As filed with the Securities and Exchange Commission on June 18, 1999
Registration No. 333-73073
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------------
Post-Effective
Amendment No. 1 to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
The Chubb Corporation
(Exact name of Registrant as specified in its charter)
-----------------------
New Jersey 6331 13-2595722
(State or Other (Primary Standard (IRS Employer
Jurisdiction of Industrial Classification Identification
Incorporation Code Number) No.)
or Organization) 15 Mountain View Road,
P.O. Box 1615
Warren, New Jersey 07061-1615
(908) 903-2000
(Address, Including Zip Code, and Telephone Number,
including Area Code, of Registrant's Principal Executive
Offices)
-----------------------
Joanne Bober
Senior Vice President and
General Counsel
The Chubb Corporation
15 Mountain View Road, P.O. Box 1615
Warren, New Jersey 07061-1615
(908) 903-2000
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent for Service)
-----------------------
copies to:
Dennis S. Hersch James A. FitzPatrick, Jr.
Davis Polk & Wardwell Dewey Ballantine LLP
450 Lexington Avenue 1301 Avenue of the Americas
New York, New York 10017 New York, New York 10019
(212) 450-4000 (212) 259-8000
Approximate Date of Commencement of Proposed Sale to Public: As soon as
practicable after the effectiveness of this Registration Statement and the
effective time of the merger of a wholly-owned subsidiary of the Registrant
with and into Executive Risk Inc. as described in the Amended and Restated
Agreement and Plan of Merger dated as of June 16, 1999.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. o
-----------------------
===============================================================================
<PAGE>
[Executive Risk Inc. LOGO]
June 17, 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 17, 1999 and was first mailed to
stockholders on June 18, 1999.
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 Amended and Restated 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
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
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......................................................53
Voting Agreement............................................................54
VOTING SECURITIES AND THEIR HOLDERS.........................................56
THE SPECIAL MEETING.........................................................57
Time and Place; Purpose.....................................................57
Voting Rights; Votes Required for Approval..................................57
Voting of Proxies...........................................................57
COMPARISON OF STOCKHOLDER RIGHTS............................................59
State Anti-Takeover Laws....................................................67
Stockholder Rights Plans....................................................69
Listing or Quotation of Chubb Common Shares; Delisting of Executive Risk
Common Stock..............................................................72
LEGAL MATTERS...............................................................73
EXPERTS.....................................................................73
FUTURE STOCKHOLDER PROPOSALS................................................73
WHERE YOU CAN FIND MORE INFORMATION.........................................74
LIST OF ANNEXES
Annex A Amended and Restated 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.
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 57.
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 74.
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 15, 1999 and the closing price of $70.56 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 $1,007.5 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 1,153,337 shares of
Executive Risk common stock, or approximately 10% 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 15,
1999, the most recent date for which prices were practicably available prior
to the printing of this document, the last sale price per share of Chubb
common stock was $70.56 and the last sale price per share of Executive Risk
common stock was $87.50.
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
departments of the State of Connecticut and of the State of Delaware.
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 53)
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 74.
<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)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
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 $ 186.9 $ 191.8 (a) $ 707.0 (a) $ 769.5 $ 486.2 (b) $ 654.4 $ 507.9
operations..................
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
</TABLE>
<TABLE>
<CAPTION>
As of March 31, As of December 31,
------------------------- ----------------------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ---------- ----------
(in millions, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
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
- ------------
* 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.
</TABLE>
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 74.
<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)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
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
- ------------
* 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.
</TABLE>
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>
Executive Risk
Pro -----------------------
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
- ------------
(a) Operating income from continuing operations is defined as income from
continuing operations excluding realized investment gains, net of tax.
</TABLE>
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 15, 1999, the most recent
date for which prices were practicably 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>
<CAPTION>
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 15, 1999.......... $70.56 $87.50 $87.14
</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 Amended and Restated
Agreement and Plan of Merger, dated as of June 16, 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 original merger agreement by the parties 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.
On June 16, 1999, the parties amended the original merger
agreement to modify certain employee benefits matters contained in the merger
agreement.
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 insurance commissioners of both the State of Connecticut and the
State of Delaware. 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 Market Price
----------------- Cash ----------------- 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 15). 76.38 57.00 0.32 92.88 69.63 0.02
</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
15, 1999, the most recent date for which prices were practicably 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
$70.56 and the closing price per share of Executive Risk common stock reported
on the New York Stock Exchange Composite Transaction Tape was $87.50.
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.
Graphic Omitted
[Bar chart summarizing the ranges of implied per share prices of Executive Risk
common stock based on DLJ's analyses and compares these ranges with the
Consideration Received based on closing prices as of 2/4/99.
Y-axis ranges in dollar amount from $20.00 to $100.00. X-axis lists comparable
public companies, comparable M&A transactions, M&A premiums paid, discounted
cash flow analysis and 52-week trading range.
Comparable public companies range between $42.79 and $65.57; comparable M&A
transactions range between $44.68 and $92.37; M&A premiums paid range between
$51.23 and $93.42; discounted cash flow analysis range between $49.60 and
$65.42; and 52-week trading range is between $35.50 and $75.75. Dotted line
showing consideration received as $73.02.(1)]
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
------------ ---------
Ratio of Pro Forma Ownership to Relative Contribution to:
<S> <C> <C>
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 fort 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> <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. In addition, it is anticipated
that the Executive Risk stock options will be amended prior to the closing of
the merger to provide that if an optionee who terminates employment is
eligible for severance benefits under the severance policy described below (or
is ineligible under such policy solely because the optionee is eligible to
receive severance or termination benefits under a separate stay bonus
arrangement), such optionee's options will remain exercisable until the
earlier of five years after the termination of employment or the original
expiration date of the option.
Based upon the Executive Risk stock options outstanding as of
June15, 1999, the vesting of stock options relating to 628,615 Executive Risk
shares, valued at $22,233,594, based upon the per share closing price on June
15, 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 June
15, 1999, the vesting of 27,000 Performance Share Units, valued at $2,362,500,
based upon the per share closing price on June 15, 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 incentive compensation/bonus plan in
respect of the period commencing after the closing of the merger or stock
option or other equity-related plans, which will be adjusted to be exercisable
for Chubb common shares. From the closing of the merger until December 31,
1999, however, Chubb shall, or shall cause Executive Risk to, maintain an
incentive compensation/bonus plan for the employees of the surviving
corporation and its subsidiaries that is no less favorable than the cash
incentive compensation/bonus plan in effect at such time for similarly
situated employees of Chubb and certain of its subsidiaries. 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 original 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, o 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 original 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 original 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 original 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 original 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 original 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 original merger agreement, other than any
incentive compensation/bonus plan in respect of the period commencing after the
closing of the merger or stock option or other equity-related plans maintained
by Executive Risk, in accordance with their existing terms. From the closing of
the merger until December 31, 1999, however, Chubb shall, or shall cause the
surviving corporation to, maintain an incentive compensation/bonus plan for the
employees of the surviving corporation and its subsidiaries that is no less
favorable than the cash incentive compensation/bonus plan in effect at such
time for similarly situated employees of Chubb and certain of its subsidiaries.
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 original
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 original 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 11,561,245 shares
of Executive Risk common stock outstanding and entitled to vote at the special
meeting, held by approximately 160 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 1,153,337 shares of Executive Risk common stock, or approximately 10% 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.
<TABLE>
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CHUBB EXECUTIVE RISK
- -----------------------------------------------------------------------------------------------------------------------------
GENERAL
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
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 15, 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 Filings7
(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
17, 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.
<PAGE>
ANNEX A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
dated as of
June 16, 1999
among
EXECUTIVE RISK INC.
THE CHUBB CORPORATION
and
EXCALIBUR ACQUISITION, INC.
<PAGE>
TABLE OF CONTENTS
----------------------
PAGE
----
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions...................................................A-2
ARTICLE 2
THE MERGER
SECTION 2.01. The Merger....................................................A-7
SECTION 2.02. Organizational Documents......................................A-7
SECTION 2.03. Directors and Officers........................................A-8
ARTICLE 3
CONVERSION OF SECURITIES AND RELATED MATTERS
SECTION 3.01. Conversion of Capital Stock...................................A-8
SECTION 3.02. Fractional Shares; Adjustments................................A-8
SECTION 3.03. Exchange of Certificates......................................A-9
SECTION 3.04. Company Stock Options........................................A-12
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.01. Corporate Existence and Power................................A-12
SECTION 4.02. Corporate Authorization......................................A-13
SECTION 4.03. Governmental Authorization...................................A-13
SECTION 4.04. Non-Contravention............................................A-14
SECTION 4.05. Capitalization...............................................A-14
SECTION 4.06. Subsidiaries.................................................A-15
SECTION 4.07. The Company SEC Documents....................................A-16
SECTION 4.08. Financial Statements; No Material Undisclosed Liabilities....A-16
SECTION 4.09. Information to be Supplied...................................A-18
SECTION 4.10. Absence of Certain Changes...................................A-18
SECTION 4.11. Litigation...................................................A-18
SECTION 4.12. Taxes........................................................A-19
SECTION 4.13. Employees and Employee Benefits..............................A-19
SECTION 4.14. Compliance with Insurance Laws; Licenses and Permits.........A-21
SECTION 4.15. Insurance Matters............................................A-23
SECTION 4.16. Liabilities and Reserves.....................................A-24
A-i
<PAGE>
PAGE
SECTION 4.17. Title to Properties..........................................A-25
SECTION 4.18. Intellectual Property........................................A-25
SECTION 4.19. Environmental Matters........................................A-25
SECTION 4.20. Finders' Fees; Opinions of Financial Advisor.................A-26
SECTION 4.21. Required Vote; Board Approval................................A-26
SECTION 4.22. State Takeover Statutes; Rights Agreement....................A-27
SECTION 4.23. Tax Treatment................................................A-27
SECTION 4.24. Year 2000 Compliance.........................................A-27
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PARENT
SECTION 5.01. Corporate Existence and Power................................A-28
SECTION 5.02. Corporate Authorization......................................A-28
SECTION 5.03. Governmental Authorization...................................A-29
SECTION 5.04. Non-Contravention............................................A-29
SECTION 5.05. Capitalization of Parent and MergerSub.......................A-29
SECTION 5.06. Parent SEC Documents.........................................A-30
SECTION 5.07. Financial Statements; No Material Undisclosed Liabilities....A-31
SECTION 5.08. Information to be Supplied...................................A-32
SECTION 5.09. Absence of Certain Changes...................................A-32
SECTION 5.10. Litigation...................................................A-33
SECTION 5.11. Compliance with Laws; Licenses and Permits...................A-33
SECTION 5.12. Finders' Fees................................................A-33
SECTION 5.13. Liabilities and Reserves.....................................A-34
SECTION 5.14. Year 2000 Compliance.........................................A-34
SECTION 5.15. Tax Treatment................................................A-35
ARTICLE 6
COVENANTS OF THE COMPANY
SECTION 6.01. The Company Interim Operations...............................A-35
SECTION 6.02. Stockholder Meeting..........................................A-38
SECTION 6.03. Acquisition Proposals; Board Recommendation..................A-39
SECTION 6.04. Transfer Taxes...............................................A-40
SECTION 6.05. Retention Program............................................A-40
SECTION 6.06. Certain Agreements...........................................A-40
A-ii
<PAGE>
PAGE
----
ARTICLE 7
COVENANTS OF PARENT
SECTION 7.01. Parent Interim Operations....................................A-41
SECTION 7.02. Director and Officer Liability...............................A-42
SECTION 7.03. Employee Benefits............................................A-43
SECTION 7.04. Stock Exchange Listing.......................................A-44
SECTION 7.05. Conduct of MergerSub.........................................A-44
ARTICLE 8
COVENANTS OF PARENT AND THE COMPANY
SECTION 8.01. Reasonable Best Efforts......................................A-44
SECTION 8.02. Certain Filings; Cooperation in Receipt of Consents..........A-44
SECTION 8.03. Public Announcements.........................................A-46
SECTION 8.04. Access to Information; Notification of Certain Matters.......A-46
SECTION 8.05. Further Assurances...........................................A-47
SECTION 8.06. Tax and Accounting Treatment.................................A-47
SECTION 8.07. Affiliate Letters............................................A-47
ARTICLE 9
CONDITIONS TO THE MERGER
SECTION 9.01. Conditions to the Obligations of Each Party..................A-48
SECTION 9.02. Conditions to the Obligations of The Company.................A-49
SECTION 9.03. Conditions to the Obligations of Parent and MergerSub........A-50
ARTICLE 10
TERMINATION
SECTION 10.01. Termination.................................................A-51
SECTION 10.02. Effect of Termination.......................................A-52
SECTION 10.03. Fees and Expenses...........................................A-52
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. Notices.....................................................A-54
SECTION 11.02. Survival of Representations, Warranties and Covenants
after the Effective Time..................................A-55
SECTION 11.03. Amendments; No Waivers......................................A-55
A-iii
<PAGE>
PAGE
----
SECTION 11.04. Successors and Assigns......................................A-55
SECTION 11.05. Governing Law...............................................A-56
SECTION 11.06. Counterparts; Effectiveness; Third Party Beneficiaries......A-56
SECTION 11.07. Jurisdiction................................................A-56
SECTION 11.08. Waiver of Jury Trial........................................A-56
SECTION 11.09. Enforcement.................................................A-57
SECTION 11.10. Entire Agreement............................................A-57
EXHIBITS
Exhibit A -- Rule 145 Affiliate's Letter
SCHEDULES
Company Disclosure Schedule
Parent Disclosure Schedule
Schedule 6.01(i)
Schedule 7.03(c)
A-iv
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER dated as of June 16,
1999 among Executive Risk Inc., a Delaware corporation (the "Company"), The
Chubb Corporation, a New Jersey corporation ("Parent"), and Excalibur
Acquisition, Inc., a Delaware corporation and a direct, wholly-owned subsidiary
of Parent ("MergerSub").
RECITALS
WHEREAS, on February 6, 1999, the parties hereto entered into a merger
agreement (the "Original Agreement") pursuant to which MergerSub would be merged
with and into the Company resulting in the Company becoming a wholly-owned
subsidiary of the Parent;
WHEREAS, the parties hereto wish to amend the Original Agreement to
amend certain matters with respect to the merger;
WHEREAS, the Boards of Directors of the Company and Parent each have
determined that a business combination between the Company and Parent is
advisable and in the best interests of their respective companies and
stockholders and presents an opportunity for their respective companies to
achieve long-term strategic and financial benefits, and accordingly have agreed
to effect the merger provided for herein upon the terms and subject to the
conditions set forth herein;
WHEREAS, the parties hereto intend that the merger provided for herein
shall qualify for U.S. federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the U.S. Internal Revenue Code of 1986, as
amended (together with the rules and regulations promulgated thereunder, the
"Code") (a "368 Reorganization");
WHEREAS, concurrently with entering into the Original Agreement, the
Company granted Parent an option to acquire up to 19.9% of newly issued Company
Common Shares (as defined below) on the terms and subject to the conditions set
forth in the Stock Option Agreement between the Company and Parent dated as of
the date of the Original Agreement (the "Stock Option Agreement"); and
WHEREAS, by resolutions duly adopted, the respective Boards of
Directors of the Company, Parent and MergerSub have approved and adopted this
Agreement, the Stock Option Agreement and the transactions contemplated hereby.
A-1
<PAGE>
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, and
intending to be legally bound, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. (a) As used herein, the following terms have
the following meanings:
"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 (i) any class of equity
securities of the Company or Executive Risk Indemnity Inc. or (ii) the
consolidated assets of the Company and its Subsidiaries or Executive Risk
Indemnity Inc., other than the transactions contemplated by this Agreement and
the Stock Option Agreement.
"Affiliate" means, with respect to any Person, any other Person,
directly or indirectly, controlling, controlled by, or under common control
with, such Person. For purposes of this definition, the term "control"
(including the correlative terms "controlling", "controlled by" and "under
common control with") means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract, or otherwise.
"Business Day" means any day other than a Saturday, Sunday or one on
which banks are authorized by law to close in New York, New York.
"Company Balance Sheet" means the Company's consolidated balance sheet
included in the Company 10-K relating to its fiscal year ended on December 31,
1997.
"Company Common Share" means one share of common stock of the Company,
$.01 par value per share.
"Company SEC Documents" means (i) the annual reports on Form 10-K of
the Company (the "Company 10-Ks") for the fiscal years ended December 31, 1996
and December 31, 1997, (ii) the quarterly reports on Form 10-Q of the
A-2
<PAGE>
Company (the "Company 10-Qs") for the fiscal quarters ended September 30, June
30 and March 31 of fiscal year 1998, (iii) the Company's proxy or information
statements relating to meetings of, or actions taken without a meeting by, the
Company stockholders held since December 31, 1996, and (iv) all other reports,
filings, registration statements and other documents filed by the Company with
the SEC since December 31, 1996.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Governmental Entity" means any federal, state or local governmental
authority, any transgovernmental authority or any court, administrative or
regulatory agency or commission or other governmental authority or agency,
domestic or foreign.
"knowledge" (and all correlative terms) as to any party means to the
knowledge of the executive officers of such party identified in Section 1.01(a)
of that party's Disclosure Schedule.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
provided, however, that the term "Lien" shall not include (i) liens for water
and sewer charges and current taxes not yet due and payable or being contested
in good faith and (ii) mechanics', carriers', workers', repairers',
materialmen's, warehousemen's and other similar liens arising or incurred in the
ordinary course of business.
"Material Adverse Effect" means a material adverse effect on the
financial condition, business or results of operations of a Person and its
Subsidiaries, taken as a whole, other than effects caused by (i) changes in
general economic or securities markets conditions, (ii) changes that affect the
insurance industry in general or (iii) the public announcement of the
transactions contemplated by this Agreement. "Parent Material Adverse Effect"
means a Material Adverse Effect in respect of Parent and "Company Material
Adverse Effect" means a Material Adverse Effect in respect of the Company.
"NYSE" means The New York Stock Exchange.
"Parent Balance Sheet" means Parent's consolidated balance sheet
included in the Parent 10-K relating to its fiscal year ended on December 31,
1997.
A-3
<PAGE>
"Parent Common Share" means one share of common stock of Parent, par
value $1.00 per share.
"Parent Insurance Subsidiaries" means the Subsidiaries which conduct
Parent's insurance operations.
"Parent SEC Documents" means (i) Parent's annual reports on Form 10-K
for its fiscal years ended December 31, 1996 and December 31, 1997 (the "Parent
10-Ks"), (ii) Parent's quarterly reports on Form 10-Q (the "Parent 10- Qs") for
its fiscal quarters ended September 30, June 30 and March 31, of fiscal year
1998, (iii) Parent's proxy or information statements relating to meetings of, or
actions taken without a meeting by, Parent's stockholders held since December
31, 1996, and (iv) all other reports, filings, registration statements and other
documents filed by it with the SEC since December 31, 1996.
"Person" means an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including any Governmental Entity.
"Proxy Statement/Prospectus" means the proxy statement/prospectus
including the Registration Statement and the proxy statement for the Company
Stockholder Meeting, together with any amendments or supplements thereto.
"Registration Statement" means the Registration Statement on Form S-4
registering under the Securities Act the Parent Common Shares issuable in
connection with the Merger.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other Persons
performing similar functions are directly or indirectly owned by such Person.
"Parent Subsidiary" means a Subsidiary of Parent and "Company Subsidiary" means
a Subsidiary of the Company.
"Superior Proposal" means a bona fide, written Acquisition Proposal for
all of the outstanding Company Common Shares that is on terms that a majority of
the Company's Board of Directors determines in good faith (after consultation
with an investment bank of nationally recognized reputation and the Company's
A-4
<PAGE>
outside counsel) would result in a transaction, if consummated, that is more
favorable to the Company's stockholders, from a financial point of view (taking
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) than the
transactions contemplated hereby (after giving effect to any revised proposal
made by or on behalf of Parent prior to the end of the three-Business-Day-period
referred to in Section 6.03(d)).
(b) Each of the following terms is defined in the Section set forth
opposite such term:
Terms Section
----- -------
Certificate of Merger 2.01(b)
Certificates 3.03(a)
Closing 2.01(d)
Code Recitals
Company Preamble
Company Actuarial Analyses 4.15(c)
Company Employee Plans 4.13(a)
Company Insurance Contracts 4.15(a)
Company Insurance Subsidiaries 4.06(b)
Company Intellectual Property 4.18
Company Material Adverse Effect 1.01(a)
Company Option 3.04(a)
Company Recommendation 6.02
Company Returns 4.12
Company SAP Statements 4.08(b)
Company Securities 4.05(b)
Company Stockholder Approval 4.21(a)
Company Stockholder Meeting 6.02
Company Subsidiary 1.01(a)
Company Systems 4.24
Company 10-Ks 1.01(a)
Company 10-Qs 1.01(a)
Confidentiality Agreement 8.04(a)
DGCL 2.01(a)
Effective Time 2.01(b)
Employees 7.03(a)
End Date 10.01(b)(i)
Environmental Laws 4.19(b)
ERISA 4.13(a)
ERISA Affiliate 4.13(a)
A-5
<PAGE>
Terms Section
Exchange Agent 3.03(a)
Exchange Fund 3.03(a)
GAAP 4.08(a)
HSR Act 4.03(b)
Indemnified Parties 7.02(b)
Insurance Laws 4.14(a)
Insurance Subsidiaries 4.06(b)
Laws 4.14(b)
Merger 2.01(a)
MergerSub Common Share 3.01(a)
Merger Consideration 3.01(b)
MergerSub Preamble
Multiemployer Plan 4.13(b)
Owned Property 4.17
Parent Preamble
Parent Cumulative Preferred 5.05(a)
Parent Material Adverse Effect 1.01(a)
Parent Option 3.04(a)
Parent SAP Statements 5.07(b)
Parent Securities 5.05(b)
Parent Serial Preferred 5.05(a)
Parent Subsidiary 1.01(a)
Parent Systems 5.14
Parent 10-Ks 1.01(a)
Parent 10-Qs 1.01(a)
Retirement Plan 4.13(b)
Rights 3.01(b)
Rights Agreement 3.01(b)
Stock Option Agreement Preamble
Surviving Corporation 2.01(a)
Termination Fee 10.03(e)
Third Party Acquisition Event 10.03(f)
368 Reorganization Recitals
Transfer Taxes 6.04
Year 2000 Compliant 4.24
A-6
<PAGE>
ARTICLE 2
THE MERGER
SECTION 2.01. The Merger. (a) At the Effective Time, MergerSub shall be
merged (the "Merger") with and into the Company in accordance with the terms and
conditions of this Agreement and of the General Corporation Law of the State of
Delaware (the "DGCL"), at which time the separate existence of MergerSub shall
cease and the Company shall be the surviving corporation (the "Surviving
Corporation").
(b) Not later than the second Business Day after satisfaction or, to
the extent permitted hereby, waiver of the conditions set forth in Article 9
(other than conditions that by their nature are to be satisfied at the Closing,
but subject to those conditions), the Company and MergerSub will file a
certificate of merger (the "Certificate of Merger") with the Secretary of State
of the State of Delaware and make all other filings or recordings required by
the DGCL in connection with the Merger. The Merger shall become effective upon
the filing of the Certificate of Merger with the Secretary of State of the State
of Delaware in accordance with the DGCL or at such later time which the parties
hereto shall have agreed upon and designated in such Certificate of Merger as
the effective time of the Merger (the "Effective Time").
(c) From and after the Effective Time, the Merger shall have the
effects set forth in the DGCL.
(d) The closing of the Merger (the "Closing") shall be held at the
offices of Davis Polk & Wardwell, 450 Lexington Avenue, New York, NY (or such
other place as agreed by the parties) at 10:00 a.m. New York City time on a date
to be specified by the parties, which shall be no later than the second Business
Day after satisfaction or, to the extent permitted hereby, waiver of the
conditions set forth in Article 9 (other than conditions that by their nature
are to be satisfied at the Closing, but subject to those conditions), unless the
parties hereto agree to another date or time.
SECTION 2.02. Organizational Documents. The Certificate of Merger shall
provide that at the Effective Time (i) the Company's certificate of
incorporation in effect immediately prior to the Effective Time shall be the
Surviving Corporation's certificate of incorporation and (ii) MergerSub's bylaws
in effect immediately prior to the Effective Time shall be the Surviving
Corporation's bylaws, in each case until amended in accordance with applicable
law.
A-7
<PAGE>
SECTION 2.03. Directors and Officers. From and after the Effective Time
(until successors are duly elected or appointed and qualified), (i) MergerSub's
directors at the Effective Time shall be the Surviving Corporation's directors
and (ii) the Company's officers immediately prior to the Effective Time shall be
the Surviving Corporation's officers.
ARTICLE 3
CONVERSION OF SECURITIES AND RELATED MATTERS
SECTION 3.01. Conversion of Capital Stock. At the Effective Time, by
virtue of the Merger:
(a) Each share of common stock of MergerSub (each, a "MergerSub Common
Share") outstanding immediately prior to the Effective Time shall be converted
into and become one share of common stock of the Surviving Corporation.
(b) Except as otherwise provided in Section 3.01(c) or Section
3.02(a), each Company Common Share outstanding immediately prior to the
Effective Time, together with the rights ("Rights") attached thereto and issued
pursuant to the Amended and Restated Rights Agreement dated as of November 12,
1998, between the Company and Chasemellon Shareholder Services, L.L.C., as
Rights Agent (the "Rights Agreement"), shall be converted into the right to
receive 1.235 Parent Common Shares. This Agreement shall refer to the Parent
Common Shares required to be issued pursuant to this Section 3.01(b), together
with any cash payments required to be made in lieu of fractional Parent Common
Shares, collectively as the "Merger Consideration."
(c) Each Company Common Share held by the Company as treasury stock or
owned by Parent or any Parent Subsidiary immediately prior to the Effective Time
shall be canceled, and no payment shall be made in respect thereof.
SECTION 3.02. Fractional Shares; Adjustments. (a) No fractional Parent
Common Shares shall be issued in the Merger. All fractional Parent Common Shares
that a holder of any Company Common Shares would otherwise be entitled to
receive as a result of the Merger shall be aggregated. If a fractional Parent
Common Share results from such aggregation, the holder shall be entitled to
receive, in lieu thereof, a cash amount, without interest, determined by
multiplying the closing sale price of a Parent Common Share on the New York
A-8
<PAGE>
Stock Exchange on the trading day immediately preceding the Effective Time by
the fraction of a Parent Common Share to which such holder would otherwise have
been entitled. As promptly as practicable after the determination of the amount
of cash, if any, to be paid to holders of fractional share interests, the
Exchange Agent (as hereinafter defined) shall so notify Parent, and Parent shall
deposit such amount with the Exchange Agent and shall cause the Exchange Agent
to forward payments to such holders of fractional share interests, subject to
and in accordance with the terms of Section 3.03.
(b) If at any time during the period between the date of the Original
Agreement and the Effective Time, any change in the outstanding shares of
capital stock of Parent or securities convertible or exchangeable into capital
stock of Parent shall occur, including by reason of any reclassification,
recapitalization, stock split or combination, exchange or readjustment of
shares, or any dividend or distribution thereon (other than regular quarterly
cash dividends) or a record date with respect to any of the foregoing shall
occur during such period, the number of Parent Common Shares constituting part
of the Merger Consideration shall be appropriately adjusted to provide to the
holders of the Parent Common Shares and the Company Common Shares the same
economic effect as contemplated by this Agreement prior to the consummation of
such event.
SECTION 3.03. Exchange of Certificates.
(a) Exchange Agent. Promptly after the date of the Original Agreement,
Parent shall appoint First Chicago Trust Company of New York as an agent (the
"Exchange Agent") for the benefit of holders of Company Common Shares for the
purpose of exchanging, pursuant to this Article 3, certificates ("Certificates")
that immediately prior to the Effective Time represented outstanding Company
Common Shares which were converted into the right to receive the Merger
Consideration. Parent will make available to the Exchange Agent, as needed, the
Merger Consideration, together with any dividends or distributions with respect
thereto, if any, to be paid in respect of Company Common Shares pursuant to this
Article 3 (the "Exchange Fund"), and except as contemplated by Section 3.03(f)
or Section 3.03(g) hereof, the Exchange Fund shall not be used for any other
purpose.
(b) Exchange Procedures. As promptly as practicable after the
Effective Time, Parent shall send, or will cause the Exchange Agent to send, to
each holder of record of a Certificate or Certificates a letter of transmittal
and instructions (which shall be in customary form and specify that delivery
shall be effected, and risk of loss and title shall pass, only upon delivery of
the Certificates to the Exchange Agent), for use in the exchange contemplated by
this Section 3.03. Upon surrender of a Certificate to the Exchange Agent,
together with a duly
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executed letter of transmittal, the holder of such Certificate shall be entitled
to receive in exchange therefor the Merger Consideration and unpaid dividends
and distributions thereon, if any, as provided in this Article 3 in respect of
the Company Common Shares represented by such Certificate (after giving effect
to any required withholding tax). Until surrendered as contemplated by this
Section 3.03 each Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive the Merger Consideration and unpaid
dividends and distributions thereon, if any, as provided in this Article 3. If
any portion of the Merger Consideration is to be paid to a Person other than the
Person in whose name the Certificate is registered, it shall be a condition to
such payment that the Certificate so surrendered shall be properly endorsed or
otherwise be in proper form for transfer and that the Person requesting such
payment shall pay to the Exchange Agent any transfer or other taxes required as
a result of such payment to a Person other than the registered holder of such
Certificate or establish to the satisfaction of the Exchange Agent that such tax
has been paid or is not payable. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required by
Parent, the posting by such Person of a bond, in such reasonable amount as
Parent may direct, as indemnity against any claim that may be made against it
with respect to such Certificate, the Exchange Agent will deliver, in exchange
for such lost, stolen or destroyed Certificate, the proper amount of the Merger
Consideration, together with any unpaid dividends and distributions on any such
Parent Common Shares, as contemplated by this Article 3.
(c) Distributions with Respect to Unexchanged Shares. Whenever a
dividend or other distribution is declared by Parent in respect of the Parent
Common Shares, the record date for which is at or after the Effective Time, that
declaration shall include dividends or other distributions in respect of all
Parent Common Shares issuable pursuant to this Agreement. No dividends or other
distributions declared or made after the Effective Time with respect to Parent
Common Shares constituting part of the Merger Consideration shall be paid to the
holder of any unsurrendered Certificate, and no cash payment in lieu of
fractional shares shall be paid to any such holder, until such Certificate is
surrendered as provided in this Section 3.03. Following such surrender, there
shall be paid, without interest, to the Person in whose name the Parent Common
Shares have been registered (i) at the time of such surrender, the amount of
dividends or other distributions with a record date at or after the Effective
Time previously paid or payable on the date of such surrender with respect to
such whole Parent Common Shares, less the amount of any withholding taxes that
may be required thereon, and (ii) at the appropriate payment date subsequent to
surrender, the amount of dividends or other distributions with a record date at
or after the Effective Time but prior to surrender and a payment date subsequent
to surrender payable with
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respect to such whole Parent Common Shares, less the amount of any withholding
taxes which may be required thereon.
(d) No Further Ownership Rights in the Company Common Shares. All
Parent Common Shares issued upon surrender of Certificates in accordance with
the terms hereof (including any cash paid pursuant to this Article 3) shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
Company Common Shares represented thereby, and, as of the Effective Time, the
stock transfer books of the Company shall be closed and there shall be no
further registration of transfers on the Company's stock transfer books of
Company Common Shares outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Section 3.03.
(e) Return of Merger Consideration. Upon demand by Parent, the
Exchange Agent shall deliver to Parent any portion of the Merger Consideration
made available to the Exchange Agent pursuant to this Section 3.03 that remains
undistributed to holders of Company Common Shares one year after the Effective
Time. Holders of Certificates who have not complied with this Section 3.03 prior
to such demand shall thereafter look only to Parent for payment of any claim to
the Merger Consideration and dividends or distributions, if any, in respect
thereof.
(f) No Liability. None of Parent, the Surviving Corporation or the
Exchange Agent shall be liable to any Person in respect of any Company Common
Shares (or dividends or distributions with respect thereto) for any amounts paid
to a public official pursuant to any applicable abandoned property, escheat or
similar law. Any amounts remaining unclaimed by any holder of Company Common
Shares immediately prior to such time when such amounts would otherwise escheat
to or become the property of any Governmental Entity, shall, to the extent
permitted by applicable laws, become the property of Parent, free and clear of
all claims or interest of any Person previously entitled thereto.
(g) Withholding Rights. Each of the Surviving Corporation and Parent
shall be entitled to deduct and withhold from the Merger Consideration (and any
dividends or distributions thereon) otherwise payable hereunder to any Person
such amounts as it is required to deduct and withhold with respect to the making
of such payment under any provision of federal, state, local or foreign income
tax law. To the extent that the Surviving Corporation or Parent so withholds
those amounts, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of Company Common Shares in respect
of which such deduction and withholding was made by the Surviving Corporation or
Parent, as the case may be.
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SECTION 3.04. Company Stock Options. (a) At the Effective Time, each
option to purchase Company Common Shares (each, a "Company Option") outstanding
under any stock option or compensation plan or arrangement of the Company,
whether or not vested or exercisable, shall be deemed to constitute an option
(each a "Parent Option") to acquire, on the same terms and conditions as were
applicable under such Company Option, the same number of Parent Common Shares as
the holder of such Company Option would have been entitled to receive pursuant
to Section 3.01(b) of this Agreement had such holder exercised such Company
Option in full immediately prior to the Effective Time (rounded up to the
nearest whole number), at a price per share (rounded down to the nearest whole
cent) equal to (x) the aggregate exercise price for Company Common Shares
otherwise purchasable pursuant to such Company Option divided by (y) the number
of full Parent Common Shares deemed purchasable pursuant to such Company Option
in accordance with the foregoing.
(b) Prior to the Effective Time, the Company and Parent shall take all
actions (including, if appropriate, amending the terms of the Company's stock
option or compensation plans or arrangements) that are necessary to give effect
to the transactions contemplated by Section 3.04(a).
(c) At or prior to the Effective Time, Parent shall take all corporate
action necessary to reserve for issuance a sufficient number of Parent Common
Shares for delivery upon exercise of the Parent Options. At or prior to the
Effective Time, Parent shall file a registration statement on Form S-8 (or any
successor form), with respect to the Parent Common Shares subject to such Parent
Options, and shall use its reasonable best efforts to maintain the effectiveness
of such registration statement(s), maintain the current status of the
prospectus(es) contained therein and comply with all applicable state securities
or "blue sky" laws for so long as such Parent Options remain outstanding.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in (i) the Company Disclosure Schedule attached
hereto or (ii) the Company SEC Documents filed prior to the date of the Original
Agreement, the Company represents and warrants to Parent that:
SECTION 4.01. Corporate Existence and Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, and has all corporate powers required to carry on
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its business as now conducted. The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, except where the failure to be so qualified,
individually or in the aggregate, would not be reasonably likely to have a
Company Material Adverse Effect. The Company has heretofore made available to
Parent true and complete copies of the Company's certificate of incorporation
and bylaws as currently in effect.
SECTION 4.02. Corporate Authorization. The execution, delivery and
performance by the Company of this Agreement and the Stock Option Agreement and
the consummation by the Company of the transactions contemplated hereby and
thereby are within the Company's corporate powers and, except for the Company
Stockholder Approval (as defined herein), have been duly authorized by all
necessary corporate action. Assuming that each of this Agreement and the Stock
Option Agreement constitutes the valid and binding obligation of Parent and
MergerSub, as applicable, each of this Agreement and the Stock Option Agreement
constitutes a valid and binding agreement of the Company, enforceable in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and similar laws, now or hereafter in effect, relating to or
affecting creditors' rights and remedies and to general principles of equity.
SECTION 4.03. Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement and the Stock Option Agreement and
the consummation by the Company of the transactions contemplated hereby and
thereby require no action by or in respect of, or filing with, any Governmental
Entity other than (a) the filing of a certificate of merger in accordance with
the DGCL; (b) compliance with any applicable requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"); (c)
compliance with, and the filing (if necessary) of a notification with the
European Commission under, Council Regulation (EEC) No. 4064/89 and any other
foreign filings or approvals; (d) compliance with any applicable requirements of
the Securities Act and the Exchange Act; (e) such as may be required under any
applicable state securities or blue sky laws; (f) filings with and approval of
the Commissioners of Insurance of the jurisdictions listed on Section 4.03(f) of
the Company Disclosure Schedule; (g) such as may be required under the
Connecticut Hazardous Waste Establishment Transfer Act and the rules and
regulations promulgated thereunder; and (h) such other consents, approvals,
actions, orders, authorizations, registrations, declarations and filings which,
if not obtained or made, would not, individually or in the aggregate, (x) be
reasonably likely to have a Company Material Adverse Effect, or (y) prevent or
materially impair the ability of the Company to consummate the transactions
contemplated by this Agreement or the Stock Option Agreement.
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SECTION 4.04. Non-Contravention. The execution, delivery and
performance by the Company of this Agreement and the Stock Option Agreement and
the consummation by the Company of the transactions contemplated hereby and
thereby do not and will not (a) contravene or conflict with the Company's
certificate of incorporation or bylaws, (b) assuming compliance with the matters
referred to in Section 4.03, contravene or conflict with or constitute a
violation of any provision of any law, regulation, judgment, injunction, order
or decree binding upon or applicable to the Company or any Company Subsidiary,
(c) constitute a default under or give rise to a right of termination,
cancellation or acceleration of any right or obligation of the Company or any
Company Subsidiary or to a loss of any benefit or status to which the Company or
any Company Subsidiary is entitled under any provision of any agreement,
contract or other instrument binding upon the Company or any Company Subsidiary
or any license, franchise, permit or other similar authorization held by the
Company or any Company Subsidiary, or (d) result in the creation or imposition
of any Lien on any asset of the Company or any Company Subsidiary other than, in
the case of each of (b), (c) and (d), any such items that would not,
individually or in the aggregate (x) be reasonably likely to have a Company
Material Adverse Effect or (y) prevent or materially impair the ability of the
Company to consummate the transactions contemplated by this Agreement.
SECTION 4.05. Capitalization. (a) The authorized capital stock of the
Company consists of 50,000,000 Company Common Shares and 4,000,000 shares of
preferred stock, par value $0.01 per share. As of February 1, 1999, there were
outstanding (x) 11,117,526 Company Common Shares, (y) no shares of Company
preferred stock and (z) stock options to purchase an aggregate of 1,868,553
Company Common Shares (of which options to purchase an aggregate of 874,412
Company Common Shares were exercisable and of which 1,268,469 options have
associated restoration or reload option rights). All outstanding shares of
capital stock of the Company have been duly authorized and validly issued and
are fully paid and nonassessable.
(b) As of the date of the Original Agreement, except (i) as set forth
in this Section 4.05, (ii) the Rights, (iii) for changes since February 1, 1999
resulting from the exercise of stock options, the grant of stock options
pursuant to Restoration Stock Option Agreements between the Company and
directors and employees of the Company and its Subsidiaries in effect on the
date of the Original Agreement or the conversion of stock units and dividend
equivalents thereon outstanding on such date, and (iv) for the rights of
employees of the Company and its Subsidiaries pursuant to the Company's
Performance Share Plan (pursuant to which, as of the date of the Original
Agreement, up to a maximum of 114,300 Company Common Shares may be issued) and
Stock Incentive Plan, as in effect on the date of the Original Agreement there
are no outstanding (x) shares
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of capital stock or other voting securities of the Company, (y) securities of
the Company convertible into or exchangeable for shares of capital stock or
voting securities of the Company, and (z) options or other rights to acquire
from the Company, and no obligation of the Company to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of the Company (the items in clauses (x), (y) and (z)
being referred to collectively as the "Company Securities"). There are no
outstanding obligations of the Company or any Company Subsidiary to repurchase,
redeem or otherwise acquire any Company Securities.
SECTION 4.06. Subsidiaries. (a) Each Subsidiary of the Company is a
corporation duly incorporated or an entity duly organized, and is validly
existing and in good standing, under the laws of its jurisdiction of
incorporation or organization, has all powers and authority and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted and is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary, in each case with such exceptions as,
individually or in the aggregate, would not be reasonably likely to have a
Company Material Adverse Effect. The Company Disclosure Schedule sets forth a
list of all Subsidiaries of the Company and their respective jurisdictions of
incorporation or organization and identifies the Company's (direct or indirect)
percentage equity ownership interest therein.
(b) The Company conducts its insurance operations through the
Subsidiaries listed in Section 4.06(b) of the Company Disclosure Schedule
(collectively, the "Company Insurance Subsidiaries"). Each of the Company
Insurance Subsidiaries is, where required, (i) duly licensed or authorized as an
insurance company or reinsurer in its jurisdiction of incorporation, (ii) duly
licensed or authorized as an insurance company and, where applicable, a
reinsurer, or is an eligible excess or surplus lines insurer, in each other
jurisdiction where it is required to be so licensed, authorized or eligible, and
(iii) duly authorized or eligible in its jurisdiction of incorporation and each
other applicable jurisdiction to write each line of business reported as being
written in the Company SAP Statements (as hereinafter defined), except where the
failure to be so licensed, authorized or eligible, individually or in the
aggregate, would not be reasonably likely to have a Company Material Adverse
Effect. The Company has made all required filings under applicable insurance
holding company statutes except where the failure to file, individually or in
the aggregate, would not be reasonably likely to have a Company Material Adverse
Effect.
(c) All of the outstanding shares of capital stock of, or other
ownership interest in, each Subsidiary of the Company has been validly issued
and is fully
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paid and nonassessable. All of the outstanding capital stock of, or other
ownership interest, which is owned, directly or indirectly, by the Company in,
each of its Subsidiaries is owned free and clear of any Lien and free of any
other limitation or restriction (including any limitation or restriction on the
right to vote, sell or otherwise dispose of such capital stock or other
ownership interests) with such exceptions as, individually or in the aggregate,
would not be reasonably likely to have a Company Material Adverse Effect. There
are no outstanding (i) securities of the Company or any of its Subsidiaries
convertible into or exchangeable or exercisable for shares of capital stock or
other voting securities or ownership interests in any of its Subsidiaries, (ii)
options, warrants or other rights to acquire from the Company or any of its
Subsidiaries, and no other obligation of the Company or any of its Subsidiaries
to issue, any capital stock, voting securities or other ownership interests in,
or any securities convertible into or exchangeable or exercisable for any
capital stock, voting securities or ownership interests in, any of its
Subsidiaries or (iii) obligations of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any outstanding securities of any of its
Subsidiaries or any capital stock of, or other ownership interests in, any of
its Subsidiaries.
SECTION 4.07. The Company SEC Documents. (a) The Company has made
available to Parent the Company SEC Documents and any other communication
received from or sent to the SEC. The Company has filed all reports, filings,
registration statements and other documents required to be filed by it with the
SEC since December 31, 1996. No Company Subsidiary is required to file any form,
report, registration statement or prospectus or other document with the SEC.
(b) As of its filing date, each Company SEC Document complied as to
form in all material respects with the applicable requirements of the Securities
Act and/or the Exchange Act, as the case may be.
(c) No Company SEC Document filed pursuant to the Exchange Act
contained, as of its filing date or mailing date, as applicable, any untrue
statement of a material fact or omitted to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. No Company SEC Document, as amended
or supplemented, if applicable, filed pursuant to the Securities Act contained,
as of the date such document or amendment became effective, any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
SECTION 4.08. Financial Statements; No Material Undisclosed
Liabilities. (a) The audited consolidated financial statements and unaudited
consolidated
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interim financial statements of the Company included in the Company 10-Ks and
the Company 10-Qs fairly present in all material respects, in conformity with
generally accepted accounting principles applied on a consistent basis ("GAAP")
(except as may be indicated in the notes thereto), the consolidated financial
position of the Company and its consolidated Subsidiaries as of the dates
thereof and their consolidated results of operations and cash flows for the
periods then ended (subject to normal year-end adjustments in the case of any
unaudited interim financial statements).
(b) The Company has delivered or made available to Parent true and
complete copies of the annual and quarterly statements of each of the Company
Insurance Subsidiaries as filed with the applicable insurance regulatory
authorities for the years ended December 31, 1995, 1996 and 1997 and the
quarterly periods ended March 31, 1998, June 30, 1998 and September 30, 1998,
including all exhibits, interrogatories, notes, schedules and any actuarial
opinions, affirmations or certifications or other supporting documents filed in
connection therewith (collectively, the "Company SAP Statements"). The Company
SAP Statements fairly present in all material respects, in conformity with
statutory accounting practices prescribed or permitted by the applicable
insurance regulatory authority applied on a consistent basis, the statutory
financial position of such Company Insurance Subsidiaries as at the respective
dates thereof and the results of operations of such Subsidiaries for the
respective periods then ended. The Company SAP Statements complied in all
material respects with all applicable laws, rules and regulations when filed,
and no material deficiency has been asserted with respect to any Company SAP
Statements by the applicable insurance regulatory body or any other governmental
agency or body. The annual statutory balance sheets and income statements
included in the Company SAP Statements have been audited by Ernst & Young LLP,
and the Company has delivered or made available to Parent true and complete
copies of all audit opinions related thereto. The Company has delivered or made
available to Parent true and complete copies of all examination reports of
insurance departments and any insurance regulatory agencies since January 1,
1995 relating to the Company Insurance Subsidiaries.
(c) There are no liabilities of the Company or any Company Subsidiary
of any kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, in each case, that are required by GAAP to be set
forth on a consolidated balance sheet of the Company, other than:
(i) liabilities or obligations disclosed or provided for in the
Company Balance Sheet or disclosed in the notes thereto;
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(ii) liabilities or obligations under this Agreement and the Stock
Option Agreement or incurred in connection with the transactions
contemplated hereby and thereby; and
(iii) other liabilities or obligations, which, individually or in the
aggregate, would not be reasonably likely to have a Company Material
Adverse Effect.
SECTION 4.09. Information to be Supplied. (a) The information supplied
in writing by the Company expressly for inclusion or incorporation by reference
in the Proxy Statement/Prospectus (i) in the case of the Registration Statement,
at the time it became effective, did not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading and (ii) in
the case of the remainder of the Proxy Statement/Prospectus, at the time of the
mailing thereof and at the time of the Company Stockholder Meeting, will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement/Prospectus will comply (with respect to
information relating to the Company) as to form in all material respects with
the provisions of the Securities Act and the Exchange Act.
(b) Notwithstanding the foregoing, the Company makes no representation
or warranty with respect to any statements made or incorporated by reference in
the Proxy Statement/Prospectus based on information supplied in writing by
Parent or MergerSub expressly for use therein.
SECTION 4.10. Absence of Certain Changes. Since December 31, 1997,
except as otherwise expressly contemplated by this Agreement, the Company and
the Company Subsidiaries have conducted their business in the ordinary course
consistent with past practice and there has not been (a) any action, event,
occurrence, development, change in method of doing business, or state of
circumstances or facts that, individually or in the aggregate, has had or would
be reasonably likely to have a Company Material Adverse Effect; or (b) any
change by the Company in accounting principles or methods (other than as
required by GAAP).
SECTION 4.11. Litigation. There is no action, suit, investigation,
arbitration or proceeding (or to the knowledge of the Company any basis
therefor) pending against, or to the knowledge of the Company threatened
against, the Company or any Company Subsidiary or any of their respective assets
or properties before any arbitrator or Governmental Entity that, individually or
in the
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aggregate, would be reasonably likely to have a Company Material Adverse
Effect.
SECTION 4.12. Taxes. (a) All material tax returns, statements, reports
and forms (collectively, the "Company Returns") required to be filed with any
taxing authority by, or with respect to, the Company and the Company
Subsidiaries were filed on a timely basis and were true, complete and correct
except to the extent that the failure to file or be true, complete and correct
would not, individually or in the aggregate, have a Company Material Adverse
Effect; (b) the Company and the Company Subsidiaries have timely paid all
material taxes (which for purposes of Section 4.12 shall include interest,
penalties and additions to tax with respect thereto) shown as due and payable on
the Company Returns (other than taxes which are being contested in good faith
and for which adequate reserves are reflected on the Company Balance Sheet)
except to the extent that the failure to pay would not, individually or in the
aggregate, have a Company Material Adverse Effect; (c) the Company and the
Company Subsidiaries have made provision for all material taxes payable by them
for which no Company Return has yet been filed except for inadequately reserved
taxes that would not, individually or in the aggregate, have a Company Material
Adverse Effect; (d) no taxing authority has asserted or initiated (or threatened
to assert or initiate) in writing any action, suit, proceeding or claim against
the Company or any of the Company Subsidiaries that, individually or in the
aggregate, would have a Company Material Adverse Effect; (e) there is no
application pending for approval of a change in accounting methods; (f) neither
the Company nor any of the Company Subsidiaries has been a member of an
affiliated, consolidated, combined or unitary group other than one of which the
Company was the common parent; and (g) neither the Company nor any of the
Company Subsidiaries is obligated by any contract, agreement or other
arrangement to indemnify any other person with respect to taxes or to compensate
any third party for any tax payment or tax liability under a tax sharing or
similar agreement.
SECTION 4.13. Employees and Employee Benefits. (a) Section 4.13(a) of
the Company Disclosure Schedule contains a correct and complete list identifying
each material "employee benefit plan", as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974 ("ERISA"), each employment,
severance or similar contract, plan, arrangement or policy and each other plan
or arrangement (written or oral) providing for compensation, bonuses,
profit-sharing, stock option or other stock related rights or other forms of
incentive or deferred compensation, insurance coverage (including any
self-insured arrangements), health or medical benefits, disability benefits,
supplemental unemployment benefits, severance benefits and post-employment or
retirement benefits (including compensation, pension, health, medical or life
insurance benefits) which is maintained, administered or contributed to by the
Company or any
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Company Subsidiary and covers any employee or former employee of the Company or
any Company Subsidiary. Copies of such plans (and, if applicable, related trust
agreements) and all amendments thereto and written summary descriptions thereof
have been furnished, or will be made available upon request, to Parent together
with the most recent annual report (Form 5500 including, if applicable, Schedule
B thereto) prepared in connection with any such plan. Such plans are referred to
collectively herein as the "Company Employee Plans".
(b) Neither the Company nor any current ERISA Affiliate maintains,
contributes to or is required to contribute to, or has in the past maintained,
contributed to or been required to contribute to any plan subject to Title IV of
ERISA or Section 412 of the Code, including, without limitation, any
"multiemployer plan" (as defined in Section 3(37) of ERISA). To the knowledge of
the Company, no event has occurred or is reasonably likely to occur that would
cause the Company or any ERISA Affiliate to incur liability or be subject to any
lien under Title IV of ERISA or Section 412 of the Code with respect to any plan
currently or previously maintained or contributed to by any former ERISA
Affiliate. For purposes of this Agreement the term "ERISA Affiliate" shall mean
any entity which, together with the Company, would be treated as a single
employer under Section 414 of the Code.
(c) Each Company Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has received a favorable
determination letter from the Internal Revenue Service stating that it is so
qualified and, to the knowledge of the Company, nothing has occurred since the
date of such letter that would cause it to be revoked, whether prospectively or
retroactively. The Company has furnished, or will make available upon request,
to Parent copies of the most recent Internal Revenue Service determination
letters with respect to each such Company Employee Plan. Each Company Employee
Plan has been maintained in substantial compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations,
including but not limited to ERISA and the Code, which are applicable to such
Company Employee Plan except as would not be reasonably likely to have a Company
Material Adverse Effect. To the knowledge of the Company, nothing has been done
or omitted to be done and no transaction or holding of any asset under or in
connection with any Company Employee Plan has occurred that will make the
Company or any Company Subsidiary, or any officer or director of the Company or
any Company Subsidiary, subject to any liability under Title I of ERISA or
liable for any tax pursuant to Section 4975 of the Code (assuming the taxable
period of any such transaction expired as of the date of the Original Agreement)
that would be reasonably likely to have a Company Material Adverse Effect.
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(d) The execution of, and performance of the transactions contemplated
in, this Agreement will not (either alone or upon the occurrence of any
additional or subsequent events) constitute an event under any Company Employee
Plan, trust or loan that will or may result in any payment (whether of severance
pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with respect
to any current or former employee, executive or director of the Company or any
Company Subsidiary. To the knowledge of the Company, there is no contract,
agreement, plan or arrangement covering any employee or former employee of the
Company that, individually or collectively, would be reasonably likely to give
rise to the payment of any amount that would result in a material loss of tax
deductions pursuant to the terms of Section 162(m) of the Code.
(e) Neither the Company nor any Company Subsidiary maintains or
contributes to any Company Employee Plan which provides, or has any liability to
provide, life insurance, medical or other welfare benefits to any employee(s)
upon their retirement or termination of employment, except as required by
Section 601 of ERISA and Section 4980B of the Code.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) relating to any Company Employee Plan
which would increase materially the expense of maintaining such Company Employee
Plans in the aggregate above the level of the expense incurred in respect
thereof for the fiscal year ended December 31, 1998.
(g) Neither the Company nor any Company Subsidiary is presently or has
been in the past a party to, or bound by, any collective bargaining agreement or
union contract with respect to employees. There are no pending or, to the
knowledge of the Company, threatened representation questions respecting any
employees of the Company or any Company Subsidiary.
(h) The Company and each Company Subsidiary is in compliance with all
applicable federal, state and local laws, rules and regulations respecting
employment, employment practices, terms and conditions of employment, wages,
hours and withholding except as would not be reasonably likely to have a Company
Material Adverse Affect.
SECTION 4.14. Compliance with Insurance Laws; Licenses and Permits. (a)
The business and operations of the Company and the Company Insurance
Subsidiaries have been conducted in compliance with all applicable statutes and
regulations regulating the business of insurance and all applicable orders and
directives of insurance regulatory authorities and market conduct
recommendations resulting from market conduct examinations of insurance
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regulatory authorities (collectively, "Insurance Laws"), except where the
failure to so conduct business and operations would not, individually or in the
aggregate, be reasonably likely to have a Company Material Adverse Effect or
prevent or materially impair the ability of the Company to consummate the
transactions contemplated by this Agreement or the Stock Option Agreement or
cause the loss of eligibility to do business where such loss would, individually
or in the aggregate, have a Company Material Adverse Effect. Each Company
Insurance Subsidiary and to the knowledge of the Company each program
administrator listed on Section 4.14(a) of the Company Disclosure Schedule has
marketed, sold and issued insurance products in compliance, in all material
respects, with Insurance Laws applicable to the business of such Company
Insurance Subsidiary and in the respective jurisdictions in which such products
have been sold. There is no pending or, to the knowledge of the Company,
threatened charge by any insurance regulatory authority that any of the Company
Insurance Subsidiaries has violated, nor any pending or, to the knowledge of the
Company, threatened investigation by any insurance regulatory authority with
respect to possible violations of, any applicable Insurance Laws where such
violations would, individually or in the aggregate, be reasonably likely to have
a Company Material Adverse Effect. None of the Company Insurance Subsidiaries is
subject to any order or decree of any insurance regulatory authority relating
specifically to such Company Insurance Subsidiary (as opposed to insurance
companies generally) which would, individually or in the aggregate, be
reasonably likely to have a Company Material Adverse Effect. The Company
Insurance Subsidiaries have filed all reports required to be filed with any
insurance regulatory authority on or before the date of the Original Agreement
as to which the failure to file such reports would individually or in the
aggregate, be reasonably likely to have a Company Material Adverse Effect.
(b) In addition to Insurance Laws the business of each of the Company
and the Company Insurance Subsidiaries have not been, and are not being,
conducted in violation of any federal, state, local or foreign law, statute,
ordinance, rule, regulation, judgment, order, injunction, decree, arbitration
award, agency requirement, license or permit of any Governmental Entity
(collectively with Insurance Laws, "Laws"), except for violation or possible
violations that, individually or in the aggregate, are not reasonably likely to
have a Company Material Adverse Effect or prevent or materially impair the
ability of the Company to consummate the transactions contemplated by this
Agreement or the Stock Option Agreement. No investigation or review by any
Governmental Entity with respect to the Company is pending or to the knowledge
of the Company, threatened, nor has any Governmental Entity to the knowledge of
the Company indicated, formally or informally, an intention to conduct the same,
except for those the outcome of which are not, individually or in the aggregate,
reasonably likely to have a Company Material Adverse Effect or prevent or
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materially impair the ability of the Company to consummate the transactions
contemplated by this Agreement or the Stock Option Agreement. The Company and
the Company Insurance Subsidiaries each has all permits, licenses, trademarks,
patents, trade names, copyrights, service marks, franchises, variances,
exemptions, orders and other governmental authorizations, consents and approvals
necessary to conduct its business as presently conducted except those the
absence of which are not, individually or in the aggregate, reasonably likely to
have a Company Material Adverse Effect or prevent or materially impair the
ability of the Company to consummate the Merger and the other transactions
contemplated by this Agreement or the Stock Option Agreement. Section 4.14(b) of
the Company Disclosure Schedule sets forth (i) every insurance license of the
Company or its Subsidiaries, and (ii) every jurisdiction where the Company and
its Subsidiaries are eligible to engage in surplus lines business.
SECTION 4.15. Insurance Matters. (a) Except as otherwise would not,
individually or in the aggregate, be reasonably likely to have a Company
Material Adverse Effect, to the extent required under applicable law, all
policies, binders, slips, certificates and other agreements of insurance in
effect as of the date of the Original Agreement (including all applications,
supplements, endorsements, riders and ancillary agreements in connection
therewith) that are issued by the Company Insurance Subsidiaries (the "Company
Insurance Contracts") and any and all marketing materials, are on forms approved
by applicable insurance regulatory authorities or which have been filed and not
objected to by such authorities within the period provided for objection. Such
forms comply in all material respects with the insurance statutes, regulations
and rules applicable thereto.
(b) To the knowledge of the Company, all reinsurance and coinsurance
treaties or agreements, including retrocessional agreements, to which the
Company or any Company Insurance Subsidiary is a party or under which the
Company or any Company Insurance Subsidiary has any existing rights, obligations
or liabilities are in full force and effect except for such treaties or
agreements the failure of which to be in full force and effect as would not,
individually or in the aggregate, be reasonably likely to result in a cost to
the Company or any of its Subsidiaries of an amount in excess of $500,000.
Neither the Company nor any Company Insurance Subsidiary, nor, to the knowledge
of the Company, any other party to a reinsurance or coinsurance treaty or
agreement to which the Company or any Company Insurance Subsidiary is a party,
is in default in any material respect as to any provision thereof, and no such
agreement contains any provision providing that the other party thereto may
terminate such agreement by reason of the transactions contemplated by this
Agreement except for such treaties or agreements the default under or
termination of which as would not, individually or in the aggregate, be
reasonably likely to result in a cost to the Company or any of its Subsidiaries
of an amount in excess of $500,000. The
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Company has not received any notice to the effect that the financial condition
of any other party to any such agreement is impaired with the result that a
default thereunder may reasonably be anticipated, whether or not such default
may be cured by the operation of any offset clause in such agreement.
(c) Prior to the date of the Original Agreement, the Company has
delivered or made available to Parent a true and complete copy of any actuarial
reports prepared by actuaries, independent or otherwise, with respect to the
Company or any Company Insurance Subsidiary since December 31, 1995, and all
attachments, addenda, supplements and modifications thereto (the "Company
Actuarial Analyses"). To the knowledge of the Company (x) the information and
data furnished by the Company or any Company Insurance Subsidiary to its
independent actuaries in connection with the preparation of the Company
Actuarial Analyses were accurate in all material respects and (y) each Company
Actuarial Analysis was based upon an accurate inventory of policies in force for
the Company and the Company Insurance Subsidiaries, as the case may be, at the
relevant time of preparation, was prepared in all material respects using
appropriate modeling procedures accurately applied and in conformity with
published actuarial standards of practice consistently applied, and the
projections contained therein were properly prepared in accordance with the
assumptions stated therein.
(d) As of the date of the Original Agreement, the persons specified in
Section 1.01(a) of the Company Disclosure Schedule have no reason to believe
that any rating presently held by the Company Insurance Subsidiaries will be
modified, qualified, lowered or placed under surveillance for a possible
downgrade for any reason other than as a result of the transactions contemplated
hereby.
SECTION 4.16. Liabilities and Reserves. (a) The reserves carried on the
Company SAP Statements of each Company Insurance Subsidiary for the year ended
December 31, 1997 and the nine month period ended September 30, 1998 for
unearned premiums, losses, loss adjustment expenses, claims and similar purposes
(including claims litigation) are in compliance in all material respects with
the requirements for reserves established by the insurance departments of the
jurisdiction of domicile of such Company Insurance Subsidiary, were determined
in all material respects in accordance with published actuarial standards of
practice and principles consistently applied, and are fairly stated in all
material respects in accordance with accepted actuarial and statutory accounting
principles. Such reserves were adequate in the aggregate to cover the total
amount of all reasonably anticipated liabilities of the Company and each Company
Insurance Subsidiary under all outstanding insurance, reinsurance and other
applicable agreements as of the respective dates of such Company SAP Statements.
The
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admitted assets of the Company and each Company Insurance Subsidiary as
determined under applicable Laws are in an amount at least equal to the minimum
amounts required by applicable Laws.
(b) Except for regular periodic assessments in the ordinary course of
business or assessments based on developments which are publicly known within
the insurance industry, to the knowledge of the Company, no claim or assessment
is pending or threatened against any Company Insurance Subsidiary by (i) any
state insurance guaranty associations in connection with such association's fund
relating to insolvent insurers or (ii) any assigned risk plan or other
involuntary market plan which if determined adversely would, individually or in
the aggregate, be reasonably likely to result in a cost to the Company or any of
its Subsidiary of an amount in excess of $500,000.
SECTION 4.17. Title to Properties. The Company has good and marketable
title to its headquarters located at 82 Hopmeadow Street in Simsbury,
Connecticut ("Owned Property") and such property is free and clear of all Liens
except for such Liens, defects in title, easements, restrictive covenants and
similar encumbrances or impediments that, in the aggregate, do not materially
interfere with the ability of the Company and its Subsidiaries to conduct their
business, taken as a whole, as currently conducted.
SECTION 4.18. Intellectual Property. With such exceptions as,
individually or in the aggregate, would not be reasonably likely to have a
Company Material Adverse Effect, the Company and the Company Subsidiaries own or
have a valid license to use each trademark, service mark, trade name, mask work,
invention, patent, trade secret, copyright, know-how (including any
registrations or applications for registration of any of the foregoing) or any
other similar type of proprietary intellectual property right (collectively, the
"Company Intellectual Property") necessary to carry on the business of the
Company and the Company Subsidiaries, taken as a whole, as currently conducted.
Neither the Company nor any Company Subsidiary has received any written notice
of infringement of or challenge to, and, to the Company's knowledge, there are
no claims pending with respect to the rights of others to the use of, any
Company Intellectual Property. Section 4.18 to the Company Disclosure Schedule
identifies each trademark, service mark and trade name registered with the U.S.
Trademark and Patent Office which the Company and its Subsidiaries own.
SECTION 4.19. Environmental Matters. (a) With such exceptions as,
individually or in the aggregate, would not be reasonably likely to have a
Company Material Adverse Effect, (i) no written notice, notification, demand,
request for information, citations, summons, complaint or order has been
received by, and no investigation, action, claim, suit, proceeding or review is
pending or
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threatened by any Person against, the Company or any Company Subsidiary, with
respect to any applicable Environmental Law, (ii) the Company and the Company
Subsidiaries are and have been in compliance with all applicable Environmental
Laws and (iii) there are no liabilities of the Company or any Company Subsidiary
of any kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, arising under or relating to any Environmental Law,
and there are no fact, conditions, situations or set of circumstances that could
reasonably be expected to result in or be the basis for any such liability.
(b) For purposes of this Section 4.19 the term "Environmental Laws"
means any federal, state, local and foreign statutes, laws (including, without
limitation, common law), judicial decisions, regulations, ordinances, rules,
judgments, orders, codes, injunctions, permits or governmental agreements
relating to human health and safety, the environment or to pollutants,
contaminants, wastes, or chemicals.
SECTION 4.20. Finders' Fees; Opinions of Financial Advisor. (a) Except
for Donaldson, Lufkin & Jenrette Securities Corporation and Salomon Smith Barney
Inc., there is no investment banker, broker, finder or other intermediary which
has been retained by, or is authorized to act on behalf of, the Company or any
Company Subsidiary who might be entitled to any fee or commission from Parent or
any of its Affiliates upon consummation of the transactions contemplated by this
Agreement or the Stock Option Agreement.
(b) The Company has received the opinions of Donaldson, Lufkin &
Jenrette Securities Corporation and Salomon Smith Barney Inc., dated as of the
date of the Original Agreement, to the effect that, as of such date, the Merger
Consideration is fair to the holders of Company Common Shares from a financial
point of view.
SECTION 4.21. Required Vote; Board Approval. (a) The only vote of the
holders of any class or series of capital stock of the Company required by law,
rule or regulation to approve this Agreement, the Merger and/or any of the other
transactions contemplated hereby is the affirmative vote (the "Company
Stockholder Approval") of the holders of a majority of the outstanding Company
Common Shares in favor of the adoption and approval of this Agreement and the
Merger.
(b) The Company's Board of Directors has unanimously (a) determined
that this Agreement and the Stock Option Agreement and the transactions
contemplated hereby and thereby, including the Merger, are in the best interests
of the Company and its stockholders, (b) approved this Agreement and the Stock
Option Agreement and the transactions contemplated hereby and thereby and (c)
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resolved to recommend to such stockholders that they vote in favor of adopting
and approving this Agreement and the Merger in accordance with the terms hereof.
SECTION 4.22. State Takeover Statutes; Rights Agreement. (a) The
Company has taken all actions required to be taken by it in order to exempt this
Agreement and the Stock Option Agreement and the transactions contemplated
hereby and thereby from the provisions of Section 203 of the DGCL, and
accordingly, neither such Section nor to the knowledge of the Company any other
anti-takeover statute or regulation applies to the Merger or any of such
transactions. To the knowledge of the Company no other "control share
acquisition", "fair price" or other anti-takeover laws or regulations enacted
under state or federal laws in the United States apply to this Agreement and the
Stock Option Agreement or any of the transactions contemplated hereby and
thereby.
(b) The Company has taken all action necessary, so long as this
Agreement or the Stock Option Agreement is in effect, to (i) render the Rights
inapplicable to the Merger and the other transactions contemplated by this
Agreement and the Stock Option Agreement and (ii) ensure that (A) neither
Parent, MergerSub nor any of their Affiliates will become an Acquiring Person
(as defined in the Rights Agreement) as a result of the transactions
contemplated hereby and thereby and (B) neither a Distribution Date nor an
Acquisition Date (each as defined in the Rights Agreement) shall occur by reason
of the approval or execution of this Agreement or the Stock Option Agreement,
the announcement or consummation of the Merger or the announcement or
consummation of any of the other transactions contemplated by this Agreement and
the Stock Option Agreement.
SECTION 4.23. Tax Treatment. Neither the Company nor any of its
Affiliates has taken or agreed to take any action or, to the knowledge of the
Company is aware of any fact or circumstance that would prevent the Merger from
qualifying as a 368 Reorganization.
SECTION 4.24. Year 2000 Compliance. The Company has (i) completed a
review and assessment of all areas within the business and operations of the
Company and the Subsidiaries (including those areas affected by suppliers and
vendors) that could be adversely affected by the "Year 2000 Problem" (that is,
the risk that computer software and systems used by the Company or any of the
Subsidiaries (or their respective suppliers and vendors) may be unable to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999), (ii) developed a plan and
timeline for addressing the Year 2000 Problem on a timely basis, which plan and
timeline have been made available to Parent and (iii) to date, implemented such
plan in all
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material respects in accordance with such timetable. The Company reasonably
believes that all computer software and systems (including those of suppliers
and vendors) that are used in the business or operations of the Company or the
Subsidiaries as presently conducted (the "Company Systems") will on a timely
basis be able to perform properly date-sensitive functions for all dates before
and from and after January 1, 2000 ("Year 2000 Compliant") except for such
failures to perform which would not, individually or in the aggregate, be
reasonably likely to have a Company Material Adverse Effect.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as disclosed in (i) the Parent Disclosure Schedule attached
hereto or (ii) the Parent SEC Documents filed prior to the date of the Original
Agreement, Parent represents and warrants to the Company that:
SECTION 5.01. Corporate Existence and Power. Each of Parent and
MergerSub is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
corporate powers required to carry on its business as now conducted. Parent is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where the character of the property owned or leased by it
or the nature of its activities makes such qualification necessary, except where
the failure to be so qualified would not, individually or in the aggregate, be
reasonably likely to have a Parent Material Adverse Effect. Parent has
heretofore made available to the Company true and complete copies of Parent's
restated certificate of incorporation and bylaws as currently in effect.
MergerSub was formed solely for the purpose of effecting the Merger and, since
the date of its incorporation, MergerSub has not engaged in any activities and
has not incurred any liabilities or obligations other than in connection with
its formation and in connection with or as contemplated by this Agreement.
SECTION 5.02. Corporate Authorization. The execution, delivery and
performance by Parent and MergerSub (as applicable) of this Agreement and the
Stock Option Agreement and the consummation by Parent and MergerSub (as
applicable) of the transactions contemplated hereby and thereby are within the
corporate powers of Parent and MergerSub (as applicable) and have been duly
authorized by all necessary corporate action. Assuming that each of this
Agreement and the Stock Option Agreement constitutes the valid and binding
obligation of the Company, each of this Agreement and the Stock Option
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Agreement constitutes a valid and binding agreement of each of Parent and
MergerSub (as applicable), enforceable in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws, now or
hereafter in effect, relating to or affecting creditors' rights and remedies and
to general principles of equity.
SECTION 5.03. Governmental Authorization. The execution, delivery and
performance by Parent and MergerSub of this Agreement, the execution delivery
and performance by Parent of the Stock Option Agreement and the consummation by
Parent and MergerSub of the transactions contemplated hereby and thereby (as
applicable) require no action by or in respect of, or filing with, any
Governmental Entity other than (a) those set forth in clauses (a) through (g) of
Section 4.03 and (b) such other consents, approvals, actions, orders,
authorizations, registrations, declarations and filings which, if not obtained
or made, would not, individually or in the aggregate, (i) be reasonably likely
to have a Parent Material Adverse Effect, or (ii) prevent or materially impair
the ability of Parent and MergerSub to consummate the transactions contemplated
by this Agreement or the Stock Option Agreement.
SECTION 5.04. Non-Contravention. The execution, delivery and
performance by Parent and MergerSub of this Agreement, the execution delivery
and performance by Parent of the Stock Option Agreement and the consummation by
Parent and MergerSub of the transactions contemplated hereby and thereby (as
applicable) do not and will not (a) contravene or conflict with the restated
certificate of incorporation or bylaws of Parent or the certificate of
incorporation or bylaws of MergerSub, (b) assuming compliance with the matters
referred to in Section 5.03, contravene or conflict with any provision of law,
regulation, judgment, injunction, order or decree binding upon or applicable to
Parent or any Parent Subsidiary, (c) constitute a default under or give rise to
a right of termination, cancellation or acceleration of any right or obligation
of Parent or any Parent Subsidiary or to a loss of any benefit or status to
which Parent or any Parent Subsidiary is entitled under any provision of any
agreement, contract or other instrument binding upon Parent or any Parent
Subsidiary or any license, franchise, permit or other similar authorization held
by Parent or any Parent Subsidiary, or (d) result in the creation or imposition
of any Lien on any asset of Parent or any Parent Subsidiary other than, in the
case of each of (b), (c) and (d), any such items that would not, individually or
in the aggregate, (x) be reasonably likely to have a Parent Material Adverse
Effect or (y) prevent or materially impair the ability of Parent or MergerSub to
consummate the transactions contemplated by this Agreement or the Stock Option
Agreement.
SECTION 5.05. Capitalization of Parent and MergerSub. (a) The
authorized capital stock of Parent consists of 600,000,000 Parent Common
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Shares, and 4,000,000 shares of preferred stock, $1.00 par value per share (of
which 300,000 have been designated Series B Participating Cumulative Preferred
Stock). There were outstanding (i) as of January 31, 1999, 162,008,492 Parent
Common Shares and no shares of the preferred stock, (ii) as of December 31,
1998, stock options to purchase an aggregate of 9,669,816 Parent Common Shares
(of which options to purchase an aggregate of 6,573,577 Parent Common Shares
were vested and exercisable) and (iii) as of December 31, 1998, employee
performance incentive awards relating to an aggregate of 556,517 Parent Common
Shares. All outstanding shares of capital stock of Parent have been duly
authorized and validly issued and are fully paid and nonassessable.
(b) As of the date of the Original Agreement, except as set forth in
this Section 5.05 and except for changes since December 31, 1998 resulting from
the grant of stock options and other awards under the Parent's Long-Term Stock
Incentive Plan (1996) in the ordinary course of business consistent with past
practice and the exercise of stock options outstanding on such date and the
payment of performance incentive awards outstanding on such date, there are no
outstanding (i) shares of capital stock or other voting securities of Parent,
(ii) securities of Parent convertible into or exchangeable for shares of capital
stock or voting securities of Parent, and (iii) options or other rights to
acquire from Parent, and no obligation of Parent to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of Parent (the items in clauses (i), (ii) and (iii)
being referred to collectively as the "Parent Securities"). There are no
outstanding obligations of Parent or any Parent Subsidiary to repurchase, redeem
or otherwise acquire any Parent Securities.
(c) The Parent Common Shares to be issued as part of the Merger
Consideration have been duly authorized and, when issued and delivered in
accordance with the terms of this Agreement, will have been validly issued,
fully paid and nonassessable and free of any preemptive or other similar right.
(d) The authorized capital stock of MergerSub consists solely of 100
MergerSub Common Shares, of which, as of the date of the Original Agreement, 100
were issued and outstanding. All outstanding MergerSub Common Shares have been
duly authorized and validly issued and are fully paid and nonassessable, free of
any preemptive or other similar right.
SECTION 5.06. Parent SEC Documents. (a) Parent has made available to
the Company the Parent SEC Documents. Parent has filed all reports, filings,
registration statements and other documents required to be filed by it with the
SEC since December 31, 1996.
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(b) As of its filing date, each Parent SEC Document complied as to
form in all material respects with the applicable requirements of the Securities
Act and/or the Exchange Act, as the case may be.
(c) No Parent SEC Document filed pursuant to the Exchange Act
contained, as of its filing date or mailing date, as applicable, any untrue
statement of a material fact or omitted to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. No Parent SEC Document, as amended
or supplemented, if applicable, filed pursuant to the Securities Act as of the
date such document or amendment became effective contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
SECTION 5.07. Financial Statements; No Material Undisclosed
Liabilities. (a) The audited consolidated financial statements and unaudited
consolidated interim financial statements of Parent included in the Parent 10-Ks
and the Parent 10-Qs fairly present in all material respects, in conformity with
GAAP (except as may be indicated in the notes thereto), the consolidated
financial position of Parent and its consolidated Subsidiaries as of the dates
thereof and their consolidated results of operations and cash flows for the
periods then ended (subject to normal year-end adjustments in the case of any
unaudited interim financial statements).
(b) Parent has delivered or made available to the Company true and
complete copies of the annual and quarterly statements of each of the United
States Parent Insurance Subsidiaries as filed with the applicable insurance
regulatory authorities for the years ended December 31, 1995, 1996 and 1997 and
the quarterly periods ended March 31, 1998, June 30, 1998 and September 30,
1998, including all exhibits, interrogatories, notes, schedules and any
actuarial opinions, affirmations or certifications or other supporting documents
filed in connection therewith (collectively, the "Parent SAP Statements"). The
Parent SAP Statements fairly present in all material respects, in conformity
with statutory accounting practices prescribed or permitted by the applicable
insurance regulatory authority applied on a consistent basis, the statutory
financial position of such Parent Insurance Subsidiaries as at the respective
dates thereof and the results of operations of such Subsidiaries for the
respective periods then ended. The Parent SAP Statements complied in all
material respects with all applicable laws, rules and regulations when filed,
and no material deficiency has been asserted with respect to any Parent SAP
Statements by the applicable insurance regulatory body or any other governmental
agency or body. The annual statutory balance sheets and income statements
included in the Parent SAP Statements have
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been audited by Ernst & Young LLP, and Parent has delivered or made available to
the Company true and complete copies of all audit opinions related thereto.
(c) There are no liabilities of Parent or any Parent Subsidiary of any
kind whatsoever, whether accrued, contingent, absolute, determined, determinable
or otherwise that are required by GAAP to be set forth on a consolidated balance
sheet of Parent, other than:
(i) liabilities or obligations disclosed or provided for in the Parent
Balance Sheet (including the notes thereto);
(ii) liabilities or obligations under this Agreement and the Stock
Option Agreement or incurred in connection with the transactions
contemplated hereby and thereby; and
(iii) other liabilities or obligations, which, individually or in the
aggregate, would not be reasonably likely to have a Parent Material
Adverse Effect.
SECTION 5.08. Information to be Supplied. (a) The information supplied
in writing by Parent expressly for inclusion or incorporation by reference in
the Proxy Statement/Prospectus (i) in the case of the Registration Statement, at
the time it became effective, did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading and (ii) in the
case of the remainder of the Proxy Statement/Prospectus, at the time of the
mailing thereof and at the time of the Company Stockholder Meeting, will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement/Prospectus will comply (with respect to
information relating to Parent) as to form in all material respects with the
provisions of the Securities Act and the Exchange Act.
(b) Notwithstanding the foregoing, Parent makes no representation or
warranty with respect to any statements made or incorporated by reference in the
Proxy Statement/Prospectus with respect to information supplied in writing by
the Company expressly for use therein.
SECTION 5.09. Absence of Certain Changes. Since December 31, 1997,
except as otherwise expressly contemplated by this Agreement, Parent and the
Parent Subsidiaries have conducted their business in the ordinary course
consistent with past practice and there has not been any action, event,
occurrence, development, change in method of doing business or state of
circumstances or
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facts that, individually or in the aggregate, has had or would be reasonably
likely to have a Parent Material Adverse Effect.
SECTION 5.10. Litigation. There is no action, suit, investigation,
arbitration or proceeding (or to the knowledge of Parent any basis therefor)
pending against, or to the knowledge of Parent threatened against, Parent or any
Parent Subsidiary or any of their respective assets or properties before any
arbitrator or Governmental Entity that, individually or in the aggregate, would
be reasonably likely to have a Parent Material Adverse Effect.
SECTION 5.11. Compliance with Laws; Licenses and Permits. (a) Neither
Parent nor any Parent Subsidiary is in violation of, or has violated, any
applicable provisions of any laws, statutes, ordinances, regulations, judgments,
injunctions, orders or consent decrees, except for any such violations which,
individually or in the aggregate, would not be reasonably likely to have, a
Parent Material Adverse Effect. None of the Parent Insurance Subsidiaries is
subject to any order or decree of any insurance regulatory authority
specifically relating to such Parent Insurance Subsidiary (as opposed to
insurance companies generally) which would, individually or in the aggregate, be
reasonably likely to have a Parent Material Adverse Effect.
(b) Each of Parent and the Parent Subsidiaries has all permits,
licenses, approvals, authorizations of and registrations with and under all
federal, state, local and foreign laws, and from all Governmental Entities
required by Parent and the Parent Subsidiaries to carry on their respective
businesses as currently conducted, except where the failure to have any such
permits, licenses, approvals, authorizations or registrations, individually or
in the aggregate, would not be reasonably likely to have a Parent Material
Adverse Effect. No investigation or review by any Governmental Entity with
respect to Parent is pending or to the knowledge of the Parent, threatened, nor
has any Governmental Entity to the knowledge of Parent indicated, formally or
informally, an intention to conduct the same, except for those the outcome of
which are not, individually or in the aggregate, reasonably likely to have a
Parent Material Adverse Effect or prevent or materially impair the ability of
Parent to consummate the transactions contemplated by this Agreement or the
Stock Option Agreement.
SECTION 5.12. Finders' Fees. Except for Goldman, Sachs & Co., whose
fees will be paid by Parent, there is no investment banker, broker, finder or
other intermediary who might be entitled to any fee or commission from Parent or
any of its Affiliates upon consummation of the transactions contemplated by this
Agreement or the Stock Option Agreement.
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SECTION 5.13. Liabilities and Reserves. (a) The reserves carried on the
Parent SAP Statements of each Parent Insurance Subsidiary for the year ended
December 31, 1997 and the nine month period ended September 30, 1998 for
unearned premiums, losses, loss adjustment expenses, claims and similar purposes
(including claims litigation) are in compliance in all material respects with
the requirements for reserves established by the insurance departments of the
jurisdiction of domicile of such Parent Insurance Subsidiary, were determined in
all material respects in accordance with published actuarial standards of
practice and principles consistently applied, and are fairly stated in all
material respects in accordance with accepted actuarial and statutory accounting
principles. Such reserves were adequate in the aggregate to cover the total
amount of all reasonably anticipated liabilities of the Parent and each Parent
Insurance Subsidiary under all outstanding insurance, reinsurance and other
applicable agreements as of the respective dates of such Parent SAP Statements.
The admitted assets of Parent and each Parent Insurance Subsidiary as determined
under applicable Laws are in an amount at least equal to the minimum amounts
required by applicable Laws.
(b) Except for regular periodic assessments in the ordinary course of
business or assessments based on developments which are publicly known within
the insurance industry, to the knowledge of Parent, no claim or assessment is
pending or threatened against any Parent Insurance Subsidiary by (i) any state
insurance guaranty associations in connection with such association's fund
relating to insolvent insurers or (ii) any assigned risk plan or other
involuntary market plan which if determined adversely would, individually or in
the aggregate, be reasonably likely to result in a cost to Parent or any
Subsidiary of an amount in excess of $5,000,000.
SECTION 5.14. Year 2000 Compliance. Parent has (i) completed a review
and assessment of all areas within the business and operations of Parent and the
Subsidiaries (including those areas affected by suppliers and vendors) that
could be adversely affected by the "Year 2000 Problem" (that is, the risk that
computer software and systems used by Parent or any of the Subsidiaries (or
their respective suppliers and vendors) may be unable to recognize and perform
properly date-sensitive functions involving certain dates prior to and any date
after December 31, 1999), (ii) developed a plan and timeline for addressing the
Year 2000 Problem on a timely basis, which plan and timeline have been made
available to the Company and (iii) to date, implemented such plan in all
material respects in accordance with such timetable. Parent reasonably believes
that all computer software and systems (including those of vendors and
suppliers) that are used in the business or operations of Parent or the
Subsidiaries as presently conducted (the "Parent Systems") will on a timely
basis be able to perform properly date-sensitive functions for all dates before
and from and after January 1, 2000 ("Year 2000 Compliant") except for such
failures to perform which would
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not, individually or in the aggregate, be reasonably likely to have a Parent
Material Adverse Effect.
SECTION 5.15. Tax Treatment. Neither Parent nor any of its Affiliates
has taken or agreed to take any action or to the knowledge of Parent is aware of
any fact or circumstance that would prevent the Merger from qualifying as a 368
Reorganization.
ARTICLE 6
COVENANTS OF THE COMPANY
The Company agrees that:
SECTION 6.01. The Company Interim Operations. Except as set forth in
the Company Disclosure Schedule or as otherwise expressly contemplated hereby,
without the prior consent of Parent (which consent shall not be unreasonably
withheld or delayed), from the date of the Original Agreement until the
Effective Time, the Company shall, and shall cause each of the Company
Subsidiaries to, conduct their business in all material respects in the ordinary
course consistent with past practice and shall use commercially reasonable
efforts to (i) preserve intact its present business organization, (ii) maintain
in effect all material foreign, federal, state and local licenses, approvals and
authorizations, including, without limitation, all material licenses and permits
that are required for the Company or any Company Subsidiary to carry on its
business and (iii) preserve existing relationships with its material customers,
lenders, suppliers and others having material business relationships with it.
Without limiting the generality of the foregoing, except as set forth in the
Company Disclosure Schedule or as otherwise expressly contemplated by this
Agreement, from the date of the Original Agreement until the Effective Time,
without the prior consent of Parent (which consent shall not be unreasonably
withheld or delayed), the Company shall not, nor shall it permit any Company
Subsidiary to:
(a) amend the Company's certificate of incorporation or by-laws;
(b) split, combine or reclassify any shares of capital stock of the
Company or any less-than-wholly-owned Company Subsidiary or declare, set aside
or pay any dividend or other distribution (whether in cash, stock or property or
any combination thereof) in respect of its capital stock, or redeem, repurchase
or otherwise acquire or offer to redeem, repurchase, or otherwise acquire any of
its securities or any securities of any Company Subsidiary, except for regular
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quarterly cash dividends (having customary record and payment dates, not in
excess of $.02 per Company Common Share);
(c) (i) issue, deliver or sell, or authorize the issuance, delivery or
sale of, any shares of its capital stock of any class or any securities
convertible into or exercisable for, or any rights, warrants or options to
acquire, any such capital stock or any such convertible securities, other than
(A) the issuance of Company Common Shares upon the exercise of stock options or
pursuant to the Company's Performance Share Plan and Stock Incentive Plan in
accordance with their present terms and (B) the granting of options to acquire
Company Common Shares in the ordinary course of business consistent with past
practice; (ii) amend in any material respect any material term of any
outstanding security of the Company or any Company Subsidiary or (iii) consent,
including consent by the applicable committee, to any transfer of a Company
Stock Option;
(d) other than in connection with transactions permitted by Section
6.01(e), incur any capital expenditures or any obligations or liabilities in
respect thereof, except for those (i) contemplated by the capital expenditure
budgets for the Company and Company Subsidiaries made available to Parent, (ii)
incurred in the ordinary course of business of the Company and the Company
Subsidiaries or (iii) not otherwise described in clauses (i) and/or (ii) which,
do not exceed $5 million individually or $10 million in the aggregate;
(e) except for acquisitions in the ordinary course of the investment
activities of the Company and its Subsidiaries consistent with past practice,
acquire (whether pursuant to merger, stock or asset purchase or otherwise) in
one transaction or series of related transactions (i) any assets (including any
equity interests) having a fair market value in excess of $10 million, or (ii)
all or substantially all of the equity interests of any Person or any business
or division of any Person having a fair market value in excess of $5 million;
(f) sell, lease, encumber or otherwise dispose of any assets, other
than (i) sales in the ordinary course of business consistent with past practice,
(ii) equipment and property no longer used in the operation of the Company's
business and (iii) assets related to discontinued operations of the Company or
any Company Subsidiary;
(g) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities of the Company or any Company Subsidiary or
guarantee any debt securities of others or request any advances in respect of,
or make any drawdowns on, any existing indebtedness which advance or drawdown
exceeds $5 million, individually, or $25 million in the aggregate;
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(h) (i) enter into any agreement or arrangement that would, after the
Effective Time, limit or restrict Parent, any Parent Subsidiary or any of their
respective Affiliates other than the Company and its Subsidiaries, from engaging
or competing in any line of business or in any location, or (ii) amend, modify
or terminate any material contract, agreement or arrangement of the Company or
any Company Subsidiary or otherwise waive, release or assign any material
rights, claims or benefits of the Company or any Company Subsidiary thereunder,
other than (x) amendment of stock option agreements, in effect on the date of
the Original Agreement, with employees, officers and directors of the Company
and its Subsidiaries to provide that unvested stock options shall vest upon a
change in control of the Company and (y) causing all accrued benefits under the
Company's Benefit Equalization Plan to be fully funded through an irrevocable
"Rabbi" trust or similar funding vehicle to be established by the Company and
(z) entering into agreements with certain employees of the Company to fully
indemnify them for the effects of any excise tax that may be imposed under
Section 4999 of the Code (or any successor provision) provided that the total
aggregate amount paid under such agreements shall not exceed $2 million;
(i) (i) except in the ordinary course of business consistent with past
practice as required by law or an existing agreement, increase the amount of
compensation of any director or executive officer or make any increase in or
commitment to increase any employee benefits, (ii) except as required by law or
an agreement existing on the date of the Original Agreement or as contemplated
by Schedule 6.01(i) hereto grant any material severance or termination pay to
any director, officer or employee of the Company or any Company Subsidiary,
(iii) adopt any additional employee benefit plan or, except in the ordinary
course of business, make any material contribution to any existing such plan or
(iv) except as may be required by law or pursuant to any agreement existing on
the date of the Original Agreement, amend in any material respect any Company
Employee Plan, other than (x) amendment of stock option agreements, in effect on
the date of the Original Agreement, with employees, officers and directors of
the Company and its Subsidiaries to provide that unvested stock options shall
vest upon a change in control of the Company and (y) causing all accrued
benefits under the Company's Benefit Equalization Plan to be fully funded
through an irrevocable "Rabbi" trust or similar funding vehicle to be
established by the Company and (z) entering into agreements with certain
employees of the Company to fully indemnify them for the effects of any excise
tax that may be imposed under Section 4999 of the Code (or any successor
provision) provided that the total aggregate amount paid under such agreements
shall not exceed $2 million;
(j) change the Company's (x) methods of accounting in effect at
September 30, 1998, except as required by changes in GAAP or by Regulation S-X
of the Exchange Act, as concurred in by its independent public accountants or
(y) fiscal year;
(k) other than in the ordinary course of business consistent with past
practice, make any tax election or enter into any settlement or compromise of
any tax liability that in either case is material to the business of the Company
and the Company Subsidiaries, taken as a whole;
(l) pay, discharge, settle or satisfy (x) any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise)
for an amount in excess of $500,000 (other than insurance and reinsurance claims
arising in the ordinary course of business consistent with past practice) other
than ordinary course repayment of indebtedness or payment of contractual
obligations when due;
(m) enter into any (x) new quota share, excess or other reinsurance
transaction with a term expiring after December 31, 1999 or (y) any renewal or
extension of an existing treaty or other program for a term that exceeds one
year (unless such treaty or program shall be terminable immediately after such
one-year term by the Company or the Company Subsidiary, as applicable);
(n) take any action that would cause any of its representations and
warranties herein to become untrue in any material respect; and
(o) agree, resolve or commit to do any of the foregoing.
Notwithstanding anything to the contrary in this Agreement, the Company
shall use its commercially reasonable efforts to complete the plan referred to
in Section 4.24 on a timely basis.
SECTION 6.02. Stockholder Meeting. The Company shall cause a meeting of
its stockholders (the "Company Stockholder Meeting") to be duly called and held
as soon as reasonably practicable for the purpose of obtaining the Company
Stockholder Approval. Unless otherwise required by its fiduciary duties (as
determined in good faith by a majority of its members after receipt of advice of
its outside legal counsel), (i) the Company's Board of Directors shall recommend
approval and adoption by its stockholders of this Agreement (the "Company
Recommendation"), (ii) neither the Company's Board of Directors nor any
committee thereof shall amend, modify, withdraw, condition or qualify the
Company Recommendation in a manner materially adverse to Parent or take any
action or make any statement materially inconsistent with the Company
Recommendation and (iii) the Company shall use its reasonable best efforts to
solicit the Company Stockholder Approval.
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SECTION 6.03. Acquisition Proposals; Board Recommendation. (a) The
Company agrees that it shall not, nor shall it permit any Company Subsidiary to,
nor shall it authorize or knowingly permit any officer, director, employee,
investment banker, attorney, accountant, agent or other advisor or
representative of the Company or any Company Subsidiary, directly or indirectly,
to (i) take any action to solicit, initiate or facilitate or encourage the
submission of any Acquisition Proposal, (ii) 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, (iii) grant any waiver or release under any standstill or
similar agreement with respect to any class of the Company's equity securities
or (iv) enter into any agreement with respect to any Acquisition Proposal, other
than in the manner contemplated by Section 6.03(d); provided, however, that the
Company may take any actions described in the foregoing clauses (i), (ii),
(iii), or (iv) in respect of any Person who makes a bona fide Acquisition
Proposal, but only if (x) the Board of Directors of the Company determines in
good faith (after receipt of advice of its outside legal counsel) that it is
required to take such actions in order to comply with its fiduciary duties under
applicable law and (y) prior to furnishing any non-public information to such
Person, such Person shall have entered into a confidentiality agreement with the
Company on terms no less favorable to the Company than the Confidentiality
Agreement between the Company and Parent dated as of January 5, 1999. The
Company shall cease and cause to be terminated immediately all existing
discussions or negotiations, if any, with any Persons conducted heretofore with
respect to, or that could be reasonably expected to lead to, any Acquisition
Proposal.
(b) Unless the Company's Board of Directors has previously withdrawn,
or is concurrently therewith withdrawing, the Company Recommendation in
accordance with Section 6.03(d), neither the Company's Board of Directors nor
any committee thereof shall recommend any Acquisition Proposal to the Company
stockholders. Notwithstanding the foregoing, nothing contained in this Section
6.03(b) or elsewhere in this Agreement shall prevent the Company's Board of
Directors from complying with Rule 14e-2 under the 1934 Act with respect to any
Acquisition Proposal or making any disclosure required by applicable law.
(c) Promptly (but in no event later than 24 hours) after receipt by
the Company or any Company Subsidiary (or any of their respective directors,
officers, agents or advisors) of any Acquisition Proposal, any contacts
concerning, or any request for non-public information or for access to the
properties, books or records of the Company or any Company Subsidiary or any
request for a waiver or release under any standstill or similar agreement, by
any Person that has made
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an Acquisition Proposal or indicates that it is considering making an
Acquisition Proposal, the Company shall notify Parent that a Person may be
considering making an Acquisition Proposal, which notice shall state the
identity of such Person and the material terms and conditions of such proposal.
The Company shall keep Parent reasonably apprised of any material developments
with respect to such proposal.
(d) Pursuant to the terms of Section 10.01, the Company may terminate
this Agreement if (x) the Company's Board of Directors shall have authorized the
Company, subject to the terms and conditions of this Agreement, to enter into a
binding agreement concerning a transaction that constitutes a Superior Proposal,
(y) the Company notifies Parent that it intends to enter into such agreement,
specifying the material terms and conditions of such agreement, and (z) the
Company pays Parent the fee contemplated by Section 10.03(b) provided, however,
that the Company may not so terminate this Agreement if, within three Business
Days of receiving such notice Parent makes an offer such that the Board of
Directors of the Company determines that such Superior Proposal is no longer a
Superior Proposal (it being understood that the Company shall not enter into
such binding agreement during such three Business Day period).
SECTION 6.04. Transfer Taxes. All state, local, foreign or provincial
sales, use, real property transfer, stock transfer or similar taxes (including
any interest or penalties with respect thereto) attributable to the Merger
(collectively, the "Transfer Taxes") shall be timely paid by the Company.
SECTION 6.05. Retention Program. At the request of Parent, the Company
shall, and shall cause each Company Subsidiary to, cooperate in good faith with
Parent to assist in the implementation of an employee retention benefit program
designed by Parent, in it sole discretion; provided, however, that all benefits
and payments under such retention benefit program shall be contingent upon the
consummation of the transactions contemplated herein and the Surviving
Corporation shall be solely liable for all obligations and liabilities under any
such retention benefit program.
SECTION 6.06. Certain Agreements. The Company shall, and shall cause
its Subsidiaries to, provide reasonable advance notice to such officer or
employee as may from time to time be designated by Parent of its intention to
enter into any agreement or arrangement that limits or restricts the Company,
any Company Subsidiary or any of their respective Affiliates, or that would,
following the Effective Time, limit or restrict the Company or any Company
Subsidiary, from engaging or competing in any line of business or in any
location, and shall, in each case, consult with such designee and in good faith
consider any proposals
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(including as to the advisability of entering into any such contract) or
requests for changes as Parent may reasonably suggest.
ARTICLE 7
COVENANTS OF PARENT
Parent agrees that:
SECTION 7.01. Parent Interim Operations. Except as set forth in the
Parent Disclosure Schedule or as otherwise expressly contemplated hereby,
without the prior consent of the Company (which consent shall not be
unreasonably withheld or delayed), from the date of the Original Agreement until
the Effective Time, Parent shall, and shall cause each of the Parent
Subsidiaries to, conduct their business in all material respects in the ordinary
course consistent with past practice and shall use commercially reasonable
efforts to (i) preserve intact its present business organization, (ii) maintain
in effect all material foreign, federal, state and local licenses, approvals and
authorizations, including, without limitation, all material licenses and permits
that are required for Parent or any Parent Subsidiary to carry on its business
and (iii) preserve existing relationships with its material customers, lenders,
suppliers and others having material business relationships with it. Without
limiting the generality of the foregoing, except as otherwise expressly
contemplated by this Agreement and the Stock Option Agreement, from the date of
the Original Agreement until the Effective Time, without the prior consent of
the Company (which consent shall not be unreasonably withheld or delayed),
Parent shall not, not shall it permit any Parent Subsidiary to:
(a) make any amendment to Parent's restated certificate of
incorporation that changes any material term or provision of the Parent Common
Shares;
(b) make any material changes to MergerSub's certificate of
incorporation;
(c) take any action that would or would be reasonably likely to
prevent or materially impair the ability of Parent to consummate the
transactions contemplated by this Agreement or the Stock Option Agreement,
including actions that would be reasonably likely to prevent or materially
impair the ability of Parent, the Company or any of their Subsidiaries to obtain
any consent, registration, approval, permit or authorization required to be
obtained from any Governmental Entity prior to the Effective Time in connection
with the execution
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and delivery of this Agreement or the Stock Option Agreement and the
consummation of the Merger and the other transactions contemplated by this
Agreement and the Stock Option Agreement;
(d) authorize or pay any extraordinary dividend on, or other
extraordinary distribution with respect to, Parent's capital stock or engage in
any recapitalization, restructuring or reorganization with respect to Parent's
capital stock which materially and adversely affects the rights of the holders
of Parent Common Shares;
(e) other than in the ordinary course of business consistent with past
practice, make any tax election or enter into any settlement or compromise of
any tax liability except for such settlements or compromises as individually or
in the aggregate would not be reasonably likely to have a Parent Material
Adverse Effect;
(f) take any action that would cause any of its representations and
warranties herein to become untrue in any material respect; and
(g) agree, resolve or otherwise commit to do any of the foregoing.
SECTION 7.02. Director and Officer Liability. (a) Parent and the
Surviving Corporation agree that the indemnification obligations set forth in
the Company's certificate of incorporation, as amended, and the Company's
bylaws, in each case as of the date of the Original Agreement, shall survive the
Merger and shall not be amended, repealed or otherwise modified for a period of
six years after the Effective Time in any manner that would adversely affect the
rights thereunder of the individuals who on or prior to the Effective Time were
directors, officers, employees or agents of the Company or the Company
Subsidiaries.
(b) The Company shall indemnify and hold harmless, and, after the
Effective Time, Parent shall, and shall cause the Surviving Corporation to,
indemnify and hold harmless, in each case to the fullest extent permitted under
applicable law, each present and former director or officer of the Company and
each Company Subsidiary and each such person who served at the request of the
Company or any Company Subsidiary as a director or officer, (collectively, the
"Indemnified Parties") against all costs and expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages, liabilities and
settlement amounts paid in connection with any claim, action, suit, proceeding
or investigation (whether arising before or after the Effective Time), whether
civil, administrative or investigative, arising out of or pertaining to any
action or omission in their capacity as an officer or director, in each case
occurring before the Effective Time (including the transactions contemplated by
this Agreement)
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and the Stock Option Agreement). Subject to an Indemnified Party's obligation to
refund any advances in accordance with the DGCL, Parent shall advance all
expenses reasonably incurred by such Indemnified Party.
(c) Immediately prior to the Closing, the Company shall purchase, from
an insurer chosen by the Company, a single payment, run-off policy of directors'
and officers' liability insurance covering current and former officers and
directors of the Company and its Subsidiaries on terms and conditions as
favorable as may be available (but no more favorable to the Indemnified Parties
than the policy in effect as of the date of the Original Agreement) for a
premium not to exceed $250,000 in the aggregate, such policy to become effective
at the Closing and remain in effect for a period of six years after the Closing.
(d) The provisions of this Section are intended to be for the benefit
of, and shall be enforceable by, each of the Indemnified Parties and his or her
heirs and legal representatives, and shall be in addition to any other rights
any Indemnified person may have.
SECTION 7.03. Employee Benefits. (a) Following the Effective Time and
until December 31, 1999 Parent shall, or shall cause Surviving Corporation and
its Subsidiaries to, continue to maintain each Company Employee Plan in
existence on the date of the Original Agreement (other than any stock option or
other equity-related plan or any incentive compensation/bonus plan in respect of
the period commencing after the Closing maintained by the Company) in accordance
with their existing terms provided, that Parent shall, or shall cause the
Surviving Corporation and its Subsidiaries to, maintain an incentive
compensation/bonus plan for the employees of the Surviving Corporation and its
Subsidiaries that is no less favorable than the cash incentive
compensation/bonus plan in effect at such time for similarly situated employees
of Parent and the Chubb & Son division of Federal Insurance Company, a
subsidiary of Parent. During the period of January 1, 2000 through December 31,
2000, Parent shall, or shall cause the Surviving Corporation and its
Subsidiaries to, maintain benefit plans which are in the aggregate at least as
favorable to the employees of the Surviving Corporation and its Subsidiaries
(the "Employees") as the benefit plans in effect as of the date of the Original
Agreement, excluding for these purposes any stock option or other equity-related
plans maintained by the Company.
(b) Parent shall, or shall cause the Surviving Corporation and its
Subsidiaries to, (i) waive all limitations as to preexisting conditions and
waiting periods with respect to participation and coverage requirements
applicable to the Employees under any welfare plan in which such Employees may
be eligible to participate after the Effective Date (except to the extent that
such conditions or waiting periods would apply under the then existing plans of
the Company and the
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Company Subsidiaries absent any change in such welfare plan coverage), (ii)
provide each Employee with credit for all service with the Company and the
Company Subsidiaries for purposes of participation eligibility and vesting (but
not for purposes of benefit calculation, early retirement factors or benefit
accruals, other than benefits previously accrued under a Company Employee Plan)
under each employee benefit plan covering such Employees after the Effective
Time.
(c) Parent shall at the regular meeting of the Organization and
Compensation Committee of the Board of Directors of Parent to be held in March
of 1999, recommend to such committee to grant to certain employees of the
Company, as of the Effective Time, options on not more than 200,000 Parent
Common Shares under Parent's Long-Term Stock Incentive Plan based on the
recommendations by the Company and in accordance with the terms described on
Schedule 7.03(c).
SECTION 7.04. Stock Exchange Listing. Parent shall use its reasonable
best efforts to cause the Parent Common Shares to be issued in connection with
the Merger or upon exercise of Parent Options to be listed on the NYSE, subject
to official notice of issuance.
SECTION 7.05. Conduct of MergerSub. Parent will take all action
necessary to cause MergerSub (a) to perform its obligations under this Agreement
and to consummate the Merger on the terms and conditions set forth in this
Agreement and (b) not to engage in any activities or incur any liabilities or
obligations other than in connection with or as contemplated by this Agreement.
ARTICLE 8
COVENANTS OF PARENT AND THE COMPANY
The parties hereto agree that:
SECTION 8.01. Reasonable Best Efforts. Subject to the terms and
conditions hereof, each party will use reasonable best efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement as promptly as practicable.
SECTION 8.02. Certain Filings; Cooperation in Receipt of Consents. (a)
As promptly as practicable after the date of the Original Agreement, Parent and
the Company shall prepare and Parent shall file with the SEC the Registration
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Statement, in which the Proxy Statement/Prospectus will be included. Each of the
Company and Parent shall use all reasonable efforts to have the Registration
Statement declared effective under the Securities Act as promptly as practicable
after such filing and to keep the Registration Statement effective as long as is
necessary to consummate the Merger. The Company shall mail the Proxy
Statement/Prospectus to its stockholders as promptly as practicable after the
Registration Statement is declared effective under the Securities Act and, if
necessary, after the Proxy Statement/Prospectus shall have been so mailed,
promptly circulate amended, supplemental or supplemented proxy material, and, if
required in connection therewith, resolicit proxies. Parent shall also take any
action required to be taken under any applicable state securities or blue sky
laws in connection with the issuance of Parent Common Shares in the Merger.
(b) No amendment or supplement to the Proxy Statement/Prospectus will
be made by the Company or Parent without the approval of the other party, which
will not be unreasonably withheld or delayed. Each party will advise the other
party, promptly after it receives notice thereof, of the time when the
Registration Statement has become effective or any supplement or amendment has
been filed, the issuance of any stop order, the suspension of the qualification
of the Parent Common Shares issuable in connection with the Merger for offering
or sale in any jurisdiction, or any request by the SEC for amendment of the
Proxy Statement/Prospectus or comments thereon and responses thereto or requests
by the SEC for additional information. If at any time prior to the Effective
Time the Company or Parent discovers any information relating to either party,
or any of their respective Affiliates, officers or directors, that should be set
forth in an amendment or supplement to the Proxy Statement/Prospectus, so that
such document would not include any misstatement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, the party that
discovers such information shall promptly notify the other parties hereto and an
appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent required by law or regulation,
disseminated to the stockholders of the Company and Parent.
(c) The Company and Parent shall cooperate with one another in (i)
determining whether any other action by or in respect of, or filing with, any
Governmental Entity is required, or any actions, consents, approvals or waivers
are required to be obtained from parties to any material contracts, in
connection with the consummation of the transactions contemplated hereby, (ii)
seeking any such other actions, consents, approvals or waivers or making any
such filings, furnishing information required in connection therewith and
seeking promptly to obtain any such actions, consents, approvals or waivers and
(iii) setting a mutually acceptable date for the Company Stockholder Meeting.
Each party shall permit
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the other party to review any communication given by it to, and consult with
each other in advance of any meeting or conference with, any Governmental Entity
or, in connection with any proceeding by a private party, with any other Person,
and to the extent permitted by the applicable Governmental Entity or other
Person, give the other party the opportunity to attend and participate in such
meetings and conferences, in each case in connection with the transactions
contemplated hereby.
SECTION 8.03. Public Announcements. The parties shall consult with each
other before issuing any press release or making any public statement with
respect to this Agreement and the Stock Option Agreement and the transactions
contemplated hereby and thereby and, except as may be required by applicable law
or any listing agreement with any national securities exchange, will not issue
any such press release or make any such public statement prior to such
consultation.
SECTION 8.04. Access to Information; Notification of Certain Matters.
(a) From the date of the Original Agreement until the Effective Time and subject
to applicable law, the Company and Parent shall (i) give to the other party, its
counsel, financial advisors, auditors and other authorized representatives
reasonable access to the offices, properties, books and records of such party,
(ii) furnish or make available to the other party, its counsel, financial
advisors, auditors and other authorized representatives such financial and
operating data and other information as such Persons may reasonably request and
(iii) instruct its employees, counsel, financial advisors, auditors and other
authorized representatives to cooperate with the reasonable requests of the
other party in its investigation. Any investigation pursuant to this Section
shall be conducted in such manner as not to interfere unreasonably with the
conduct of the business of the other party. All such information shall be
governed by the terms of the Confidentiality Agreement between Parent and the
Company dated January 5, 1999 (the "Confidentiality Agreement") (provided,
however, that Parent shall be permitted to use such information for all purposes
of consummating this Agreement and transition planning). No information or
knowledge obtained in any investigation pursuant to this Section 8.04(a) shall
affect or be deemed to modify any representation or warranty made by any party
hereunder.
(b) Each party hereto shall give notice to each other party hereto, as
promptly as practicable after the event giving rise to the requirement of such
notice, of:
(i) any communication received by such party from, or given by such
party to, any Governmental Entity in connection with any of the
transactions contemplated hereby; and
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(ii) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge, threatened against, relating to or
involving or otherwise affecting such party or any of its Subsidiaries
that, if pending on the date of the Original Agreement, would have been
required to have been disclosed, or that relate to the consummation of
the transactions contemplated by this Agreement
provided, however, that the delivery of any notice pursuant to this Section
8.04(b) shall not limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
SECTION 8.05. Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or MergerSub, any
deeds, bills of sale, assignments or assurances and to take and do, in the name
and on behalf of the Company or MergerSub, any other actions and things to vest,
perfect or confirm of record or otherwise in the Surviving Corporation any and
all right, title and interest in, to and under any of the rights, properties or
assets of the Company acquired or to be acquired by the Surviving Corporation as
a result of, or in connection with, the Merger.
SECTION 8.06. Tax and Accounting Treatment. (a) Prior to and following
the Effective Time, each party shall use its reasonable best efforts to cause
the Merger to qualify as a 368 Reorganization, and will not take any action
reasonably likely to cause the Merger not so to qualify.
(b) Each party shall use its reasonable best efforts to obtain the
opinions referred to in Sections 9.02(b) and 9.03(c).
SECTION 8.07. Affiliate Letters. After the date of the Original
Agreement, the Company shall cause to be delivered to Parent, to the extent it
has not already done so a letter identifying, to the Company's knowledge, all
Persons who may be deemed to be "affiliates" of the Company for purposes of Rule
145(c) under the Securities Act. The Company shall use commercially reasonable
efforts to cause each such Person who is so identified to deliver to Parent on
or prior to the Effective Time a letter agreement substantially in the form of
Exhibit A to this Agreement.
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<PAGE>
ARTICLE 9
CONDITIONS TO THE MERGER
SECTION 9.01. Conditions to the Obligations of Each Party. The
obligations of the Company, Parent and MergerSub to consummate the Merger
are subject to the satisfaction of the following conditions:
(a) the Company Stockholder Approval shall have been obtained;
(b) the Parent Common Shares to be issued in the Merger shall have
been authorized for listing on the NYSE, subject to official notice of issuance;
(c) (i) the Registration Statement, of which the Proxy
Statement/Prospectus forms a part, shall have become effective in accordance
with the provisions of the Securities Act, no stop order suspending the
effectiveness of the Registration Statement shall have been issued by the SEC
and no proceedings for that purpose shall have been initiated by the SEC and not
concluded or withdrawn and (ii) all state securities or blue sky authorizations
necessary to carry out the transactions contemplated hereby shall have been
obtained and be in effect;
(d) (i) any applicable waiting period under the HSR Act relating to
the Merger shall have expired or been earlier terminated and (ii) if required by
applicable law, the parties shall have received a decision from the European
Commission under Regulation 4064/89 that the proposed Merger and any matters
arising therefrom fall within either Article 6.1(a) or Article 6.1(b) of such
Regulation and that, in any event, the Merger will not be referred to any
competent authority or dealt with by the European Commission pursuant to Article
9.3 of such Regulation;
(e) all notices, reports and other filings required to be made prior
to the Effective Time by the Company or Parent or any of their respective
Subsidiaries with, and all consents, registrations, approvals, permits and
authorizations required to be obtained prior to the Effective Time by the
Company or Parent or any of their respective Subsidiaries from, any Commissioner
of Insurance, or any other governmental authority of any jurisdiction, in
connection with the execution and delivery of this Agreement and the
consummation of the Merger and the other transactions contemplated by this
Agreement shall have been made or obtained (as the case may be) other than any
such consents, approvals or permits, the absence of which would not,
individually or in the aggregate, be reasonably likely to have a Material
Adverse Effect; and
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(f) no Governmental Entity of competent authority or jurisdiction
shall have issued any order, injunction or decree, or taken any other action,
that is in effect and restrains, enjoins or otherwise prohibits the consummation
of the Merger.
SECTION 9.02. Conditions to the Obligations of The Company. The
obligations of the Company to consummate the Merger are subject to the
satisfaction of the following further conditions:
(a) (i) Parent and MergerSub each shall have performed in all material
respects all of its obligations hereunder required to be performed by it at or
prior to the time of the filing of the Certificate of Merger, (ii) (A) the
representations and warranties of Parent contained in this Agreement that are
qualified by reference to a Parent Material Adverse Effect shall 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 such time (except to the extent any such representation
or warranty expressly speaks as of an earlier date, in which case it shall be
true and correct as of such date) and (B) all other representations and
warranties of Parent shall have been 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 such
time (except to the extent any such representation or warranty expressly speaks
as of an earlier date, in which case it shall be true and correct as of such
date), except for such inaccuracies as are not reasonably likely, individually
or in the aggregate, to have a Parent Material Adverse Effect, and (iii) the
Company shall have received a certificate signed by the Chief Executive Officer
or Chief Financial Officer of Parent to the foregoing effect;
(b) The Company shall have received an opinion of Dewey Ballantine LLP
in form and substance reasonably satisfactory to the Company, on the basis of
certain facts, representations and assumptions set forth in such opinion, dated
as of the date of the filing of the Certificate of Merger, to the effect that
the Merger will be treated for federal income tax purposes as a 368
Reorganization. In rendering such opinion, such counsel shall be entitled to
rely upon customary representations of officers of the Company and Parent in
form and substance reasonably satisfactory to such counsel and other reasonable
assumptions set forth therein; and
(c) The parties shall have obtained or made all consents, approvals,
actions, orders, authorizations, registrations, declarations, announcements and
filings contemplated by Sections 4.03 and 5.03 which if not obtained or made (i)
would render consummation of the Merger illegal or (ii) (assuming the Effective
Time had occurred) would be reasonably likely to have a Parent Material Adverse
Effect.
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SECTION 9.03. Conditions to the Obligations of Parent and MergerSub.
The obligations of Parent and MergerSub to consummate the Merger are subject to
the satisfaction of the following further conditions:
(a) (i) The Company shall have performed in all material respects all
of its obligations hereunder required to be performed by it at or prior to the
Effective Time, (ii) (A) the representations and warranties of the Company
contained in this Agreement that are qualified by reference to a Company
Material Adverse Effect shall be 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 such
time (except to the extent any such representation or warranty speaks as of an
earlier date, in which case it shall be true and correct as of such date) and
(B) all other representations and warranties of the Company shall have been true
and correct when made and at and as of the time of filing of the Certificate of
Merger, as if made as of such time (except to the extent any such representation
or warranty expressly speaks as of an earlier date, in which case it shall be
true and correct as of such date), except for such inaccuracies as are not
reasonably likely, individually or in the aggregate, to have a Company Material
Adverse Effect, and (iii) Parent shall have received a certificate signed by the
Chief Executive Officer, President or Chief Financial Officer of the Company to
the foregoing effect;
(b) The parties shall have obtained or made all consents, approvals,
actions, orders, authorizations, registrations, declarations, announcements and
filings contemplated by Sections 4.03 and 5.03 which if not obtained or made (i)
would render consummation of the Merger illegal or (ii) (assuming the Effective
Time had occurred) would be reasonably likely to have a Parent Material Adverse
Effect or a Company Material Adverse Effect; and
(c) Parent shall have received an opinion of Davis Polk & Wardwell in
form and substance reasonably satisfactory to Parent, on the basis of certain
facts, representations and assumptions set forth in such opinion, dated as of
the date of the filing of the Certificate of Merger, to the effect that the
Merger will be treated for federal income tax purposes as a 368 Reorganization.
In rendering such opinion, such counsel shall be entitled to rely upon customary
representations of officers of the Company and Parent in form and substance
reasonably satisfactory to such counsel and other reasonable assumptions set
forth therein.
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<PAGE>
ARTICLE 10
TERMINATION
SECTION 10.01. Termination. This Agreement may be terminated at any
time prior to the Effective Time by written notice by the terminating party to
the other party (except if such termination is pursuant to Section 10.01(a)),
whether before or after the Company Stockholder Approval shall have been
obtained:
(a) by mutual written agreement of Parent and the Company;
(b) by either Parent or the Company, if
(i) the Merger shall not have been consummated by December 31, 1999
(the "End Date"); provided, however, that the right to terminate this
Agreement under this Section 10.01(b)(i) shall not be available to any
party whose breach of any provision of this Agreement has resulted in
the failure of the Merger to occur on or before the End Date;
(ii) there shall be any law or regulation that makes consummation of
the Merger illegal or otherwise prohibited or any judgment, injunction,
order or decree of any Governmental Entity having competent
jurisdiction enjoining the Company, Parent or MergerSub from
consummating the Merger is entered and such judgment, injunction,
judgment or order shall have become final and nonappealable and, prior
to such termination, the parties shall have used their respective
reasonable best efforts to resist, resolve or lift, as applicable, such
law, regulation, judgment, injunction, order or decree;
(iii) at the Company Stockholder Meeting (including any adjournment or
postponement thereof), the Company Stockholder Approval shall not have
been obtained;
(c) by the Company, (i) if a breach of any representation, warranty,
covenant or agreement on the part of Parent or MergerSub set forth in this
Agreement shall have occurred which would cause the condition set forth in
Section 9.02(a) not to be satisfied, and such condition shall be incapable of
being satisfied by the End Date; or (ii) as contemplated by Section 6.03(d); or
(d) by Parent, (i) if the Company's Board of Directors shall have (A)
amended, modified, withdrawn, conditioned or qualified the Company
Recommendation in a manner materially adverse to Parent and/or (B)
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recommended any Acquisition Proposal to the Company's stockholders; (ii) if
there shall have occurred a willful and material breach of Sections 6.02 or 6.03
by the Company, any Company Subsidiary or any of their respective officers,
directors, employees, advisors or other agents; or (iii) if a breach of or
failure to perform any representation, warranty, covenant or agreement on the
part of the Company set forth in this Agreement shall have occurred which would
cause the condition set forth in Section 9.03(a) not to be satisfied, and such
condition is incapable of being satisfied by the End Date.
SECTION 10.02. Effect of Termination. If this Agreement is terminated
pursuant to Section 10.01 (including any such termination by way of Section
6.03(d)), there shall be no liability or obligation on the part of Parent, the
Company, MergerSub, or any of their respective officers, directors,
stockholders, agents or Affiliates, except as set forth in Section 10.03;
provided that the provisions of Sections 10.02, 10.03, 11.01, 11.03, 11.04,
11.05, 11.06, 11.07, 11.08, 11.09 and 11.10 of this Agreement shall remain in
full force and effect and survive any termination of this Agreement.
SECTION 10.03. Fees and Expenses. (a) Except as set forth in this
Section 10.03, all fees and expenses incurred in connection herewith and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, whether or not the Merger is consummated. Nothing herein shall relieve
any party hereto of any liability or damages resulting from any breach of this
Agreement; provided, however, that the Company shall have no further liability
or obligation pursuant to this Agreement if it shall have paid the Termination
Fee (as hereinafter defined).
(b) If this Agreement is terminated pursuant to Section 10.01(c)(ii),
or Section 10.01(d)(i), the Company shall (i) pay to Parent a Termination Fee
and (ii) reimburse Parent for its actual, documented out-of-pocket expenses
incurred to third parties in connection with the transactions contemplated
hereby not to exceed $4 million.
(c) If this Agreement is terminated by either party pursuant to
Section 10.01(b)(iii),
(x) the Company shall reimburse Parent for its actual,
documented out-of-pocket expenses incurred to third parties in
connection with the transactions contemplated hereby not to exceed $4
million, and
(y) if (A) at the time of termination, an Acquisition Proposal
shall have been made and be pending and (B) within 12 months after such
termination, a Third Party Acquisition Event occurs, the Company shall
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pay to Parent the Termination Fee within one Business Day of the
earlier to occur of the date on which it enters into any agreement
constituting, or consummates such Third Party Acquisition Event.
(d) If this Agreement is terminated by Parent pursuant to Section
10.01(d)(ii),
(x) the Company shall reimburse Parent for its
actual, documented out-of-pocket expenses incurred to third
parties in connection with the transactions contemplated
hereby not to exceed $5 million, and
(y) if within 12 months after such termination, a
Third Party Acquisition Event occurs, the Company shall pay to
Parent the Termination Fee within one Business Day of the
earlier of the date on which it enters into any agreement
constituting, or consummates, such Third Party Acquisition
Event.
(e) "Termination Fee" means, in the case of a termination fee payable
pursuant to (i) Section 10.03(b) or 10.03(c) hereof, $30 million, or (ii)
Section 10.03(d), $40 million.
(f) A "Third Party Acquisition Event" means (i) the consummation of an
Acquisition Proposal involving the purchase of a majority of either the equity
securities of the Company or of the consolidated assets of the Company and the
Company Subsidiaries, taken as a whole, or any such transaction that, if it had
been proposed prior to the termination of this Agreement would have constituted
an Acquisition Proposal or (ii) the entering into by the Company or any of the
Company Subsidiaries of a definitive agreement with respect to any such
transaction.
(g) Any payment of the Termination Fee (and reimbursement of expenses)
pursuant to this Section 10.03 shall be made within one Business Day after
termination of this Agreement (or as otherwise expressly set forth in this
Agreement). If one party fails to pay to (or reimburse) the other promptly any
fee or expense due hereunder (including the Termination Fee), the defaulting
party shall pay the costs and expenses (including legal fees and expenses) in
connection with any action, including the filing of any lawsuit or other legal
action, taken to collect payment, together with interest on the amount of any
unpaid fee and/or expense at the publicly announced prime rate of Citibank, N.A.
from the date such fee was required to be paid to the date it is paid.
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(h) Notwithstanding anything herein to the contrary, no party shall be
required to pay a Termination Fee to the other party if the other party is in
material breach of this Agreement.
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. Notices. Except as otherwise expressly set forth in
Section 6.03(c), all notices, requests and other communications to any party
hereunder shall be in writing (including facsimile or similar writing) and shall
be given,
if to Parent or MergerSub, to:
The Chubb Corporation
15 Mountain View Road
P.O. Box 1615
Warren, New Jersey 07061-1615
Attention: General Counsel
Facsimile: (908) 903-3607
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Attention: Dennis S. Hersch
Facsimile: (212) 450-4800
if to the Company, to:
Executive Risk Inc.
82 Hopmeadow Street
P.O. Box 2002
Simsbury, CT 06070-7683
Attention: General Counsel
Facsimile: (860) 408-2464
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with a copy to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019
Attention: James A. FitzPatrick, Jr.
Facsimile: (212) 259-6333
or such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other parties hereto. Each such notice, request
or other communication shall be effective (a) if given by facsimile, when such
facsimile is transmitted to the facsimile number specified in this Section and
the appropriate facsimile confirmation is received or (b) if given by any other
means, when delivered at the address specified in this Section.
SECTION 11.02. Survival of Representations, Warranties and Covenants
after the Effective Time. The representations and warranties contained herein
and in any certificate or other writing delivered pursuant hereto shall not
survive the Effective Time or the termination of this Agreement. The covenants
contained in Articles 2 and 3 and Sections 6.04, 7.02, 7.03, 10.02, 11.04,
11.05, 11.06, 11.07, 11.08, 11.09, 11.10 shall survive the Effective Time.
SECTION 11.03. Amendments; No Waivers. (a) Any provision of this
Agreement may be amended or waived prior to the Effective Time if, and only if,
such amendment or waiver is in writing and signed, in the case of an amendment,
by the Company, Parent and MergerSub or in the case of a waiver, by the party
against whom the waiver is to be effective; provided that after the Company
Stockholder Approval, no such amendment or waiver shall, without the further
approval of such stockholders, be made that would require such approval under
any applicable law, rule or regulation.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 11.04. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto, except that Parent or MergerSub
may transfer or assign to any wholly owned Parent Subsidiary the right to enter
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into the transactions contemplated by this Agreement, provided that no such
assignment shall be permitted if it would delay or impede the Merger or any of
the other transactions contemplated by this Agreement, and any such transfer or
assignment will not relieve Parent or MergerSub of its obligations hereunder.
Any purported assignment in violation hereof shall be null and void.
SECTION 11.05. Governing Law. This Agreement shall be construed in
accordance with and governed by the internal laws of the State of Delaware
without reference to its principles of conflicts of laws.
SECTION 11.06. Counterparts; Effectiveness; Third Party Beneficiaries.
This Agreement may be signed in any number of counterparts, each of which shall
be an original, with the same effect as if the signatures thereto and hereto
were upon the same instrument. This Agreement shall become effective when each
party hereto shall have received counterparts hereof signed by all of the other
parties hereto. Except as set forth in Section 7.02, no provision of this
Agreement is intended to confer upon any Person other than the parties hereto
any rights or remedies hereunder.
SECTION 11.07. Jurisdiction. Except as otherwise expressly provided in
this Agreement, the parties hereto agree that any suit, action or proceeding
seeking to enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby shall be
brought in the United States District Court for the Southern District of New
York or any other New York State court sitting in New York City, and each of the
parties hereby consents to the exclusive jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding
and irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding in any such court or that any such suit, action or
proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in Section 11.01 shall be deemed
effective service of process on such party.
SECTION 11.08. Waiver of Jury Trial. EACH OF THE PARTIES
HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
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SECTION 11.09. Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms. It is accordingly agreed that
the parties shall be entitled to specific performance of the terms hereof, this
being in addition to any other remedy to which they are entitled at law or in
equity.
SECTION 11.10. Entire Agreement. This Agreement (together with the
exhibits and schedules hereto), the Stock Option Agreement and the
Confidentiality Agreement constitute the entire agreement between the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, both oral and written, between the parties with respect to the
subject matter hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
EXECUTIVE RISK INC.
By: /s/ Stephen J. Sills
--------------------------------
Name: Stephen J. Sills
Title: President and
Chief Executive Officer
THE CHUBB CORPORATION
By: /s/ Dean R. O'Hare
--------------------------------
Name: Dean R. O'Hare
Title: Chairman and Chief
` Executive Officer
EXCALIBUR ACQUISITION, INC.
By: /s/ Glenn A. Montgomery
--------------------------------
Name: Glenn A. Montgomery
Title: Vice President
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ANNEX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (the "Option Agreement") dated as of February 6,
1999 between The Chubb Corporation, a New Jersey corporation ("Buyer" or
"Holder"), and Executive Risk Inc., a Delaware corporation (the "Company").
RECITALS
WHEREAS, both Buyer's and the Company's Board of Directors have
approved an Agreement and Plan of Merger dated as of the date hereof (as the
same may be amended from time to time, the "Merger Agreement") providing for the
merger of a wholly owned Subsidiary of Buyer with and into the Company; and
WHEREAS, as a condition to Buyer's entering into the Merger Agreement,
Buyer has required that the Company agree, and the Company has agreed, to grant
to Buyer the option set forth herein to purchase authorized but unissued Company
Common Shares.
NOW, THEREFORE, in consideration of the premises herein contained, the
parties agree as follows:
1. Definitions. Capitalized terms used but not defined herein shall
have the same meanings as in the Merger Agreement.
2. Grant of Option. Subject to the terms and conditions set forth
herein, the Company hereby grants to Buyer an unconditional, irrevocable option
(the "Option") to purchase up to that number of shares which equals 19.9% of the
issued and outstanding Company Common Shares (the "Option Shares") immediately
prior to the first exercise of this Option at a price per share (the "Option
Price") equal to $71.70, payable in cash as provided in Section 4 hereof. The
number of Option Shares and the Option Price are subject to adjustment as set
forth herein.
3. Exercise and Termination of Option. (a) The Holder may exercise
the Option, in whole or in part, and from time to time, after the occurrence of
a Trigger Event and prior to the day (the "Termination Date") which is 45 days
after the Trigger Event. "Trigger Event" shall mean an event which obligates the
<PAGE>
Company to pay the Termination Fee pursuant to Section 10.03(b) of the Merger
Agreement.
(b) If the Holder is entitled to and wishes to exercise the Option, it
shall deliver to the Company a written notice (the date of receipt of which is
referred to as the "Notice Date") specifying (i) the total number of shares it
intends to purchase pursuant to such exercise and (ii) a place and date not
earlier than five business days nor later than 20 calendar days from the Notice
Date for the closing of such purchase (the "Closing Date"); provided that if the
closing of a purchase and sale pursuant to the Option (the "Closing") cannot be
consummated by reason of any applicable judgment, decree, order, law or
regulation, the period of time that otherwise would run pursuant to this
sentence shall run instead from the date on which such restriction on
consummation has expired or been terminated; and, provided further that, without
limiting the foregoing, if prior notification to or approval of any regulatory
authority is required in connection with such purchase, Holder and, if
applicable, the Company shall promptly file the required notice or application
for approval and shall expeditiously process the same (and the Company shall
cooperate with Holder in the filing of any such notice or application and the
obtaining of any such approval), and the period of time that otherwise would run
pursuant to this sentence shall run instead from the date on which, as the case
may be, (i) any required notification period has expired or been terminated or
(ii) such approval has been obtained, and in either event, any requisite waiting
period has passed. Any exercise of the Option shall be deemed to occur on the
Notice Date relating thereto.
(c) If (i) the Holder receives official notice that an approval of any
regulatory authority required for the purchase of the Option Shares would not be
issued or granted or (ii) a Closing Date shall not have occurred within twelve
months after the related Notice Date due to the failure to obtain any such
required approval, the Holder shall be entitled to exercise its right as set
forth in Section 8 hereof or, to the extent legally permitted, to exercise the
Option in connection with the resale of Company Common Shares or other
securities pursuant to a registration statement as provided in Section 9 hereof.
(d) It shall be a condition to the exercise of this Option that (i) no
preliminary or permanent injunction or other order, decree or ruling against the
sale or delivery of the Option Shares issued by any federal or state court of
competent jurisdiction in the United States is in effect at such time, (ii) any
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 (the "HSR Act") shall have expired or been terminated at or prior to
such time, and (iii) any approval required to be obtained prior to the delivery
of the Option Shares under the laws of any jurisdiction shall have been obtained
and shall be in full force and effect.
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<PAGE>
4. Payment and Delivery of Certificates. (a) At the Closing referred
to in Section 3 hereof, the Holder shall pay to the Company on the Closing Date
the aggregate Purchase Price for the Company Common Shares purchased pursuant to
the exercise of the Option in immediately available funds by wire transfer to a
bank account designated not later than one business day prior to such Closing
Date by the Company; provided that failure or refusal of the Company to
designate such a bank account shall not preclude the Holder from exercising the
Option.
(b) At such Closing, simultaneously with the delivery of cash as
provided in Section 4(a), the Company shall deliver to the Holder a certificate
or certificates representing the number of Company Common Shares purchased by
the Holder, registered in the name of the Holder or a nominee designated in
writing by the Holder (which shall be a wholly owned subsidiary), which shares
shall be fully paid and non-assessable and free and clear of all Liens, claims,
charges and encumbrances of any kind whatsoever. Any certificates so issued
shall bear a legend reflecting any resale restrictions applicable to the shares
represented thereby.
(c) At the time any Company Common Shares are issued pursuant to any
exercise of the Option, if the Company shall have issued any share purchase
rights or similar securities to holders of Company Common Shares prior thereto,
then each Company Common Share issued pursuant to an exercise of the Option
shall also represent rights with terms substantially the same as and at least as
favorable to the Holder as those issued to other holders of Company Common
Shares.
(d) When the Holder provides the written notice of exercise of the
Option provided for in Section 3(b) and the tender of the applicable purchase
price in immediately available funds, the Holder shall be deemed to be the
holder of record of the Company Common Shares issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such Company Common Shares shall not
then be actually delivered to the Holder.
5. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Buyer as follows:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. The execution,
delivery and performance by the Company of this Agreement and the consummation
of the transactions contemplated hereby (i) are within the Company's corporate
powers,
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(ii) have been duly authorized by all necessary corporate action, (iii) require
no action by or in respect of, or filing with, any Governmental Entity, except
for compliance with any applicable requirements of the HSR Act and pursuant to
any applicable insurance laws, (iv) do not contravene, or conflict with the
certificate of incorporation or by-laws of the Company, (v) assuming compliance
with clause (iii) above, contravene or conflict with or constitute a violation
of any provision of any law, regulation or judgment, injunction, order or decree
binding upon the Company or any of its subsidiaries and (vi) will not require
any consent, approval or notice under and will not conflict with, or result in
the breach or termination of any provision of or constitute a default (with or
without the giving of notice or the lapse of time or both) under, or allow the
acceleration of the performance of, any material obligation of the Company or
any of its Subsidiaries under, or result in the creation of a lien, charge or
encumbrance upon, any of the properties, assets or business of the Company or
any of its Subsidiaries under any indenture, mortgage, deed of trust, lease,
licensing agreement, contract, instrument or other agreement to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries or any of their respective assets or properties is subject or
bound other than, in the case of each of (iii), (iv), (v) or (vi), any such
items that would not, individually or in the aggregate, be reasonably likely to
have a Company Material Adverse Effect or prevent or materially impair the
ability of the Company to consummate the transactions contemplated by this
transaction. This Agreement has been duly executed and delivered by the Company
and constitutes a valid and binding agreement of the Company subject to
bankruptcy, insolvency, reorganization, moratorium and similar laws, now or
hereafter in effect, relating to or affecting creditors' rights and remedies and
to general principles of equity.
(b) Except for any filings required to be made under the HSR Act and
any approvals of any Commissioners of Insurance, the Company has taken all
necessary corporate and other action to authorize and reserve and to permit it
to issue, and at all times from the date hereof until such time as the
obligation to deliver Option Shares upon the exercise of the Option terminates,
will have reserved for issuance, upon any exercise of the Option, the number of
Company Common Shares subject to the Option (less the number of Company Common
Shares previously issued upon any partial exercise of the Option or as to which
the Option may no longer be exercised). All of the Company Common Shares to be
issued pursuant to the Option are duly authorized and, upon issuance and
delivery thereof pursuant to this Agreement, will be duly authorized, validly
issued, fully paid and nonassessable, and free and clear of all claims, liens,
charges, encumbrances and security interests, and not subject to any preemptive
rights.
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6. Representations and Warranties of the Purchaser. The Buyer hereby
represents and warrants to the Company as follows:
(a) The Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of New Jersey. The execution, delivery
and performance by the Buyer of this Agreement are within the Buyer's corporate
powers, have been duly authorized by all necessary corporate action, require no
action by or in respect of, or filing with, any governmental body, agency or
official, except for any filings required to be made under the HSR Act and any
applicable insurance laws, and do not contravene, or constitute a default under,
any provision of applicable law or regulation or of the certificate of
incorporation or by-laws of the Buyer or of any agreement, judgment, injunction,
order, decree or other instrument binding upon the Buyer. This Agreement has
been duly executed and delivered by the Buyer and constitutes a valid and
binding agreement of the Buyer subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws, now or hereafter in effect,
relating to or affecting creditors' rights and remedies and to general
principles of equity.
(b) The Buyer is acquiring the Option and will acquire the Option
Shares for investment purposes only and not with a view to any resale or
distribution thereof, and will not sell any Option Shares purchased pursuant to
the Option except in compliance with the Securities Act.
7. Adjustment upon Changes in Capitalization. (a) In the event of any
change in Company Common Shares 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, shall be adjusted appropriately in such manner as shall fully
preserve the economic benefits provided hereunder and proper provision shall be
made in any agreement governing any such transaction to provide for such
adjustment and the full satisfaction of the Company's obligations hereunder.
(b) Without limiting the parties' relative rights and obligations
under the Merger Agreement, if the Company enters into an agreement with respect
to an Acquisition Proposal involving the exchange of Company Common Shares for
shares or other securities of the Company or another person, then the agreement
governing such transaction shall make proper provision so that the Option shall,
upon the consummation of any such transaction and upon the terms and conditions
set forth herein, be converted into, or exchanged for, an option with identical
terms appropriately adjusted to acquire the number and class of shares or other
securities or property that Holder would have received in respect of Company
Common Shares if the Option had been exercised immediately prior to
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the consummation of such Acquisition Proposal, or the record date therefor, as
applicable; provided that nothing in this Section 7(b) shall be deemed to affect
the ability of the Holder to exercise the Option pursuant to the terms hereof.
8. Repurchase. (a) At any time when the Option is exercisable
pursuant to Section 3(a) hereof, at the request of the Holder, the Company (or
any successor entity thereof) shall repurchase the Option (or any portion
thereof) from the Holder together with any Company Common Shares purchased by
the Holder pursuant thereto which the Holder then beneficially owns and has
requested that the Company repurchase, at a price per share equal to the higher
of (x) the highest price per share at which a tender or exchange offer has been
made for Company Common Shares following the date hereof or (y) the highest
closing price per share of Company Common Shares as reported by the NYSE
Composite Tape for any day following the date on which an Acquisition Proposal
shall have been made, less in the case of each Option Share, the Option Price.
(b) In the event Holder exercises its rights under this Section 8, the
Company shall, within 10 business days thereafter, pay the required amount to
Holder by wire transfer of immediately available funds to an account designated
by Holder and Holder shall surrender to the Company the Option and any
certificates evidencing the Company Common Shares purchased thereunder with
respect to which Holder then has beneficial ownership.
(c) The period for exercise of the rights provided under this Section
8 shall be extended: (i) to the extent necessary to obtain all regulatory
approvals for the exercise of such rights, for the expiration of all statutory
waiting periods, and to the extent required to obtain any required stockholder
approval or until such stockholder approval is no longer required pursuant to
the Company's certificate of incorporation; and (ii) to the extent necessary to
avoid liability under Section 16(b) of the Exchange Act by reason of such
exercise.
(d) If within 12 months after the date the Merger Agreement was
terminated pursuant to the terms thereof, neither the Holder nor any other
person has acquired more than fifty percent of the issued and outstanding
Company Common Shares, the Company will then have the right to purchase (the
"Repurchase Right") all, but not less than all, of the Company Common Shares
acquired upon exercise of this Option of which the Holder is the beneficial
owner on the date the Company gives written notice of its intention to exercise
the Repurchase Right, at a price per share equal to the greater of (i) the
Option Price or (ii) the average of the closing price per Company Common Share
on the NYSE Composite Tape for the five consecutive trading days ending on and
including the trading date immediately prior to the consummation of such
repurchase of Company Common Shares.
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9. Registration Rights. At any time within 2 years after a Closing,
if requested by the Holder or any affiliate of the Holder who is a beneficial
owner of Company Common Shares issued upon exercise of the Option (each a
"Shareholder"), the Company shall, as expeditiously as possible file a
registration statement on a form for general use under the Securities Act if
necessary in order to permit the sale or other disposition of the Company Common
Shares that have been acquired upon exercise of the Option in accordance with
the intended method of sale or other disposition requested by any such
Shareholder. Each such Shareholder shall provide all information reasonably
requested by the Company for inclusion in any registration statement to be filed
hereunder. The Company shall use its reasonable best efforts to cause such
registration statement first to become effective and then to remain effective
for such period not in excess of 90 days from the day such registration
statement first becomes effective as may be reasonably necessary to effect such
sales or other dispositions. The registration effected under this Section 9
shall be at the Company's expense except for underwriting commissions and the
fees and disbursements of such Shareholder's counsel attributable to the
registration of such Company Common Shares. In no event shall the Company be
required to effect more than three registrations hereunder. The filing of any
registration statement required hereunder may be delayed for such period of time
(not to exceed 90 days) as may reasonably be required to facilitate any public
distribution by the Company of Company Common Shares, if a special audit of the
Company would otherwise be required in connection therewith, at a time during
which the Company is in possession of material, non-public information
concerning it, its business affairs or a material transaction, in each case, the
public disclosure of which could have a material adverse effect on the Company
or significantly disrupt such material transaction or if, in the Company's
reasonable good faith judgement, such filing would require the disclosure of
material information that the Company has a bona fide business purpose for
preserving as confidential. If requested by any such Shareholder in connection
with such registration, the Company shall become a party to any underwriting
agreement relating to the sale of such shares on terms and including obligations
and indemnities that are customary for parties similarly situated. Upon
receiving any request for registration under this Section 9 from any
Shareholder, the Company agrees to send a copy thereof to any other person known
to the Company to be entitled to registration rights under this Section 9, in
each case, by promptly mailing the same, postage prepaid, to the address of
record of the persons entitled to receive such copies.
10. Listing. If Company Common Shares or any other securities to be
acquired upon exercise of the Option are then-listed on the NYSE or any other
national securities exchange, upon the request of Holder, the Company will
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promptly file an application to list the Company Common Shares or other
securities to be acquired upon exercise of the Option on the NYSE or such other
exchange and will use its best efforts to obtain approval of such listings as
soon as practicable.
11. Limitation on Profits. (a) Notwithstanding any other provision
contained herein or in the Merger Agreement to the contrary, in no event shall
Buyer's Total Profit (as defined below) exceed the amount of the applicable
Termination Fee and if it otherwise would exceed such amount, the Holder shall
repay the excess amounts to the Company in cash so that the Total Profit shall
not exceed the amount of the applicable Termination Fee.
(b) Notwithstanding anything to the contrary contained herein, the
Option may not be exercised for a number of Company Common Shares as would, as
of the date of exercise, result in a Notional Total Profit (as defined below) of
more than the amount of the applicable Termination Fee and if it otherwise would
exceed such amount, the exercise price for such shares will be increased so that
the Notional Total Profit shall not exceed the amount of the applicable
Termination Fee;
(c) As used herein, the term "Total Profit" shall mean the aggregate
amount (before taxes) of the following: (i) the amount of the Termination Fee
received by the Buyer pursuant to Section 10.03 of the Merger Agreement, (ii)
the amount received by Buyer in connection with the Company's repurchase of the
Option (or any portion thereof) and/or Option Share, as applicable, pursuant to
Section 8 hereof, (iii) (x) the net cash amounts received by Buyer pursuant to
the sale of Option Shares (or any other securities into which such Option Shares
shall be converted or exchanged) to any unaffiliated party, less (y) Buyer's
Purchase Price for such Option Shares, and (iv) any amounts received by Buyer on
the transfer of the Option (or any portion thereof) to any unaffiliated party.
(d) As used herein, the term "Notional Total Profit" with respect to
any number of shares as to which Buyer may propose to exercise the Option shall
be the Total Profit determined as of the date of such proposed exercise assuming
that the Option were exercised on such date for such number of shares and
assuming that each such share, together with each other Option Share, held by
Buyer and its affiliates as of such date, were sold for cash at the closing
market price on the NYSE Composite Tape for one Company Common Share as of the
close of business on the preceding trading day (less customary brokerage
commissions).
12. Transferability of the Option. Neither of the parties hereto may
assign any of its rights or obligations under this Option Agreement or the
Option created hereunder to any other person, without the express written
consent of the
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other party, except Buyer may assign, in whole or in part, its rights and
obligations hereunder to any wholly owned subsidiary of Buyer, provided that no
such assignment will relieve Buyer of its obligations hereunder. Any purported
assignment in violation hereof shall be null and void.
13. Miscellaneous.
(a) Expenses. Each of the parties hereto shall pay all costs and
expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants and counsel.
(b) Entire Agreement. This Option Agreement, the Confidentiality
Agreement and the Merger Agreement (including the exhibits and schedules
thereto) constitute the entire agreement between the parties with respect to the
subject matter hereto and supersede all prior agreements and understandings,
both written and oral, between the parties with respect to the subject matter
hereof and thereof.
(c) Successors; No Third-Party Beneficiaries. The terms and conditions
of this Option Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted transferees and
assigns. Nothing in this Option Agreement is intended to confer upon any Person,
other than the parties hereto, and their respective successors and permitted
assigns, any rights or remedies hereunder.
(d) Severability. Any term, provision, covenant or restriction
contained in this Option Agreement held by any court of competent jurisdiction
to be invalid, void or unenforceable, shall be ineffective to the extent of such
invalidity, voidness or unenforceability, but neither the remaining terms,
provisions, covenants or restrictions contained in this Option Agreement nor the
validity or enforceability thereof in any other jurisdiction shall be affected
or impaired thereby. Any term, provision, covenant or restriction contained in
this Option Agreement that is so found to be so broad as to be unenforceable
shall be interpreted to be as broad as is enforceable.
(e) Notices. All notices or other communications that are required or
permitted hereunder shall be in writing and sufficient if delivered in
accordance with Section 11.01 of the Merger Agreement (which is incorporated
herein by reference).
(f) Counterparts. This Option Agreement may be executed in
counterparts, and each such counterpart shall be deemed to be an original
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instrument, but both such counterparts together shall constitute but one
agreement.
(g) Further Assurances. In the event of any exercise of the Option by
Holder, the Company and Holder shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(h) Specific Performance. The parties hereto agree that if for any
reason Holder or the Company shall have failed to perform its obligations under
this Option Agreement, then either party hereto seeking to enforce this Option
Agreement against such non-performing party shall be entitled to specific
performance and injunctive and other equitable relief, and the parties hereto
further agree to waive any requirement for the securing or posting of any bond
in connection with the obtaining of any such injunctive or other equitable
relief. This provision is without prejudice to any other rights that either
party hereto may have against the other party hereto for any failure to perform
its obligations under this Option Agreement.
(i) Governing Law. This Option Agreement shall be construed in
accordance with and governed by the internal laws of the State of Delaware
without reference to its principles of conflicts of laws.
(j) Consent to Jurisdiction; Venue. Section 11.07 of the Merger
Agreement is hereby incorporated herein by reference.
(k) Section 16(b). Periods of time that otherwise would run pursuant
to Section 3 or 8 hereof shall also be extended to the extent necessary for any
Holder to avoid liability under Section 16(b) of the Exchange Act.
(l) Waiver and Amendment. Any provision of this Option Agreement may
be waived at any time by the party that is entitled to the benefits of such
provision. This Option Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by the parties hereto.
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IN WITNESS WHEREOF, each of the parties hereto has executed this Option
Agreement as of the date first written above.
THE CHUBB CORPORATION
By: /s/ Dean R. O'Hare
--------------------------------
Name: Dean R. O'Hare
Title: Chairman and Chief Executive
Officer
EXECUTIVE RISK INC.
By: /s/ Stephen J. Sills
---------------------------------
Name: Stephen J. Sills
Title: President and Chief Executive
Officer
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ANNEX C
VOTING AGREEMENT
AGREEMENT, dated as of February 6, 1999 between The Chubb Corporation a
New Jersey corporation ("Buyer"), and each other person set forth on the
signature pages hereof (each a "Stockholder" and collectively the
"Stockholders"). Capitalized terms used but not separately defined herein shall
have the meanings assigned to such terms in the Merger Agreement (as defined
below).
WHEREAS, in order to induce Buyer and Excalibur Acquisition, Inc., a
Delaware Corporation ("Merger Subsidiary") to enter into an Agreement and Plan
of Merger, dated as of the date hereof (as the same may be amended from time to
time, the "Merger Agreement"), with Executive Risk Inc., a Delaware corporation
(the "Company"), Buyer has requested the Stockholders, and each Stockholder has
agreed, to enter into this Agreement with respect to shares of common stock, par
value $.01 per share, of the Company (the "Common Stock") that each Stockholder
beneficially owns and shares of Common Stock that each Stockholder may hereafter
acquire (collectively, the "Shares").
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
GRANT OF PROXY; VOTING AGREEMENT
SECTION 1.01. Voting Agreement. (a) Each Stockholder hereby irrevocably
and unconditionally agrees to vote all Shares that each Stockholder is entitled
to vote, at the time of any vote to approve and adopt the Merger Agreement, the
Merger and all agreements related to the Merger and any actions related thereto
at any meeting of the stockholders of the Company, and at any adjournment
thereof, at which such Merger Agreement and other related agreements (or any
amended version thereof), or such other actions, are submitted for the
consideration and vote of the stockholders of the Company, in favor of the
approval and adoption of the Merger Agreement, the Merger and the transactions
contemplated by the Merger Agreement.
(b) Each Stockholder hereby agrees that it will not vote any Shares in
favor of the approval of any (i) Acquisition Proposal, (ii) reorganization,
recapitalization, liquidation or winding up of the Company or any other
<PAGE>
extraordinary transaction involving the Company, (iii) corporate action the
consummation of which would frustrate the purposes, or prevent or delay the
consummation, of the transactions contemplated by the Merger Agreement or (iv)
other matter relating to, or in connection with, any of the foregoing matters.
SECTION 1.02. Irrevocable Proxy. Each Stockholder hereby revokes any
and all previous proxies granted with respect to the Shares. By entering into
this Agreement, each Stockholder hereby grants a proxy appointing Buyer as the
Stockholder's attorney-in-fact and proxy, with full power of substitution, for
and in the Stockholder's name, to vote, express, consent or dissent, or
otherwise to utilize such voting power in the manner contemplated by Section
1.01 above as Buyer or its proxy or substitute shall, in Buyer's sole
discretion, deem proper with respect to the Shares. The proxy granted by each
Stockholder pursuant to this Article 1 is irrevocable and is granted in
consideration of Buyer entering into this Agreement and the Merger Agreement and
incurring certain related fees and expenses. The proxy granted by each
Stockholder shall be revoked upon termination of this Agreement in accordance
with its terms.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
Each Stockholder represents and warrants to Buyer that:
SECTION 2.01. Authorization. The execution, delivery and performance by
Stockholder of this Agreement and the consummation by Stockholder of the
transactions contemplated hereby are within the powers of Stockholder. This
Agreement constitutes a valid and binding Agreement of Stockholder. If the
Stockholder is married and the Shares set forth on the signature page hereto
opposite such Stockholder's name constitute community property under applicable
laws, this Agreement has been duly authorized, executed and delivered by, and
constitutes the valid and binding agreement of, such Stockholder's spouse.
SECTION 2.02. Non-Contravention. The execution, delivery and
performance by Stockholder of this Agreement and the consummation of the
transactions contemplated hereby do not and will not, (i) violate any applicable
law, rule, regulation, judgment, injunction, order or decree, (ii) require any
consent or other action by any Person under, constitute a default under, or give
rise to any right of termination, cancellation or acceleration or to a loss of
any benefit to which Stockholder is entitled under any provision of any
2
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agreement or other instrument binding on Stockholder or (iii) result in the
imposition of any Lien on any asset of Stockholder, other than, in respect of
each of clauses (i), (ii) and (iii), any such items as would not, individually
or in the aggregate, prevent or materially impair the ability of Stockholder to
consummate the transactions contemplated by this Agreement.
SECTION 2.03. Ownership of Shares. Stockholder is the beneficial owner
of the Shares, free and clear of any Lien and any other limitation or
restriction (including any restriction on the right to vote or otherwise dispose
of the Shares). None of the Shares is subject to any voting trust or other
agreement or arrangement with respect to the voting of such Shares.
SECTION 2.04. Total Shares. Except for the Shares, Stockholder does not
beneficially own any (i) shares of capital stock or voting securities of the
Company, (ii) securities of the Company convertible into or exchangeable for
shares of capital stock or voting securities of the Company or (iii) options or
other rights to acquire from the Company any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of the Company.
SECTION 2.05. Finder's Fees. No investment banker, broker, finder or
other intermediary is entitled to a fee or commission from Buyer or the Company
in respect of this Agreement based upon any arrangement or agreement made by or
on behalf of Stockholder.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to each Stockholder:
SECTION 3.01. Corporate Authorization. The execution, delivery and
performance by Buyer of this Agreement and the consummation by Buyer of the
transactions contemplated hereby are within the corporate powers of Buyer and
have been duly authorized by all necessary corporate action. This Agreement
constitutes a valid and binding Agreement of Buyer.
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ARTICLE 4
COVENANTS OF STOCKHOLDERS
Each Stockholder hereby covenants and agrees that:
SECTION 4.01. No Proxies for or Encumbrances on Shares. Except pursuant
to the terms of this Agreement, Stockholder shall not, without the prior written
consent of Buyer, directly or indirectly, (i) grant any proxies or enter into
any voting trust or other agreement or arrangement with respect to the voting of
any Shares or (ii) sell, assign, transfer, encumber or otherwise dispose of, or
enter into any contract, option or other arrangement or understanding with
respect to the direct or indirect sale, assignment, transfer, encumbrance or
other disposition of, any shares of Common Stock during the term of this
Agreement; provided, however, that Stockholder may sell such number of Shares as
may be necessary to satisfy tax liabilities of such Stockholder. Stockholder
shall not seek or solicit any such acquisition or sale, assignment, transfer,
encumbrance or other disposition or any such contract, option or other
arrangement or understanding and agrees to notify Buyer promptly, and to provide
all details requested by Buyer, if Stockholder shall be approached or solicited,
directly or indirectly, by any Person with respect to any of the foregoing.
SECTION 4.02. No Solicitation. (a) From the date hereof until the
termination hereof, Stockholder, in its capacity as a Stockholder, will not, and
will authorize or knowingly permit any investment bankers, attorneys,
accountants, consultants and other agents or advisors ("Representatives") of
Stockholder not to, directly or indirectly, (i) take any action to solicit,
initiate or facilitate or encourage the submission of any Acquisition Proposal,
(ii) 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 (iii) grant any
waiver or release under any standstill or similar agreement to which Stockholder
is a party with respect to any class of equity securities of the Company;
provided, that notwithstanding any other provision of this Agreement,
Stockholder may take any action in its capacity as a director of the Company
that the Board of Directors would be permitted to take in accordance with the
terms and conditions of the Merger Agreement.
(b) Stockholder will notify Buyer promptly (but in no event later than
24 hours) upon obtaining any knowledge of any Acquisition Proposal or of any
request for nonpublic information relating to the Company or any of its
Subsidiaries or for access to the properties, books or records of the Company or
any of its Subsidiaries or any request for a waiver or release under any
4
<PAGE>
standstill or similar agreement by any Person who indicates that it is
considering making, or has made, an Acquisition Proposal. The notice shall state
the identity of the offer or and the material terms and conditions of such
proposal, inquiry, contact or request. Stockholder shall keep Buyer reasonably
apprised of any material development with respect to such proposal. Stockholder
shall, and shall cause its Representatives to, cease immediately and cause to be
terminated all existing discussions or negotiations, if any, with any Persons
conducted heretofore with respect to, or that could reasonably expected to lead
to, any Acquisition Proposal.
ARTICLE 5
MISCELLANEOUS
SECTION 5.01. Further Assurances. Buyer and each Stockholder will
execute and deliver, or cause to be executed and delivered, all further
documents and instruments and use their reasonable best efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations, to
consummate and make effective the transactions contemplated by this Agreement.
SECTION 5.02. Amendments; Termination. Any provision of this Agreement
may be amended or waived if, but only if, such amendment or waiver is in writing
and is signed, in the case of an amendment, by each party to this Agreement or
in the case of a waiver, by the party against whom the waiver is to be
effective. This Agreement shall terminate upon the termination of the Merger
Agreement in accordance with its terms.
SECTION 5.03. Expenses. All costs and expenses incurred in connection
with this Agreement shall be paid by the party incurring such cost or expense.
SECTION 5.04. Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto, except that Buyer may transfer
or assign its rights and obligations to any Affiliate of Buyer.
SECTION 5.05. Governing Law. This Agreement shall construed in
accordance with and governed by the laws of the State of Delaware.
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SECTION 5.06. Counterparts; Effectiveness. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
SECTION 5.07. Severability. If any term, provision or covenant of this
Agreement is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable, the remainder of the terms, provisions and
covenants of this Agreement shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.
SECTION 5.08. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement is
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof in addition to any other
remedy to which they are entitled at law or in equity.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
THE CHUBB CORPORATION
By: /s/ Dean R. O'Hare
--------------------------------
Name: Dean R. O'Hare
Title: Chairman and Chief Executive
Officer
No. of shares of Common Stock
of the Company beneficially
owned as of February 1,
1999:(1)
/s/ Robert H. Kullas 143,930
- -----------------------------
Name: Robert H. Kullas
/s/ Stephen J. Sills 485,824
- -----------------------------
Name: Stephen J. Sills
/s/ Robert V. Deutsch 373,275
- -----------------------------
Name: Robert V. Deutsch
/s/ Gary G. Benanav 15,687
- -----------------------------
Name: Gary G. Benanav
/s/ Barbara G. Cohen 3,017
- -----------------------------
Name: Barbara G. Cohen
/s/ John G. Crosby 16,748
- -----------------------------
Name: John G. Crosby
/s/ Patrick A. Gerschel 724,318
- -----------------------------
Name: Patrick A. Gerschel
- --------
(1) Please include shares of Common Stock subject to option.
7
<PAGE>
/s/ Peter Goldberg 8,740
- -----------------------------
Name: Peter Goldberg
/s/ Michael D. Rice 11,984
- -----------------------------
Name: Michael D. Rice
/s/ Joseph D. Sargent 42,543
- -----------------------------
Name: Joseph D. Sargent
/s/ Irving B. Yoskowitz 2,366
- -----------------------------
Name: Irving B. Yoskowitz
8
<PAGE>
ANNEX D
February 6, 1999
The Board of Directors
Executive Risk Inc.
82 Hopmeadow Street
Simsbury, CT 06070
Dear Members of the Board:
You have requested our opinion as to the fairness from a financial
point of view to the holders of common stock, par value $.01 per share ("Company
Common Stock"), of Executive Risk Inc. (the "Company") of the consideration to
be received by such holders pursuant to the terms of the Agreement and Plan of
Merger, dated as of February 6, 1999 (the "Agreement"), among the Company, The
Chubb Corporation ("Chubb") and Executive Risk Acquisition, Inc., a direct
wholly owned subsidiary of Chubb, pursuant to which Executive Risk Acquisition,
Inc. shall be merged (the "Merger") with and into the Company.
Pursuant to the Agreement, each share of Company Common Stock shall be
converted into the right to receive 1.235 shares of common stock, $1.00 par
value per share ("Chubb Common Stock"), of Chubb.
In arriving at our opinion, we have reviewed the drafts dated February
4, 1999 of the Agreement and the related Voting Agreement and Stock Option
Agreement. We also have reviewed financial and other information that was
publicly available, including research analysts' earnings projections for Chubb,
or was furnished to us by the Company and Chubb including information provided
during discussions with their respective managements. Included in the
information provided during discussions with the respective managements were
certain financial projections of the Company prepared by the management of the
Company. In addition, we have compared certain financial and securities data of
the Company and Chubb with various other companies whose securities are traded
in public markets, reviewed the historical stock prices and trading volumes of
Company Common Stock and Chubb Common Stock, reviewed prices and premiums paid
in certain other relevant business combinations and conducted such other
financial studies, analyses and investigations as we deemed appropriate for
purposes of this opinion. We were not requested to, nor did we, solicit the
interest of any other party in acquiring the Company.
In rendering our opinion, we have relied upon and assumed the accuracy
and completeness of all of the financial and other information that was
available to us from public sources, that was provided to us by the Company and
Chubb or their respective representatives, or that was otherwise reviewed by us.
With respect to the Company financial projections supplied to us, we have
assumed that they have been reasonably prepared on the basis reflecting the best
currently available estimates and judgments of the management of the Company as
to the future operating and financial performance of the Company. With respect
to the earnings projections for Chubb reviewed by us, we have assumed that they
do not differ materially from those of the management of Chubb. We have not
assumed 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 us. DLJ assumed that the Merger will qualify as a tax-free
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code.
Our opinion is necessarily based on economic, market, financial and
other conditions as they exist on, and on the information made available to us
as of, the date of this letter. It should be understood that, although
subsequent developments may affect this opinion, we do not have any obligation
to update, revise or reaffirm this opinion. We are expressing no opinion herein
as to the prices at which Chubb Common Stock will actually trade at any time.
Our opinion does not address the relative merits of the Merger and the other
business strategies being considered by the Company's Board of Directors, nor
does it address the Board's decision to proceed with the Merger. Our opinion
does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the proposed Merger.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of
its investment banking services, 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. DLJ has
performed investment banking and other services for the Company 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 the Company is currently working with affiliates of DLJ with respect to
matters unrelated to the Merger.
Based upon and subject to the foregoing and such other factors as we
deem relevant, we are of the opinion that the consideration to be received by
the holders of Company Common Stock pursuant to the Agreement is fair to such
holders from a financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Timothy M. Dwyer
--------------------
Timothy M. Dwyer
Managing Director
<PAGE>
ANNEX E
February 6, 1999
Board of Directors
Executive Risk Inc.
82 Hopmeadow Street
Simsbury, CT 06070
Members of the Board of Directors:
You have requested our opinion as investment bankers as to the
fairness, from a financial point of view, to the holders of shares ("Shares") of
common stock, $.01 par value per share (the "Company Common Stock"), of
Executive Risk Inc. (the "Company"), of the Exchange Ratio (as defined below) in
connection with the proposed merger (the "Merger") contemplated by the Agreement
and Plan of Merger, dated as of February 6, 1999 (the "Agreement"), among the
Company, The Chubb Corporation ("Parent") and Excalibur Acquisition, Inc.
("MergerSub").
As more specifically set forth in the Agreement, and subject
to the terms and conditions thereof, in the Merger, MergerSub will merge with
and into the Company, and each outstanding Share (other than Shares held by the
Company as treasury stock or owned by Parent or any of its subsidiaries),
together with the associated Right (as defined in the Agreement), will be
converted into 1.235 shares (the "Exchange Ratio") of common stock, par value
$1.00 per share (the "Parent Common Stock"), of Parent, and the Company will
continue as the surviving corporation, which will be a wholly owned subsidiary
of Parent.
In connection with rendering our opinion, we have reviewed and
analyzed, among other things, the following: (i) a draft of the Agreement; a
draft of the Stock Option Agreement, dated as of February 6, 1999, between the
Company and Parent; and a draft of the Voting Agreement, dated as of February 6,
1999, among Parent and certain stockholders of the Company (collectively, the
"Transaction Agreements"), in each case that you have advised us is
substantially in the form to be executed by the parties; (ii) certain publicly
available information concerning the Company and Parent; (iii) certain other
financial information with respect to the Company and Parent, including both
companies' estimates of the cost savings and revenue enhancements expected to be
derived from the Merger, that were provided to us by the Company and Parent,
respectively; (iv) certain publicly available information, prepared by
third-parties, including equity research analysts, concerning the business,
operations and financial prospects of the Company and Parent and the sectors in
which they operate; (v) certain publicly available information concerning the
trading of, and the trading market for, the Company Common Stock and the Parent
Common Stock; (vi) certain publicly available information with respect to
certain other companies that we believe to be comparable to the Company or
Parent and the trading markets for certain of such other companies' securities;
and (vii) certain publicly available information concerning the nature and terms
of certain other transactions that we consider relevant to our inquiry. We also
have considered such other information, financial studies, analyses,
investigations and financial, economic and market criteria that we deemed
relevant. We have discussed the past and current business operations and
financial conditions of the Company and Parent as well as other matters we
believe relevant to our inquiry with certain officers and employees of the
Company and Parent, respectively.
In our review and analysis and in arriving at our opinion, we
have assumed and relied upon the accuracy and completeness of all of the
financial and other information provided to us or publicly available and have
neither attempted independently to verify nor assumed any responsibility for
verifying any of such information and have further relied upon the assurances of
management of the Company that they are not aware of any facts that would make
any of such information inaccurate or misleading. We have not conducted a
physical inspection of any of the properties or facilities of the Company or
Parent, nor have we made or obtained or assumed any responsibility for making or
obtaining any independent evaluations or appraisals of any of such properties or
facilities, nor have we been furnished with any such evaluations or appraisals.
We are not actuaries and our services did not include any actuarial
determinations or evaluations by us or an attempt to evaluate actuarial
assumptions. In that regard, we have made no analyses of, and express no opinion
as to, the adequacy of the loss and loss adjustment expense reserves of the
Company or Parent. With respect to financial forecasts, we have relied on (x)
management estimates with regard to the Company, which estimates we have been
advised by the management of the Company and have assumed were reasonably
prepared and reflect the best currently available estimates and judgments of the
management of the Company as to the future financial performance of the Company,
and (y) publicly available third-party equity research forecasts with regard to
Parent, and, in each such case, we express no view with respect to such
forecasts or the assumptions on which they were based. We also have assumed that
the Transaction Agreements, when executed and delivered, will not contain any
terms or conditions that differ materially from the terms and conditions
contained in the drafts of the Transaction Agreements we have 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 Agreement, without waiver of any of the conditions precedent to
the Merger contained in the Agreement.
In conducting our analysis and arriving at our opinion as
expressed herein, we have considered such financial and other factors as we have
deemed appropriate under the circumstances including, among others, the
following: (i) the historical and current financial position and results of
operations of the Company and Parent; (ii) the business prospects of the Company
and Parent; (iii) the historical and current market for the Company Common
Stock, the Parent Common Stock and for the equity securities of certain other
companies that we believe to be comparable to the Company or Parent; and (iv)
the nature and terms of certain other merger and acquisition transactions that
we believe to be relevant. We have also taken into account our assessment of
general economic, market and financial conditions as well as our experience in
connection with similar transactions and securities valuation generally. We have
not been asked to consider, and our opinion does not address, the relative
merits of the Merger as compared to any alternative business strategy that might
exist for the Company. We were not asked to, and did not, solicit any proposals
to merge with or acquire the Company. Our opinion necessarily is based upon
conditions as they exist and can be evaluated on the date hereof and we assume
no responsibility to update or revise our opinion based upon circumstances or
events occurring after the date hereof. Our opinion is, in any event, limited to
the fairness, from a financial point of view, of the Exchange Ratio and does not
address the Company's underlying business decision to effect the Merger or
constitute a recommendation of the Merger to the Company or a recommendation to
any holder of Shares as to how such holder should vote with respect to the
Merger. Our opinion also does not constitute an opinion or imply any conclusion
as to the price at which the Company Common Stock will trade following
announcement of the Merger, at which the Parent Common Stock will trade
following the announcement of the Merger or at which the Parent Common Stock
will trade following the consummation of the Merger.
As you are aware, Salomon Smith Barney Inc. is acting as
financial advisor to the Company in connection with the Merger and will receive
a fee in connection with its services providing this opinion. Additionally,
Salomon Smith Barney Inc. or its predecessors or affiliates have previously
rendered certain investment banking and financial advisory services to the
Company and Parent, for which we or our predecessors or affiliates received
customary compensation. In addition, in the ordinary course of business, Salomon
Smith Barney Inc. may actively trade the securities of the Company and Parent
for its own account and for the accounts of customers and, accordingly, may at
any time hold a long or short position in such securities. Salomon Smith Barney
Inc. and its affiliates (including Citigroup Inc.) may have other business
relationships with the Company and Parent.
This opinion is intended for the benefit and use of the
Company (including its management and directors) in considering the transaction
to which it relates and may not be used by the Company for any other purpose or
reproduced, disseminated, quoted or referred to by the Company at any time, in
any manner or for any purpose, without the prior written consent of Salomon
Smith Barney Inc., except that this opinion may be reproduced in full in, and
references to the opinion and to Salomon Smith Barney Inc. and its relationship
with the Company (in each case in such form as Salomon Smith Barney Inc. shall
approve) may be included in, the proxy statement the Company distributes to
holders of Shares in connection with the Merger and in the registration
statement on Form S-4 filed by Parent of which such proxy statement forms a
part.
Based upon and subject to the foregoing, it is our opinion as
investment bankers that, as of the date hereof, the Exchange Ratio is fair, from
a financial point of view, to the holders of Shares.
Very truly yours,
/s/ SALOMON SMITH BARNEY INC.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Indemnification. Section 14A:3-5(2) of the New Jersey Business Corporation
Act ("NJBCA") provides that a corporation may indemnify a director, officer,
employee or agent against his or her expenses and liabilities provided that
such director, officer, employee or agent establishes that his acts were
committed in good faith, in a manner he or she reasonably believed to be in or
not opposed to the best interests of the corporation, and with respect to any
criminal proceeding, with no reasonable cause to believe his or her conduct was
unlawful.
Section 14A:3-5(3) of the NJBCA provides that a corporation has the power
to indemnify a director, officer, employee or agent against his or her expenses
in connection with a proceeding by or in the right of the corporation to
procure a judgment in its favor which involves the director, officer, employee
or agent by reason of his or her being or having been a director, officer,
employee or agent if he or she acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation. However, no indemnification will be available under this Section
of the NJBCA in respect of a claim, issue or matter which is settled or
otherwise disposed of or any claim as to which such director or officer shall
have been adjudged liable to the corporation, unless and only to the extent
that the court in which the action was brought, or, if no action was brought,
any court of competent jurisdiction, determines, upon application, that, in
view of all the circumstances of the case, the director or officer is fairly
and reasonably entitled to indemnity for such portion of the settlement amount
and expenses as the court deems proper.
Sections 14A:3-5(4), (5) and (6) of the NJBCA specify the manner in which
payment of indemnification under Sections 14A:3-5(2) and 14A:3-5(3) of the
NJBCA may be authorized by the corporation. Section 14A:3-5(4) provides that a
corporation shall indemnify a director, officer, employee or agent against
expenses to the extent that such person has been successful on the merits or
otherwise in any proceeding referred to in Sections 14A:3-5(2) and 14A:3-5(3)
or in defense of any claim, issue or matter therein. Section 14A:3-5(5) of the
NJBCA provides that indemnification may only be made upon a determination that
indemnification is proper in the circumstances because the director, officer,
employee or agent met the applicable standard of conduct under Sections
14A:3-5(2) and 14A:3-5(3) of the NJBCA. Unless otherwise provided for in the
charter or by-laws, such determination shall be made by the board of directors
or a committee, acting by a majority vote of a quorum consisting of directors
who were not a party in the proceeding, by independent legal counsel designated
by the board of directors in a written opinion, or by the shareholders if the
charter, by-laws, board resolution or the shareholders so direct. Section
14A:3-5(6) of the NJBCA provides that expenses incurred by a director, officer,
employee or agent may be paid by the corporation in advance of the final
disposition of the proceeding as authorized by the board of directors upon
receipt or an undertaking by or on behalf of such person if it shall ultimately
be determined that he or she is not entitled to be indemnified as provided for
under the NJBCA.
Section 14A:3-5(7) of the NJBCA provides, that, upon application by a
director or officer, indemnification may be awarded by a court to the extent
authorized under Section 14A:3-5(2) and Section 14A:3-5(3) of the NJBCA and
contains certain other miscellaneous provisions affecting the indemnification
of directors and officers.
Section 14A:3-5(8) of the NJBCA provides that indemnification and
advancement of expenses provided by or granted pursuant to the other
subsections of 14A:3-5 shall not exclude any other rights, including the right
to be indemnified against liabilities and expenses incurred in proceedings by
or in the right of the corporation, to which a director, officer, employee or
agent may be entitled under a charter, bylaw, agreement, vote of shareholders,
or otherwise; provided than no indemnification shall be made to or on behalf of
a director, officer, employee or agent if a judgment or other final
adjudication adverse to the director, officer, employee or agent establishes
that his or her acts or omissions (a) were in breach of his or her duty of
loyalty to the corporation or its shareholders, as defined elsewhere in the
NJBCA, (b) were not in good faith or involved a knowing violation of law or (c)
resulted in receipt by the director, officer, employee or agent of an improper
personal benefit.
<PAGE>
Section 14A:3-5(9) of the NJBCA authorizes the purchase and maintenance of
insurance to indemnify (1) a corporation for any obligation which it incurs as
a result of the indemnification of directors and officers under the above
section, (2) directors and officers in instances in which they may be
indemnified by a corporation under such section, and (3) directors and officers
in instances in which they may not otherwise be indemnified by a corporation
under such section.
Article Twelfth of the Restated Charter of Chubb provides in part as
follows:
"Each "Corporate Agent" shall be indemnified by the Corporation
against his expenses and liabilities in connection with any proceeding
involving the corporate agent by reason of his having been such "Corporate
Agent" to the fullest extent permitted by applicable law as the same
exists or may hereafter be amended or modified. The right to
indemnification conferred by this paragraph 2 shall also include the right
to be paid by the Corporation the expenses incurred in connection with any
such proceeding in advance of its final disposition to the fullest extent
authorized by applicable law as the same exists or may hereafter be
amended or modified. The right to indemnification conferred in this
paragraph 2 shall be a contract right".
"Corporate Agent" is generally defined as any director, officer or
employee of Chubb.
Insurance. Chubb has purchased certain liability insurance for its
officers and directors as permitted by Section 14A:3-5(9) of the NJBCA and has
entered into indemnity agreements with its directors and certain officers
providing indemnification in addition to that provided under the NJBCA as
permitted by Section 14A:3-5(8) of the NJBCA.
Executive Risk Directors and Officers. The merger agreement provides that
Executive Risk's indemnification provisions shall survive the merger and shall
not be modified for at least six years after the effective time of the merger
in any manner that would adversely affect the rights of persons indemnified
thereunder.
Executive Risk is required by its by-laws to indemnify a director,
officer, employee, or agent of Executive Risk who is or was made a party to any
proceeding by reason of the fact that he is or was such a director, officer,
employee or agent or is or was serving any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, at the request
of Executive Risk if:
o he or she acted in good faith;
o he or she believed, in the case of conduct in his official capacity,
that his conduct was in the best interests of the corporation; and
o in the case of any criminal proceeding, he or she had no reasonable
cause to believe his conduct was unlawful.
Furthermore, the Executive Risk by-laws provide that each director,
officer, employee or agent of Executive Risk shall be indemnified against all
costs and expenses reasonably incurred by or imposed upon him in connection
with or resulting from any action, suit or proceeding to which he or she may be
made a party by reason of his being or having been a director, officer,
employee or agent of Executive Risk (whether or not he continues to be such at
the time of incurring such cost or expense), provided that payment of expenses
by a director or officer in advance of the final disposition of the proceeding
shall be made only upon delivery to Executive Risk of an undertaking that the
director or officer will repay all amounts if it is determined that he or she
is not entitled to be indemnified.
The merger agreement also provides that Executive Risk shall indemnify and
hold harmless, and, after the effective time of the merger, Chubb shall, and
shall cause the surviving corporation to, indemnify and hold harmless, to the
fullest extent permitted under applicable law, each present and former director
or officer of Executive Risk and each Executive Risk subsidiary against all
liabilities and expenses, including reasonable attorneys' fees, arising out of
or pertaining to any action or omission in their capacity as an officer or
director, in each case occurring before the effective time of the merger,
including the transactions contemplated by the merger agreement.
<PAGE>
Immediately prior to Closing, Executive Risk shall purchase, from an
insurer chosen by Executive Risk, a single payment, run-off policy of directors'
and officers' liability insurance covering current and former officers and
directors of Executive Risk and its subsidiaries on terms and conditions as
favorable as may be available, but no more favorable than the protection as that
provided by Executive Risk's directors' and officers' liability insurance
policies as of the date of the original merger agreement entered into by the
parties, i.e.; February 6, 1999, for a premium not to exceed $250,000 in the
aggregate, such policy to become effective at the Closing and remain in effect
for six years after the Closing.
Item 21. Exhibits and Financial Statement Schedules.
(a) List of Exhibits
Exhibit
Number Description Page
------- ----------- ----
2.1 Amended and Restated Agreement and Plan of Merger
dated as of June 16, 1999 among The Chubb
Corporation, Executive Risk Inc. and Excalibur
Acquisition, Inc. (included as Annex A to the
Proxy Statement/Prospectus contained in this
Registration Statement).
2.2 Stock Option Agreement dated as of February 6,
1999 between The Chubb Corporation and Executive
Risk Inc. (included as Annex B to the Proxy
Statement/Prospectus contained in this
Registration Statement).
2.3 Voting Agreement dated as of February 6, 1999
between The Chubb Corporation and directors of
Executive Risk Inc. (included as Annex C to the
Proxy Statement/Prospectus contained in this
Registration Statement).
3.1 Form of Restated Charter of The Chubb Corporation
(incorporated by reference to Chubb's Form 10-K
filed on March 29, 1999).
3.2 Form of Restated By-laws of The Chubb Corporation
(incorporated by reference to Chubb's registration
statement on Form 8-K dated December 17, 1998).
4.1 Specimen Common Stock Certificate.**
4.2 Rights Agreement dated as of March 12, 1999 by and
between The Chubb Corporation and First Chicago
Trust Company of New York, as rights agent
(incorporated by reference to Chubb's current
report on Form 8-K filed on March 30, 1999).
5 Opinion of Shanley & Fisher, Professional
Corporation regarding the validity of the
securities being registered.**
8.1 Opinion of Dewey Ballantine LLP regarding certain
federal income tax consequences relating to the
merger.
8.2 Opinion of Davis Polk & Wardwell regarding certain
federal income tax consequences relating to the
merger.
15.1 Letter re: Unaudited Interim Financial Information.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Ernst & Young LLP.
<PAGE>
Exhibit
Number Description Page
------- ----------- ----
23.3 Consent of Shanley & Fisher, Professional Corporation
(included in the opinion filed as Exhibit 5 to this
Registration Statement).
23.4 Consent of Dewey Ballantine LLP (included in the opinion
filed as Exhibit 8.1 to this Registration Statement).
23.5 Consent of Davis Polk & Wardwell (included in the opinion
filed as Exhibit 8.2 to this Registration Statement).
24 Powers of Attorney for the directors and certain
officers of Chubb.*
99.1 Consent of Donaldson, Lufkin & Jenrette Securities
Corporation.*
99.2 Consent of Salomon Smith Barney Inc.*
99.3 Executive Risk Inc. Proxy Card.
- --------
* Filed previously with Registration Statement on Form S-4 (No. 333-73073)
on February 26, 1999.
** Filed previously with Amendment No. 1 to Registration Statement on Form S-4
(No. 333-73073) on April 16, 1999.
(b) Not applicable.
(c) The opinions of Donaldson, Lufkin & Jenrette Securities Corporation and
Salomon Smith Barney Inc. are included as Annex D and Annex E,
respectively, to the Proxy Statement/Prospectus contained in this
Registration Statement.
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), such reoffering prospectus will contain
the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the
applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used in connection
with an offering of securities subject to Rule 415, will be filed as a
part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(3) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(4) To respond to requests for information that is incorporated by
reference into the Proxy Statement/Prospectus pursuant to Item 4, 10(b),
11 or 13 of this form, within one business day of receipt of such
<PAGE>
request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration
statement through the date of responding to the request.
(5) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement
when it became effective.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Post-Effective Amendment No. 1 to this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Township of Warren, State of New Jersey, on the 18th day of
June, 1999.
THE CHUBB CORPORATION
(Registrant)
By: /s/ Gail E. Devlin
----------------------------
Name: Gail E. Devlin
Title: Senior Vice President
-----------------------
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to Registration Statement on Form S-4 (No.
333-73073) has been signed by the following persons in the capacities as
directors and officers of The Chubb Corporation and on the date indicated.
Signature Title Date
--------- ----- ----
*
- -------------------------- Chairman, Chief Executive
(Dean R. O'Hare) Officer and Director June 18, 1999
*
- --------------------------
(Zoe E. Baird) Director June 18, 1999
*
- --------------------------
(John C. Beck) Director June 18, 1999
*
- --------------------------
(Sheila P. Burke) Director June 18, 1999
*
- --------------------------
(James I. Cash, Jr.) Director June 18, 1999
*
- --------------------------
(Percy Chubb, III) Director June 18, 1999
<PAGE>
Signature Title Date
--------- ----- ----
*
- --------------------------
(Joel J. Cohen) Director June 18, 1999
*
- --------------------------
(James M. Cornelius) Director June 18, 1999
*
- --------------------------
(David H. Hoag) Director June 18, 1999
*
- --------------------------
(Thomas C. MacAvoy) Director June 18, 1999
*
- --------------------------
(Warren B. Rudman) Director June 18, 1999
*
- --------------------------
(Sir David G. Scholey, CBE) Director June 18, 1999
*
- --------------------------
(Raymond G. H. Seitz) Director June 18, 1999
*
- --------------------------
(Lawrence M. Small) Director June 18, 1999
*
- --------------------------
(James M. Zimmerman) Director June 18, 1999
*
- -------------------------- Executive Vice President and
(David B. Kelso) Chief Financial Officer June 18, 1999
*
- -------------------------- Senior Vice President and
(Henry B. Schram) Chief Accounting Officer June 18, 1999
*By /s/ Henry G. Gulick
-----------------------
(Henry G. Gulick,
attorney-in-fact)
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Page
------- ----------- ----
2.1 Amended and Restated Agreement and Plan of Merger
dated as of June 16, 1999 among The Chubb
Corporation, Executive Risk Inc. and Excalibur
Acquisition, Inc. (included as Annex A to the
Proxy Statement/Prospectus contained in this
Registration Statement).
2.2 Stock Option Agreement dated as of February 6,
1999 between The Chubb Corporation and Executive
Risk Inc. (included as Annex B to the Proxy
Statement/Prospectus contained in this
Registration Statement).
2.3 Voting Agreement dated as of February 6, 1999
between The Chubb Corporation and directors of
Executive Risk Inc. (included as Annex C to the
Proxy Statement/Prospectus contained in this
Registration Statement).
3.1 Form of Restated Charter of The Chubb Corporation
(incorporated by reference to Chubb's Form 10-K
filed on March 29, 1999).
3.2 Form of Restated By-laws of The Chubb Corporation
(incorporated by reference to Chubb's current
report on Form 8-K dated December 17, 1998).
4.1 Specimen Common Stock Certificate.**
4.2 Rights Agreement dated as of March 12, 1999 by
and between The Chubb Corporation and First
Chicago Trust Company of New York, as rights
agent (incorporated by reference to Chubb's
current report on Form 8-K filed on March 30,
1999).
5 Opinion of Shanley & Fisher, Professional
Corporation regarding the validity of the
securities being registered.**
8.1 Opinion of Dewey Ballantine LLP regarding certain
federal income tax consequences relating to the
merger.
8.2 Opinion of Davis Polk & Wardwell regarding
certain federal income tax consequences relating
to the merger.
15.1 Letter re: Unaudited Interim Financial
Information.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Shanley & Fisher, Professional
Corporation (included in the opinion filed as
Exhibit 5 to this Registration Statement).
23.4 Consent of Dewey Ballantine LLP (included in the
opinion filed as Exhibit 8.1 to this Registration
Statement).
23.5 Consent of Davis Polk & Wardwell (included in the
opinion filed as Exhibit 8.2 to this Registration
Statement).
24 Powers of Attorney for the directors and certain
officers of Chubb.*
<PAGE>
Exhibit
Number Description Page
------- ----------- ----
99.1 Consent of Donaldson, Lufkin & Jenrette
Securities Corporation.*
99.2 Consent of Salomon Smith Barney Inc.*
99.3 Executive Risk Inc. Proxy Card.
- --------
* Filed previously with Registration Statement on Form S-4 (No. 333-73073)
on February 26, 1999.
** Filed previously with Amendment No. 1 to Registration Statement on Form S-4
(No. 333-73073) on April 16, 1999.
EXHIBIT 8.1
DEWEY BALLANTINE LLP
1301 AVENUE OF THE AMERICAS
NEW YORK 10019-6092
TEL: 212-259-8000 FAX: 212-259-6333
June 11, 1999
Executive Risk, Inc.
82 Hopmeadow Street
P.O. Box 2002
Simsbury, CT 06070-7683
Ladies and Gentlemen:
We have acted as your counsel in connection with the acquisition by
The Chubb Corporation, a New Jersey corporation ("Chubb"), of Executive Risk
Inc., a Delaware corporation ("Executive Risk"), pursuant to a merger (the
"Merger") of Excalibur Acquisition, Inc., a Delaware corporation ("Sub"), with
and into Executive Risk, as provided by the Agreement and Plan of Merger (the
"Agreement"), dated as of February 6, 1999, by and among Chubb, Sub and
Executive Risk. In connection with the Merger, we have participated in the
preparation of a registration statement under the Securities Act of 1933 on
Form S-4 (the "Registration Statement"), including a Proxy Statement/Prospectus
of Executive Risk and Chubb as amended pursuant to Rule 424(b) of the
Securities Act of 1933, as of the date hereof (the "Proxy Statement").
In that connection, you have requested our opinion as to the material
federal income tax consequences of the Merger. In rendering this opinion, we
have examined and relied upon the Agreement, the Proxy Statement, the
representation letters of Chubb and Executive Risk dated June 11, 1999 which
have been delivered to us for purposes of this opinion (the "Officer's
Certificates"), and such other documents as we have deemed necessary or
appropriate for purposes of this opinion. In addition, we have assumed with
your consent that (i) the Merger will be effectuated in accordance with the
terms of the Agreement and no material conditions will be waived or modified
(including the conditions requiring the opinions described in sections 9.02(b)
and 9.03(c) of the Agreement), (ii) the statements concerning the Merger set
forth in the Proxy Statement are accurate and complete, (iii) the
representations set forth in the Officer's Certificates were accurate and
complete at the time they were made and will be accurate and complete at the
Effective Time (as defined in section 2.01(b) of the Agreement) and (iv) any
representations in the Officer's Certificates that are qualified by the phrase
"to the knowledge of" or any similar such phrase are, in each case, correct
without such qualification.
Our opinion below addresses only Executive Risk stockholders who hold
their shares as capital assets and does not address all aspects of federal
income taxation that may be important to such holders in light of their
particular circumstances. Further, our opinion does not address the federal
income tax consequences that may be applicable to holders subject to special
rules, such as: (i) insurance companies; (ii) financial institutions; (iii)
dealers in securities; (iv) traders that mark to market; (v) tax-exempt
organizations; (vi) stockholders who hold their shares as part of a hedge,
appreciated financial position, straddle or conversion transaction; (vii)
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 (viii) foreign corporations, foreign partnerships or other foreign
entities and individuals who are not citizens or residents of the United
States.
Based upon the foregoing and subject to (i) the accuracy of the
statements and representations contained in the materials referred to above and
the above assumptions and limitations and (ii) our consideration of such other
<PAGE>
matters as we have deemed necessary, it is our opinion that the material
federal income tax consequences of the Merger are as follows:
o The merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code").
o Executive Risk stockholders will not recognize any gain or loss upon the
exchange of their shares of 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 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 shares of 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.
Our opinion expresses our views only as to federal income tax laws in
effect as of the date hereof and is limited to the tax matters specifically
covered hereby. You have not requested, and we do not express, an opinion
concerning any other tax consequences of the Merger or any other transaction.
Our opinion represents our best legal judgment as to the matters addressed
herein, but is not binding on the Internal Revenue Service or the courts.
Accordingly, no assurance can be given that the opinion expressed herein, if
contested, would be sustained by a court. Furthermore, the authorities upon
which we rely are subject to change either prospectively or retroactively, and
any such change, or any variation or difference in the fact from those on which
we rely and assume as correct, as set forth above, or any inaccuracy of such
facts, might affect the conclusions stated herein.
Our opinion is furnished for use in connection with the Merger and is
not to be used, circulated, quoted or otherwise referred to for any other
purpose without our express written permission. We hereby consent to the filing
of this opinion as an exhibit to the Registration Statement and to the
references to this opinion in the Proxy Statement under the caption "The
Merger--Material Federal Income Tax Consequences". In giving this consent we do
not hereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ DEWEY BALLANTINE LLP
EXHIBIT 8.2
Davis Polk & Wardwell
450 Lexington Avenue
New York, N.Y. 10017
212-450-4000
Fax: 212-450-4800
June 11, 1999
The Chubb Corporation
15 Mountain View Road
P.O. Box 1615
Warren, New Jersey 07061-1615
Ladies and Gentlemen:
We have acted as counsel for The Chubb Corporation, a New Jersey
corporation ("Chubb"), in connection with (i) the merger (the "Merger") of
Excalibur Acquisition, Inc., a Delaware corporation and a wholly-owned
subsidiary of Chubb, with and into Executive Risk Inc., a Delaware corporation
("Executive Risk") pursuant to an Agreement and Plan of Merger dated as of
February 6, 1999 (the "Agreement")*, among Chubb, Executive Risk and Excalibur
Acquisition, Inc. and (ii) the preparation and filing of the related
Registration Statement on Form S-4 (No. 333-73073) (the "Registration
Statement"), which includes the Proxy Statement/Prospectus (the "Proxy
Statement/Prospectus") of Executive Risk and Chubb, as amended pursuant to Rule
424(b) under the Securities Act of 1933, as of the date hereof. Unless
otherwise indicated, each capitalized term used herein has the meaning ascribed
to it in the Merger Agreement.
In that connection, you have requested our opinion as to the material U.S.
federal income tax consequences of the Merger. In providing our opinion, we
have examined and relied upon the Agreement, the Proxy Statement/Prospectus,
and such other documents and corporate records as we have deemed necessary or
appropriate for purposes of our opinion. In addition, we have (i) assumed the
validity and accuracy of the documents we have examined, (ii) assumed that the
Merger will be consummated in accordance with the provisions of the Agreement
and (iii) relied on the representations made to us by Chubb and Executive Risk
in their respective letters to us dated June 11, 1999, which were delivered to
us for purposes of this opinion.
Based upon and subject to the foregoing, in our opinion 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 of 1986, as amended.
Accordingly, the discussion set forth in the Proxy Statement under the caption
"The Merger -- Material Federal Income Tax Consequences", subject to the
qualifications stated therein, sets forth the material federal income tax
consequences of the Merger. For U.S. federal income tax purposes:
(i) holders of Chubb common stock will not recognize any gain or loss as a
result of the Merger;
(ii) except in respect of cash received instead of fractional shares of
Chubb common stock, holders of shares of Executive Risk common stock will
(1) not recognize any gain or loss as a result of the exchange of their
shares of Executive Risk common stock for Chubb common stock and (2) have
a holding period with respect to the
- --------
*References contained in this opinion to the Agreement include each
document attached as an exhibit or annex.
<PAGE>
Chubb common stock received in the Merger that includes the holding period
of the Executive Risk common stock surrendered in the Merger;
(iii) the aggregate tax basis of the Chubb common stock received solely in
exchange for 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 Executive Risk common stock
exchanged for them;
(iv) holders of Executive Risk common stock 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 will 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; and
(v) none of Chubb, Excalibur Acquisition, Inc. or Executive Risk will
recognize gain or loss as a result of the Merger;
The preceding constitutes the material U.S. federal income tax
consequences of the Merger. However, our opinion does not address U.S. federal
income tax consequences which may vary with, or are contingent upon, a
shareholder's individual circumstances. In addition, our opinion does not
address any non-income tax or any foreign, state or local tax consequences of
the Merger.
We are members of the Bar of the State of New York. The opinions expressed
herein are based upon existing statutory, regulatory and judicial authority,
any of which may be changed at any time with retroactive effect. In addition,
our opinions are based solely on the documents that we have examined, and the
statements contained in the letters from Chubb and Executive Risk referred to
above. Our opinions cannot be relied upon if any of the facts pertinent to the
federal income tax treatment of the Merger stated in such documents are, or
later become, inaccurate, or if any of the statements contained in the letters
from Chubb or Executive Risk referred to above are, or later become, inaccurate
or incomplete. Finally, our opinions are limited to the tax matters
specifically covered hereby, and we have not been asked to address, nor have we
addressed, any other tax consequences of the Merger or any other transactions.
This opinion is furnished for use in connection with the Merger and is not
to be used, circulated, quoted or otherwise referred to for any purpose without
our consent. We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the references to this opinion in the Proxy
Statement/Prospectus under the caption "The Merger--Material Federal Income Tax
Consequences". We also consent to the use of our name under the captions "The
Merger--Material Federal Income Tax Consequences", "Principal Provisions of the
Merger Agreement--Conditions to the Consummation of the Merger" and "Legal
Matters" in the Proxy Statement/Prospectus. The issuance of such consent does
not concede that we are an "expert" for the purposes of the Securities Act of
1933.
Very truly yours,
/s/ DAVIS POLK & WARDWELL
2
EXHIBIT 15.1
To the Stockholders and Board of Directors of
Executive Risk Inc.
We are aware of the incorporation by reference in the proxy
statement/prospectus of Executive Risk Inc. which is referred to and forms a
part of the Registration Statement (Form S-4 No. 333-73073) of The Chubb
Corporation for the registration of 16,197,695 shares of its common stock of
our report dated May 14, 1999 relating to the unaudited consolidated interim
financial statements of Executive Risk Inc. that is included in its Form 10-Q
for the quarter ended March 31, 1999.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
June 18, 1999
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated February 24, 1999, except for Note 20(c), as to
which the date is March 12, 1999, and March 26, 1999 on the consolidated
financial statements and financial statement schedules of The Chubb
Corporation, incorporated by reference in the Proxy Statement of Executive Risk
Inc. which is referred to and made a part of this Post-Effective Amendment No.
1 to the Registration Statement (Form S-4 No. 333-73073) and Prospectus of The
Chubb Corporation for the registration of 16,197,695 shares of its common
stock.
/s/ ERNST & YOUNG LLP
New York, New York
June 16, 1999
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 6, 1999 on the consolidated financial
statements and financial statement schedule of Executive Risk Inc.,
incorporated by reference in the Proxy Statement of Executive Risk Inc. which
is referred to and made a part of this Registration Statement (Form S-4 No.
333-73073) and Prospectus of The Chubb Corporation for the registration of
16,197,695 shares of its common stock.
/s/ ERNST & YOUNG LLP
Stamford, Connecticut
June 18, 1999
EXHIBIT 99.3
EXECUTIVE RISK INC.
BOX 2002
SIMSBURY, CONNECTICUT 06070-7683
PROXY
SPECIAL MEETING - JULY 19, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder hereby appoints Stephen J. Sills, Robert H.
Kullas and Robert V. Deutsch, and each of them, the proxies and attorneys of the
undersigned to vote all shares of Common Stock which the undersigned is entitled
to vote at the Special Meeting of Stockholders of Executive Risk Inc., (the
"Special Meeting"), or any adjournments thereof, upon the matter described on
the reverse hereof, in accordance with the accompanying Notice and Proxy
Statement, receipt of which is acknowledged.
The Board of Directors of the Company has unanimously approved the
Agreement and Plan of Merger (as described in the accompanying Proxy
Statement/Prospectus) and recommends that holders of Common Stock vote for
approval and adoption of the Agreement and Plan of Merger.
Pursuant to the recommendation of the Board of Directors, this proxy when
properly executed will be voted in the manner directed herein by the
stockholder. If no direction is made, this proxy will be voted FOR Proposal 1.
(continued, and to be dated and signed, on the reverse side.)
EXECUTIVE RISK INC.
P.O. BOX 11409
NEW YORK, NY 10203-0409
- --------------------------------------------------------------------------------
The Board of Directors Recommends A Vote "FOR" The Following Proposal:
1. To approve and adopt the Amended and Restated Agreement and Plan of
Merger, dated as of June 16, 1999, among Executive Risk Inc., The
Chubb Corporation and Excallbur Acquisition Inc., a wholly owned
subsidiary of Chubb Corporation.
2. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the Special Meeting or any
adjournment or postponement thereof.
FOR |_| AGAINST |_| ABSTAIN |_|
Change of Address and/or
Comments Mark Here |_|
Please sign exactly as name appears to the
left. Please sign in full corporate name by
President or other authorized officer.
Dated: _______________________________, 1999
------------------------------------------
(Signature)
Votes must be indicated
PLEASE MARK, SIGN, AND MAIL PROMPTLY
