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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (Date of earliest event reported): MARCH 4, 1999
AMERICAN INDEMNITY
FINANCIAL CORPORATION
(Exact name of registrant as specified in charter)
DELAWARE 0-8636 510119643
(State of Incorporation) (Commission File No.) (I.R.S. Employer
Identification No.)
ONE AMERICAN INDEMNITY PLAZA
GALVESTON, TEXAS 77550
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (409) 766-4600
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ITEM 5. OTHER EVENTS.
On March 4, 1999, American Indemnity Financial Corporation, a Delaware
corporation (the "Company"), entered into an Agreement and Plan of Merger with
United Fire & Casualty Company and AI Acquisition Corporation, pursuant to which
United Fire & Casualty Company will acquire the Company for approximately $30.6
million in cash. A copy of the Agreement and Plan of Merger is filed as
Exhibit 2.1 hereto, a copy of the press release announcing the acquisition is
filed as Exhibit 99.1 hereto, and both exhibits are hereby incorporated herein
by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
2.1 - Agreement and Plan of Merger, dated March 4, 1999, by and among
the Company, United Fire & Casualty Company and AI Acquisition
Company.
99.1 - Press release of the Company dated March 4, 1999, announcing
the acquisition of the Company by United Fire & Casualty Company
for approximately $30.6 million in cash.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERICAN INDEMNITY FINANCIAL
CORPORATION
Dated: March 9, 1999 /s/ J. Fellman Seinsheimer, III
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J. Fellman Seinsheimer, III
President and Chief Executive Officer
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
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<S> <C>
2.1 Agreement and Plan of Merger, dated March 4, 1999, by and among
the Company, United Fire & Casualty Company and AI Acquisition
Company.
99.1 Press release of the Company dated March 4, 1999, announcing the
acquisition of the Company by United Fire & Casualty Company for
approximately $30.6 million in cash.
</TABLE>
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EXHIBIT 2.1
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AGREEMENT AND PLAN OF MERGER
among
AMERICAN INDEMNITY FINANCIAL CORPORATION
and
UNITED FIRE & CASUALTY COMPANY
and
AI ACQUISITION CORPORATION
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March 4, 1999
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C>
PREAMBLE .........................................................................................................1
ARTICLE 1
The Merger...............................................................................................1
Section 1.1 Surviving Corporation.........................................................1
Section 1.2 Articles of Incorporation.....................................................2
Section 1.3 Bylaws........................................................................2
Section 1.4 Directors.....................................................................3
Section 1.5 Officers......................................................................3
Section 1.6 Effective Time................................................................3
ARTICLE 2
Effect of the Merger on Stockholders and Option Holders..................................................4
Section 2.1 Conversion of Acquisition's Common Stock and Target's Common
Stock and Options...............................................................................4
(a) Target's Common Stock.................................................4
(b) Acquisition's Common Stock............................................5
(c) Treasury Stock........................................................5
(d) Target Options........................................................5
Section 2.2 Dissenting Shares.............................................................6
Section 2.3 Exchange of Shares and Options................................................6
(a) Exchange Agent........................................................6
(b) Payment Procedure.....................................................7
(c) Lost, Stolen or Destroyed Certificates or Options.....................9
(d) Distribution of Reserved Per Share Amount.............................9
(e) Appointment of Shareholder Representatives...........................10
Section 2.4 No Further Rights............................................................10
Section 2.5 Closing of Target's Stock Transfer Books.....................................10
ARTICLE 3
CERTAIN AGREEMENTS......................................................................................10
Section 3.1 Due Diligence................................................................10
Section 3.2 Communications With Agents, Employees or Policyholders.......................10
Section 3.3 Stockholder Approval.........................................................11
Section 3.4 No Solicitation by Target....................................................11
(a) No Solicitation by Target............................................11
(b) No Change of Approval................................................12
(c) Termination Upon Change..............................................13
(d) Notification by Target...............................................14
(e) Breakup Fee Payable by Target........................................14
(f) Termination Fee Payable by Parent....................................14
(g) Termination Fee Payable by Target....................................15
</TABLE>
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<TABLE>
<S> <C> <C> <C>
ARTICLE 4
Representations and Warranties..........................................................................15
Section 4.1 Representations and Warranties of Target.....................................15
(a) Target Organization and Good Standing: Authority to Conduct
Business..............................................................................15
(b) Power and Authority..................................................16
(c) No Conflicts.........................................................16
(d) Consents and Approvals...............................................17
(e) Capital Structure of Target..........................................17
(f) Subsidiaries.........................................................17
(g) Organization and Good Standing of Subsidiaries: Authority to
Conduct Business......................................................................18
(h) Target Financial Statements..........................................19
(i) Target Undisclosed Liabilities.......................................19
(j) Subsidiary Financial Statements......................................20
(k) Litigation...........................................................21
(l) Real and Personal Property...........................................22
(m) Leases and Rental Contracts..........................................22
(n) Contracts............................................................23
(o) Compliance with Other Instruments and Laws...........................25
(p) Regulatory Filings...................................................26
(q) Absence of Certain Changes...........................................27
(r) Taxes................................................................28
(s) Insurance Policies...................................................30
(t) Transactions with Interested Persons.................................31
(u) Bank and Brokerage Accounts..........................................31
(v) Disclosure...........................................................31
(w) Employee Benefit Plans...............................................32
(x) Employees............................................................35
(y) Intellectual Property................................................36
(z) Brokers..............................................................37
(aa) Surplus Relief.......................................................37
(bb) Insurance Issued by Subsidiaries.....................................37
(cc) Computer Software....................................................38
(dd) Books and Records....................................................39
(ee) No Investment Company................................................39
(ff) Investment Portfolio........................................39
(gg) Discussions with Regulators..........................................40
(hh) Environmental Matters................................................40
(ii) Year 2000 Issues.....................................................43
Section 4.2 Representations and Warranties of Parent and Acquisition.....................43
(a) Organization and Good Standing.......................................43
(b) Power and Authority..................................................44
(c) No Conflicts.........................................................44
(d) Consents and Approvals...............................................45
</TABLE>
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<TABLE>
<S> <C> <C> <C>
(e) Disclosure...........................................................45
(f) Brokers..............................................................46
ARTICLE 5
Covenants...............................................................................................46
Section 5.1 Covenants of Target..........................................................46
(a) Access to Information................................................46
(b) Conduct of Business..................................................46
(c) Consultation with Acquisition Pending Closing........................49
(d) Disposition of Shares by Target......................................49
(e) Preservation of Business.............................................49
(f) Investment Portfolio Requirements....................................49
(g) Surplus Items........................................................49
(h) Notice and Cure......................................................50
(i) Further Actions......................................................50
(j) Reasonable Efforts...................................................50
(k) Changes in Optionees................................................50
(l) Major Business Decisions.............................................51
Section 5.2 Covenants of Parent and Acquisition..........................................51
(a) Further Actions......................................................51
(b) Reasonable Efforts...................................................51
(c) Notice and Cure......................................................51
ARTICLE 6
Conditions Precedent....................................................................................52
Section 6.1 Parent and Acquisition.......................................................52
(a) Representations and Warranties.......................................52
(b) Performance of Obligations...........................................52
(c) Authorization........................................................52
(e) Approvals and Consents...............................................53
(f) Legal Opinions.......................................................53
(g) No Adverse Change....................................................53
(h) Secretary's Certificates.............................................54
(i) Stockholder Approval.................................................54
Section 6.2 Conditions to the Obligations of Target......................................55
(a) Representations and Warranties.......................................55
(b) Performance of Obligations...........................................55
(c) No Order.............................................................56
(d) Approvals and Consents...............................................56
(e) Legal Opinion........................................................56
(f) Stockholder Approval.................................................56
(g) Authorization........................................................56
(h) Deposit with Exchange Agent..........................................57
ARTICLE 7
Closing.................................................................................................57
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Section 7.1 Closing......................................................................57
Section 7.2 Filings at the Closing.......................................................57
ARTICLE 8
Termination.............................................................................................58
Section 8.1 Termination..................................................................58
ARTICLE 9
Confidentiality.........................................................................................59
Section 9.1 Confidentiality..............................................................59
ARTICLE 10
Miscellaneous...........................................................................................60
Section 10.1 Consent to Jurisdiction and Service of Process...............................60
Section 10.2 Expenses.....................................................................61
Section 10.3 Notices......................................................................61
Section 10.4 Amendment....................................................................62
Section 10.5 Counterparts.................................................................62
Section 10.6 Governing Law................................................................63
Section 10.7 Entire Agreement.............................................................63
Section 10.8 Waivers......................................................................63
Section 10.9 Interpretation...............................................................63
Section 10.10 No Assignment................................................................64
Section 10.11 Survival of Representations and Warranties...................................64
Section 10.12 Further Assurances...........................................................64
Section 10.13 Knowledge....................................................................64
</TABLE>
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger is made this 4th day of March, 1999,
among AMERICAN INDEMNITY FINANCIAL CORPORATION, a Delaware corporation
("Target"), UNITED FIRE & CASUALTY COMPANY, an Iowa corporation ("Parent"), and
AI ACQUISITION CORPORATION, an Iowa corporation and a wholly owned subsidiary of
Parent ("Acquisition").
PREAMBLE
The Board of Directors of Parent, Acquisition and Target deem it in the
best interests of each corporation, and in the best interest of their respective
stockholders that Parent acquire all of the outstanding stock of Target through
the merger of Acquisition into Target in accordance with the terms and
conditions hereinafter set forth (the "Merger").
ACCORDINGLY, Target, Parent and Acquisition hereby agree as follows:
ARTICLE 1
THE MERGER
Section 1.1 Surviving Corporation. In accordance with the provisions of
this Agreement, Sections 1101-1104, 1105 and 1107 of the Iowa Business
Corporation Act and Section 252 of the General Corporation Law of the State of
Delaware (the "GCL") at the Effective Time (as defined in Section 1.6),
Acquisition shall be merged with and into Target, and Target shall be the
surviving corporation (hereinafter sometimes called the "Surviving Corporation")
and shall continue its corporate existence under the laws of the State of
Delaware. The name of the Surviving Corporation shall be "American Indemnity
Financial Corporation." At the Effective Time, the separate existence of
Acquisition shall cease.
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Section 1.2 Articles of Incorporation. The Certificate of Incorporation
of Target, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law; provided, however, that the Certificate of
Incorporation of the Surviving Corporation shall contain the provisions with
respect to limitation of director and officer liability set forth in the
Certificate of Incorporation of Target, which provisions, for a period
terminating on the earlier of (i) three years from the Effective Time, (ii) the
closing of a merger of Target into Parent or an Affiliate thereof or (iii) the
liquidation of Target, shall not be amended, repealed or otherwise modified in
any manner that would adversely affect the rights thereunder of individuals who
were directors, officers, employees or agents of Target at the Effective Time,
unless such modification is required by law. For purposes of this Agreement, an
"Affiliate" of a person shall mean any corporation or other entity controlling,
controlled by or under common control with such person.
Section 1.3 Bylaws. The Bylaws of Target, as in effect immediately
prior to the Effective Time, shall be the Bylaws of the Surviving Corporation
until thereafter amended as provided by law; provided, however, that the Bylaws
of the Surviving Corporation shall contain the provisions with respect to
indemnification set forth in the Bylaws of Target, which provisions, for a
period terminating on the earlier of (i) three years from the Effective Time,
(ii) the closing of a merger of Target into Parent or an Affiliate thereof or
(iii) the liquidation of Target, shall not be amended, repealed or otherwise
modified in any manner that would adversely affect the rights thereunder of
individuals who were directors, officers, employees or agents of Target at the
Effective Time, unless such modification is required by law. In connection with
any such merger or liquidation, the obligations of Target with respect to
indemnification under its Bylaws shall be assumed by the entity into which
Target merges or that acquires Target's assets upon liquidation.
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Section 1.4 Directors. The persons who are serving as directors of
Acquisition immediately prior to the Effective Time shall be the directors of
the Surviving Corporation and shall hold office from the Effective Time until
their respective successors are duly elected or appointed and qualify in the
manner provided in the Articles of Incorporation and Bylaws of the Surviving
Corporation, or as otherwise provided by law.
Section 1.5 Officers. The persons who are serving as officers of
Acquisition immediately prior to the Effective Time shall continue in their
respective offices as the officers of the Surviving Corporation and shall hold
such offices from the Effective Time until their respective successors are duly
elected or appointed and qualify in the manner provided in the Articles of
Incorporation and Bylaws of the Surviving Corporation, or as otherwise provided
by law.
Section 1.6 Effective Time. The Merger shall become effective at the
time of filing of Certificate of Merger (substantially in the form of Exhibit A
hereto) (the "Certificate of Merger") with the Secretary of State of the State
of Delaware in accordance with the provisions of Section 252 of the GCL and at
the time of filing of Articles of Merger (substantially in the form of Exhibit B
hereto) (the "Articles of Merger") with the Secretary of State of the State of
Iowa in accordance with the provisions of Section 1105 of the Iowa Business
Corporation Act, respectively, or at the time specified as the effective time in
the Articles of Merger. The date and time when the Merger becomes effective are
herein referred to as the "Effective Time".
ARTICLE 2
EFFECT OF THE MERGER ON STOCKHOLDERS AND OPTION HOLDERS
Section 2.1 Conversion of Acquisition's Common Stock and Target's
Common Stock and Options.
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(a) Target's Common Stock. At the Effective Time, each share of
common stock, $3.33-1/3 par value per share, of Target ("Target's Stock") issued
and outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the right to receive and be exchangeable for the Per Share Amount in cash.
For purposes of this Agreement, the "Per Share Amount" shall mean the quotient,
rounded to four decimal places, obtained by dividing (i) the Net Book Value at
December 31, 1998, as set forth in Target's Audited Financial Statements for the
year ended December 31, 1998 (decreased by (x) the cost of the insurance policy
referred to in Section 6.1(j) and (y) $801,385) less the Option Amount (as
defined in Section 2.3), by (ii) the aggregate number of shares of Target's
Stock outstanding immediately prior to the Effective Time. Of the Per Share
Amount, $1 (the "Reserved Per Share Amount") shall be deposited with United
States National Bank, Galveston, Texas, or such other bank as Target and Parent
may agree (the "Escrow Agent") to be held and distributed pursuant to the terms
of the Escrow Agreement in substantially the form (subject to modifications
reasonably requested by the Escrow Agent) attached hereto as Exhibit C (the
"Escrow Agreement"), and the balance (the "Initial Per Share Amount") shall be
distributed as provided in Section 2.3.
(b) Acquisition's Common Stock. At the Effective Time, each share
of common stock, no par value per share, of Acquisition ("Acquisition's Stock")
issued and outstanding immediately prior to the Effective Time shall, by virtue
of the Merger and without any action on the part of the holder thereof, be
converted into and exchangeable for one share of issued, outstanding, fully paid
and nonassessable share of common stock, $3.331/3 par value per share, of the
Surviving Corporation. All certificates that immediately prior to the Effective
Time represented the outstanding common stock of Acquisition shall be deemed for
all purposes to represent the number of shares of
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common stock of the Surviving Corporation into which such common stock of
Acquisition has been converted pursuant to this Section 2.1 (b).
(c) Treasury Stock. Each share of Target's Stock held in Target's
treasury and each share of Acquisition's Stock held in Acquisition's treasury
immediately prior to the Effective Time shall, by virtue of the Merger, be
canceled and retired and cease to exist, without any conversion thereof.
(d) Target Options. Prior to the Closing, Target shall cause each
outstanding option to purchase shares of Target's Stock (an "Option"), whether
or not then exercisable, to be canceled and converted into the right to receive
an amount in cash (the "Total Option Amount") equal to the product, rounded to
four decimal places, of (i) the amount by which the Per Share Amount exceeds the
exercise price per share subject to the Option and (ii) the number of shares
subject to the Option. Of the Total Option Amount, $1 for each share subject to
the Option (the "Reserved Per Share Amount") shall be deposited with the Escrow
Agent to be held and distributed pursuant to the terms of the Escrow Agreement,
and the balance (the "Initial Option Amount") shall be distributed as provided
in Section 2.3.
Section 2.2 Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, shares of Target's Stock that are issued and
outstanding immediately prior to the Effective Time and that are held by a
Target stockholder who (i) does not vote such shares in favor of the Merger and
(ii) delivers to Target a notice of intention to demand payment for shares of
Target's Stock held by such stockholder (the "Dissenting Shares"), pursuant to
the rights granted a dissenting stockholder under the General Corporation Law of
the State of Delaware (the "GCL") shall not be converted into the amount of
money provided for in Section 2.1 (a) hereof but, rather, shall be converted
into the right to receive such consideration as may be determined to be due with
respect
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to such Dissenting Shares in accordance with the GCL; provided, however, that if
any holder of Dissenting Shares shall subsequently be deemed to not be entitled
to dissenter's rights, any of the Dissenting Shares held by such stockholder
shall thereupon be deemed to have been converted into the amount of money
provided for in Section 2.1(a) hereof.
Section 2.3 Exchange of Shares and Options.
(a) Exchange Agent. At or before the Effective Time, Parent shall,
or Parent shall cause Acquisition to, pursuant to an agreement reasonably
satisfactory to Target (the "Exchange Agreement"), deposit in immediately
available funds with the exchange agent for Target's Stock and the Options,
which exchange agent shall be selected by Parent or Acquisition and shall be
reasonably satisfactory to Target (the "Exchange Agent"), an amount equal to (i)
for Target's Stock, the product of (x) the number of shares of Target's Stock
issued and outstanding at the Effective Time (the "Target Stock Outstanding")
multiplied by (y) the Initial Per Share Amount, plus (ii) an aggregate amount
for the Options (the "Option Amount") that is equal to (x) the product of the
Initial Per Share Amount and the aggregate number of shares of Target's Stock
underlying all of the Options, minus (y) the sum of the amounts obtained for
each Option by multiplying the exercise price per share of each Option by the
number of shares of Target's Stock underlying each Option (the "Aggregate Option
Exercise Price") (such amount deposited with the Exchange Agent pursuant to
clauses (i) and (ii) being hereinafter referred to as the "Exchange Fund"). For
purposes of determining the Initial Per Share Amount for the purpose of
determining the amount of the funds to be deposited with the Exchange Agent
hereunder, the parties shall use the information and amounts designated on
Schedule 4.1(e) (as revised pursuant to Section 5.1(k)) as in effect at the
Effective Time to determine the Stockholders, Optionees, Target Stock
Outstanding, Options and the Aggregate Option Exercise Price. The Exchange
Agreement shall provide that out of the Exchange Fund, the Exchange Agent
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shall, pursuant to irrevocable instructions, make the payments referred to in
Sections 2.1(a), 2.1(d), 2.2 and 2.3 to each Stockholder (as defined in Section
2.3(b)) and Optionee (as defined in Section 2.3(b)) listed on Schedule 4.1(e),
as such Schedule may be revised in accordance with Section 5.1(k). Any amount
remaining in the Exchange Fund after one year after the Effective Time may be
transferred to the Surviving Corporation at its option; provided, however, that
the Surviving Corporation shall thereafter be liable for the cash payments
required by Sections 2.1(a), 2.1(d), 2.2 and 2.3. Parent shall or shall cause
the Exchange Agent or the Surviving Corporation, as the case may be, to make the
payments required by Sections 2.1(a), 2.1(d), 2.2 and 2.3 solely to the
Stockholders and Optionees listed on Schedule 4.1(e) (as revised pursuant to
Section 5.1(k)) as in effect at the Effective Time.
(b) Payment Procedure. As promptly as practicable after the
Effective Time, the Exchange Agent shall mail and make available to each holder
of record ("Stockholder") of a certificate or certificates that immediately
prior to the Effective Time represented outstanding shares of Target's Stock (a
"Certificate") and to each holder of record of an Option (an "Optionee"), a
letter of transmittal that shall specify that delivery shall be effected, and
risk of loss and title to the Certificates and Options shall pass, only upon
delivery of the Certificates and the Options. Upon surrender to the Exchange
Agent of a Certificate for cancellation together with such letter of
transmittal, duly executed, the Exchange Agent shall promptly pay out to the
persons entitled thereto the amount, rounded to the nearest cent, determined by
multiplying (x) the number of shares of Target's Stock represented by the
Certificate by (y) the Initial Per Share Amount. Upon surrender to the Exchange
Agent of an Option together with such letter of transmittal, duly executed, the
Exchange Agent shall promptly pay out to the Optionee the amount, rounded to the
nearest cent, determined by multiplying (x) the amount by which the Initial Per
Share Amount exceeds the exercise
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price per share subject to such Option and (y) the number of shares subject to
such Option. No interest shall be paid or accrued on the cash payable upon the
surrender of a Certificate or an Option. If a Stockholder or an Optionee
requests that payment be made to a person other than the one in whose name the
Certificate or Option surrendered, as the case may be, is registered, it shall
be a condition of payment that the Certificate or Option so surrendered shall be
properly endorsed or otherwise in proper form for transfer and that the person
requesting such payment shall pay any transfer or other taxes required by reason
of the payment to a person other than the registered holder of the Certificate
or Option surrendered or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable. From and after the
Effective Time, until surrendered in accordance with the provisions of this
Section 2.3(b), (i) each Certificate shall represent for all purposes only the
right to receive, upon such surrender an amount in cash rounded to the nearest
cent, equal to the Initial Per Share Amount per share of Target's Stock being
converted plus the amount, if any, to be distributed on account of each
Certificate pursuant to the terms of the Escrow Agreement, and (ii) each Option
shall represent for all purposes only the right to receive, upon such surrender,
an amount in cash equal to the product, rounded to the nearest cent, of (x) the
amount by which the Initial Per Share Amount exceeds the exercise price per
share subject to the Option and (y) the number of shares subject to the Option
plus the amount, if any, to be distributed on account of each Option pursuant to
the terms of the Escrow Agreement.
(c) Lost, Stolen or Destroyed Certificates or Options. In the
event any Certificate or Option shall have been lost, stolen or destroyed, upon
delivery to the Surviving Corporation of an affidavit of that fact by the person
claiming such Certificate or Option to be lost, stolen or destroyed and the
delivery of such other documents as the Surviving Corporation may reasonably
request, the Surviving Corporation shall deliver or cause to be delivered the
amount of money deliverable in
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respect of such lost, stolen or destroyed Certificate or Option as determined in
accordance with this Article 2; provided, however, that the Board of Directors
of the Surviving Corporation may, as a condition precedent to the delivery
thereof, require the owner of such lost, stolen or destroyed Certificate or
Option to provide to the Surviving Corporation a bond in favor of the Surviving
Corporation, from an issuer satisfactory to the Surviving Corporation and in an
amount equal to the value of the shares of Target's Stock represented by such
Certificate or value of such Option, as the case may be, at the Effective Time
or such other security as the Surviving Corporation shall reasonably deem
necessary, as indemnity against any claim that may be made against the Surviving
Corporation with respect to the Certificate or Option alleged to have been lost,
stolen or destroyed.
(d) Distribution of Reserved Per Share Amount. The Reserved Per
Share Amount shall be distributed as provided in the Escrow Agreement.
(e) Appointment of Shareholder Representatives. J. Fellman
Seinsheimer, III, Phillip E. Apgar, and Robert S. Lee are hereby appointed by
Target as Shareholder Representatives under the Escrow Agreement. Any vacancy
occurring in the position shall be filled by the remaining Shareholder
Representatives.
Section 2.4 No Further Rights. From and after the Effective Time, the
holders of Certificates shall cease to have any rights as stockholders of the
Surviving Corporation, except as provided herein or by law.
Section 2.5 Closing of Target's Stock Transfer Books. After the
Effective Time, there shall be no transfers on the stock transfer books of the
Surviving Corporation of any shares of Target's Stock that were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation, they shall be canceled
and exchanged for the consideration payable pursuant to this Article 2.
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ARTICLE 3
CERTAIN AGREEMENTS
Section 3.1 Due Diligence. Acquisition shall have the right from the
date hereof and continuing until the Closing Date to inspect the books and
records and assets of Target and its subsidiaries listed on Schedule 4.1(f) (the
"Subsidiaries") and Target shall cooperate, and cause the Subsidiaries to
cooperate, with such investigation in accordance with Section 5.1(a) hereof.
Section 3.2 Communications With Agents, Employees or Policyholders.
Target shall not, and shall cause the Subsidiaries not to, communicate with any
insurance agents, employees or policyholders of the Subsidiaries regarding this
Agreement or the transactions contemplated herein, other than communications
that are approved by Acquisition or oral responses to unsolicited inquiries and,
with respect to communications with employees, those communications necessary in
connection with the consummation of the transactions contemplated by this
Agreement. Acquisition shall have the right to participate in the communications
permitted by this Section other than the oral responses to unsolicited
inquiries.
Section 3.3 Stockholder Approval. As soon as reasonably practicable,
Target shall send notice to its stockholders and conduct a stockholders meeting
or otherwise obtain stockholder approval for the Merger in accordance with
Section 222 of the GCL and any other applicable laws. Target shall permit
Acquisition to review all materials to be sent to Target's stockholders in
connection with obtaining such stockholder approval. All such materials and the
methods of solicitation shall be submitted to Parent for approval, which
approval shall not be unreasonably withheld. Subject to Section 3.4, Target
shall recommend to its stockholders that the stockholders approve the Merger.
Target shall from time to time notify Acquisition of the percentage of the
outstanding shares of Target's Stock as to which Target stockholders have
delivered notice pursuant
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to Section 262 of the GCL of their intent to demand payment pursuant to their
dissenters' rights and shall immediately notify Acquisition if Target
stockholders holding more than five percent of the outstanding shares of
Target's Stock deliver such notice.
Section 3.4 No Solicitation by Target.
(a) No Solicitation by Target. Target shall not, nor shall it
permit any of the Subsidiaries to nor shall it authorize or permit any officer,
director, employee, investment banker, attorney or other advisor, agent or
representative of Target or any of the Subsidiaries to, directly or indirectly,
(i) solicit, initiate or encourage the submission of any Target Takeover
Proposal (as hereinafter defined), (ii) enter into any agreement with respect to
any Target Takeover Proposal, (iii) initiate any discussions or negotiations
regarding any proposal that constitutes, or may reasonably be expected to lead
to, any Target Takeover Proposal or (iv) except in response to an unsolicited
request, furnish any information with respect to the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Target Takeover
Proposal. For purposes of this Agreement, a "Target Takeover Proposal" means (i)
any proposal or offer, other than a proposal or offer by Parent or any of its
Affiliates, for a merger or other business combination involving Target or one
or more of the Subsidiaries, (ii) any proposal or offer, other than a proposal
or offer by Parent or any of its Affiliates, to acquire from Target or any of
its Affiliates in any manner, directly or indirectly, more than 5% of the voting
stock of Target or the Subsidiaries or a material amount of the assets of Target
and the Subsidiaries, taken as a whole, or (iii) any proposal or offer, other
than a proposal or offer by Parent or any of its Affiliates, to acquire from the
stockholders of Target by tender offer, exchange offer or otherwise more than 5%
of Target's Stock.
(b) No Change of Approval. Neither Target, the Board of Directors
of Target nor any committee thereof shall (i) withdraw or modify, or propose to
withdraw or modify, in a manner
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adverse to Parent or Acquisition, the approval or recommendation by Target, the
Board of Directors of Target or any such committee of this Agreement or the
Merger or take any action having such effect or (ii) approve or recommend, or
propose to approve or recommend, any Target Takeover Proposal. Notwithstanding
the foregoing, if the Board of Directors of Target receives an unsolicited
Target Takeover Proposal that, in the exercise of its fiduciary obligations (as
determined in good faith after consultation with outside counsel), it determines
to be a Target Superior Proposal (as hereinafter defined), the Board of
Directors of Target may withdraw or modify its approval or recommendation of
this Agreement or the Merger and may (subject to the following sentence)
terminate this Agreement, in each case at any time after the fifth business day
following Parent's receipt of written notice (a "Target Notice of Superior
Proposal") advising Parent that the Board of Directors of Target has received a
Target Takeover Proposal that it has determined to be a Target Superior
Proposal, specifying the principal terms and conditions of such Target Superior
Proposal and identifying the person making such Target Superior Proposal. Target
may terminate this Agreement pursuant to the preceding sentence only if the
stockholders of Target shall not yet have voted upon the Merger. Nothing
contained herein shall prohibit Target from taking and disclosing to its
stockholders a position contemplated by Rule 14e-2(a) of the Securities Exchange
Act of 1934, as amended, provided that Target does not withdraw or modify its
position with respect to the Merger or take any action having such effect or
approve or recommend a Target Takeover Proposal. For purposes of this Agreement,
a "Target Superior Proposal" means any bona fide Target Takeover Proposal to
merge or combine with Target or to acquire, directly or indirectly, more than
50% of Target's Stock or of the Subsidiaries' voting stock then outstanding or a
material amount of the assets of Target and the Subsidiaries, taken as a whole,
on terms that the Board of Directors of Target determines in its good faith
reasonable judgment (based on the written advice of Philo Smith & Co., Inc. or
another financial
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advisor of nationally recognized reputation) to be more favorable to Target's
stockholders than the Merger.
(c) Termination Upon Change. If Target, the Board of Directors of
Target or any committee thereof shall (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Parent or Acquisition, the approval
or recommendation by Target, the Board of Directors of Target or any such
committee of this Agreement or the Merger or take any action having such effect,
(ii) approve or recommend, or propose to approve or recommend, any Target
Takeover Proposal, or (iii) otherwise breach the provisions of Section 3.4(a) or
(b), Parent and Acquisition may terminate this Agreement.
(d) Notification by Target. In addition to the obligations of
Target set forth in Section 3.4(b), Target shall promptly advise Parent orally
and in writing of the receipt of any Target Takeover Proposal or any proposal,
discussion or overture that may lead to a Target Takeover Proposal.
(e) Breakup Fee Payable by Target. In the event Target, its Board
of Directors or a committee thereof shall (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Parent or Acquisition, the approval
or recommendation of approval of this Agreement or the Merger by Target or its
Board of Directors, or a committee thereof, or take any action having such
effect, (ii) approve or recommend, or propose to approve, recommend, present or
otherwise disclose in any manner to the Target stockholders (including any
recommendation, presentation, disclosure or approval contemplated by Rule
14e-2(a) of the Securities Exchange Act of 1934, as amended), any Target
Takeover Proposal, or (iii) otherwise breach the provisions of Section 3.4(a) or
(b), and either (x) the stockholders of Target do not approve the Merger or (y)
Target, Parent or Acquisition terminates this Agreement pursuant to this Section
3.4, then Target shall immediately
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thereafter pay Acquisition a fee of $1,000,000 in immediately available funds,
which shall constitute the sole remedy of Parent, Acquisition and any Affiliate
of Parent with respect to the matters described in this sentence.
(f) Termination Fee Payable by Parent. Parent agrees to pay to
Target a fee in immediately available funds of $1,000,000 in the event this
Agreement is terminated by Target pursuant to Section 8.1(f), which shall
constitute the sole remedy of Target and any Affiliate of Target with respect to
such termination.
(g) Termination Fee Payable by Target. Target agrees to pay to
Parent a fee in immediately available funds of $1,000,000 in the event this
Agreement is terminated by Acquisition pursuant to Section 8.1(b), which shall
constitute the sole remedy of Parent, Acquisition and any Affiliate of Parent
with respect to such termination.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Section 4.1 Representations and Warranties of Target. Target
represents, warrants and, to the extent that an item relates to a future time
period, covenants to Parent and Acquisition as follows:
(a) Target Organization and Good Standing: Authority to Conduct
Business. Target is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Target has all requisite
corporate power and authority to carry on its businesses as presently conducted
and to own or lease and to operate its properties as currently operated. The
copies of the Certificate of Incorporation and all amendments thereto and the
Bylaws and all amendments thereto of Target, which have heretofore been
delivered, or promptly after the execution
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hereof will be delivered, to Acquisition, are or will be, as the case may be,
true and complete. Target is not in violation of any term of its Certificate of
Incorporation or Bylaws.
(b) Power and Authority. Target has all requisite power and
authority to execute, deliver and perform this Agreement, the Certificate of
Merger and the Articles of Merger. The execution, delivery and performance by
Target of this Agreement, the Certificate of Merger and the Articles of Merger
have been duly authorized by all requisite corporate action on behalf of Target
and except for obtaining the approval of this Agreement by the stockholders of
Target, no other authorizations or approvals by the Board of Directors or
stockholders of Target are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby. This Agreement constitutes
valid and legally binding obligations of Target enforceable against it in
accordance with its terms, except as enforceability may be limited by
bankruptcy, reorganization, insolvency, moratorium or other laws affecting
creditors rights generally and general principles of equity.
(c) No Conflicts. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby by Target in accordance
with the terms hereof, upon receipt of the consents and approvals contemplated
by Section 4.1(d), will not violate any existing provision of the Articles of
Incorporation, Certificate of Incorporation, Bylaws or any other organizational
documents of Target or any Subsidiary or of any law or violate any existing term
or provision of any order, writ, judgment, injunction or decree of any court or
any other governmental department, commission, board, bureau, agency or
instrumentality applicable to Target or any Subsidiary or conflict with or
result in a breach of any of the terms, conditions or provisions of any
agreement to which Target or any Subsidiary is a party, or by which any of their
respective properties are bound, or constitute an event that might permit an
early termination of or otherwise materially affect any such agreement.
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(d) Consents and Approvals. Except as set forth on Schedule
4.1(d), no consent, license, approval, order or authorization of, or
registration, declaration or filing with, any governmental authority, agency,
bureau or commission, or any third party is required to be obtained or made by
Target or any Subsidiary in connection with the execution, delivery,
performance, validity and enforceability of this Agreement or the conversion of
the shares of Target's Stock.
(e) Capital Structure of Target. The authorized capital stock of
Target consists solely of 2,500,000 shares of Common Stock, par value $3.33-1/3
per share, of which 1,962,410 shares are issued and outstanding (the
"Outstanding Target Shares") and 2,000,000 shares of Preferred Stock, par value
$1 per share, of which no shares are issued and outstanding. The Outstanding
Target Shares constitute the only issued and outstanding capital stock of
Target. All of the Outstanding Target Shares have been duly authorized and are
validly issued, fully paid and nonassessable, and except as set forth on
Schedule 4.1(e), there are no existing or outstanding securities convertible
into capital stock of Target, or options, warrants, calls, commitments, or
agreements, other than this Agreement, of any character that relate to the
authorization, issuance, delivery, sale, purchase or redemption by Target of
shares of capital stock of Target.
(f) Subsidiaries. The Subsidiaries are the only corporations,
partnerships, joint ventures or other entities in which Target owns directly or
indirectly a voting or other equity interest, other than issuers of securities
held as Investment Assets (as defined in Section 4.1(ff)). Except as set forth
in Schedule 4.1(f), Target owns beneficially and of record all of the
outstanding capital stock of each Subsidiary. Except as set forth on Schedule
4.1(f), there are no outstanding rights or options to acquire, nor any
outstanding securities convertible into capital stock of any class of any
Subsidiary. All of the issued and outstanding shares of capital stock of each
Subsidiary have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth on Schedule 4.1(f), all
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such shares are free and clear of any and all liens, charges, security interests
and other encumbrances and claims and none of such shares is the subject of any
agreement under which any such lien, charge, security interest or other
encumbrance or claim might arise. The copies of the Articles of Incorporation or
Certificate of Incorporation and all amendments thereto and of the Bylaws and
all amendments thereto of each Subsidiary, which have heretofore been delivered,
or promptly after the execution hereof will be delivered, to Acquisition, are or
will be, as the case may be, true and complete. No Subsidiary is in violation of
any term of its Articles of Incorporation or Certificate of Incorporation or
Bylaws.
(g) Organization and Good Standing of Subsidiaries: Authority to
Conduct Business. Each of the Subsidiaries is a stock insurance company or a
corporation, duly organized, validly existing and in good standing under the
laws of the jurisdiction of incorporation as shown in Schedule 4.1(g). Each of
the Subsidiaries has all requisite corporate power and authority to carry on its
business as presently conducted and to own or lease and to operate its
properties as currently operated. Each of the Subsidiaries is duly licensed and
in good standing to write the lines of insurance and otherwise to do business in
the states and jurisdictions as set forth in Schedule 4.1(g) hereto. Target has
delivered, or promptly after the execution hereof will deliver, to Acquisition
correct and complete copies of all of the insurance licenses of the Subsidiaries
certified by the Secretary of Target, all of which are in full force and effect.
Each of the Subsidiaries has full power and authority to write all the lines of
insurance shown on the insurance licenses of such Subsidiary. Each of the
Subsidiaries is not transacting any insurance or reinsurance or other business
in any state requiring a license therefor in which it is not so licensed.
(h) Target Financial Statements. Target has delivered, or in the
case of the consolidated financial statements of Target and the Subsidiaries for
the year ended December 31,
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1998, within 30 days after the execution hereof will deliver, to Acquisition
complete and correct copies of the audited consolidated financial statements of
Target and the Subsidiaries as of and for the years ended December 31, 1996,
1997 and 1998, together with the notes thereto and the reports thereon of
Deloitte & Touche LLP (the "Audited Financial Statements"). The Audited
Financial Statements have been (and all additional financial statements of
Target delivered to Acquisition pursuant to this Agreement will be), in each
such case, prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods involved. The
Audited Financial Statements present fairly the consolidated financial position,
the assets and the liabilities of Target and the Subsidiaries as of the
respective dates thereof and the consolidated results of operations and changes
in stockholders' equity and cash flows for the respective periods then ended,
all in accordance with GAAP. Except as disclosed in the Audited Financial
Statements and reports delivered pursuant to this Section, neither Target nor
any of the Subsidiaries has any debts, obligations or liabilities, contingent or
otherwise, that could materially adversely affect its financial condition.
(i) Target Undisclosed Liabilities. Other than as set forth in
Schedule 4.1(i), neither Target nor any Subsidiary has any liabilities, whether
absolute, accrued, contingent, matured, unmatured, or otherwise, except (i) as
and to the extent reflected or reserved against on the Audited Financial
Statements of Target and the Subsidiaries as of and for the year ended December
31, 1998, and (ii) liabilities of a nature similar to those currently reflected
on such financial statements and incurred by Target solely in the ordinary
course of business and consistent with prior practices, and, except for
liabilities incurred in connection with insurance polices and annuities, not in
the aggregate material, since the date of such financial statements.
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(j) Subsidiary Financial Statements. Target has delivered, or
promptly after the execution hereof will deliver to Acquisition, complete and
correct copies of (i) the Quarterly Statements of each of the Subsidiaries filed
with the Texas Department of Insurance (the "Texas Department") for the quarters
ended March 31, June 30 and September 30, 1998 (the "Quarterly Statements"),
(ii) the Annual Statements of each of the Subsidiaries filed with the Texas
Department for the years ended December 31, 1996, 1997 and 1998, together with
the exhibits and schedules thereto (the "Annual Statements"), and (iii) the
audited consolidated statutory financial statements of the Subsidiaries for the
years ended December 31, 1996, 1997 and 1998, together with the notes thereto
(the "Audited Statutory Statements"). The (i) statutory financial statements
(the "Statutory Statements") of each of the Subsidiaries contained in the Annual
Statements and the Quarterly Statements and any additional quarterly or annual
Statements of each of the Subsidiaries filed with the Texas Department and (ii)
Audited Statutory Statements and any additional audited financial statements of
each of the Subsidiaries delivered to Acquisition, have been (or, if not yet
delivered, will be), in each such case, prepared in accordance with Statutory
Accounting Principles ("SAP"), and such accounting practices have been applied
on a consistent basis throughout the periods involved. The Audited Statutory
Statements and each of the Statutory Statements present fairly the financial
position, the assets, and the liabilities of each of the Subsidiaries as of the
respective dates thereof and the results of operations and changes in capital
and surplus and in cash flows for the respective periods then ended, all in
accordance with SAP.
Since December 31, 1998, there has been no material adverse change in
the composition. nature or risk characteristics (credit quality or otherwise) of
the Subsidiaries' investment portfolio. Except as disclosed in Schedule 4.1(j),
the financial statements and reports delivered pursuant to this
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Section, or as otherwise referred to in this Agreement, the Subsidiaries have no
debts, obligations or liabilities, contingent or otherwise, that could
materially adversely affect its financial condition.
All reserves, due and uncollected premiums and other related items with
respect to insurance contracts as established or reflected in the Statutory
Statements (i) were determined in accordance with commonly accepted actuarial
standards consistently applied, (ii) were fairly stated in accordance with sound
actuarial principles, (iii) were based on actuarial assumptions which produce
reserves as great as those called for in any contract provision as to reserve
basis and method, and are in accordance with all other contract provisions and
the related reinsurance, coinsurance, and other similar contracts, (iv) met the
requirements of the insurance laws and regulations of each applicable
jurisdiction, and of the National Association of Insurance Commissioners model
regulations and actuarial guidelines, and all appropriate standards of practice
as promulgated by the Actuarial Standards Board and (v) were computed on the
basis of assumptions consistent with those used in computing the corresponding
items in the Statutory Statements for the immediately preceding comparable
period. Each of the Subsidiaries owns assets that qualify as legal reserve
assets under the insurance laws and regulations of each applicable jurisdiction
in an amount at least equal to all such required reserves and other similar
amounts.
(k) Litigation. Except as set forth in Schedule 4.1(k) hereto,
there is no judicial, administrative or regulatory action, proceeding,
investigation or inquiry or administrative charge or complaint pending or, to
the knowledge of any executive officer of Target, threatened, that might
materially adversely affect the condition (financial or otherwise), properties,
assets, liabilities, capitalization, ownership, business or operations of Target
or any Subsidiary (Target and the Subsidiaries each being sometimes individually
referred to herein as a "Company" and sometimes collectively referred to herein
as the "Companies"), or result in any liability on the part of any of the
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Companies or in which there are claims for damages, or that might materially
adversely affect any registration or insurance license, or the value or
marketability of any of the insurance products of the Subsidiaries, or that
questions the validity of this Agreement or any action taken or to be taken by
any party pursuant hereto or in connection with the transactions contemplated
hereby.
(l) Real and Personal Property. Target has provided to Parent and
Acquisition a list and summary description of all real and, as of December 31,
1998, tangible personal property owned by each of the Companies, whether or not
used or proposed to be used in any of the Companies' business (which together
with the additions and deletions thereto in the ordinary course of business as
permitted by this Agreement are hereinafter called the "Assets"). Each Company
has, or prior to the Closing Date will have, good and indefeasible title to the
Assets owned by such Company, free and clear of all liens, security interests
and other encumbrances and claims or possible claims, except for inchoate liens,
liens for taxes not yet due, statutory liens as to which to the knowledge of any
executive officer of Target no dispute exists and those leases and contracts set
forth in Schedule 4.1(m). None of the Companies uses or proposes to use any real
or tangible personal property except as set forth in Schedule 4.1(l) or covered
by a lease set forth in Schedule 4.1(m). All of the Assets are or will be, as
the case may be, suitable for their intended use and are in good condition and
repair, subject to ordinary wear and tear. The Assets constitute all of the real
and tangible personal property necessary to conduct the business of each of the
Companies as presently conducted.
(m) Leases and Rental Contracts. Set forth in Schedule 4.1(m)
hereto is a list and summary description of all leases and contracts under which
any of the Companies leases, as lessor or lessee, or rents, any real or personal
property. All such leases and contracts are in full force and effect without any
existing default or breach thereunder.
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(n) Contracts. Set forth in Schedule 4.1(n) hereto (with Section
references corresponding to those set forth below) is a complete and correct
list as of the date hereof of all written or oral agreements, contracts and
commitments, with an annual cost or benefit to any of the Companies of, unless
otherwise indicated, $50,000 or more (the "Contracts"), to which any of the
Companies is a party or by which any of the Companies is bound or otherwise
affected as of the date hereof (other than insurance contracts sold by the
Subsidiaries in the ordinary course of business or any agreements or contracts
listed on another schedule to this Agreement), including: (i) mortgages,
indentures, security agreements, loan and credit agreements and other agreements
and instruments relating to the borrowing of money or evidence of credit where
any of the Companies is debtor, (ii) agreements or other arrangements with
insurance agents and agencies and third party administrators pursuant to which
any of the Subsidiaries thereof has paid $100,000 or more in commissions or
other consideration during the calendar year 1997 or 1998, (iii) contracts for
the provision of data-processing services, (iv) finder's, franchise,
distribution, sales or brokerage agreements, (v) contracts or options to
purchase or sell real property, (vi) contracts for the purchase of materials,
supplies or equipment, or for providing services, (vii) contracts, arrangements
or treaties with any party regarding reinsurance, excess insurance, ceding of
insurance, assumption of insurance, or indemnification with respect to insurance
currently being provided directly or indirectly by any Subsidiary or regarding
the management of any portion of its business or regarding the sale by it of its
products through any other company or the sale by any other company of its
products through it which have been entered into on or after January 1, 1998,
(viii) contracts with any entity that is an Affiliate of the Companies or with
any officer or director of any of the Companies or any officer or director of
any other entity that is an Affiliate of the Companies, or to the knowledge of
any executive officer of Target, any corporation controlled by such officer or
director, (ix) agreements and
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instruments representing loans or commitments to loan to officers, directors,
employees or agents (other than insurance agents) of any of the Companies or of
any entity that is an Affiliate of any of the Companies, (x) contracts of any
kind to which the United States government or any of its agencies is a party, or
under any federal, state or local law, regulation or executive order, (xi)
partnership or joint venture agreements of any kind and (xii) other agreements,
contracts and commitments. Target has delivered or made available, or promptly
after the execution hereof will deliver or make available, to Acquisition
complete and correct copies of all written Contracts together with all
amendments thereto and waivers and consents with respect thereto. In addition,
Target has made available, or promptly after the execution hereof will make
available, (i) all insurance policy forms used for products currently marketed
by each of the Subsidiaries in its business and that are currently in force, and
(ii) all forms of agreements or other arrangements with insurance agents and
agencies used by each Subsidiary in its business. All of such Contracts are in
full force and effect and each party thereto has performed in all material
respects all of the obligations required to be performed by them to date and are
not in default thereunder in any material respect. No Contract to which any of
the Companies is a party, or by which any of the Companies or any of its
respective properties is bound, specifically limits any of the Companies'
freedom to compete in any line of business or with any person or entity. None of
the Companies has outstanding any power of attorney other than customary in the
insurance industry to permit agents to execute binders. All contracts,
arrangements or treaties to which any of the Companies is a party regarding
reinsurance, excess insurance, ceding of insurance, assumption of insurance or
indemnification with respect to insurance are either listed on Schedule 4.1(n)
hereto or are listed on Schedule F to each Subsidiary's annual statement filed
with the Texas Department with respect to the year ended December 31, 1998.
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(o) Compliance with Other Instruments and Laws. None of the
Companies is in violation of any term of their respective charters, articles of
incorporation, certificate of incorporation, bylaws, or of any mortgage,
indenture, instrument or agreement relating to indebtedness for borrowed money
or regulatory filing or undertaking of or affecting it or of any judgment,
decree or order in which any such Company is named, or in any violation in any
material respect of any term of any other instrument, contract or agreement, or
of any statute, law, ordinance, rule, governmental regulation, permit,
concession, grant, franchise, license or other governmental authorization or
approval applicable to it or any of its respective properties. All insurance
licenses referred to in Schedule 4.1(g) hereto and all permits, concessions,
grants, franchises, other licenses and other governmental authorizations and
approvals necessary for the conduct of the business of each of the Companies
have been duly obtained and are in full force and effect, and, except as set
forth in Schedule 4.1(p), there are no proceedings pending or, to the knowledge
of any executive officer of Target, threatened, that may result in the
revocation, cancellation, or suspension, or any adverse modification, of any
thereof. The execution, delivery and performance of, and compliance with, this
Agreement, and the consummation of the transactions contemplated hereby by
Target in accordance with the terms hereof, will not result in any such
violation or be in conflict with or result in any default under any of the
foregoing referred to in this Section 4.1(o), or result in the creation of any
mortgage, pledge, lien, charge or encumbrance upon any of the properties or
assets of any of the Companies or the loss, revocation, cancellation, suspension
or modification of any insurance license listed in Schedule 4.1(g) hereto, other
licenses or material contractual rights held by any of the Companies pursuant to
any of the foregoing or result in any such revocation, cancellation, suspension
or modification.
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(p) Regulatory Filings. The Companies have filed or otherwise
provided all reports, data, other information and applications (collectively,
the "Filings") required to be filed with or otherwise provided to the Texas
Department, the Securities and Exchange Commission and all other federal, state
or local governmental authorities (including, without limitation, insurance
departments) with jurisdiction over any of the Companies and all required
regulatory approvals in respect thereof are in full force and effect on the date
hereof. All Filings are true and correct in all material respects, and no Filing
contains any untrue statement of a material fact or fails to state a material
fact necessary to make the Filings and the statements made therein not
misleading except as has been corrected in a later filing made prior to the date
of this Agreement. The Companies have complied in all material respects with all
filing requirements. Target has furnished or made available, or promptly after
the execution hereof will furnish or make available, to Acquisition complete and
correct copies of (i) the most recent reports of examination issued by state
insurance regulatory authorities in respect of each of the Subsidiaries, (ii)
the most recent insurance holding company registrations and annual reports filed
with respect to each of the Subsidiaries, (iii) all other regulatory filings by
any of the Companies and (iv) all complaints filed by any regulatory agency and
other regulatory proceedings initiated or pending with respect to any of the
Companies at any time within the preceding five years. Except as described in
Schedule 4.1(p), since December 31, 1997, no deficiencies material to the
financial condition or operations of any of the Companies have been asserted by
any state regulatory authorities with respect to any reports or filings made by
or with respect to any of the Companies. Target has furnished to Acquisition
copies of all written responses submitted by each of its Subsidiaries (i) in
respect of the most recent examination report of each of its Subsidiaries made
by a state insurance regulatory authority and (ii) to the National Association
of Insurance Commissioners regarding each Subsidiary's Insurance Regulatory
Information System
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(IRIS) ratings. Each of the Companies on the Closing Date will have
substantially completed, in the ordinary course of its business, consistent with
its past practices and to the extent practicable, the preparation of all
reports, data, other information and applications that it will be required to
file with any federal, state or local governmental authority (including, without
limitation, insurance departments) within 60 days following the Closing Date and
such unmade filings will be in form and substance sufficient to enable the
Companies to complete and make such filings on a timely basis following the
Closing Date.
(q) Absence of Certain Changes. Other than as set forth in
Schedule 4.1(q), since September 30, 1998, none of the Companies has (i) issued,
sold or delivered or agreed to issue, sell or deliver any additional shares of
its capital stock or any options, warrants or rights to acquire any such capital
stock, or securities convertible into or exchangeable for such capital stock,
(ii) incurred any obligations or liabilities, whether absolute, accrued,
contingent or otherwise (including, without limitation, liabilities as guarantor
or otherwise with respect to obligations of others), other than obligations and
liabilities relating to the issuance of insurance policies in the ordinary
course of each Subsidiary's business, or incurred in the ordinary course of
Target's or the Companies' business, or obligations and liabilities otherwise
reflected on financial statements delivered to Acquisition, (iii) mortgaged,
pledged or subjected to any lien, lease, security interest or other charge or
encumbrance, any of its assets, tangible or intangible, (iv) acquired or
disposed of any assets or properties, or entered into any agreement or other
arrangements for any such acquisition or disposition, except for assets acquired
or disposed of in the ordinary course of business, (v) declared, made, paid or
set apart any sums for any dividend or other distribution to its stockholders or
any other Affiliate or purchased or redeemed any shares of its capital stock or
granted any option, warrant or right to purchase any such capital stock, or
reclassified such capital stock, (vi) paid or become obligated to pay any
service
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fees or other sums to Target or any of its Affiliates, (vii) forgiven or
canceled any debts or claims or waived any statutory, contractual or common law
rights of material value, (viii) entered into any transaction other than in the
ordinary course of business, (ix) granted any rights or licenses under any of
their respective trade names or entered into general agency arrangements, (x)
other than renewals in the ordinary course of business, entered into any
agreement regarding reinsurance, surplus relief obligations, excess insurance,
ceding of insurance, assumption of insurance or indemnification with respect to
insurance or management of business, (xi) suffered any adverse change in their
respective operations, financial condition, income, assets or liabilities, (xii)
suffered any damage, destruction or loss, whether or not covered by insurance or
reinsurance, materially adversely affecting, in any case or in the aggregate,
their respective businesses, financial condition, properties or assets or (xiii)
suffered any strike, picketing, boycott or other labor trouble materially
adversely affecting their respective businesses, financial condition or
operations.
(r) Taxes. For the purposes of this Agreement, the term "taxes"
shall include all federal, state, local and foreign taxes, fees and other
governmental charges of any nature (including without limitation, premium
taxes), and interest and penalties with respect thereto, and any payment
required under any tax allocation or sharing agreement. Except as set forth in
Schedule 4.1(r): (i) all tax and information returns and reports of each of the
Companies and of any member of any affiliated group of corporations (within the
meaning of section 1504 of the Internal Revenue Code of 1986, as amended (the
"Code"), as in effect at the time of the due date for the filing of such returns
and reports) of which any of the Companies is or was a member required by law to
be filed (taking into account all extensions) have been timely filed, and are
correct and complete in all material respects; (ii) all taxes upon each of the
Companies or for which any of the Companies may be liable, or in respect of any
of the assets, income or franchises of any of the Companies, have been paid by
such
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Company or have been paid on such Company's behalf, or adequate accruals,
reserves and provisions have been established on the books of the Companies for
the payment of such taxes; (iii) there are no tax liens upon any of the
properties or assets of any of the Companies, except for ad valorem taxes not
yet delinquent, taxes (other than ad valorem taxes) not yet due and payable, and
taxes the validity of which are being contested in good faith and for which
adequate reserves have been provided: (iv) no foreign, federal, state, local or
other taxing authority has provided any of the Companies or any member of any
affiliated group of corporations of which any of the Companies is or was a
member with any written notice of any audit, investigation, proceeding or claim
with respect to any taxes for which any of the Companies may be liable; (v) none
of the Companies nor any member of any affiliated group of corporations (as
defined above) of which any of the Companies is or was a member has granted any
waiver of any statutes of limitations applicable to any claim for taxes which
has not expired or has agreed to any extension of time with respect to any tax
assessment or deficiency for taxes for which any of the Companies may be liable
which has not expired; (vi) all taxes that any of the Companies is required by
law to withhold or collect have been withheld or collected and, to the extent
required, have been paid over to the proper governmental authorities in a timely
manner; (vii) none of the returns filed by or on behalf of any of the Companies
is currently being audited by any federal, state, local, foreign or other taxing
authority; (viii) the accruals and reserves for taxes (A) reflected in the
Target Financial Statements are adequate to cover all liabilities for all
accrued or unpaid taxes for which each of the respective Companies has any
liability or, as to contested claims, any reasonably estimated liability for
taxes relating to such claims with respect to the periods covered thereby, and
(B) established or to be established on the books of each of the Companies for
the period beginning October 1, 1998, through the Effective Time will be
adequate to cover all such liabilities and reasonably estimated liabilities with
respect to such period, all in accordance with GAAP applied
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on a consistent basis throughout the periods involved; (ix) all ceding
commissions paid or accrued by any Subsidiary (for any period as to which any
applicable statute of limitations remains open) in connection with any
reinsurance, coinsurance, or other similar contract have been capitalized and
amortized over the respective life of each such contract in accordance with all
applicable tax laws; (x) none of the Companies is a party to or bound by any tax
indemnity, tax sharing, tax allocation or similar agreements; (xi) all material
elections with respect to taxes affecting each of the Companies are set forth in
Schedule 4.1(r); (xii) none of the Companies is a party to any agreement,
contract, arrangement or plan that has resulted or could result, separately or
in the aggregate, in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code; and (xiii) none of the Companies has nor
has had a permanent establishment in any foreign country, as defined in any
applicable tax treaty or convention between the United States and such foreign
country.
(s) Insurance Policies. Set forth in Schedule 4.1(s) hereto is a
complete and correct list as of the date hereof of the insurance policies
maintained by or for the benefit of any of the Companies or their Affiliates or
other officers or directors. Such policies are in full force and effect, all
premiums due thereon have been paid and the insured has complied in all material
respects with the provisions of such policies.
(t) Transactions with Interested Persons. Except as set forth on
Schedule 4.1(t), no officer, director, employee, agent or broker (or spouse or
any child thereof) of any of the Companies, or of any corporation that is an
Affiliate of any of the Companies, owns, directly or indirectly, on an
individual or joint basis, any material interest in, or serves as an officer,
employee or director of, any customer, insurance agency, competitor or supplier
of any of the Companies or any person or entity that has a material contract or
arrangement, including, without limitation, any employment or severance
agreement, with any of the Companies.
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(u) Bank and Brokerage Accounts. Target has provided, or promptly
hereafter shall provide, Acquisition with a complete and accurate list of each
bank or trust company, other financial institution, mutual fund or stock
brokerage firm in which each of the Companies has an account or safe deposit box
and each custodial account maintained by each of the Companies and, in each
case, the names of such accounts, the account numbers and the names of all
persons authorized to draw thereon or to have access thereto. Target has
provided, or promptly hereafter shall provide, Acquisition with a complete and
accurate list of all credit cards issued to any present or past officer,
employee or agent of any of the Companies under which any of the Companies has
any current or potential future liability.
(v) Disclosure. Neither this Agreement nor any written document,
statement, list, schedule, exhibit, certificate or other instrument furnished or
to be furnished to Acquisition or Parent by or on behalf of any of the Companies
in connection with the transactions contemplated hereby contains or will contain
when made or delivered any untrue statement of a material fact, or fails to
state or will fail to state when made or delivered a material fact necessary to
make the statements contained herein and therein not misleading. There is no
fact known to any executive officer of Target that materially adversely affects,
or in the future may materially adversely affect, the condition (financial or
otherwise) of properties, assets, liabilities, capitalization, ownership,
business or operations of any of the Companies, other than any fact that affects
the property and casualty insurance industry generally.
(w) Employee Benefit Plans.
(i) List of Plans. Schedule 4.1(w) includes a complete and
accurate list of all, whether written or oral, employee benefit plans ("Plans")
as defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") and compensation and
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benefit arrangements, whether written or oral, other than Plans for base
compensation of employees and de minimis fringe benefits ("Benefit
Arrangements"), including, but not limited to any (A) employment or consulting
agreements, (B) incentive bonus or deferred bonus arrangements, (C) arrangements
providing termination allowance, severance or similar benefits, (D) equity
compensation plans, (E) deferred compensation plans, (F) cafeteria plans, (G)
employee assistance programs, (H) bonus programs, (I) scholarship programs, (J)
vacation policies, and (K) stock option plans that (1) are currently in effect
or were maintained within three years of the Effective Time, or have been
approved before the Effective Time but are not yet effective, for the benefit of
directors, officers, employees, former employees, independent contractors or
former independent contractors (or their beneficiaries) of any of the Companies
or (2) with respect to which any of the Companies has or could in the future
have a liability or obligation ("Designated Plans"). Schedule 4.1(w) indicates,
with respect to each Designated Plan, whether the Designated Plan is active,
frozen or terminated.
(ii) No Multiemployer Pension Plans. Neither any Company nor
any entity (whether or not incorporated) that was at any time during the six
years before the Effective Time treated as a single employer together with any
Company under section 414 of the Code has ever maintained, had an obligation to
contribute to, or incurred any liability with respect to a multiemployer pension
plan as defined in Section 4001(a)(3) of ERISA.
(iii) No Title IV Plans. Except as listed on Schedule 4.1(w),
neither any Company nor any entity (whether or not incorporated) that was at any
time during the three years before the Effective Time treated as a single
employer together with any Company under section 414 of the Code has ever
maintained, or had an obligation to contribute to, or incurred any liability
with respect to any plan subject to Title IV of ERISA.
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(iv) Plan Documents. With respect to each Designated Plan,
Target has made available to Acquisition, as applicable, true and complete
copies of (A) all written documents comprising such Plan or Benefit Arrangement
(including amendments and individual agreements relating thereto); (B) the
trust, group annuity contract or other document that provides for the funding of
the Designated Plan or the payment of Designated Plan benefits; (C) the three
most recent annual Form 5500 reports (including all schedules thereto) filed
with respect to the Designated Plan; (D) the most recent actuarial report,
valuation statement or other financial statement; (E) the most recent Internal
Revenue Service ("IRS") determination letter; (F) the summary plan description
currently in effect and all material modifications thereto; and (G) all other
correspondence from the IRS or Department of Labor received that relate to one
or more of the Designated Plans with respect to any matter, audit or inquiry
that is still pending.
(v) Compliance with Law. The Companies have operated each
Designated Plan in a manner that is in substantial compliance with the terms
thereof, with ERISA and with all other applicable laws, regulations and
administrative agency rulings and requirements applicable thereto to the extent
that failure to do so would not have a material adverse effect on the Companies.
Except as otherwise disclosed in Schedule 4.1(w), with respect to each
Designated Plan that is a Plan, there has been no transaction described in
section 406 or 407 of ERISA or section 4975 of the Code relating to the Plan
unless exempt under section 408 of ERISA or section 4975 of the Code, as
applicable.
(vi) Contributions and Plan Assets. Payment as may be
required under the terms of each Designated Plan or under the Code has been made
of all amounts which the Companies are required, under applicable law or under
any Designated Plan or any agreement related to any Designated Plan to which the
Company is a party, to have paid as contributions thereto as of the last
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day of the most recent fiscal year of each Designated Plan ended prior to the
date hereof and except as disclosed on Schedule 4.1(w), all payments and
contributions for benefits earned under any Designated Plan through the date
hereof but not paid are set forth on the most recent financial statements of the
Companies. Benefits under all Designated Plans are as represented in the
governing instruments providing pursuant to (i) above, and have not been
increased subsequent to the date as of which documents have been provided.
(vii) Determination Letters. Each Designated Plan, as amended
to date, that is intended to be qualified under sections 401(a) and 501(a) of
the Code has been determined to be so qualified by the IRS, has been submitted
to the IRS for a determination with respect to such qualified status or the
remedial amendment period established under Section 401(b) of the Code with
respect to the Designated Plan will not have expired prior to the Effective
Time.
(viii) Tax or Civil Liability. None of the Companies have
participated in, or is aware of. any conduct that could result in the imposition
upon it of any excise tax under sections 4971 through 4980B of the Code or civil
liability under Section 502(i) of ERISA with respect to any Designated Plan.
(ix) Claims Liability. There is no action, claim or demand of
any kind (other than routine claims for benefits) that has been brought or, to
the knowledge of any executive officer of Target, threatened against, or
relating to, any Designated Plan, and no executive officer of Target has
knowledge of any pending investigation or administrative review by any
governmental agency relating to any Designated Plan.
(x) Retiree Medical Coverage. Except as set forth in Schedule
4.1(w), no Designated Plan provides any medical coverage to employees or
independent contractors of any Company beyond termination of their employment
with the Company by reason of retirement or
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otherwise, other than coverage as may be required under section 4980B of the
Code or Part 6 of ERISA, or under the continuation of coverage provisions of the
laws of any state or locality.
(x) Employees. Set forth in Schedule 4.l(x) hereto is a list of
all employees, agents (other than insurance agents), consultants and similar
persons retained by each of the Companies together with their present rate of
compensation (including bonuses) and a description of any existing or proposed
written or oral agreements with any of them regarding such employment or
engagement, other than agreements described in Schedule 4.1(w) hereto. None of
the Companies is a party to any collective bargaining or other labor union
contract applicable to persons employed by such Company. No Company has breached
or otherwise failed to comply in any material respect with any provision of any
such agreement or contract and there are no formally filed grievances
outstanding against any Company or, to the knowledge of any executive officer of
Target, threatened, against any Company, under any such agreement or contract.
There are no unfair labor practice complaints pending or, to the knowledge of
any executive officer of Target, threatened, against any of the Companies nor
any judicial or regulatory proceeding, investigation or inquiry or employee
complaint currently pending or, to the knowledge of any executive officer of
Target, threatened, against any of the Companies relating to union
representation or otherwise. No executive officer of Target knows of any current
activities or proceedings of any labor union (or representatives thereof) to
organize any unorganized employees of any of the Companies, nor of any strikes,
slowdowns, work stoppages, lockouts or written threats thereof, by or with
respect to any employees of any of the Companies. During the past five years,
there have not been any formally filed grievances involving employees of any of
the Companies.
(y) Intellectual Property. To the knowledge of any executive
officer of Target, there are no United States or foreign patents or patent
applications needed by any of the Companies
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to operate their respective businesses. Set forth in Schedule 4.l(y) hereto is a
complete list and summary description of all trademarks, trade names, service
marks, copyrights (whether registered or as to which registration has been
applied for in any jurisdiction) and fictitious names relating to the business
of each of the Companies and all common law trademarks and trade names used by
each of the Companies, none of which is owned by or licensed to anyone other
than the Companies. To the knowledge of any executive officer of Target , except
as set forth in Schedule 4.1(y), there is no existing or, to the knowledge of
any executive officer of Target, threatened infringement, misuse or
misappropriation by others or pending or threatened claims by any of the
Companies against others for infringement, misuse or misappropriation of any
patent, trademark, trade name, fictitious name, copyright, trade secret or
know-how relating to the business of any of the Companies.
(z) Brokers. All activities of the Companies relating to this
Agreement and the transactions contemplated hereunder have been carried on by
the Companies in such manner so as not to give rise to any valid claim by any
person for a finder's fee, brokerage commission or other like payment, except
for the fee payable by Target to Philo Smith & Co. (Bermuda) Ltd.
(aa) Surplus Relief. At December 31, 1998, each Subsidiary was
not, currently is not and on the Closing Date will not be, subject to any
surplus relief obligations or reinsurance contracts or arrangements involving
financings or otherwise.
(ab) Insurance Issued by Subsidiaries.
(i) All insurance benefits payable by each Subsidiary and, to
the knowledge of any executive officer of Target, by any other person that is a
party to or bound by any reinsurance, coinsurance, or other similar contract
with such Subsidiary have been paid in accordance with the terms of the
insurance contracts under which they arose or are adequately reserved for.
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(ii) All insurance contracts offered, issued, reinsured or
underwritten by any Subsidiary have been duly approved under all applicable
insurance laws and regulations and have been adequately reserved for as
prescribed under such laws and regulations.
(iii) The respective underwriting standards utilized and
ratings applied by any Subsidiary and, to the knowledge of any executive officer
of Target, by any other person that is a party to or bound by any reinsurance,
coinsurance or other similar contracts with any Subsidiary conform in all
material respects to industry-accepted practices and to the standards and
ratings required pursuant to the terms of the respective reinsurance,
coinsurance, or other similar contracts.
(iv) All amounts (including without limitation amounts based
on paid and unpaid losses) to which any Subsidiary is entitled under
reinsurance, coinsurance, assumption fronting or other similar contracts by
which any Subsidiary insures, or is insured by, a third person against loss or
liability from risks assumed, are fully collectible.
(v) To the knowledge of any executive officer of Target, each
insurance agent or general agent, at the time such agent offered, wrote, sold or
produced business for any Subsidiary, was duly licensed as an insurance agent
for the business offered, written, sold or produced by such agent in the
particular jurisdiction in which such agent offered, wrote, sold or produced
such business for any Subsidiary and other than as set forth on Schedule
4.l(bb)(v), no such insurance agent, general agent or any group of affiliated
agents has written 5% or more of any Subsidiary's total in-force insurance
business.
(vi) To the knowledge of any executive officer of Target, no
insurance agent of any Subsidiary has violated (or with or without notice or
lapse of time or both, will or would have violated) any term or provision of any
law or any writ, judgment, decree, injunction or similar
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order applicable to, or engaged in any misrepresentation with respect to, the
writing, sale or production of business for any Subsidiary.
(ac) Computer Software. Set forth on Schedule 4.1(cc) hereto is a
complete and correct list and summary description of all computer hardware,
software, programs and similar systems owned by or licensed to each of the
Companies or being utilized in connection with the business, operations or
affairs of any of the Companies. To the knowledge of any executive officer of
Target, the computer hardware, software, programs and similar systems set forth
on Schedule 4.1(cc) hereto are all of the computer hardware, software, programs
and similar systems necessary to enable each of the Companies to conduct their
respective businesses as presently conducted. Each of the Companies has to the
knowledge of any executive officer of Target, and at all times after Closing
will have, the right to use, free and clear of any royalty or other payment
obligations (except as disclosed in Schedule 4.1(cc)), claims of infringement or
alleged infringement or other liens all computer hardware, software, programs
and similar systems disclosed in Schedule 4. l(cc) hereto. To the knowledge of
any executive officer of Target, none of the Companies is in conflict with or in
violation or infringement of, nor has any of the Companies received any notice
of any conflict with or violation or infringement of or any claimed conflict
with, any asserted rights of any other person with respect to any computer
hardware, software, programs, or similar systems, including without limitation
any such item disclosed on Schedule 4.1(cc) hereto.
(ad) Books and Records. The minute books and other similar records
of each of the Companies contain a complete and correct record, in all material
respects, of all actions taken at all meetings and by all written consents in
lieu of meetings of the stockholders and board of directors of each of the
Companies, respectively and of each committee thereof. The books and records of
each of the Companies accurately reflect in all material respects the business
or condition of each of the
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Companies, respectively, and have been maintained in all material respects in
accordance with good business and bookkeeping practices.
(ae) No Investment Company. None of the Companies is, and none of
the Companies has registered as, an investment company within the meaning of the
Investment Company Act of 1940, as amended.
(af) Investment Portfolio. Target has provided Acquisition with a
complete and correct list as of December 31, 1998 of all stocks, notes,
debentures, bonds, mortgage loans, policy loans and other securities and
investments owned of record or beneficially by any Subsidiary, which as of such
date constituted the entire investment portfolio of each Subsidiary (which
portfolio with additions and deletions thereto in the ordinary course of
business as permitted by this Agreement is hereafter called the "Investment
Assets"). The Subsidiaries have good and indefeasible title to the Investment
Assets, and all of the Investment Assets are in compliance with the requirements
of all applicable laws and insurance regulations. As of the Closing, the
Subsidiaries' investment portfolio shall consist of the Investment Assets, and
the Subsidiaries shall own and have good and indefeasible title to the
Investment Assets.
(ag) Discussions with Regulators. Except as described in Schedule
4.1(p), since September 30, 1998, no employee, agent or representative of any of
the Companies has had any discussions or communications with any regulators
regarding an adverse change in any of the Companies' condition (financial or
otherwise) or regarding a material breach of market conduct requirements of any
of the Companies.
(ah) Environmental Matters. Except as disclosed on Schedule
4.1(hh):
(i) All material permits, licences and other authorizations
required under the Environmental Laws as of the date hereof for the operation of
all real property owned or leased
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by the Companies have been obtained or applied for, and the Companies are in
compliance in all material respects with the terms and conditions thereof,
except where the failure to obtain, apply for or comply with any such permit or
terms and conditions thereof would not singly and in the aggregate have a
material adverse effect.
(ii) None of the Companies as of the date hereof has failed
to substantially comply with any Environmental Laws except for violations, if
any, which singly or in the aggregate would not have a material adverse effect.
(iii) None of the Companies, and to the knowledge of any
executive officer of Target, no other person has released, placed, stored,
buried or dumped any Hazardous Substance on or beneath the real properties owned
or leased by the Companies, the existence of which requires the Companies to
implement corrective actions under Environmental Law and would have a material
adverse effect.
(iv) None of the Companies has received any written or, to
the knowledge of any executive officer of Target, oral notice or order from any
governmental agency or private or public entity advising it that it is
responsible for or potentially responsible for cleanup or remediation of any
Hazardous Substances and none of the Companies has entered into any written
agreements concerning such cleanup.
(v) There is no Environmental Claim pending or, to the
knowledge of any executive officer of Target, threatened against any of the
Companies or, to the knowledge of any executive officer of Target, against any
other person or entity whose liability for any Environmental Claim any Company
has retained or assumed either contractually or by operation of law, which
singly or in the aggregate would have a material adverse effect.
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(vi) There are no past or present actions, activities,
circumstances, conditions, events or incidents (including, without limitation,
the release, emission, discharge, presence or disposal of any Hazardous
Substance) which would form the basis of any Environmental Claim against any of
the Companies, or, to the knowledge of any executive officer of Target, against
any other person or entity whose liability for any Environmental Claim any
Company has retained or assumed either contractually or by operation of law,
which singly or in the aggregate would have a material adverse effect.
(vii) Target has delivered or otherwise made available for
inspection to Acquisition true, complete and correct copies of any reports,
studies, analyses, tests or monitoring possessed or initiated by any of the
Companies pertaining to Hazardous Substances in, on, or beneath or adjacent to
the real properties owned or leased by the Companies or regarding any Company's
compliance with applicable Environmental Laws.
(viii) No transfers of permits or other governmental
authorizations under Environmental Laws will be required to permit Acquisition
to conduct the business of the Companies in substantial compliance with all
applicable Environmental Laws immediately following the Closing, as conducted by
the Companies immediately prior to the Closing. To the extent that transfers or
additional permits and other authorizations are required, Target agrees to
cooperate with Acquisition to effect such transfers and obtain such permits and
other authorizations prior to the closing.
(ix) For purposes of this Section 4.1(hh), the following
terms shall have the definitions set forth below:
(A) "Environmental Law" means all foreign, federal,
state and local laws, regulations, rules and ordinances as in effect on the
Closing Date relating to pollution or protection of human health or the
environment, including, without limitation, laws in effect on the
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Closing Date relating to releases or threatened releases of Hazardous Substances
into the environment or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, release, transport or handling of
Hazardous Substances, and all laws and regulations with regard to record
keeping, notification, disclosure and reporting requirements respecting
Hazardous Substances.
(B) "Hazardous Substances" means all substances defined
as hazardous substances, oils, pollutants or contaminants in the National Oil
and Hazardous Substances Pollution Contingency Plan, 40 C.F.R. ss. 300.5, in
effect on or before the Closing Date or defined as such by, or regulated as such
under, any Environmental Law.
(C) "Environmental Claim" means any written claim,
action, investigation of which any executive officer of Target has knowledge,
notice or cause of action, by any person or entity alleging potential liability
(including, without limitation, potential liability for investigatory costs,
cleanup costs, governmental response costs, natural resources damages, property
damages, personal injuries, or penalties) arising out of, based on or resulting
from (x) the presence, or release into the indoor or outdoor environment, of any
Hazardous Substance at any location, whether or not owned or operated by any of
the Companies or (y) circumstances forming the basis of any violation or alleged
violation, of any Environmental law.
(ai) Year 2000 Issues. The status of Target's preparation for
so-called "Year 2000 Issues" is as set forth in Schedule 4.1(ii) hereto.
Section 4.2 Representations and Warranties of Parent and Acquisition.
Each of Parent and Acquisition represents, warrants and, to the extent that an
item relates to a future time period, covenants to Target as follows:
(a) Organization and Good Standing. Each of Parent and Acquisition
is an Iowa corporation, validly existing and in good standing under the laws of
the State of Iowa.
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(b) Power and Authority. Each of Parent and Acquisition has all
requisite power and authority to execute, deliver and perform this Agreement and
any other agreements or instruments contemplated hereby to be executed by it.
The execution, delivery and performance by Parent and Acquisition of this
Agreement and any other agreements or instruments contemplated hereby to be
executed by Parent and Acquisition have been duly authorized by all requisite
action on behalf of Parent and Acquisition and, except for obtaining the
approval of this Agreement by Parent (which approval Parent shall give prior to
the Closing Date), no other authorization or approval by the Board of Directors
or stockholders of Parent or the Board of Directors or stockholder of
Acquisition or any other Affiliate of Parent is necessary to consummate the
transactions contemplated hereby. This Agreement constitutes, and each other
agreement contemplated hereby to be executed by Parent or Acquisition will
constitute when executed and delivered, a valid and legally binding obligation
of Parent and Acquisition enforceable against them in accordance with their
respective terms, except as enforceability may be limited by bankruptcy,
reorganization, insolvency, moratorium or other laws affecting creditors rights
generally and general principles of equity.
(c) No Conflicts. The execution and delivery of this Agreement and
any other agreements and instruments contemplated hereby by Parent and
Acquisition and the consummation of the transactions contemplated hereby, in
accordance with the terms hereof and thereof, upon receipt of the consents and
approvals contemplated by Section 4.2(d), will not violate any existing
provision of the Articles of Incorporation, Bylaws or other organizational
documents of Parent or Acquisition or of any law or violate any existing term or
provision of any order, writ, judgment, injunction or decree of any court or any
other governmental department, commission, board, bureau, agency or
instrumentality applicable to either Parent or Acquisition or conflict with or
result in a breach of any of the terms, conditions or provisions of any
agreement to which Parent or Acquisition
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is a party, or by which any of their respective properties are bound, or
constitute an event that might permit an early termination of or otherwise
materially affect any such agreement.
(d) Consents and Approvals. No consent, license, approval, order
or authorization of, or registration, declaration or filing with, any
governmental authority, agency, bureau or commission or any third party is
required to be obtained or made by Parent or Acquisition, in connection with the
execution, delivery, performance, validity, and enforceability of this
Agreement, except for (i) filings to be made with, and approvals to be obtained
from, the Texas Department, the Iowa Insurance Department and the insurance
departments of other states or jurisdictions, (ii) filings under the pre-merger
notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976 ("HSR") and (iii) registrations, declarations or filings required to be
made subsequent to the Closing Date with any governmental entity or third party
not entailing any requirement of consent, license, approval, order or
authorization on the part of such governmental entity or third party.
(e) Disclosure. Neither this Agreement nor any written document,
statement, list, schedule, exhibit, certificate or other instrument furnished or
to be furnished to Target by or on behalf of Parent or Acquisition in connection
with the transactions contemplated hereby contains or will contain when made or
delivered any untrue statement of a material fact, or fails to state or will
fail to state when made or delivered a material fact necessary to make the
statements contained herein and therein not misleading. There is no fact known
to any executive officer of Parent or Acquisition that materially adversely
affects, or in the future may materially adversely affect, the condition
(financial or otherwise), properties, assets, liabilities, capitalization,
ownership, business or operations of Parent or Acquisition.
(f) Brokers. All activities of Parent and Acquisition and any
Affiliate of Parent relating to this Agreement and the transactions contemplated
hereunder have been carried on by such
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person in such manner so as not to give rise to any valid claim by any person
against Target for a finder's fee, brokerage commission or other like payment,
except for the fee payable by Target to Philo Smith & Co. (Bermuda) Ltd.
ARTICLE 5
COVENANTS
Section 5.1 Covenants of Target. From the date hereof through the
Closing Date, Target will and will cause the Subsidiaries to:
(a) Access to Information. Upon reasonable notice, give
Acquisition and its attorneys, accountants, agents and representatives full
access at all mutually agreeable times to all the properties, books, records,
contracts, commitments, employee benefit plans, documents, instruments and other
records of or pertaining to each of the respective Companies and permit
Acquisition and its attorneys, accountants, agents and representatives to
consult with and ask questions of the officers and employees of each Company;
deliver to Acquisition all audited or unaudited quarterly or annual financial
statements of each such Company prepared subsequent to the date of this
Agreement; and cooperate with and assist Acquisition in discussions with
insurance regulators regarding each of the Companies' financial condition and
compliance with insurance laws and regulations.
(b) Conduct of Business. Keep the books and records of each
Company consistent in all material respects with prior periods and, with respect
to the Subsidiaries, in accordance with SAP and, with respect to the
consolidated group consisting of Target and the Subsidiaries, in accordance with
GAAP, and conduct their respective businesses and corporate affairs in the
ordinary course consistent in all material respects with past practices, and
will not:
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(i) issue or sell any of their respective capital stock, or
any options, warrants, calls or securities convertible into such capital stock,
or enter into any agreement to do any of the foregoing, or make any change in
its capital structure either by way of stock split, stock dividend or otherwise;
(ii) declare or pay any dividends or make any distribution in
respect of capital stock, or purchase, redeem or otherwise acquire or retire any
capital stock;
(iii) other than in the ordinary course of business, without
the prior written consent of Acquisition, enter into or assume any contract or
commitment, or terminate or amend any existing contract or commitment, or incur
or prepay any indebtedness for borrowed money;
(iv) other than in the ordinary course of business, make any
loans or advance any funds to anyone, or extend credit;
(v) other than in the ordinary course of business, enter
into, amend or accelerate any payment or contribution under any employment,
agency or consulting agreement or Benefit Plan;
(vi) other than in the ordinary course of business, without
the prior consent of Acquisition, which consent shall not be unreasonably
withheld, hire any new employees or make any changes affecting the rates of
compensation of, or pay any bonuses to (other than accrued bonuses under current
Benefit Plans), or grant any other benefit to, their respective current
directors, officers, agents or employees;
(vii) other than in the ordinary course of business, create
or assume any mortgage or other lien or encumbrance on, or dispose of, any of
their respective assets or properties;
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(viii) other than in the ordinary course of business, acquire
any assets or any properties or make any investments, or enter into any
agreements to acquire any assets or properties or to make any investments;
(ix) merge or consolidate with any other corporation, or
acquire or agree to acquire any stock (except investments in the ordinary course
of business) of any person, firm, association, corporation or other business
organization;
(x) make any change in their respective Articles or
Certificate of Incorporation or Bylaws;
(xi) without the prior written consent of Acquisition, enter
into any arrangement with any person with respect to any United States or
foreign patents, patent applications, trademarks, applications for registration
of trademarks, trade names, fictitious names, copyrights, know-how or trade
secrets owned by any of them, or in any way relating to their respective
businesses;
(xii) without the prior written consent of Acquisition, make
any election with respect to the computation of taxes or take any position in
any tax return that could have an adverse effect on any of the Companies;
(xiii) other than in the ordinary course of business, without
the prior written consent of Acquisition, make any other change in their
businesses, business practices or operations; or
(xiv) enter into any agreement to do any of the foregoing.
(c) Consultation with Acquisition Pending Closing. Confer and
consult with Acquisition on all material business decisions affecting the future
performance of each of the Companies, other than decisions made in the ordinary
course of business consistent in all material
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respects with past practices, including in particular with respect to the
Subsidiaries on all material business decisions involving (i) increases or
decreases in the credited rate of insurance products issued by the Subsidiaries
and (ii) the Subsidiaries' investment policy.
(d) Disposition of Shares by Target. With respect to Target, not
dispose of, encumber or grant any rights regarding any of the capital stock of
any Subsidiary.
(e) Preservation of Business. Use all reasonable efforts to (i)
preserve intact each of the Companies' present business organization,
reputation, employees, agents, customers and suppliers, and policyholders, (ii)
maintain all licenses of each Subsidiary to do business in each jurisdiction in
which it is so licensed, (iii) maintain in full force and effect all agreements
of each Company (except as otherwise contemplated by this Agreement) and (iv)
maintain all assets and properties of each Company in good working order and
condition, ordinary wear and tear excepted.
(f) Investment Portfolio Requirements. Notify and obtain the
written approval of Acquisition, which approval shall not be unreasonably
withheld, prior to making any changes to the Subsidiaries' investment portfolio
or the Investment Assets that are not in the ordinary course of business or that
are inconsistent in any material respect with the Subsidiaries' investment
practices and policies existing at September 30, 1998.
(g) Surplus Items. Take no actions other than in the ordinary
course of business as contemplated by this Agreement, without the prior written
consent of Acquisition, that could cause or result in a reduction in the amount
of any Subsidiary's aggregate statutory capital, surplus, asset valuation
reserve and interest maintenance reserve, as set forth in the Annual Statement
for the year ended December 31, 1998.
(h) Notice and Cure. Notify Acquisition promptly in writing of,
and contemporaneously provide Acquisition with complete and correct copies of
any and all information
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or documents relating to, and use all reasonable efforts to cure before the
Closing, any event, development, transaction or circumstance occurring after the
date of this Agreement that causes or could cause any covenant or agreement of
Target under this Agreement to be breached, or that renders or could render
untrue any representation or warranty of Target contained in this Agreement as
if the same were made on or as of the date of such event, development,
transaction or circumstance; and use all reasonable efforts to cure, before the
Closing, any violation or breach of any representation, warranty, covenant or
agreement made by Target in this Agreement, whether occurring or arising before
or after the date of this Agreement.
(i) Further Actions. Execute, acknowledge and deliver any further
documents, including, but not limited to, any financial statements of any
Subsidiary filed with the Texas Department after the date hereof, reasonably
requested by Acquisition consistent with the terms of this Agreement.
(j) Reasonable Efforts. Use its reasonable efforts to fulfill, as
soon as practicable, all of the conditions contained in Section 6.1 hereof.
(k) Changes in Optionees. Promptly, inform Acquisition in writing
of any changes in the Optionees listed on Schedule 4.1(e) to this Agreement.
(l) Major Business Decisions. Cause the Chief Executive Officer of
Target to consult and confer with the Chief Executive Officer of Parent with
respect to all major business decisions affecting any of the Companies.
Section 5.2 Covenants of Parent and Acquisition. From the date hereof
through the Closing Date, Parent and Acquisition will each:
(a) Further Actions. Execute, acknowledge and deliver any further
documents reasonably requested by Target consistent with the terms of this
Agreement.
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(b) Reasonable Efforts. Use their reasonable efforts to fulfill,
as soon as practicable, all of the conditions contained in Section 6.2 hereof.
(c) Notice and Cure. Notify Target promptly in writing of, and
contemporaneously provide Target with complete and correct copies of, any and
all information or documents relating to, and use all reasonable efforts to cure
before the Closing, any event, development, transaction or circumstance
occurring after the date of this Agreement that causes or could cause any
covenant or agreement of Parent or Acquisition under this Agreement to be
breached, or that renders or could render untrue any representation or warranty
of Parent or Acquisition contained in this Agreement as if the same were made on
or as of the date of such event, development, transaction or circumstance; and
use all reasonable efforts to cure, before the Closing, any violation or breach
of any representation, warranty, covenant or agreement made by Parent or
Acquisition in this Agreement, whether occurring or arising before or after the
date of this Agreement.
ARTICLE 6
CONDITIONS PRECEDENT
Section 6.1 Parent and Acquisition. The obligations of Parent and
Acquisition to consummate the transactions provided for in this Agreement shall
be subject to the fulfillment, on or prior to the Closing Date, of the following
conditions:
(a) Representations and Warranties. The representations and
warranties of Target set forth in Section 4.1 hereof shall be true and correct
in all material respects on the Closing Date as if made on and as of such date,
except to the extent the representations and warranties speak as of an earlier
date, and Acquisition shall have received a certificate to such effect, dated as
of the
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Closing Date, executed on behalf of Target by the Chief Executive Officer and
Chief Financial Officer of Target.
(b) Performance of Obligations. Target and the Subsidiaries shall
have performed in all material respects all of their obligations contained in
this Agreement to be performed on or prior to the Closing Date, and Acquisition
shall have received a certificate to such effect, executed on behalf of Target
by the Chief Executive Officer and Chief Financial Officer of Target and dated
as of the Closing Date.
(c) Authorization. All corporate action necessary to authorize the
execution, delivery and performance by Target of this Agreement, and the
consummation of the transactions contemplated hereby, shall have been duly and
validly taken by Target, and Target shall have furnished Acquisition with copies
of all applicable resolutions adopted by the Board of Directors and
stockholders, if any, of Target, certified by the Secretary or Assistant
Secretary of Target.
(d) No Order. No governmental entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, judgment,
injunction or other order (whether temporary, preliminary or permanent), in any
case which is in effect and which prevents or prohibits consummation of the
Merger; provided, however, that each of the parties shall use its reasonable
best efforts to cause any such decree, judgment, injunction or other order to be
vacated or lifted.
(e) Approvals and Consents. The waiting period, if any, pursuant
to HSR shall have expired or has been terminated without objection and any
necessary approval of the Texas Department, the Iowa Insurance Department and
the insurance departments of other states and jurisdictions, and all other
consents of any person required to permit the consummation of the transactions
contemplated by this Agreement without any violation by Parent, Acquisition,
Target
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or the Subsidiaries of any law or obligation shall have been obtained and such
approvals and consents shall not contain any materially burdensome conditions or
requirements on or applicable to Parent, Acquisition, Target or any Subsidiary.
(f) Legal Opinions. Acquisition shall have received the opinions
of Fulbright & Jaworski L.L.P., as to such matters as may be reasonably
requested by Acquisition.
(g) No Adverse Change. Except as set forth in a Schedule hereto,
since December 31, 1998, there shall not have been, occurred or arisen any
material adverse change in, or any event, development, transaction, condition or
state of facts of any character (including without limitation any damage,
destruction or loss whether or not covered by insurance or reinsurance) that
individually or in the aggregate has or could have a material adverse effect on,
the business or financial condition of any Company.
(h) Secretary's Certificates. Acquisition shall have received from
Target (i) a certificate dated the Closing Date from Target's Secretary
attaching (A) a copy of Target's Certificate of Incorporation certified by the
Secretary of State of Delaware, which certification shall be dated not more than
ten days prior to the Closing Date, (B) a copy of Target's Bylaws, and (C) a
Good Standing Certificate for Target from the Secretary of State of Delaware and
from each state where Target is qualified to do business, which Certificates
shall be dated no more than ten days prior to the Closing Date, and (ii) a
certificate dated the Closing Date from the Secretary of each Subsidiary
attaching (A) a copy of such Subsidiary's Articles of Incorporation, certified
by the Secretary of State of the state of each Subsidiary's incorporation, which
certification shall be dated not more than ten days prior to the Closing Date,
(B) a copy of such Subsidiary's Bylaws, (C) a Good Standing Certificate for each
Subsidiary from the Texas Secretary of State, and from each of the states where
such Subsidiary is qualified to do business, which Certificate shall be dated
not more
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than ten days prior to the Closing Date and (D) Certificates of Status and
Authority for each Subsidiary from the Texas Department.
(i) Stockholder Approval. Target's stockholders shall have
approved the Merger and Target stockholders holding more than five percent of
the outstanding Target's Stock shall not have delivered notice to Target
pursuant to Section 262 of the GCL of their intent to demand payment for their
shares pursuant to dissenters' rights provided by the GCL.
(j) Reserve Reinsurance. Target shall have entered into a
reinsurance agreement protecting Target against adverse loss developments with
respect to claims up to $10,000,000 occurring on or prior to December 31, 1998
that are in excess of an amount equal to the sum of (i) Target's booked loss
reserves as of December 31, 1998 as set forth in the actuary's report to Target,
plus (ii) $2,000,000.
(k) Escrow Agreement. Target and the Escrow Agent shall have
executed and delivered the Escrow Agreement.
(l) No Challenge. There shall not be pending any action,
proceeding or investigation by any governmental entity (i) challenging or
seeking material damages in connection with the Merger, (ii) seeking to restrain
or prohibit the consummation of the Merger or otherwise limit the right of
Acquisition or Parent or any of its subsidiaries to own or operate all or any
portion of the business or assets of the Companies, or (iii) which otherwise is
likely to have a material adverse effect on the business, operations, condition
(financial or otherwise), assets or liabilities of Parent, Acquisition or the
Companies.
Section 6.2 Conditions to the Obligations of Target. The obligation of
Target to consummate the transactions provided for in this Agreement shall be
subject to the fulfillment, on or prior to the Closing Date, of the following
conditions:
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(a) Representations and Warranties. The respective representations
and warranties of Parent and Acquisition set forth in Section 4.2 hereof shall
be true and correct in all material respects on the Closing Date as if made on
and as of such date, except to the extent such representations and warranties
speak as of an earlier date, and Target shall have received certificates to such
effect, executed on behalf of Parent and Acquisition by their respective Chief
Executive Officers and Chief Financial Officers, dated as of the Closing Date.
(b) Performance of Obligations. Parent and Acquisition shall have
performed in all material respects all of their respective obligations contained
in this Agreement to be performed on or prior to the Closing Date, and Target
shall have received certificates to such effect, executed on behalf of Parent
and Acquisition by their respective Chief Executive Officers and Chief Financial
Officers, dated as of the Closing Date.
(c) No Order. No governmental entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, judgment,
injunction or other order (whether temporary, preliminary or permanent), in any
case which is in effect and which prevents or prohibits consummation of the
Merger; provided, however, that each of the parties shall use its reasonable
best efforts to cause any such decree, judgment, injunction or other order to be
vacated or lifted.
(d) Approvals and Consents. The waiting period, if any, pursuant
to HSR shall have expired or has been terminated without objection and any
necessary approvals of the Texas Department, the Iowa Insurance Department and
the insurance departments of other states or jurisdictions and all other
consents listed on Schedule 4.1(d) required to permit consummation of the
transactions contemplated by this Agreement without any violation by Target or
the Subsidiaries of any law or obligation shall have been obtained.
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(e) Legal Opinion. Target shall have received the opinion of
Bradley & Riley, P.C., as to such matters as Target shall reasonably request.
(f) Stockholder Approval. The Target stockholders shall have
approved the Merger.
(g) Authorization. All corporate action necessary to authorize the
execution, delivery and performance by Parent and Acquisition of this Agreement.
and the consummation of the transactions contemplated hereby, shall have been
duly and validly taken by Parent and Acquisition, and Parent and Acquisition
shall have furnished Target with copies of all applicable resolutions adopted by
their respective Boards of Directors and their respective stockholders,
certified in each case by a Secretary or Assistant Secretary of Parent and
Acquisition, respectively.
(h) Deposit with Exchange Agent. There shall have been deposited
with the Exchange Agent the Exchange Fund in accordance with Section 2.3(a).
(i) Escrow Agreement. The Escrow Agreement shall have been
executed and delivered by Parent and the Escrow Agent and there shall have been
deposited with the Escrow Agent an amount equal to the Reserved Per Share Amount
multiplied by the sum of the aggregate number of shares of Target's Stock
outstanding as of the Closing Date and the aggregate number of shares of
Target's Stock underlying all Options outstanding as of the Closing Date.
(j) No Challenge. There shall not be pending any action,
proceeding or investigation by any governmental entity (i) challenging or
seeking material damages in connection with the Merger or (ii) seeking to
restrain or prohibit the consummation of the Merger.
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ARTICLE 7
CLOSING
Section 7.1 Closing. A closing (the "Closing") for the consummation of
the transactions contemplated herein shall be held at the offices of Fulbright &
Jaworski L.L.P., Houston, Texas at 9:00 A.M., local time, on the second business
day following the date on which all of the conditions set forth in Article 6
have been (or can be at the Closing) satisfied or have been waived by the party
permitted to do so (the "Closing Date").
Section 7.2 Filings at the Closing. Subject to the provisions of
Article 6 hereof, Acquisition and Target shall at the Closing cause the Articles
of Merger to be filed and recorded in accordance with the provisions of Section
252 of the GCL and the Certificate of Merger to be filed and recorded in
accordance with the provisions of Section 1105 of the Iowa Business Corporation
Act and shall take any and all other lawful actions and do any and all other
lawful things necessary to cause the Merger to become effective.
ARTICLE 8
TERMINATION
Section 8.1 Termination. This Agreement, other than the obligations
contained in Articles 9 and 10, which shall survive any termination of this
Agreement, may be terminated as to all parties hereto and the transactions
contemplated herein abandoned prior to the Closing:
(a) by the mutual consent of the parties hereto;
(b) by Parent and Acquisition at any time after June 30, 1999, if
at such time the conditions set forth in Section 6.1(a), (b), (c), (f), (h), (j)
or (k) hereof have not been satisfied through no fault of Parent or Acquisition
and Parent or Acquisition gives Target notice of such termination;
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(c) by Parent and Acquisition at any time after June 30, 1999, if
at such time the conditions set forth in Section 6.1(d), (e), (g), (i) or (l)
hereof have not been satisfied through no fault of Parent or Acquisition and
Parent or Acquisition gives Target notice of such termination;
(d) By Parent and Acquisition, pursuant to Section 3.4(c);
(e) by Parent and Acquisition at any time after holders of greater
than five percent of the outstanding Target's Stock have delivered notice to
Target pursuant to the GCL of their intent to demand payment pursuant to the
provisions for dissenters' rights provided by the GCL;
(f) by Target at any time after June 30, 1999, if at such time the
conditions set forth in Section 6.2(a), (b), (e), (g), (h) or (i) hereof have
not been satisfied through no fault of Target and Target gives Parent or
Acquisition notice of such termination; and
(g) by Target at any time after June 30, 1999, if at such time the
conditions set forth in Section 6.2(c), (d), (f) or (j) hereof have not been
satisfied through no fault of Target and Target gives Parent or Acquisition
notice of such termination.
Except as provided in Sections 3.4(e), (f) and (g), termination of
this Agreement as provided in this Agreement shall not affect any other rights
or remedies any party may have at law, in equity or otherwise for breach of this
Agreement or otherwise.
ARTICLE 9
CONFIDENTIALITY
Section 9.1 Confidentiality. From and after the date hereof, unless
otherwise agreed to by the parties, each of the parties shall keep, and shall
ensure that its directors, officers, employees, contractors, consultants and
agents keep, confidential all information acquired from another party pursuant
to this Agreement or otherwise, including the contents of this Agreement and any
document delivered pursuant thereto or in connection therewith, except that the
foregoing restriction shall not
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apply to any information that: (i) is or hereafter becomes generally available
to the public other than by reason of any default with respect to a
confidentiality obligation under this Agreement; (ii) was already known to the
recipient party as evidenced by prior written documents in its possession
(unless the information is covered by a prior confidentiality agreement between
the parties); (iii) is disclosed to the recipient party by a third party who is
not in default of any confidentiality obligation to the disclosing party
hereunder; (iv) is developed by or on behalf of the receiving party, without
reliance on confidential information received hereunder; (v) is submitted by the
recipient party to governmental authorities or regulatory bodies to facilitate
the issuance of approvals necessary or appropriate for the operation of their
businesses, provided that reasonable measures shall be taken to assure
confidential treatment of such information; (vi) is provided by the recipient
party to third parties under appropriate terms and conditions, including
confidentiality provisions substantially equivalent to those in this Agreement
and with the consent of the other party to this Agreement or (vii) is otherwise
required to be disclosed in compliance with applicable laws or regulations or
order by a court or other government authority or regulatory body having
competent jurisdiction. Without limiting the generality of the foregoing, no
press release or similar public announcement or disclosure concerning this
Agreement or the transactions contemplated herein shall be made by any party
hereto without the prior consent of the other parties unless the party making
the announcement or disclosure is informed by such party's counsel that such
information is required to be disclosed in compliance with applicable laws or
regulations or order by a court or other government authority or regulatory body
having competent jurisdiction. Any party shall be entitled, in addition to any
other right or remedy it may have, at law or in equity, to an injunction,
without the posting of any bond or other security, enjoining or restraining the
other parties from any violation or threatened violation of this Section.
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ARTICLE 10
MISCELLANEOUS
Section 10.1 Consent to Jurisdiction and Service of Process. Any legal
action, suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby may be instituted in any state or federal court
sitting in Linn County, Iowa, or Galveston County, Texas, and each party agrees
not to assert as a defense in any such action, suit or proceeding, any claim
that it is not subject personally to the jurisdiction of such court, that the
action, suit or proceeding is brought in an inconvenient forum, that the venue
of the action, suit or proceeding is improper or that this Agreement or the
subject matter hereof may not be enforced in or by such court. Any and all
service of process and any other notice in any such action, suit or proceeding
shall be effective against a party if given properly pursuant to the United
States Federal Rules of Civil Procedure or other applicable rules.
Section 10.2 Expenses. Each Party shall bear its respective legal and
other costs and expenses incurred in connection with the preparation, execution,
delivery and performance of this Agreement and the transactions contemplated
hereby without right of reimbursement from any other party.
Section 10.3 Notices. All notices and other communications hereunder
shall be in writing and shall be delivered personally, telegraphed, telexed
(with appropriate answerback received), sent by facsimile transmission (with
immediate confirmation thereafter) or sent by registered, certified or express
mail, postage prepaid, return receipt requested, or sent by a nationally
recognized overnight courier service, marked for overnight delivery. Any such
notice shall be deemed given when so delivered personally, telegraphed, telexed
(provided the correct answerback is received) or sent by facsimile transmission
(provided confirmation is received immediately thereafter); or if mailed, upon
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receipt or rejection by the addressee; or if sent by overnight courier, one
business day after the date of delivery to the courier service marked for
overnight delivery; in each case addressed as follows:
(a) If to Parent or Acquisition, to:
J. Scott McIntyre
United Fire & Casualty Company
118 Second Avenue, S.E.
Cedar Rapids, Iowa 52407-3909
Telephone: 800-343-9131
Facsimile: 319-399-5462
with a copy to:
Michael K. Denney
Bradley & Riley, P.C.
100 First Street, S.W.
Cedar Rapids, Iowa 52404
Telephone: 319-363-0101
Facsimile: 319-363-9824
(b) If to Target, to:
J. Fellman Seinsheimer, III
American Indemnity Financial Corporation
2115 Winnie
Galveston, Texas 77550
Telephone: 409-766-4600
Facsimile: 409-766-5531
with a copy to:
Arthur H. Rogers
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
Telephone: 713-651-5151
Facsimile: 713-651-5246
or to such other address as the parties hereto may specify from time to time by
notice given as provided herein.
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Section 10.4 Amendment. This Agreement may be amended only by an
instrument in writing executed by each of the parties hereto.
Section 10.5 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 10.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas, without regard to
principles of conflicts of laws.
Section 10.7 Entire Agreement. This Agreement, together with the
Exhibits and Schedules hereto, sets forth the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof and
supersedes any prior negotiations, agreements, understandings or arrangements
between the parties hereto with respect to the subject matter hereof.
Section 10.8 Waivers. The provisions of this Agreement may only be
waived by an instrument in writing executed by the party granting the waiver.
The failure of a party at any rime or times to require performance of any
provision hereof in any instance shall in no manner affect the right of such
party at a later time to enforce the same or any other provision of this
Agreement in respect of any subsequent instance. No waiver of any condition or
of the breach of any term contained in this Agreement in one or more instances
shall be deemed to be or construed as a further or continuing waiver of such
condition in respect of any subsequent instance or breach or a waiver of any
other condition or of the breach of any other term of this Agreement. Without
limiting the generality of the foregoing, no action taken pursuant to this
Agreement, other than proceeding with the consummation of the transactions
contemplated herein, shall be deemed to constitute a waiver by the party taking
such action or of compliance with any representations, warranties, covenants or
agreements contained in this Agreement.
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Section 10.9 Interpretation. When a reference is made in this Agreement
to Articles, Sections, Exhibits or Schedules, such reference shall be to an
Article, Section, Exhibit or Schedule, respectively, of this Agreement unless
otherwise indicated. The table of contents and the headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation hereof.
Section 10.10 No Assignment. This Agreement and the rights, interests
and obligations hereunder may not be assigned by Parent, by Acquisition or by
Target, by operation of law or otherwise, except that Acquisition may assign all
of its rights, interests and obligations hereunder to another wholly owned
(directly or indirectly) subsidiary of Parent, provided that such subsidiary
agrees in writing to be bound by all of the terms, conditions and provisions
contained herein.
Section 10.11 Survival of Representations and Warranties. The
respective representations and warranties, obligations, covenants and agreements
contained in this Agreement or in any Schedule, certificate or letter delivered
pursuant hereto (including the officer certificates delivered pursuant to
Section 6.1(a) and (b)), other than those contained in Articles 1 and 2 and
except as otherwise provided in Section 8.1, shall expire and be terminated and
extinguished at the Effective Time, except to the extent specifically provided
in the Escrow Agreement.
Section 10.12 Further Assurances. From and after the Closing, each
party shall execute and deliver such documents and take such other actions as
the other party may reasonably request to further effect or evidence the
purposes and intent of this Agreement.
Section 10.13 Knowledge. Knowledge (including the terms "known to" and
"to the knowledge of") will be deemed to be present with respect to any
executive officer of the Companies, Parent or Acquisition, when the matter in
question was brought to the attention of such executive officer of the
Companies, Parent or Acquisition, as the case may be.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
AMERICAN INDEMNITY FINANCIAL CORPORATION
By /s/ J. Fellman Seinsheimer, III
--------------------------------------------
Name: J. FELLMAN SEINSHEIMER, III
-----------------------------------------
Title: President and Chief Executive Officer
----------------------------------------
UNITED FIRE & CASUALTY COMPANY
By /s/ Scott McIntyre
--------------------------------------------
Name: SCOTT McINTYRE
-----------------------------------------
Title: Chairman of the Board
----------------------------------------
AI ACQUISITION CORPORATION
By /s/ Scott McIntyre
--------------------------------------------
Name: SCOTT McINTYRE
-----------------------------------------
Title: President
----------------------------------------
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EXHIBIT 99.1
FOR IMMEDIATE RELEASE
Contact:
Scott McIntyre J. Fellman Seinsheimer, III
Chairman and Chief Executive Officer President and Chief Executive Officer
118 Second Avenue, S.E. One American Indemnity Plaza
Cedar Rapids, IA 52407 Galveston, Texas 77550
319-399-5700 409-766-4673
UNITED FIRE & CASUALTY COMPANY TO ACQUIRE
AMERICAN INDEMNITY FINANCIAL CORPORATION
Cedar Rapids, Iowa and Galveston, Texas (March 4, 1999) - United Fire & Casualty
Company (Nasdaq: UFCS) and American Indemnity Financial Corporation (Nasdaq:
AIFC) announced today that they have signed a definitive agreement providing for
United Fire's acquisition of American Indemnity for approximately $30.6 million
in cash. Common stockholders of American Indemnity would receive approximately
$14.60 per share at the closing of a transaction and deferred consideration of
$1.00 per share in two years subject to adjustments relating to indemnities.
The acquisition is conditioned upon approval by American Indemnity's common
shareholders, approvals from insurance regulators in Texas, Colorado, and Iowa,
where the insurance companies are domiciled, compliance with all applicable
provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the
expiration of all applicable waiting periods thereunder and certain other
customary conditions. It is anticipated that the acquisition will be completed
by June 30, 1999.
<PAGE> 2
Scott McIntyre, Chairman and Chief Executive Officer of United Fire said, "The
acquisition of American Indemnity's operating territories, independent agency
distribution system, and products are an excellent fit with United Fire's."
J. Fellman Seinsheimer, III, President and Chief Executive Officer of American
Indemnity stated, "We believe this transaction serves the best interests of
American Indemnity's stockholders, policyholders, and agents. American Indemnity
is fortunate to be aligning with such a well-managed and successful Company."
American Indemnity Financial Corporation is the parent corporation of American
Indemnity Company, American Fire and Indemnity Company, Texas General Indemnity
Company and American Computing Company, all of Galveston, Texas. American
Indemnity was represented by Philo Smith Capital Corporation.
United Fire & Casualty Company and its subsidiaries are engaged in the business
of writing property and casualty insurance and life insurance. The Company's
headquarters are in Cedar Rapids, Iowa.
