listing on the New York Stock Exchange upon
official notice of issuance.
6.2 Conditions to Obligations of the Company. The obligations of the
Company to effect the Merger shall be subject to the satisfaction on or prior to
the Closing Date of each of the following conditions unless waived by the
Company:
<PAGE>
(a) (i) The representations and warranties of Parent and Merger Sub set
forth in Sections 4.1, 4.2, 4.3 and 4.8 of this Agreement which are not
qualified by "Material Adverse Effect on Parent" shall each be true and correct
in all material respects 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 any such
representation or warranty expressly speaks as of an earlier date) and (ii) the
representations and warranties of Parent and Merger Sub set forth in this
Agreement other than those contemplated by clause (i) hereof (without giving
effect to any qualifications as to "Material Adverse Effect," "materiality" or
other similar qualifications) shall be true and correct 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 any such representation or warranty expressly speaks
as of an earlier date), except where the failure of such representations and
warranties to be true and correct (without giving effect to any qualifications
as to "Material Adverse Effect," "materiality" or other similar qualifications)
are not, individually or in the aggregate, reasonably likely to have a Material
Adverse Effect on Parent.
(b) Parent and Merger Sub each shall have performed in all material
respects all covenants and agreements required to be performed by them under
this Agreement at or prior to the Closing Date.
(c) Parent shall furnish the Company with a certificate of its authorized
officers as to compliance with the conditions set forth in Sections 6.2(a) and
(b).
(d) (i) The waiting period applicable to the consummation of the Merger
under the HSR Act and applicable Insurance Laws shall have expired or been
terminated. All consents, authorizations, orders and approvals of (or filings,
reports, registrations with or notifications to) any Insurance Authority or
other Governmental Authority required in connection with the execution, delivery
and performance of this Agreement, the failure to obtain which would prevent the
consummation of the Merger or would be reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on Parent, shall have been obtained
and shall be in full force and effect.
(e) The Company shall have received the opinion of Skadden, Arps, Slate,
Meagher & Flom LLP, counsel to the Company, in form and substance reasonably
satisfactory to the Company, a copy of which shall be furnished to Parent, to
the effect that (i) the Merger will be treated for federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the Code and (ii) no
gain or loss will be recognized by the stockholders of the Company with respect
to the Parent Common Stock received in exchange for Company Common Stock
pursuant to the Merger (except with respect to cash received as part of the
Merger Consideration and received in lieu of fractional shares of Parent Common
Stock). In rendering such opinion, such counsel shall be entitled to receive and
rely upon representations of officers of the Company and Parent as to such
matters as such counsel may reasonably request.
<PAGE>
6.3 Conditions to Obligations of Parent. The obligations of Parent to
effect the Merger shall be subject to the satisfaction on or prior to the
Closing Date of each of the following conditions unless waived by Parent:
(a) The representations and warranties of the Company set forth in Sections
3.1, 3.2, 3.3, 3.4, 3.18 and 3.19 of this Agreement which are not qualified by
"Material Adverse Effect" shall each be true and correct in all material
respects 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 any such representation
or warranty expressly speaks as of an earlier date) and (ii) the representations
and warranties of the Company set forth in this Agreement other than those
contemplated by clause (i) hereof (without giving effect to any qualification as
to "Material Adverse Effect," "materiality" or other similar qualifications)
shall be true and correct 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 any such
representation or warranty expressly speaks as of an earlier date), except where
the failure of such representations and warranties to be true and correct
(without giving effect to any qualifications as to "Material Adverse Effect,"
"materiality" or other similar qualifications) are not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect.
(b) The Company shall have performed in all material respects all covenants
and agreements required to be performed by it under this Agreement and the Stock
Option Agreement at or prior to the Closing Date.
(c) There shall not have occurred or arisen after December 31, 1999, and
prior to the Effective Time, any change, event, condition (financial or
otherwise), or state of circumstances or facts with respect to the Company or
any of the Company Subsidiaries which are, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on the Company.
(d) The Company shall furnish Parent with a certificate of its authorized
officers as to compliance with the conditions set forth in Sections 6.3(a), (b)
and (c).
(e) Parent shall have received the opinion of Sullivan & Cromwell, counsel
to Parent, in form and substance reasonably satisfactory to Parent, a copy of
which shall be furnished to the Company, to the effect that (i) the Merger will
be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code and (ii) no gain or loss will be
recognized by Parent, Merger Sub or the Company as a result of the Merger. In
rendering such opinion, such counsel shall be entitled to receive and rely upon
representations of officers of the Company and Parent as to such matters as such
counsel may reasonably request.
<PAGE>
(f)(i) The waiting period applicable to the consummation of the Merger
under the HSR Act and applicable Insurance Laws shall have expired or been
terminated. All consents, authorizations, orders and approvals of (or filings,
reports, registrations with or notifications to) any Insurance Authority
required in connection with the execution, delivery and performance of this
Agreement shall have been obtained and shall be in full force and effect. All
consents, authorizations, orders and approvals of (or filings, reports,
registrations with or notifications to) any other Governmental Authority
required in connection with the execution, delivery and performance of this
Agreement, the failure to obtain which would prevent the consummation of the
Merger or would be reasonably likely, individually or in the aggregate, (A) to
have a Material Adverse Effect on the Company, (B) to have a Material Adverse
Effect on Parent, (C) to materially and adversely impact the economic or
business benefits to Parent and its subsidiaries of the transactions
contemplated hereby, (D) to result in criminal liability or a more than de
minimis civil fine or other penalty against Parent or any of its subsidiaries,
affiliates or employees, or (E) to result in Parent and its subsidiaries being
prohibited from conducting, or materially limited in their ability to conduct,
business in any jurisdiction, shall have been obtained and shall be in full
force and effect; and no such consent or approval shall impose any condition or
conditions relating to, or requiring changes or restrictions in, the operations
of any asset or business of the Company, Parent or their respective subsidiaries
which is reasonably likely to have a Material Adverse Effect on the Company, to
have a Material Adverse Effect on Parent or to materially and adversely impact
the economic or business benefits to Parent and its subsidiaries of the
transactions contemplated by this Agreement.
(g) All authorizations, consents, waivers and approvals from parties to any
contracts or agreements to which the Company or any Company Subsidiary is a
party, or by which either is bound, as may be required to be obtained by them in
connection with the performance of this Agreement, the failure to obtain which
would prevent the consummation of the Merger or is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on the Company,
shall have been obtained.
(h) The aggregate amount of Dissenting Shares shall be less than 5% of the
total outstanding shares of Company Common Stock at the Effective Time.
(i) Parent and/or Merger Sub shall have entered into an Employment
Agreement with Messrs. Booth and Mercier and at least eight of the other persons
identified on Exhibit 6.3(i), in substantially the form attached as Annex
6.3(i).
(j) Parent shall have received an Affiliates Letter from each Person
identified as an affiliate of the Company pursuant to Section 5.16.
<PAGE>
(k) There shall be no pending or threatened claim, action, suit or
proceeding challenging, seeking to prohibit or restrain, or seeking damages in
connection with the Merger or the transactions contemplated by this Agreement or
the Stock Option Agreement (i) by a Governmental Entity, or by a third party or
parties whose claim, action, suit or proceeding is reasonably likely to result
in damages or other remedies material, individually or in the aggregate, to the
results of operation of the Company and its subsidiaries for the year ended
December 31, 2000.
(l) The Company shall have redeemed, or taken such other steps to Parent's
satisfaction with respect to, all of the outstanding Capital Securities.
ARTICLE 7
TERMINATION AND ABANDONMENT OF THE MERGER
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after the approval by the stockholders of the
Company:
(a) by the mutual written consent of Parent and the Company;
(b) by the Company if:
(i) the Merger is not consummated on or before the close of business
on March 31, 2001 (the "Termination Date"), unless the failure of such
occurrence shall be due to the failure of the Company to perform or observe
any covenant, agreement and condition hereof to be performed or observed by
it at or before the Effective Time; provided, however, that the Company
shall not be prohibited from terminating the Agreement pursuant to this
Section 7.1(b)(i) as a result of the Company's failure to satisfy the
condition contained in Section 6.3(l) if the Company has performed its
agreement under Section 5.18(b);
(ii) there has been a breach of any representation, warranty, covenant
or agreement made by Parent or Merger Sub in this Agreement, or any such
representation and warranty shall have become untrue after the date of this
Agreement, such that Sections 6.1 or 6.2 would not be satisfied and such
breach or condition is not curable or, if curable, is not cured within 30
days after written notice thereof is given by the Company to Parent;
(iii) any order permanently restraining, enjoining or otherwise
prohibiting consummation of the Merger shall become final and
non-appealable (whether before or after the approval by the stockholders of
the Company);
<PAGE>
(iv) If (i) the Company is not in material breach of any of the terms
of this Agreement, (ii) the Board of Directors of the Company authorizes
the Company, subject to complying with the terms of this Agreement, to
enter into a binding written agreement concerning a transaction that
constitutes a Superior Proposal and the Company notifies Parent in writing
that it intends to enter into such an agreement, attaching the most current
version of such agreement to such notice, (iii) Parent does not make,
within five business days of receipt of the Company's written notification
of its intention to enter into a binding agreement for a Superior Proposal,
an offer that the Board of Directors of the Company determines, in good
faith after consultation with its outside counsel and financial advisors,
is at least as favorable, from a financial point of view, to the
stockholders of the Company as the Superior Proposal and (iv) the Company
prior to such termination pays to Parent in immediately available funds any
fees required to be paid pursuant to Section 5.5 (which funds may be
provided by or to the Company by the person making the Superior Proposal).
The Company agrees (i) that it will not enter into a binding agreement
referred to in clause (x) above until at least the sixth business day after
it has provided the notice to Parent required thereby and (y) to notify
Parent promptly if its intention to enter into a written agreement referred
to in its notification shall change at any time after giving such
notification;
(v) the stockholders of the Company do not approve this Agreement and
the Merger at the Stockholders' Meeting;
(vi) as a result of Parent's determination to pay a portion of the
Merger Consideration in cash in accordance with Section 1.2(c), the Merger
fails to qualify as a reorganization within the meaning of Section 368(a)
of the Code; or
(c) by Parent if:
(i) the Merger is not consummated on or before the Termination Date,
unless the failure of such occurrence shall be due to the failure of Parent
or Merger Sub to perform or observe the covenants, agreements and
conditions hereof to be performed or observed by them at or before the
Effective Time;
(ii) there has been a breach of any representation, warranty, covenant
or agreement made by the Company in this Agreement, or any such
representation and warranty shall have become untrue after the date of this
Agreement, such that Section 6.1 or 6.3 would not be satisfied and such
breach or condition is not curable or, if curable, is not cured within 30
days after written notice thereof is given by Parent to the Company;
<PAGE>
(iii) any order permanently restraining, enjoining or otherwise
prohibiting consummation of the Merger shall become final and
non-appealable (whether before or after the approval by the stockholders of
the Company);
(iv) the stockholders of the Company do not approve this Agreement and
the Merger at the Stockholders' Meeting;
(v) the Board of Directors of the Company shall have approved or
recommended another Acquisition Proposal or the Company shall have entered
into an agreement with respect to another Acquisition Proposal; or
(vi) the Board of Directors of the Company shall have withdrawn or
adversely modified its recommendation of this Agreement and the Merger or
failed to reconfirm its recommendation of this Agreement and the Merger
within five business days after a written request by Parent to do so;
provided, that such time period shall be stayed during the period from when
the Company first gives notice pursuant to Section 7.1(b)(iv) until three
(3) business days after the earlier of Parent's response to such notice and
the fifth business day after Parent's receipt of such notice.
7.2 Effect of Termination and Abandonment. In the event of the termination
of this Agreement under Section 7.1, this Agreement shall become void and have
no effect, without any liability on the part of any party or its directors,
officers or stockholders except (a) as provided in Sections 5.1, 5.5 and 5.11
and (b) to the extent that such termination results from the willful or
intentional breach by any party hereto of any representation, warranty or
covenant hereunder.
ARTICLE 8
8.1 Non-Survival. No representations or warranties in this Agreement shall
survive the Effective Time. This Section 8.1 shall not limit any covenant or
agreement of the parties which by its terms contemplates performance after the
Effective Time.
8.2 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed given if delivered personally,
by facsimile (which is confirmed) or sent by overnight courier (providing proof
of delivery), to the parties at the following address:
<PAGE>
(a) If to Parent or Merger Sub:
American International Group, Inc.
70 Pine Street
New York, New York
Attention: Ernest Patrikis, Esq.
Facsimile: 212-425-2175
With a concurrent copy (which shall not
serve as notice to the Parent) to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Michael M. Wiseman
Stephen M. Kotran
Facsimile: 212-558-3588
(b) If to Company:
HSB Group, Inc.
P.O. Box 5024
One State Street
Hartford, CT 06102-5024
Attention: Robert Walker, Esq.
Facsimile: 860-722-5710
With a concurrent copy (which shall not
serve as notice to the Company) to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Attention: Thomas H. Kennedy
Facsimile: 917-777-2526
Any party may, by notice given in accordance with this Section 8.2 to the
other parties, designate another address or person for receipt of notices
hereunder; provided that notice of such a change shall be effective upon
receipt.
<PAGE>
8.3 Entire Agreement. This Agreement, the Company Disclosure Letter, the
Stock Option Agreement, together with the other agreements contemplated hereby,
and the Exhibits and the Schedules hereto, contain the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, written or oral, with respect thereto; provided,
however, that the Confidentiality Agreement shall remain in full force and
effect in accordance with its terms except as contemplated by Section 5.1.
Without limiting the foregoing, the parties agree that this Agreement, the other
agreements contemplated hereby and the Schedules and Exhibits hereto shall be
kept confidential to the extent required by and in accordance with the
Confidentiality Agreement.
8.4 Waivers and Amendments; Non-Contractual Remedies; Preservation of
Remedies. This Agreement may be amended, superseded, canceled, renewed or
extended, and the terms hereof may be waived, only by a written instrument
signed by each of the parties or, in the case of a waiver, by the party waiving
compliance. No delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any right, power or privilege, nor any single or
partial exercise of any such right, power or privilege, preclude any further
exercise thereof or the exercise of any other such right, power or privilege.
The rights and remedies herein provided are cumulative and are not exclusive of
any rights or remedies that any party may otherwise have at law or in equity.
8.5 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE
PRINCIPLES OF CONFLICTS OF LAWS THEREOF; PROVIDED, HOWEVER, THAT THE CORPORATION
AND INSURANCE LAWS OF THE STATES OF CONNECTICUT AND DELAWARE AND OTHER
APPLICABLE STATES SHALL GOVERN AS APPLICABLE.
8.6 Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT OR THE STOCK OPTION AGREEMENT IS
LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND THEREFORE EACH SUCH PARTY
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE STOCK OPTION AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY. 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 SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH SUCH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS BEEN INDUCED
TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 8.6.
<PAGE>
8.7 Binding Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors, permitted
assigns and legal representatives. Neither this Agreement or the other
agreements contemplated hereby, nor any of the rights, interests or obligations
hereunder or thereunder, may be assigned, in whole or in part, by operation of
law or otherwise by any party hereto without the prior written consent of the
other parties hereto and any such assignment that is not consented to shall be
null and void; provided, however, that Parent may transfer and assign, by
written notice to the Company, the rights and obligations of Merger Sub
hereunder to another wholly owned direct or indirect subsidiary of Parent.
8.8 Interpretation.
(a) The parties acknowledge and agree that they may pursue judicial
remedies at law or equity in the event of a dispute with respect to the
interpretation or construction of this Agreement. In the event that an
alternative dispute resolution procedure is provided for in any other agreement
contemplated hereby, and there is a dispute with respect to the construction or
interpretation of such agreement, the dispute resolution procedure provided for
in such agreement shall be the procedure that shall apply with respect to the
resolution of such dispute.
(b) The table of contents and headings herein are for convenience of
reference only, do not constitute part of this Agreement and shall not be deemed
to limit or otherwise affect any of the provisions hereof. Where a reference in
this Agreement is made to a Section, Exhibit or Schedule, such reference shall
be to a Section of or Exhibit or Schedule to this Agreement unless otherwise
indicated. For purposes of this Agreement, the words "hereof," "herein,"
"hereby" and other words of similar import refer to this Agreement as a whole
unless otherwise indicated. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." Whenever the singular is used herein, the same
shall include the plural, and whenever the plural is used herein, the same shall
include the singular, where appropriate.
(c) No provision of this Agreement will be interpreted in favor of, or
against, either party hereto by reason of the extent to which any such party or
its counsel participated in the drafting thereof or by reason of the extent to
which any such provision is inconsistent with any prior draft hereof or thereof.
8.9 No Third-Party Beneficiaries. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and, except for rights of
Indemnified Parties as set forth in Section 5.13, nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
<PAGE>
8.10 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument.
8.11 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, Parent and Company direct that such court interpret and apply the
remainder of this Agreement in the manner that it determines most closely
effectuates their intent in entering into this Agreement, and in doing so
particularly take into account the relative importance of the term, provision,
covenant or restriction being held invalid, void or unenforceable. The parties
hereto agree that irreparable damage would occur 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 the
parties hereto shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered by its respective duly authorized
officers, all as of the date first above written.
AMERICAN INTERNATIONAL GROUP, INC.
By: /s/ Edward E. Matthews
Name: Edward E. Matthews
Title: Vice Chairman of the Board of
Directors
ENGINE ACQUISITION CORPORATION
By: /s/ Louis F. Zearo
Name: Louis F. Zearo
Title: Deputy Comptroller and
Vice President
HSB GROUP, INC.
By: /s/ Robert C. Walker
Name: Robert C. Walker
Title: Senior Vice President and
General Counsel
<PAGE>
Exhibit 6.3(i)
1. Saul L. Basch
2. Michael L. Downs
3. John J. Kelley
4. William A. Kerr
5. R. Kevin Price
6. William Stockdale
7. Robert C. Walker
8. Nathaniel Brinn
9. James C. Rowan, Jr.
10. Richard W. Gibbons
11. Roberta A. O'Brien
12. James E. Sutherlin
13. Theodore Kmiecik
<PAGE>
Annex 6.3(i)
FORM OF EMPLOYMENT AGREEMENT
AGREEMENT by and between HSB Group, Inc., a Connecticut corporation
having its principal executive offices in Hartford, Connecticut, (the "Company")
Engine Acquisition Corporation, a Delaware corporation ("Merger Sub") and
__________________ (the "Executive") dated as of the _____ day of August, 2000
The Company, Merger Sub and American International Group,
Inc., a [Delaware] corporation ("AIG") have determined that it is in the best
interests of their respective shareholders to assure that the Company will have
the continued dedication of the Executive pending the merger of the Company and
Merger Sub, (the "Merger") pursuant to the Agreement and Plan of Merger between
AIG, Merger Sub and the Company dated as of August 17, 2000 (the "Merger
Agreement") and to provide the successor entity after the Merger with continuity
of management. Therefore, in order to accomplish these objectives, the
Executive, Merger Sub and the Company desire to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean the
effective date of the Merger, provided the Executive is employed by the Company
on that date. As of the date hereof, the prior [Employment/Severance Agreement
effective _____________, as amended] ("Former Employment Agreement") between the
Executive and the Company shall terminate and become null and void, provided
that upon any termination of the transactions contemplated by the Merger
Agreement, this sentence will be inapplicable and, provided, further, that if
Executive is not employed by Merger Sub immediately after the Effective Date,
this sentence will be inapplicable.
2. Employment Period. The Company hereby agrees to continue to
employ the Executive for the period commencing on the Effective Date and ending
on the fourth anniversary of such date (the "Employment Period"), and the
Executive hereby agrees to continue in the employ of the Company subject to the
terms and conditions of this Agreement.
<PAGE>
3. Terms of Employment.
a. Position and Duties.
i. During the Employment Period, the Executive shall
serve Merger Sub in the same capacity he is currently
serving the Company with the appropriate authority, duties
and responsibilities attendant to such position and in such
other comparable positions as the board of Merger Sub (the
"Board") may reasonably request. Any references to Merger
Sub herein shall include reference to any successor thereto.
ii. During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is
entitled, the Executive agrees to devote substantially all
of his attention and time during normal business hours to
the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best
efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not
be a violation of this Agreement for the Executive to (A)
serve, with prior approval of the Board, on corporate, civic
or charitable boards or committees and (B) manage personal
investments, so long as such activities do not significantly
interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance
with this Agreement.
b. Compensation.
i. Annual Base Salary. During the Employment Period,
the Executive shall receive an annual base salary ("Annual
Base Salary") of at least $_________. Such Annual Base
Salary shall be subject to periodic review by the Board for
increases in its sole discretion.
ii. Annual Bonus. During the Employment Period, the
Executive shall be paid an annual cash bonus in accordance
with Merger Sub's performance based bonus program ("Annual
Bonus"); provided, however, that the bonus award for 2001 as
a percentage of Annual Base Salary and the corresponding
target levels shall be those utilized in the annual
incentive plan that was applicable to the Executive for the
year 2000 and the applicable performance targets shall be
based on a formula relating to the operating plan similar to
the one established for 2000 as agreed between Richard H.
Booth and the Board. The Annual Bonus shall be paid in
accordance with Merger Sub's customary practices.
<PAGE>
(iii) Retention Bonus. If the Executive is employed
with Merger Sub on the first anniversary of the Effective
Date, the Executive shall be paid a retention bonus equal to
the Annual Base Salary (the "Retention Bonus"). The
Retention Bonus shall be paid within one month of such
anniversary.
(iv) Other Employee Benefit Plans. During the
Employment Period, except as otherwise expressly provided
herein, the Executive shall be eligible to participate in
all employee benefit, welfare and other plans, practices,
policies and programs and fringe benefits (including,
without limitation, stock options and other equity based
compensation plans) of Merger Sub (collectively, "Employee
Benefit Plans") on a basis no less favorable than that
provided to other senior executive officers of the Company
and other similarly situated executives of other AIG
subsidiaries; provided, however, that nothing shall require
Executive's participation in any Employee Benefit Plans in
which the participation of any individual employee is
discretionary. Executive's prior service with the Company
shall be taken into account for all purposes except benefit
accruals.
4. Termination of Employment.
a. Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the
Employment Period. If Merger Sub determines in good faith that
the Disability of the Executive has occurred during the
Employment Period (pursuant to the definition of Disability set
forth below), it may give to the Executive written notice in
accordance with Section 11(b) of this Agreement of its intention
to terminate the Executive's employment. In such event, the
Executive's employment with Merger Sub shall terminate effective
on the 30th day after receipt of such notice by the Executive
(the "Disability Effective Date"), provided that, within the 30
days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of
this Agreement, "Disability" shall mean the absence of the
Executive from the Executive's duties with Merger Sub on a
full-time basis for 180 business days during any consecutive
twelve month period as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by
a physician selected by Merger Sub or its insurers and acceptable
to the Executive or the Executive's legal representative.
b. Cause. Merger Sub may terminate the Executive's
employment during the Employment Period for Cause. For purposes
of this Agreement, "Cause" shall mean:
i. the engaging by the Executive in gross misconduct
which is materially and demonstrably injurious to Merger Sub
or illegal conduct,
ii. the conviction of a felony or guilty or nolo
contendere plea to a felony by the Executive, or
<PAGE>
iii. the continued failure by the Executive to
substantially perform the Executive's duties with Merger Sub
after written demand for substantial performance is
delivered to the Executive by the Board, which demand states
a reasonable period of time within which the Executive must
correct such failure.
Any act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer (while the Executive does not serve as such) or based upon the advice of
counsel for Merger Sub shall be conclusively presumed to be done, or omitted to
be done, by the Executive in good faith and in the best interests of Merger Sub
and shall under no circumstances constitute misconduct. The cessation of
employment of the Executive shall not be deemed to be for Cause unless and until
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than 75% of the entire membership of
the Board (excluding the Executive) at a meeting of the Board called and held
for such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board) finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i), (ii) or (iii) above, and
specifying the particulars thereof in detail.
c. Good Reason. The Executive's employment may be terminated by
the Executive for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean in the absence of a written consent of the
Executive:
i. the assignment to the Executive of any duties materially
inconsistent with the Executive's position, authority, duties or
responsibilities as contemplated by this Agreement, or any other
action by Merger Sub which results in a material diminution in
such position, authority, duties or responsibilities, excluding
for this purpose an action not taken in bad faith and which is
remedied by Merger Sub promptly after receipt of notice thereof
given by the Executive and further excluding for this purpose the
fact that Merger Sub will be a non-publicly traded subsidiary of
AIG after the Effective Date;
ii. any failure by Merger Sub to comply with the provisions
of Section 3 (b) of this Agreement, other than a failure not
occurring in bad faith and which is remedied by Merger Sub
promptly after receipt of notice thereof given by the Executive;
iii. any purported termination by Merger Sub of the
Executive's employment otherwise than as expressly permitted by
this Agreement;
<PAGE>
iv. any failure by Merger Sub to comply with and satisfy
Section 10(c) of this Agreement; or
(v) any requirement that the Executive (A) be based anywhere
more than fifty (50) miles from the office where the Executive is
currently located or (B) travel on Company business to an extent
substantially greater than the Executive's current travel
obligations.
d. Notice of Termination. Any termination by Merger Sub or by the
Executive shall be communicated by Notice of Termination to the other
party hereto given in accordance with Section 11(b) of this Agreement.
For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision
in this Agreement relied upon, (ii) to the extent applicable, sets
forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as
defined below) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than
thirty days after the giving of such notice). The failure by the
Executive or Merger Sub to set forth in the Notice of Termination any
fact or circumstance which contributes to a showing of Good Reason or
Cause shall not waive any right of the Executive or Merger Sub,
respectively, hereunder or preclude the Executive or Merger Sub,
respectively, from asserting such fact or circumstance in enforcing
the Executive's or Merger Sub's rights hereunder.
e. Date of Termination. "Date of Termination" means if the
Executive's employment is terminated by Merger Sub other than for
Disability, or by the Executive, the date of receipt of the Notice of
Termination or any later date specified therein within 30 days of such
notice, and if the Executive's employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of
death of the Executive or the Disability Effective Date, as the case
may be.
5. Obligations of the Company upon Termination.
<PAGE>
a. Any Reason. If, during the Employment Period, the Executive's
employment is terminated for any reason, Merger Sub shall (i) pay to
the Executive the Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid and any other bonus
payments for a prior bonus year that have been earned but not yet paid
and (ii) to the extent not theretofore paid or provided, pay or
provide to the Executive any other amounts or benefits required to be
paid or provided or which the Executive is eligible to receive under
any plan, program, policy or practice or contract or agreement of
Merger Sub and its affiliated companies through the Date of
Termination and Executive's other normal post-termination compensation
and benefits (including payments under retirement and retiree medical
programs), if any, as such payments become due.1 The payments and
benefits provided under Sections 5 (b), (c), (d) and (e) below are in
addition to the payments required under this Section 5(a).
(b) Good Reason; Other Than for Cause. If, during the Employment
Period, Merger Sub shall terminate the Executive's employment other
than for Cause, or the Executive shall terminate employment for Good
Reason:
(i) Merger Sub shall pay to the Executive in a lump
sum in cash within 30 days after the Date of Termination an amount
equal to the product of (x) the sum of the Executive's Annual Base
Salary and the average Annual Bonus paid to the Executive (including as
paid for this purpose any compensation earned but deferred, whether or
not at the election of the Executive and whether or not vested) for the
three years prior to the Date of Termination (the "Average Annual
Bonus") and (y) 3.0 (if the Date of Termination is on or before the
second anniversary of the Effective Date), 2.0 (if the Date of
Termination is after the second anniversary but on or before the third
anniversary of the Effective Date) or 1.0 (if the Date of Termination
is after the third anniversary but on or before the fourth anniversary
of the Effective Date), provided that any such amount shall be
decreased by the amount of any Retention Bonus paid to the Executive.
(ii) for the remainder of the Employment Period, Merger Sub
shall continue to provide insurance, medical, dental and other welfare
benefits to the Executive, his spouse and eligible dependents on the
same basis as such benefits are then currently provided to its
employees ("Welfare Benefits"); provided that any payments received
with respect to such Welfare Benefits shall be secondary to any
payments made pursuant to other coverage obtained by the Executive.2
<PAGE>
6. Non-exclusivity of Rights. Except as specifically provided
and subject to Section 11, nothing in this Agreement shall prevent or limit the
Executive's continuing or future participation in any plan, program, policy or
practice provided by the Company or any of its affiliated companies and for
which the Executive may qualify, nor, subject to Section 11(f), shall anything
herein limit or otherwise affect such rights as the Executive may have under any
contract or agreement with the Company or any of its affiliated companies.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plan, policy, practice or program of or any contract or
agreement with the Company or any of its affiliated companies at or subsequent
to the Date of Termination shall be payable in accordance with such plan,
policy, practice or program or contract or agreement except as explicitly
modified by this Agreement; provided that the Executive shall not be eligible
for severance benefits under any other program or policy of the Company.
7. No Mitigation. In no event shall the Executive be obligated
to seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement,
and such amounts shall not be reduced whether or not the Executive obtains other
employment. The Company agrees to pay, to the fullest extent permitted, all
reasonable legal fees and expenses which the Executive may reasonably incur as a
result of any contest pursued or defended against in good faith by the Executive
regarding the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to this
Agreement). Such payments shall be made within 10 business days of the delivery
of Executive's written request for payment accompanied by such evidence of the
fees and expenses incurred by Executive as Merger Sub may reasonably request.
8. Certain Additional Payments by the Company.
<PAGE>
a. Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by Merger Sub to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 8) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income and employment taxes
(and any interest and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
b. Subject to the provisions of Section 8(c), all determinations
required to be made under this Section 8, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Merger Sub's
independent auditors or such other certified public accounting firm reasonably
acceptable to the Executive as may be designated by Merger Sub (the "Accounting
Firm") which shall provide detailed supporting calculations both to Merger Sub
and the Executive within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is requested by
Merger Sub. All fees and expenses of the Accounting Firm shall be borne solely
by Merger Sub. Any Gross-Up Payment, as determined pursuant to this Section 8,
shall be paid by Merger Sub to the Executive within five days of the later of
(i) the due date for the payment of any Excise Tax, and (ii) the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon Merger Sub and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by Merger Sub should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that Merger Sub exhausts its remedies pursuant to
Section 8(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by Merger Sub
to or for the benefit of the Executive.
<PAGE>
c. The Executive shall notify Merger Sub in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by Merger Sub of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprize Merger Sub of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to Merger Sub (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If Merger Sub notifies the Executive in writing prior to the expiration
of such period that it desires to contest such claim, the Executive shall:
i. give Merger Sub any information reasonably requested by
Merger Sub relating to such claim,
ii. take such action in connection with contesting such
claim as Merger Sub shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by Merger
Sub,
iii. cooperate with Merger Sub in good faith in order
effectively to contest such claim, and
iv. permit Merger Sub to participate in any proceedings
relating to such claim;
provided, however, that Merger Sub shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income or employment tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 8(c), Merger Sub shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as
Merger Sub shall determine; provided, however, that if Merger Sub directs the
Executive to pay such claim and sue for a refund, Merger Sub shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, Merger Sub's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
<PAGE>
d. If, after the receipt by the Executive of an amount advanced by
Merger Sub pursuant to Section 8(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall promptly pay to
Merger Sub the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by Merger Sub pursuant to Section 8(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and Merger Sub does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
9. Covenants Not to Solicit Company Employees; Confidential Information.
a. During the term of this Agreement and for a period of one year after the
Date of Termination by the Company or the Executive for any reason, the
Executive further agrees that the Executive shall not, in any manner, directly
or indirectly, solicit any person who is an employee of the Company to apply for
or accept employment with any competing business. The term "solicit" as used in
this Agreement means any communication of any kind whatsoever, regardless of by
whom initiated, inviting, encouraging or requesting any person or entity to take
or refrain from taking any action.
b. Executive agrees that, during the term of this Agreement and at all
times thereafter, he shall continue to hold in a fiduciary capacity for the
benefit of the Company, all secret or confidential information, knowledge or
data relating to the Company and any other business or entity in which, at any
relevant time, the Company holds an equity (voting or non-voting) interest equal
to or greater than 10% (an "Affiliate") that shall have been obtained by
Executive during his employment by or affiliation with the Company or its
Affiliates, and that shall not be public knowledge other than by acts of
Executive and his representative ("Confidential Material"). Executive shall not,
without the prior written consent of the [Chief Executive Officer] of the
Company, communicate or divulge any Confidential Material to anyone other than
the Company and those designated by it.
<PAGE>
c. Executive acknowledges that any material violation of the foregoing
covenants in Section 9 could cause the Company irreparable harm and he agrees
that the Company shall be entitled to injunctive relief restraining Executive
from actual or threatened breach of such covenants, and that if a bond is
required to be posted in order for the Company to secure such relief, said bond
need only be in a nominal amount. Subject to Section 9(d) below, the right of
the Company to seek injunctive relief shall be in addition to any other remedies
available to the Company with respect to an alleged or threatened breach.
d. Nothing in Section 9 hereof shall be construed to adversely affect the
rights that the Company would possess in the absence of the provisions of such
sections.
e. The provision by the Company of the compensation and benefits described
under this agreement, as applicable, hereunder are conditioned upon Executive's
compliance with the terms described under this Agreement and the execution,
non-revocation and honoring of a release of claims and covenant not to sue in
favor of the Company, which release shall be in the form generally used by the
Company for such purposes.
f. The terms and provisions of this Section 9 are intended to be separate
and divisible provisions and if, for any reason, any one or more of them is held
to be invalid or unenforceable, neither the validity nor the enforceability of
any other provision of this Agreement shall thereby be affected. The parties
hereto acknowledge that the potential restrictions on the Executive's future
employment imposed by this Section 9 are reasonable in both duration and
geographic scope and in all other respects. If for any reason any court of
competent jurisdiction shall find any provisions of this Section 9 unreasonable
in duration or geographic scope or otherwise, the Executive and the Company
agree that the restrictions and prohibitions contained herein shall be effective
to the fullest extent allowed under applicable law in such jurisdiction.
g. The parties acknowledge that this Agreement would not have been entered
into and the benefits described in Sections 3 or 5 would not have been promised
in the absence of the Executive's promises under this Section 9.
(h) Use of the term Company in this Section 9 shall also include Merger
Sub, AIG and their subsidiaries.
10. Successors.
a. This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
b. This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
<PAGE>
c. The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid.
11. Miscellaneous.
a. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without reference to principles of conflict of
laws. The captions of this Agreement are not part of the provisions hereof and
shall have no force or effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
b. All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive, at the address written below Executive's name on the
signature page of this Agreement
If to the Company:
American International Group, Inc.
[o]
[o]
Telecopy Number:
Attention:
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
c. The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
d. The Company may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
<PAGE>
e. The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 4(c)(i)-(iv) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
f. From and after the Effective Date this Agreement shall supersede any
other employment agreement between the parties with respect to the subject
matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of Directors,
the Company has caused these presents to be executed in its name on its behalf,
all as of the day and year first above written.
-------------------------------------
Name
-------------------------------------
-------------------------------------
-------------------------------------
(Address)
HSB GROUP, INC.
By
Title:
MERGER SUB, INC.
By
-------------------------------------
Title:
<PAGE>
--------
1 Add the following for RHB only: provided that, for purposes of any
retiree medical benefits insurance program then in effect, Executive
shall be deemed to have satisfied any years of service and retirement
status requirements as of the Date of Termination in order to be
eligible to receive benefits under such program, which benefits shall
commence immediately following the Date of Termination or, if
applicable, the expiration of the period of benefit continuation
pursuant to Section 5(b)(ii). In addition, notwithstanding the fact
that the Severance Agreement between Executive and the Company dated
November 29, 1999, as amended, has been terminated, Executive shall be
entitled to receive from Merger Sub the benefits set forth in Section
5.5 of such Severance Agreement as if such Severance Agreement were
still in effect.
2 Add the following for RHB only: (c)Death. If, during the Employment
Period, the Executive shall terminate employment due to death,
notwithstanding the fact that the Severance Agreement between Executive
and the Company dated November 29, 1999, as amended, has been
terminated, Executive's spouse shall be entitled to receive from Merger
Sub the benefits set forth in Section 5.6 of such Severance Agreement
as if such Severance Agreement were still in effect.
