Rule 424(b)(3)
File No. 333-73073
[Executive Risk Inc. LOGO]
June 11, 1999
Dear Stockholders:
We are pleased to inform you that Executive Risk has signed a
merger agreement with The Chubb Corporation. As a result of the proposed
merger, each of your Executive Risk shares will be converted into 1.235 Chubb
shares and Executive Risk will become a wholly owned subsidiary of Chubb. Chubb
shares trade on the New York Stock Exchange under the symbol "CB".
Executive Risk has scheduled a special meeting of its
stockholders to be held on July 19, 1999 to consider and vote on the merger
agreement. We cannot complete the merger without the approval of the holders of
a majority of the outstanding shares of Executive Risk common stock.
After careful consideration, your board of directors has
unanimously approved the merger agreement and determined that the merger is in
the best interest of Executive Risk and its stockholders. The board of
directors unanimously recommends that you vote FOR the merger agreement.
In arriving at its determination and recommendation, the board
of directors took into account the factors described in the attached proxy
statement/prospectus, including the opinions of Donaldson, Lufkin & Jenrette
Securities Corporation and Salomon Smith Barney Inc. to the effect that the
merger consideration is fair to Executive Risk stockholders from a financial
point of view.
Your vote is very important. Please promptly complete, date,
sign and return the enclosed proxy card in the prepaid envelope enclosed to
ensure that your shares will be represented at the special meeting. If you do
not vote at all, it will, in effect, count as a vote against the merger.
We look forward to the successful combination of Executive Risk
and Chubb and to your continued support as a stockholder of Chubb.
On behalf of the board of directors of Executive Risk, we urge
you to vote "FOR" approval of the merger and the related merger agreement.
Sincerely,
_______________________________ __________________________________
Robert H. Kullas Stephen J. Sills
Chairman of the Board President and Chief Executive Officer
See "Risk Factors" beginning on page 10 for a discussion of risks which should
be considered by stockholders with respect to the merger.
Neither the Securities and Exchange Commission nor any state securities
regulators have approved the Chubb common stock to be issued in the merger or
determined if this proxy statement/prospectus is accurate or adequate. Any
representation to the contrary is a criminal offense.
This proxy statement/prospectus is dated June 11, 1999 and was first mailed to
stockholders on June __, 1999.
<PAGE>
EXECUTIVE RISK INC.
Tower Business Park
82 Hopmeadow Street
Simsbury, Connecticut 06070-7683
Notice of Special Meeting of Stockholders
To be held on July 19, 1999
To the Stockholders of Executive Risk Inc.:
Notice is hereby given that a special meeting of stockholders of
Executive Risk Inc. will be held at the principal offices of Executive Risk at
the Tower Business Park, 82 Hopmeadow Street, Routes 10 & 202, Simsbury,
Connecticut, on the 19th day of July, 1999 at 10:00 a.m. for the following
purposes:
Item 1. To consider and vote upon a proposal to approve and
adopt the Agreement and Plan of Merger among Executive Risk, The Chubb
Corporation and a wholly owned subsidiary of Chubb.
Item 2. To transact any other business as may properly be
brought before the meeting or any adjournment of the meeting.
These items of business are described more fully in the proxy
statement/prospectus attached to this Notice.
Only holders of record of Executive Risk stock at the close of
business on June 17, 1999 will be entitled to notice of, and to vote at, the
special meeting.
Your vote is important. If you don't vote at all, it will, in
effect, count as a vote against the merger. Whether or not you expect to be
present at the meeting, we request that you date and sign the enclosed proxy
and return it as soon as possible in the addressed envelope provided. If you
attend the meeting you may revoke your proxy and vote in person.
By Order of the board of directors
James A. FitzPatrick, Jr.
Secretary
<PAGE>
TABLE OF CONTENTS
Page
----
QUESTIONS AND ANSWERS ABOUT THE
MERGER......................................................................1
WHO CAN HELP ANSWER YOUR
QUESTIONS...................................................................1
SUMMARY.......................................................................2
The Companies.................................................................2
The Merger....................................................................2
Selected Financial Information................................................5
Chubb.........................................................................5
Executive Risk................................................................7
Historical and Pro Forma Per Share Data.......................................8
Comparative Market Price Information..........................................9
RISK FACTORS.................................................................10
If the price of the Chubb common stock decreases, then the value of Chubb
common shares that Executive Risk stockholders will receive in the merger
will decrease..............................................................10
Difficulties associated with integrating Chubb and Executive Risk could
have an adverse effect on Chubb's ability to realize cost savings
expected to result from the merger.........................................10
Executive officers and directors of Executive Risk have potential
conflicts of interest in the merger........................................10
Forward-looking statements may prove
inaccurate.................................................................10
THE MERGER...................................................................12
General......................................................................12
Background of the Merger.....................................................12
Merger Factors Considered by Chubb...........................................14
Merger Factors Considered by Executive Risk;
Recommendation of the Executive Risk Board.................................15
Material Federal Income Tax Consequences.....................................17
Accounting Treatment.........................................................18
Regulatory Matters...........................................................18
No Appraisal Rights..........................................................19
Stock Transfer Restriction Agreements........................................19
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND
INFORMATION................................................................21
OPINIONS OF FINANCIAL ADVISORS...............................................22
Opinion of Donaldson, Lufkin & Jenrette Securities
Corporation................................................................22
Opinion of Salomon Smith Barney Inc..........................................29
<PAGE>
INTERESTS OF THE EXECUTIVE OFFICERS AND DIRECTORS OF EXECUTIVE RISK IN THE
MERGER...................................................................41
PRINCIPAL PROVISIONS OF THE MERGER
AGREEMENT................................................................44
General......................................................................44
Consideration to be Received in the Merger...................................44
Exchange of Shares...........................................................44
Representations and Warranties...............................................45
Covenants....................................................................45
Conditions to the Consummation of the Merger.................................50
Termination..................................................................51
Termination Fees Payable by Executive Risk...................................52
Expenses.....................................................................52
Stock Option Agreement.......................................................52
Voting Agreement.............................................................54
VOTING SECURITIES AND THEIR
HOLDERS..................................................................55
THE SPECIAL MEETING..........................................................56
Time and Place; Purpose......................................................56
Voting Rights; Votes Required for Approval...................................56
Voting of Proxies............................................................56
COMPARISON OF STOCKHOLDER RIGHTS.............................................58
State Anti-Takeover Laws.....................................................66
Stockholder Rights Plans.....................................................68
Listing or Quotation of Chubb Common Shares; Delisting of Executive Risk
Common Stock...............................................................71
LEGAL MATTERS................................................................72
EXPERTS......................................................................72
FUTURE STOCKHOLDER PROPOSALS.................................................72
WHERE YOU CAN FIND MORE INFORMATION..........................................73
LIST OF ANNEXES
Annex A Agreement and Plan of Merger
Annex B Stock Option Agreement
Annex C Voting Agreement
Annex D Opinion of Donaldson,
Lufkin & Jenrette
Securities Corporation
Annex E Opinion of Salomon Smith
Barney Inc.
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What do I need to do now?
A: Just indicate on your proxy card how you want to vote, sign it and mail it
in the enclosed return envelope as soon as possible, so that your shares may be
represented at the special meeting.
Q: If my shares are held in "street name" by my broker, will my broker vote
my shares for me?
A: No. You should instruct your broker to vote your shares, following the
directions provided by your broker. Your failure to instruct your broker will
be the equivalent of voting against the merger.
Q: Should I send in my stock certificates now?
A: No. Chubb will send instructions to you on how to exchange your stock
certificates for Chubb stock certificates after the merger is completed.
Q: Can I change my vote after submitting my proxy card?
A: Yes. Any person who submits a proxy in connection with this solicitation may
revoke the proxy at any time before it is voted. The proxy may be revoked in
writing, or by appearing at the special meeting and voting in person. If you
have instructed a broker to vote your shares, you must follow directions
received from your broker to change those instructions. You may find further
details on how to revoke your proxy on page 56.
Q: What happens to my future dividends?
A: We expect no changes in Chubb's or Executive Risk's dividend policies
before the merger. Chubb's quarterly dividend is expected to continue to be
$.32 per common share.
Q: When do you expect the merger to be completed?
A: We are working to complete the merger as soon as possible. We hope to
complete the merger in July 1999.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the merger you should contact:
Executive Risk Inc.
82 Hopmeadow Street
P.O. Box 2002
Simsbury, Connecticut 06070-7683
Attention: Timothy J. Curry
Phone Number: (860) 408-2000
If you would like additional copies of this
document, you should contact:
Georgeson & Co. Inc.
Wall Street Plaza
New York, NY 10005
Phone Number: (800) 223-2064
SUMMARY
This summary contains selected information from this document
and may not contain all of the information that is important to you. To
understand the merger fully and for a more complete description of the legal
terms of the merger, you should read this entire document carefully, including
the Annexes, and the documents to which we refer. The SEC allows Chubb and
Executive Risk to "incorporate by reference" information into this document,
which means that Chubb and Executive Risk can disclose important information to
you by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this document,
except for any information superseded by information in this document. The
previously filed documents contain important information about Chubb and
Executive Risk and their financial performance. A list of documents we
incorporate by reference appears under the heading "Where You Can Find More
Information" on page 73.
The Companies
The Chubb Corporation
15 Mountain View Road
P.O. Box 1615
Warren, New Jersey 07061-1615
Telephone: (908) 903-3561
Chubb is a holding company whose subsidiaries form a leading
global specialty property and casualty insurance organization known for its
strength in executive protection and financial institution markets,
particularly directors and officers, errors and omissions, fiduciary and
fidelity coverages. These subsidiaries also engage in other commercial lines of
property and casualty insurance and have a large and profitable personal lines
business. Chubb and its subsidiaries have approximately 10,700 employees
worldwide with gross written premiums for 1998 of approximately $6 billion.
Executive Risk Inc.
82 Hopmeadow Street
P.O. Box 2002
Simsbury, Connecticut 06070-7683
Telephone: (860) 408-2000
Executive Risk is a specialty insurance holding company focused
on the directors and officers, professional liability, errors and omissions and
ancillary markets. Executive Risk offers a wide range of innovative directors
and officers and errors and omissions coverages. Executive Risk has almost 600
employees. Executive Risk's gross written premiums for 1998 were approximately
$500 million.
The Merger
What Executive Risk Stockholders Will Receive in the Merger
You will receive 1.235 Chubb shares for each Executive Risk
share you hold. Instead of fractional Chubb shares, you will be paid cash.
Based on the number of shares of Executive Risk common stock outstanding on
June 10, 1999 and the closing price of $69.44 per share of Chubb stock on that
date, Chubb would issue approximately 14.28 million shares to the stockholders
of Executive Risk with an aggregate value of approximately $991.5 million.
Because the exchange ratio is fixed, the actual value of the shares that will
be issued to Executive Risk stockholders may be higher or lower, depending on
the market price of the Chubb stock on the day of the closing.
Recommendation to Stockholders (See page 15)
Executive Risk's board of directors believes that the merger is
in your best interests and unanimously recommends that you vote FOR the
proposal to approve and adopt the merger agreement.
Opinions of Financial Advisors (see page 22)
In connection with the merger, Executive Risk's board of
directors received opinions from its financial advisors, Donaldson, Lufkin &
Jenrette Securities Corporation and Salomon Smith Barney Inc. These opinions
discuss the fairness from a financial point of view of the consideration to be
received by Executive Risk's stockholders. We have attached the full text of
these opinions as Annexes D and E to this document. These opinions describe the
procedures followed, assumptions made, matters considered and limitations on
the review undertaken in connection with the opinions. We encourage you to read
and consider each opinion in its entirety. The opinions are directed to
Executive Risk's board of directors and do not constitute a recommendation to
any stockholder as to how that stockholder should vote in connection with the
proposed merger.
Material Federal Income Tax Consequences (See page 17)
The receipt of shares of Chubb common stock in the merger
generally will be tax free to Executive Risk stockholders for United States
federal income tax purposes, except for tax on cash received for fractional
shares of Chubb common stock.
Tax matters are very complicated, and the tax consequences of
the merger to you will depend on the facts of your particular situation. You
are urged to consult your own tax advisor as to the specific tax consequences
to you of the merger, including the applicable federal, state, local and
foreign tax consequences.
Share Ownership of Management and Directors
On June 17, 1999, directors and executive officers of Executive
Risk and their affiliates owned and were entitled to vote approximately
__________ shares of Executive Risk common stock, or approximately ___% of the
shares of Executive Risk common stock outstanding on the record date for the
special meeting.
The directors of Executive Risk who own shares of Executive Risk
common stock have entered into a voting agreement with Chubb under which they
have agreed to vote all of their Executive Risk shares in favor of the merger
agreement and against any competing transaction.
No Appraisal Rights (see page 19)
You will not have dissenters' rights of appraisal by reason of
the merger.
Comparative Per Share Market Price and Dividend Information
(see page 21)
Chubb common shares are listed on the New York Stock Exchange
under the symbol "CB". Shares of Executive Risk common stock are listed on the
New York Stock Exchange under the symbol "ER". On February 5, 1999, the last
full trading day prior to the public announcement of the proposed merger, the
last sale price per share of Chubb common stock was $58.06 and the last sale
price per share of Executive Risk common stock was $44.00. On June 10, 1999,
the most recent date for which prices were available prior to the printing of
this document, the last sale price per share of Chubb common stock was $69.44
and the last sale price per share of Executive Risk common stock was $84.56.
Regulatory Approvals (see page 18)
On February 26, 1999, the parties filed a Notification Form
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The waiting
period under the Act applicable to the merger expired on March 28, 1999.
Chubb has obtained the requisite approval of the insurance
department of the State of Connecticut in order to close the merger and is
awaiting approval of the insurance department of the State of Delaware which it
expects to receive shortly.
Interests of Executive Risk's Executive Officers and Directors
in the Merger (see page 41)
Stockholders should note that a number of Executive Risk
directors and executive officers may have interests in the merger that are
different from, or in addition to, the interests of the Executive Risk
stockholders generally.
Conditions to the Merger (see page 50)
The consummation of the merger is subject to a number of
conditions, including:
o approval of the merger agreement by the Executive Risk
stockholders;
o receipt of regulatory approvals and the absence of legal
restraints; and
o receipt of legal opinions as to the treatment of the merger
as a "reorganization" within the meaning of Section 368(a) of
the Internal Revenue Code.
Termination of the Merger Agreement (see page 51)
Executive Risk and Chubb can jointly agree to terminate the
merger agreement at any time before completing the merger. In addition, either
company can terminate the merger agreement if:
o the merger is not completed by December 31, 1999;
o a law or court order prohibits the merger;
o Executive Risk's stockholders fail to approve the merger; or
o the other party materially breaches any of the
representations or warranties it made or fails to materially
comply with any of its obligations under the merger agreement
and that breach is not or cannot be cured by December 31,
1999.
Executive Risk can also terminate the merger agreement if
Executive Risk's board of directors has determined that an alternative
transaction with a third party is superior to the merger and that Executive
Risk should enter into an agreement relating to that transaction. However,
Executive Risk must give Chubb three business days to match the third party's
offer before Executive Risk can terminate the merger agreement.
Chubb can terminate the merger agreement if Executive Risk
willfully and materially breaches the restrictions on its ability to negotiate
with a third party concerning an alternative transaction or its agreement to
call for a special meeting of stockholders. Chubb can also terminate the merger
agreement if Executive Risk recommends an alternative transaction to its
stockholders or if Executive Risk's board of directors changes or withdraws its
recommendation of the merger proposal to its stockholders in a manner
materially adverse to Chubb.
Termination Fees and Expenses (see page 52)
Executive Risk could be obligated to pay Chubb termination fees
and expenses which could total up to $34 million if the merger agreement is
terminated under specified circumstances. The amount could be up to $45 million
under circumstances involving a willful and material breach by Executive Risk
of the merger agreement.
Stock Option Agreement (see page 52)
Executive Risk has granted Chubb an option to purchase 19.9% of
Executive Risk's outstanding shares at $71.70 per share exercisable under some
of the circumstances under which the termination fee is payable. Chubb's profit
on the option is capped at the amount of the termination fee.
Selected Financial Information
The selected financial data presented below should be read in
conjunction with the financial statements and the notes to the financial
statements for Chubb and Executive Risk included in their respective annual
reports.
Chubb
The following selected historical financial data for, and as of
the end of, each of the five years in the period ended December 31, 1998 have
been derived from Chubb's consolidated financial statements, which have been
audited by Ernst & Young LLP, Chubb's independent auditors. The data as of
March 31, 1999 and 1998 and for the three months ended March 31, 1999 and 1998
have been derived from Chubb's unaudited consolidated financial statements
which include, in the opinion of Chubb's management, all adjustments,
consisting of normal recurring accruals, necessary to present fairly the
results of operations and financial position of Chubb for the periods and dates
presented. Stockholders should read this data together with the audited and
unaudited consolidated financial statements of Chubb, including the notes to
those financial statements, included in Chubb's annual report for the year
ended December 31, 1998 and quarterly report for the quarter ended March 31,
1999. See "Where You Can Find More Information" on page 73.
<TABLE>
<CAPTION>
For the Three Months For the
Ended March 31, Years Ended December 31,
------------------------ -----------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- --------- --------- --------- --------- --------- ---------
(in millions, except per share amounts)
Revenues
<S> <C> <C> <C> <C> <C> <C> <C>
Premiums earned............ $ 1,379.8 $ 1,314.1 $ 5,303.8 $ 5,157.4 $ 4,569.3 $ 4,147.2 $ 3,776.3
Investment income.......... 208.9 204.1 821.9 785.3 711.6 667.7 619.9
Real estate................ 9.4 24.5 82.2 616.1 319.8 287.8 204.9
Realized investment gains.. 31.5 44.6 141.9 105.2 79.8 108.8 54.1
--------- --------- --------- --------- --------- --------- ---------
Total revenues........... $ 1,629.6 $ 1,587.3 $ 6,349.8 $ 6,664.0 $ 5,680.5 $ 5,211.5 $ 4,655.2
========= ========= ========= ========= ========= ========= =========
Components of income from
continuing operations*
Property and casualty
insurance income......... $ 166.8 $ 157.3(a) $ 594.0(a) $ 669.8 $ 561.3 $ 562.9 $ 467.2
Real estate income (loss).. (.5) (.5) (2.0) (5.1) (146.8)(b) 6.0 (2.0)
Corporate income........... .1 6.0 22.8 36.4 19.7 14.8 7.6
--------- --------- --------- --------- --------- --------- ---------
Operating income from
continuing operations(c). 166.4 162.8 614.8 701.1 434.2 583.7 472.8
Realized investment gains
from continuing
operations............... 20.5 29.0 92.2 68.4 52.0 70.7 35.1
--------- --------- --------- --------- --------- --------- ---------
Income from continuing
operations............... $ 186.9 $ 191.8(a) $ 707.0(a) $ 769.5 $ 486.2 $ 654.4 $ 507.9
========= ========= ========= ========= ========= ========= =========
Operating income from
continuing operations per
diluted common share(c)... $ 1.02 $ .95(a) $ 3.65(a) $ 4.00 $ 2.44(b) $ 3.27 $ 2.66
Income from continuing
operations per diluted
common share............... 1.14 1.12(a) 4.19(a) 4.39 2.73(b) 3.67 2.85
Cash dividends declared per
common share............... .32 .31 1.24 1.16 1.08 .98 .92
Total assets............. $ 20,971.5 $ 19,998.5 $ 20,746.0 $ 19,615.6 $ 19,938.9 $ 19,636.3 $ 17,761.0
Invested assets.......... 14,775.6 14,254.6 14,755.3 14,049.6 12,081.1 10,920.2 9,818.3
Unpaid claims............ 10,514.9 9,900.3 10,356.5 9,772.5 9,523.7 9,588.2 8,913.2
Long-term debt........... 607.4 248.4 607.5 398.6 1,070.5 1,150.8 1,279.6
Stockholders' equity..... 5,650.0 5,752.9 5,644.1 5,657.1 5,462.9 5,262.7 4,247.0
Stockholders' equity per
common share............ 34.98 34.19 34.78 33.53 31.24 30.14 24.46
</TABLE>
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* The federal and foreign income tax provided for each component of income
represents its allocated portion of the consolidated provision.
(a) Property and casualty insurance income and income from continuing
operations have been reduced by a net charge of $26.0 million or $ .15 per
share for the after-tax effect of a $40.0 million restructuring charge.
(b) Real estate income and income from continuing operations have been reduced
by a net charge of $160.0 million or $ .89 per share for the after-tax
effect of a $255.0 million write-down of the carrying value of certain real
estate assets to their estimated fair value.
(c) Operating income from continuing operations is defined as income from
continuing operations excluding realized investment gains, net of tax.
Executive Risk
The following selected historical financial data for, and as of
the end of, each of the five years in the period ended December 31, 1998 have
been derived from Executive Risk's consolidated financial statements, which
have been audited by Ernst & Young LLP, Executive Risk's independent auditors.
The data as of March 31, 1999 and 1998 and for the three months ended March 31,
1999 and 1998 have been derived from Executive Risk's unaudited consolidated
financial statements which include, in the opinion of Executive Risk's
management, all adjustments, consisting of normal recurring accruals, necessary
to present fairly the results of operations and financial position of Executive
Risk for the periods and dates presented. Stockholders should read this data
together with the audited and unaudited consolidated financial statements of
Executive Risk, including the notes to those financial statements, included in
Executive Risk's annual report for the year ended December 31, 1998 and
quarterly report for the quarter ended March 31, 1999.
See "Where You Can Find More Information" on page 73.
<TABLE>
<CAPTION>
As of or for the Three Months As of or for the
Ended March 31, Years Ended December 31,
------------------------ -----------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- --------- --------- --------- --------- --------- ---------
(in millions, except per share amounts)
Revenues
<S> <C> <C> <C> <C> <C> <C> <C>
Premiums earned............. $ 62.9 $ 59.8 $ 254.5 $ 211.2 $ 155.8 $ 116.4 $ 95.0
Investment income........... 16.2 15.1 61.7 47.1 32.6 26.7 22.5
Realized investment gains
losses)................... 2.2 1.8 6.7 3.2 1.0 1.6 (.5)
Other income................ .3 .1 .3 .2 .2 .1 .1
--------- --------- --------- --------- --------- --------- ---------
Total revenues............ $ 81.6 $ 76.8 $ 323.2 $ 261.7 $ 189.6 $ 144.8 $ 117.1
========= ========= ========= ========= ========= ========= =========
Components of net income*
Operating income(a)......... $ 9.8(b) $ 10.3 $ 39.1(c) $ 34.4 $ 27.4 $ 24.3 $ 19.6
Realized investment gains
(losses).................. 1.4 1.2 4.3 2.1 .7 1.0 (.3)
--------- --------- --------- --------- --------- --------- ---------
Net income................ $ 11.2(b) $ 11.5 $ 43.4(c) $ 36.5 $ 28.1 $ 25.3 $ 19.3
========= ========= ========= ========= ========= ========= =========
Operating income per diluted
common share(a).............
$ .83(b) $ .88 $ 3.34(c) $ 3.22 $ 2.61 $ 2.04 $ 1.72
Net income per diluted
common share................ .95(b) .98 3.71(c) 3.41 2.67 2.12 1.70
Cash dividends declared per
common share................ .02 .02 .08 .08 .08 .08 .06
Total assets................. 1,897.3 1,560.9 1,866.0 1,485.8 941.2 705.9 516.7
Invested assets.............. 1,249.2 1,117.3 1,249.9 1,085.2 691.0 549.9 431.8
Unpaid claims................ 901.3 693.6 866.3 637.9 457.1 324.4 254.8
Long-term debt and preferred
securities.................. 200.0 200.0 200.0 200.0 70.0 25.0 25.0
Stockholders' equity......... 339.8 292.5 330.9 276.2 144.8 177.7 130.9
Stockholders' equity per
common share................ 29.59 26.87 29.77 25.48 15.52 15.46 11.38
</TABLE>
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* The federal and foreign income tax provided for each component of income
represents its allocated portion of the consolidated provision.
(a) Operating income is defined as net income excluding realized investment
gains (losses), net of tax.
(b) Operating income and net income have been reduced by a net charge of $1.7
million or $.15 per share for the after-tax effect of a $2.6 million charge
related to non-recurring merger related expenses.
(c) Operating income and net income have been reduced by a net charge of $3.8
million or $.32 per share for the after-tax effect of $5.8 million of
charges related to the closing of certain operations.
Historical and Pro Forma Per Share Data
The following table sets forth selected historical and pro forma
combined per share data for Chubb and historical and equivalent pro forma per
share data for Executive Risk. The unaudited pro forma financial data gives
effect to the merger as a "purchase" under U.S. generally accepted accounting
principles.
We have based the unaudited pro forma combined income per share
data upon the historical average number of outstanding Chubb common shares
adjusted to include the number of Chubb common shares that would be issued in
the merger based upon an exchange ratio of 1.235. We have based the unaudited
equivalent pro forma per share data for Executive Risk on the unaudited pro
forma combined amounts per share, multiplied by 1.235. The unaudited pro forma
combined per share data and the unaudited equivalent pro forma per share data
for Executive Risk do not include any cost savings or other financial or
operational benefits from the merger.
Stockholders should read the information set forth below in
conjunction with the historical consolidated financial data of Chubb and
Executive Risk contained in their respective annual reports.
The merger is not a "significant business combination" for Chubb
under the SEC's accounting rules. Therefore, pro forma financial information
has not been included in this proxy statement/prospectus except as provided
below. The combined company's operating results might have differed from the
pro forma results if the companies had actually been combined during the
periods presented. You should not rely on the pro forma information as being
indicative of either the historical results that we would have had or the
future results that we will experience after the merger is completed.
<TABLE>
<CAPTION>
Pro Executive Risk
----------------------
Chubb Forma Equivalent
Historical Combined Historical Pro Forma
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Three Months Ended March 31, 1999
Operating income from continuing operations per diluted common
share (a)......................................................... $ 1.02 $ .96 $ .83 $ 1.19
Income from continuing operations per diluted common share......... 1.14 1.08 .95 1.33
Average common and potentially dilutive common shares outstanding
(in millions)..................................................... 163.2 177.6 11.7 n/a
Cash dividends declared per common share........................... $ .32 $ .32 $ .02 $ .40
Book value per common share (at end of period)..................... 34.98 37.00 29.59 45.70
Year Ended December 31, 1998
Operating income from continuing operations per diluted common
share (a)......................................................... $ 3.65 $ 3.45 $ 3.34 $ 4.26
Income from continuing operations per diluted common share......... 4.19 3.98 3.71 4.92
Average common and potentially dilutive common shares outstanding
(in millions)..................................................... 168.6 183.0 11.7 n/a
Cash dividends declared per common share........................... $ 1.24 $ 1.24 $ .08 $ 1.53
Book value per common share (at end of period)..................... 34.78 36.76 29.77 45.40
</TABLE>
- ---------
(a) Operating income from continuing operations is defined as income from
continuing operations excluding realized investment gains, net of tax.
Comparative Market Price Information
The following table sets forth the closing prices per share of
Chubb common stock and Executive Risk common stock on the New York Stock
Exchange on February 5, 1999, the last trading day prior to the public
announcement of the proposed merger, and on June 10, 1999, the most recent date
for which prices were available prior to printing this document. The table also
sets forth the value of the shares of Chubb common stock that a stockholder
would have received for one share of Executive Risk common stock assuming the
merger had taken place on those dates. These numbers have been calculated by
multiplying 1.235, the exchange ratio of Chubb shares per Executive Risk share,
by the closing price per share of Chubb common stock on each of those dates.
The actual value of the Chubb common share a stockholder will receive on the
date the merger takes place may be higher or lower than the prices set forth
below.
<TABLE>
Closing Price of
Closing Price of Chubb Executive Risk Common Value of Chubb
Common Stock Stock Common Stock Received
---------------------- --------------------- ---------------------
<S> <C> <C> <C>
February 5, 1999....... $58.06 $44.00 $71.70
June 10, 1999.......... $69.44 $84.56 $85.76
</TABLE>
Additional market price information is contained on page 21
under the caption "Comparative Per Share Market Price and Dividend
Information."
RISK FACTORS
Executive Risk's stockholders should consider the following
matters in deciding whether to vote in favor of the merger agreement.
Stockholders should consider these matters in conjunction with the other
information included or incorporated by reference in this document.
If the price of the Chubb common stock decreases, then the value of Chubb
common shares that Executive Risk stockholders will receive in the merger will
decrease.
The value of Chubb common shares that Executive Risk
stockholders will receive in the merger depends on the market price of the
Chubb common stock because the exchange ratio for the shares is fixed at 1.235.
Therefore, because the market price of Chubb shares fluctuates, the value at
the time of the merger of the consideration to be received by Executive Risk
stockholders will depend on the market price of Chubb shares at that time.
There can be no assurance as to the market value at the time of the merger of
the consideration to be received by Executive Risk stockholders. If the price
of the Chubb common stock decreases, the value of the shares that Executive
Risk stockholders will receive will also decline. For historical and current
market prices of Chubb shares, see "Comparative Per Share Market Price and
Dividend Information."
Difficulties associated with integrating Chubb and Executive Risk could have an
adverse effect on Chubb's ability to realize cost savings expected to result
from the merger.
Although Chubb expects the combined company to realize increased
revenues, together with cost savings and other financial and operating benefits
from the merger, there can be no assurance regarding when or the extent to
which the combined company will be able to realize these benefits. The merger
involves the integration of two companies that have previously operated
independently. There are numerous systems that the companies must integrate,
including those involving management information, accounting and finance,
sales, billing, employee benefits, payroll and regulatory compliance.
Specifically, the companies have a number of information systems that are
dissimilar. The companies will have to integrate, or, in some cases, replace,
these systems. Difficulties associated with integrating Chubb and Executive
Risk could have an adverse effect on the ability of Chubb to realize the
expected financial and operating benefits of the merger.
Executive officers and directors of Executive Risk have potential conflicts of
interest in the merger.
Stockholders should be aware of a potential conflict of interest
and the benefits available to executive officers and directors when considering
Executive Risk's board of directors' determinations to approve the merger. As
discussed below under "Interests of the Executive Officers and Directors of
Executive Risk in the Merger," the executive officers and directors of
Executive Risk have benefit plans that provide them with interests in the
merger that are different from, or in addition to, your interests as
stockholders.
Forward-looking statements may prove inaccurate.
This document contains forward-looking statements about Chubb,
Executive Risk and the combined company which Chubb and Executive Risk believe
are within the meaning of the Private Securities Litigation Reform Act of 1995.
Statements in this document that are not historical facts are hereby identified
as "forward-looking statements" for the purpose of the safe harbor provided by
Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A
of the Securities Act of 1933, as amended. When used in this document, the
words "anticipates," "believes," "expects," "intends," and similar expressions
as they relate to Chubb, Executive Risk or the combined company or the
management of either company are intended to identify these forward-looking
statements. In making any of these statements, we believe that our expectations
are based on reasonable assumptions. However, any of these statements may be
influenced by factors that could cause actual outcomes and results to be
materially different from those projected. These forward-looking statements are
subject to numerous risks and uncertainties. There are numerous important
factors that could cause actual results to differ materially from those in
forward-looking statements, including, but not limited to:
(A) those discussed or identified from time to time in Chubb's
or Executive Risk's public filings with the Securities and Exchange Commission;
(B) specific risks or uncertainties associated with Chubb's or
Executive Risk's expectations with respect to:
o timing, completion or tax status of the merger o the value of the merger
consideration o growth prospects o market positions o distribution channels
o premiums o earnings per share o cost savings o revenue enhancements and
o profitability resulting from the merger;
and (C) general economic conditions such as:
o changes in interest rates and the performance of the financial markets,
o changes in domestic and foreign laws, regulations and taxes, o changes in
competition and pricing environments, o regional or general changes in asset
valuations, o the occurrence of significant natural disasters, o the development
of major Year 2000 liabilities, o the inability to reinsure their risks
economically, o the adequacy of loss reserves; o general market conditions,
o competition, o pricing and o restructurings.
The actual results, performance or achievement by Chubb,
Executive Risk or the combined company could differ materially from those
expressed in, or implied by, these forward-looking statements and, accordingly,
no assurances can be given that any of the events anticipated by the
forward-looking statements will transpire or occur, or if any of them do so,
what impact they will have on the results of operations and financial condition
of Chubb, Executive Risk or the combined company.
THE MERGER
General
Executive Risk and Chubb are furnishing this document to holders
of Executive Risk common stock in connection with the solicitation of proxies
by Executive Risk's board of directors at a special meeting of its
stockholders, and at any adjournments or postponements of the meeting.
At the special meeting, the Executive Risk stockholders will be
asked to vote upon a proposal to approve and adopt the Agreement and Plan of
Merger, dated as of February 6, 1999, among Chubb, Executive Risk and Excalibur
Acquisition, Inc., a wholly-owned subsidiary of Chubb, and the transactions
contemplated by the merger agreement.
The merger agreement provides for the merger of the Chubb
subsidiary, Excalibur Acquisition, Inc., with and into Executive Risk, with
Executive Risk surviving the merger as a wholly-owned subsidiary of Chubb. The
merger will become effective in accordance with the certificate of merger to be
filed with the Secretary of State of the State of Delaware. We anticipate that
the parties will make this filing as soon as practicable after the last of the
conditions precedent to the merger contained in the merger agreement has been
satisfied or waived. We have attached a copy of the merger agreement as Annex A
to this proxy statement/prospectus.
Background of the Merger
As part of its strategic planning, Chubb continually reviews
trends and strategic opportunities in the insurance industry.
On October 19, 1998, Dean R. O'Hare, Chairman and Chief
Executive Officer of Chubb, and Stephen J. Sills, Chief Executive Officer of
Executive Risk, met in New York City and discussed each person's outlook for
his company's business and whether it would make sense to explore a possible
business combination between the two companies.
On November 19, 1998, Messrs. O'Hare and Sills met for a second
time in New York City to refine some of the issues discussed at the October
19th meeting. Potential benefits of a possible combination were discussed;
Messrs. O'Hare and Sills also examined product innovation and development,
distribution channels and each organization's relative skill sets.
On December 7, 1998, representatives of Chubb, Executive Risk,
Goldman Sachs Inc. and Donaldson, Lufkin & Jenrette Securities Corporation met
so that the representatives could assess their compatibility with one another,
discuss industry trends, and outline in broad terms for the other the nature of
its business and its organizational structure.
On December 11, 1998, at a regularly scheduled meeting of the
Chubb board of directors at which Chubb's financial advisor was present, Mr.
O'Hare informed the board of the preliminary discussions with Executive Risk
representatives regarding Chubb's possible acquisition of Executive Risk. A
presentation for informational purposes was made about Executive Risk,
describing its history, its specialty emphasis and core financial information.
No action regarding Executive Risk was taken by Chubb's board at that meeting.
On December 17, 1998, Executive Risk held a meeting of its board
of directors at which Mr. Sills informed the board that preliminary discussions
had been held with Chubb regarding a possible business combination. At the
meeting, Donaldson, Lufkin & Jenrette Securities Corporation made a
presentation regarding the possible combination with Chubb.
On December 23, 1998, representatives of Chubb, Executive Risk,
Goldman Sachs Inc. and Donaldson, Lufkin & Jenrette Securities Corporation met
to discuss possibilities for cost savings and revenue enhancements and to
develop financial assumptions upon which the respective valuation models of the
two companies would be built.
On January 4, 1999, Messrs. O'Hare and Sills met to discuss
integration issues between the two companies. During that first week of
January, there were a number of telephone conferences between Chubb
representatives and Executive Risk representatives as to Chubb's preliminary
valuation of Executive Risk. No agreement as to value was reached. Chubb
acknowledged that any agreement would involve a substantial premium to
Executive Risk's market price because Chubb believed that the then current
market price of Executive Risk's stock did not adequately reflect its inherent
value.
On January 5, 1999, Chubb and Executive Risk executed a mutual
confidentiality agreement. Starting on January 5, 1999, representatives of
Chubb and Executive Risk met to conduct due diligence investigations of each
other's businesses.
On January 22, 1999, Executive Risk retained Donaldson, Lufkin &
Jenrette Securities Corporation to act as its financial advisor with respect to
the possible merger with Chubb. DLJ has been a financial advisor to Executive
Risk since prior to the time Executive Risk became a public company in March
1994 and served as lead underwriter in Executive Risk's public offering and
advised Executive Risk in its two follow-on equity offerings, its senior notes
offering and its trust preferred securities offering between 1996 and 1997.
Accordingly, Executive Risk consulted with DLJ from time to time concerning
financial issues and strategic opportunities, including a possible transaction
with Chubb, prior to the date Executive Risk formally retained DLJ as its
financial advisor with respect to the transaction contemplated by the merger
agreement.
On January 25, 1999, at Executive Risk's annual strategic
planning meeting of the board of directors, Mr. Sills reviewed with the
Executive Risk board of directors the status of the due diligence
investigations and other discussions between representatives of Executive Risk
and Chubb.
On January 28, 1999, Messrs. O'Hare and Sills discussed a
possible exchange ratio equal to 1.235 shares of Chubb stock for each share of
Executive Risk stock. Later that day, representatives of Chubb and Executive
Risk met to discuss issues relating to the possible integration of their
businesses. Messrs. O'Hare and Sills then authorized their respective
representatives to negotiate a merger agreement.
Because a managing director in DLJ's Mergers and Acquisitions
Group is a member of the board of directors of Chubb, on February 1, 1999,
Executive Risk retained Salomon Smith Barney Inc. also to act as its financial
advisor with respect to the possible merger with Chubb.
Beginning on February 1, 1999 and continuing through the
execution of the merger agreement on February 6, 1999, Chubb and Executive
Risk, and their respective legal and financial advisors, negotiated the terms
of the merger agreement, stock option agreement and the voting agreement.
As part of the negotiation of the merger agreement, Chubb
insisted that Executive Risk agree to provisions, which would prevent Executive
Risk from soliciting third parties to make a bid for Executive Risk, and agree
to pay Chubb a fee if the merger agreement were terminated as a result of a
third party bid. In addition, Chubb insisted that Executive Risk grant it an
option to purchase 19.9% of Executive Risk shares, which if exercised by Chubb
would have the effect of preventing a third party from acquiring Executive Risk
in a transaction accounted for under the "pooling of interests" method. The
parties held extensive negotiations regarding the circumstances under which
Executive Risk could respond to a third party proposal, the amount of the
termination fee payment, the conditions under which it would be paid and the
circumstances under which the stock option could be exercised. As a result,
Chubb's initial request for a $40 million termination fee was reduced to $30
million, or $40 million under circumstances involving a willful and material
breach of the merger agreement by Executive Risk, and it was agreed that the
termination fee would only be payable under circumstances in which a third
party acquisition was pending. In addition, the combined value of the stock
option and termination fee was limited to the value of the termination fee.
These negotiations resulted in the provisions of the merger agreement described
under "Principal Provisions of the Merger Agreement -- Termination" and the
provisions of the stock option described under "--Stock Option Agreement."
On February 5, 1999, at a special meeting, the Chubb board
received an update regarding the transaction from Chubb's management and legal
and financial advisors, and approved a proposed exchange ratio and other terms
of the merger and related transactions subject to the finalization of the
remaining documentation.
The Executive Risk board of directors convened to consider the
transaction on February 5, 1999. Following the conclusion of the board meeting,
the negotiations resumed. All remaining material issues, including the details
regarding the break-up fee (including the amount), were agreed later that
evening, and on February 6, 1999, the Executive Risk board of directors
approved the transaction. On February 6, 1999, Chubb and Executive Risk each
executed the merger agreement and the stock option agreement, and Chubb and the
directors of Executive Risk entered into the voting agreement.
On February 8, 1999, the parties issued a joint press release
announcing the merger.
Merger Factors Considered by Chubb
In reaching its conclusion to approve the merger agreement, the
Chubb board considered a number of factors, including the following material
factors:
o The solidification of Chubb's leading market positions in
numerous profitable executive protection lines. Chubb
believes the merger will strengthen its position in executive
protection lines that Chubb believes offer attractive
opportunities for profitable growth and will expand its
position in specialty markets.
o The ability of Chubb to access new distribution channels.
Chubb believes that the merger will offer the combined
company the opportunity to build upon Chubb's relationships
with 5,000 retail independent agents and brokers worldwide
and Executive Risk's relationships with more than 2,200
wholesale agents, specialty brokers and program
administrators.
o The acceleration of premium growth in attractive specialty
markets. Chubb believes that the merger will provide it with
the opportunity to accelerate premium growth in attractive
specialty markets. Based on pro forma data, the combined
company had gross written premiums in excess of $6.5 billion
in 1998. In addition, Chubb's financial strength may create
opportunities for restructuring a portion of Executive Risk's
reinsurance arrangements.
o The strengthening of Chubb's management team. Executive Risk
will provide Chubb with a management team that is experienced
in developing innovative products and producing strong growth
with profitable underwriting results. Chubb believes that it
can blend the strengths of the Executive Risk management team
with the strengths of the Chubb management team to create an
enhanced leadership team that will lead Chubb in expanding
its presence in the directors and officers and errors and
omissions markets.
o Insignificant customer overlap. Due to the difference in
Chubb's and Executive Risk's historical marketing approaches
where Chubb has focused on larger, Fortune 500 customers,
while Executive Risk has focused on small to middle market
customers, Chubb believes that the merger will create very
little customer overlap.
o The creation of opportunities for cost savings in a range
from $10 million to $18 million annually and other financial
and operational benefits through the integration of the two
companies' operations.
o The uncertainties regarding when and the extent to which the
combined company would be able to realize cost savings and
other financial and operating benefits from the merger.
o The difficulties which may be associated with the integration
of Chubb and Executive Risk. The merger involves combining
two companies that have previously operated independently.
There are numerous systems, including information systems,
that the companies have that are dissimilar. Integrating or
replacing these systems could be costly and time consuming.
We describe the uncertainties associated with realizing these
anticipated cost savings under the heading "Risk Factors--
Difficulties associated with integrating Chubb and Executive
Risk could have an adverse effect on Chubb's ability to
realize cost savings expected to result from the merger".
o Chubb's expectation that the merger will result in earnings
dilution in 1999 of less than 2%. Chubb expects the merger to
be slightly accretive to earnings in 2000.
In view of the variety of factors considered in connection with
its evaluation of the proposed merger and the terms of the merger agreement,
the Chubb board of directors did not deem it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors
considered in reaching its conclusion. Individual directors may have given
different weights to different factors.
Merger Factors Considered by Executive Risk; Recommendation of the Executive
Risk Board
In reaching its conclusion to approve the merger agreement and
to recommend that stockholders vote for the merger agreement, the Executive
Risk board considered a number of factors, including the following material
factors:
o Information regarding the financial condition, results of
operations, business and prospects of Executive Risk and
Chubb, both on a stand-alone and combined basis.
o Potential benefits of the merger, including:
o That Executive Risk stockholders would receive an
ownership interest in the combined company.
o That Executive Risk stockholders would be able to share in
the growth and prospects of the combined company,
including its opportunity to achieve revenue growth and
cost savings as a result of the combination.
o That Executive Risk's ability to offer insurance would
benefit from Chubb's stronger balance sheet and financial
ratings.
o That Executive Risk would be able to offer traditional
property and casualty products ancillary to the specialty
products that Executive Risk currently offers.
o That Executive Risk would have access to Chubb's 115
offices globally, allowing for faster expansion than
available to Executive Risk absent the merger.
o The presentations by Donaldson, Lufkin & Jenrette Securities
Corporation and Salomon Smith Barney Inc. and the opinions of
these firms to the effect that, as of February 6, 1999, the
dates of their opinions, and based upon and subject to the
assumptions, limitations and qualifications set forth in
their opinions, the consideration to be received in the
merger was fair to the stockholders of Executive Risk from a
financial point of view. See "Opinions of Financial Advisors"
for a discussion of the factors these firms considered in
rendering their opinions. We have attached copies of the
firms' written opinions which describe the assumptions,
limitations and qualifications as Annexes D and E to this
proxy statement/prospectus.
o The historical trading prices of the Executive Risk shares
and the Chubb shares and the premium represented by the
merger consideration.
o The consideration to be received by Executive Risk
stockholders in the merger, including the possibility that,
because the number of Chubb shares to be issued per Executive
Risk share is fixed, the value of those shares may increase
or decrease.
o That the merger is expected to be tax-free to Executive Risk
stockholders. See "Material Federal Income Tax Consequences".
o The regulatory approvals required for the merger and the
estimated length of time required to consummate the merger.
o The terms and conditions of the merger agreement, including:
o That Executive Risk may provide information to and
negotiate with unsolicited bidders, if the Executive Risk
board determines it is required to do so to comply with
its fiduciary duties.
o That Executive Risk may terminate the merger agreement to
accept a superior proposal for a competing transaction.
o That Executive Risk could be obligated to pay Chubb
termination fees and expenses that could total up to $34
million, or $45 million under circumstances involving a
willful and material breach of the merger agreement by
Executive Risk. The board believed that while the
termination fee provisions of the merger agreement could
have the effect of discouraging alternative proposals for
a business combination with Executive Risk and the stock
option agreement could prevent an alternative business
combination with Executive Risk from being accounted for
as a pooling of interests, these provisions would not
preclude bona fide alternative proposals and that the size
of the termination fee was reasonable in light of the size
and benefits of the transaction. See "Principal Provisions
of the Merger Agreement--Termination" and "--Stock Option
Agreement" for a description of the termination fee
provisions of the merger agreement and a description of
the stock option agreement.
o The risk that the expected benefits of the merger may not be
realized. See "Risk Factors".
o That the executive officers and directors of Executive Risk
may be deemed to have interests in the proposed merger that
are different from and in addition to the interests of
Executive Risk stockholders generally. See "Interests of the
Executive Officers and Directors of Executive Risk in the
Merger".
In view of the variety of factors considered in connection with
its evaluation of the proposed merger and the terms of the merger agreement,
the Executive Risk board did not deem it practicable to, and did not, quantify
or otherwise assign relative weights to the specific factors considered in
reaching its conclusion. Individual directors may have given different weights
to different factors.
The Executive Risk board unanimously recommends that
stockholders vote "FOR" approval and adoption of the merger agreement.
Material Federal Income Tax Consequences
Tax Consequences. Dewey Ballantine LLP and Davis Polk & Wardwell
have provided opinions to Executive Risk and Chubb regarding the material
federal income tax consequences of the merger. These opinions have been filed
with the SEC as exhibits to the registration statement related to this proxy
statement/prospectus. The opinions rely on assumptions, including assumptions
regarding the absence of changes in existing facts and the completion of the
merger in accordance with the proxy statement/prospectus and the merger
agreement. The opinions also rely on representations and covenants, including
those contained in officer's certificates of Executive Risk and Chubb. If any
of the assumptions, representations or covenants are inaccurate, the
conclusions contained in the opinions could be affected.
The material federal income tax consequences of the merger as
summarized in the opinions described above are as follows:
o The merger will constitute a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code.
o Executive Risk stockholders will not recognize any gain or
loss upon the exchange of their Executive Risk common stock
solely for shares of Chubb common stock pursuant to the
merger, except with respect to any cash they receive instead
of fractional shares of Chubb common stock.
o The aggregate tax basis of the shares of Chubb common stock
received solely in exchange for shares of Executive Risk
common stock pursuant to the merger, including fractional
shares of Chubb common stock for which cash is received, will
be the same as the aggregate tax basis of the shares of
Executive Risk common stock exchanged for them.
o The holding period for shares of Chubb common stock received
in exchange for shares of Executive Risk common stock
pursuant to the merger will include the holding period of the
shares of Executive Risk common stock exchanged for them.
o Executive Risk stockholders who receive cash instead of
fractional shares of Chubb common stock should be treated as
having received the fractional shares in the merger and then
as having the fractional shares redeemed by Chubb in a
distribution under Section 302 of the Internal Revenue Code.
Accordingly, these stockholders should generally recognize
gain or loss equal to the difference, if any, between the tax
basis of the fractional shares and the amount of cash
received. The gain or loss generally will be capital gain or
loss and, in the case of individuals, long-term capital gain
or loss eligible for reduced rates of taxation if the
Executive Risk stock exchanged have been held for more than
one year.
o None of Chubb, Excalibur Acquisition, Inc. or Executive Risk
will recognize any gain or loss as a result of the merger.
The tax opinions summarized above assume that you hold your
shares of Executive Risk common stock as a capital asset. Further, the tax
opinions do not address all of the federal income tax consequences that may be
relevant to you in light of your particular circumstances; nor do the tax
opinions address the federal income tax consequences that may be applicable to
taxpayers subject to special treatment under the Internal Revenue Code, such
as:
o insurance companies;
o financial institutions;
o dealers in securities;
o traders that mark to market;
o tax-exempt organizations;
o stockholders who hold their shares as part of a hedge,
appreciated financial position, straddle or conversion
transaction;
o stockholders who acquired the Executive Risk common stock
through the exercise of options or otherwise as compensation
or through a tax-qualified retirement plan; and
o foreign corporations, foreign partnerships or other foreign
entities and individuals who are not citizens or residents of
the United States.
No information is provided in this document with respect to the
tax consequences, if any, of the merger under applicable foreign, state, local
and other tax laws. The tax opinions summarized above are based upon the
provisions of the Internal Revenue Code, applicable Treasury regulations, and
IRS rulings and judicial decisions, as in effect as of the date of this
document. There can be no assurance that future legislative, administrative or
judicial changes or interpretations, which changes could apply retroactively,
will not affect the accuracy of the statements or conclusions set forth in the
tax opinions summarized above. No rulings have been or will be sought from the
IRS concerning the tax consequences of the merger and the opinions of counsel
as to the material federal income tax consequences summarized above will not be
binding on the IRS or any court.
The preceding summary of the tax opinions does not purport to be
a complete analysis or discussion of all potential tax effects relevant to the
merger. Thus, Executive Risk stockholders are urged to consult their own tax
advisors as to the specific tax consequences to them of the merger, including
tax return reporting requirements, the applicability and effect of federal,
state, local, foreign and other applicable tax laws and the effect of any
proposed changes in the tax laws.
Other Tax Matters. It is a condition to the obligations of
Executive Risk and Chubb to consummate the merger that Dewey Ballantine LLP and
Davis Polk & Wardwell each render an opinion, dated as of the time of the
merger, to the effect that the merger will constitute a "reorganization" within
the meaning of Section 368(a) of the Internal Revenue Code. The parties do not
currently intend to waive the condition that Dewey Ballantine LLP and Davis
Polk & Wardwell will render their opinions at the time of the merger. In the
unlikely event that the parties do decide to waive the condition, however,
Executive Risk will recirculate this document to disclose the waiver of the
condition and all related material disclosures, including the risks to
Executive Risk stockholders resulting from the waiver, and will resolicit
proxies from the Executive Risk stockholders.
Accounting Treatment
The merger will be accounted for by Chubb under the "purchase"
method of accounting. Under this method of accounting, the assets and
liabilities of Executive Risk will be recorded at their fair value, and any
excess of Chubb's purchase price over the fair value will be accounted for as
goodwill. The goodwill attributable to the merger is expected to be amortized
by Chubb over a period of twenty-six years. The revenues and expenses of
Executive Risk will be included in Chubb's financial statements from the date
of consummation of the merger.
Regulatory Matters
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, and
the rules and regulations promulgated under the Hart-Scott-Rodino Act, prohibit
Chubb and Executive Risk from consummating the merger until they notify and
furnish information to the FTC and the Antitrust Division of the United States
Department of Justice and specified waiting period requirements are satisfied.
On February 26, 1999, in connection with the merger, Chubb and Executive Risk
each filed with the FTC and the Antitrust Division a Notification and Report
Form under the Hart-Scott-Rodino Act. The waiting period under the
Hart-Scott-Rodino Act expired on March 28, 1999.
At any time before or after the completion of the merger, the
Antitrust Division or the FTC could take any action under the antitrust laws as
it deems necessary or desirable in the public interest, including seeking to
enjoin the consummation of the merger or seeking the divestiture of substantial
assets of Chubb or Executive Risk. Private parties and the state attorneys
general may also bring actions under the U.S. antitrust laws. Although Chubb
and Executive Risk believe that the merger is legal under the U.S. antitrust
laws, there can be no assurance that a challenge to the merger on antitrust
grounds will not be made or, if such a challenge is made, that it would not be
successful.
Chubb and Executive Risk each conduct business in member states
of the European Union, but it is not anticipated that any filing with the
European Commission will be required as a result of this proposed merger. Chubb
and Executive Risk also each conduct operations in a number of individual
foreign jurisdictions where regulatory filings with, or notifications to,
applicable commissions and other authorities may be required in connection with
consummation of the merger.
The insurance laws and regulations of all U.S. jurisdictions
generally require that, prior to the acquisition of an insurance company doing
business in these jurisdictions through the acquisition of or merger with the
insurance company or holding company of that insurance company, the surviving
company obtain the prior approval of, or file notification with and meet
waiting period requirements imposed by, the insurance commissioners of these
jurisdictions.
In connection with this state approval and notification process,
Chubb has made formal filing applications, called Form "A" filings, for
approval of the merger with the insurance commissioners of Delaware and
Connecticut, the states in which the insurance company subsidiaries of
Executive Risk are domiciled. Hearings on the Form "A" filings in Connecticut
and Delaware have been conducted. Chubb has received the requisite approval
from the Connecticut insurance commissioner and is awaiting approval from the
Delaware insurance commissioner which it expects to receive shortly. In
addition, Chubb has made notice filings in other jurisdictions, including in
states where Executive Risk's subsidiaries and Chubb's subsidiaries together
have sufficiently large market shares in particular insurance lines to require
a notification prior to merger. Approval of the merger is generally not
required in these states, but state insurance departments could determine to
take action to prevent or impose conditions on the merger or on any related
change of control affecting Executive Risk's existing insurance licenses and
authorizations.
No Appraisal Rights
Executive Risk stockholders are not entitled to appraisal or
dissenters' rights under Delaware law in connection with the merger because
Executive Risk's common stock were listed on the New York Stock Exchange on the
record date for Executive Risk's special meeting of stockholders, and the Chubb
common shares that the Executive Risk stockholders will be entitled to receive
in the merger will be listed on the New York Stock Exchange at the effective
time of the merger.
Stock Transfer Restriction Agreements
This document does not cover any resales of the Chubb common
shares to be received by Executive Risk's stockholders upon consummation of the
merger, and no person is authorized to make any use of this document in
connection with any such resale.
All Chubb common shares received by Executive Risk stockholders
in the merger will be freely transferable, with the exception of the Chubb
common shares received by persons who are deemed to be "affiliates" of
Executive Risk under the Securities Act of 1933 and the rules and regulations
promulgated under that act, at the time of the Executive Risk special meeting.
These "affiliates" may only re-sell their Chubb common shares in transactions
permitted by Rule 145 under the Securities Act of 1933 or as otherwise
permitted under that act. Persons who may be deemed to be affiliates of
Executive Risk for these purposes generally include individuals or entities
that control, are controlled by, or are under common control with, Executive
Risk and may include officers, directors and principal stockholders of
Executive Risk. The merger agreement requires Executive Risk to use
commercially reasonable efforts to deliver or cause to be delivered to Chubb on
or prior to the effective time of the merger from each of these affiliates an
executed letter agreement to the effect that these persons will not offer or
sell or otherwise dispose of any Chubb common shares issued to these persons in
the merger in violation of the Securities Act of 1933.
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
The price per Chubb common share is quoted on the New York Stock
Exchange under the symbol "CB". The price per share of Executive Risk common
stock is quoted on the New York Stock Exchange under the symbol "ER".
For the calendar quarters indicated, the table below sets forth,
(1) the high and low sales prices per Chubb common share and per share of
Executive Risk common stock, in each case as reported on the New York Stock
Exchange Composite Transaction Tape and based on published financial sources
and (2) the cash dividends declared per Chubb common share and per share of
Executive Risk common stock.
<TABLE>
<CAPTION>
Chubb Common Shares Executive Risk Common Stock
--------------------------------- ---------------------------------
Market Price Cash Market Price Cash
------------------- ------------------
High Low Dividends High Low Dividends
------ ------ --------- ------ ------ ---------
1997
<S> <C> <C> <C> <C> <C> <C>
First Quarter.................... $62.25 $53.00 $0.29 $48.75 $35.63 $0.02
Second Quarter................... 67.63 51.25 0.29 56.00 43.38 0.02
Third Quarter.................... 71.75 65.56 0.29 68.38 49.81 0.02
Fourth Quarter................... 78.13 65.88 0.29 72.00 63.50 0.02
1998
First Quarter.................... $81.44 $71.00 $0.31 $75.31 $65.69 $0.02
Second Quarter................... 82.63 73.31 0.31 74.63 57.50 0.02
Third Quarter.................... 88.25 62.50 0.31 72.69 35.88 0.02
Fourth Quarter................... 73.38 57.00 0.31 56.88 40.50 0.02
1999
First Quarter.................... $68.31 $54.00 $0.32 $74.00 $44.00 $0.02
Second Quarter (through June 10). 76.38 57.00 -- 92.88 69.63 --
</TABLE>
On February 5, 1999, the last full trading day prior to the
public announcement of the proposed merger, the closing price per Chubb common
share quoted on the New York Stock Exchange Composite Transaction Tape was
$58.06 and the closing price per share of Executive Risk common stock reported
on the New York Stock Exchange Composite Transaction Tape was $44.00. On June
10, 1999, the most recent date for which prices were available prior to the
printing of this document, the closing price per Chubb common share reported on
the New York Stock Exchange Composite Transaction Tape was $69.44 and the
closing price per share of Executive Risk common stock reported on the New York
Stock Exchange Composite Transaction Tape was $84.56. Stockholders are urged to
obtain current market quotations prior to making any decision with respect to
the merger.
Chubb and Executive Risk do not expect to change their dividend
policies before the merger. Chubb's quarterly dividend is expected to continue
to be $.32 per common share.
OPINIONS OF FINANCIAL ADVISORS
On February 6, 1999, Donaldson, Lufkin & Jenrette Securities
Corporation, also known as DLJ, and Salomon Smith Barney Inc. each delivered an
oral opinion to Executive Risk's board of directors that, as of the date of
these opinions and based upon and subject to the assumptions, limitations and
qualifications set forth in these opinions, the merger consideration was fair
to Executive Risk stockholders from a financial point of view. DLJ and Salomon
Smith Barney Inc. subsequently confirmed those opinions in writing.
We have attached to this document as Annex D and Annex E and
incorporate in this document by reference the full text of the respective
written opinions of DLJ and Salomon Smith Barney Inc. dated February 6, 1999.
These opinions set forth the assumptions made, matters considered and
limitations on the review undertaken in connection with these opinions. We urge
Executive Risk stockholders to read these opinions carefully and in their
entirety for the procedures followed, assumptions made, other matters
considered and limits of the review by DLJ and Salomon Smith Barney Inc. in
connection with their opinions.
Executive Risk selected DLJ and Salomon Smith Barney based upon
their reputations, expertise and familiarity with Executive Risk and its
business. DLJ has been a financial advisor to Executive Risk since prior to the
time Executive Risk became a public company in March 1994 and served as lead
underwriter in Executive Risk's initial public offering. As described above in
"The Merger--Background of the Merger", beginning on December 7, 1999, DLJ
assisted Executive Risk during Executive Risk's preliminary discussions with
Chubb and Chubb's advisors concerning a possible transaction between the two
companies. Executive Risk formally retained DLJ as its financial advisor in
connection with the possible merger with Chubb on January 22, 1999. In reaching
its business decision to enter into the merger agreement with Chubb, Executive
Risk consulted with DLJ on numerous aspects of the transaction including, in
particular, the structural and financial aspects of the transaction. Because a
managing director in DLJ's Mergers and Acquisitions Group is a member of the
board of directors of Chubb, Executive Risk also retained Salomon Smith Barney
on February 1, 1999 to act as a financial advisor in connection with the
possible merger with Chubb.
Opinion of Donaldson, Lufkin & Jenrette Securities Corporation
Executive Risk requested DLJ in its role as financial advisor to
Executive Risk, to render an opinion to the Executive Risk board as to the
fairness from a financial point of view of the consideration to be received by
Executive Risk stockholders in the form of 1.235 shares of common stock of
Chubb for each share of Executive Risk common stock. On February 5, 1999, DLJ
indicated to the Executive Risk board that DLJ was prepared to deliver its
opinion to the effect that, as of that date, the consideration to be received
by the Executive Risk stockholders pursuant to the merger agreement was fair to
the Executive Risk stockholders from a financial point of view. On February 6,
1999, DLJ delivered its opinion to the Executive Risk board that, as of that
date, and based on and subject to the assumptions, limitations and
qualifications set forth in its opinion, the consideration to be received was
fair to the stockholders of Executive Risk from a financial point of view. The
summary of the material elements of the presentation made by DLJ to the
Executive Risk board on February 5, 1999 described below is qualified in its
entirety by reference to the full text of the DLJ opinion attached as Annex D
to this proxy statement/prospectus.
The DLJ opinion was prepared for the Executive Risk board and
was directed only to the fairness from a financial point of view, as of the
date of the opinion, of the consideration to be received by the Executive Risk
stockholders. The DLJ opinion was necessarily based on economic, market,
financial and other conditions as they existed on, and on the information made
available to DLJ as of, the date of the DLJ opinion. It should be understood
that although subsequent developments may affect the DLJ opinion, DLJ does not
have any obligation to update, revise or reaffirm the DLJ opinion. DLJ
expressed no opinion as to the prices at which Executive Risk common stock or
Chubb common shares would actually trade at any time. The DLJ opinion does not
address the relative merits of the merger and the other business strategies
considered by the Executive Risk board nor does it address the Executive Risk
board's underlying business decision to proceed with the merger. The DLJ
opinion does not constitute a recommendation to the Executive Risk stockholders
as to how they should vote on the merger.
In arriving at its opinion, DLJ reviewed the merger agreement
and the related voting agreement and stock option agreement. DLJ also reviewed
financial and other information that was publicly available, including the
First Call mean earnings estimates for Chubb, or was furnished to DLJ by
Executive Risk and Chubb including information provided during discussions with
their respective managements. Included in the information provided during
discussions with the respective managements were financial projections of
Executive Risk prepared by the management of Executive Risk. In addition, DLJ
compared financial and securities data of Executive Risk and Chubb with various
other companies whose securities are traded in public markets, reviewed the
historical stock prices and trading volumes of Executive Risk common stock and
Chubb common stock, reviewed prices and premiums paid in other relevant
business combinations and conducted other financial studies, analyses and
investigations that it deemed appropriate for purposes of the DLJ opinion. DLJ
was not asked to, nor did it, solicit the interest of any other party in
acquiring Executive Risk. Executive Risk did not impose any restrictions or
limitations upon DLJ with respect to the investigations made or the procedures
followed by DLJ in rendering the DLJ opinion.
In rendering its opinion, DLJ relied upon and assumed the
accuracy and completeness of all of the financial and other information that
was available to it from public sources, that was provided to it by Executive
Risk and Chubb or their respective representatives, or that was otherwise
reviewed by DLJ. With respect to the Executive Risk financial projections
supplied to DLJ, DLJ assumed that these projections had been reasonably
prepared on the basis reflecting the best currently available estimates and
judgments of the management of Executive Risk as to the future operating and
financial performance of Executive Risk. With respect to the First Call mean
earnings estimates for Chubb reviewed by DLJ, DLJ assumed that these
projections did not differ materially from those of the management of Chubb.
Chubb did not provide DLJ with its earnings projections. DLJ did not assume any
responsibility for making an independent evaluation of any assets or
liabilities or for making any independent verification of any of the
information reviewed by it. DLJ assumed that the merger will qualify as a
tax-free "reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code.
The following is a summary of the presentation made by DLJ to
the Executive Risk board at its February 5, 1999 meeting in connection with
rendering the DLJ opinion. The chart below summarizes the resulting ranges of
implied per share prices of Executive Risk common stock based on DLJ's analyses
and compares these ranges with the consideration to be received by Executive
Risk stockholders based on the closing price of Chubb's common shares as of
February 4, 1999 and the exchange ratio of 1.235. For a detailed description of
each of DLJ's analyses, see the individual analysis discussions immediately
following the table.
[GRAPHICS OMITTED]
1. Consideration Received Analysis Based on Comparable Public
Company Analysis. DLJ compared the consideration to be received to the range of
values of Executive Risk common stock implied by the relative valuation
multiples of the following selected publicly traded specialty insurance peer
companies:
o W.R. Berkley Corporation,
o CNA Surety Corporation,
o HCC Insurance Holdings, Inc.,
o HSB Group Inc.,
o Markel Corporation,
o Orion Capital Corporation, and
o Philadelphia Consolidated Holding Corp.
DLJ analyzed the equity value of each of the peer companies,
using trading valuations as of February 4, 1999, measured as a multiple of
selected financial data, including: (A) earnings per share for the last twelve
months ended September 30, 1998, excluding after-tax realized gains, assuming a
35% tax rate and other non-recurring items, (B) 1998 and 1999 estimated
earnings per share and (C) September 30, 1998 book value per share. The 1998
and 1999 estimated earnings per share were based on mean earnings per share
estimates issued by First Call. Based on this analysis, DLJ developed ranges of
valuation multiples. The high and low data points for each criterion were
excluded in determining the following ranges:
o 12.2x - 18.0x for last twelve months earnings per share,
o 12.5x - 17.4x for 1998 estimated earnings per share,
o 10.4x - 15.1x for 1999 estimated earnings per share, and
o 1.33x - 2.45x for 9/30/98 book value per share.
These valuation multiples were then applied to Executive Risk's
respective actual balances for last twelve months earnings and September 30,
1998 book value per share and Executive Risk management's estimates for 1998
and 1999 earnings to determine the range of implied equity values of Executive
Risk. The analysis resulted in a range of implied Executive Risk value per
share of $42.79 to $65.57. The consideration to be received is above the
resulting implied range of values of Executive Risk common stock.
2. Consideration Received Analysis Based on Comparable
Acquisitions of Property-Casualty Insurance Companies. DLJ compared the
consideration to be received to the range of values of Executive Risk common
stock implied by the relative purchase price multiples generated from 24
selected acquisitions of property-casualty insurance companies that have
occurred since January 1, 1997. DLJ analyzed the equity value of each of the
acquired companies, measured as a multiple of selected financial data,
including last twelve months earnings per share, next twelve months estimated
earnings per share and current book value per share. Based on this analysis,
DLJ developed the following ranges of acquisition multiples:
o 12.9x - 24.9x for last twelve months earnings,
o 12.5x - 21.1x for next twelve months estimated earnings and
o 1.20x - 3.38x for current book value.
These acquisition multiples were then applied to Executive Risk's respective
actual balances for last twelve months earnings and current book value and
Executive Risk management estimates for next twelve months earnings to
determine the range of implied equity values of Executive Risk. The analysis
resulted in a range of implied Executive Risk value per share of $44.68 to
$92.37. The consideration to be received is within this range of implied
values.
3. Consideration Received Analysis Based on Premiums Paid Over
Current Market Prices in Comparable Acquisitions of Property-Casualty Insurance
Companies. DLJ compared the consideration to be received to the range of values
of Executive Risk common stock implied by the relative premiums paid over
current market prices in recent selected acquisitions of property-casualty
insurance companies. DLJ analyzed 15 property-casualty acquisitions involving
public companies that have occurred since January 1, 1997. DLJ analyzed the
equity value of each of the acquired companies, measured as a percentage of
premiums paid over the acquired companies' common stock closing prices for the
following periods: one day prior, one week prior and one month prior to the
transaction announcement. Based on this analysis, DLJ developed the following
ranges of premiums paid percentages:
o 5.6% - 80.1% over the closing price one day prior to
announcement,
o 7.1% - 79.5% over the closing price one week prior to
announcement, and
o 2.1% - 110.1% over the closing price one month prior to
announcement.
These premium paid percentages were then applied to Executive
Risk's respective common stock closing prices, assuming a theoretical
announcement date of February 5, 1999, to determine the range of implied equity
values of Executive Risk. The analysis resulted in a range of implied Executive
Risk value per share of $51.23 to $93.42. The consideration to be received is
within this range of implied values.
4. Consideration Received Analysis Based on a Discounted Cash
Flow Valuation Analysis. DLJ compared the consideration to be received to the
range of values of Executive Risk common stock implied by a discounted cash
flow valuation analysis. For purposes of this analysis, DLJ assumed that
Executive Risk paid the maximum allowable dividends to its stockholders over
the course of a five-year period. The maximum allowable dividends were assumed
to be primarily based on a two step test that measures the amount of allowable
dividends Executive Risk's insurance subsidiaries could pay under (1) state
insurance regulatory constraints and (2) market-driven leverage constraints
which were assumed to restrict the ratio of net premiums to surplus to 1.5 to
1. A terminal value was estimated at the end of year five based on a range of
forward earnings of 10.0x to 12.0x and book value of 1.40x to 1.80x valuation
multiples and the Company's estimated 2004 earnings and December 31, 2003 book
value. The resulting cash flows were discounted using a range of discount rates
of 12.0% to 16.0% based on Executive Risk's estimated cost of equity capital.
The analysis resulted in a range of implied Executive Risk value per share of
$49.60 to $65.42. The consideration to be received is above the resulting range
of implied values of Executive Risk common stock.
5. Consideration Received Analysis Based on the Historical
Prices of Executive Risk Common Stock. DLJ compared the consideration to be
received to the range of implied per share equity values resulting from
Executive Risk's historical stock trading prices. DLJ examined the history of
Executive Risk's common stock trading prices for the 12 months ended February
4, 1999 and for the approximately five-year period since Executive Risk's
initial public offering of common stock on March 15, 1994. In this analysis,
DLJ noted the following average closing prices and resulting implied
transaction premiums based on Chubb's February 4, 1999 closing price:
Trading Day Period Average Closing Price Transaction Premium
------------------ --------------------- -------------------
1 Day $45.31 61.1%
10 Day 46.77 56.1%
20 Day 49.68 47.0%
30 Day 50.80 43.7%
60 Day 52.08 40.2%
90 Day 49.70 46.9%
125 Day 47.41 54.0%
250 Day 56.89 28.4%
500 Day 57.34 27.3%
750 Day 49.98 46.1%
DLJ focused on Executive Risk's common stock trading prices for
the 12 months ended February 4, 1999 as DLJ believed this period to be more
comparable. The analysis resulted in a range of implied Executive Risk value
per share of $35.50 to $75.75. The consideration to be received is within this
range of implied values.
Pro Forma Financial Analysis. DLJ analyzed some of the pro forma
financial effects resulting from the merger. In conducting its analysis, DLJ
relied upon financial projections provided by the management of Executive Risk
and First Call mean earnings estimates for Chubb. DLJ analyzed the pro forma
effect of the merger on 1999 and 2000 earnings per share, stockholders' equity
per share, dividends per share and ownership of the pro forma combined company.
In this analysis, DLJ assumed that the transaction occurred on January 1, 1999.
Executive Risk management has indicated that they believe that the merger will
offer consolidated opportunities which will result in expense savings and
revenue enhancement. DLJ did not express any opinion as to the likelihood of
the expense savings and revenue enhancement being realized. The results of the
pro forma merger analysis are not necessarily indicative of future operating
results or financial position. DLJ compared the projected 1999 and 2000
earnings per share, book value per share and dividend per share of Executive
Risk and Chubb on a stand-alone basis to Executive Risk and Chubb shareholders'
projected pro forma 1999 and 2000 earnings per share, book value per share and
dividend per share of the pro forma combined company. The analysis estimates
that the earnings per share to each Executive Risk stockholder is accretive in
pro forma 1999 and 2000, respectively, while the earnings per share to each
Chubb shareholder is slightly dilutive in pro forma 1999 and 2000. The analysis
also estimates that the book value per share to each Executive Risk stockholder
and each Chubb shareholder would have been accretive as of December 31, 1998.
Chubb Analysis: Comparable Public Company Valuation Analysis. In
order to value the shares of Chubb common stock to be received by Executive
Risk shareholders, DLJ compared Chubb's current market valuation multiples and
operating results to a range of valuation multiples and operating results of
selected publicly traded peer insurance companies including the following:
o ACE Limited,
o American International Group, Inc.,
o The Allstate Corporation,
o CNA Surety Corporation,
o XL Capital Ltd.,
o The Hartford Financial Services Group, Inc.,
o The Progressive Corporation,
o Reliance Group Holdings, Inc.,
o SAFECO Corporation, and
o The St. Paul Companies, Inc.
DLJ analyzed the equity value of each of the Chubb peer
companies, using trading valuations as of February 4, 1999, measured as a
multiple of selected financial data, including: (A) earnings per share for the
last twelve months ended September 30, 1998, (B) 1998 and 1999 estimated
earnings per share based on First Call mean earnings per share estimates and
(C) September 30, 1998 book value per share. DLJ also reviewed historical
operating data of the Chubb peer companies, including dividend yield, 1998
estimated return on equity and estimated long-term earnings growth rate based
on First Call's mean long-term growth rates. Based on this analysis, DLJ
developed the following Chubb peer companies range of valuation multiples and
operating results and compared the results to Chubb's respective results.
Chubb's 1998 and 1999 estimated earnings valuation multiples were based on
First Call mean earnings per share estimates:
Chubb Peer Companies
--------------------
Chubb
Description Low Mean Median High Results
- ----------- --- ---- ------ ---- -------
Valuation Multiples:
Last Twelve Months Earnings..... 9.5x 16.3x 14.6x 31.7x 15.1x
1998 Estimated Earnings......... 9.7 16.8 16.6 29.7 15.6
1999 Estimated Earnings......... 8.3 14.7 13.0 26.1 13.8
September 30, 1998 Book Value... 0.7 1.80 1.4 4.23 1.73
Operating Results:
Dividend Yield.................. 0.0% 1.6% 1.4% 3.6% 2.1%
1998 Estimated Return on Equity. 3.9 10.7 10.9 18.0 11.1
Estimated Long-Term Growth Rate. 9.8 11.8 11.4 15.1 10.8
As noted above Chubb's valuation multiples and estimated
long-term growth rate are in-line with or slightly below the mean and median
results of the Chubb peer companies. Chubb's dividend yield and 1998 estimated
return on equity, however, are above the Chubb peer companies mean and median
results. In addition, DLJ noted the following historical average closing prices
of Chubb and the implied current price premium/(discount) based on Chubb's
February 4, 1999 closing price:
Current Price
Trading Day Period Average Closing Price Premium/(Discount)
------------------ --------------------- ------------------
1 Day $59.13 0.0%
10 Day 58.62 0.9%
20 Day 60.38 (2.1)%
30 Day 61.93 (4.5)%
60 Day 65.21 (9.3)%
90 Day 64.12 (7.8)%
125 Day 65.26 (9.4)%
250 Day 72.26 (18.2)%
500 Day 69.29 (14.7)%
750 Day 62.49 (5.4)%
The summary set forth above does not purport to be a complete
description of the analyses performed by DLJ but describes, in summary form,
the material elements of the presentation made by DLJ to the Executive Risk
board on February 5, 1999 in connection with preparation of the DLJ opinion.
The preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant methods of financial analysis and the application
of these methods to the particular circumstances and, therefore, a fairness
opinion is not readily susceptible to summary description. Each of the analyses
conducted by DLJ was carried out in order to provide a different perspective on
the transaction and to add to the total mix of information available. DLJ did
not form a conclusion as to whether any individual analysis, considered in
isolation, supported or failed to support an opinion as to fairness from a
financial point of view. Rather, in reaching its conclusion, DLJ considered the
results of the analyses in light of each other and ultimately reached its
opinion based on the results of all analyses taken as a whole. DLJ did not
place particular reliance or weight on any individual analysis, but instead
concluded that its analyses, taken as a whole, supported its determination.
Accordingly, notwithstanding the separate factors summarized above, DLJ has
indicated to Executive Risk that it believes that its analyses must be
considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, could
create an incomplete view of the evaluation process underlying its opinion. The
analyses performed by DLJ are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than
suggested by such analyses.
Pursuant to the terms of an engagement agreement dated January
22, 1999 between Executive Risk and DLJ, Executive Risk
o has incurred a fee of $500,000 payable to DLJ relating to the
delivery of DLJ's fairness opinion,
o has incurred a fee of $500,000 payable to DLJ relating to the
announcement of the signing of the merger agreement and
o upon consummation of the merger, will pay an additional
amount based on a range of percentages, between six-tenths of
one percent (0.60%) and seventy-two one hundredths of one
percent (0.72%), of the aggregate consideration paid to
stockholders plus the debt and capital securities assumed,
less the amounts paid in consideration for the fairness
opinion and the fee relating to the announcement of the
signing of the merger agreement. For example, assuming the
merger had been completed on March 31, 1999, DLJ would have
been paid an additional fee of approximately $5.5 million.
In addition, Executive Risk agreed to reimburse DLJ, upon
request by DLJ from time to time, for all out-of-pocket expenses, including the
reasonable fees and expenses of counsel incurred by DLJ in connection with its
engagement and to indemnify DLJ and related persons against liabilities in
connection with its engagement, including liabilities under U.S. federal
securities laws. DLJ and Executive Risk negotiated the terms of the fee
arrangement, and the Executive Risk board was aware of this arrangement,
including the fact that a significant portion of the aggregate fee payable to
DLJ is contingent upon consummation of the merger. DLJ believes that the terms
of this fee arrangement are customary in transactions of this nature.
As part of its investment banking business, DLJ is regularly
engaged in the valuation of businesses and securities in connection with
mergers, acquisitions, underwritings, sales and distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. In the ordinary course of its business, DLJ or its affiliates may at
any time hold long or short positions, and may trade or otherwise effect
transactions, for its own account or for the accounts of customers, in equity
or debt securities of Executive Risk or Chubb. DLJ has performed investment
banking and other services for Executive Risk and for Chubb in the past and has
received customary compensation for its services. DLJ is currently engaged by
Chubb with respect to matters unrelated to the merger. In addition, a managing
director in DLJ's Mergers and Acquisitions Group is a member of the board of
directors of Chubb, and a member of the board of directors of Executive Risk is
currently working with affiliates of DLJ with respect to matters unrelated to
the merger. Executive Risk's management and board of directors were made aware
of these arrangements at the commencement of DLJ's engagement.
Opinion of Salomon Smith Barney Inc.
Salomon Smith Barney was also retained to act as financial
advisor to Executive Risk in connection with the possible merger of Executive
Risk with Chubb. Pursuant to Salomon Smith Barney's engagement letter dated
February 1, 1999, Salomon Smith Barney rendered an opinion to the Executive
Risk board of directors on February 6, 1999 to the effect that, based upon and
subject to the considerations set forth in the opinion, as of that date, the
exchange ratio was fair, from a financial point of view, to Executive Risk
stockholders.
The full text of Salomon Smith Barney's opinion, which sets
forth the assumptions made, general procedures followed, matters considered and
limits on the review undertaken, is included as Annex E to this document. The
summary of Salomon Smith Barney's opinion set forth below is qualified in its
entirety by reference to the full text of that opinion. Stockholders are urged
to read the Salomon Smith Barney opinion carefully and in its entirety.
In connection with rendering its opinion, Salomon Smith Barney
reviewed, among other things, the following:
o a draft of the merger agreement, a draft of the stock option
agreement and a draft of the voting agreement, in each case
that Executive Risk advised Salomon Smith Barney was
substantially in the form to be executed by the parties;
o publicly available information concerning Executive Risk and
Chubb;
o other financial information with respect to Executive Risk
and Chubb that was provided to Salomon Smith Barney by
Executive Risk and Chubb, respectively;
o publicly available information prepared by third parties,
including equity research analysts, concerning the business,
operations and financial prospects of Executive Risk and
Chubb and the sectors in which they operate;
o publicly available information concerning the trading of, and
the trading market for, Executive Risk common stock and Chubb
common stock;
o publicly available information with respect to other
companies that Salomon Smith Barney believed to be comparable
to Executive Risk or Chubb and the trading markets for those
other companies' securities; and
o publicly available information concerning the nature and
terms of other transactions that Salomon Smith Barney
considered relevant to its inquiry.
Salomon Smith Barney also considered other information, financial studies,
analyses, investigations and financial, economic and market criteria that it
deemed relevant. Salomon Smith Barney also discussed the past and current
business operations and financial conditions of Executive Risk and Chubb as
well as other matters Salomon Smith Barney believed relevant to its inquiry
with several officers and employees of Executive Risk and Chubb, respectively.
In its review and analysis and in arriving at its opinion,
Salomon Smith Barney assumed and relied upon the accuracy and completeness of
all of the financial and other information provided to it or publicly available
and neither attempted independently to verify nor assumed any responsibility
for verifying any of this information and further relied on assurances of
management of Executive Risk that they were not aware of facts that would make
any of this information inaccurate or misleading. Salomon Smith Barney did not
conduct a physical inspection of any of the properties or facilities of
Executive Risk or Chubb, did not make or obtain or assume any responsibility
for making or obtaining any independent evaluations or appraisals of any of
these properties or facilities, and was not furnished with any of these
evaluations or appraisals. Salomon Smith Barney is not an actuarial firm and
Salomon Smith Barney's services did not include making any actuarial
determinations or evaluations or an attempt to evaluate actuarial assumptions.
In that regard, Salomon Smith Barney made no analyses of, and expressed no
opinion as to, the adequacy of the loss and loss adjustment expense reserves of
Executive Risk or Chubb.
With respect to financial forecasts regarding Executive Risk,
Salomon Smith Barney relied on estimates from the management of Executive Risk,
and assumed that the estimates had been reasonably prepared and reflected the
best currently available estimates and judgments of the management of Executive
Risk as to the future financial performance of Executive Risk. With respect to
financial forecasts regarding Chubb, Salomon Smith Barney relied on publicly
available third-party equity research forecasts. Salomon Smith Barney expressed
no view with respect to the Executive Risk management's estimates or the
third-party equity research forecasts or the assumptions on which they were
based. Salomon Smith Barney assumed that the transaction agreements, when
executed and delivered, would not contain any terms or conditions that differed
materially from the drafts Salomon Smith Barney reviewed, that the merger will
qualify as a tax-free reorganization for United States federal income tax
purposes, and that the merger will be consummated in accordance with the terms
of the merger agreement, without waiver of any of the conditions to the merger
contained in the merger agreement.
In conducting its analysis and arriving at its opinion, Salomon
Smith Barney considered financial and other factors as it deemed appropriate
under the circumstances including, among others, the following:
(1) the historical and current financial position and results of
operations of Executive Risk and Chubb;
(2) the business prospects of Executive Risk and Chubb;
(3) the historical and current market for Executive Risk common
stock, Chubb common stock and the equity securities of other
companies that Salomon Smith Barney believed to be
comparable to Executive Risk or Chubb; and
(4) the nature and terms of other merger and acquisition
transactions that Salomon Smith Barney believed to be
relevant.
Salomon Smith Barney also took into account its assessment of general economic,
market and financial conditions as well as its experience in connection with
similar transactions and securities valuation generally. Salomon Smith Barney
was not asked to consider, and its opinion does not address, the relative
merits of the merger as compared to any alternative business strategy that
might exist for Executive Risk. Salomon Smith Barney was not asked to, and did
not, solicit any proposals to merge with or acquire Executive Risk. Salomon
Smith Barney's opinion necessarily was based on conditions as they existed and
could be evaluated on the date of the opinion and Salomon Smith Barney assumed
no responsibility to update or revise its opinion based upon circumstances or
events occurring after that date. Salomon Smith Barney's opinion does not
constitute an opinion or imply any conclusion as to the price at which
Executive Risk common stock or Chubb common stock will trade following
announcement of the merger or the price at which Chubb common stock will trade
following consummation of the merger. Salomon Smith Barney's opinion was, in
any event, limited to the fairness, from a financial point of view, of the
exchange ratio and did not address Executive Risk's underlying business
decision to effect the merger or constitute a recommendation of the merger to
Executive Risk or a recommendation to any holder of Executive Risk common stock
as to how that holder should vote with respect to the merger.
In connection with rendering its opinion, Salomon Smith Barney
made a presentation to the Executive Risk board of directors on February 5,
1999, with respect to analyses performed by Salomon Smith Barney in evaluating
the fairness of the exchange ratio. The following is a summary of this
presentation. The summary of the financial analyses includes information
presented in tabular format. In order to understand fully the financial
analyses used by Salomon Smith Barney, these tables must be read together with
the text of each summary. The tables alone do not constitute a complete
description of the financial analyses. The following quantitative information,
to the extent it is based on market data, is, except as otherwise indicated,
based on market data as it existed at or prior to February 4, 1999 and is not
necessarily indicative of current or future market conditions.
The analyses performed by Salomon Smith Barney were generally
grouped into four categories: analyses providing an overview of Chubb; analyses
based on the historical trading prices of Chubb common stock and Executive Risk
common stock; analyses reviewing the consequences of the merger; and analyses
providing an overview and valuation of Executive Risk.
Overview of Chubb
Salomon Smith Barney included in its presentation to the
Executive Risk board an overview of Chubb, including a description of its
business, historical financial information, historical trading price
information and a summary of the views of Wall Street analysts on Chubb. In
connection with this overview, Salomon Smith Barney performed, and summarized,
analyses of the value of Chubb common stock utilizing three methodologies: a
review of comparable companies' trading information; a regression analysis of
the relationship between the ratio of market price to book value and estimated
1999 return on equity; and a dividend discount analysis. Salomon Smith Barney
did not utilize these methodologies to derive a specific value, or range of
values, for Chubb common stock, but rather utilized them to confirm that the
trading price of Chubb common stock was consistent with the trading price of
peer firms and with its expected future cash flows so that Salomon Smith Barney
could utilize the current trading price of Chubb common stock as a reasonable
indicator of the value to be received by holders of Executive Risk common stock
in the merger in its analysis of the fairness of the exchange ratio.
Comparable Company Analysis. Salomon Smith Barney reviewed
publicly available financial, operating and stock market information for Chubb
and the following seven other publicly-traded property and casualty insurance
companies:
o Travelers Property Casualty Corp.,
o Hartford Financial Services Group, Inc.,
o XL Capital Limited,
o The St. Paul Companies, Inc.,
o Cincinnati Financial Corporation,
o ACE Limited and
o SAFECO Corporation.
Salomon Smith Barney considered these companies to be reasonably
similar to Chubb insofar as they participate in business segments similar to
Chubb's business segments, but noted that none of these companies has the same
management, makeup, size and combination of businesses as Chubb.
For Chubb and each of the comparable companies, Salomon Smith
Barney calculated and compared, among other things:
o the ratio of the closing stock price on February 4, 1999 to
o 1998 operating earnings per share estimates from I/B/E/S
International, Inc.,
o 1999 operating earnings per share estimates, and
o book value per share including adjustments for unrealized
gains and losses on investments;
o 1999 estimated return on equity; and
o dividend yield.
The following table sets forth the results of these calculations.
<TABLE>
<CAPTION>
Comparable Companies
------------------------------------------------------
Range Mean Median Chubb
---------------- ---- ------ -----
<S> <C> <C> <C> <C> <C>
Ratio of Closing Price on February 4, 1999 to:
(a) I/B/E/S International 1998 Operating
Earnings Per Share Estimates.............. 10.4x -- 24.5x 15.9x 14.8x 15.6x
(b) I/B/E/S International 1999 Operating
Earnings Per Share Estimates.............. 9.3x -- 19.0x 12.6x 11.8x 13.2x
(c) Book Value Per Share...................... 0.95x -- 1.87x 1.36x 1.40x 1.71x
1999 Estimated Return on Equity................ 5.4% -- 13.0% 10.3% 11.4% 12.4%
Dividend Yield................................. 1.3% -- 3.6% 2.3% 2.0% 2.1%
</TABLE>
Salomon Smith Barney noted that the multiples for Chubb were
within the range calculated for the comparable companies, and in most instances
consistent with the average or median multiples observed.
Regression Analysis. Salomon Smith Barney performed a regression
analysis to compare the relationship of the ratio of market price to book value
per share to the estimated 1999 return on equity for Chubb and the seven
comparable companies described above. Based on this analysis, Salomon Smith
Barney confirmed that Chubb common stock was priced in a manner consistent with
the relationship observed for the other seven comparable companies.
Dividend Discount Analysis. Salomon Smith Barney also performed
a dividend discount analysis pursuant to which the value of Chubb common stock
was reviewed by adding (1) the estimated present value of Chubb's future stream
of dividend payments to Chubb's stockholders for the years 1999 through 2003,
plus (2) the estimated present value of the terminal value per share of Chubb
common stock at the end of the year 2003, based upon 1999 and 2000 I/B/E/S
International operating earnings per share estimates and assuming a compound
annual growth rate of 11.3%, implied from the 1999 and 2000 I/B/E/S
International estimates thereafter and a constant dividend payout ratio of
31.0%. For purposes of this analysis, Salomon Smith Barney utilized discount
rates ranging from 9.0% to 14.0%, and terminal values based on multiples
ranging from 11.0x to 15.0x projected year 2004 operating earnings and from
1.5x to 1.9x projected book value at the end of the year 2003. Salomon Smith
Barney noted that Chubb's closing stock price of $59.13 on February 4, 1999 was
within the range of values suggested by this analysis.
Historical Trading Analyses
Salomon Smith Barney performed a number of analyses based on the
historical trading prices of Executive Risk common stock and Chubb common stock
and the relationship between the two.
Salomon Smith Barney reviewed the relationship between the daily
closing prices of Executive Risk common stock and Chubb common stock during the
periods from February 4, 1998 through February 4, 1999 and from March 15, 1994,
the date of Executive Risk's initial public offering, through February 4, 1999
and the implied historical exchange ratios determined by dividing the closing
price per share of Executive Risk common stock by the closing price per share
of Chubb common stock for each trading day in these periods. Salomon Smith
Barney calculated that during these periods the average historical exchange
ratio was 0.786 and 0.645, respectively. Salomon Smith Barney noted that the
merger exchange ratio of 1.235 compared favorably with each of these average
historical exchange ratios.
Based upon the relative market capitalization of Executive Risk
and Chubb since February 4, 1998, Salomon Smith Barney reviewed the implied
average ownership of holders of Executive Risk common stock in the combined
entity over the same period, excluding for the purpose of this analysis shares
underlying outstanding options to purchase Executive Risk common stock or Chubb
common stock. The following table compares the average implied ownership of
holders of Executive Risk common stock in the combined entity based upon
relative market capitalization over this period to the ownership of these
stockholders resulting from the merger.
Average Implied Ownership of Ownership of
Executive Risk Stockholders Executive Risk Stockholders
Based on Relative Market Capitalization Resulting from the Merger
- -------------------------------------------------------------------------------
5.1% 7.8%
Salomon Smith Barney compared the performance of Executive Risk
common stock and Chubb common stock for the period from February 4, 1998
through February 4, 1999. Salomon Smith Barney noted that the performance of
Executive Risk common stock closely tracked the performance of Chubb common
stock, but, except for brief periods in early 1998, that Executive Risk common
stock had underperformed slightly when compared to Chubb common stock.
Salomon Smith Barney reviewed the historical ratio of stock
price to forward earnings estimates for both Executive Risk common stock and
Chubb common stock during the period from January 29, 1998 through January 29,
1999. The following table compares the average ratio of stock price to forward
earnings estimates for Chubb and Executive Risk over this one year period.
Average Ratio of Stock Price
to Forward Earnings Estimates
- -------------------------------------------------------------------------------
Executive Risk 15.5x
Chubb 16.8x
Salomon Smith Barney also reviewed the historical multiple of
stock price to book value for both Executive Risk common stock and Chubb common
stock during the period from January 29, 1998 through January 29, 1999. For
purposes of this analysis, book value was stockholders' equity excluding any
adjustments for unrealized gains and losses on investments. The following table
compares the average multiple of stock price to book value per share for
Executive Risk and Chubb over this one year period.
Average Multiple of Stock Price
to Book Value per Share
- -------------------------------------------------------------------------------
Executive Risk 2.12x
Chubb 2.13x
Merger Consequences Analyses
Contribution Analyses. Salomon Smith Barney performed analyses
of the relative contributions of each of Executive Risk and Chubb to the pro
forma merged entity with respect to market and financial data, including 1999
and 2000 estimated operating earnings based on management estimates for
Executive Risk and I/B/E/S International estimates for Chubb and the other
items in the following table:
<TABLE>
<CAPTION>
Executive Risk Chubb
Contribution Contribution
-------------- ------------
<S> <C> <C>
1999 Estimated Operating Earnings............................................ 6.30% 93.70%
2000 Estimated Operating Earnings............................................ 7.30% 92.70%
1998 Revenue................................................................. 5.00% 95.00%
Total Assets as of December 31, 1998......................................... 8.30% 91.70%
Stockholders' Equity as of December 31, 1998, Including Adjustments for
Unrealized Gain and Losses on Investments................................... 5.50% 94.50%
</TABLE>
Salomon Smith Barney noted that the 7.8% ownership stake in the
merged entity to be received by holders of Executive Risk common stock compared
favorably to the percentage contribution by Executive Risk in most of the above
categories.
Salomon Smith Barney also derived the ratio of the pro forma
ownership of Executive Risk stockholders and pro forma ownership of Chubb
stockholders in the combined entity to the respective percentage represented by
Executive Risk's and Chubb's relative contributions to the combined income
statement and balance sheet items described above. The following table presents
these ratios.
<TABLE>
<CAPTION>
Executive
Risk Chubb
--------- -----
<S> <C> <C>
Ratio of Pro Forma Ownership to Relative Contribution to:
1999 Estimated Operating Earnings............................................... 1.24x 0.98x
2000 Estimated Operating Earnings............................................... 1.06x 1.00x
1998 Revenue.................................................................... 1.57x 0.97x
Total Assets as of December 31, 1998............................................ 0.94x 1.01x
Stockholders' Equity as of December 31, 1998 Including Adjustments for
Unrealized Gains and Losses on Investment....................................... 1.41x 0.98x
</TABLE>
Accretion/Dilution Analysis. Salomon Smith Barney performed an
analysis of the impact of the merger on future operating earnings of the
combined entity. Salomon Smith Barney noted that the merger would initially be
accretive to Executive Risk's stockholders and slightly dilutive to Chubb's
stockholders.
Implied Premium Analysis. Salomon Smith Barney performed
analyses summarizing the premiums implied by the exchange ratio. Salomon Smith
Barney calculated that, by multiplying the exchange ratio by the Chubb closing
price on February 4, 1999 of $59.13 per share, the implied price per share of
Executive Risk common stock in the merger was $73.02. The following table
compares the premium represented by this $73.02 implied price to the closing
price of Executive Risk common stock on February 4, 1999 and to the average
closing prices for specified periods ended that day.
Premium (Discount) of
Period Ended February 4, 1999 $73.02 to Applicable Price
- -------------------------------------------------------------------------------
Closing Price on February 4............ 61.1%
5 Trading Days......................... 57.8%
20 Trading Days........................ 47.2%
60 Trading Days........................ 40.0%
Transaction Multiples Analysis. Salomon Smith Barney also
performed analyses summarizing the transaction multiples implied by the
exchange ratio. Salomon Smith Barney calculated the ratio of the implied $73.02
per share price in the transaction to Executive Risk's 1998 operating earnings
per share (20.0x), 1999 estimated operating earnings per share (17.5x), 2000
estimated operating earnings per share (13.6x), and book value at December 31,
1998, including adjustments for gains and losses on investments (2.59x).
Executive Risk Valuation
Salomon Smith Barney prepared a separate valuation of Executive
Risk using several methodologies, including comparable company trading
analysis, comparable transactions analysis, a regression analysis of the ratio
of trading price to book value versus estimated 1999 return on equity,
discounted cash flow analysis and a premiums paid analysis. Each of these
methodologies was used to generate a reference range for the value of Executive
Risk, which was then compared to the $45.31 per share price of Executive Risk
common stock as of February 4, 1999 and the implied $73.02 per share
transaction price as part of Salomon Smith Barney's evaluation of the fairness
of the exchange ratio. The following table shows the reference ranges of values
per share of Executive Risk common stock derived for each of these
methodologies. This table should be read together with the more detailed
summary of each of these valuation analyses set forth below.
Implied Reference Range
Valuation Methodology of Per Share Value
- -------------------------------------------------------------------------------
Comparable Company Analysis......................... $55.27 -- $67.37
Comparable Transactions Analysis.................... $45.99 -- $61.82
Price/Book vs. Return on Equity Regression Analysis. $56.57 -- $73.54
Discounted Cash Flow Analysis....................... $53.96 -- $74.84
Premiums Paid Analysis.............................. $53.74 -- $62.80
Comparable Company Analysis. Salomon Smith Barney reviewed
publicly available financial, operating and stock market information for
Executive Risk and the following eight other publicly-traded specialty property
and casualty insurance companies:
o HSB Group, Inc.,
o Markel Corporation,
o Orion Capital Corporation,
o HCC Insurance Holdings, Inc.,
o Medical Assurance, Inc.,
o W.R. Berkley Corporation,
o Frontier Insurance Group, Inc. and
o RLI Corp.
Salomon Smith Barney considered these companies to be reasonably similar to
Executive Risk insofar as they participate in business segments similar to
Executive Risk's business segments, but noted that none of these companies has
the same management, makeup, size and combination of businesses as Executive
Risk.
For Executive Risk and each of the comparable companies, Salomon
Smith Barney calculated and compared, among other things:
o the ratio of the closing stock price on February 4, 1999 to
(a) I/B/E/S International 1998 operating earnings per share
estimates, (b) I/B/E/S International 1999 operating earnings
per share estimates, and (c) book value per share including
adjustments for unrealized gains and losses on investments;
o 1999 estimated return on equity; and
o dividend yield.
The following table sets forth the results of these calculations.
<TABLE>
<CAPTION>
Comparable Companies
--------------------------------------------------------
Range Mean Median Executive Risk
--------------- ---- ------ --------------
<S> <C> <C> <C> <C>
Ratio of Closing Price on February 4, 1999 to:
(a) I/B/E/S International 1998 Operating
Earnings Per Share Estimates............. 9.2x -- 23.2x 14.3x 12.5x 12.4x
(b) I/B/E/S International 1999 Operating
Earnings Per Share Estimates............. 8.5x -- 20.2x 12.6x 11.2x 10.9x
(c) Book Value Per Share..................... 0.73x -- 2.63x 1.74x 1.73x 1.60x
1999 Estimated Return on Equity............... 6.7% -- 17.7% 12.1% 11.5% 13.8%
Dividend Yield................................ 0.0% -- 4.5% 1.6% 1.7% 0.2%
</TABLE>
In its analysis, Salomon Smith Barney utilized a narrower
selected range around the median of these ratios for the comparable companies
and applied a 30% control premium to derive an implied value per share of
Executive Risk common stock ranging from $55.27 to $67.37.
Comparable Transactions Analysis. Salomon Smith Barney analyzed
publicly available financial, operating and stock market information for eight
selected merger and acquisition transactions in the specialty property and
casualty insurance industry since 1995. The following precedent transactions
were reviewed:
o Gryphon Holdings Inc./Markel Corporation;
o Northland Insurance Company/Associates First Capital
Corporation;
o Clarendon Insurance Group/Hannover Rueckversicherungs/AG;
o Colonial Penn Insurance Company/General Electric Capital
Services, Inc.;
o Coregis Group/General Electric Capital Services, Inc.;
o AVEMCO Corporation/HCC Insurance Holdings, Inc.;
o SIG Holdings, Inc./Delphi Financial Group, Inc.; and
o MECC Inc./W.R. Berkley Corporation.
In each case, the first-named company represents the acquired company in the
transaction, comparable to Executive Risk in the merger and the second-named
company represents the acquiror in the transaction, comparable to Chubb in the
merger. Salomon Smith Barney considered the precedent transactions to be
reasonably similar to the merger, but none of these transactions is identical
to the merger.
For each of the precedent transactions, Salomon Smith Barney
derived, among other things:
o the premium of the transaction consideration to (a) closing
price of the acquired stock one day prior to announcement of
the transaction and (b) average closing price of the acquired
stock for the 30-trading day period prior to announcement of
the transaction;
o the ratio of the implied value per share of the acquired
stock based on the closing price of the acquiror for the
trading day immediately prior to announcement of the
transaction to (a) latest twelve months operating earnings
per share, (b) to estimated operating earnings per share and
(c) latest book value per share; and
o the ratio of the transaction value, which was based on the
implied value per share plus assumed debt and preferred
securities, to (a) latest twelve months operating earnings
per share and (b) latest statutory surplus.
The following table sets forth the results of these calculations.
<TABLE>
<CAPTION>
Precedent Transactions
Range Mean Median
----- ---- ------
<S> <C> <C> <C> <C>
Premium of Transaction Price over:
(a) Day Prior Price.................................. 15.2% -- 44.5% 29.8% 29.8%
(b) 30 Day Prior Average Price....................... 33.03% -- 86.7% 60.0% 60.0%
Ratio of Implied Purchase Price to:
(a) Latest Twelve Month Operating Earnings Per
Share............................................ 4.9x -- 20.8x 14.1x 18.3x
(b) Forward Operating Earnings Per Share Estimates... 13.9x -- 18.7x 16.3x 16.3x
(c) Latest Book Value Per Share...................... 0.97x -- 4.22x 1.93x 1.36x
Ratio of Transaction Value to:
(a) Latest Twelve Month Operating Earnings Per
Share............................................ 8.4x -- 29.9x 15.8x 15.6x
(b) Latest Statutory Surplus......................... 1.44x -- 4.07x 2.26x 2.08x
</TABLE>
In its analysis, Salomon Smith Barney utilized a narrower
selected range around the median of these ratios for the precedent transactions
to derive an implied value per share of Executive Risk common stock ranging
from $45.99 to $61.82.
Price/Book vs. Return on Equity Regression Analysis. Salomon
Smith Barney performed a regression analysis to compare the relationship of the
ratio of market price to book value per share to the estimated 1999 return on
equity for Executive Risk and the eight comparable companies described above.
Based on this analysis and an implied purchase premium of 30%, Salomon Smith
Barney derived a reference range of implied value per share of Executive Risk
common stock of $56.57 to $73.54.
Discounted Cash Flow Analysis. Salomon Smith Barney also
performed a dividend discount analysis pursuant to which the value of Executive
Risk common stock was estimated by adding (1) the estimated present value of
Executive Risk's future stream of dividend payments to Executive Risk's
stockholders for the years 1999 through 2003, plus (2) the estimated present
value of the terminal value per share of Executive Risk common stock at the end
of the year 2003, based upon operating earnings per share estimates provided by
Executive Risk management and assuming a constant dividend payout $0.08 per
share. For purposes of this analysis, Salomon Smith Barney utilized discount
rates ranging from 9.0% to 14.0%, and terminal values based on multiples
ranging from 9.0x to 13.0x projected year 2004 operating earnings and from 1.4x
to 1.8x projected book value at the end of the year 2003. From this analysis,
Salomon Smith Barney derived a reference range of implied value per share of
Executive Risk common stock of $53.96 to $74.84.
Premiums Paid Analysis. Salomon Smith Barney also analyzed
publicly available information relating to the premiums paid in fourteen
selected merger and acquisition transactions in the property and casualty
insurance industry since 1997 involving a public target company, including many
of the precedent transactions described above. The transactions reviewed for
this analysis were:
o Gryphon Holdings Inc./Markel Corporation;
o General Re Corporation/Berkshire Hathaway Inc.;
o Mid Ocean Limited/Exel Capital Limited;
o Omni Insurance Group, Inc./The Hartford Financial Services
Group, Inc.;
o Guaranty National Corporation/Orion Capital Corporation;
o Unionamerica Holdings plc/MMI Companies, Inc.;
o Integon Corporation/General Motors Acceptance Corporation;
o Sphere Drake Holdings Limited/Fairfax Financial Holdings
Limited;
o American States Financial Corporation/SAFECO Corporation;
o GCR Holdings Limited/Exel Capital Limited;
o Crop Growers Corporation/Fireman's Fund Insurance Company;
o Societe Anonyme Francaise de Reassurance/PartnerRe Ltd.;
o AVEMCO Corporation/HCC Insurance Holdings, Inc.; and
o Zurich Reinsurance Centre Holdings, Inc./Zurich Insurance
Company.
For each of these transactions, Salomon Smith Barney derived the
premium to closing price of the acquired stock one day prior to announcement of
the transaction and the premium to average closing price of the acquired stock
for the 30-trading day period prior to announcement of the transaction. The
following table compares the ranges indicated for these transactions of the
premium to the closing price of the acquired stock for the day prior to
announcement and for the average closing price of the acquired stock for the
30-trading day period prior to announcement of the transaction.
<TABLE>
<CAPTION>
Range in
Recent Transactions Mean Median
------------------- ---- ------
<S> <C> <C> <C>
Premium to Day Prior Price........................ 10.8% -- 80.1% 31.7% 21.9%
Premium to 30 Days Prior Average Price............ 17.3% -- 128.8% 44.7% 28.6%
</TABLE>
Based on this analysis, Salomon Smith Barney derived a reference
range for the implied per share value of Executive Risk common stock of $53.74
to $62.80.
The foregoing is a summary of the material financial analyses
furnished by Salomon Smith Barney to the Executive Risk board of directors but
it does not purport to be a complete description of the analyses performed by
Salomon Smith Barney or of its presentations to the Executive Risk board of
directors. The preparation of financial analyses and fairness opinions is a
complex process involving subjective judgments and is not necessarily
susceptible to partial analysis or summary description. Salomon Smith Barney
made no attempt to assign specific weights to particular analyses or factors
considered, but rather made qualitative judgments as to the significance and
relevance of the analyses and factors considered. Accordingly, Salomon Smith
Barney believes that its analyses, and the summary set forth above, must be
considered as a whole, and that selecting portions of the analyses and of the
factors considered by Salomon Smith Barney, without considering all of the
analyses and factors, could create a misleading or incomplete view of the
processes underlying the analyses conducted by Salomon Smith Barney and its
opinion. With regard to the comparable public company analysis summarized
above, Salomon Smith Barney selected comparable public companies on the basis
of various factors, including the size of the public company and similarity of
the line of business; however, no public company utilized as a comparison in
this analysis, and no transaction utilized as a comparison in the comparable
transaction analyses summarized above, is identical to Executive Risk or Chubb,
any business segment of Executive Risk or Chubb or the merger. As a result,
these analyses are not purely mathematical, but also take into account
differences in financial and operating characteristics of the comparable
companies and other factors that could affect the transaction or public trading
value of the comparable companies and transactions to which Executive Risk and
Chubb, the business segments of Executive Risk and Chubb and the merger are
being compared. In its analyses, Salomon Smith Barney made numerous assumptions
with respect to Executive Risk, Chubb, industry performance, general business,
economic, market and financial conditions and other matters, many of which are
beyond the control of Executive Risk and Chubb. Any estimates contained in
Salomon Smith Barney's analyses are not necessarily indicative of actual values
or predictive of future results or values, which may be significantly more or
less favorable than those suggested by these analyses. Estimates of values of
companies do not purport to be appraisals or necessarily to reflect the prices
at which companies may actually be sold. Because these estimates are inherently
subject to uncertainty, none of Executive Risk, Chubb, the Executive Risk board
of directors, Salomon Smith Barney or any other person assumes responsibility
if future results or actual values differ materially from the estimates.
Salomon Smith Barney's analyses were prepared solely as part of Salomon Smith
Barney's analysis of the fairness of the exchange ratio and were provided to
the Executive Risk board of directors in that connection. The opinion of
Salomon Smith Barney was one of the factors taken into consideration by the
Executive Risk board of directors in making its determination to approve the
merger agreement and the merger.
Salomon Smith Barney is an internationally recognized investment
banking firm engaged, among other things, in the valuation of businesses and
their securities in connection with mergers and acquisitions, restructurings,
leveraged buyouts, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. Salomon Smith Barney and
its predecessors and affiliates had previously rendered investment banking and
financial advisory services to Executive Risk and Chubb, for which they
received customary compensation. In addition, in the ordinary course of its
business, Salomon Smith Barney and its affiliates, including Citigroup Inc.,
may actively trade the debt and equity securities of both Executive Risk and
Chubb for its own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in these securities.
Pursuant to Salomon Smith Barney's engagement letter, Executive
Risk has incurred a fee of $750,000 payable to Salomon Smith Barney relating to
the delivery of Salomon Smith Barney's fairness opinion. Executive Risk has
also agreed to reimburse Salomon Smith Barney for its reasonable travel and
other out-of-pocket expenses incurred in connection with its engagement,
including the reasonable fees and disbursements of its counsel, and to
indemnify Salomon Smith Barney against liabilities and expenses relating to or
arising out of its engagement, including liabilities under the federal
securities laws.
As noted under the caption "The Merger--Merger Factors Considered
by Executive Risk; Recommendation of the Executive Risk Board", the fairness
opinion of Salomon Smith Barney was only one of several factors considered by
the Executive Risk board of directors in determining to approve the merger
agreement and the merger.
INTERESTS OF THE EXECUTIVE OFFICERS AND DIRECTORS OF
EXECUTIVE RISK IN THE MERGER
In considering the recommendation of Executive Risk's board of
directors with respect to the merger proposal, Executive Risk stockholders
should be aware that the directors and executive officers of Executive Risk may
be deemed to have interests in the merger that are in addition to their
interests as Executive Risk stockholders generally. Executive Risk's board of
directors was aware of these interests and considered them, among other
matters, in approving the merger.
General
Chubb plans to establish a new operation, Chubb-Executive Risk,
which will manage the combined company's executive protection business
following completion of the merger. Mr. Sills, President and Chief Executive
Officer of Executive Risk, will be Chairman and Chief Executive Officer of this
new operation.
Equity-Based Awards. Executive Risk's employee and director
stock options will become exercisable for Chubb common shares at the closing
of the merger as described in "Principal Provisions of the Merger Agreement--
Covenants--Executive Risk Stock Options". In connection with the approval of
the merger agreement, the Executive Risk board of directors amended the terms
of Executive Risk's stock options so that they will become vested and
exercisable upon the closing of the merger.
Based upon the Executive Risk stock options outstanding as of
May 14, 1999, the vesting of stock options relating to 619,303 Executive Risk
shares, valued at $23,363,374, based upon the per share closing price on May
14, 1999 less the respective exercise prices of those shares, held by the
executive officers and directors of Executive Risk, would be accelerated upon
the closing of the merger.
At the time the Executive Risk board of directors approved the
merger agreement, it amended the Executive Risk Non-Employee Directors Stock
Option Plan to provide that when the directors resign from the Executive Risk
board upon the closing of the merger, all options granted under the plan would
remain exercisable for the respective terms of these options, which is up to
ten years from the date of grant of each option.
Executive Risk's Performance Share Plan provides for the
issuance of Performance Share Units, which entitle the recipient to a
distribution of shares of Executive Risk common stock or cash, as determined by
the Executive Risk Committee on Directors and Compensation, based upon
Executive Risk's achievement of corporate performance objectives specified in
the Performance Share Plan. Under the plan, the level of achievement with
respect to one of these performance objectives was required to be measured on
the basis of Executive Risk's audited financial statements and the publicly
announced financial results of peer group companies. At the time it approved
the merger, the board amended the plan to allow the Committee to measure
performance with respect to this objective for the three year performance
period ended December 31, 1998 on the basis of Executive Risk's unaudited 1998
financial statements and estimates of peer group company results, rather than
waiting until audited financial statements and reported peer group results were
available. The Committee then made this measurement and distributions of cash
and shares were made to all participants. Under the terms of the Performance
Share Plan, all outstanding Performance Share Units for the three year
performance period ending December 31, 1999 will be accelerated and will become
fully vested upon the closing of the merger.
Based upon the Performance Share Units outstanding as of May 14,
1999, the vesting of 27,000 Performance Share Units, valued at $2,419,875,
based upon the per share closing price on May 14, 1999, held by the executive
officers of Executive Risk, would be accelerated upon the closing of the
merger.
Pursuant to the merger agreement, Chubb recommended to its
Organization and Compensation Committee to grant options at the closing of the
merger to employees of Executive Risk to purchase up to 228,800 shares of Chubb
common stock based in part on the recommendations of Executive Risk. At its
regularly scheduled meeting in March 1999, the Committee authorized the grant
of these options but no determination has been made as to the recipients of
these options. Executive Risk does not intend that any of these options be
granted to any of its directors or its most senior officers.
Continuation of Benefits. The merger agreement provides that
from the closing of the merger until December 31, 1999, Executive Risk will
continue to maintain each of its employee benefit plans in accordance with
their existing terms, except for any stock option or other equity-related
plans, which will be adjusted to be exercisable for Chubb common shares. During
the period of January 1, 2000 through December 31, 2000, Executive Risk will
maintain benefit plans which are in the aggregate at least as favorable to
employees as the benefit plans presently in effect, excluding for these
purposes any stock option or other equity-related plans.
Retirement Agreement. On May 7, 1999, Executive Risk entered
into an agreement with its Chairman, Robert H. Kullas, which provides that Mr.
Kullas will resign as an officer and director of Executive Risk and its
subsidiaries as of the day after the closing date of the merger. Under this
agreement, Mr. Kullas will be entitled to continuation of his base salary from
the time of his resignation through December 31, 1999, subject to a minimum
aggregate amount of $122,000 for this period. Mr. Kullas will not, however, be
eligible to participate in the Executive Risk Severance Pay Plan. The agreement
provides that Mr. Kullas' resignation shall be treated as a retirement for
purposes of Executive Risk's stock based and incentive compensation plans, the
principal effects of which are that Mr. Kullas will have three years, rather
than three months, following resignation in which to exercise his stock options
and Mr. Kullas will be entitled to receive incentive compensation with respect
to Executive Risk's performance during 1999 and prior years in the event that
other participants in the Executive Risk Incentive Compensation Plan receive
incentive compensation for such periods. The agreement also contains a
restriction on Mr. Kullas' ability to compete with Executive Risk, Chubb and
their affiliates through December 31, 2000 and other customary provisions.
Other Agreement. On May 7, 1999, Executive Risk entered into an
agreement with Robert V. Deutsch, its Executive Vice President, Treasurer,
Chief Financial Officer and Chief Actuary, which provides that in the event Mr.
Deutsch's employment with Executive Risk should terminate following the merger,
other than as a result of his death or disability, Mr. Deutsch's termination
would be treated as a retirement for purposes of Executive Risk's stock based
and incentive compensation plans. The principal effect of this agreement is
that Mr. Deutsch would have three years, rather than three months, following
termination of employment in which to exercise his stock options or a longer
period, if Chubb grants a longer period to other employees of Executive Risk
after termination of employment. In addition, under the agreement, Mr. Deutsch
would be entitled to receive incentive compensation with respect to Executive
Risk's performance during 1999 and prior years in the event that other
participants in the Executive Risk Incentive Compensation Plan receive
incentive compensation for such periods.
Severance. Consistent with the terms of the merger agreement, on
May 7, 1999, Executive Risk adopted its Severance Pay Plan. This plan provides
that, with the exception described below, employees of Executive Risk and its
subsidiaries who are involuntarily terminated from employment with Executive
Risk and its subsidiaries within one year after the closing of the merger shall
receive a severance payment equal to (1) two months' base salary plus (2) two
weeks' base salary for each full year of employment. The Severance Pay Plan
also provides that those persons becoming entitled to a severance payment under
its terms shall simultaneously become fully vested in employer contributions
made under the Executive Risk Retirement Plan and Benefit Equalization Plan.
Employees of Executive Risk and its subsidiaries who are eligible to receive
severance or termination benefits under an employment agreement or other
severance agreement or "stay bonus" arrangement with Executive Risk are not
eligible to participate in the Severance Pay Plan.
The merger agreement provides that Executive Risk may make tax
gross-up payments up to a total of $2 million to indemnify employees against
any excise tax that may be imposed as a result of the merger.
Indemnification and Insurance. Under the merger agreement, Chubb
has agreed that the indemnification obligations set forth in Executive Risk's
charter and by-laws shall survive the merger and shall not be adversely amended
for six years after the Effective Time. Chubb will indemnify present or former
directors or officers of Executive Risk or its subsidiaries for all acts or
omissions occurring prior to the effective time of the merger, including the
transactions contemplated by the merger agreement and the stock option
agreement to the fullest extent permitted under applicable law. Chubb will
provide, for a period of six years after the effective time, a single payment,
run-off policy of directors' and officers' liability insurance on terms and
conditions as favorable as may be available, but no more favorable than the
policy in effect as of the date of the merger agreement, for a premium not to
exceed $250,000 in the aggregate. This policy will be chosen and purchased by
Executive Risk prior to the closing of the merger and become effective at
closing.
See "Principal Provisions of The Merger Agreement--Covenants--
Benefits Continuation" for a description of the benefits provided by the merger
agreement for employees of Executive Risk generally.
PRINCIPAL PROVISIONS OF THE MERGER AGREEMENT
General
The merger agreement contemplates the merger of Excalibur
Acquisition, Inc., a subsidiary of Chubb, with and into Executive Risk, with
Executive Risk surviving the merger as a wholly-owned subsidiary of Chubb. The
merger will become effective at the effective time in accordance with the
certificate of merger to be filed with the Secretary of State of the State of
Delaware. It is anticipated that this filing will be made as soon as
practicable after the last of the conditions precedent to the merger, as set
forth in the merger agreement, has been satisfied or waived. The merger
agreement obligates Chubb to have the Chubb common shares to be issued in
connection with the merger approved for listing on the New York Stock Exchange,
subject to official notice of issuance, prior to the effective time of the
merger. The following is a description of all material terms of the merger
agreement but it does not purport to be complete. Stockholders are encouraged
to read the merger agreement in its entirety. A copy of the merger agreement is
attached as Annex A to this proxy statement/prospectus.
Consideration to be Received in the Merger
At the effective time of the merger,
1. each issued and outstanding share of Executive Risk common
stock, together with the purchase rights attached to the
common stock, other than shares to be canceled pursuant to
clause 2 immediately below, will be converted into the right
to receive 1.235 Chubb common shares, and
2. each share of Executive Risk common stock, together with the
purchase rights attached to the common stock, held by
Executive Risk as treasury shares or owned by Chubb or any
Chubb subsidiaries will be canceled and retired.
The exchange ratio is subject to adjustment upon those changes
in the capital stock of Chubb specified in the merger agreement, such as stock
splits. Cash will be paid instead of any fractional Chubb common shares that
would otherwise be issuable.
The type and amount of consideration payable in the merger were
determined through negotiations between Executive Risk and Chubb and were
approved by the Executive Risk board. Although DLJ and Salomon Smith Barney
provided advice to Executive Risk during the course of these negotiations, the
decision to enter into the merger agreement was solely that of the Executive
Risk board.
Exchange of Shares
Subject to the terms and conditions of the merger agreement,
Chubb will deposit with First Chicago Trust Company of New York, acting as the
exchange agent, certificates representing the Chubb common shares issuable in
exchange for the outstanding shares of Executive Risk common stock and will
from time to time deposit cash in an amount required to be paid for fractional
Chubb common shares and dividends and other distributions on the Chubb common
shares. As promptly as practicable after the effective time of the merger,
Chubb will send, or will cause First Chicago Trust Company to send, to each
holder of record of shares of Executive Risk common stock a letter of
transmittal and instructions. Thereafter, holders of shares of Executive Risk
common stock may surrender their certificates to First Chicago Trust Company,
together with a duly executed letter of transmittal. In exchange for their
share certificates, holders will receive Chubb common share certificates
representing the number of shares as described under "--Consideration to be
Received in the Merger". Holders of unexchanged shares of Executive Risk common
stock will not be entitled to receive any dividends or other distributions
payable by Chubb until all of their certificates are surrendered. Upon
surrender, however, subject to applicable laws, the holders will receive
accumulated dividends and distributions, without interest, together with cash
in lieu of fractional shares.
Representations and Warranties
The merger agreement contains customary reciprocal
representations and warranties of Chubb and Executive Risk as to, among other
things,
o due organization and good standing o corporate authority to enter into the
contemplated transactions o governmental authorization o absence of conflicts
with organizational documents and material agreements o capitalization o recent
reports filed with the SEC o financial statements o undisclosed liabilities o
litigation o any changes or events o tax treatment of the transaction o
compliance with laws o licenses and permits o liabilities and reserves o Year
2000 compliance o tax treatment of the transaction and o finders' fees.
In addition, Executive Risk has made representations regarding,
among other matters, o ownership of subsidiaries, o title to properties, tax
matters, o inapplicability of state takeover statutes and rights agreement to
the transaction, o intellectual property, o environmental matters, o employee
benefits matters, o insurance matters and o compliance with insurance laws.
Many of these representations and warranties are qualified by
the concept of "material adverse effect", that is to say, these representations
and warranties are not intended to apply to facts or circumstances which would
not have a material adverse effect on the financial condition, business or
results of operations of the representing party and its subsidiaries, taken as
a whole, other than effects caused by:
o changes in general economic or securities markets conditions;
o changes that affect the insurance industry in general; or
o the public announcement of the transactions contemplated by the
merger agreement.
None of the representations and warranties contained in the
merger agreement will survive the effective time of the merger.
Covenants
Conduct of Business Pending the Merger. Pursuant to the merger
agreement, Executive Risk has agreed that from February 6, 1999, the date of
the merger agreement, until the effective time of the merger, except as set
forth in the merger agreement, or with the prior consent of Chubb, which
consent may not be unreasonably withheld or delayed, Executive Risk and each
Executive Risk subsidiary will conduct its business in all material respects in
the ordinary course consistent with past practice and will use commercially
reasonable efforts to preserve intact their present business organizations,
maintain in effect all material foreign, federal, state and local licenses,
approvals and authorizations, and preserve existing business relationships with
material customers, lenders, suppliers and others.
Specifically, from the date of the merger agreement until the
effective time of the merger, Executive Risk may not, nor may it permit any
Executive Risk subsidiary to:
o amend the Executive Risk certificate of incorporation or the
Executive Risk by-laws;
o make any changes in respect of its capital stock or regular
cash dividends;
o incur any capital expenditures, except for expenditures up to
$5 million, individually or $10 million in the aggregate, and
those incurred in the ordinary course of business;
o except for acquisitions in the ordinary course of the
investment activities of Executive Risk and its subsidiaries
consistent with past practice, acquire any assets, including
any equity interests, having a fair market value in excess of
$10 million, or all or substantially all of the equity
interests of any third party or any business or division of any
third party having a fair market value in excess of $5 million;
o sell, lease, encumber or otherwise dispose of any assets except
for sales in the ordinary course of business;
o incur any new indebtedness;
o enter into any agreement or arrangement that would, after the
effective time of the merger, limit or otherwise restrict
Chubb, any Chubb subsidiary or any of their respective
affiliates other than Executive Risk and its subsidiaries, from
engaging or competing in any line of business or in any
location, or amend, modify or terminate any material contract;
o make any material changes to any of its current employee
benefit arrangements other than those permitted under the
merger agreement;
o change Executive Risk's methods of accounting in effect at
September 30, 1998, except as required by changes in U.S.
Generally Accepted Accounting Principles or by Regulation S-X
of the Securities Exchange Act of 1934, as concurred in by its
independent accountants or change Executive Risk's fiscal year;
o settle any claim, disability or obligation for an amount in
excess of $500,000, other than insurance and reinsurance claims
arising in the ordinary course of business; and
o enter into or renew reinsurance arrangements with terms beyond,
in general, one year unless the arrangement is terminable after
one year.
Executive Risk has also agreed to use its commercially
reasonable efforts to complete its plan which addresses its Year 2000 problems
on a timely basis.
In addition, Executive Risk has agreed, and will cause its
subsidiaries, to provide reasonable advance notice to Chubb of its intention
to enter into any agreement or arrangement that would limit or restrict
Executive Risk, any Executive Risk subsidiary or any of their respective
affiliates from engaging or competing in any line of business or in any
location and will consult with Chubb and in good faith consider any proposals,
including as to the advisability of entering into any of these kinds of
contracts, or requests for changes as Chubb may reasonably suggest.
Chubb has agreed that from the date of the merger agreement
until the effective time of the merger, except as set forth in the merger
agreement, without the prior consent of Executive Risk, which consent may not
be unreasonably withheld or delayed, Chubb will, and will cause each of the
Chubb subsidiaries to, conduct its business in all material respects in the
ordinary course of business consistent with past practice and will use
commercially reasonable efforts to:
o preserve intact its present business organization,
o maintain in effect all material foreign, federal, state and
local licenses, approvals and authorizations, including all
material licenses and permits that are required for Chubb or
any Chubb subsidiary to carry on its business, and
o preserve existing relationships with its material customers,
lenders, suppliers and others having material business
relationships with it.
Specifically, from the date of the merger agreement until the
effective time of the merger, Chubb may not:
o make any amendment to the Chubb's charter that changes any
material term or provision of the Chubb common shares;
o make any material changes to the charter of its merger
subsidiary;
o take any action that would or would be reasonably likely to
prevent or materially impair the ability of Chubb to consummate
the transactions contemplated by the merger agreement or the
stock option agreement; and
o authorize or pay any extraordinary dividend on, or other
extraordinary distribution with respect to, Chubb's capital
stock or engage in any recapitalization, restructuring or
reorganization with respect to Chubb's capital stock which
materially and adversely affects the rights of the holders of
Chubb common shares.
No Solicitation of Transactions. Pursuant to the merger
agreement:
(a) Executive Risk has agreed that it will not, nor will it
permit any Executive Risk subsidiary to, nor will it authorize or knowingly
permit any officer, director, employee, investment banker, attorney,
accountant, agent or other advisor or representative of Executive Risk or any
Executive Risk subsidiary, directly or indirectly, to:
1. take any action to solicit, initiate or facilitate or
encourage the submission of any acquisition proposal, as
defined below,
2. engage in any negotiations regarding, or furnish to any
person any non-public information with respect to, or take
any other action knowingly to facilitate any inquiries or
the making of any proposal that constitutes, or may be
reasonably expected to lead to, any acquisition proposal,
3. grant any waiver or release under any standstill or similar
agreement with respect to any class of Executive Risk's
equity securities or
4. enter into any agreement with respect to any acquisition
proposal, other than in the manner contemplated by clause
(d) below.
However, Executive Risk may take any actions described in the
foregoing clauses 1, 2, 3, or 4 in respect of any person who makes a bona fide
acquisition proposal, but only if:
o Executive Risk's board of directors determines in good faith,
after receipt of advice of its outside legal counsel, that it
is required to take these actions in order to comply with its
fiduciary duties under applicable law and
o prior to furnishing any non-public information to third
parties, these persons shall have entered into a
confidentiality agreement with Executive Risk on terms no less
favorable to Executive Risk than the Confidentiality Agreement
between Executive Risk and Chubb dated as of January 5, 1999.
Executive Risk agreed to cease and cause to be terminated
immediately all existing discussions or negotiations, if any, with any persons
conducted prior to the date of the merger agreement with respect to, or that
could be reasonably expected to lead to, any acquisition proposal.
For the purposes of the merger agreement, acquisition proposal
means any offer or proposal for, or indication of interest in, a merger,
consolidation, share exchange, business combination, reorganization,
recapitalization, liquidation, dissolution or other similar transaction
involving, or any purchase of 30% or more of:
o any class of equity securities of Executive Risk or its
subsidiary Executive Risk Indemnity Inc. or
o the consolidated assets of Executive Risk and its subsidiaries
or Executive Risk Indemnity Inc., other than the transactions
contemplated by the merger agreement and the stock option
agreement.
(b) Unless Executive Risk's board of directors has previously
withdrawn, or is concurrently therewith withdrawing, its recommendation of the
merger in accordance with clause (d) below, neither Executive Risk's board of
directors nor any committee of the board of directors may recommend any
acquisition proposal to Executive Risk stockholders. Notwithstanding the
foregoing, nothing contained in the merger agreement will prevent Executive
Risk's board of directors from complying with Rule 14e-2 under the Securities
Exchange Act of 1934 with respect to any acquisition proposal or making any
disclosure required by applicable law.
(c) Executive Risk will notify Chubb promptly but in no event
later than 24 hours after receipt by Executive Risk or any Executive Risk
subsidiary, or any of their respective directors, officers, agents or
advisors, of any acquisition proposal. Similarly, Executive Risk will notify
Chubb of any negotiations, discussions or contacts concerning, or any request
for nonpublic information or for access to the properties, books or records of
Executive Risk or any Executive Risk subsidiary or any request for a waiver or
release under any standstill or similar agreement, by anyone that has made an
acquisition proposal or indicates that it is considering making an acquisition
proposal. This notice to Chubb will state the identity of the offeror and the
material terms and conditions of the proposal. Executive Risk will keep Chubb
reasonably apprised of any material developments with respect to any
acquisition proposals.
(d) Pursuant to the terms of the merger agreement, Executive
Risk may terminate the merger agreement if
o Executive Risk's board of directors shall have authorized
Executive Risk, subject to the terms and conditions of the
merger agreement, to enter into a binding agreement concerning
a transaction that constitutes a superior proposal, as defined
below,
o Executive Risk notifies Chubb that it intends to enter into the
agreement, specifying the material terms and conditions of the
agreement, and
o Executive Risk pays Chubb a termination fee of $30 million plus
expenses not to exceed $4 million.
In connection with the foregoing, Executive Risk agrees that it
will not terminate the merger agreement if, within three business days of
receiving notice that Executive Risk wishes to enter into an agreement for a
superior proposal, Chubb makes an offer such that the board of directors of
Executive Risk determines that the superior proposal is no longer a superior
proposal. Executive Risk is not permitted to enter into such binding agreement
during the three business day period.
For the purposes of the merger agreement, superior proposal
means a bona fide, written acquisition proposal for all of the outstanding
shares of Executive Risk common stock that is on terms that a majority of
Executive Risk's board of directors determines in good faith, after
consultation with an investment bank of nationally recognized reputation and
Executive Risk's outside counsel, would result in a transaction, if
consummated, that is more favorable to Executive Risk stockholders, from a
financial point of view, than the transactions contemplated by the merger
agreement.
The determination of whether an acquisition proposal
constitutes a superior proposal should take into account, among other things,
all legal, financial, regulatory and other aspects of the proposal including
any break-up fees, expense reimbursement provisions, conditions to
consummation and the identity of the offeror and be made after giving effect
to any revised proposal made by or on behalf of Chubb prior to the end of the
three-business-day-period referred to in clause (d) above.
Retention Program. Executive Risk will, and will cause each of
its subsidiaries to, cooperate in good faith with Chubb to assist in the
implementation of an employee retention benefit program designed by Chubb, in
Chubb's sole discretion. However, all benefits and payments under any
retention benefit program will be contingent upon the closing of the merger.
The corporation surviving the merger will be solely liable for all obligations
and liabilities under any retention benefit program.
Indemnification and Insurance. The agreement of the parties on
these matters is discussed above under the heading "Interests of the Executive
Officers and Directors of Executive Risk in the Merger--Indemnification and
Insurance".
Executive Risk Stock Options. The merger agreement provides
that at the effective time of the merger, each Executive Risk option
outstanding immediately prior to the effective time of the merger, regardless
of the extent vested and exercisable, will be deemed to constitute an option
to acquire, on the same terms and conditions as were applicable under the
Executive Risk stock option, the same number of Chubb common shares as the
holder of the Executive Risk option would have been entitled to receive
pursuant to the merger agreement had the holder exercised the Executive Risk
option in full immediately prior to the effective time of the merger, rounded
up to the nearest whole number. The price per share, rounded down to the
nearest whole cent, will equal:
o the aggregate exercise price for the shares of Executive Risk
common stock otherwise purchasable pursuant to the Executive
Risk option
divided by
o the number of full Chubb common shares deemed purchasable
pursuant to the Executive Risk option in accordance with the
foregoing.
Chubb has agreed, at or prior to the effective time of the
merger, to take all corporate action necessary to reserve for issuance a
sufficient number of Chubb common shares for delivery upon exercise of these
substitute options. At or prior to the effective time of the merger, Chubb
will file a registration statement, with respect to the Chubb common shares
subject to the Chubb options, and will use its reasonable best efforts to
maintain the effectiveness of the registration statement or statements,
maintain the current status of the prospectus or prospectuses contained in the
applicable registration statement and comply with all applicable state
securities or blue sky laws for so long as the Chubb options remain
outstanding.
Benefits Continuation. Following the effective time of the
merger and until December 31, 1999, Chubb will or will cause the surviving
corporation to continue to maintain each Executive Risk employee plan in
existence on the date of the merger agreement, other than any stock option or
other equity-related plans maintained by Executive Risk, in accordance with
their existing terms. During the period of January 1, 2000 through December
31, 2000, Chubb will or will cause the surviving corporation to maintain
benefit plans which are in the aggregate at least as favorable to the
employees of Executive Risk and its subsidiaries as the benefit plans in
effect as of the date of the merger agreement, excluding any stock option or
other equity-related plans maintained by Executive Risk.
Chubb has also agreed to
o waive all limitations as to preexisting conditions and waiting
periods with respect to participation and coverage requirements
applicable to the employees of Executive Risk under any welfare
plan in which those employees may be eligible to participate
after the effective date of the merger, except to the extent
that conditions or waiting periods would apply under the then
existing plans of Executive Risk and Executive Risk
subsidiaries absent any change in the welfare plan coverage,
and
o provide each employee with credit for all service with
Executive Risk and Executive Risk subsidiaries for purposes of
participation eligibility and vesting under each employee
benefit plan covering these employees after the effective time
of the merger. However, credit for service will not be given
for purposes of benefit calculation, early retirement factors
or benefit accruals, other than benefits previously accrued
under an Executive Risk employee plan.
In addition, at the regular meeting of the Organization and
Compensation Committee of the board of directors of Chubb held in March of
1999, the committee, at Chubb's recommendation, authorized the grant to
employees of Executive Risk and its subsidiaries, as of the effective time of
the merger, of options to acquire not more than 228,800 shares of Chubb common
stock under Chubb's Long-Term Stock Incentive Plan. This grant will be based
in part on the recommendations by Executive Risk and in accordance with the
terms described on a schedule to the merger agreement.
Other Covenants. The merger agreement contains other covenants
relating to preparation and distribution of this document, calling of the
special meeting, access to information, mutual notification of specified
events, public announcements and cooperation regarding filings with
governmental and other agencies and organizations. In addition, the merger
agreement contains a general covenant requiring the parties to use their
reasonable best efforts to effect the consummation of the merger.
Conditions to the Consummation of the Merger
Conditions to Each Party's Obligations to Effect the Merger.
Each party's obligation to complete the merger is subject to the satisfaction
of the several conditions including:
(a) Stockholder Approval. Receipt of the approval by Executive
Risk's stockholders of the merger agreement and the transactions contemplated
by the merger agreement.
(b) Listing or Quotation of Stock. Approval for listing on the
New York Stock Exchange, subject to official notice of issuance, of the Chubb
common shares to be issued in the merger.
(c) No Governmental Restraints. The absence of any order,
injunction or decree, or any other governmental action, that permanently
restrains, enjoins or otherwise prohibits the consummation of the merger.
Additional Conditions to Obligations of Chubb. The obligation
of Chubb and MergerSub to complete the merger is subject to the satisfaction
of each of the following additional conditions:
(a) Performance of Obligations; Representations and Warranties.
The performance in all material respects by Executive Risk of all of its
obligations under the merger agreement required to be performed by it at or
prior to the effective time of the merger. The representations and warranties
of Executive Risk set forth in the merger agreement that are qualified as to
material adverse effect being true and correct when made and at and as of the
time of the filing of the certificate of merger, as if made at and as of that
time, except that, if any representation or warranty speaks as of an earlier
date, it shall be true and correct as of that date, except for inaccuracies as
are not reasonably likely, individually or in the aggregate, to have a
material adverse effect in respect of Executive Risk.
(b) Tax Opinion. Chubb having received a written opinion from
Davis Polk & Wardwell, its counsel, to the effect that the merger will be
treated for federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the tax code.
Additional Conditions to Obligations of Executive Risk. The
obligation of Executive Risk to complete the merger is subject to the
satisfaction of each of the following additional conditions:
(a) Performance of Obligations; Representations and Warranties.
Chubb and its merger subsidiary each will have performed in all material
respects all of its obligations under the merger agreement required to be
performed by it at or prior to the merger. The representations and warranties
of Chubb contained in the merger agreement will be true and correct when made
and at and as of the time of filing the certificate of merger, as if made at
and as of that time, other than inaccuracies which have not had and are not
likely to have a material adverse effect on Chubb.
(b) Tax Opinion. Executive Risk having received a written
opinion from Dewey Ballantine LLP, its counsel, to the effect that the merger
will be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the tax code.
Termination
The merger agreement may be terminated at any time prior to the
effective time of the merger, whether before or after approval of the merger
by the Executive Risk stockholders:
(a) by mutual written consent of Chubb and Executive Risk;
(b) by either Chubb or Executive Risk, if the merger has not been
contemplated by December 31, 1999. However, this right to terminate the
merger agreement will not be available to a party whose breach of any
obligation under the merger agreement has been the cause of the failure of the
merger to occur on or before December 31, 1999;
(c) by either Chubb or Executive Risk, if there is any law or
regulation that makes completion of the merger illegal or otherwise
prohibited, or if a court or other governmental entity having competent
jurisdiction has issued a nonappealable final order or taken any other
nonappealable final action enjoining Executive Risk, Chubb or its merger
subsidiary from completing the merger;
(d) by either Chubb or Executive Risk if the Executive Risk
stockholders have not approved the merger agreement as required;
(e) by Executive Risk, if Chubb or its merger subsidiary has
breached or failed to perform any representation, warranty, covenant or
agreement which would cause the conditions set forth in "--Conditions to the
Consummation of the Merger-- Additional Conditions to Obligations of Executive
Risk" not to be satisfied, and these conditions are incapable of being satisfied
by December 31, 1999;
(f) by Executive Risk, if its board of directors has determined,
in accordance with the requirements described under "--Covenants--No
Solicitation of Transactions", to approve or recommend a superior proposal;
(g) by Chubb, if a breach of or failure to perform any
representation, warranty, covenant or agreement on the part of Executive Risk
set forth in the merger agreement has occurred which would cause the
conditions set forth under "--Conditions to the Consummation of the Merger--
Additional Conditions to Obligations of Chubb" not to be satisfied, and these
conditions are incapable of being satisfied by December 31, 1999;
(h) by Chubb, if Executive Risk's board of directors has
1. withdrawn or modified its recommendation of the merger
and/or
2. recommended any acquisition proposal to the Executive Risk
stockholders;
(i) by Chubb, if Executive Risk, any Executive Risk subsidiary or
any of their respective officers, directors, employees, advisors or other
agents has willfully and materially breached the covenant to call for a
shareholders special meeting or the covenant described under "--Covenants--No
Solicitation of Transactions".
Termination Fees Payable by Executive Risk
If the merger agreement is terminated pursuant to paragraphs
(f) or (h) under "--Termination" above, Executive Risk will pay to Chubb a
termination fee of $30 million in cash within one business day after the
termination plus out-of-pocket expenses not to exceed $4 million.
If the merger agreement is terminated pursuant to paragraph (d)
under "--Termination" above, Executive Risk will pay Chubb out-of-pocket
expenses not to exceed $4 million and, if at the time of termination an
acquisition proposal shall have been made and be pending and within 12 months
after the termination, a third party acquisition event, as defined below,
occurs, Executive Risk will pay to Chubb a $30 million termination fee within
one business day of the earlier to occur of the date on which it enters into
any agreement constituting, or consummates, the third party acquisition event.
If the merger agreement is terminated pursuant to paragraph (i)
under "--Termination" above, Executive Risk shall pay to Chubb out-of-pocket
expenses not to exceed $5 million and if within 12 months after the
termination a third party acquisition event occurs, then Executive Risk shall
pay to Chubb a $40 million termination fee within one business day of the
earlier to occur of the date on which it enters into any agreement
constituting, or consummates, a third party acquisition event.
For the purposes of the merger agreement, a "third party
acquisition event" means
o the consummation of an acquisition proposal involving the
purchase of a majority of either the equity securities of
Executive Risk or of the consolidated assets of Executive Risk
and the Executive Risk subsidiaries, taken as a whole, or any
similar transaction that, if it had been proposed prior to the
termination of the merger agreement, would have constituted an
acquisition proposal or
o the entering into by Executive Risk or any of the Executive
Risk subsidiaries of a definitive agreement with respect to any
such transaction.
Expenses
All fees and expenses incurred in connection with the merger
agreement and the transactions contemplated by the merger agreement other than
termination fees payable upon termination under "--Termination Fees Payable by
Executive Risk " will be paid by the party incurring these expenses, whether
or not the merger is consummated.
Stock Option Agreement
In connection with the merger agreement, Chubb and Executive
Risk entered into the stock option agreement. The following is a description
of the material terms of the stock option agreement but it does not purport to
be complete. Stockholders are encouraged to read the stock option agreement
in its entirety. A copy of the stock option agreement is attached as Annex B
to this proxy statement/prospectus.
Pursuant to the stock option agreement, Executive Risk has
granted Chubb an irrevocable option to purchase up to that number of shares
which equals 19.9% of the outstanding shares of Executive Risk common stock
immediately prior to the first exercise of the option, at a cash purchase
price equal to $71.70 per share.
The option may be exercised by Chubb, in whole or in part, at
any time, or from time to time, following the occurrence of a trigger event or
an event which obligates Executive Risk to pay a termination fee under the
events specified in "--Termination Fees Payable by Executive Risk" above, and
prior to the termination date of the option which is 45 days after the trigger
event.
In the event of any change in the shares of Executive Risk
common stock by reason of stock dividends, stock splits, split-ups, spin-offs,
recapitalizations, recombinations, extraordinary dividends or the like, the
type and number of option shares, and the option price, as the case may be,
will be adjusted appropriately so as to fully preserve the economic benefits
provided of the option and proper provision will be made in any agreement
governing any such transaction to provide for a similar adjustment and the
full satisfaction of Executive Risk's obligations under the stock option
agreement.
Pursuant to the terms of the stock option agreement, Executive
Risk's obligation to deliver Executive Risk shares upon exercise of the option
is subject to the conditions that:
o no preliminary or permanent injunction or other order issued by
any federal or state court of competent jurisdiction in the
United States prohibiting the delivery of the Executive Risk
shares is in effect;
o any applicable waiting period under the United States federal
antitrust laws has expired or been terminated; and
o any approval required to be obtained prior to the delivery of
the Executive Risk shares under the laws of any jurisdiction
have been obtained and are in full force and effect.
The stock option agreement provides that, if by the first
anniversary of the date the merger agreement was terminated pursuant to the
terms of the agreement, neither Chubb nor any other person has acquired more
than fifty percent of the outstanding shares of Executive Risk common stock,
then Executive Risk has the right to purchase all, but not less than all, of
the Executive Risk shares acquired upon exercise of the option at the greater
of:
o the option purchase price, or
o the average of the closing price per share of Executive Risk
common stock on the NYSE Composite Tape for the five
consecutive trading days ending on and including the trading
date immediately prior to the completion of the repurchase of
shares of Executive Risk common stock.
The stock option agreement also provides that at any time when
the option is exercisable pursuant to the agreement, Chubb will have the right
to sell to Executive Risk the option together with any Executive Risk shares
acquired upon exercise of the option at the higher of:
o the highest price per share at which a tender or exchange offer
has been made for shares of Executive Risk common stock
following the date hereof, or
o the highest closing price per share of Executive Risk common
stock as reported by the NYSE Composite Tape for any day
following the date on which an acquisition proposal has been
made, less in the case of each option share, the option price.
The stock option agreement provides that in no event will
Chubb's total profit, as defined below, exceed the amount of the applicable
termination fee and, if it otherwise would exceed this amount, Chubb will
repay the excess amount to Executive Risk in cash so that Chubb's total profit
will not exceed the amount of the applicable termination fee.
For the purposes of the stock option agreement, total profit is
calculated as the sum, before taxes, of the following:
o the amount of the termination fee received by Chubb pursuant to
the merger agreement,
o the amount received by Chubb in connection with Executive
Risk's repurchase of the option, or any portion of the option,
and/or option share, as applicable, pursuant to the stock
option agreement,
o the net cash amounts received by Chubb pursuant to the sale of
option shares to any unaffiliated party minus Chubb's purchase
price for the option shares, and
o any amounts received by Chubb on the sale of the option, or any
portion of the option, to any unaffiliated party.
The stock option agreement further provides that the option may
not be exercised for a number of Executive Risk shares as would, as of the
date of the exercise, result in a notional total profit, as defined below, of
more than the amount of the applicable termination fee and, if exercise of the
option otherwise would exceed this amount, the exercise price for these shares
will be increased so that the notional total profit will not exceed the amount
of the applicable termination fee.
The notional total profit is calculated as the total profit
determined as of the date of the proposed exercise of the option assuming that
the option were exercised on that date and assuming that each share was sold
for cash at the closing market price on the NYSE Composite Tape for one share
of Executive Risk common stock as of the close of business on the preceding
trading day, less customary brokerage commissions.
Executive Risk granted the option to Chubb in part to increase
the likelihood that Executive Risk would complete the merger. The stock
option agreement could discourage other companies from trying or proposing to
combine with Executive Risk before we complete the merger.
The purchase of more than 10% of the outstanding shares of
Executive Risk by Chubb pursuant to the stock option agreement may require
approvals by various insurance regulatory agencies.
Voting Agreement
General. As an inducement to Chubb entering into the merger
agreement, directors of Executive Risk who own shares of Executive Risk common
stock entered into a voting agreement with Chubb dated as of February 6, 1999.
As of the date of the voting agreement, these directors beneficially owned
approximately 15.1%, including options exercisable, of the outstanding shares
of Executive Risk common stock. The following is a summary of the material
terms of the voting agreement, but it does not purport to be complete.
Stockholders are encouraged to read the voting agreement in its entirety. A
copy of the voting agreement is attached as Annex C to this proxy
statement/prospectus.
Voting and Proxies. Pursuant to the voting agreement, the
directors have agreed, among other things, to vote all shares of Executive
Risk common stock owned or subsequently acquired by them to approve and adopt
the merger agreement and each other action or agreement related to the merger
agreement. The directors have also agreed that they will not vote in favor of
the approval of any acquisition proposal, reorganization or similar
transaction or any transaction that would frustrate or delay the merger. The
directors have revoked any and all previous proxies, and granted an
irrevocable proxy appointing Chubb as their attorney-in-fact and proxy, with
full power to vote their shares. The proxy granted to Chubb by the directors
will be revoked only upon termination of the voting agreement.
Other Provisions. The voting agreement provides that the
directors will not, among other things, without the prior written consent of
Chubb, directly or indirectly,
o grant any proxies or enter into any voting trust or other
agreement or arrangement with respect to the voting of any of
their shares of Executive Risk common stock, or
o sell or transfer, directly or indirectly, any shares of
Executive Risk common stock during the term of the voting
agreement, other than as required to pay income taxes.
In addition, the directors agreed not to authorize or knowingly
permit any investment bankers, attorneys, accountants, consultants and other
agents or advisors of the directors to, directly or indirectly:
o take any action to solicit, initiate or facilitate or encourage
the submission of any acquisition proposal,
o engage in any negotiations regarding, or furnish to any person
any nonpublic information with respect to, or take any other
action knowingly to facilitate any inquiries or the making of
any proposal that constitutes, or may be reasonably expected to
lead to, any acquisition proposal, or
o grant any waiver or release under any standstill or similar
agreement to which any of the directors is a party with respect
to any class of equity securities of Executive Risk.
However, the directors may take any action in their capacity as
directors of Executive Risk that the board of directors would be permitted to
take in accordance with the terms and conditions of the merger agreement.
The directors have also agreed to notify Chubb within one day
of obtaining any knowledge of any acquisition proposal or of any request for
nonpublic information relating to Executive Risk or any of its subsidiaries or
for access to the properties, books or records of Executive Risk or any of its
subsidiaries or any request for a waiver or release under any standstill or
similar agreement by any person who indicates that it is considering making,
or has made, an acquisition proposal. The notice must state the identity of
the offeror and the material terms and conditions of any acquisition proposal,
inquiry, contact or request. The directors will keep Chubb reasonably
apprised of any material development with respect to any acquisition proposal.
The directors will terminate all existing discussions or negotiations, if any,
with any persons conducted up to the date of the voting agreement with respect
to, or that could reasonably be expected to lead to, any acquisition proposal.
The voting agreement terminates upon termination of the merger
agreement.
VOTING SECURITIES AND THEIR HOLDERS
Stockholders should read each of Chubb's and Executive Risk's
1998 Annual Report on Form 10-K to get detailed information regarding, for the
respective companies:
o security ownership of beneficial owners of more than five
percent of any class of the company's voting securities,
o security ownership by management of that company,
o executive compensation, and
o relationships and transactions with related persons.
See "Where You Can Find More Information" below.
THE SPECIAL MEETING
This document is furnished in connection with the solicitation
of proxies from the holders of Executive Risk common stock by Executive Risk's
board of directors for use at the special meeting. This document and
accompanying form of proxy are first being mailed to the Executive Risk
stockholders on or about June 18, 1999.
Time and Place; Purpose
The Executive Risk special meeting will be held at Executive
Risk's offices at the Tower Business Park, 82 Hopmeadow Street, Route 10 &
202, Simsbury, Connecticut on July 19, 1999, starting at 10:00 a.m., local
time. At the special meeting, the Executive Risk stockholders will be asked
to consider and vote upon the merger agreement proposal.
Representatives of Ernst & Young LLP are expected to be present
at the Executive Risk special meeting, where they will have the opportunity to
make a statement, if they so desire, and will be available to respond to
appropriate questions.
Voting Rights; Votes Required for Approval
Executive Risk. Executive Risk's board of directors has fixed
the close of business on June 17, 1999 as the record date for Executive Risk
stockholders entitled to notice of and to vote at the special meeting.
Currently, the only outstanding voting securities of Executive
Risk are the shares of Executive Risk common stock. Only holders of record of
shares of Executive Risk common stock on the Executive Risk record date are
entitled to notice of the Executive Risk special meeting, and to vote at the
special meeting. Each holder of record, as of the record date, of Executive
Risk common stock is entitled to cast one vote per share on the merger
agreement proposal.
On the record date, there were approximately ________ shares of
Executive Risk common stock outstanding and entitled to vote at the special
meeting, held by approximately ____ shareholders of record.
The favorable vote of a majority of all outstanding shares of
Executive Risk common stock outstanding on the record date is required to
approve the merger agreement.
On the record date, the directors and executive officers of
Executive Risk and their affiliates beneficially owned and were entitled to
vote ________ shares of Executive Risk common stock, or approximately _____% of
the shares of Executive Risk common stock outstanding on the record date.
Those directors and executive officers entered into the voting agreement which
is described in more detail under the heading "Principal Provisions of the
Merger Agreement--Voting Agreement" above.
Voting of Proxies
All shares of Executive Risk common stock represented by
proxies properly received prior to or at the special meeting and not revoked
will be voted in accordance with the instructions indicated in these proxies.
If no instructions are indicated on a properly executed returned proxy, these
proxies will be voted FOR the approval of the merger agreement.
If a proposal to adjourn the Executive Risk special meeting is
properly presented, the persons named in the enclosed form of proxy will not
have discretion to vote shares voted against the merger agreement, in favor of
the adjournment proposal. Executive Risk is not aware of any matters expected
to be presented at its meeting other than as described in its notice of
special meeting.
Any proxy given pursuant to this solicitation may be revoked by
the person giving it at any time before it is voted. Proxies may be revoked
by:
1. filing, including by telecopy, with the Secretary of Executive
Risk, before taking the vote at the special meeting, a written
notice of revocation bearing a later date than the date of the
proxy or a later-dated proxy relating to the same shares; or
2. attending the relevant meeting and voting in person.
In order to vote in person at the Executive Risk special
meeting, Executive Risk stockholders must attend the meeting and cast their
votes in accordance with the voting procedures established for the meeting.
Attendance at a meeting will not in and of itself constitute a revocation of a
proxy. Any written notice of revocation or subsequent proxy must be sent so
as to be delivered at or before the taking of the vote at the applicable
meeting as follows:
o to Executive Risk Inc., 82 Hopmeadow Street, P.O. Box 2002,
Simsbury, Connecticut, 06070-7683, Telecopy: (860) 408-2464,
Attention: Secretary.
Executive Risk stockholders who require assistance in changing
or revoking a proxy should contact Georgeson & Co. Inc. at the address or
phone number provided in this document under the caption "Who Can Help Answer
Your Questions".
Abstentions may be specified on the merger agreement proposal.
Since the favorable vote of holders of a majority of the outstanding shares of
Executive Risk common stock on the merger agreement proposal is required to
approve this proposal, a proxy marked "ABSTAIN" with respect to this proposal
will have the effect of a vote against this proposal. In addition, the
failure of an Executive Risk stockholder in connection with the merger
agreement proposal to return a proxy will have the effect of a vote against
the merger agreement proposal.
Under New York Stock Exchange rules, brokers who hold shares in
street name for customers have the authority to vote on "routine" proposals
when they have not received instructions from beneficial owners. Under New
York Stock Exchange rules, these brokers are precluded from exercising their
voting discretion with respect to the approval and adoption of non-routine
matters like the merger agreement proposal and, thus, absent specific
instructions from the beneficial owner of these shares, brokers are not
empowered to vote these shares with respect to the approval and adoption of
the proposal. Since the affirmative votes described above are required for
approval of the merger agreement proposal, a vote by a broker who has not
received specific voting instructions with respect to this proposal will have
the effect of a vote against the proposal.
It is the policy of Executive Risk to keep proxy cards, ballots
and voting tabulations that identify individual stockholders confidential,
except where disclosure is mandated by law and in other limited circumstances.
The cost of solicitation of proxies will be paid by Executive
Risk. Executive Risk expects the cost of solicitation to be approximately
$12,000. In addition to solicitation by mail, arrangements will be made with
brokerage houses and other custodians, nominees and fiduciaries to send the
proxy materials to beneficial owners and Executive Risk will, upon request,
reimburse these brokerage houses and custodians for their reasonable expenses
in so doing. Executive Risk has signed a letter of agreement with Georgeson &
Company Inc. which provides that Georgeson will disseminate broker search
cards, distribute proxy materials in preparation for the special meeting and
assist in the proxy solicitation process. Georgeson's fee for these services
is $10,000, plus reimbursement for expenses incidental to the solicitation.
The letter agreement with Georgeson contains customary indemnification and
confidentiality provisions. To the extent necessary in order to ensure
sufficient representation at its meeting, Executive Risk may request by
telephone or telecopy the return of proxy cards. The extent to which this
will be necessary depends entirely upon how promptly proxy cards are returned.
Stockholders are urged to send in their proxies without delay.
Executive Risk stockholders should not send in any stock
certificates with their proxy cards. A transmittal form with instructions for
the surrender of certificates representing shares of Executive Risk common
stock will be mailed by Chubb to former Executive Risk stockholders as soon as
practicable after the consummation of the merger.
COMPARISON OF STOCKHOLDER RIGHTS
Holders of shares of Executive Risk common stock will, upon the
exchange of their shares pursuant to the merger, become holders of shares of
Chubb common stock, and their rights as holders of Chubb common shares will be
governed by New Jersey law and Chubb's charter and by-laws. The material
differences between the rights of holders of shares of Executive Risk common
stock and the rights of holders of shares of Chubb common stock, which result
from differences in their governing corporate documents and differences in
Delaware and New Jersey corporate law, are summarized below.
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CHUBB EXECUTIVE RISK
GENERAL
o Chubb is a New Jersey corporation subject to the o Executive Risk is a Delaware corporation subject
provisions of the New Jersey Business to the provisions of the General Corporation Law
Corporation Act. of the State of Delaware.
o The rights of Chubb shareholders are governed o The rights of Executive Risk stockholders are
by Chubb's charter and by-laws, in addition to governed by Executive Risk's charter and by-
New Jersey law. laws, in addition to Delaware law.
o Executive Risk stockholders will, upon
consummation of the merger, become Chubb
shareholders.
AUTHORIZED CAPITAL
o The authorized and outstanding capital stock of o The authorized and outstanding capital stock of
Chubb consists of: Executive Risk consists of:
o 600,000,000 Chubb common shares, $1.00 o 50,000,000 shares of Executive Risk
par value, of which 161,833,465 shares were common stock, $.01 par value, of which
outstanding as of May 31, 1999; 11,561,245 shares were outstanding as of
o 4,000,000 shares of cumulative preferred June 10, 1999; and
stock, $1.00 par value, of which 300,000 are o 4,000,000 shares of preferred stock, with a
designated as "Series B Participating par value of $.01 per share. There are no
Cumulative Preferred Stock" and relate to shares of Executive Risk preferred stock
Chubb's shareholder rights plan, which is outstanding as of the Executive Risk record
described in "--Stockholder Rights Plan" date.
below. There are no shares of Chubb
preferred stock outstanding as of the
Executive Risk record date.
AMENDMENT OF GOVERNING DOCUMENTS
Charter
o The following is required to amend the Chubb o The following is required to amend the Executive
charter: Risk charter:
o the board shall first approve a proposed o the board shall first approve a proposed
amendment and submit it to the amendment and submit it to the stockholders; and
shareholders; and o the approval of a majority of the outstanding
o the approval of two-thirds of the votes cast shares of stock of each class entitled to vote; and
by shareholders entitled to vote is required o Amendments to provisions governing the
to adopt the amendment. size of the board of directors, the liability of
directors to the corporation, meetings of
stockholders and amending the charter,
additionally require the affirmative vote of
the holders of at least seventy-five percent of
the then-outstanding shares of Executive
Risk common stock.
By-laws
o The Chubb by-laws may be amended, adopted or o The Executive Risk by-laws may be amended by:
repealed by: o the affirmative vote of the holders of at least
o a majority of the votes cast by shareholders seventy-five percent of the shares of
entitled to vote; or Executive Risk common stock; or
o a majority vote of the board of directors. o the board of directors.
DIRECTORS
Number
o The number of directors must be between 7 and o The number of directors must be between 7 and
30, with the actual number to be determined by 11 directors, as fixed from time to time by
the board of directors. resolution of the board of directors.
o The current number of directors is 15. o The current number of directors is 11.
Classification
o Chubb does not have a classified board of o The Executive Risk board of directors is divided
directors. The Chubb by-laws require that all into three classes, each as nearly equal in number
directors be elected at each annual meeting of as possible, with one class being elected annually
shareholders for a term of one year. to a three-year term.
Removal
o Directors may be removed with or without cause o Any director may be removed for cause, and only
with the approval of a majority of the votes cast for cause, with the approval of a majority of the
by shareholders entitled to vote. Executive Risk common stockholders.
Vacancies
o Any vacancy which occurs during the year or o A vacancy occurring on the Executive Risk board
which occurs as a result of an increase in the size of directors, including a vacancy resulting from
of the Chubb board of directors may be filled by an increase in the number of directors, may be
a majority vote of the directors then in office, filled by the vote of a majority of the remaining
even if less than a quorum, for the balance of the Executive Risk directors, whether or not they
term. constitute a quorum. Directors chosen in this
manner shall remain in office for the unexpired
term and until his or her successor is elected and
qualified or until his or her earlier resignation or
removal.
o As permitted by New Jersey law, the Chubb o As permitted by Delaware law, the Executive
charter contains a provision that eliminates the Risk charter contains a provision that eliminates
personal liability of directors or officers to the the personal liability of directors to the
corporation or to its shareholders for damages for corporation or to its stockholders for damages for
breaches of any duty, except where a judgment or breaches of duty, except where the director's acts
other final adjudication establishes that the or omissions:
director's acts or omissions: o were in breach of the director's duty of
o were in breach of the director's or officer's loyalty to Executive Risk and its
duty of loyalty to Chubb or its shareholders; stockholders;
o were not in good faith or involving a o were in bad faith or involved intentional
knowing violation of law; or misconduct or a knowing violation of the
o resulted in receipt by the director or officer law;
of an improper personal benefit. o involved transactions from which the
director derived an improper personal
benefit; or
o resulted in a violation of a statute prohibiting
dividend declarations, payments to
stockholders, and particular types of loans.
Indemnification
o The Chubb charter provides that the corporation o Executive Risk is required by its by-laws to
shall indemnify its officers, directors, employees indemnify a director, officer, employee, or agent
and corporate agents specified in the charter for of Executive Risk who is or was made a party to
any expenses and liabilities incurred in their any proceeding by reason of the fact that he is or
official capacity to the maximum extent was a director, officer, employee or agent or is or
permissible under New Jersey law. was serving any other corporation, partnership,
o Under New Jersey law, a corporation may joint venture, trust, employee benefit plan or
indemnify any director, officer, employee and other enterprise, at the request of Executive Risk
corporate agent made, or threatened to be made, a if he acted:
party to any action or proceeding by reason of his o in good faith;
position in the corporation. In order to be o in a manner which he reasonably believed to
indemnified, the director, officer, employee or be in or not opposed to the best interests of
corporate agent must have acted: the corporation; and
o in good faith; o with respect to any criminal proceeding,
o in a manner which he reasonably believed to with no reasonable cause to believe that his
be in or not opposed to the best interests of conduct was unlawful.
the corporation; and o Furthermore, the Executive Risk by-laws provide
o with respect to any criminal proceeding, that each director, officer, employee or agent of
with no reasonable cause to believe that his Executive Risk shall be indemnified against all
conduct was unlawful. costs and expenses reasonably incurred by or
o Under New Jersey law and Chubb's charter, the imposed upon him in connection with or resulting
expenses incurred by a director, officer, employee from any action, suit or proceeding to which he
or corporate agent in connection with these may be made a party by reason of his being or
proceedings may be paid by Chubb in advance of having been a director, officer, employee or agent
its final disposition upon the receipt of an of Executive Risk, whether or not he continues to
undertaking by or on behalf of the director, be such at the time of incurring the cost or
officer, employee or corporate agent to repay this expense, provided that payment of expenses by a
amount if it shall be determined that he is not director or officer in advance of the final
entitled to be indemnified as provided under New disposition of the proceeding shall be made only
Jersey law. upon delivery to Executive Risk of an
undertaking that the director or officer will repay
all amounts if it is determined that he is not
entitled to be indemnified.
STOCKHOLDERS
Annual Meetings of Stockholders
o The annual meeting of shareholders shall be held o The annual meeting of stockholders shall be held
on a date and at a place fixed by the Chubb board on a date and at a place fixed by the Executive
of directors. Risk board of directors.
Special Meetings of Stockholders
o Special meetings may be called at any time and o Special meetings of the Executive Risk
for any purpose by: stockholders for any purpose(s) may be called
o the Chairman of the Chubb board of only by the board of directors to be held at the
directors; place, on the date and at the time as the board of
o the Chairman of the Executive Committee; directors determines.
o a majority of the board;
o the holders of 50% or more of the
outstanding common shares; or
o the New Jersey Superior Court, for good
cause, upon application by the holder or
holders of at least 10% of all the shares
entitled to vote at a meeting.
Stockholder Inspection Rights and Stockholder Lists
o Under New Jersey law, a shareholder has the o Under Delaware law, any Executive Risk
right for any proper purpose to examine and/or stockholder is entitled to inspect and copy books
copy minutes from shareholder meetings and and records, including the corporation's stock
shareholder records, so long as the shareholder: ledger and a list of its stockholders as long as the
o has been an Chubb shareholder of record for inspection is for a proper purpose and during the
at least six months; usual hours of business.
o is a holder of at least five percent of any
class or series of outstanding shares; or
o has been authorized in writing by the holders
of at least five percent of any class or series
of outstanding shares.
o The requesting shareholder must submit a written
demand at least five days prior to the proposed
date of examination.
o The materials must be examined during usual
business hours, and the examination may be done
in person or by an agent or attorney.
o Upon the written request of any shareholder, the
corporation shall mail to the shareholder its
balance sheet as at the end of the preceding fiscal
year, and its profit and loss and surplus
statements for that fiscal year.
Stockholder Action Without Meeting
o Under New Jersey law, any shareholder action o Under Executive Risk's charter, any action taken
required or permitted to be taken by shareholder by its common stockholders must be taken at an
vote, other than the annual election of directors, annual or special meeting of stockholders. The
can be taken without a meeting upon the written taking of any action by written consent is
consent of shareholders who would have been specifically denied.
entitled to cast the minimum number of votes
necessary to authorize the action at a meeting
where all shareholders entitled to vote were
present and voting. Under New Jersey law, the
annual election of directors, if not conducted at a
shareholders' meeting, may only be effected by
unanimous written consent.
o Under New Jersey law, a shareholder vote on a
plan of merger or consolidation or sale or
disposition of all or substantially all of the assets,
if not conducted at a shareholders' meeting, may
only be effected by either:
o unanimous written consent of all
shareholders, or
o written consent of shareholders who would
have been entitled to cast the minimum
number of votes necessary to authorize the
action at a meeting, with advance notice to
all other shareholders.
Dividends and Distributions
o New Jersey law generally provides that a o Subject to any restrictions contained in the
corporation may declare and pay dividends on its corporation's charter, Delaware law generally
outstanding stock so long as the corporation is provides that a corporation may declare and pay
not insolvent and would not become insolvent as dividends out of surplus or, if no surplus exists,
a consequence of the dividend payment, or the out of net profits for the fiscal year in which the
corporation's total assets would not be less than dividend is declared and/or the preceding fiscal
its total liabilities. year. Executive Risk's charter is silent on this
issue.
o Under Delaware law, the directors of a Delaware
corporation may not, however, pay any dividends
out of net profits if the capital of the corporation
has been diminished by depreciation in the value
of its property, or by losses, or otherwise, to an
amount less than the aggregate amount of capital
represented by the issued and outstanding stock
of all classes.
Dissenters' Rights
Dissenters' rights are those rights granted to stockholders to dissent from particular types of corporate
transactions, and to obtain payment for their shares.
o New Jersey law generally allows dissenter's o Delaware law generally provides stockholders of
rights of appraisal upon mergers, consolidations, a Delaware corporation the right to dissent from
sales of all or substantially all of the corporation's mergers, statutory share exchanges and other
assets or other corporate transactions specified in corporate transactions, and to obtain payment of
the New Jersey Business Corporation Act, with the fair value of their shares in the event of those
some exceptions listed below. Unless the charter transactions, with some exceptions listed below.
provides otherwise, appraisal rights are not Delaware law also provides that appraisal rights
available under New Jersey law to a corporation's are not available to holders of shares of a
shareholders with respect to a merger if the Delaware corporation that either
merger did not require shareholder approval. o has shares listed on a national securities
Chubb's charter does not provide otherwise. In exchange or designated as a national market
addition, unless otherwise provided in the charter, system security on an interdealer quotation
no statutory right of appraisal exists in a merger system by the National Association of
or consolidation where the stock of the New Securities Dealers, Inc. or
Jersey corporation is o has at least 2,000 record stockholders, unless
o listed on a national securities exchange, these stockholders are required by the terms
o has at least 1,000 record shareholders, or of the merger to accept anything other than:
o where the consideration to be received o shares of stock of the surviving
pursuant to the merger or consolidation corporation;
consists of cash or shares, obligations or o shares of stock of another corporation
other securities which, after the transaction, which, as of the effective date of the
will be listed on a national securities merger or consolidation, are listed on
exchange or held of record by at least 1,000 national securities exchange or
holders. Chubb's charter does not provide designated as a national market system
otherwise. security on an interdealer quotation
Furthermore, unless otherwise provided in the system by the National Association of
corporation's charter, no appraisal rights are available Securities Dealers, Inc. or held of
in a sale, lease, exchange or other disposition of all or record by more than 2,000
substantially all of a corporation's assets stockholders;
o with respect to shares that are listed on a o cash instead of fractional shares of such
national securities exchange or are held by at stock; or
least 1,000 record shareholders or o any combination of the above.
o from a dissolution transaction in which o Appraisal rights are not available under Delaware
substantially all of a corporation's net assets law in the event of the sale of all or substantially
are to be distributed to its shareholders all of a corporation's assets or the adoption of an
within one year after the date of the amendment to its charter, unless rights to
transaction and when the transaction is appraisal are granted in the corporation's charter.
wholly for Executive Risk's charter does not grant appraisal
o cash , rights.
o shares, obligations or other securities
which will be listed on a national
securities exchange or held by not less
than 1,000 record holders or
o cash and the securities listed above.
Chubb's charter does not provide
otherwise.
Approval of, and Special Rights with Respect to,
Mergers or Consolidations and Other Transactions
o Under New Jersey corporation law and Chubb's o Under Delaware corporation law, unless
charter, a merger requiring shareholder approval otherwise provided in the charter, a merger
must be approved by two-thirds of the votes cast requiring stockholder approval requires the
by shareholders entitled to vote on the merger. affirmative vote of a majority of the outstanding
o Furthermore, under New Jersey law, unless stock of the corporation.
otherwise provided in the corporation's charter, o Furthermore, under Delaware law, unless
approval of the shareholders of a New Jersey otherwise provided in the corporation's charter,
corporation which is a surviving corporation in a approval of the stockholders of a surviving
merger is not required if corporation in a merger is not required if
o the plan of merger does not make an o the plan of merger does not make an
amendment of the charter of the surviving amendment of the charter of the surviving
corporation that would otherwise require corporation that would otherwise require
shareholder approval, stockholder approval,
o the shares outstanding immediately before o the shares outstanding immediately before
the effectiveness of the merger are not the effectiveness of the merger are not
changed by the merger, and changed by the merger, and
o the number of voting or participating shares o the number of voting or participating shares
outstanding, including shares issuable upon outstanding, including shares issuable upon
conversion of other securities or upon conversion of other securities or upon
exercise of rights or warrants issued exercise of rights or warrants issued
pursuant to the merger, after the merger, pursuant to the merger, after the merger,
after giving effect to the merger, will not after giving effect to the merger, will not
exceed by more than 40% the number of exceed by more than 20% the number of
voting and participating shares, as the case common shares, as the case may be, of the
may be, of the surviving corporation surviving corporation outstanding
outstanding immediately prior to the merger. immediately prior to the merger. Executive
Chubb's charter does not provide otherwise. Risk's charter does not provide otherwise.
o Under New Jersey corporation law, a sale of all o Under Delaware corporation law, a sale of all or
or substantially all of a Chubb's assets outside of substantially all of a corporation's assets requires
the regular course of business requires the the approval of the board of directors and the
approval of the board of directors and the holders of a majority of the outstanding stock of
affirmative vote of two-thirds of the votes cast by the corporation entitled to vote on the sale.
shareholders entitled to vote on the sale.
STATE LAWS REGARDING DISSOLUTION AND LIQUIDATION
Voluntary Dissolution
o Under New Jersey law, the dissolution of Chubb o Delaware law generally provides that the
must be approved by the holders of two-thirds of dissolution of a Delaware corporation must be
the votes cast by shareholders entitled to vote on approved first by a majority of the whole board
the dissolution. of directors and then recommended to the
stockholders and approved by the holders of a
majority of all votes entitled to be cast by each
voting group entitled to vote on the dissolution,
unless the charter of the corporation requires a
greater or lesser vote. There are no provisions in
the Executive Risk charter that modify Delaware
law requirements for dissolution.
Liquidation Rights
o In the event of the liquidation, dissolution or o In the event of the liquidation, dissolution or
winding-up of the affairs of Chubb, holders of winding-up of the affairs of Executive Risk,
outstanding Chubb common shares are entitled to holders of outstanding shares of Executive Risk
share, in proportion to their respective interests, common stock are entitled to share ratably and
in Chubb's assets and funds remaining after equally with all other holders of common shares,
payment, or provision for payment, of all debts in Executive Risk's assets and funds remaining
and other liabilities of Chubb and the amounts to after payment to the holders of preferred shares
which the holders of preferred stock shall be of the specific amounts which they are entitled to
entitled. receive upon liquidation.
o Holders of shares of Chubb's Series B
Participating Cumulative Preferred Stock, none of
which are currently outstanding, are entitled to a
liquidation preference of:
o $1,000 per share, in the event of a voluntary
liquidation, dissolution or winding-up, plus
an amount equal to accrued and unpaid
dividends and distributions thereon, whether
or not declared, to the date of the payment,
provided that the holders shall be entitled to
receive an aggregate amount per share of not
less than 1,000 times the aggregate amount
to be distributed per share to holders of
common shares.
</TABLE>
State Anti-Takeover Laws
Chubb.
There are provisions of New Jersey law, the Chubb charter and
the Chubb by-laws that may be deemed to have an anti-takeover effect. These
provisions are designed to protect shareholders against coercive, unfair or
inadequate tender offers and other abusive tactics and to encourage any person
contemplating a business combination with Chubb to negotiate with the board of
directors for the fair and equitable treatment of all shareholders.
New Jersey has adopted a type of anti-takeover statute known as
a "business combination" statute. Subject to numerous qualifications and
exceptions, the statute prohibits an interested shareholder of a corporation
from effecting a business combination with the corporation for a period of
five years unless the corporation's board approved the transaction prior to
the shareholder becoming an interested shareholder. In addition, New Jersey
corporations may not engage at any time in a business combination with any
interested shareholder of that corporation unless the transaction receives the
approval of two-thirds of the voting stock of the corporation not beneficially
owned by the interested shareholder, the combination is approved by the board
prior to the interested shareholder's stock acquisition date or the
transaction meets minimum financial terms specified in the statute. An
"interested shareholder" is defined to include any beneficial owner of 10% or
more of the voting power of the outstanding voting stock of the corporation
and any affiliate or associate of the corporation who within the prior
five-year period has at any time owned 10% or more of the voting power. The
term "business combination" is defined broadly to include, among other things,
o the merger or consolidation of the corporation with the
interested shareholder or any corporation that after the merger
or consolidation would be an affiliate or associate of the
interested shareholder,
o the sale, lease, exchange, mortgage, pledge, transfer or other
disposition to an interested shareholder or any affiliate or
associate of the interested shareholder of 10% or more of the
corporation's assets, or
o the issuance or transfer to an interested shareholder or any
affiliate or associate of the interested shareholder of 5% or
more of the aggregate market value of the stock of the
corporation.
The effect of the statute is to protect non-tendering,
post-acquisition minority shareholders from mergers in which they will be
"frozen out" after the merger, by prohibiting transactions in which an
acquiror could favor itself at the expense of minority shareholders. The New
Jersey statute applies to New Jersey corporations that are organized under New
Jersey law and have either their principal executive offices or significant
business operations located in New Jersey. A New Jersey corporation may not
opt out of the foregoing provisions.
Executive Risk.
Executive Risk is subject to Section 203 of the Delaware
General Corporation Law. In general, Section 203 prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years following the date that
this stockholder became an interested stockholder, unless
o prior to the date the stockholder became an interested
stockholder, either the business combination or the transaction
which resulted in the stockholder becoming an interested
stockholder is approved by the board of directors of the
corporation,
o upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owns at least 85 percent of the voting stock of the
corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares
outstanding, shares owned by (A) persons who are both directors
and officers and (B) employee stock plans in circumstances
specified in Section 203, or
o on or after the date the stockholder became an interested
stockholder, the business combination is approved by the board
and authorized at an annual or special meeting of stockholders,
and not by written consent, by the affirmative vote of at least
66 2/3 percent of the outstanding voting stock which is not
owned by the interested stockholder.
In Delaware, a business combination includes a merger,
consolidation, asset sale, or other transaction resulting in a financial
benefit to the interested stockholder. An "interested stockholder" is a
person who, together with affiliates and associates, owns, or within three
years, did own 15 percent or more of the corporation's voting stock. The
restrictions imposed by Section 203 will not apply to a corporation if, among
other things,
o the corporation's original charter contains a provision
expressly electing not to be governed by Section 203 or
o 12 months have passed after the corporation, by action of its
stockholders holding a majority of the outstanding stock,
adopts an amendment to its charter or by-laws expressly
electing not to be governed by Section 203.
Executive Risk has not elected not to be governed by Section
203 and, therefore, the restrictions imposed by Section 203 apply to Executive
Risk.
Stockholder Rights Plans
Chubb.
Chubb has a shareholder rights plan under which each
shareholder has one right for each share of common stock held. Each right
entitles the registered holder to purchase from Chubb a unit consisting of one
one-thousandth of a share of Chubb's Series B Participating Cumulative Preferred
Stock, par value $1.00 per share, at a purchase price of $240 per unit. The
rights are subject to adjustment to prevent dilution of the interests
represented by each right. The description and terms of the rights are set
forth in the Rights Agreement dated as of March 12, 1999 by and between Chubb
and First Chicago Trust Company of New York, as rights agent.
The rights are attached to all outstanding shares of common
stock and trade with the common stock until the rights become exercisable, and
no separate rights certificates will be distributed. The Chubb common shares
issued to Executive Risk stockholders as part of the merger will have the
rights attached. The rights will separate from the common stock upon the
earlier of:
o 10 days following the date of any public announcement that a
person or group of affiliated or associated persons has
acquired beneficial ownership of 20% or more of the outstanding
shares of common stock, or
o 10 business days following the commencement of a tender offer
or exchange offer that would result in a person or group
acquiring beneficial ownership of 20% or more of the
outstanding shares of common stock.
Until the date when the rights under Chubb's shareholder rights
plan separate from the common stock, or an earlier date on which these rights
are redeemed, exchanged or expire,
o the rights will be evidenced by the common stock certificates
and will be transferred with and only with the common stock
certificates,
o all common stock certificates issued after March 31, 1999 will
contain a notation incorporating the terms of the shareholder
rights plan by reference, and
o the surrender for transfer of any certificates for common stock
will also constitute the transfer of the rights associated with
the common stock represented by those common stock
certificates.
The rights under Chubb's shareholder rights plan are not
exercisable until the date when the rights separate from the common stock and
will expire at the close of business on March 12, 2009 unless previously
redeemed or exchanged by Chubb as described below.
As soon as practicable after the date when the rights under
Chubb's shareholder rights plan separate from the common stock, right
certificates will be mailed to holders of record of common stock as of the
close of business on the date when the rights separate from the common stock
and, after that time, the separate right certificates alone will represent the
rights. Only shares of common stock issued prior to the date when the rights
under Chubb's shareholder rights plan separate from the common stock will be
issued with rights.
At any time after any person or group has become the beneficial
owner of 20% or more of the outstanding shares of Chubb common stock, but
before that person or group becomes the beneficial owner of 50% or more of the
outstanding shares of Chubb common stock or the occurrence of any of the
events described in the next paragraph, Chubb's board of directors may
exchange all or part of the rights, other than rights beneficially owned by
that beneficial owner of 20% or more of the outstanding shares of Chubb common
stock, for shares of common stock at an exchange ratio of one share of common
stock per right.
In the event that any person becomes the beneficial owner of
20% or more of the outstanding shares of common stock, proper provision will
be made so that each holder of a right, other than rights that are, or were,
beneficially owned by the beneficial owner of 20% or more of the outstanding
shares of common stock at any time it was the beneficial owner of 20% or more
of the outstanding shares of common stock or were owned by that 20% beneficial
owner but were transferred with the express purpose of avoiding the
nullification of the rights, which will thereafter be void, will thereafter
have the right to receive upon exercise that number of shares of common stock
having a market value of two times the exercise price of the right. In the
event that, at any time following the date of any public announcement that a
person or group has become the beneficial owner of 20% or more of the
outstanding shares of common stock, (1) Chubb is acquired in a merger or other
business combination transaction, or (2) 50% or more of Chubb's assets or
earning power is sold, each holder of a right shall thereafter have the right
to receive, upon exercise, common stock of the acquiring company having a
value equal to two times the exercise price of the right.
The rights may be redeemed in whole, but not in part, at a
price of $.01 per right by Chubb's board of directors at any time prior to the
time any person or group has become an owner on 20% or more of the outstanding
shares of common stock.
Chubb's shareholder rights plan provides that a committee
comprised of the independent directors of the Chubb board of directors,
designated as the Independent Directors Committee, shall review the
Shareholder Rights Plan to evaluate whether the shareholder rights plan
continues to be in the best interests of Chubb and its shareholders on an
annual basis and upon the occurrence of events which would lead the committee
to believe that a person or group of affiliated or associated persons may
acquire beneficial ownership of 20% or more of the outstanding shares of
common stock. If deemed appropriate, the committee will recommend to Chubb's
full board of directors to redeem the rights.
Immediately upon the action of Chubb's board of directors
ordering redemption of the rights, the rights will terminate and thereafter
the only right of the holders of rights will be to receive the redemption
price.
Until a right is exercised, the holder of a right will have no
rights as a shareholder of Chubb, beyond those as an existing shareholder,
including the right to vote or to receive dividends. As long as the rights
are attached to the common stock, Chubb will issue one right with each new
share of common stock issued.
Executive Risk.
On December 30, 1993, the board of directors of Executive Risk
declared a dividend of one right for each share of common stock, par value
$.01 per share, and each share of class B common stock, par value $.01 per
share, of Executive Risk. The dividend was payable on January 1, 1994 to the
stockholders of record on that date. In addition, Executive Risk has
authorized the issuance of one right with respect to each share of common stock
that shall become outstanding between January 1, 1994 and the earliest of:
o the date when separate certificates evidencing the rights are
mailed to record holders of Executive Risk common stock,
o the date when the board of directors of Executive Risk elect to
redeem the rights and
o the date when the rights will expire.
Each right entitles the registered holder to purchase from Executive Risk one
share of common stock at a price of $60.32 per share of common stock, subject
to adjustment. On May 27, 1997, Executive Risk amended and restated its
charter to eliminate the authorization of class B common stock, and no shares
of class B common stock are outstanding. The description and terms of rights
are set forth in an Amended and Restated Rights Agreement dated as of November
12, 1998, by and between Executive Risk and ChaseMellon Shareholder Services,
L.L.C., as successor to Mellon Bank, N.A., as rights agent.
Initially, the rights will be attached to all common share
certificates and no separate rights certificates will be issued. Separate
certificates evidencing the rights will be mailed to holders of record of the
common shares as of the close of business on the earlier to occur of (1) the
tenth day after a public announcement that a person or group of affiliated or
associated persons has acquired beneficial ownership of 15% or more of the
outstanding common shares or (2) the date as may be determined by action of
the board of directors of Executive Risk following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 15% or more of the outstanding common shares.
The Executive Risk rights agreement provides that, until the
date when separate certificates evidencing the rights are mailed to record
holders of Executive Risk common stock, or earlier redemption or expiration of
the Rights,
o the rights will be transferred with and only with the common
shares,
o new common share certificates issued after January 1, 1994 upon
transfer or new issuance of common shares will contain a
notation incorporating the rights agreement by reference, and
o the surrender for transfer of any certificates for common
shares outstanding as of January 1, 1994 will also constitute
the transfer of the rights associated with the common shares
represented by the certificate.
The rights are not exercisable until the date when separate
certificates evidencing the rights are mailed to record holders of Executive
Risk common stock. The rights will expire on January 1, 2004, unless this
expiration date is extended or unless the rights are earlier redeemed or
exchanged by Executive Risk, in each case, as described below.
If a person or group becomes the beneficial owner of 15% or
more of the outstanding shares of Executive Risk Stock, each holder of a
right, other than that 15% beneficial owner, will thereafter have the right to
receive, upon exercise, common stock or, in other circumstances set forth in
the rights agreement, other similar securities of Executive Risk, having a
value equal to two times the exercise price of the right. Notwithstanding any
of the foregoing, following the existence of a 15% beneficial owner, all
rights that are, or, under those circumstances specified in the rights
agreement were, beneficially owned by any 15% beneficial owner will be null
and void.
In the event that Executive Risk is acquired in a merger or
other business combination transaction or 50% or more of its consolidated
assets or earning power are sold after a person or group has become a 15%
beneficial owner, proper provision will be made so that each holder of a right
will thereafter have the right to receive, upon the exercise of a right at the
then current exercise price of the right, that number of shares of common
stock of the acquiring company which at the time of the transaction will have
a market value of two times the exercise price of the right. In the event
that any person or group becomes a 15% beneficial owner, proper provision
shall be made so that each holder of a right, other than rights beneficially
owned by the 15% beneficial owner, which will thereafter be void, will
thereafter have the right to receive upon exercise that number of common stock
having a market value of two times the exercise price of the right.
At any time after any person or group becomes a 15% beneficial
owner and prior to the acquisition by that person or group of 50% or more of
the outstanding common shares, the board of directors of Executive Risk may
exchange the rights, other than rights owned by that 15% beneficial owner
which will have become void, in whole or in part, at an exchange ratio of one
share of common stock, or, in other circumstances specified in the rights
agreement, other similar securities of Executive Risk, per right, subject to
adjustment.
At any time prior to the date when separate certificates
evidencing the rights are mailed to record holders of Executive Risk common
stock, the board of directors of Executive Risk may redeem the rights, in
whole but not in part, at a price of $.01 per right. The redemption of the
rights may be made effective at the time, on the basis and with the conditions
as the board of directors of Executive Risk, in its sole discretion, may
establish. Immediately upon any redemption of the rights, the right to
exercise the rights will terminate and the only right of the holders of rights
will be to receive a price of $.01 per right.
Prior to the date when separate certificates evidencing the
rights are mailed to record holders of Executive Risk common stock, Executive
Risk and ChaseMellon Shareholder Services, L.L.C. shall, if Executive Risk so
directs, supplement or amend any provision of the rights agreement without the
approval of any holders of certificates representing shares of common stock.
On and after the date when separate certificates evidencing the rights are
mailed to record holders of Executive Risk common stock, Executive Risk and
ChaseMellon Shareholder Services, L.L.C. shall, if Executive Risk so directs,
supplement or amend the rights agreement without the approval of any holders
of right certificates to
o cure any ambiguity,
o correct or supplement any provision contained in the rights
agreement which may be defective or inconsistent with any other
provisions herein,
o shorten or lengthen any time period hereunder, or
o to change or supplement the provisions hereof in any manner
which Executive Risk may deem necessary or desirable and which
shall not adversely affect the interests of the holders of
right certificates;
provided, however, the rights agreement may not be supplemented or amended to
lengthen a time period relating to when the rights may be redeemed if the
rights are not then redeemable, or any other time period, unless this
lengthening is for the purpose of protecting, enhancing or clarifying the
rights of, and/or the benefits to, the holders of rights. Notwithstanding
anything contained in the rights agreement to the contrary, no supplement or
amendment shall be made which changes the redemption price of $.01 per right,
the expiration date of the rights, the purchase price of the rights or the
number of shares of common stock for which a right is exercisable. Prior to
the date when separate certificates evidencing the rights are mailed to record
holders of Executive Risk common stock, the interests of the holders of rights
shall be deemed coincident with the interests of the holders of common stock.
The number of outstanding rights and the number of shares of
common stock issuable upon exercise of each right are subject to adjustment.
Until a right is exercised, the holder of a right will have no
rights as a stockholder of Executive Risk, including, without limitation, the
right to vote or to receive dividends.
The Executive Risk board on February 6, 1999 voted to exempt
the merger from the effects of the rights agreement.
Listing or Quotation of Chubb Common Shares; Delisting of Executive Risk
Common Stock
It is a condition to the merger that Chubb common shares
issuable in the merger be approved for listing on the New York Stock Exchange
on or prior to the effective time of the merger, subject to official notice of
issuance. If the merger is consummated, shares of Executive Risk common stock
will cease to be listed on the New York Stock Exchange.
LEGAL MATTERS
The validity of the Chubb common shares to be issued to
Executive Risk stockholders pursuant to the merger will be passed upon by
Shanley & Fisher, Professional Corporation, New Jersey counsel to Chubb. It
is a condition to the consummation of the merger that Executive Risk receives
an opinion from Dewey Ballantine LLP and Chubb receives an opinion from Davis
Polk & Wardwell, to the effect that, the merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code. The conditions for consummation of the merger
are described under the heading "Principal Provisions of the Merger
Agreement--Conditions to the Consummation of the Merger" and details of the
tax opinion are provided under the heading "The Merger--Material Federal
Income Tax Consequences".
EXPERTS
The consolidated financial statements and financial statement
schedules of Chubb incorporated by reference into or included in Chubb's
Annual Report on Form 10-K for the year ended December 31, 1998, and
incorporated by reference in the proxy statement of Executive Risk, which is
referred to and made a part of this prospectus and registration statement of
Chubb, have been audited by Ernst & Young LLP, independent auditors, as
indicated in their reports with respect to those consolidated financial
statements and financial statement schedules, and are incorporated in this
prospectus and registration statement of Chubb by reference in reliance upon
these reports given upon the authority of that firm as an expert in accounting
and auditing.
The consolidated financial statements and financial statement
schedule of Executive Risk included in Executive Risk's Annual Report on Form
10-K for the year ended December 31, 1998, and incorporated by reference in
the proxy statement of Executive Risk, which is referred to and made a part of
this prospectus and registration statement of Chubb, have been audited by
Ernst & Young LLP, independent auditors, as indicated in their reports with
respect to those consolidated financial statements and financial statement
schedule and are incorporated in this prospectus and registration statement of
Chubb by reference in reliance upon these reports given upon the authority of
that firm as an expert in accounting and auditing.
With respect to the unaudited consolidated financial statements
included in Executive Risk's Quarterly Report on Form 10-Q for the quarters
ended March 31, 1999 and March 31, 1998, incorporated by reference in the Proxy
Statement of Executive Risk, which is referred to and made a part of this
Prospectus and Registration Statement of Chubb, Ernst & Young LLP have
reported that they have applied limited procedures in accordance with
professional standards for a review of such information. However, their
separate report, included in Executive Risk's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999, and incorporated herein by reference,
states that they did not audit and they do not express an opinion on that
interim financial information. Accordingly, the degree of reliance on their
report on such information should be restricted considering the limited nature
of the review procedures applied. The independent auditors are not subject to
the liability provisions of Section 11 of the Securities Act of 1933 for their
report on the unaudited interim financial information because that report is
not a "report" or a "part" of the Registration Statement prepared or certified
by the auditors within the meaning of Sections 7 and 11 of the 1933 Act.
FUTURE STOCKHOLDER PROPOSALS
Executive Risk does not intend to hold an 1999 Annual Meeting
of Stockholders because of the merger. Therefore, it has not delivered proxy
materials for an annual meeting. If proxy materials are required to be
delivered and completion of the merger does not occur, however, the board of
directors of Executive Risk will call an annual meeting of stockholders as
promptly as practicable to conduct regular business. Also, if proxy materials
are required to be delivered and completion of the merger does not occur,
stockholder proposals intended to be presented at the 2000 Annual Meeting of
stockholders of Executive Risk must be received by the Secretary of Executive
Risk by December 31, 1999 for inclusion in the proxy materials for that
meeting.
WHERE YOU CAN FIND MORE INFORMATION
Chubb and Executive Risk file annual, quarterly and special
reports, proxy statements and other information with the SEC. You may read and
copy any reports, statements or other information we file at the SEC's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the SEC at 1-800- SEC-0330 for further information on the public
reference rooms. Chubb's and Executive Risk's SEC filings are also available to
the public from commercial document retrieval services and at the web site
maintained by the SEC at http://www.sec.gov.
Chubb filed a Registration Statement on Form S-4 to register
with the SEC the Chubb common shares to be issued to Executive Risk
stockholders in the merger. This document is a part of that Registration
Statement and constitutes a prospectus of Chubb in addition to being a proxy
statement of Executive Risk for its special meeting. As permitted by SEC
rules, this document does not contain all the information you can find in the
Registration Statement or the exhibits to the Registration Statement.
The SEC allows Chubb and Executive Risk to "incorporate by
reference" information into this document, which means that Chubb and
Executive Risk can disclose important information to you by referring you to
another document filed separately with the SEC. The information incorporated
by reference is deemed to be part of this document, except for any information
superseded by information in this document. This document incorporates by
reference the documents set forth below that Chubb and Executive Risk have
previously filed with the SEC. These documents contain important information
about Chubb and Executive Risk and their financial performance.
Chubb SEC Filings
(File No. 1-8661) Period
----------------- ------
Quarterly Report on Form 10-Q Quarter ended March 31, 1999
Annual Report on Form 10-K Fiscal year ended December 31, 1998
Current Reports on Form 8-K Filed on March 30, 1999 and March
15, 1999, February 10, 1999,
January 19, 1999
Description of Chubb Common Stock from Filed on February 2, 1984
Registration Statement on Form 8-A
Chubb is also incorporating by reference additional documents
that Chubb files with the SEC between the date of this document and the date
of the Executive Risk special meeting.
Executive Risk's SEC Filings
(File No. 1-12800) Period
---------------------------- ------
Quarterly Report on Form 10-Q Quarter ended March 31, 1999
Annual Report on Form 10-K Fiscal year ended December 31, 1998
(as amended on May 28, 1999)
Current Reports on Form 8-K Filed on February 9, 1999
Description of Executive Risk Common Stock Filed on May 8, 1996
from Registration Statement on Form 8-A/A
Executive Risk is also incorporating by reference additional
documents that Executive Risk files with the SEC between the date of this
document and the date of the Executive Risk special meeting.
Chubb has supplied all information contained or incorporated by
reference in this document relating to Chubb, and Executive Risk has supplied
all the information contained or incorporated by reference in this document
relating to Executive Risk.
You may already have been sent some of the documents
incorporated by reference, but you can obtain any of them from Chubb or
Executive Risk, as appropriate, or the SEC. Documents incorporated by
reference are available from Chubb or Executive Risk, as appropriate, without
charge, excluding all exhibits unless an exhibit has been specifically
incorporated by reference in this document. Stockholders may obtain documents
incorporated by reference in this document by Chubb by requesting them in
writing or by telephone at the following address:
The Chubb Corporation
15 Mountain View Road
Warren, New Jersey 07061-1615
Tel: (908) 903-3561
Stockholders may obtain documents incorporated by reference in this document
by Executive Risk by requesting them in writing or by telephone at the
following address:
Executive Risk Inc.
82 Hopmeadow Street
P.O. Box 2002
Simsbury, Connecticut 06070-7683
Tel: (860) 408-2000
If you would like to request documents from Chubb or Executive
Risk, please do so by July 5, 1999 to receive them before the Executive Risk
stockholder meeting. Chubb or Executive Risk will send requested documents by
first-class mail within one business day of receiving the request.
You should rely only on the information contained or
incorporated by reference in this document to vote on the merger agreement
proposal. We have not authorized anyone to provide you with information that
is different from what is contained in this document. This document is dated
June 11, 1999. You should not assume that the information contained in this
document is accurate as of any date other than this date, and neither the
mailing of this document to stockholders nor the issuance of Chubb common
shares in the merger shall create any implication to the contrary.
