As filed with the Securities and Exchange Commission on May __, 1999
REGISTRATION NO. 333--
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MOTOR CLUB OF AMERICA
(Exact name of registrant as specified in its charter)
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NEW JERSEY 6331 22-0747730
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
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95 Route 17 South
Paramus, New Jersey 07653-0931
(201) 291-2000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Stanley U. North III, Esq.
Sills Cummis Radin Tischman Epstein & Gross, P.A.
One Riverfront Plaza
Newark, NJ 07102
(973) 643-7000
(Name, address, including zip code and telephone number,
including area code, of agent for service)
Copies to:
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Gregory S. Fryer, Esq.
Verrill & Dana, LLP
One Portland Square
P.O. Box 586
Portland, ME 04112
(207) 774-4000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the Merger, pursuant to the Merger Agreement described herein,
have been satisfied or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
the General Instruction G, check
the following box:
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
CALCULATION OF REGISTRATION FEE
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Title of each class of Proposed Proposed
securities to be Amount to be maximum offering aggregate offering Amount of Registration
registered registered price per unit (1) price(1) fee(1)
Common stock, 290,389 $ $ $
par value $0.50
per share
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(1) Pursuant to Rule 457(f), the registration fee was computed on the
basis of the market value of the North East Insurance Company common
stock to be exchanged in the Merger at a ratio of 0.19048 of a share
of Motor Club of America Stock for each share of North East stock on
_________________, 1999. On that day, the average of the bid and ask
prices for North East stock was $ ________ per share.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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Cross Reference Sheet of
Registration Statement Items to Location in Proxy Statement/Prospectus
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Form S-4 Item Number and Heading Caption or Location in Proxy
Statement/Prospectus
1. Forepart of the Registration Statement Facing Page of Registration Statement; Cross
and Outside Front Cover Page of Proxy Reference Sheet; Outside Front Cover Page.
Statement/Prospectus
2. Inside Front and Outside Back Cover Inside Front Cover Page; Where You Can Find
Pages of Proxy Statement/Prospectus More Information; Table of Contents; Outside
Back Cover Page.
3. Risk Factors, Ratio of Earnings to Outside Front Cover Page; Questions and
Fixed Charges and Other Information Answers About the Merger; Summary; Risk
Factors; Interests of Certain Persons in the
Merger; Motor Club Historical and Pro Forma
Per Share Data; The Merger; Motor Club
Market Price and Dividend Data; Motor Club
Share Data; North East Market Price and
Dividend Data; North East Share Data.
4. Terms of the Transaction Questions and Answers About the Merger;
Summary; Risk Factors; The Merger; Role of
Financial Advisors; Summary of the Merger
Agreement; Comparison of Stockholder Rights;
Motor Club Market Price and Dividend Data;
Motor Club Share Data; North East Market
Price and Dividend Data; North East Share
Data.
5. Pro Forma Financial Information Unaudited Pro Forma Financial Information.
6. Material Contacts with Company Being Summary; The Merger -- Background of the
Acquired Merger; The Merger Agreement.
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters Not applicable.
8. Interests of Named Experts and Counsel Not applicable.
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities Not applicable.
10. Information with Respect to S-3
Registrants Not applicable.
11. Incorporation of Certain Information
by Reference Not applicable.
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12. Information With Respect to S-2 Business of Motor Club; Selected Historical and
or S-3 Registrants Condensed Combined Financial Information
Motor Club Historical and Pro Forma Per Share
Data; Where You Can Find More Information;
Motor Club Market Price and Dividend Data;
Motor Club Share Data.
13. Incorporation of Certain Information
by Reference Where You Can Find More Information
14. Information With Respect to
Registrants Other than S-3 or S-2
Registrants Not applicable.
15. Information With Respect to S-3
Companies Not applicable.
16. Information With Respect to S-2 Business of North East; Selected Historical
or S-3 Companies Condensed Combined Financial Information --
North East Historical and Pro Form Per Share
Date; Where You Can Find More Information;
North East Market Price and Dividend Data;
North East Share Data.
17. Information With Respect to Companies
other than S-2 or S-3 Companies Not applicable.
18. Information if Proxies, Consents or Summary; The Stockholder Meetings; Risk
Authorizations are to be Solicited Factors; The Merger; The Merger Agreement;
Voting and Proxy Information; Dissenters'
Rights of Appraisal; Alternative Plan of
Financing; Interests of Certain Persons in the
Merger; Proxy Solicitation; Management
Following the Merger -- Officers and Directors;
Comparison of Stockholder Rights; Alternative
Plan of Financing.
19. Information if Proxies, Consents or
Authorizations are not to be Solicited
or on an Exchange Offer Not applicable.
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MOTOR CLUB OF AMERICA
95 ROUTE 17 SOUTH
PARAMUS, NEW JERSEY 07653-0931
May __, 1999
Dear Stockholders:
The Board of Directors of Motor Club of America has unanimously approved a
proposed merger between Motor Club and North East Insurance Company, a
property-casualty insurer operating in Maine. Under a merger agreement signed by
Motor Club and North East, Motor Club would form a wholly-owned subsidiary, NEIC
Insurance Acquisition Corporation, that would merge into North East. North East
would become a wholly-owned subsidiary of Motor Club. NEIC Insurance Acquisition
Corporation was incorporated on May ____, 1999.
Motor Club stockholders will be able to vote on the proposed merger and an
alternative plan of financing the merger at a special stockholders meeting on
___, June ____, 1999 at 10:00 a.m. at Motor Club's headquarters, 95 Route 17
South, Paramus, New Jersey, 07653. For directions, please call Motor Club at
(201) 291-2000. Only record holders of Motor Club common stock at the close of
business on May ____, 1999 may vote at the meeting.
The merger will not occur unless the stockholders of Motor Club approve it;
however, the merger is not contingent on stockholder approval of how it is
financed. Upon completion of the merger, North East shares will be converted, at
the option of the North East stockholder on a per share basis, into (i) $3.30 in
cash, or (ii) 0.19048 of a Motor Club share. North East stockholders also may
convert their shares into a combination of cash and Motor Club stock. However,
Motor Club will not issue more than 290,389 shares of its stock, and cash will
be paid in lieu of fractional shares.
The Board of Directors has determined that the merger is in the best
interests of Motor Club and its stockholders. On behalf of the Board of
Directors I urge you to vote "for" approval of the merger and the merger
agreement.
The enclosed proxy statement/prospectus will provide you with a more
detailed description of the proposed merger. We urge you to read it carefully.
Whether or not you plan to attend the Meeting, please complete, date, sign
and return the proxy card in the enclosed postage-paid envelope. Your vote is
important, and your shares will be voted in accordance with your instructions.
You may also attend in person, even if you mail your proxy now.
Thank you, and I look forward to seeing you at the Special Meeting.
Sincerely,
____________________________________
Stephen A. Gilbert
President and Chief Executive Officer
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NORTH EAST INSURANCE COMPANY
482 PAYNE ROAD, 4TH FLOOR
SCARBOROUGH, MAINE 04070
May ___, 1999
Dear Stockholders:
This past February, our Directors unanimously approved a proposed merger by
which Motor Club of America would acquire North East Insurance Company. Motor
Club is a publicly traded company that presently owns two property/casualty
insurers in New Jersey. Completion of the merger is subject to important
conditions, including approval by at least a 75% vote of our stockholders.
Upon completion of the merger, North East shares will be converted, at the
option of the North East stockholder on a per share basis, into (i) $3.30 in
cash, or (ii) 0.19048 of a Motor Club share. North East stockholders also may
convert their shares into a combination of cash and Motor Club stock. However,
Motor Club will not issue more than 290,389 shares of its stock, and cash will
be paid in lieu of fractional shares.
The Board of Directors has called a Special Meeting of Stockholders to seek
your approval of the merger. The meeting will take place at the offices of
Verrill & Dana, LLP, 9th Floor, One Portland Square, Portland, Maine at ____.m.
on ___day, June __, 1999.
The Board of Directors has determined that the merger is in the best
interests of North East and its stockholders. On behalf of the Board of
Directors I urge you to vote "for" approval of the merger and the merger
agreement. YOUR VOTE IS VERY IMPORTANT, especially since the merger requires at
least 75% approval by our stockholders.
Whether or not you plan to attend the meeting, please complete, date, sign
and return the enclosed proxy card in the postage-paid envelope provided. Your
proxy will be voted in accordance with your instructions. If you choose to
attend the meeting in person, you may revoke your proxy at the meeting and vote
by ballot if you wish.
Thank you for your consideration of this important transaction. I look
forward to seeing you
at the meeting if you are able to attend.
Sincerely,
Robert G. Schatz
Chairman and CEO
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MOTOR CLUB OF AMERICA
95 ROUTE 17 SOUTH
PARAMUS, NEW JERSEY 07653-0931
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON
_______________, 1999
Notice is hereby given that a Special Meeting of Stockholders of Motor Club
of America, a New Jersey corporation, will be held on June ____, 1999 at 10:00
a.m. at Motor Club's headquarters, 95 Route 17 South, Paramus, New Jersey, to
consider and vote on the following matters:
1. Approval of the Agreement and Plan of Merger, dated as of March 16,
1999 between Motor Club and North East Insurance Company, and of the merger of
NEIC Insurance Acquisition Corporation, a wholly-owned subsidiary of Motor Club,
with and into North East.
2. Approval of an alternative plan of financing the merger.
3. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on May ____, 1999,
as the record date for the determination of the holders of Motor Club common
stock entitled to notice of and to vote at the Special Meeting, and at any
adjournments or postponements thereof. A list of stockholders entitled to notice
of the meeting shall be available for inspection by any stockholder, during
regular business hours, for a period of ten days prior to the meeting at the
principal executive office of Motor Club and at the Special Meeting.
By Order of the Board of Directors,
___________________________________
PETER K. BARBANO
Secretary
Dated: Paramus, New Jersey
May ___, 1999
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NORTH EAST INSURANCE COMPANY
482 PAYNE ROAD
P.O. BOX 1418
SCARBOROUGH, MAINE 04070-1418
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON
_________________, 1999
A Special Meeting of Stockholders of North East Insurance Company will be
held on June ____, 1999 at _______ _.m. at the offices of Verrill & Dana, LLP,
9th Floor, One Portland Square, Portland, Maine to consider and vote upon the
following proposals:
1. Approval of an Agreement and Plan of Merger, dated as of March 16, 1999,
between Motor Club of America and North East Insurance Company, and of the
merger of North East with NEIC Insurance Acquisition Corporation, a wholly-owned
subsidiary of Motor Club. Under the terms of the merger, North East will be the
surviving company, but will become a wholly-owned subsidiary of Motor Club.
2. Such other business as may properly be brought before the Special
Meeting, or any adjournment thereof.
The Board of Directors has fixed the close of business on __________ ___,
1999, as the record date for determining stockholders of North East entitled to
notice of and to vote at the Special Meeting and at any adjournments or
postponements thereof. A list of stockholders entitled to notice of the meeting
shall be available for inspection by any stockholder, during regular business
hours, for a period of ten days prior to the meeting at the principal executive
office of North East and at the Special Meeting.
PURSUANT TO SECTION 909 OF THE MAINE BUSINESS CORPORATION ACT (THE "MBCA"),
EACH DISSENTING HOLDER OF NORTH EAST STOCK IS ENTITLED TO PAYMENT IN CASH OF THE
VALUE OF THE SHARES HELD BY THAT STOCKHOLDER IF THE STOCKHOLDER (A) FILES WITH
OR MAILS TO NORTH EAST, AT OR PRIOR TO THE SPECIAL MEETING, A WRITTEN OBJECTION
TO THE PROPOSED CORPORATE ACTION, (B) DOES NOT VOTE IN FAVOR OF THE MERGER AND
(C) FILES WITH NORTH EAST A WRITTEN DEMAND FOR PAYMENT OF THE FAIR VALUE OF HIS
OR HER SHARES WITHIN 15 DAYS AFTER THE DATE ON WHICH THE VOTE OF STOCKHOLDERS
WAS TAKEN AS REQUIRED BY THE MBCA. ANY STOCKHOLDER FAILING TO COMPLY WITH THESE
PROVISIONS SHALL BE BOUND BY THE TERMS OF THE MERGER. ANY STOCKHOLDER MAKING
SUCH OBJECTION AND DEMAND SHALL THEREAFTER BE ENTITLED ONLY TO RECEIVE THE FAIR
VALUE OF HIS OR HER SHARES OF NORTH EAST STOCK AS PROVIDED IN SECTION 909 OF THE
MBCA, AND SHALL NOT BE ENTITLED TO VOTE OR TO EXERCISE ANY OTHER RIGHTS OF A
STOCKHOLDER.
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Dated at Scarborough, Maine, this _____________ day of May, 1999
NORTH EAST INSURANCE COMPANY
By: _____________________________
Robert G. Schatz
Chairman and CEO
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This preliminary proxy statement/prospectus dated ________ ___, 1999
is subject to completion and amendment
MOTOR CLUB OF AMERICA
AND
NORTH EAST INSURANCE COMPANY
PROXY STATEMENT
MOTOR CLUB OF AMERICA PROSPECTUS
290,389 SHARES OF COMMON STOCK
This proxy statement/prospectus relates to the proposed merger of NEIC
Insurance Acquisition Corporation, a wholly-owned subsidiary of Motor Club of
America, with and into North East Insurance Company.
Upon completion of the merger, stockholders of North East will receive
[BULLET] cash in the amount of $3.30 per share of North East stock;
[BULLET] 0.19048 of a share of Motor Club stock per share of North
East stock; or
[BULLET] a combination of cash and stock.
However, Motor Club will not issue more than 290,389 shares of its stock,
and cash will be paid in lieu of fractional shares. Accordingly, North East
stockholders who elect to receive Motor Club stock may be required to take cash
for some of their shares if North East stockholders elect to take more than
290,389 shares of Motor Club stock in the aggregate.
After the merger, North East will be a wholly-owned subsidiary of Motor
Club.
This proxy statement/prospectus is being furnished to stockholders of Motor
Club by the Motor Club Board of Directors to solicit proxies for use at the
special meeting of the stockholders of Motor Club to be held on June ____, 1999.
This proxy statement/prospectus is also being furnished to North East
stockholders by the North East Board of Directors to solicit proxies for use at
the special meeting of the stockholders of North East to be held on June ____,
1999. This proxy statement/prospectus is also a prospectus of Motor Club for the
Motor Club shares to be issued upon completion of the merger.
The merger cannot be completed unless (1) holders of at least 75% of the
outstanding shares of North East stock vote to approve the merger, (2) holders
of Motor Club stock approve the merger by simple majority vote, and (3) Motor
Club issues its shares to the holders of North East stock who properly elect to
take Motor Club shares in the merger and pays cash for the remaining North East
stock.
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Additionally, an Independent Committee of Motor Club's Board of Directors
has approved an alternative plan of financing the merger, to be voted on by the
Motor Club stockholders at the Motor Club special meeting. If the alternative
plan of financing is approved by a simple majority vote, the percentage of Motor
Club's outstanding stock that is held by the members of its Executive Committee
could be substantially increased. Completion of the merger is not contingent on
approval of the alternative plan of financing.
This proxy statement/prospectus and the accompanying forms of proxy are
being mailed to the stockholders of Motor Club and of North East on or about May
____, 1999.
See "RISK FACTORS" beginning on page _____ for discussion of certain
factors you should consider in evaluating the merger involving your company.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED THE MERGER OR THE SECURITIES TO BE ISSUED IN THE MERGER,
OR DETERMINED THAT THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. THE
SECURITIES AND EXCHANGE COMMISSION HAS NOT DETERMINED THE FAIRNESS OR MERITS OF
THE MERGER. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this proxy statement/prospectus is _____________, 1999.
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WHERE YOU CAN FIND MORE INFORMATION
Motor Club and North East file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements and other information they file at
the Commission's Public Reference Section, Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, DC 20549, as well as at the regional offices of the
Commission at 7 World Trade Center, Suite 1300, New York, NY 10048, and 500 West
Madison Street, Suite 1400, Chicago, IL 60661. Filings are also available to the
public at a website maintained by the Commission at http://www.sec.gov.
Motor Club has filed a registration statement on Form S-4 to register with
the Commission the Motor Club stock to be issued to North East stockholders in
the merger. This proxy statement/prospectus is part of that registration
statement. Motor Club and North East are also using this proxy
statement/prospectus as a proxy statement for the special meetings of their
stockholders. As allowed by the Commission's rules, this proxy
statement/prospectus does not contain all of the information you can find in the
registration statement or the exhibits to the registration statement. The
Commission allows us to "incorporate by reference" important business and
financial information into this proxy statement/prospectus, which means that we
can disclose important information to you by referring you to another document
filed separately with the Commission. The information incorporated by reference
is deemed to be part of this proxy statement/prospectus, except for any
information superseded by information that we include in this proxy
statement/prospectus. This proxy statement/prospectus incorporates by reference
the documents set forth below that have been previously filed with the
Commission. These documents contain important information about Motor Club,
North East and their finances.
The following documents filed with the Commission by Motor Club (File
No.0-671) are incorporated in this proxy statement/prospectus by reference:
1. Motor Club's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, filed with the Commission on March 31, 1999.
2. Motor Club's proxy statement for its 1999 Annual Meeting of
Stockholders, filed with the Commission on April 30, 1999.
3. Motor Club's Quarterly Report on Form 10-Q for the quarter ended March
31, 1999, filed with the Commission on May 13, 1999.
The following documents filed with the Commission by North East (File
No.0-11184) is incorporated in this proxy statement/prospectus by reference:
1. North East's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1998, filed with the Commission on March 31, 1999.
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2. North East's Quarterly Report on Form 10-Q for the quarter ended March
31, 1999, filed with the Commission on May 13, 1999.
3. North East's Amendment No. 1 to Annual Report on Form 10-KSB/A for the
fiscal year ended December 31, 1998, filed with the Commission on May ___, 1999.
We are also incorporating by reference additional documents that we file
with the Commission after the date of this proxy statement/prospectus.
Most of these documents (other than some exhibits) are available to you for
free if you call or write to us and ask. You should direct any requests to:
Motor Club of America North East Insurance Company
95 Route 17 South P.O. Box 1418
Paramus, NJ 07653-0931 or Scarborough, ME 04070-1418
Attn: Chief Financial Officer Attn: Stockholder Communications
(201) 291-2000 (207) 883-2232
To make sure you get these documents before the special meetings, we need
to hear from you no later than _____________, 1999.
Motor Club has supplied all information contained or incorporated in this
proxy statement/prospectus relating to Motor Club, and North East has supplied
all such information relating to North East, except for information described
under "THE MERGER - Opinion of Cochran, Caronia & Co." and "THE MERGER - Opinion
of Sandler O'Neill & Partners, L.P.," which was supplied by those firms.
We have not authorized anyone to give you any information or to make any
representations about the merger and other transactions we discuss in this proxy
statement/ prospectus other than those contained in this document or in the
documents we incorporate by reference. If you are given any information or
representations about these matters that is not disclosed or incorporated in
this proxy statement/prospectus, you must not rely on that information. This
proxy statement/prospectus is not an offer to sell or a solicitation of an offer
to buy securities anywhere or to anyone where or to whom we are not permitted to
offer or sell securities under applicable law. The delivery of this proxy
statement/prospectus does not, under any circumstance, mean that there has been
no change in the affairs of Motor Club or North East since this document's date.
It also does not mean that the information this proxy statement/prospectus or
the documents we incorporate by reference are correct after this date.
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TABLE OF CONTENTS
Page
WHERE YOU CAN FIND MORE INFORMATION
QUESTIONS AND ANSWERS ABOUT THE MERGER
SUMMARY
MARKET PRICE AND DIVIDEND DATA
SELECTED HISTORICAL CONDENSED COMBINED
FINANCIAL INFORMATION
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL DATA
RISK FACTORS
STOCKHOLDER MEETINGS
VOTING AND PROXY INFORMATION
Motor Club
North East
Proxies
THE MERGER
Background to the Merger
Motor Club Reasons for the Merger; Recommendation of Motor Club's
Board of Directors
Opinion of Cochran, Caronia & Co.
North East Reasons For The Merger; Recommendation of North East's
Board of Directors
Opinion of Sandler O'Neill & Partners, L.P.
Certain Federal Income Tax Consequences
Restrictions on Resales of Securities
Accounting Treatment
Regulatory Approvals
THE MERGER AGREEMENT
DISSENTERS' RIGHTS OF APPRAISAL
ALTERNATIVE PLAN OF FINANCING
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
MANAGEMENT FOLLOWING THE MERGER
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
COMPARISON OF RIGHTS OF HOLDERS OF MOTOR CLUB AND
NORTH EAST COMMON STOCK
STOCKHOLDERS' PROPOSALS
PROXY SOLICITATION
LEGAL MATTERS
EXPERTS
ANNEX A: Agreement and Plan of Merger
ANNEX B: Form of Opinion of Cochran, Caronia & Co.
ANNEX C: Form of Opinion of Sandler O'Neill & Partners, L.P.
ANNEX D: Dissenters Rights Provisions of the Maine Business Corporation Act
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT AM I BEING ASKED TO VOTE ON?
A: You are being asked to vote in favor of the proposed merger of Motor
Club's subsidiary, NEIC Insurance Acquisition Corporation, with and
into North East. As a result of the merger, North East will become a
wholly-owned subsidiary of Motor Club.
For Motor Club stockholders only:
You are also being asked to vote in favor of an alternative plan of
financing the merger. This plan could result in substantially
increasing the percentage of Motor Club's stock held by the members of
Motor Club's Executive Committee. The merger is not contingent on
approval of this plan.
Q: WHAT DO I NEED TO DO NOW?
A: Just indicate on your proxy card how you want to vote, sign and date
the proxy card and mail it in the enclosed return envelope as soon as
possible so that your shares may be represented at the stockholders'
meetings.
Q: CAN I CHANGE MY VOTE?
A: If you grant a proxy, you may take back your proxy up to and including
the day of the stockholders' meeting by following the directions on
page ___ (for Motor Club stockholders) or page ____ (for North East
stockholders). You may either change your vote or attend the
stockholders' meeting and vote in person.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
VOTE MY SHARES FOR ME?
A: Your broker will not be able to vote your shares without instructions
from you. You should instruct your broker to vote your shares in
accordance with your wishes by following the directions provided by
your broker.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working to complete the merger as soon as possible. We hope to
complete the merger several weeks after the Motor Club and North East
stockholders' meetings, assuming the required stockholder approvals
are obtained at the meetings and further assuming that all necessary
regulatory approvals have been obtained.
For North East stockholders only:
Q: SHOULD I SEND IN MY SHARE CERTIFICATES NOW?
A: No. After the merger is approved by the stockholders, Motor Club or
its exchange agent, First Union National Bank, will send written
instructions for exchanging share certificates.
<PAGE>
Q: WHO CAN ANSWER MY OTHER QUESTIONS?
A: If you have more questions about the merger you should contact:
Motor Club of America North East Insurance Company
95 Route 17 South P.O. Box 1418
Paramus, NJ 07653-0931 or Scarborough, ME 04070-1418
Attn: Chief Financial Officer Attn: Stockholder Communications
(201) 291-2000 (207) 883-2232
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SUMMARY
This summary may not contain all of the information that is important to
you. To fully understand the merger, you should carefully read the entire proxy
statement/prospectus and the other documents to which this proxy
statement/prospectus refers. Please also see "WHERE YOU CAN FIND MORE
INFORMATION"(pages ____)
The Companies
North East Insurance Company. North East was organized as a Maine
corporation on August 9, 1965, and began writing property and casualty insurance
in Maine in June, 1966. North East has a wholly-owned insurance company
subsidiary, American Colonial Insurance Company, which formerly wrote insurance
in New York State. North East's principal products are personal and commercial
automobile insurance, including both liability and physical damage coverages.
North East also offers other types of insurance, such as general liability,
commercial multi-peril, inland marine and fire. It no longer writes homeowners
insurance, having withdrawn from this market in 1995. North East's mailing
address is P.O. Box 1418, Scarborough, ME 04070-1418. Its telephone number is
(207) 883-2232.
Motor Club of America. Motor Club is a holding company for subsidiaries
that write property and casualty insurance. Motor Club was incorporated in New
Jersey in 1933 as "Automobile Association of New Jersey" and is the successor to
a New Jersey corporation organized in 1926. The present name was adopted in
1958. Motor Club has two subsidiaries that write property and casualty insurance
in the State of New Jersey: Motor Club of America Insurance Company and
Preserver Insurance Company. Motor Club of America Insurance Company writes
private passenger automobile business, and Preserver writes small commercial,
homeowners, and ancillary coverages. Both Motor Club of America Insurance
Company and Preserver are New Jersey corporations. Motor Club's mailing address
is 95 Route 17 South, Paramus, NJ 07653-0931. Its telephone number is (201)
291-2000.
NEIC Insurance Acquisition Corporation. NEIC Insurance Acquisition
Corporation is organized as a Maine corporation, wholly-owned by Motor Club, and
was formed solely for the purpose of merging with and into North East. North
East will be the survivor of the merger, and will thereby become a wholly-owned
subsidiary of Motor Club.
Stockholder Meetings (page ___)
Motor Club. You are entitled to vote at the special meeting of Motor Club
stockholders if you owned shares of Motor Club stock as of the close of business
(5:00 p.m., Eastern Time) on May ____, 1999, the Motor Club record date. On the
Motor Club record date, there were 2,116,429 shares of Motor Club stock
outstanding and entitled to vote at the Motor Club special meeting.
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The special meeting of Motor Club stockholders will be held on June ____,
1999 at 10:00 a.m. at the Motor Club headquarters, 95 Route 17 South, Paramus,
New Jersey. At the Motor Club special meeting, Motor Club stockholders will be
asked to:
1. Approve and adopt the Agreement and Plan of Merger between Motor Club
of America and North East Insurance Company, dated as of March 16,
1999; and approve the merger of Motor Club and North East;
2. Approve an alternative plan of financing the merger; and
3. Act on any other matters that may be properly submitted to a vote of
the special meeting, or any adjournment thereof.
This proxy statement/prospectus refers to the Agreement and Plan of Merger
(including any amendments) as the "merger agreement."
New Jersey law does not require Motor Club's stockholders to approve either
the merger or the alternative plan of financing. Nevertheless, the Board of
Directors of Motor Club has submitted both to a vote of Motor Club stockholders
because of their importance to Motor Club. Motor Club will not proceed with the
merger unless the merger is approved by the vote of a simple majority of the
Motor Club shares present at the Motor Club special meeting. However, completion
of the merger does not depend on stockholder approval of the financing plan.
North East. You are entitled to vote at the North East special meeting if
you owned shares of North East stock as of the close of business (5:00 p.m.,
Eastern Time) on ____________, the North East record date. On the North East
record date, there were 3,049,089 shares of North East stock outstanding and
entitled to vote at the North East special meeting. The North East special
meeting will be held on _____________, 1999, at _____.m. at the offices of
Verrill & Dana, LLP, 9th Floor, One Portland Square, Portland, Maine. At the
special meeting, North East stockholders will be asked to:
1. Approve and adopt the merger agreement and approve the merger; and
2. Act on any other matters that may be properly submitted to a vote at
the North East special meeting, or at any adjournment thereof.
Under Maine law and North East's Articles of Incorporation, the merger must
be approved by a vote of the holders of at least 75% of the shares of North East
stock outstanding at the North East record date.
Dissenters' Rights of Appraisal (page ___)
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Motor Club. If you own shares of Motor Club stock, you will not be entitled
to exercise appraisal rights under the New Jersey Business Corporation Act,
because the corporation merging with North East will be NEIC Insurance
Acquisition Corporation, not Motor Club.
North East. If you own shares of North East stock, you do not vote in favor
of the merger, and you follow the required procedures under the Maine Business
Corporation Act, you will be entitled, instead of receiving shares of Motor Club
stock or cash in the merger, to receive the appraised value of your North East
stock. For more information about these procedures, please see page _____.
We have included as Annex D to this proxy statement/prospectus the full
text of Sections 908 and 909 of the Maine Business Corporation Act. These are
the sections of Maine law that govern appraisal rights.
The Merger (page ___)
General. The merger agreement is attached as Annex A to this proxy
statement/prospectus. You should carefully read the merger agreement, because it
is the legal document that governs the merger.
What North East Stockholders Will Receive. If the merger is completed,
shares of North East stock will, at the individual option of the North East
stockholder, be converted into:
[BULLET] $3.30 in cash per share of North East stock; or
[BULLET] 0.19048 shares of Motor Club stock per share of North East
stock; or
[BULLET] a combination of cash and Motor Club stock.
However, Motor Club will not issue more than 290,389 shares of its stock,
and cash will be paid in lieu of fractional shares. Because of this limitation,
if you elect to take Motor Club stock in the merger for some or all of your
North East stock, and the North East stockholders elect to take more than
290,389 Motor Club shares in the merger, you may be required to accept cash for
some of your North East stock. If this occurs, the Motor Club shares will be
allocated on a pro rata basis.
The value of the Motor Club stock to be received by holders of North East
stock may change due to fluctuations in the market price of Motor Club stock. In
deciding how to vote their shares on the merger, North East stockholders should
get current market quotations for Motor Club stock.
For more information, please see "RISK FACTORS", page ____.
Additionally, in the merger, each outstanding option to acquire North East
stock that was not granted as an incentive stock option will be converted into:
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[BULLET] cash equal to the excess of the $3.30 per share price over the
option's exercise price.
North East non-incentive stock options are held by current and two former
directors of North East.
Each outstanding option to acquire North East stock that was granted as an
incentive stock option, at the option holder's election, will be converted into
either:
[BULLET] cash equal to the excess of the $3.30 per share price over the
option's exercise price, or
[BULLET] an option to purchase an equivalent number of shares of Motor
Club stock. The option price for the new Motor Club option will
be adjusted to ensure that option holders will not receive any
greater economic benefit than they would have received under
their existing North East options. This alternative is also
subject to certain limitations for tax reasons. For further
discussion, please see "INTERESTS OF CERTAIN PERSONS IN THE
MERGER."
[BULLET] a combination of cash and Motor Club options.
North East incentive stock options are held only by Ronald A. Libby, North
East's Chief Operating Officer.
The merger will be effective upon the filing of articles of merger with the
Maine Secretary of State.
Exchange Procedures. (page )
Prior to the effective time of the merger, Motor Club will mail an election
form and other transmittal materials to each person who holds North East stock.
The election form will allow each North East stockholder to elect to exchange
his or her shares for:
[BULLET] $3.30 per share of North East stock,
[BULLET] 0.19048 of a share of Motor Club stock per share of North East
stock, or
[BULLET] a combination of cash and Motor Club stock specified by the
North East stockholder.
However, Motor Club will not issue more than 290,389 shares of its stock, and
cash will be paid in lieu of fractional shares.
Motor Club has retained First Union National Bank to act as exchange agent
for the North East stock. Completed election forms must be forwarded to the
exchange agent by 5:00 p.m. on the 25th day after the election notice mailing
date, or by another election deadline date and time agreed to by Motor Club and
North East. A stockholder who does not return a properly executed election form
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prior to the election deadline will be treated as if he or she had elected to
receive cash only.
After the merger is complete, the exchange agent will send North East
stockholders instructions for exchanging their shares. North East stockholders
should not send their stock certificates to the exchange agent now.
Recommendation of Motor Club's Board of Directors. (page ___)
The Motor Club Board of Directors has unanimously approved the merger
agreement, and recommends that holders of Motor Club stock vote "for" the merger
and the merger agreement. Motor Club is proposing to acquire North East as part
of its strategy to expand and diversify its insurance operations outside of New
Jersey.
Opinion of Cochran, Caronia & Co. (page ___)
On March 16, 1999, Cochran, Caronia & Co. delivered its opinion to Motor
Club's Board of Directors. The opinion, which is subject to a number of
qualifications, states that as of that date, the merger consideration was fair,
from a financial point of view, to Motor Club. The full text of Cochran, Caronia
Co.'s written opinion, which sets forth the assumptions made, procedures
followed, matters considered and limitations on the review undertaken by that
firm, is attached as Annex B to this proxy statement/prospectus. You should read
the opinion carefully in its entirety.
Alternative Plan of Financing (page ___)
An Independent Committee of Motor Club's Board of Directors has approved an
alternative plan of financing the merger, to be voted on by the Motor Club
stockholders at the Motor Club special meeting.
Under this plan, Motor Club would issue one or more series of unsecured
debentures for a total principal amount of up to $10 million. Each series would
be due on the tenth anniversary of the closing of the merger and will bear
interest at a rate equal to 2.5% over the London Interbank Offered Rate, fixed
as of the date on which the series is issued. Interest would be paid quarterly,
in arrears.
At the holder's option, the debenture would be convertible at any time, in
whole or in part, into a number of Motor Club shares equal to the total
principal amount to be converted divided by 130% of the average trading price of
Motor Club's common stock over the 20 day period immediately prior to the
debenture's issue date.
The Independent Committee has determined that the terms of this proposal
are more favorable to Motor Club than the terms of other financing proposals
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offered to Motor Club.
The debentures would be offered only to high net worth individuals,
institutional investors, and other "accredited investors" (as defined in Rule
501 under the Securities Act of 1933). Motor Club expects that the members of
the Executive Committee of its board of directors will be the debenture
offerees. The members of the Executive Committee have advised Motor Club that
they will, if this plan of financing is approved by the stockholders, subscribe
for up to all of the debentures. There is a substantial likelihood that the
Executive Committee will subscribe for all of the debentures offered.
At current Motor Club stock prices $1,000 of principal of the debentures
would be convertible into approximately ____ Motor Club shares. Accordingly, if
the Executive Committee members convert a substantial portion of the debentures,
their percentage ownership of Motor Club's outstanding stock will increase
markedly.
If Motor Club's stockholders do not approve this alternative plan of
financing, Motor Club will obtain merger financing from either of two lenders
that have each offered to lend up to $10 million, but at terms less advantageous
for Motor Club than those proposed in the alternative plan. Both outside lenders
have indicated that they would charge higher interest rates to Motor Club than
the alternative plan. These lenders would also require the payment of certain
fees to initiate and maintain these credit facilities, while the alternative
plan of financing would impose no such fees. Finally, one of the lenders would
require Motor Club to pledge the stock of its insurance subsidiaries as
security, and such a pledge would require the approval of the New Jersey and
Maine insurance regulators. Given the cumulative effect of these costs and
requirements (and others described in more detail at page ____), on a
comparative basis, the Independent Committee determined that the proposed
alternative plan of financing is more favorable to Motor Club.
Recommendation of North East Board of Directors. (page ____)
The Board of Directors of North East has unanimously approved the merger
agreement, and recommends that the holders of North East stock vote "for" the
merger and merger agreement. North East is proposing to merge with Motor Club
because of the opportunity it presents for expanding North East's resources and
increasing stockholder value.
Opinion of Sandler O'Neill & Partners, L.P.. (page ___)
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") has served as
financial advisor to North East in connection with the merger and has rendered a
written opinion to the North East Board that, as of March 16, 1999, the merger
consideration is fair, from a financial point of view, to the stockholders of
North East. The opinion of Sandler O'Neill is attached as Annex C to this proxy
statement/prospectus. Stockholders are urged to read such opinion in its
entirety for a description of the procedures followed, assumptions made, matters
considered, and the qualifications and limitations on the review undertaken in
connection therewith.
Conditions to the Merger. (page ___)
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Each party's obligation to complete the merger is subject to the
satisfaction of several conditions including:
[BULLET] Approval of the merger agreement and the merger by the
stockholders of North East and of Motor Club.
[BULLET] Receipt of all governmental approvals and other consents
necessary to complete the merger.
[BULLET] Approval of listing the Motor Club shares to be issued in the
merger on the NASDAQ Stock Market.
[BULLET] Absence of any court order or other legal restraint enjoining or
preventing the merger.
[BULLET] Continued effectiveness of the registration statement of which
this proxy statement/prospectus is a part.
The obligation of Motor Club to complete the merger and the transactions
contemplated by the merger agreement is also subject to the satisfaction or
waiver of each of the additional conditions, such as:
[BULLET] The representations and warranties of North East in the merger
agreement are true and accurate as of the closing of the merger.
[BULLET] Performance of all pre-closing obligations of North East.
[BULLET] Absence of any pending or threatened suit or other proceeding
that would restrain or prohibit the merger, or that would impair
Motor Club's future ownership and operation of North East's
business.
[BULLET] Absence of any material adverse change in the business or
finances of North East and its subsidiaries, taken as a whole.
The obligation of North East to consummate the merger and the transactions
contemplated by the merger agreement is also subject to the satisfaction or
waiver of each of the additional conditions, such as:
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[BULLET] The representations and warranties of Motor Club in the merger
agreement are true and accurate as of the closing of the
merger.
[BULLET] Performance of all pre-closing obligations of Motor Club and NEIC
Insurance Acquisition Corporation.
[BULLET] Absence of any pending or threatened suit or other proceeding that
would restrain or prohibit the completion of the merger, or
Motor Club's ownership and operation of its business, or of
North East's business following the merger.
[BULLET] Deposit of the merger consideration with the exchange agent.
[BULLET] Absence of any material adverse change in the business or finances
of Motor Club (and its subsidiaries other than NEIC Insurance
Acquisition Corporation), taken as a whole.
Regulatory Approvals. (page ___)
The merger is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act, which provides that certain transactions may not be
completed until required information is submitted to the Antitrust Division of
the Department of Justice and the Federal Trade Commission. Motor Club and North
East filed the requisite information on May ___, 1999.
The merger must also be approved by the Maine Bureau of Insurance and the
New York Insurance Department. Applications to each such state regulatory agency
have been filed.
Certain Federal Income Tax Consequences. (page ___)
The merger will not qualify as a tax-free transaction under the Internal
Revenue Code. This means that North East stockholders will have to pay tax on
all of the cash and Motor Club stock they receive in the merger. Due to the
individual nature of the tax consequences of the merger, North East stockholders
should consult their own tax advisors concerning the federal, state, local and
foreign tax consequences of the merger.
Accounting Treatment. (page ___)
The merger will be treated as a purchase for accounting and financial
reporting purposes.
Management Following the Merger. (page ___)
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Upon completion of the merger, the Board of Directors of North East will
consist of the current Motor Club Board of Directors and Ronald A. Libby, the
Chief Operating Officer of North East. The Motor Club Board of Directors will
remain unchanged.
Termination. (page ___)
Motor Club and North East can agree at any time to terminate the merger
agreement without completing the merger, even if the stockholders of Motor Club
and North East have approved it.
Also, either Motor Club or North East can terminate the merger agreement if
any of the following occur:
[BULLET] any court or governmental agency issues a final order prohibiting
the merger;
[BULLET] the merger is not completed by July 15, 1999;
[BULLET] the other party's stockholders fail to approve the merger; or
[BULLET] the other party materially breaches any of its covenants or
agreements under the merger agreement, and fails to cure within
10 days' notice.
Motor Club may also terminate the merger agreement if:
[BULLET] North East's Board of Directors withdraws its approval of the
merger, or recommends that its stockholders approve an alternative
transaction with a different party; or
[BULLET] Motor Club discovers facts that would cause the merger to have a
material adverse effect on Motor Club, any of Motor Club's
subsidiaries, or (after the merger) North East.
North East may also terminate the merger agreement if both of the following
occur:
[BULLET] North East receives a proposal for an alternative transaction
with a different party that, in the good faith judgment of North
East's Board of Directors, is more favorable to North East's
stockholders than the merger with Motor Club, and
[BULLET] North East's Board of Directors determines in good faith that its
fiduciary obligations to North East's stockholders require it to
terminate the merger agreement as a result of that proposal.
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Termination Fee. (page ___)
Payable by Motor Club. If Motor Club terminates the merger agreement for
any reason other than as described above at "Termination", it must pay North
East a termination fee of $200,000
Payable by North East. North East must pay Motor Club a termination fee of:
[BULLET] $300,000 if the merger agreement is terminated because North
East's Board of Directors has withdrawn or modified its approval
after receiving a proposal for an alternative transaction with
a different party.
[BULLET] $200,000 if North East terminates the merger agreement for any
reason other than: (a) described above at "Termination", or (b)
because of an alternative transaction.
Interests of Certain Persons in the Merger. (page ___)
North East. Members of North East's Board of Directors and North East's
management have interests in the merger that are in addition to their interests
as North East stockholders. These additional interests arise from executives'
employment contracts, an agreement to continue one executive's employment by
North East after the merger, the exchange in the merger of outstanding North
East incentive stock options for cash and/or options for Motor Club common
shares, and the exchange in the merger of outstanding North East non- incentive
stock options for cash.
Officers and directors of North East have vested options with exercise
prices set in each case as of the date of grant. These options have exercise
prices between $ 1.625 and $ $2.875 per share. On May 6, 1999, there were
359,998 vested options. In addition, 40,000 options with an exercise price of
$2.375 will vest upon consummation of the merger. Of the 399,998 total options,
299,998 will be exchanged for cash equal to the excess of $3.30 over each
option's exercise price for a total cash amount of $393,062. The remaining
100,000 options, all of which were granted as incentive stock options to Ronald
A Libby, North East's Chief Operating Officer, have a $2.375 exercise price, and
will be exchanged at his election for:
[BULLET] cash equal to the excess of $3.30 over the option's exercise price
(for a total of $92,500),
[BULLET] options to purchase substantially equivalent options to purchase
Motor Club stock, or
[BULLET] a combination of the above.
Two officers of North East (one of whom is also a director) and one former
officer of North East have agreements which, may provide certain cash payments
and continuation of benefit plans upon termination of employment, if certain
conditions are met.
The members of the North East Board of Directors knew about these
additional interests, and considered them, when they approved the merger
agreement and the merger.
Motor Club. Under the alternative plan of merger financing proposed to
Motor Club stockholders, Motor Club would issue one or more series of
convertible, unsecured debentures, for a total principal amount of up to $10
million. Each series would be due on the tenth anniversary of the closing of the
merger and will bear interest at a rate equal to 2.5% over the London Interbank
Offered Rate, fixed as of the date on which the series is issued. The debentures
would be offered only to high net worth individuals, institutional investors and
other "accredited investors" (as defined in Rule 501 under the Securities Act of
1933). The offering would be structured to be exempt from the registration
requirements of the Securities Act of 1933. For a more detailed description of
the proposal, please see "ALTERNATIVE PLAN OF FINANCING" at page ___ below.
Motor Club expects that the members of the Executive Committee of its board
of directors will be the debenture purchasers.
If the Executive Committee members were to purchase and convert all $10
million of the debentures offered, at Motor Club's closing stock price on
__________, 1999they would receive approximately_______ Motor Club shares.
Depending on how many shares of Motor Club stock are issued in the merger, it is
possible that the members of the Executive Committee could increase their
aggregate percentage stock ownership from the current 42.2% to over 50%.
Comparative Rights of Holders of North East Stock and Motor Club Stock. (page
___)
Rights of North East stockholders are currently governed by Maine law and
North East's Articles of Incorporation and Bylaws. The rights of Motor Club
stockholders are governed by New Jersey law and Motor Club's Certificate of
Incorporation and Bylaws. After the merger, North East stockholders who elect to
take Motor Club stock in the merger will become stockholders of Motor Club and
their ownership interest will be governed by New Jersey law and Motor Club's
Certificate of Incorporation and Bylaws.
MARKET PRICE AND DIVIDEND DATA
Motor Club
Motor Club stock is traded under the symbol "MOTR" on the Nasdaq Stock
Market. Motor Club has not paid its stockholders dividends in the last five
years. The declaration and payment of future dividends is at the sole discretion
of the Motor Club Board of Directors and the amount, if any, depends upon the
earnings, financial condition and capital needs of Motor Club and other factors,
including restrictions arising from state laws and regulations to which Motor
Club and its subsidiaries are subject.
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North East
The North East stock is traded under the symbol "NEIC" on the Nasdaq
SmallCap Market. North East has never paid cash dividends. The declaration and
payment of future dividends is at the sole discretion of the North East Board of
Directors and the amount, if any, depends upon the earnings, financial condition
and capital needs of North East and other factors, including restrictions
arising from state laws and regulations to which North East and its subsidiaries
are subject. Currently, Maine insurance regulations prohibit North East from
paying any dividends.
The table below sets forth, for the fiscal quarters indicated, the high and
low sale prices for the Motor Club stock and North East stock as reported by
Nasdaq.
Motor Club North East
Price Per Share Price Per Share
Year ended December 31, 1996 High Low High Low
First Quarter 7.00 6.38 1.81 1.00
Second Quarter 8.25 6.50 2.00 1.25
Third Quarter 9.38 7.13 2.13 1.50
Fourth Quarter 9.63 7.75 2.25 1.50
Year ended December 31, 1997
First Quarter 11.63 9.50 2.94 2.00
Second Quarter 14.50 9.88 2.81 1.94
Third Quarter 14.50 11.88 3.50 2.06
Fourth Quarter 14.50 12.25 3.19 2.00
Year ended December 31, 1998
First Quarter 17.50 13.63 2.88 2.44
Second Quarter 17.63 15.00 3.13 2.63
Third Quarter 15.75 10.00 2.94 1.75
Fourth Quarter 15.25 11.50 2.88 1.63
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Year ended December 31, 1999
Motor Club North East
Price Per Share Price Per Share
First Quarter 14.88 13.00 3.00 2.25
On January 25, 1999, the last full trading day prior to the announcement of
the proposed merger, the reported Nasdaq closing price of the Motor Club stock
was $14.00 per share. On _____________, 1999, the most recent available date
prior to the date of this proxy statement/prospectus, the reported closing price
of the Motor Club stock was $_____ per share.
On January 25, 1999, the reported Nasdaq last sale price of the North East
stock was $2.25 per share. On _________, 1999, the most recent available date
prior to the date of this proxy statement/prospectus, the reported last sale
price of the North East stock was $______ per share.
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SELECTED HISTORICAL COMBINED CONDENSED FINANCIAL INFORMATION
The selected historical financial information of Motor Club and North East
presented herein has been derived from either the audited consolidated financial
statements of Motor Club and North East which are incorporated by reference
herein, or have been derived from audited consolidated financial statements
previously filed with the Commission but not incorporated by reference in this
proxy statement/prospectus. With respect to North East, certain financial
information has been reclassified to conform to Motor Club's presentation. The
information shown below should be read in conjunction with the historical
consolidated financial statements of each of Motor Club and North East,
including the respective notes thereto, which are incorporated by reference in
this proxy statement/prospectus. See "WHERE YOU CAN FIND MORE INFORMATION."
MOTOR CLUB OF AMERICA SELECTED HISTORICAL FINANCIAL DATA
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996 1995 1994
(in thousands, except as to per share data)
<S> <C> <C> <C> <C> <C>
Operating Results:
Revenues from operations $ 53,347 $ 51,102 $46,525 $36,703 $29,471
Realized gains (losses) on sale
of investments 28 - 5 57 (43)
Realized gain on sale of
subsidiary - - 702 - -
Net investment income 4,305 3,595 3,087 2,764 2,730
Total revenues $ 57,680 $ 54,697 $50,319 $39,524 $32,158
Income before
federal income taxes $ 5,719 $ 4,630 $ 3,297 $ 2,455 $ 5,039
Net income $ 4,256 $ 3,483 $ 5,330 $ 2,417 $ 5,035
Financial Condition:
Total assets $131,013 $101,347 $95,533 $81,959 $79,172
Shareholders' equity $ 27,824 $ 23,001 $18,786 $14,081 $10,546
Per Common Share:
Net income - Basic $ 2.02 $ 1.68 $ 2.61 $ 1.18 $ 2.46
Net income - Diluted $ 2.01 $ 1.66 $ 2.56 $ 1.17 $ 2.46
Book Value $ 13.15 $ 10.98 $ 9.17 $ 6.89 $ 5.16
Weighted average number of
shares outstanding:
Basic 2,108,722 2,074,473 2,045,590 2,043,197 2,043,004
Diluted 2,121,366 2,102,395 2,081,080 2,061,791 2,043,004
Significant Insurance Indicators:
Net premiums written $64,303 $ 51,680 $47,337 $38,073 $31,797
Loss and loss expense ratio 68.6% 65.1% 64.5% 58.7% 54.8%
Expense ratio 29.1% 33.3% 37.9% 43.9% 39.3%
Combined ratio 97.7% 98.4% 102.4% 102.6% 94.1%
</TABLE>
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NORTH EAST INSURANCE COMPANY
SELECTED HISTORICAL FINANCIAL DATA
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996 1995 1994
(in thousands, except as to per share data)
<S> <C> <C> <C> <C> <C>
Operating Results:
Revenues from operations $ 12,580 $ 11,980 $ 6,521 $ 7,350 $10,764
Realized gains (losses) on sale
of investments 54 35 57 (226) (473)
Net investment income 871 764 1,042 1,299 1,531
Total revenues $ 13,505 $ 12,779 $ 7,620 $ 8,423 $11,822
Income before
Federal income taxes $ 222 $ 466 $ 1,306 $ 763 $ (948)
Net income (loss) $ 158 $ 289 $ 3,375 $ 748 $ (948)
Financial Condition:
Total assets $ 33,631 $ 32,812 $32,559 $34,484 $34,335
Shareholders' equity $ 10,257 $ 9,986 $ 9,325 $ 6,421 $ 3,199
Per Common Share:
Net income (loss) - Basic $ 0.05 $ 0.10 $ 1.13 $ 0.25 $ (0.32)
Net income (loss) - Diluted $ 0.05 $ 0.09 $ 1.13 $ 0.25 $ (0.32)
Book Value $ 3.36 $ 3.28 $ 3.11 $ 2.15 $ 1.07
Weighted average number of
shares outstanding:
Basic 3,048,138 3,022,898 2,994,265 2,992,314 2,990,490
Diluted 3,124,489 3,098,235 2,994,265 2,992,314 2,990,490
Significant Insurance Indicators:
Net premiums written $ 14,286 $ 14,712 $ 6,354 $ 6,277 $10,475
Loss and loss expense ratio 66.4% 56.8% 53.7% 54.2% 77.8%
Expense ratio 39.2% 46.0% 43.1% 50.0% 40.8%
Combined ratio 105.6% 102.8% 96.8% 104.2% 118.6%
</TABLE>
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UNAUDITED PROFORMA
CONDENSED COMBINED FINANCIAL STATEMENTS OF
MOTOR CLUB OF AMERICA AND NORTH EAST INSURANCE COMPANY
The following unaudited pro forma financial statements combine the
historical consolidated balance sheets and statements of income of Motor Club
and North East, including their respective subsidiaries, after giving effect to
the merger. These statements are prepared using the purchase method of
accounting for the merger, in accordance with Generally Accepted Accounting
Principles, and are based on the assumptions set forth in the notes thereto. The
unaudited pro forma condensed combined balance sheet at December 31, 1998 gives
effect to the merger as if it had occurred at December 31, 1998. The unaudited
pro forma condensed combined statement of income for the year ended December 31,
1998 gives effect to the merger as if it had occurred on January 1, 1998.
The following unaudited pro forma financial information has been prepared
from, and should be read in conjunction with, the audited historical
consolidated financial statements and related notes thereto of Motor Club and
North East, which are incorporated by reference herein.
The unaudited proforma condensed combined financial information is for
illustrative purposes only. The companies may have performed differently had
they always been combined. You should not rely on the proforma condensed
combined financial information as being indicative of the historical results
that would have been achieved had the companies always been combined or the
future results that the combined company will experience after the merger.
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MOTOR CLUB OF AMERICA AND NORTH EAST INSURANCE COMPANY
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1998
__________
<TABLE>
<CAPTION>
Historical
Motor North Pro Forma Pro Forma
Club East Adjustments Combined
<S> <C> <C> <C> <C>
ASSETS
Investments $75,951,241 $17,692,183 $ 4,578,065 $ 98,221,489
Cash and cash equivalents 2,773,427 310,937 3,084,364
Premiums receivable 20,401,069 6,367,423 26,768,492
Reinsurance balances receivable 19,234,277 4,418,549 23,652,826
Deferred policy acquisition costs 8,708,329 1,856,230 10,564,559
Prepaid reinsurance premiums 1,015,581 765,934 1,781,515
Deferred tax asset - 1,671,040 (71,232) 1,599,808
Fixed assets, net 1,671,902 249,982 (249,982) 1,671,902
Other assets 1,256,950 298,694 1,555,644
Total assets $131,012,776 $ 33,630,972 $ 4,256,851 $168,900,599
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Losses and loss expenses $58,335,143 $12,969,074 $ 71,304,217
Unearned premiums 30,733,144 8,370,294 39,103,438
Reinsurance premium balances payable - 761,044 761,044
Other liabilities 10,163,520 1,273,693 750,000 12,187,213
Note payable 3,000,000 - 3,000,000
Convertible subordinated debenture - - $10,000,000 10,000,000
Excess of net assets acquired over cost - - 738,657 738,657
Deferred tax liability 957,440 - 957,440
Total liabilities 103,189,247 23,374,105 11,488,657 138,052,009
Shareholders' Equity:
Common Stock 1,058,215 3,049,089 (2,903,894) 1,203,410
Paid in additional capital 1,996,954 6,407,132 (2,777,266) 5,626,820
Accumulated other comprehensive income
(loss) (3,422,387) 268,255 (268,255) (3,422,387)
Retained earnings 28,190,747 532,391 (1,282,391) 28,190,747
Total Shareholders' Equity 27,823,529 10,256,867 (7,231,806) 30,848,590
Total Liabilities and
Shareholders' Equity $131,012,776 $ 33,630,972 $ 4,256,851 $168,900,599
</TABLE>
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The accompanying notes are an integral part of
these pro forma condensed consolidated financial statements.
MOTOR CLUB OF AMERICA AND NORTH EAST INSURANCE COMPANY
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
__________
<TABLE>
<CAPTION>
Historical
Motor North Pro Forma Pro Forma
Club East Adjustments Combined
REVENUES
<S> <C> <C> <S> <S>
Insurance premiums $53,175,663 $12,580,432 $65,756,095
Net investment income 4,304,507 870,548 5,175,055
Realized gains on
sales of investments (net) 28,545 54,272 82,817
Other revenues 171,171 - 171,171
Total revenues 57,679,886 13,505,252 71,185,138
LOSSES AND EXPENSES
Losses and loss expenses
incurred 36,479,591 8,357,673 44,837,264
Amortization of deferred
policy acquisition costs 13,375,221 3,571,626 16,946,847
Interest expense - - $757,125 757,125
Other operating expenses 2,105,668 1,354,430 (147,731) 3,312,367
Total losses and expenses 51,960,480 13,283,729 609,394 65,853,603
Income before Federal income
taxes 5,719,406 221,523 (609,394) 5,331,535
Provision for Federal
income taxes (1,463,615) (63,836) 207,194 (1,320,257)
Net income $ 4,255,791 $ 157,687 ($402,200) $ 4,011,278
Net Income per common share:
Basic $2.02 $0.05 $1.67
Diluted $2.01 $0.05 $1.49
Weighted average common and potential common shares outstanding:
Basic 2,108,722 3,048,138 2,399,111
Diluted 2,121,366 3,124,489 3,022,519
</TABLE>
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MOTOR CLUB OF AMERICA AND NORTH EAST INSURANCE COMPANY
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
__________
Note A - Basis of Presentation:
The unaudited pro forma condensed combined balance sheet and pro forma
condensed combined statement of income reflect an assumed combination of:
1) 50% of the outstanding shares of North East based upon an exchange ratio
of 0.19048 of a share of Motor Club stock for each outstanding share of
North East; and 2) the remaining outstanding shares and all other dilutive
shares of North East presently issued but not outstanding based upon a cash
price of $3.30 per share. The total purchase price is therefore assumed to
be approximately $9.2 million. The ultimate actual purchase price is
subject to the election of the North East stockholders and the portion of
the purchase price paid in cash and Motor Club stock is subject to
aggregate limits as defined in the merger agreement. The final purchase
price may therefore be different than that depicted herein.
North East's stockholders' equity has been eliminated in the unaudited pro
forma combined balance sheets for the periods shown.
With respect to North East, certain accounts have been reclassified in the
financial statements to conform to Motor Club's presentation.
Note B - Excess of Net Assets Acquired Over Cost:
Under the purchase method of accounting for business combinations, the
total purchase price is allocated to the acquired assets and liabilities
based on their fair values. Any differences between the excess of the fair
value of North East's net assets acquired over the cost of the transaction
is recorded as a deferred credit, after application to all non- current
assets. The deferred credit recorded in the balance sheet is after
application of $250,000 to North East's non-current assets and will be
amortized on a straight-line basis over five years after the merger.
Note C - Borrowing and Related Party Transactions:
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As part of the financing of the merger, Motor Club expects to borrow $10
million in one or more Convertible Subordinated Debentures in addition to
using cash on hand. The debentures are assumed to have an interest rate of
approximately 7.57%, based upon the six-month London Interbank Offered Rate
plus 250 basis points, and are assumed convertible at any time, in whole or
in part, into a number of Motor Club shares equal to the principal amount
to be converted divided by 130% of the average trading price of Motor
Club's common stock over the 20-day period immediately prior to the
debenture issue date. Based upon the closing share price of Motor Club
common stock on May 6, 1999, the entire $10 million of debentures would be
convertible into 591,716 shares of Motor Club common stock at $16.90 per
share.
MOTOR CLUB OF AMERICA AND NORTH EAST INSURANCE COMPANY
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
__________
Note C - Borrowing and Related Party Transactions (Continued):
The debentures are being subscribed to by three of Motor Club's directors
("Ownership Group"), who owned 42.2% of its outstanding common stock at
December 31, 1998. On a proforma basis, which includes the maximum number
of shares issuable to North East stockholders in connection with the
merger, the Ownership Group would own 49.0% of Motor Club's outstanding
common stock upon such conversion of the entire $10 million of debentures.
Note D - Federal Income Taxes:
At December 31, 1998, North East had net operating loss and capital loss
carryforwards (the "Carryforwards") of $4,720,000 which expire in varying
amounts between 1999 and 2013.
Pursuant to Section 382 of the Internal Revenue Code, North East's
Carryforwards are subject to certain limitations based upon the total
purchase price paid, times an interest rate stipulated by the United States
Government (the "Limitation"). An annual Limitation of $439,000 has been
estimated.
The North East net deferred tax asset has been reduced by approximately
$71,200 in the pro forma balance sheet presented at December 31, 1998. This
reflects a decrease in the deferred tax asset attributable to the
Carryforwards which Motor Club management believes is necessary based upon
the estimated application of the Limitation under Section 382, adjusted for
those Carryforwards which will be fully utilized prior to their expiration.
Note E - Merger-Related and Integration-Related Expenses:
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Merger-related fees and expenses, consisting primarily of SEC filing fees,
fees and expenses of investment bankers, attorneys and accountants, and
other related charges, are estimated to be approximately $750,000. These
fees and expenses have been reflected in the unaudited pro forma condensed
combined balance sheet as of December 31, 1998. These charges are not
reflected in the unaudited pro forma condensed combined statement of income
or the pro forma combined per share data.
MOTOR CLUB OF AMERICA AND NORTH EAST INSURANCE COMPANY
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
__________
Note E - Merger-Related and Integration-Related Expenses (Continued):
It is estimated that costs of approximately $750,000 will be incurred for
severance and other integration-related expenses, including the elimination
of duplicate operations and related workforce reductions. These
expenditures are necessary to reduce costs and operate efficiently. The
unaudited pro forma condensed combined financial statements reflect neither
the impact of these charges nor the benefits from the expected
efficiencies. The costs for severance and other integration-related
expenses will be charged to operations in the periods the obligations
occur.
Note F - Earnings per Share:
The weighted average number of outstanding common shares has been adjusted
to reflect the additional Motor Club shares which are assumed to be issued
to North East stockholders as described in Note A. The weighted average
number of potential outstanding common shares has been adjusted to reflect
the conversion of the debentures described in Note C. Net income available
to common shareholders for purposes of the diluted earnings per share
computation excludes interest expense (net of tax) applicable to the
debentures.
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RISK FACTORS
You should consider the following risk factors when deciding whether to
vote in favor of the merger agreement and the merger and (in the case of North
East stockholders) in electing to receive Motor Club shares in the merger. You
should consider these risk factors together with the other information included
or incorporated by reference in this proxy statement/prospectus.
Possible Reduction of the Number of Motor Club Shares that North East
Stockholders May Receive in the Merger
A North East stockholder may choose to convert North East stock into $3.30
cash per share of North East stock, 0.19048 of a share of Motor Club stock per
share of North East stock, or a combination of both. The merger agreement
provides that Motor Club will not issue more than 290,389 shares of its stock in
the merger, and that cash will be paid in lieu of fractional shares. Therefore,
North East stockholders who choose to convert all or part of their North East
shares into Motor Club stock will be required to take $3.30 in cash for some of
their shares if the North East stockholders choose to take more than 290,389
shares of Motor Club stock in the aggregate.
Potential Fluctuation in Value of Motor Club Stock to be Issued in the Merger
The number of Motor Club shares that a North East stockholder may receive
in the merger is fixed at 0.19048 of a Motor Club share for each North East
share. This exchange ratio will not be adjusted for any changes in the market
price of either Motor Club's or North East's stock. The value of the Motor Club
shares that a North East stockholder receives in the merger will depend on the
Motor Club market price at the time. The Motor Club shares received may be worth
less than at the date of the North East stockholders meeting, and/or less than
$3.30 per North East share exchanged.
Geographic and Product Line Concentration
Motor Club and North East each provide a limited range of insurance
products in limited geographic areas. Motor Club has two subsidiaries, Motor
Club of America Insurance Company and Preserver Insurance Company, which write
property and casualty insurance in New Jersey. Motor Club of America Insurance
Company writes private passenger auto insurance, which accounts for
approximately 75% of Motor Club's total premiums. Preserver writes small
commercial, homeowners and ancillary insurance and accounts for approximately
25% of Motor Club's premiums. North East writes property and casualty insurance
in Maine. Personal and commercial automobile insurance accounts for
approximately 91% of North East's premiums, and general liability, commercial
multi-peril, inland marine, and fire insurance account for approximately 9% of
its total premiums.
Motor Club's and North East's emphasis on automobile insurance in two
states concentrates the types of underwriting risks to which the companies are
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exposed. The concentration of risk increases the potential impact that
unexpected changes in statutes, regulations, weather conditions, the age of
policyholders and similar factors can have on either company's total financial
performance and financial condition.
For example, recent changes in New Jersey laws regarding personal
automobile insurance have required insurers including Motor Club to reduce rates
and have restricted their ability to cancel insureds for underwriting reasons.
Severe winters in Maine can cause an increase in the number of auto accidents.
If such concentrated risks coincide, they would have an adverse effect on
Motor Club's financial performance and condition.
Reliance on Independent Insurance Agents
North East has marketed, and after the merger will continue to market, its
insurance products through approximately 154 independent insurance agents and
brokers. In 1998, one group of affiliated agents accounted for 11% of North
East's direct premiums written, a second group accounted for 9%, a third group
accounted for 5%, and all other agents accounted for less than 5% each. Although
North East believes it has a good relationship with its independent agents, it
is possible that those relationships will not continue after the merger, or that
those agents will not continue to produce new and renewal business for North
East at prior levels. The loss of a significant portion of that business after
the merger would have an adverse effect on Motor Club's financial performance
and financial condition.
Risks Associated with Automobile Insurance in New Jersey
New Jersey insurance laws have required insurance companies to participate
in involuntary insurance programs for automobile insurance. Those programs have
included joint underwriting associations, assigned risk plans, fair access plans
and reinsurance facilities. Generally, insurers that write automobile insurance
covered by these programs must either provide insurance coverage for persons who
cannot obtain insurance in the voluntary market, or pay another insurer to
provide the coverage. Motor Club's auto insurance subsidiary, Motor Club of
America Insurance Company, has participated in the New Jersey Personal
Automobile Insurance Plan, an assigned-risk plan, since 1997 by paying $0.19 of
each assigned premium dollar to another insurer, which then directly provides
the coverage and thereby relieves Motor Club of the associated risk of loss.
Loss ratios under these involuntary programs historically have been greater
than loss ratios in the voluntary market. Consequently, these regulatory
requirements have, at times, adversely affected the profitability of the
personal automobile insurance written by New Jersey auto insurance companies
such as Motor Club's auto insurance subsidiary.
In 1997 and 1998, New Jersey enacted personal automobile insurance statutes
that require insurers including Motor Club to reduce their premium rates by 15%
and restrict their ability to cancel policies. Although these statutes include
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provisions intended to reduce claims costs, it is not known whether or to what
extent those cost savings will offset the required premium rate reductions.
Restrictions on Insurance Holding Company Dividend Income
Motor Club relies on dividends from its operating subsidiaries as a source
of cash to meet its debt service obligations, which will include those
associated with financing the merger. Motor Club's two present subsidiaries
Motor Club of America Insurance Company and Preserver Insurance Company are
domiciled in New Jersey. North East will continue to be domiciled in Maine.
The insurance laws of New Jersey and of Maine place restrictions on the
ability of their domestic insurers to pay dividends. Under New Jersey law,
neither Motor Club of America Insurance Company nor Preserver Insurance Company
may pay a dividend that exceeds the greater of 10% of its statutory surplus as
of the prior December 31, or its adjusted net income for the preceding year,
unless prior regulatory approval is obtained. As of December 31, 1998,
approximately $1.4 million and $1.1 million would be available without
regulatory approval for 1999 dividends from Motor Club of America Insurance
Company and Preserver Insurance Company, respectively. During 1998, Motor Club
of America Insurance Company paid $1 million in dividends to Motor Club, and
Preserver Insurance Company paid no dividends to Motor Club. In 1996 and 1997,
neither subsidiary paid any dividends to Motor Club.
Under Maine law, North East may pay cash dividends only from the part of
its available accumulated statutory unassigned deficit that is derived from
North East's net realized capital gains and the net realized operating profits
of its insurance business. Further, North East may not pay dividends or make any
other distribution that exceeds the greater of 10% of its surplus to
policyholders as of the prior December 31, or its net investment income as of
the prior December 31, unless prior regulatory approval is obtained. North East
has never paid dividends. Based on its current accumulated statutory unassigned
deficit, North East currently may not pay any dividends.
Although Motor Club expects that its New Jersey insurer subsidiaries will
be able to pay sufficient dividends, a future inability of either or both of
them to pay dividends would adversely effect Motor Club's ability to meet its
debt service obligations.
Risks Related to Year 2000 Issues
Year 2000 issues arise from the inability of some computer systems to
properly recognize and handle dates after December 31, 1999. Like other
insurance companies, Motor Club, its present subsidiaries, and North East rely
on date-sensitive calculations that are generated by their computer systems to
determine premium revenues, verify claims, make timely and correct billings,
monitor reinsurance, calculate agents' commissions, and other matters. They also
depend on information supplied and processed by outside vendors.
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If the computer systems of Motor Club, its outside vendors, or after the
merger North East fail to properly process or calculate date-sensitive
information, Motor Club's operations, profitability and financial condition
could be seriously interrupted or impaired. Although Motor Club and North East
believe their computer systems and the computer systems of their agents and
outside vendors will be Year 2000 compliant by the required dates, any failure
or insufficient compliance of their systems would adversely effect Motor Club's
operations, financial condition and profitability.
Forward-Looking Statements and Information
This proxy statement/prospectus contains "forward-looking statements"
within the meaning of the federal securities laws. The words "anticipates",
"estimates", "projects", "forecasts", "goals", "expects", "intends", and similar
expressions identify forward-looking statements. Numerous factors such as those
listed below could cause Motor Club's and/or North East's actual financial and
operating results to differ materially from those contained in forward-looking
statements:
[BULLET] changes in interests rates
[BULLET] changes in the performance of financial markets
[BULLET] changes in laws and regulations affecting insurance companies
[BULLET] competition
[BULLET] changes in competitors' premium rates
[BULLET] changes in consumer preferences
[BULLET] consolidations among insurance companies or insurance agents
[BULLET] Year 2000 non-compliance
[BULLET] weather conditions.
Factors that could delay or prevent the completion of the merger include:
[BULLET] failure to obtain the required approval of Motor Club's or of
North East's stockholders
[BULLET] failure or delay in obtaining regulatory approvals
[BULLET] withdrawal by Motor Club's or North East's Board of
Directors of its endorsement of the merger a material adverse
change in the condition of Motor Club or North East.
STOCKHOLDER MEETINGS
This proxy statement/prospectus is being furnished to the stockholders of
Motor Club and of North East in connection with the solicitation of proxies by
the Motor Club Board of Directors for use at the Motor Club special meeting and
all adjournments thereof, and by the North East Board of Directors for use at
the North East special meeting and all adjournments thereof.
At the Motor Club special meeting, Motor Club stockholders will be asked to
consider and vote upon (1) a proposal to approve the merger agreement and the
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merger, and (2) a proposal to approve an alternative plan of financing the
merger through the issuance by Motor Club of up to $10,000,000 principal amount
of unsecured convertible debentures due on the tenth anniversary of the closing
of the merger. Please see "ALTERNATIVE PLAN OF FINANCING."
At the North East special meeting, the holders of North East stock will be
asked to consider and vote upon a proposal to approve the merger agreement and
the merger.
A copy of the merger agreement (without the schedules thereto) is attached
as Annex A to this proxy statement/prospectus.
A representative of PricewaterhouseCoopers LLP, independent auditors of
Motor Club, will be present at the Motor Club special meeting, and a
representative of PricewaterhouseCoopers, LLP independent auditors of North
East, will be present at the North East special meeting, and they will have an
opportunity to make statements, if they wish, and to respond to appropriate
questions raised at such special meetings.
VOTING AND PROXY INFORMATION
Motor Club. The Motor Club Board of Directors has fixed the close of
business on May ____, 1999 as the Motor Club record date for determining the
holders of Motor Club stock entitled to receive notice of and to vote at the
Motor Club special meeting or any adjournments thereof. At the close of business
on the Motor Club record date, there were 2,116,429 shares of Motor Club stock
outstanding. As of that date, those shares of Motor Club stock were held by
approximately 480 stockholders of record. The presence in person or by proxy of
holders of record of shares representing a majority of the total issued and
outstanding shares of the Motor Club stock will constitute a quorum at the Motor
Club special meeting.
Under New Jersey law, approval of the proposal to approve the merger
agreement, the merger, and the alternative plan of financing the merger is not
required of the Motor Club stockholders. The Board of Directors of Motor Club
has determined to submit the merger agreement and the alternative plan of
financing for stockholder approval given their importance to Motor Club
stockholders. The affirmative vote of the majority of the shares held by Motor
Club stockholders and present at the Motor Club special meeting will be required
to approve the merger and the alternative plan of financing the merger. However,
stockholder approval of that alternative plan is not required for Motor Club to
complete the merger. If the Motor Club stockholders do not approve the
alternative financing plan, Motor Club will obtain necessary financing through
other lenders.
The holders of Motor Club stock are entitled to one vote per share on all
matters properly brought before the Motor Club special meeting. Votes may be
cast in person or by proxy.
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As of the Motor Club record date, directors and executive officers of Motor
Club and their affiliates had the right to vote 952,915 shares of Motor Club
stock representing in the aggregate approximately 42.2% of the outstanding
shares of Motor Club stock as of the Motor Club record date. The directors and
executive officers of Motor Club who hold such shares have informed Motor Club
that they intend to vote all such shares in favor of the approval and adoption
of the merger agreement.
Any Motor Club stockholder who signs and returns a proxy may revoke it at
any time before it has been voted at the Motor Club special meeting by (i)
delivering to the Secretary of Motor Club written notice of its revocation, (ii)
executing and delivering to the Secretary of Motor Club a proxy bearing a later
date or (iii) attending the Motor Club special meeting and voting in person.
Attendance at the Motor Club special meeting will not in and of itself
constitute a revocation of any proxy given to Motor Club. Written notice of
revocation should be sent to Motor Club at Motor Club of America, 95 Route 17
South, Paramus, New Jersey 07653-0931, Attention: Peter K. Barbano, Secretary
and Vice President. All properly executed proxies, if received in time for
voting and not revoked, will be voted in accordance with the instructions
specified, or, if no instructions are specified, will be voted for the approval
of the merger agreement and the merger.
North East. The North East Board of Directors has fixed the close of
business on ____________, 1999 as the North East record date for determining the
holders of North East stock entitled to receive notice of and to vote at the
North East special meeting or any adjournments or postponements thereof. At the
close of business on the North East record date, there were outstanding
3,049,089 shares of North East stock. As of such date, the shares of North East
stock were held by approximately ______ stockholders of record. The presence in
person or by proxy of holders of record of shares representing a majority of the
total outstanding shares of the North East stock will constitute a quorum at the
North East special meeting.
Under Maine law and North East's Articles of Incorporation, approval of the
merger agreement requires the affirmative vote of the holders of at least 75% of
the shares of North East stock outstanding at the North East record date.
The holders of North East stock are each entitled to one vote per share on
all matters properly brought before the North East special meeting. Votes may be
cast in person or by proxy.
As of the North East record date, directors and executive officers of North
East and their affiliates had the right to vote ____________ shares of North
East stock (representing in the aggregate approximately ____% of the outstanding
shares of North East stock as of the North East record date). The directors and
executive officers of North East who hold such shares have informed North East
that they intend to vote all such shares in favor of the approval of the merger
agreement.
Any North East stockholder who signs and returns a proxy may revoke it at
any time before it has been voted by (i) delivering to the Secretary of North
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East written notice of its revocation, (ii) executing and delivering to the
Secretary of North East a proxy bearing a later date or (iii) attending the
North East special meeting and voting in person. Attendance at the North East
special meeting will not in and of itself constitute a revocation of any proxy
given to North East. Written notice of revocation should be sent to North East
at North East Insurance Company, P.O. Box 1418, Scarborough, Maine 04070-1418.
Attention: Shareholder Communications. All properly executed proxies, if
received in time for voting and not revoked, will be voted in accordance with
the instructions specified, or, if no instructions are specified, will be voted
for the approval of the merger agreement and the merger.
Proxies
All shares represented by properly executed proxies received prior to or at
the respective stockholder meetings and not revoked will be voted in accordance
with the instructions indicated in such proxies. If no instructions are
indicated on a properly executed returned proxy, the proxy will be voted FOR
approval of the merger agreement and the merger. Brokers and nominees are
precluded from exercising their voting discretion with respect to the approval
and adoption of the merger agreement and thus, absent specific instructions from
the beneficial owner of such shares, are not empowered to vote such shares
("broker non-votes") with respect to the approval and adoption of the merger
agreement and the merger.
Motor Club. Approval of the merger agreement requires the affirmative vote
of the majority of the votes cast by all holders of Motor Club stock. A properly
executed proxy marked "ABSTAIN," although counted for purposes of determining
whether there is a quorum, will not be counted for purposes of determining the
aggregate number of votes cast. Similarly, broker non-votes will also be counted
for purposes of determining whether there is a quorum, but will not be counted
for purposes of determining the aggregate number of votes cast. Accordingly,
abstentions and broker non-votes will have no effect on the approval of the
merger agreement and the merger.
North East. Approval of the merger agreement requires the affirmative vote
of the holders of at least 75% of the shares of North East stock outstanding at
the North East record date. Accordingly, abstentions and "broker non-votes" will
have the same effect as a vote against the merger agreement. However, shares
represented by abstentions and "broker non-votes" will be counted for purposes
of determining whether there is a quorum at the North East special meeting.
The managements of Motor Club and North East do not know of any business to
be presented at their respective stockholder meetings other than the business
described in this proxy statement/prospectus. Should additional business
properly come before either of the stockholder meetings, the persons acting as
the proxies will have discretion to vote in accordance with their own judgment
on such business.
THE MERGER
Background to the Merger
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In the mid 1990's, senior management of Motor Club began to consider ways
to limit the exposure of Motor Club's primary line of business, personal
automobile insurance, to regulatory, weather and competitive conditions in a
single state, New Jersey. Following approval by the Board of Directors, Motor
Club announced a strategy of acquiring property and casualty insurance companies
outside of New Jersey in order to diversify its insurance operations. During
1997 and 1998, management of Motor Club investigated several property and
casualty insurers as possible acquisition targets, but none of these candidates
progressed to the point of active negotiation of a possible acquisition.
In the summer of 1998, management of Motor Club approached North East with
a request for information on its business with a view to a possible transaction
between the two companies. At that time, however, there was no agreement with
respect to a possible acquisition or any schedule for further discussions.
Earlier in 1998, the North East Board of Directors had determined that
North East needed additional capital to support future growth necessary to
improve the profitability of its business. In addition, the Board determined
that additional capital would assist the company in meeting state regulatory
capital requirements, allow the company to increase premiums written, and allow
A.M. Best to consider increasing its rating, which would make placing business
with North East more appealing to agents. New capital was also sought to
accelerate North East's plans for growth by expanding its business outside of
Maine through the purchase of an insurer or insurance agency in another state.
The North East Board determined that reliance on a single state as a source of
its business exposed the company to significant risks due to weather and
regulation which could be reduced through geographic diversification.
On September 4, 1998, North East filed a Registration Statement with the
Securities and Exchange Commission registering shares to be issued in a rights
offering to its stockholders. The Registration Statement became effective on
November 13, 1998 and North East thereafter commenced an offering to its
stockholders intended to raise additional capital to carry out its growth
strategy. The rights offering was set to expire on December 21, 1998.
On November 30, 1998, Mr. Gilbert, President and Chief Executive Officer of
Motor Club, met with Mr. Schatz, President and CEO of North East, in New York.
The two presidents discussed a possible combination of the two companies. Mr.
Gilbert discussed possible valuation ranges for the outstanding shares of North
East. Mr. Schatz indicated that he believed that the proposed value range was
inadequate and informed Mr. Gilbert that North East planned to continue its
efforts to raise additional capital to grow its business outside of Maine.
On December 7, 1998, Mr. Gilbert wrote to the Board of Directors of North
East Insurance proposing a merger in which Motor Club would acquire all of the
outstanding shares of North East for $.52 in cash and $2.08 in Motor Club shares
for each share of North East stock. The proposal was conditioned upon North East
terminating its rights offering. On December 9, 1998, Mr. Gilbert wrote again to
the Board of Directors proposing a revised transaction in which stockholders of
North East stock would receive $.55 in cash and $2.20 in Motor Club stock for
each outstanding share of North East stock. The Motor Club stock would be valued
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prior to the closing of the transaction subject to a collar, establishing a
minimum and maximum value of Motor Club shares to be issued to North East
stockholders. The December 7 and December 9 proposals were each conditioned on
North East terminating its rights offering.
On December 9, 1998, the Board of Directors of North East met to consider
the Motor Club offer. The Board was unanimously of the view that the offered
price of $2.75 per share was not in the interests of North East stockholders and
did not warrant substantial additional time or attention. By letter of December
10, 1998, Mr. Schatz informed Mr. Gilbert of the Board's decision.
On December 14, 1998, North East made a public announcement that it had
received, and had rejected, an offer to acquire the company from an unnamed
third party. Subsequently, on December 18, 1998 it announced that it was
extending the deadline for its rights offering to December 29, 1998.
On December 22, 1998, Mr. Gilbert again wrote to the Board of Directors of
North East proposing a transaction in which Motor Club would acquire all of the
outstanding shares of North East in exchange for Motor Club's stock at the ratio
of 0.19048 share of Motor Club stock for each North East share. The revised
offer was conditioned upon North East terminating the rights offering. On
December 23, 1998, Motor Club issued a press release indicating that it had made
an offer to acquire North East and that its offer was conditioned upon North
East's terminating the rights offering, which was then scheduled to expire on
December 29th.
On December 29, 1998, North East announced that it was further extending
the expiration date of the rights offering to January 12, 1999 so that it could
evaluate Motor Club's revised offer.
On December 29, 1998, Mr. Schatz wrote to Mr. Gilbert and indicated that
North East intended to retain an investment banking firm to assist it in
evaluating Motor Club's offer, although the Board had not yet made any
determination with respect to whether or not the offer was in the best interests
of North East's stockholders, and requested that Motor Club provide information
to North East, subject to a confidentiality agreement that would allow North
East to analyze the Motor Club proposal. North East signed a confidentiality
agreement on December 31, 1998.
On December 30, 1998, Mr. Gilbert wrote to Mr. Schatz offering to make a
presentation to the North East Board of Directors with respect to Motor Club's
proposal.
On January 4, 1999, North East retained Sandler O'Neill & Partners, L.P. to
assist it in evaluating the Motor Club offer.
On January 4, 1999, North East received an unsolicited indication of
interest in acquiring North East from an insurance holding company. After
discussions with this potential acquiror, the acquiror withdrew its indication
of interest as North East's line of business was not compatible with the line of
business sought by the acquiror.
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On January 7, 1999, the management of North East met with its financial
advisors to discuss the Motor Club offer. On January 11, 1999, North East
announced that it was further extending its rights offering to January 26, 1999.
On January 14, 1999, Motor Club and its investment banking firm, Cochran,
Caronia & Co., made a presentation to the North East directors. Due to severe
weather conditions, several North East Board members were unable to attend the
January 14, 1999 meeting in Portland, Maine. At a January 18, 1999 meeting in
New York City, Motor Club repeated its presentation to those members of the
Board of North East who were unable to attend the January 14, 1999 meeting. At
both meetings, Motor Club proposed a merger in which North East stockholders
would receive $3.00 in cash for each share of North East stock, and also
indicated its willingness to consider including Motor Club stock as part of the
revised consideration in the merger.
Following the January 18, 1999 Board presentation, representatives of Motor
Club and North East continued to discuss a possible transaction involving the
two companies, and to review materials provided by each company to the other.
On the afternoon of January 26, the Motor Club Board met to authorize a
revised offer to be made to North East involving a merger in which stockholders
of North East would receive $3.30 per share or, at their election, stock of
Motor Club at a ratio of 0.19048 of a share of Motor Club for each share of
North East stock. Discussions regarding the specifics of the proposal as well as
the conditions to the proposal continued into the evening on January 26.
Late in the afternoon of January 26, 1999, North East determined it was not
likely that it could bring the rights offering to a successful conclusion
because of the existence of the Motor Club offer. North East terminated the
offering.
On the evening of January 26, 1999, the parties reached an agreement in
principle with respect to the acquisition of North East by Motor Club and issued
a joint press release describing the terms of their agreement in principle.
From January 26, 1999, through February 26, 1999, counsel for Motor Club
and for North East completed the negotiation of the terms and provisions of the
merger agreement, consistent with the parties' agreement in principle. During
that period of time, counsel for Motor Club and for Mr. Schatz completed the
negotiation of the terms and provisions of an Agreement and Undertaking among
Motor Club, North East and Mr. Schatz, providing for severance terms for Mr.
Schatz, effective upon the completion of the merger. Motor Club also began
negotiating agreements with two North East executives for the continuation of
their employment with North East after the merger.
Board Action
On March 1, 1999, the Board of Directors of North East met to consider the
proposed merger. The North East Board reviewed with North East's legal and
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financial advisors the principal terms of the merger agreement and related
documents and various financial, legal, accounting and other related issues. As
part of that review, Sandler O'Neill delivered its oral fairness opinion that
the consideration to be received by North East stockholders in the merger was
fair, from a financial point of view, to the holders of North East's common
stock. The North East Board then unanimously approved the merger agreement and
proposed merger subject to receipt of a written fairness opinion of Sandler
O'Neill and approval of the merger agreement by the Board of Directors of Motor
Club.
On March 3, 1999, the Board of Directors of Motor Club met for a special
meeting to consider the proposed merger. The Motor Club Board reviewed with
Motor Club's legal and financial advisors the principal terms of the merger
agreement, related documents, and various financial, legal, accounting and other
related issues. As part of that review, Cochran, Caronia & Co., Motor Club's
financial advisor, delivered its draft opinion to the effect that the number of
shares of Motor Club stock and the amount of cash to be received in the merger
by North East stockholders for each of their North East shares are fair to Motor
Club's stockholders from a financial point of view. The Motor Club Board then
unanimously approved the merger proposal and recommended it to the Motor Club
stockholders for their approval.
On March 16, 1999, Sandler O'Neill delivered its written fairness opinion
to the North East Board and the merger agreement was executed.
Motor Club Reasons for the Merger; Recommendation of Motor Club Board of
Directors
Motor Club believes that the merger is an important, initial step in its
strategy of geographically diversifying its operations. Motor Club also believes
that the merger will result in a financially stronger combined company, enhanced
access to capital markets, and other benefits for the stockholders of both Motor
Club and North East.
In particular, Motor Club believes that the merger will allow the combined
companies to take advantage of the following:
1. Increased operational expertise -- Motor Club and North East possess
broad and varied expertise in the management and operation of insurance
companies. This expertise will be able to be applied across the combined
organization as a result of the merger;
2. Increased stockholder value -- The merger is projected to be accretive
to earnings, excluding the one-time merger-related and integration-related
expenses, and to provide increased opportunity for growth;
3. Financial flexibility --The increase in the market capitalization of
the combined organization compared with the companies by themselves should
enhance the overall credit quality of the combined organization and the
liquidity of the publicly-traded equity securities, thus improving Motor Club's
ability to finance future growth; and
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4. Increased geographic and regulatory diversity - As a result of the
merger, Motor Club will gain North East's operations in Maine, and obtain a
larger base from which to expand operations. This expansion will provide more
geographic diversity to Motor Club's operations, which should provide some
increased insulation from the impacts of adverse regional weather conditions,
regional economic fluctuations and adverse legal and regulatory developments in
any one geographic area.
For these reasons, the Motor Club Board of Directors unanimously determined
to approve the merger agreement and the merger, and recommends that the Motor
Club stockholders vote for the approval of the merger agreement.
Opinion of Cochran, Caronia & Co.
The Board of Directors of Motor Club engaged Cochran, Caronia & Co. ("CC &
Co.") to act as its financial advisor and to render an opinion as to the
fairness, from a financial point of view, to Motor Club and the Motor Club
stockholders of the cash and Motor Club stock to be received as consideration by
the North East stockholders in connection with the merger. On March 3, 1999, at
the Motor Club Board meeting at which the Board of Directors of Motor Club
approved the merger agreement and the merger, CC & Co. rendered its draft
fairness opinion to the Motor Club Board that, as of such date, the merger
consideration was fair to Motor Club and its stockholders, from a financial
point of view.
On March 16, 1999, the date on which the merger agreement was executed,
Cochran, Caronia & Co. rendered its opinion to the Motor Club Board that, as of
that date, the merger consideration was fair from a financial point of view to
Motor Club and the Motor Club stockholders.
Cochran, Caronia & Co. is a nationally recognized investment banking firm
in the fields of valuing insurance companies and their securities and providing
financial advisory and other services to insurance companies in connection with
mergers and acquisitions. CC & Co. was selected by Motor Club as its financial
advisor based upon CC & Co.'s expertise, its reputation in investment banking
and mergers and acquisitions in the insurance industry, and its experience in
providing financial advisory services to insurance companies. CC & Co. has
advised Motor Club that CC & Co. is not aware of any present or contemplated
relationship between CC & Co., Motor Club, North East or any of either Motor
Club's or North East's officers, directors or stockholders which, in its
opinion, would affect its ability to render a fair and independent opinion in
this matter.
The full text of the CC & Co. opinion is attached to this proxy
statement/prospectus as Annex B. It sets forth, among other things, assumptions
made, procedures followed, matters considered and limitations on the scope of
the review undertaken by CC & Co. You should read this opinion, carefully, in
its entirety. The opinion does not constitute a recommendation to any North East
stockholder or any Motor Club stockholder as to how to vote regarding the
merger. The summary of the opinion, below, is qualified in its entirety by
reference to the full text of the opinion, at Annex B.
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In rendering its opinion, CC & Co.'s activities included:
[BULLET] reviewing the merger agreement;
[BULLET] reviewing financial data and other information relating
to Motor Club and to North East that was either publicly
available or furnished by Motor Club (including financial
forecasts furnished by Motor Club);
[BULLET] meetings with members of Motor Club's and North East's
management regarding the business, operations, historical
financial results and future prospects of Motor Club and of
North East;
[BULLET] considering certain financial and securities data of Motor
Club and of North East;
[BULLET] comparing that data with similar data for other publicly
held companies in businesses similar to those of Motor Club
and North East;
[BULLET] considering the financial terms of certain recent
acquisitions of companies in businesses similar to those of
Motor Club and North East;
[BULLET] performing a discounted cash flow analysis; and
[BULLET] considering other information that CC & Co. deemed
relevant to its opinion.
In rendering its opinion, CC & Co. relied on and assumed, without
independent verification, the accuracy and completeness of all financial and
other information that was publicly available or furnished by either or both of
Motor Club or North East. With respect to financial forecasts used in performing
its valuation analysis, CC & Co. assumed that they were reasonably prepared and
reflecting the best, then-available estimates and judgments of Motor Club's
management as to the future financial performance of Motor Club and North East.
Pursuant to the terms of the agreement between CC & Co. and Motor
Club, CC & Co. is to receive a monthly retainer fee of $25,000 for each
month in which its services are provided, a success fee of $100,000 upon
completion of the merger (with the excess of monthly retainer fees over $100,000
being netted against the success fee), and a fee of $75,000 for its
above-described fairness opinion. Those fees are due upon the closing under the
merger agreement. Motor Club has agreed to reimburse CC & Co. for certain
expenses incurred in connection with its engagement, and has also agreed to
indemnify CC & Co. against certain liabilities in connection with the
engagement of CC & Co.
North East Reasons for the Merger; Recommendation of North East Board of
Directors. North East believes that the combination with Motor Club can provide
better opportunities to achieve significant benefits for both companies'
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stockholders, policyholders and employees than could be achieved without the
merger.
In addition, North East believes that the combined entity will enhance its
employees' career advancement opportunities, strengthen North East's ability to
compete effectively in its markets, and provide continued excellent service to
its customers. The combined entity will also be in a better position to support
agency and customer growth.
In reaching its decision to approve the merger, the merger agreement, and
the transactions contemplated thereby, the North East Board considered a number
of factors, including:
1. the respective businesses, operations, asset quality, financial
condition, earnings, strategic business plans, competitive positions
and stock price performance of North East and Motor Club;
2. the strategic fit of North East and Motor Club, including the relative
sizes of the two companies and of the combined entity, the financial
strength of the combined entity, the growth prospects of the combined
entity and the geographic proximity of the two companies' operations;
3. the projected capitalization and market position of the combined
entity and the enhanced prospects of the combined company resulting
from the merger;
4. the likely impact of the proposed merger on the employees and
policyholders of North East and its subsidiaries, on the communities
in which North East presently conducts its business and on other North
East constituencies;
5. the current and prospective economic and regulatory climates facing
Motor Club and North East including further consolidation anticipated
in the property/casualty insurance industry and the need for capital
to expand and diversify its business;
6. the merger consideration from a number of valuation perspectives and
the current market value of the merger to North East stockholders in
light of North East's prior efforts to increase stockholder value;
7. the opinion of Sandler O'Neill that the consideration to be received
by North East stockholders in the merger is fair from a financial
point of view to North East stockholders;
8. the terms of the merger agreement including the management structure
of the combined company;
10. the regulatory approvals required for completion of the merger; and
11. the treatment of the merger for federal income tax purposes.
The foregoing discussion of the information and factors considered by the
North East Board of Directors is not intended to be exhaustive. In reaching its
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determination to approve and recommend the merger, the North East Board of
Directors did not assign relative or specific weights to the foregoing factors,
and individual directors may have given different weights to different factors.
For the reasons described above, the North East Board of Directors has
determined the merger to be fair and in the best interests of North East and its
stockholders and policyholders served. Accordingly, the North East Board of
Directors has unanimously approved the merger agreement and the merger, and
unanimously recommends that stockholders vote for approval of the merger
agreement.
Opinion of North East's Financial Advisor
By letter agreement dated as of January 5, 1999 North East retained Sandler
O'Neill as an independent financial advisor in connection with North East's
analysis of various strategic alternatives available to North East and its
consideration of possible business combinations with a second party. Sandler
O'Neill is a nationally recognized investment banking firm whose principal
business specialty is financial institutions. In the ordinary course of its
investment banking business, Sandler O'Neill is regularly engaged in the
valuation of financial institutions and their securities in connection with
mergers and acquisitions and other corporate transactions.
Sandler O'Neill acted as financial advisor to North East in connection with
the merger and participated in certain of the negotiations leading to the merger
agreement. In connection with Sandler O'Neill's engagement, the North East Board
also requested Sandler O'Neill to render its opinion as to the fairness, from a
financial point of view, of the merger consideration to the North East
stockholders. Representatives of Sandler O'Neill telephonically attended the
January 20, 1999 and March 1, 1999 North East Board meetings at which the North
East Board considered the merger agreement. On March 1, Sandler O'Neill
delivered to the North East Board its oral opinion that, as of such date, the
consideration was fair, from a financial point of view, to the North East
stockholders. Sandler O'Neill subsequently confirmed its opinion in writing on
March 16, 1999. Sandler O'Neill has also delivered to the North East Board a
written opinion dated the date of this proxy statement/prospectus (the "Sandler
Opinion"), which is substantially identical to the March 16, 1999 opinion. The
full text of the Sandler Opinion is attached as Annex C to this proxy
statement/prospectus. The Sandler Opinion outlines the procedures followed,
assumptions made, matters considered and qualifications and limitations on the
review undertaken by Sandler O'Neill in rendering the opinion. The Sandler
Opinion is incorporated by reference into this description of the opinion and
this description is qualified in its entirety by reference to the Sandler
Opinion. North East stockholders are urged to read carefully the Sandler Opinion
in connection with their consideration of the proposed merger.
The Sandler Opinion was directed to the North East Board and was provided
to the North East Board for its information in considering the merger. The
Sandler Opinion is directed only to the fairness, from a financial point of
view, of the merger consideration to North East stockholders. It does not
address the underlying business decision of North East to engage in the merger
or any other aspect of the merger and is not a recommendation to any North East
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stockholder as to how such stockholder should vote at the Special Meeting with
respect to the merger or any other related matter.
In rendering its March 16, 1999 opinion, Sandler O'Neill performed a
variety of financial analyses. The following is a summary of the material
analyses performed by Sandler O'Neill, but is not a complete description of all
the analyses underlying Sandler O'Neill's opinion. The preparation of a fairness
opinion is a complex process involving subjective judgments as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances. The process, therefore, is not
necessarily susceptible to a partial analysis or summary description. Sandler
O'Neill believes that its analyses must be considered as a whole and that
selecting portions of the factors and analyses considered without considering
all factors and analyses, or attempting to ascribe relative weights to some or
all such factors and analyses, could create an incomplete view of the evaluation
process underlying its opinion.
In performing its analyses, Sandler O'Neill made numerous assumptions with
respect to industry performance, business and economic conditions and various
other matters, many of which cannot be predicted and are beyond the control of
North East, Motor Club and Sandler O'Neill. The analyses performed by Sandler
O'Neill are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than suggested by such analyses.
Sandler O'Neill prepared its analyses solely for the purpose of rendering its
opinion and provided such analyses to the North East Board at the March 1, 1999
meeting. Estimates of the values of companies do not purport to be appraisals or
necessarily reflect the prices at which companies or their securities may
actually be sold. Such estimates are inherently subject to uncertainty and
actual values may be materially different. Accordingly, Sandler O'Neill's
analyses do not necessarily reflect the value of North East stock or Motor Club
stock or the prices at which North East stock or Motor Club stock may be sold at
any time.
The implied aggregate transaction value was $10.3 million, based upon the
implied minimum transaction value of $3.30 and 3,133,158 fully diluted shares of
North East stock outstanding, which was determined using the treasury stock
method at the implied minimum transaction value. Based upon the implied minimum
value and North East's September 30, 1998 financial information, Sandler O'Neill
calculated the following ratios:
Minimum transaction value/Book Value 1.00x
Minimum transaction value/Estimated 1998 EPS 25.4x
Minimum transaction value/ Estimated 1999 EPS 14.3x
For purposes of Sandler O'Neill's analyses, earnings per share were based on
fully diluted earnings per share. Sandler O'Neill noted that the implied minimum
transaction value represented a 47% premium over the December 14, 1998 closing
price of North East stock of $2.25.
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Stock Trading History. Sandler O'Neill reviewed the history of the reported
trading prices and volume of North East stock and Motor Club stock, and the
relationship between the movements in the prices of North East stock and Motor
Club stock, respectively, to movements in certain stock indices, including the
NASDAQ Composite Index (the "NASDAQ Index"), the NASDAQ Insurance Index (the
"Insurance Index") and a selected composite peer group of publicly traded
insurance companies selected by Sandler O'Neill. During the period February 6,
1998 through February 8, 1999, North East stock outperformed both the NASDAQ
Insurance Index and the composite peer group but underperformed the NASDAQ
Index. During the period February 6, 1998 through February 8, 1999, Motor Club
stock underperformed all of the indices to which it was compared. During the
three year period February 9, 1996 to February 10, 1999, the stock of both North
East and Motor Club outperformed all of the indices to which they were compared.
Comparable Company Analysis. Sandler O'Neill used publicly available
information to compare selected financial and market trading information,
including total assets, total equity, net premiums written, loss, expense and
combined ratios and return on equity, earnings estimates and trading multiples
for North East and Motor Club and a group of insurance companies. The group
consisted of North East and the following ten publicly traded insurance
companies (the "Insurance Group"): Meridian Insurance Group, Inc., Donegal Group
Inc., Merchants Group, Inc., Allcity Insurance Company, Old Guard Group, Inc.,
American Country Holdings Inc., Motor Club of America, The National Security
Group, Inc., Accel International Corporation and American Indemnity Financial.
The analysis compared publicly available financial information and estimates for
North East and the median data for the Insurance Group for each of the years
ended December 31, 1998 and December 31, 1999 and as of and for the twelve
months ended September 30, 1998. The table below sets forth the comparative data
as of and for the twelve months ended September 30, 1998 for North East and the
Insurance Group.
Insurance
North East Group Median
Total Equity $ 9,986 $ 56,907
Total Assets 32,811 169,030
Net Premiums Written 14,225 63,851
Loss Ratio 59.2 78.0%
Expense Ratio 43.7% 32.1%
Combined Ratio 102.9% 107.8%
LTM ROE 3.5% 4.6%
Projected 1999 Beginning ROE 6.9% 8.4%
Dec. 14, 1998 Price/Book 0.68x 0.82x
Dec. 14, 1998 Price/Estimated 1998 EPS 17.3x 13.2x
Dec. 14, 1998 Price/Estimated 1999 EPS 9.8x 9.6
No company included in the above analysis is identical to North East or
Motor Club. Accordingly, an analysis of comparable companies is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading values or
merger transaction values, as the case may be, of North East and Motor Club and
the companies to which they are being compared.
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Analysis of Selected Merger Transactions. Sandler O'Neill reviewed certain
other merger or acquisition transactions announced from January 1, 1997 to
February 10, 1999 involving publicly traded insurance companies as acquired
institutions with transaction values less than $100 million. Sandler O'Neill
reviewed 36 transactions announced nationwide ("Nationwide Transactions").
Sandler O'Neill reviewed the ratios of deal price to LTM earnings, deal price to
GAAP book value, deal price to SAP book value, GAAP return on equity and SAP
return on equity and computed high, low, mean and median ratios and premiums for
the group of transactions. These multiples were applied to North East's
financial information as of and for the twelve months ended September 30, 1998.
As illustrated in the following table, Sandler O'Neill derived an imputed range
of values per share of North East stock of $2.54 to $3.50 based upon the median
multiples for Nationwide Transactions. As calculated by Sandler O'Neill, the
implied minimum transaction value per share of North East stock in the merger
was $3.30.
Nationwide Transactions
Median Implied Minimum
Multiple Transaction Value
-------- -----------------
GAAP Price/LTM EPS 20.80x $2.70
GAAP Price/Book value 1.20x $3.50
SAP Price/Book value 1.36x $2.54
No company involved in the transactions included in the above analysis is
identical to North East or Motor Club and no transaction included in the above
analysis is identical to the merger. Accordingly, an analysis of comparable
transactions is not mathematical; rather, it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading values or
merger transaction values, as the case may be, of North East and Motor Club and
the companies to which they are being compared.
Discounted Cash Flow Stream and Terminal Value Analysis. Sandler O'Neill also
performed an analysis which estimated the future stream of after-tax cash flows
to North East stockholders through December 31, 2002 under various
circumstances, assuming North East continued not to pay a dividend and that
North East performed in accordance with the earnings forecasts of its
management. To approximate the terminal value of North East stock at December
31, 2002, Sandler O'Neill applied a range of values based on: the median
Insurance Group price/estimated earnings ratio on February 26, 1999 of 13.2x;
the median Insurance Group price/book ratio on February 26, 1999 of 0.82; the
median GAAP deal price/book ratio for the Nationwide Transactions of 1.20; and
the price/book ratio of 0.91 implied for North East based on a regression
analysis of prospective returns on equity versus price/book ratios for the
Insurance Group. The terminal values were then discounted to present values
using discount rates of 11%, 13% and 15% chosen to reflect different assumptions
regarding required rates of return of holders or prospective buyers of North
East stock. As illustrated in the following table, this analysis indicated an
imputed range of values per share of North East stock of $2.99 to $3.40 when
applying the price/earnings multiple and $2.18 to $3.57 when applying multiples
of book value. As calculated by Sandler O'Neill, the implied minimum transaction
value per share of North East stock in the merger was $3.30.
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Price/Earnings
Multiple Book Value Multiples
Discount Rate 13.2x 0.82x 0.91x 1.20x
- ------------- ----- ------ ------ ------
11% $3.40 $2.48 $2.74 $3.57
13 3.18 2.33 2.56 3.34
15 2.99 2.18 2.40 3.13
In connection with its analysis, Sandler O'Neill considered and discussed
with the North East Board how the present value analysis would be affected by
changes in the underlying assumptions, including variations with respect to the
actual future financial performance of the company and that the projections
supplied by management assumed sharp improvements in performance versus
historical results. Sandler O'Neill noted that the discounted cash flow stream
and terminal value analysis is a widely used valuation methodology, but the
results of such methodology are highly dependent upon the numerous assumptions
that must be made, and the results thereof are not necessarily indicative of
actual values or future results.
Pro Forma Merger Analysis. Sandler O'Neill analyzed certain potential pro forma
effects of the merger, based upon the implied minimum transaction value of $3.30
and assuming the price of Motor Club stock was $14.13 per share, North East's
and Motor Club's current and projected income statements and balance sheets, and
assumptions regarding the economic environment, accounting and tax treatment of
the merger, charges associated with the merger, operating efficiencies and other
adjustments discussed with senior managements of North East and Motor Club.
Sandler O'Neill assumed a closing date of the merger of June 30, 1999. This
analysis indicated that the merger would be accretive to Motor Club's earnings
per share and accretive to book value per share of Motor Club stock as of
December 31, 1999.
In connection with rendering its March 16, 1999 opinion, Sandler O'Neill
reviewed, among other things: (i) the Agreement and exhibits thereto; (ii)
certain publicly available financial statements of North East and other
historical financial information provided by North East that Sandler O'Neill
deemed relevant; (iii) certain publicly available financial statements of Motor
Club and other historical financial information provided by Motor Club that
Sandler O'Neill deemed relevant; (iv) certain internal financial analyses and
forecasts of North East prepared by and reviewed with management of North East
and the views of senior management of North East, based on limited discussions
with certain members of senior management, regarding North East's past and
current business, financial condition, results of operations and future
prospects; (v) certain internal financial analyses and forecasts of Motor Club
prepared by and reviewed with management of Motor Club and the views of senior
management of Motor Club, based on limited discussions with certain members of
senior management, regarding Motor Club's past and current business, financial
condition, results of operations and future prospects; (vi) the pro forma impact
of the merger; (vii) the publicly reported historical price and trading activity
for North East's and Motor Club's stock, including a comparison of certain
financial and stock market information for North East and Motor Club with
similar publicly available information for certain other companies the
securities of which are publicly traded; (viii) the financial terms of recent
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business combinations for property and casualty insurance companies, to the
extent publicly available; (ix) the current market environment generally and the
environment in the insurance industry in particular; and (x) such other
information, financial studies, analyses and investigations and financial,
economic and market criteria as Sandler O'Neill considered relevant. In
connection with its engagement, Sandler O'Neill was not asked to, and did not,
solicit from any other parties indications of interest in acquiring all or part
of North East or in engaging in a business combination or any other strategic
transaction with North East.
In connection with rendering the Sandler Opinion, Sandler O'Neill confirmed
the appropriateness of its reliance on the analyses used to render its March 16,
1999 opinion by performing procedures to update certain of such analyses and by
reviewing the assumptions upon which such analyses were based and the other
factors considered in rendering its opinion.
In performing its review and analyses, Sandler O'Neill assumed and relied
upon the accuracy and completeness of all the financial information, analyses
and other information that was publicly available or otherwise furnished to,
reviewed by or discussed with it, and Sandler O'Neill does not assume any
responsibility or liability for independently verifying the accuracy or
completeness thereof. Sandler O'Neill did not make an independent evaluation or
appraisal of the assets, the collateral securing assets or the liabilities,
contingent or otherwise, of North East or Motor Club or any of their respective
subsidiaries, or the collectibility of any such assets, nor was it furnished
with any such evaluations or appraisals. Sandler O'Neill noted that they are not
actuaries and their services did not include actuarial determinations or
evaluations or an attempt to evaluate actuarial assumptions. In addition,
Sandler O'Neill did not make an independent evaluation of, and expressed no
opinion as to, the adequacy of the reserves for, or collectibility of,
reinsurance related to the unpaid loss and loss adjustment expenses of North
East or Motor Club nor has it reviewed any individual insurance claims files or
contracts relating to North East and Motor Club. With North East's consent,
Sandler O'Neill assumed that the respective reserves for unpaid losses and loss
adjustment expenses for both North East and Motor Club are adequate to cover
such losses and will be adequate on a pro forma basis for the combined entity.
With respect to the financial projections prepared by and reviewed with each
company's management, Sandler O'Neill assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the respective managements of the respective future financial
performances of North East and Motor Club and that such performances will be
achieved. Sandler O'Neill expressed no opinion as to such financial projections
or the assumptions on which they are based. Sandler O'Neill also assumed that
there has been no material change in North East's or Motor Club's assets,
financial condition, results of operations, business or prospects since the date
of the most recent financial statements made available to us.
Sandler O'Neill's opinion was necessarily based upon market, economic and
other conditions as they existed on, and could be evaluated as of, the date of
such opinion. Sandler O'Neill assumed, in all respects material to its analysis,
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that all of the representations and warranties contained in the merger agreement
and all related agreements are true and correct, that each party to such
agreements will perform all of the covenants required to be performed by such
party under such agreements and that the conditions precedent in the merger
agreements are not waived. Sandler O'Neill also assumed, with North East's
consent, that there has been no material change in North East's and Motor Club's
assets, financial condition, results of operations, business, or prospects since
the date of the last publicly filed financial statements available to them, and
that North East and Motor Club will remain as going concerns for all periods
relevant to its analyses.
North East has agreed to pay Sandler O'Neill a transaction fee in
connection with the merger, a substantial portion of which is contingent upon
the consummation of the merger. Based on the closing price of North East stock
on ___________, the last practicable date prior to the printing of this proxy
statement/prospectus, North East would pay Sandler O'Neill a transaction fee of
approximately $________, of which approximately $_____ has been paid and the
balance will be paid when the merger is consummated. North East also paid
Sandler O'Neill a fee of $75,000 for rendering its fairness opinion. North East
has also agreed to reimburse Sandler O'Neill for its reasonable out-of-pocket
expenses incurred in connection with its engagement and to indemnify Sandler
O'Neill and its affiliates and their respective partners, directors, officers,
employees, agents, and controlling persons against certain expenses and
liabilities, including liabilities under securities laws.
In the ordinary course of its business as a broker-dealer, Sandler O'Neill
may purchase securities from and sell securities to North East and Motor Club
and may actively trade the equity securities of North East and Motor Club for
its own account and for the accounts of customers and, accordingly, may at any
time hold a long or short position in such securities.
Certain Federal Income Tax Consequences
The following is a general summary of the merger's material federal
income tax consequences to the North East stockholders. This discussion is based
on currently existing provisions of the Internal Revenue Code, existing and
proposed Treasury Regulations, and current administrative rulings and court
decisions, all of which are subject to change. Any such change, which may or may
not be retroactive, could alter the tax consequences to the North East
stockholders. The following discussion is for general information only, and may
not apply to particular categories of North East stockholders, such as financial
institutions, broker-dealers, tax-exempt entities, holders who acquired their
North East shares pursuant to the exercise of employee stock options or other
compensation arrangements with North East and holders who are not citizens or
residents of the United States. All North East stockholders should consult their
own tax advisors as to the tax consequences of the merger in light of their
particular tax situations, including such tax consequences under state, local,
federal, and foreign tax laws.
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The receipt of cash and/or Motor Club stock in exchange for North East
stock pursuant to the merger, and the receipt of cash by a dissenting North East
stockholder exercises appraisal rights under the Maine Business Corporation Act
will be a taxable transaction for federal income tax purposes and may also be a
taxable transaction under applicable state, local, and foreign tax laws. A North
East stockholder will generally recognize gain or loss for federal income tax
purposes in an amount equal to the difference between the stockholder's adjusted
tax basis in the North East stock and the amount of cash and/or Motor Club stock
received in exchange. Those amounts received pursuant to dissenter's appraisal
rights that are denominated as interest would be taxable as ordinary income. The
gain or loss recognized on the exchange of North East stock for cash or Motor
Club stock will be a capital gain or loss if the North East stockholder has held
the stock as a capital asset within the meaning of the Internal Revenue Code.
Such capital gain or loss will be a long-term capital gain or loss if the North
East stockholder has held the stock for more than one year as of the date of
exchange. There are certain limitations on the deductibility of capital losses.
Cash received in the merger in exchange for Motor Club stock may be
subject to a backup withholding tax at a rate of 31%, unless the relevant North
East stockholder is an exempt recipient or complies with certain identification
procedures. Upon the consummation of the merger, the exchange agent will forward
to each North East stockholder a Form W-9 which when properly completed and
returned would fulfill such identification procedures.
Neither North East nor Motor Club will have taxable income from the
consummation of the merger.
Restrictions on Resales of Securities
All shares of Motor Club stock received by North East stockholders in
the merger will be freely transferable, except that shares of Motor Club stock
received by persons who are deemed to be "affiliates" (as such term is defined
under the Securities Act of 1933, as amended) of North East prior to the merger
may be resold by them only in transactions permitted by the resale provisions of
Rule 145 promulgated under the Act (or Rule 144 in the case of such persons who
become affiliates of Motor Club) or as otherwise permitted under the Act.
Persons who may be deemed to be affiliates of Motor Club or North East generally
include individuals or entities that control, are controlled by, or are under
common control with, such party and may include certain officers and directors
of such party as well as principal stockholders of such party.
Accounting Treatment
The merger will be treated as a purchase for accounting and financial
reporting purposes. Accordingly, a determination of the fair value of North
East's assets and liabilities will be made in order to allocate the aggregate
merger consideration to the assets acquired and the liabilities assumed.
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Regulatory Approvals
The merger is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act, and the rules and regulations thereunder which
provide that certain transactions may not be completed until required
information and materials are furnished to the Antitrust Division of the
Department of Justice and the Federal Trade Commission and the requisite waiting
period has expired or been terminated. Motor Club and North East filed the
required information and materials with the Antitrust Division and the FTC
effective on ____________, 1999.
The merger is subject to state regulatory approval in the states in which
each of North East and its subsidiary is domiciled. The merger must be approved
by the Maine Bureau of Insurance, and Motor Club's indirect acquisition of the
outstanding stock of North East's New York subsidiary, American Colonial
Insurance Company, must be approved by the New York Insurance Department.
Applications to the Maine and New York regulatory agencies were filed on
_______________ and ________, 1999, respectively.
The governing legal standard varies from state to state. In Maine, the
Superintendent of Insurance is required to approve the merger unless he finds
that:
[BULLET] the surviving corporation in the merger could not satisfy
the requirements for issuance of a certificate of authority
to conduct insurance business in the state,
[BULLET] the merger will materially tend to lessen competition in
insurance or create a monopoly therein,
[BULLET] the financial condition of the acquiror would jeopardize the
financial stability of the insurer or prejudice the interest
of its policyholders,
[BULLET] the plans of the acquiror with respect to the insurer or its
business are unfair or prejudicial to policyholders,
[BULLET] the competence, experience and integrity of the persons who
will control the operation of the insurer indicate that it
would not be in the interest of policyholders or the public
to permit them to do so,
[BULLET] the merger is contrary to law, unfair or inequitable to
policyholders, would reduce the security of and service to
be rendered to policyholders, or is subject to other
"material and reasonable objections", or
[BULLET] the merger would tend to affect adversely the contractual
obligations of the insurer or its ability to render service
in the future to its policyholders and the public.
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In New York, the New York Superintendent of Insurance may disapprove
Motor Club's indirect acquisition of the outstanding stock of American Colonial
Insurance Company if he or she finds that:
[BULLET] the acquiror or any of its officers or directors is
untrustworthy,
[BULLET] the transaction would substantially reduce competition in
any line of insurance,
[BULLET] the transaction would tend to create a monopoly in any line
of insurance,
[BULLET] the consideration to be paid is unfair,
[BULLET] the transaction would be hazardous or prejudicial to the New
York insurer's policyholders or shareholders, or
[BULLET] the transaction would impair the acquiror's or the New York
insurer's financial condition.
THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the merger
agreement, which is attached as Annex A to this proxy statement/prospectus and
is incorporated herein by reference. This summary is qualified in its entirety
by reference to the merger agreement.
General
The merger agreement contemplates the merger of NEIC Insurance
Acquisition Corporation, a wholly-owned subsidiary of Motor Club, with and into
North East, with North East surviving the merger as a wholly-owned subsidiary of
Motor Club. The merger will become effective upon the filing of articles of
merger with the Secretary of State of Maine (which is defined in the merger
agreement as the "effective time of the merger").
It is anticipated that the filing with the Secretary of State of Maine
will be made within five business days (or such other period as Motor Club and
North East may agree upon) after the last of the conditions precedent to the
merger set forth in the merger agreement has been satisfied or waived. The
merger agreement obligates Motor Club to have the shares of Motor Club to be
issued in connection with the merger approved for listing on the NASDAQ Stock
Market prior to the closing under the merger agreement.
Consideration to be Received in the Merger
At the effective time of the merger, the following actions will occur:
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[BULLET] North East shares will be canceled, retired, and converted
into rights to receive, at the stockholders' election, (1)
$3.30 in cash, (2) 0.19048 of a share of Motor Club stock,
or (3) a combination of stock and cash; provided, however,
that Motor Club will not issue more than 290,389 shares of
its stock, and cash will be paid in lieu of fractional
shares.
[BULLET] North East incentive stock options will be canceled and
converted into rights to receive, at the option holder's
election (1) the excess of $3.30 over each option's exercise
price, (2) equivalent options to purchase Motor Club stock,
or (3) a combination of cash and Motor Club options.
[BULLET] Each North East non-incentive stock option will be canceled
and converted into the right to receive the excess of $3.30
over the option's exercise price.
Election Procedures; Exchange of Shares
Prior to the effective time of the merger, Motor Club and North East
will mail an election form and other transmittal materials to each person who
holds North East common stock on the fifth business day prior to the mailing
date. The election form will allow each North East stockholder to elect to
exchange his or her shares for:
[BULLET] $3.30 per share of North East stock,
[BULLET] 0.19048 of a share of Motor Club stock per share of North
East stock, or
[BULLET] a combination of cash and Motor Club stock specified by the
North East stockholder.
However, Motor Club will not issue more than 290,389 shares of its stock, and
cash will be paid in lieu of fractional shares.
The stockholder may also choose not to make an election. In that case,
the stockholder will be treated as if he or she had elected to receive cash
only.
Completed election forms must be forwarded to the exchange agent by
5:00 p.m. on the 25th day after the election notice mailing date, or on another
election deadline date and time agreed to by Motor Club and North East. Shares
for which forms are not received prior to the election deadline will be treated
as if the holder had elected to receive cash only.
Under the merger agreement, the number of shares of Motor Club stock
to be issued to North East stockholders cannot exceed 290,389. If the North East
stockholders elect to receive more than 290,389 Motor Club shares, the merger
agreement provides that the number issued to each North East stockholder will be
reduced pro rata in proportion to the number of shares North East stock held by
the stockholder.
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No fractional Motor Club shares will be issued to holders of North
East shares. Motor Club will pay holders cash in lieu of fractional shares at
the rate of $3.30 per whole share.
Certain Representations and Warranties
The merger agreement contains representations and warranties of Motor
Club and North East as to, among other things, the following matters:
[BULLET] Each company's due organization, good standing and
authorization to conduct their respective businesses in
their respective state of organization.
[BULLET] Each company's authority to enter into the contemplated
transaction.
[BULLET] The binding effect of the merger agreement.
[BULLET] Approval by each company's Board of Directors.
[BULLET] The absence of conflicts with each company's organizational
documents and material agreements.
[BULLET] The compliance of their respective filings under the federal
securities laws.
[BULLET] The consents and approvals required to consummate the
merger.
[BULLET] Each company's capitalization.
[BULLET] Each company's compliance with applicable laws.
[BULLET] Broker's or finder's fees required to be paid in connection
with the merger.
[BULLET] Litigation which may affect either of the companies.
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[BULLET] The truth and accuracy of statements made by each company in
this proxy statement/prospectus.
[BULLET] Intellectual property owned or licensed by each company.
[BULLET] The payment by each company of its taxes and certain other
tax related matters.
The merger agreement also contains representations and warranties from
North East regarding the following matters.
[BULLET] Its qualification to do business in other jurisdictions.
[BULLET] The due organization, good standing and qualification of its
subsidiaries.
[BULLET] The comprehensiveness of, and control over, its books and
records.
[BULLET] Title to its properties and the absence of liens on such
properties.
[BULLET] The binding effect of and its compliance with its leases.
[BULLET] The principal contracts to which it is a party.
[BULLET] Insurance policies covering its activities.
[BULLET] Licenses necessary to conduct its business.
[BULLET] The status of its relationship with its employees.
[BULLET] Employee benefit matters.
[BULLET] Transactions it may have with, or interests it may have in,
one of its officers, directors, employees or affiliates.
[BULLET] The inapplicability to the merger and the merger agreement
of certain Maine statutes limiting a corporation's ability
to enter into transactions with interested stockholders.
[BULLET] Changes it has experienced since the date of its last
audited and last regulatory financial statements.
[BULLET] Absence of payments and obligations triggered by the
execution of the merger agreement or the consummation of the
merger.
[BULLET] The truth and accuracy of documents provided in connection
with the merger.
[BULLET] Its receipt of a fairness opinion from Sandler O'Neill
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[BULLET] The vote required by North East stockholders to approve the
merger agreement and the merger.
Finally, the merger agreement contains further representations and
warranties from Motor Club as to various matters related to:
[BULLET] The issuance of its common shares in the merger.
[BULLET] Its financial capacity to undertake the merger and the
transactions contemplated under the merger agreement.
[BULLET] Its receipt of a fairness opinion from Cochran, Caronia &
Co.
[BULLET] The vote by Motor Club stockholders to approve the merger
agreement and the merger.
Many of the representations and warranties of Motor Club and North
East are qualified to the extent they result in a "material adverse effect".
This limits the scope of those representations and warranties to those
circumstances which generally would affect the subject company in both a
substantial and harmful manner.
None of the representations and warranties of either Motor Club or
North East survive the merger.
Operation of North East Prior to the Merger.
Pursuant to the merger agreement, North East has agreed that during
the period from the date of the merger agreement to the effective time of the
merger, it will take the following actions:
[BULLET] Conduct its operations in the ordinary and usual course of
business.
[BULLET] Use its reasonable best efforts to preserve intact its
business organization.
[BULLET] Use reasonable best efforts to keep available the services
of its officers and employees.
[BULLET] Use reasonable best efforts to maintain its relationships
with all licensors, suppliers, distributors, customers,
landlords, agents and others with which it has a business
relationship.
In addition, during this period, except as permitted by the terms of
the merger agreement and subject to certain limitations and exceptions, North
East has agreed to, and agreed to cause its subsidiaries to, refrain from the
following actions without Motor Club's prior written consent (which consent will
not be unreasonably withheld):
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[BULLET] Declaring or paying dividends.
[BULLET] Issuing or selling any shares of capital stock other than
pursuant to North East's stock option plans.
[BULLET] Amending or modifying their governing documents.
[BULLET] Issuing or selling any other securities, entering into any
arrangement to do the same or making any other change in
their respective capital structures.
[BULLET] Undertaking an acquisition, joint venture, or other
combination.
[BULLET] Selling, leasing or otherwise disposing of any asset or
property other than in the ordinary course of business.
[BULLET] Increasing indebtedness for borrowed money, except
borrowings in the ordinary course of business or under
existing lines of credit.
[BULLET] Acquiring or agreeing to acquire any capital asset other
than replacements in the ordinary course of business having
an aggregate value of less than $50,000.
[BULLET] Settling any claim of indebtedness (including any policy
claim in excess of the amount reserved for it) or any legal
action in excess of $40,000.
[BULLET] Entering into any collective bargaining agreement.
[BULLET] With certain specified exceptions, making any material
change in accounting methods or practices.
[BULLET] Closing or shutting down of any of its facilities.
[BULLET] Entering into or renewing any lease with an annual rent in
excess of $40,000.
[BULLET] Changing any tax election.
[BULLET] Changing the size or composition of its Board of Directors.
[BULLET] Increasing any salaries or compensation, except in
the ordinary course.
[BULLET] Paying or increasing other compensation to any officer or
employee or entering into any employment, severance or
similar agreement with any officer or employee except in the
ordinary course of business.
[BULLET] Adopting or increasing any severance, profit sharing, bonus,
deferred compensation, savings, insurance, pension,
retirement or other employee benefit plan.
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[BULLET] Agreeing in writing to do any of the foregoing.
Operation of Motor Club Prior to the Merger:
Pursuant to the merger agreement, Motor Club has agreed that during
the period from the date of the merger agreement to the effective time of the
merger, it will take the following actions:
[BULLET] Conduct its operations in the ordinary and usual course of
business.
[BULLET] Use its reasonable best efforts to preserve intact its
business organization.
[BULLET] Use reasonable best efforts to keep available the services
of its officers and employees.
[BULLET] Use reasonable best efforts to maintain its relationships
with all licensors, suppliers, distributors, customers,
agents and others with which it has a business relationship.
In addition, during this period, except as permitted by the terms of
the merger agreement and subject to certain limitations and exceptions, Motor
Club has agreed to, and agreed to cause its subsidiaries to, refrain from the
following actions without North East's prior written consent (which consent will
not be unreasonably withheld or delayed):
[BULLET] adopting or authorizing a plan of complete or partial
liquidation, dissolution, consolidation, restructuring,
recapitalization or reorganization.
[BULLET] disposing of any material portion of its assets except in
the ordinary course of business.
[BULLET] declaring or paying any cash dividend that would reasonably
be expected to materially depress the market price of Motor
Club's common stock or materially reduce Motor Club's
stockholders' equity.
[BULLET] suffering any material adverse change.
No Solicitation
North East has further agreed that neither it, nor any of its
subsidiaries, officers, directors, employees, financial advisors, attorneys,
accountants or other advisors or representatives shall solicit, initiate,
encourage, endorse or enter into any agreement that constitutes or may lead to
an offer to acquire a substantial equity interest in North East or a substantial
portion of the assets of North East. The merger agreement requires North East to
immediately notify Motor Club of any offer to acquire a substantial equity
interest in North East, or a substantial portion of the assets of North East or
any inquiries or discussions with respect thereto, and to provide Motor Club a
copy of any document containing such proposal or a written summary of any oral
proposal.
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The merger agreement further obligates North East's board of directors
and any committee of its board of directors to refrain from withdrawing or
modifying its recommendation of the merger or approving or recommending any
offer to acquire a substantial equity interest in North East or a substantial
portion of the assets of North East, unless the board of directors of North East
determines in good faith, based upon the written advice of its outside counsel,
that its fiduciary duties so require. If such a determination is made, North
East may provide information to or enter discussion or negotiations regarding a
proposed takeover from any unsolicited person. The merger agreement does not
preclude North East from notifying its stockholders of a qualifying offer.
Other Covenants.
The merger agreement contains various other covenants, including
covenants relating to the following:
[BULLET] Filing, preparation and distribution of this proxy
statement/prospectus.
[BULLET] Motor Club's access to North East's properties, books,
records, officers and employees prior to the consummation of
the merger.
[BULLET] Notification of certain events.
[BULLET] Coordination of the special meetings of North East's and
Motor Club's stockholders.
[BULLET] Cooperation regarding filings with governmental and other
agencies and organizations.
[BULLET] Filing of amended tax returns.
[BULLET] Execution of affiliate agreements.
[BULLET] Anti-takeover statutes.
[BULLET] Protection of confidential information.
In addition, the merger agreement contains a general covenant
requiring each of Motor Club, North East and their respective subsidiaries to
use their best efforts to consummate the merger.
Conditions to the Consummation of the Merger
Each party's obligation to complete the merger is subject to the
satisfaction of several conditions, including:
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[BULLET] Stockholder Approval. The merger agreement and the merger
shall have been approved and adopted by the stockholders of
North East and Motor Club.
[BULLET] Listing. The Motor Club common shares to be issued in the
merger shall have been approved for listing on the NASDAQ
Stock Market, subject only to official notice of issuance.
[BULLET] No Injunctions or Restraints. No court order or other legal
restraint enjoining or preventing the merger shall be in
effect.
[BULLET] Form S-4. The registration statement of which this proxy
statement/prospectus forms a part shall remain effective and
no stop order shall have been issued.
[BULLET] Due Organization of NEIC Insurance Acquisition Corporation
and Approval of Merger. NEIC Insurance Acquisition
Corporation shall have been incorporated as a Maine
insurance corporation, and its directors and stockholders
shall have approved the merger.
The obligation of Motor Club to complete the merger and the
transactions contemplated by the merger agreement is also subject to the
satisfaction or waiver of each of the following additional conditions.
[BULLET] Representations and Warranties. The representations and
warranties of North East set forth in the merger agreement
shall be true and accurate in all material respects as of
the date of the merger agreement and the closing under the
merger agreement.
[BULLET] Performance of Obligations. All obligations of North East to
be performed prior to the closing under the merger agreement
shall have been performed.
[BULLET] Authorization. All corporate action necessary for North East
to authorize the merger, the merger agreement, and the
completion of the other transactions contemplated by the
merger agreement, shall have been taken by North East and
its stockholders.
[BULLET] Approvals and Consents. All governmental approvals and other
consents necessary to complete the merger shall have been
received.
[BULLET] Litigation. No pending or threatened suit or other
proceeding shall be in effect that would restrain or
prohibit the consummation of the merger or North East's
operation of its business, or seeking to obtain from Motor
Club or any of its subsidiaries damages that would be
material to Motor Club, or would impair Motor Club's future
ownership and operation of North East's business.
[BULLET] Opinion of Counsel. Motor Club shall have received an
opinion from Verrill & Dana, LLP, counsel to North East, in
a form acceptable to Motor Club.
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[BULLET] No Material Adverse Change. As of the closing under the
merger agreement, there shall have been no material adverse
effect on North East and its subsidiaries, taken as a whole,
and no change or development shall have occurred which would
reasonably be expected to have a material adverse effect on
North East.
[BULLET] Clerk's Certificates. North East shall have delivered to
Motor Club a good standing certificate, tax status
certificate and certain other certificates regarding the
organizational documents and standing of North East.
The obligations of North East to consummate the merger and the
transactions contemplated by the merger agreement is also subject to the
satisfaction or waiver of each of the following additional conditions.
[BULLET] Representations and Warranties. The representations and
warranties of Motor Club set forth in the merger agreement
shall be true and accurate in all material respects as of
the date of the merger agreement and the closing under the
merger agreement.
[BULLET] Performance of Obligations. All obligations of Motor Club
and NEIC Insurance Acquisition Corporation to be performed
prior to the closing under the merger agreement shall have
been performed.
[BULLET] Litigation. No pending or threatened suit or other
proceeding shall be in effect that would restrain or
prohibit the completion of the merger, or Motor Club's
ownership and operation of its business and, after the
merger, of North East's business.
[BULLET] Approvals and Consents. All governmental approvals and other
consents necessary to complete the merger shall have been
received.
[BULLET] Authorizations. All corporate action necessary for Motor
Club and NEIC Insurance Acquisition Corporation to authorize
the merger, the merger agreement, and the completion of the
other transactions contemplated by the merger agreement,
shall have been taken by Motor Club, NEIC Insurance
Acquisition Corporation and their respective stockholders.
[BULLET] Deposit with Exchange Agent. The merger consideration shall
have been deposited with the exchange agent.
[BULLET] Opinion of Counsel. North East shall have received an
opinion from Sills Cummis Radin Tischman Epstein & Gross,
PA, counsel to Motor Club in a form acceptable to North
East.
[BULLET] Clerk's Certificates. Motor Club shall have delivered to
North East good standing certificates, tax status
certificates and certain other certificates regarding the
organizational documents and standing of Motor Club and NEIC
Insurance Acquisition Corporation.
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[BULLET] No Material Adverse Change. As of the closing under the
merger agreement, there shall have been no material adverse
effect on Motor Club (and its subsidiaries other than NEIC
Insurance Acquisition Corporation), taken as a whole, and no
change or development shall have occurred which would
reasonably be expected to have a material adverse effect on
Motor Club (and its subsidiaries other than NEIC Insurance
Acquisition Corporation).
Termination
Motor Club and North East can agree at any time to terminate the
merger agreement without completing the merger, even if the stockholders of
Motor Club and North East have approved it.
Also, either Motor Club or North East can terminate the merger
agreement if any of the following occur:
[BULLET] any government entity (such as an insurance regulatory
agency, antitrust authority or court) issues a final order
prohibiting the merger;
[BULLET] the merger is not completed by July 15, 1999;
[BULLET the other party's stockholders fail to approve the merger;
or
[BULLET] the other party materially breaches any of its covenants or
agreements under the merger agreement, and fails to cure
within 10 days' notice.
Motor Club may also terminate the merger agreement if:
[BULLET] North East's Board of Directors withdraws its approval of
the merger, or recommends that its stockholders approve an
alternative transaction with a different party; or
[BULLET] Motor Club discovers facts that would cause the merger to
have a material adverse effect on Motor Club, any of Motor
Club's subsidiaries, or (after the merger) North East.
North East may also terminate the merger agreement if both of the
following occur:
[BULLET] North East receives a proposal for an alternative
transaction with a different party that, in the good faith
judgment of North East's Board of Directors, is more
favorable to North East's stockholders than the merger with
Motor Club, and
[BULLET] North East's Board of Directors determines in good faith
that its fiduciary obligations to North East's stockholders
require it to terminate the merger agreement as a result of
that proposal.
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Termination Fee
Payable by Motor Club. Motor Club must pay North East a termination
fee of $200,000 if Motor Club terminates the merger agreement except for a
permitted reason described immediately above at "Termination".
Payable by North East. North East must pay Motor Club a termination
fee of:
[BULLET] $300,000 if either North East or Motor Club terminates the
merger agreement because North East's Board of Directors has
withdrawn or modified its approval after receiving a
proposal for an alternative transaction with a different
party; or
[BULLET] $200,000 if North East terminates for any reason other than
(a) as permitted under the merger agreement (described above
at "Termination"), or (b) because of an alternative
transaction.
DISSENTERS' RIGHTS OF APPRAISAL
Holders of North East stock are entitled to dissenter's rights under
Section 908 of the Maine Business Corporation Act. By complying with Section 909
of the MBCA, a North East stockholder may dissent from the merger and, if the
merger is effected, be paid the fair value of his or her shares as of the day
prior to the date on which the merger is approved by the stockholders, excluding
the effect of any appreciation or depreciation of shares in anticipation of the
merger.
This right of dissent may be exercised as to all or less than all of a
stockholder's shares. In order to exercise this right a stockholder must comply
with three principal requirements:
[BULLET] The stockholder must file with North East, at or prior to
the special meeting, a written objection to the merger. A
vote against the merger does not in itself constitute the
required written objection. No objection is required,
however, from any record stockholder to whom North East has
failed to send notice of the special meeting.
[BULLET] The stockholder must not vote in favor of the merger. The
stockholder may abstain from the vote, but unless a signed
proxy card indicates that the stockholder wishes to vote
against or abstain, the shares represented by that proxy
will be voted in favor of the merger and the stockholder
will not be permitted to exercise his or her right of
dissent.
[BULLET] The stockholder must file a written demand for payment of
the fair value of his or her shares within 15 days after the
date of stockholder approval of the merger agreement. A
demand for payment may be filed either by personally
delivering it to North East or by mailing it by certified or
registered mail to North East in each case at North East
Insurance Company, 482 Payne Road, P.O. Box 1418,
Scarborough, Maine 04070- 1418, Attn: Shareholder
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Communications. The demand must specify the name and current
address of the stockholder. Once filed a demand for payment
may not be withdrawn without the consent of North East. A
stockholder making such a demand may not thereafter vote or
exercise any other rights of stockholder.
Any stockholder failing either to object or to make demand in the time
and manner provided in Section 909 shall have his or her shares converted into
cash unless the stockholder properly elects to take Motor Club stock pursuant to
the merger agreement. In general, any stockholder making such objection and
demand shall thereafter be entitled only to payment as provided in Section 909
and shall have no other rights as a stockholder.
The right of a stockholder to be paid the fair value of his or her
shares will terminate in the event that (1) the merger is not approved or is
abandoned, (2) the stockholder demand is withdrawn upon consent, (3) no judicial
action for the determination of fair value shall have been filed within the time
prescribed by Maine law, (4) the stockholder fails to comply with the statutory
procedure, or (5) a court of competent jurisdiction determines that the
stockholder is not entitled to demand payment.
At the time the stockholder files his or her demand, or within 20 days
thereafter, the stockholder must submit the certificates representing the shares
for which he or she is demanding payment, for notation of the fact of such
stockholder demand. A stockholder submitting certificates for notation must mail
or deliver them to North East Insurance Company, 482 Payne Road, P.O. Box 1418,
Scarborough, Maine 04070-1418, Attn: Shareholder Communications. Share
certificates will be returned to the stockholder promptly after notation has
been made. Under the MBCA a dissenting stockholder who fails to submit
certificates for such notation within this time limit will lose all rights as a
dissenting stockholder (unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct).
Within the later of 25 days after the merger is approved by the
stockholders or 10 days after the effective time of the merger, North East shall
give written notice to each dissenting stockholder who has complied with the
above procedure that the merger has been effected, and shall make a written
offer at a specified price to purchase the shares as to which each stockholder
is dissenting. The offer will be made at the same price per share to all
dissenting stockholders of the same class. Such notice and offer will be
accompanied by a balance sheet of North East as of the latest available date
(and not more than 12 months prior to the making of the offer) and a profit and
loss statement of North East for the 12 month period ended on the date of such
balance sheet.
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If North East and a holder of North East stock agree on a price during
the 20 days after the last date for delivery of such notice, North East shall,
within 90 days after the effective time of the merger, make payment of the
agreed amount upon surrender by the dissenting stockholder of his or her shares,
and upon such payment the dissenting stockholder shall cease to have any
interest in such shares. If North East and any stockholder fail to agree on the
fair value of the stockholder's shares during such 20 day period, North East
may, within a 60 day period thereafter, bring an action in the Maine Superior
Court in Cumberland County, Maine to determine the fair value of the shares, or
a dissenting stockholder may, up to 60 days after the effective time of the
merger, demand in writing that North East bring such an action, in which case
North East must do so within 30 days after receipt of such demand, and if North
East fails to institute an action within such 30 day period, any dissenting
stockholder may bring a suit in the name of North East. All actions to determine
fair value, whether brought by North East or a stockholder, must be filed within
6 months from the effective time of the merger.
All dissenting stockholders, wherever residing, who have not agreed
with North East on a price for their shares shall be joined in any action to
determine fair value and must be given service of process. The value determined
by the Court will be binding on all eligible dissenting stockholders. Upon
request of North East, the Court will consider and pass upon whether specified
dissenting stockholders have satisfactorily complied with all of the
requirements of Section 909, and if it finds that stockholder has not, such
stockholder will not be entitled to be paid the fair value as determined, but
will be bound by the terms of the merger agreement. The burden of proof is on
the stockholder to prove his or her eligibility.
The judgment fixing the fair value of the shares is to include
interest, at such rate as the Court may find to be fair and equitable, from the
date of the stockholder vote to the date of payment unless, as to any
stockholder, the Court shall determine that the stockholder's refusal to accept
the corporation's offer of payment for the shares was arbitrary, vexatious, or
not in good faith, in which case the Court may, in its discretion, disallow
interest. The judgment will be payable only upon surrender to North East of the
certificates representing such shares. Upon payment of the judgment, a
dissenting stockholder will cease to have any interest in the shares. Costs and
expenses of the proceeding, as determined by the Court, will be assessed against
North East unless a stockholder's refusal to accept North East's offer of
payment for his or her shares is found to have been arbitrary, vexatious, or not
in good faith, in which case the Court may assess all or a portion of such costs
against such stockholder. Costs and expenses will not include the fees and
expenses of counsel or of expert witnesses, but will include reasonable
compensation and expenses to any appraisers appointed by the Court. If the "fair
value" of the shares, as determined by the Court, "materially exceeds" the
amount which North East offered to pay therefor, or if no such offer was made,
the Court, in its discretion, may award any stockholder who is a party to the
proceeding all or part of such stockholder's attorneys' fees or expenses and
reasonable compensation and expenses to any expert employed by such stockholder.
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If a stockholder has exercised his or her right to dissent with
respect to any shares of North East any transferee of such shares will not
acquire any rights in North East other than the rights which the transferring
stockholder had with respect to such shares as a dissenting stockholder. Any new
certificate issued evidencing such transferred shares shall bear a notation
reflecting the demand made by the transferor.
A stockholder who is a minor or otherwise legally incapacitated will
be bound by the procedural limitations of Section 909 of the MBCA. Any such
stockholder may personally, or through a guardian or any person acting for such
stockholder as a legally authorized representative, take all actions necessary
to assert his or her right to dissent. Actions taken in respect of shares held
of record by a nominee for the benefit of another may be made only by such
nominee and not by the beneficial owner.
The foregoing summary does not purport to be a complete statement of
the provisions of Sections 908 and 909 of the MBCA, and is qualified in its
entirety by reference to the complete text of such Sections, copies of which
are attached hereto as Annex D.
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ALTERNATIVE PLAN OF FINANCING
An Independent Committee of Motor Club's Board of Directors has
approved an alternative plan of financing the merger, to be voted on by the
Motor Club stockholders at the Motor Club special meeting.
Overview of Debenture Terms
Under this plan, Motor Club would issue unsecured debentures, in one
or more series, for a total principal amount of up to $10 million. Each series
would be due on the tenth anniversary of the closing of the merger and will bear
interest at a rate equal to 2.5% over the London Interbank Offered Rate, fixed
as of the date on which the series is issued. Interest would be paid quarterly,
in arrears.
At the holder's option, each debenture would be convertible at any
time, in whole or in part, into a number of Motor Club shares equal to the total
principal amount of indebtedness to be converted divided by 130% of the average
trading price of Motor Club's common stock over the 20 day period immediately
prior to the debenture's issue date.
Example:
On June 30, 1999, Motor Club issued a debenture for a
principal amount of $8,000,000. The conversion price would equal 130%
of average trading price of Motor Club common stock over the period
from June 9 through June 29, 1999. Assuming that the average trading
price were $13.85, the conversion price would be 130% of $13.85 per
share, or $18.00.
On June 30, 2000, the debenture holder elects to convert.
Dividing $8,000,000 by $18.00 per share results in 444,444 shares,
which Motor Club would issue to the debenture holder.
The debentures must be offered only to high net worth individuals,
institutional investors, and other accredited investors (as defined in Rule 501
under the Securities Act of 1933). Consequently, an offering of these debentures
would be structured to be exempt from the registration requirements of the
Securities Act of 1933. Motor Club expects that the members of the Executive
Committee of its Board of Directors will be the debenture offerees. The members
of the Executive Committee have advised Motor Club that they will, if this plan
of financing is approved by the stockholders, subscribe for up to all of the
debentures.
If the members of the Executive Committee convert a substantial
portion of the debentures, their percentage ownership in Motor Club's common
stock will substantially increase. It is possible that the Executive Committee
could increase its collective percentage stock ownership from the current 42.2%
to over 50%. Please see "INTERESTS OF CERTAIN PERSONS IN THE MERGER," page ___.
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Other Terms and Conditions
Registration Rights
As to the Motor Club stock issuable upon conversion of a debenture,
the debenture holder would be able to demand registration rights on 90 days'
notice to Motor Club. However, Motor Club would not be obligated to bear the
cost of or file more than one registration statement during any 12-month period.
Any registration statement would also register the Motor Club shares for re-sale
by the debenture holder. (Nevertheless, the Motor Club stock issuable upon
conversion of the debentures owned by the members of the Executive Committee
will be restricted as to re-sale as they are "affiliates" of the Company under
applicable securities laws.)
Optional Pre-payment
At any time after the third anniversary of issuance, and upon 20 days'
prior written notice to the debenture holders, Motor Club would be able to
pre-pay (and thereby retire) all or any portion of the debentures by paying the
outstanding principal plus accumulated unpaid interest. During that 20-day
period, the debenture holders may convert all or any portion of the debentures
intended to be prepaid.
Mandatory Payment
Motor Club would have to retire the debentures upon maturity by paying
the outstanding principal plus all accumulated unpaid interest.
Collateral
None. The debentures would be unsecured obligations of Motor Club.
Voting Rights
The debentures would not have voting rights. The Motor Club common
stock, when issued upon conversion of debentures, would have the same voting
rights as all other Motor Club common shares.
Liquidation Preference
In the event of any liquidation or winding up of Motor Club, the
debenture holders would be entitled to receive, prior and in preference to the
holders of Motor Club common stock, an amount equal to the principal amount of
the debentures then held plus all accumulated unpaid interest. The debenture
holders could also elect to treat any consolidation, merger, or sale of all or
substantially all of Motor Club's assets as a liquidation.
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Anti-dilution Provision
The conversion price would be subject to adjustment as the result of
any sub-division, stock split, combination of shares or recapitalization of
Motor Club.
Ranking
The debentures would be junior and subordinated to all institutional
and ordinary course debt of Motor Club, and would rank not less than equally
with all subordinated debt.
Covenants
Those that are customary and ordinary for transactions of this size,
type and purpose, including that Motor Club would not without the consent of the
holders of a majority of the principal amount of the debentures then
outstanding:
[BULLET] issue any notes, debentures or other securities
convertible into equity securities of Motor Club,
except notes, debentures and other securities that
are junior to the debentures;
[BULLET] amend its Certificate of Incorporation or By-laws
in any manner which adversely affects the rights
of the holders; or
[BULLET] declare or pay any dividend or pay any installment
or portion of interest and/or principal on any
security or debt that is junior to the debentures.
Conditions Precedent
Those that are customary and ordinary for a transaction of this size,
type and purpose including the following:
[BULLET] the holders, their attorneys and their advisors
shall have conducted due diligence investigations
to their satisfaction regarding Motor Club, its
subsidiaries and the proposed transaction;
[BULLET] the parties shall have negotiated and executed
documentation that is satisfactory to Motor Club;
[BULLET] prior to closing, there shall have occurred no
material adverse change in the business or
condition of Motor Club, or any of its
subsidiaries.
Financing Available if Motor Club Stockholders Do Not Approve the
Alternative Plan
If Motor Club's stockholders do not approve this alternative plan of
financing, Motor Club will obtain merger financing from either of two lenders
that have each offered to lend up to $10 million.
One of these lenders requires the pledge of all outstanding stock of
all direct Motor Club subsidiaries. The other does not require collateral. The
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consents of the New Jersey and Maine departments of insurance would be required
in order for Motor Club to pledge the stock of its subsidiaries. Motor Club
believes that requiring the consent of the New Jersey Department of Banking and
Insurance as a condition to financing the merger is inconsistent with one of its
objectives in the merger to diversify its operations outside of New Jersey.
Interest paid to either of these lenders would be at rates higher than
Motor Club would pay under the alternative plan of financing proposed. These
lenders would also require the payment of certain fees to initiate and maintain
these credit facilities, where the alternative plan of financing would impose no
such fees.
Furthermore, both lenders would require Motor Club to meet certain
financial covenants that could limit Motor Club's flexibility to tailor its
capital structure in a manner advantageous to its growth strategy. In contrast,
the convertible debenture proposed under the alternative plan of financing has
limited general covenants and no financial covenants. Finally, A.M. Best
generally views financing that is convertible into equity more favorably than
debt. This could create a more favorable rating environment for Motor Club's
insurance subsidiaries, including North East.
Motor Club also approached two other lenders that declined to offer
terms for the merger financing.
Given the cumulative effect of these costs and requirements, on a
comparative basis, the Independent Committee determined that the proposed
alternative plan of financing is more favorable to Motor Club.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Members of the North East Board of Directors and management have
interests in the merger which are in addition to their interests as North East
stockholders, generally. These additional interests arise from the severance
provisions of executives' employment contracts, an agreement to continue one
executive's employment by North East after the merger, the exchange in the
merger of outstanding North East incentive stock options for cash and/or
equivalent options for Motor Club stock, and the exchange in the merger of North
East non-incentive stock options for cash, as further described below. The North
East Board of Directors was aware of these interests and considered them, among
other matters, in approving the merger agreement, and the transactions
contemplated thereby.
Schatz's Executive Severance. Pursuant to an Undertaking and Agreement
with North East and Motor Club, Robert G. Schatz, the President and CEO of North
East, will terminate his employment as of the merger and will receive the
following principal benefits, which fulfill provisions of existing employment
and severance agreements between Mr. Schatz and North East:
Payments at closing:
[BULLET] $175,000 severance
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[BULLET] $16,000 profit sharing bonus
Benefits continuing at North East's expense:
[BULLET] Medical, hospitalization, disability and other
health benefits, for up to one year after the
merger (or, if earlier, until he receives similar
benefits from a subsequent employer)
[BULLET] Life insurance coverage through December 31, 2000
[BULLET] Motor vehicle lease through March 31, 2000
[BULLET] Continuation of annual payments of $34,000 through
2006, previously agreed to by North East.
Additional payment for non-competition agreement:
[BULLET] Provided that Mr. Schatz does not compete in the
business of property/casualty insurance within the
state of Maine for one year after the merger, an
additional $175,000 payment (plus interest) will
be payable in monthly installments for nine years
after the first anniversary of the merger.
Libby's Continued Employment and Executive Severance. The existing
employment agreement between Mr. Ronald A. Libby and North East appoints Mr.
Libby as North East's Chief Operating Officer, on the following terms:
[BULLET] termination date of December 31, 1999
[BULLET] annual salary of $120,000
[BULLET] severance of $120,000 in the event of non-renewal
or involuntary termination.
Motor Club and North East have entered into an Agreement and
Undertaking with Mr. Libby which is effective upon the merger, and which
provides that:
[BULLET] he will be elected as President, Chief Operating
Officer and a director of North East
[BULLET] his salary will be increased to $135,000 per year
[BULLET] his existing incentive stock options to purchase a
total of 100,000 shares North East stock at $2.375
per share will be exchanged for (a) cash equal to
the difference between $3.30 and $2.375, (b)
options to purchase an equivalent number of Motor
Club shares, at a price that preserves, but does
not exceed, the economic benefit of his North East
options, or (c) a combination of cash and Motor
Club options, at Mr. Libby's election
[BULLET] in the event of his involuntary termination after
the merger, the maximum severance payment he would
be entitled to would be equal to twice his salary,
plus continuation of benefits for a stated time.
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Koren's Employment Claims. On March 24, 1999, North East received a letter from
counsel to Samuel M. Koren, a former executive officer of the Company. According
to the letter, Mr. Koren was voluntarily terminating his employment for "good
reason" pursuant to an Employment Continuity Agreement dated October 28, 1996
with North East. Subsequently, Mr. Koren alleged that North East had unlawfully
discriminated against him on the basis of his religion, age, and certain
disabilities. Mr. Koren's employment with North East terminated as of April 2,
1999. North East has denied any liability under the Employment Continuity
Agreement and has denied that the alleged discrimination occurred. To date, no
litigation or arbitration has been commenced by either Mr. Koren or North East.
The merger agreement prohibits North East from settling certain claims in excess
of $40,000 or paying additional severance compensation without the consent of
Motor Club. Management of North East has stated an intention to defend
vigorously against any claims that Mr. Koren may bring.
North East Options.
Incentive Stock Options. Mr. Libby is the only grantee of
North East incentive stock options. Under the merger agreement, those options
will, at Mr. Libby's election, be converted into:
[BULLET] cash equal to the excess of $3.30 over the
option's exercise price of $2.375 (for a total of
$92,500),
[BULLET] options to purchase an equivalent number of Motor
Club shares, at a price that preserves, but does
not exceed, the economic benefit of the North East
incentive stock option converted, or
[BULLET] a combination of cash and equivalent
Motor Club options.
Non-incentive Stock Options. The merger agreement provides
that each other option to acquire North East stock that is outstanding and which
was not granted as an incentive stock option will be converted into cash equal
to the excess of $3.30 over the option's exercise price.
The following table sets forth, with respect to the current officers
and directors of North East, (a) the number of shares of North East stock
subject to options held by such persons and (b) the number of shares of Motor
Club stock subject to the options upon conversion of the options to purchase
North East stock based on the unadjusted Exchange Ratio.
North East Shares Subject Motor Club Shares Subject
to Option(1) to Options
Option Holder Number Exercise Price Number Exercise Price
- ---------------- ------- -------------- ------ --------------
Robert G. Schatz 200,000 $1.625 -- --
Ronald A. Libby(2) 100,000 2.375 19,048 $12.468
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Edward B. Batal 10,000 1,000 -- --
1,000 1,000
714 2.813
2.688 1.75
2.625 2.875
Terence P. Cummings 10,000 1,000 -- --
1,000 1,000
714 2.813
2.688 1.75
2.625 2.875
Robert A. Hancock 10,000 1,000 -- --
1,000 1,000
714 2.813
2.688 1.75
2.625 2.875
Wilson G. Hess 10,000 1,000 -- --
1,000 1,000
714 2.813
2.688 1.75
2.625 2.875
Joseph M. Hochadel 10,000 1,000 -- --
1,000 1,000
714 2.813
2.688 1.75
2.625 2.875
Peter A. Russ 1,000 1,000 -- --
1,000 714
2.688 1.75
2.625 2.875
Bruce H. Suter 1,000 1,000 -- --
1,000 714
2.688 1.75
2.625 2.875
(1) Except for North East options held by Mr. Libby, as a result of the
merger, each North East option will be exchanged for cash in an amount equal to
the difference between $3.30 and the option's exercise price.
(2) Mr. Libby has the option to take a cash payment equal to the difference
between $3.30 and $2.375 for each North East option he holds as a result of the
merger, in lieu of exchanging such North East options for Motor Club options.
This column has been calculated assuming Mr. Libby elects to exchange all of his
North East stock options for equivalent Motor Club stock options.
Motor Club Alternative Plan of Financing.
Under the alternative plan of merger financing proposed to Motor Club
stockholders, Motor Club would issue one or more series of convertible,
unsecured debentures, for a total principal amount of up to $10 million. Each
series would be due on the tenth anniversary of the closing of the merger and
will bear interest at a rate equal to 2.5% over the London Interbank Offered
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Rate, fixed as of the date on which the series is issued. At the holder's
option, the debenture would be convertible at any time, in whole or in part,
into a number of Motor Club shares equal to the total principal amount to be
converted divided by 130% of the average trading price of Motor Club's common
stock over the 20 day period immediately prior to the debenture's issue date.
The debentures would be offered only to high net worth individuals,
institutional investors and other "accredited investors" (as defined in the
Securities Act of 1933). The offering would be structured to be exempt from the
Act's registration requirements.
Motor Club expects that the members of the Executive Committee of the
board of directors will be the debenture purchasers. The Executive Committee
members have advised Motor Club that they will, if this plan of financing is
approved by the stockholders, subscribe for up to all of the debentures.
Under the debenture terms, $1,000 of principal would be convertible
(at Motor Club's current stock price) into approximately ____ Motor Club shares.
The Executive Committee's total percentage ownership in Motor Club's outstanding
stock would increase markedly if the members were to convert a substantial
portion of the debentures. If, for example, the Executive Committee members were
to purchase and convert all $10 million of the debentures offered, at Motor
Club's closing stock price on ________, 1999 they would receive over _____ Motor
Club shares.
Depending on how many shares of Motor Club stock are issued in the
merger, it is possible that the Executive Committee would increase its aggregate
percentage stock ownership to a level above 50%. If no Motor Club stock were
issued in the merger, and the members of the Executive Committee were to
purchase and convert all $10 million of the debentures offered, at current
prices their aggregate stock ownership percentage would increase from 42.2% to
54.2%. If, as is more likely, the maximum of 290,389 shares were issued in the
merger, the stock ownership percentage would increase from 42.2% to 48.9% if all
$10 million of the debentures were converted.
MANAGEMENT FOLLOWING THE MERGER
After the merger, the current Motor Club Board of Directors will
continue as the Motor Club Board of Directors. In addition, the current Motor
Club directors plus Ronald A. Libby will be the Board of Directors of North
East, which will be a wholly-owned subsidiary of Motor Club.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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Motor Club
The following table sets forth certain information regarding the beneficial
ownership of Motor Club's stock as of March 31, 1999 (including options
exercisable within 60 days) by (a) each member of the Motor Club Board of
Directors, (b) each named executive officer of Motor Club, (c) all directors and
officers of Motor Club as a group and (d) each person known by Motor Club to be
the beneficial owner of more than 5% of its outstanding shares.
Common Stock of the
Company Owned Beneficially
at March 31, 1999(A)
--------------------------
Number Percent of
Name Position of Shares Class
- --------------------- ----------------------------- --------- ----------
Archer McWhorter(C) Chairman of the Board 301,635 14.15
Stephen A. Gilbert(B) President and Chief 32,375 1.52
Executive Officer
Robert S. Fried Retired Senior Vice President 1,000 0.05
William E. Lobeck, Jr. Director 289,601 13.59
Alvin E. Swanner Director 301,634 14.15
Malcolm Galatin Director -- --
Patrick J. Haveron(B) Executive Vice President 13,100 0.61
and Chief Financial
Officer
Archer McWhorter, Jr.(C) Director -- --
Myron Rogow (B) Vice President -- 5,000 0.23
Underwriting
Charles Pelosi (B) Vice President -- Information 8,500 0.40
Services
G. Bruce Patterson(B) Vice President -- Marketing 8,500 0.40
- ----------------------------------------------------- ------- ------
All 13 Directors and Officers as a Group 964,790 45.26
Heartland Advisors, Inc. 5% Beneficial Owner 172,900 8.11
790 No. Milwaukee St.
Milwaukee, WI 53202
(A) As reported to the Company by the named persons. The nature of
beneficial ownership or shares shown in this proxy
statement/prospectus is sole voting and investment power, except Mr.
Archer McWhorter's shares are owned by a family trust of which he is
trustee, and 2,000 of Mr. Lobeck's shares are owned by two trusts of
which he is trustee; in addition, a Schedule 13G dated January 28,
1999 indicates that Heartland Advisors, Inc., has sole dispositive
power as to all 172,900 of its shares but sole voting power as to only
26,900 of such shares.
(B) Includes stock options for Common Stock which are currently
exercisable or exercisable within 60 days of March 31, 1999; for Mr.
Gilbert 4,375 shares, for Mr. Haveron 3,750 shares, and for Messrs.
Rogow, Pelosi and Patterson 1,250 shares each.
(C) Archer McWhorter is the father of Archer McWhorter, Jr.
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North East
Information regarding the beneficial ownership of North East's stock is
incorporated by reference to North East's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1998, filed with the Commission on March 31,
1999, North East's Amendment No. 1 to its Annual Report on Form 10-KSB/A for the
year ended December 31, 1998, filed with the Commission on May 13, 1999, each of
which accompanies this proxy statement/prospectus.
COMPARISON OF RIGHTS OF HOLDERS OF MOTOR CLUB
AND NORTH EAST STOCK
The statements set forth under this heading with respect to the Maine
Business Corporation Act ("MBCA"), the New Jersey Business Corporation Act
("NJBCA"), the Articles of Incorporation of North East, the North East Bylaws,
the Motor Club Certificate of Incorporation and the Motor Club Bylaws, are brief
summaries thereof and do not purport to be complete. Such statements are subject
to the detailed provisions of the MBCA, the NJBCA, the North East Articles, the
North East Bylaws, the Motor Club Certificate of Incorporation and the Motor
Club Bylaws. See "WHERE YOU CAN FIND MORE INFORMATION."
The following is a summary of certain of the material differences between
the rights of the owners of North East stock and the rights of the holders of
Motor Club stock.
Dividend Rights
North East. Under the MBCA, a corporation may pay dividends out of its
unreserved and unrestricted earned surplus, or out of its unreserved and
unrestricted net earnings for the current fiscal year and the next preceding
fiscal year, taken as single period. The term "earned surplus" is defined to
mean that portion of the surplus of a corporation equal in amount to the balance
of its net profits, income, gains and losses from the date of incorporation, or
from the latest date when a deficit was eliminated by application of its capital
surplus, after deducting subsequent distributions to stockholders and transfers
to stated capital and capital surplus.
Under the insurance laws of the State of Maine, cash dividends may only be
paid out of that part of the available accumulated statutory unassigned deficit
that is derived from realized net operating profits on North East's insurance
business, and from net realized from capital gains. In addition, among other
statutory restrictions, a Maine insurer's policyholder's surplus following any
dividends or distributions to shareholders must be reasonable in relation to the
insurer's outstanding liabilities and its financial needs. Furthermore, North
East may not pay "extraordinary" dividends or make any other distribution (i.e.,
dividends or distributions made within the next 12 months, which exceed the
greater of (1) 10% of North East's surplus to policyholders or (2) North East's
net investment income, in either case, as of December 31 preceding) unless the
Maine Superintendent of Insurance has been notified of the declaration and has
either approved it or has failed to disapprove it within 60 days.
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Motor Club. Under the NJBCA, a corporation may, from time to time, by
action of its board, declare and pay dividends, except when the corporation is
insolvent or would thereby be made insolvent, or when the payment would be
contrary to any restrictions contained in the certificate of incorporation. The
NJBCA and Motor Club's certificate of incorporation and bylaws permit such
payments may be made whether or not the net assets remaining after the
transaction are less than the aggregate amount of the preferences of outstanding
shares in the assets of the corporation upon liquidation. Dividends may be
declared or paid out of surplus only, except in dissolution. The Motor Club
Bylaws provide that the Board of Directors may declare dividends out of the net
profits or surplus of the corporation. Before payment of any dividend or making
any distributions of profits, there may be set aside out of the surplus or net
profits of the corporation such sum or sums as the directors from time to time,
in their absolute discretion, think proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purpose as the directors shall
think conducive to the interest of the corporation.
Directors and Officers
Number and Election of Directors; Removal
North East. Under the MBCA, cumulative voting in the election of directors
is only permitted if expressly authorized in a corporation's articles of
incorporation. The North East Articles do not provide for cumulative voting in
the election of directors. The North East Articles provide that the minimum
number of directors shall be 7 and the maximum number 21. The actual number of
directors to serve shall, in accordance with North East Bylaws, be fixed from
time to time by a vote of the stockholders at an annual or special meeting or by
resolution of the directors of the corporation. Under the MBCA, any director or
the entire North East Board of Directors may be removed with or without cause,
at a special meeting of stockholders called expressly for that purpose by an
affirmative vote of two-thirds of the outstanding shares entitled to vote for
directors. Under the MBCA, a director may be removed from office for cause if
two-thirds of the directors then in office resolve that the individual director
should be removed from office. A Maine corporation may bring an action in any
court having equity jurisdiction to remove a director following such a vote. If
the court finds, by a preponderance of the evidence, that such director has been
guilty of fraudulent or dishonest acts, to the detriment of the corporation or
any substantial group of its stockholders, or has been guilty of gross abuse of
authority or discretion in discharge of his or her duties to the corporation,
the Court shall order the director removed from office.
Motor Club. Under the NJBCA, the board of directors of a corporation shall
consist of one or more members. Subject to any provisions contained in the
certificate of incorporation, the bylaws shall specify the number, which in
Motor Club's case is not be less than five nor more than twenty-five. The number
of directors may be increased or decreased from time to time by action of the
Board of Directors. All Motor Club directors are elected annually, and neither
the Motor Club Certificate of Incorporation nor the Motor Club Bylaws permit
cumulative voting, plurality voting, or staggered terms. The NJBCA also provides
that one or more directors may be removed, with or without cause, by the
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affirmative vote of the majority of shares entitled to vote for directors. A New
Jersey corporation may, through a stockholder-adopted bylaw, limit the
stockholders' right to remove directors without cause, but Motor Club has not
adopted any such bylaw.
Fiduciary Duties of Directors
North East. Directors of a Maine corporation are required to exercise their
powers and discharge their duties in good faith with a view to the interests of
the corporation and of the stockholders and with that degree of diligence, care
and skill which ordinarily prudent men would exercise under similar
circumstances, in like positions. The MBCA includes a provision specifically
permitting (although not requiring) directors, in discharging their duties, to
consider the effects of any action upon employees, suppliers and customers of
the corporation, communities in which offices or other establishments of the
corporation are located, and all other pertinent factors.
Motor Club. Similarly, the NJBCA requires directors to exercise their
powers and discharge their duties in good faith with a view to the interests of
the corporation and of the stockholders and with that degree of diligence, care
and skill which ordinarily prudent men would exercise under similar
circumstances in like positions. The NJBCA includes a provision specifically
permitting (although not requiring) directors, in discharging their duties, to
consider the effects of any action upon employees, suppliers, creditors and
customers of the corporation, the community in which the corporation operates,
and the long-term as well as the short-term interests of the stockholders.
Liability of Directors
North East. The MBCA provides that a director of a Maine corporation shall
not be held personally liable for monetary damages for failure to discharge any
duty as a director unless the director is found not to have acted honestly or in
the reasonable belief that the action was in or not opposed to the best
interests of the corporation or its stockholders. None of the MBCA, the North
East Articles or North East Bylaws contain provisions which limit the personal
liability of officers in certain circumstances.
Motor Club. The NJBCA permits a corporation to amend its certificate of
incorporation to limit personal liability of directors and officers for damages
for breach of any duty to the corporation or its stockholders. This limitation
does not extend to breaches of the duty of loyalty, actions not in good faith,
knowing violations of law or acts resulting in the officer's or director's
receipt of any improper personal benefit. Motor Club has adopted such a
provision.
Indemnification of Directors And Officers
North East. Under the MBCA, a corporation may indemnify any person or, if
so provided in the bylaws, shall in all cases indemnify any person, who was or
is a party or is threatened to be made a party to any threatened, pending, or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that that person is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
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request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, pension or other employee
benefit plan or other enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by that person in connection with such action, suit or proceeding; provided that
no indemnification may be provided for any person with respect to any matter as
to which that person shall have been finally adjudicated not to have acted
honestly or in the reasonable belief that that person's action was in or not
opposed to the best interests of the corporation or its stockholders or, in the
case of a person serving as a fiduciary of an employee benefit plan or trust, in
or not opposed to the best interests of that plan or trust, or its participants
or beneficiaries; or with respect to any criminal action or proceeding, to have
had reasonable cause to believe that that person's conduct was unlawful.
The MBCA also provides that a corporation may advance to a director,
officer, employee or agent expenses incurred by such person in defending any
action, upon receipt of an undertaking by the person to repay the amount
advanced if it is ultimately determined that such person is not entitled to
indemnification or with respect to any claim, issue or matter asserted in the
action, suit or proceeding brought by or in the right of the corporation, to be
liable to the corporation, unless the court in which that action, suit or
proceeding was brought permits indemnification. Indemnification, unless ordered
by a court or required by the bylaws, shall be made by the corporation and only
as authorized in the specific case upon a determination that indemnification is
proper in the circumstances and in the best interests of the corporation. This
determination shall be made by the Board of Directors by a majority vote of a
quorum consisting of directors who were not parties to that action, suit or
proceeding, or if such quorum is not obtainable, or even if obtainable, if a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or by the stockholders. Notwithstanding any other provisions of
the MBCA, to the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding brought against such person in such capacities, such
person shall be indemnified against expenses, including attorneys' fees,
actually and reasonably incurred by that person.
The indemnification provisions of the MBCA are nonexclusive of any other
rights to which a person may be entitled, by bylaw, agreement, vote of
stockholders or disinterested directors or otherwise. The North East Bylaws
provide for indemnification of directors and officers to the fullest extent
permitted by law. The MBCA provides that a corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, trustee, partner,
fiduciary, employee or agent of another corporation, partnership, joint venture,
trust, pension or other employee benefit plan or other enterprise against any
liability asserted against that person and incurred by that person in any such
capacity, or arising out of that person's status as such, whether or not the
corporation would have the power to indemnify that person against such liability
under the MBCA.
Motor Club. Under the NJBCA:
[BULLET] A corporation may indemnify a corporate agent, including a
director or officer, against his or her expenses and liabilities
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in connection with any proceeding involving the corporate agent
by reason of his or her being or having been such a corporate
agent, other than a proceeding by or in the right of the
corporation, if (1) such corporate agent acted in good faith and
in a manner he or she reasonably believed to be in or not opposed
to the best interests of the corporation; and (2) with respect to
any criminal proceeding, such corporate agent had no reasonable
cause to believe his or her conduct was unlawful.
[BULLET] A corporation may indemnify a corporate agent against his or her
expenses in connection with any proceeding by or in the right of
the corporation to procure a judgment in its favor which involves
the corporate agent by reason of his or her being or having been
such corporate agent, if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to
the best interests of the corporation. However, in such
proceeding no indemnification shall be provided in respect of any
claim, issue or matter as to which such corporate agent shall
have been adjudged to be liable for negligence or misconduct,
unless and only to the extent that the court in which such
proceeding was brought shall determine upon application that
despite the adjudication of liability, but in view of all
circumstances of the case, such corporate agent is fairly and
reasonably entitled to indemnity for such expenses as the court
shall deem proper.
[BULLET] A corporation must provide indemnification of a corporate agent
against expenses to the extent that such agent has been
successful on the merits or otherwise in the defense of any
proceeding described above, or of any claim, issue or matter
therein. Expenses incurred by a corporate agent in connection
with a proceeding may be paid in advance of the final disposition
of the proceeding upon receipt of an undertaking by or on behalf
of the corporate agent to repay such amount if it shall
ultimately be determined that he or she is not entitled to be
indemnified pursuant to the NJBCA.
[BULLET] No indemnification shall be made in respect of any claim, issue
or matter as to which such person shall have been adjudged to be
liable to Motor Club unless and only to the extent that the New
Jersey Court or the court in which such action or suit was
brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the New Jersey Court or such
other court shall deem proper.
[BULLET] Any indemnification (unless ordered by a court) shall be made by
a corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer,
trustee, employee, agent, or the legal representative thereof, is
proper in the circumstances because he or she has met the
applicable standard of conduct set forth in said indemnification
section. Such determination shall be made (1) by the board of
directors by a majority vote of a quorum consisting of directors
who were not parties to such suit or proceeding, or (2) if such a
quorum is not obtainable, a quorum of disinterested directors so
directs, by independent legal counsel for a written opinion, or
(3) by the stockholders.
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[BULLET] Expenses incurred by any person who may have a right of
indemnification under the NJBCA in defending civil or criminal
action, suit or proceeding may be paid by Motor Club in advance
of the final distribution of such action, suit or proceeding as
authorized by the Board of Directors upon receipt of an
undertaking by or on behalf of the director, officer, trustee,
employee, or the legal representative thereof, to repay such
amount unless it shall ultimately be determined that he or she is
entitled to be indemnified by Motor Club pursuant to the NJBCA.
The indemnification provisions of the NJBCA are non-exclusive of any other
rights to which a person may be entitled, by bylaw, agreement or otherwise.
Motor Club's Bylaws provide for indemnification of directors and officers to the
fullest extent permitted by law, except that no indemnification may be made to
or on behalf of a director, officer or other agent of Motor Club if a judgment
or other final adjudication adverse to such person establishes that his or her
acts or omissions (a) were in breach of his or her duty of loyalty to Motor Club
or its stockholders, as defined by law, (b) were not in good faith or involved a
knowing violation of law or (c) resulted in receipt by such person of an
improper personal benefit.
Annual Meetings
North East. Under the MBCA, if there has been a failure, for whatever
reason, to hold the annual meeting of a corporation for a period of 30 days
after the date for such meeting specified in the bylaws, or if no date has been
specified, for a period of 13 months after its last annual meeting, a substitute
annual meeting may be called by any person or persons entitled to call a special
meeting of the stockholders.
Motor Club. Under the NJBCA, if there has been a failure, for whatever
reason, to hold the annual meeting of a corporation for a period of 30 days
after the date for such meeting specified in the bylaws, or if no date has been
designated for a period of 13 months after its last annual meeting, the Superior
Court may, upon the application of any stockholder, summarily order the meeting
or the election of directors.
Special Meetings
North East. Under the MBCA, a special meeting of the stockholders may be
called by the President; the Chairman of the Board; a majority of the board of
directors, the holders of not less than such percentage of the shares entitled
to vote at the meeting as may be set forth in the articles of incorporation or
bylaws, provided that if, after September 1, 1985, a corporation shall adopt a
provision in its articles of incorporation or bylaws which establishes such
percentage to be in excess of ten percent, then, upon application, the holders
of not less than ten percent of the shares entitled to vote at a meeting, the
Superior Court may order a special meeting of the stockholders of the
corporation to be called and held at a time and place, upon the notice and for
the transaction of the business, as may be designated in the order; or such
other officers or persons as may be provided in the articles of incorporation or
in the bylaws. The North East Bylaws provide that special meetings may be called
by the clerk or such other officer or officers, directors or stockholders who
are permitted to call a special meeting by the MBCA.
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Motor Club. Under the NJBCA, special meetings of the stockholders may be
called by the president or the board of directors, or by such other officers,
directors or stockholders as may be provided in the bylaws. Additionally, upon
the application of the holders of not less than ten percent of the shares
entitled to vote at a meeting, the Superior Court may order a special meeting of
the stockholders of the corporation to be called and held at a time and place,
upon the notice and for the transaction of the business, as may be designated in
the order. The Motor Club Bylaws provide that special meetings of the
stockholders may be called by the chairman of the board, the president, an
executive vice president or the board of directors.
Action by Stockholders Without a Meeting
North East. Under the MBCA, any action required or permitted to be taken at
a meeting of the stockholders may be taken without a meeting, if written
consents setting forth the action so taken are signed by the holders of all
outstanding shares entitled to vote on such action and are filed with the clerk
of the corporation as part of the corporate records. There is no provision in
the MBCA or the North East Articles or North East Bylaws which would permit
stockholder action to be taken by less than such unanimous written consent.
Motor Club. The NJBCA and Motor Club's Bylaws provide that action required
to be taken at a stockholders' meeting may be taken without a meeting if the
action is taken by all the stockholders entitled to vote on the action. The
action must be evidenced by one or more written consents describing the action
taken, signed by the stockholders entitled to vote and delivered to the
corporation for inclusion in the minutes or filing with the corporate records.
There is no provision in the NJBCA or the Motor Club Certificate or Bylaws that
would permit stockholder action to be taken by less than such unanimous written
consent.
Stockholders' Proposals
North East. The MBCA does not include a provision restricting the manner in
which nominations for directors may be made by stockholders or the manner in
which business may be brought before a meeting. The North East Articles do not
include provisions regarding procedures to be followed in the nomination of
directors nor do the North East Articles or North East Bylaws include provisions
regarding the procedures to be followed in order to bring business before a
meeting properly.
Motor Club. The NJBCA does not include a provision restricting the manner
in which nominations for directors may be made by stockholders or the manner in
which business may be brought before a meeting.
Charter Amendments
North East. Except with respect to amendments to the articles of
incorporation to reflect a change in the registered office or the clerk of a
corporation or to reflect reductions in authorized shares resulting from
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cancellations of shares, which amendments may be made by the board of directors,
all amendments to the articles of incorporation generally require the approval
of the board of directors, followed by a vote of the owners of a majority of all
outstanding shares entitled to vote thereon, unless the articles of
incorporation contain a provision prescribing a vote greater than, but in no
event less than, a majority of all outstanding shares entitled to vote.
Motor Club. The NJBCA provides that a corporation may amend its certificate
of incorporation in any and as many respects as may be desired so long as the
amendment contains only such provisions as might lawfully be contained in an
original certificate of incorporation filed at the time of making such
amendment. The stockholders may prescribe in the by-laws that any by-law made by
them shall not be altered or repealed by the board. Pursuant to the Motor Club
Certificate, further amendments thereto which require the action of the
stockholders shall be adopted upon receiving the affirmative vote of a majority
of the votes cast by the holders of shares entitled to vote thereon.
Amendments to Bylaws
North East. Under the MBCA, bylaws may be adopted, amended or repealed
either by the board of directors or the holders of shares entitled to vote to
elect directors, provided however, that the directors may not, for two years
after such stockholders have amended or repealed any bylaw provision, amend or
readopt the bylaw provision thus amended or repealed by such stockholders. The
North East Bylaws provide that, except as otherwise required by law, the Bylaws
may be amended, added to or repealed at any annual or special meeting of the
stockholders by a vote of a majority of the shares issued and outstanding and
entitled to vote provided that notice of the proposed amendment, addition or
repeal is given in the notice of said meeting. Except for an amendment, addition
or repeal which is required by law to be made by stockholders, the bylaws may
also be amended, added to or repealed at any regular or special meeting of the
North East Board of Directors by a vote of a majority of the Board, provided
that notice of the proposed amendment, addition or repeal is given in the notice
of said meeting.
Motor Club. The NJBCA provides that the board of directors shall have the
power to make, alter and repeal bylaws unless such power is reserved to the
stockholders in the certificate of incorporation, but bylaws made by the board
may be altered or repealed, and new bylaws made, by the stockholders. The Motor
Club Bylaws provide that the vote of the holders of at least a majority of the
shares of stock of Motor Club issued and outstanding and entitled to vote, shall
be necessary at any meeting of stockholders to amend or repeal the Motor Club
Bylaws or to adopt new bylaws. The Motor Club Bylaws may also be amended or
repealed, new bylaws adopted, at any meeting of the Board of Directors by the
vote of at least a majority of the entire Board; provided that any bylaw adopted
by the Board may be amended or repealed by the stockholders in the manner set
forth above.
Mergers and Major Transactions.
North East. Under the MBCA, stockholder approval is required for the sale,
lease, exchange or other disposition of all, or substantially all, of the
property and assets of a corporation that is not made in the usual and regular
course of the business of such corporation. Under the MBCA, unless the articles
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of incorporation provide otherwise, the merger or consolidation in which a Maine
corporation is a participant must be approved by the affirmative vote of the
holders of at least a majority of the outstanding shares entitled to vote
thereon of such corporation unless any class of shares of any such corporation
is entitled to vote as a class thereon and, in which event the plan of merger or
consolidation shall be approved upon receiving the affirmative vote of the
holders of at least a majority of the outstanding shares of each class of shares
entitled to vote as a class thereon and of the total outstanding shares entitled
to vote thereon. Any class of shares of any corporation which participates in a
merger shall be entitled to vote as a class, whether or not otherwise entitled
to vote, if the plan of merger or consolidation contains provision which, if
contained in a proposed amendment to the articles of incorporation, would
entitle such class of shares to vote as a class.
Under the MBCA, the articles of incorporation may contain a provision
requiring a plan of merger or consolidation to receive a vote greater than, but
in no event less than, that described in the preceding sentence. Notwithstanding
the other provisions of the MBCA, unless required by its articles of
incorporation, no vote of stockholders of a participating corporation which is
to be the surviving corporation shall be necessary to authorize a merger if the
plan of merger does not amend in any respect the articles of incorporation of
the surviving corporation and the shares of any class of stock of the surviving
corporation to be issued or delivered under the plan of merger do not exceed 15%
of the shares of the surviving corporation of the same class outstanding
immediately prior to the effective date of the merger. Article Sixth of North
East's Articles contains a provision requiring the affirmative vote of the
holders of 75% of all shares of stock entitled to vote for approval of a merger
or sale or other disposition of all or substantially all of the assets of North
East. The MBCA provides that a parent corporation owning at least 90% of the
outstanding shares of each class of one or more other corporations may merge one
or more such subsidiary corporations into itself without the approval by a vote
of the stockholders of either the parent or any such subsidiary corporation.
Motor Club. Under the NJBCA, the completion of a merger or consolidation of
a New Jersey corporation, such as Motor Club, which was organized prior to
January 1, 1969, requires the approval of such corporation's Board of Directors
and the affirmative vote of two-thirds of the votes cast by the holders of the
shares of the corporation entitled to vote thereon, unless such corporation is
the surviving corporation and (i) such corporation's certificate of
incorporation is not amended, (ii) the stockholders of the surviving corporation
whose shares were outstanding immediately before the effective date of the
merger will hold the same number of shares, with identical designations,
preferences, limitations, and rights, immediately after, and (iii) the number of
voting shares and participating shares outstanding after the merger will not
exceed by 40% the total number of voting or participating shares of the
surviving corporation before the merger. A corporation organized prior to
January 1, 1969 may adopt a majority voting requirement for a plan of merger or
plan of consolidation, by an amendment of its certificate of incorporation
adopted by the affirmative vote of two-thirds of the votes cast by the holders
of shares entitled to vote thereon. Motor Club has not adopted any such
amendment. Similarly, in the case of a corporation organized prior to 1969, such
as Motor Club, a sale of all or substantially all of the corporation's assets
other than in the ordinary course of business, or a voluntary reorganization of
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a corporation, requires the approval of the corporation's Board of Directors and
the affirmative vote of two-thirds of the votes cast by the holders of shares of
the corporation entitled to vote thereon.
Dissenters' Rights of Appraisal
North East. A stockholder of a Maine corporation generally has the right to
dissent from a merger or consolidation in which the corporation is participating
or sale of all or substantially all of the assets of the corporation, subject to
specified procedural requirements. The MBCA generally does not provide appraisal
rights to stockholders whose shares are (1) registered or traded on a national
securities exchange or (2) registered with the SEC pursuant to Section 12(g) of
the Exchange Act unless stockholders are required to accept anything other than
(a) shares of the surviving or new corporation resulting from the transaction,
or such shares plus cash in lieu of fractional shares, or (b) shares, or shares
plus cash in lieu of fractional shares, of any other corporation whose shares
are not registered or traded on a national securities exchange or held by record
of not less than 2,000 stockholders, or a combination thereof.
Motor Club. Under the NJBCA, any stockholder may dissent from a plan of
merger or consolidation to which the corporation is a party and with regard to
which the stockholder may vote. However, unless the certificate of incorporation
provides otherwise, a stockholder shall not have the right to dissent from any
plan of merger or consolidation with respect to shares (1) of a class or series
which is listed on a national securities exchange or held of record by not less
than 1,000 stockholders on the record date fixed to determine the stockholders
entitled to vote on such action, or (2) for which, pursuant to such action, the
stockholder would receive (a) cash, (b) shares, obligations or other securities
which, upon consummation of the transaction, will either be listed on a national
securities exchange or held of record by not less than 1,000 stockholders, or
(c) cash and such securities. In addition, any stockholder may dissent from any
sale, lease, exchange or other disposition of all or substantially all of the
assets of a corporation not in the usual or regular course of business as
conducted by such corporation, other than a sale by a parent corporation for
which stockholder approval is not required. However, unless the certificate of
incorporation provides otherwise, a stockholder shall not have the right to
dissent from any such sale of assets with respect to shares held by such
stockholder of the type described in clause (1) above, or from any such sale of
assets pursuant to a plan of dissolution of the corporation which provides for
distribution of all of its net assets to stockholders in accordance with their
respective interests within one year, where such sale of assets is wholly for
any of the types of consideration listed in clauses (a), (b), or (c) above. A
stockholder who is entitled to dissent from such action in accordance with the
NJBCA may make a written demand on the corporation or on the surviving
corporation for the payment of the fair value of his or her shares.
Anti-Takeover Provisions
North East. Section 910 of the MBCA generally provides stockholders of a
Maine corporation which has a class of voting shares registered or traded on a
national securities exchange or registered under the Exchange Act with the right
to demand payment for an amount equal to the fair value of each voting share in
the corporation held by the stockholder from a person or group of persons which
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becomes a "controlling person." As permitted by Section 910, North East has
opted not to be covered thereby.
Section 611-A of the MBCA generally provides that a Maine corporation which
has a class of voting stock registered or traded on a national securities
exchange or registered under the Exchange Act may not engage in any business
combination for five years following an interested stockholders' stock
acquisition date (as defined below) unless the business combination is (a)
approved by the corporation's Board of Directors prior to that interested
stockholder's stock acquisition date or (b) approved subsequent to that
interested stockholder's stock acquisition date by the Board of Directors of the
Maine corporation and authorized by the holders of a majority of the outstanding
voting stock in the corporation not beneficially owned by that interested
stockholder (as defined below) or any affiliate or associate thereof or by
persons who are either directors or officers and also employees of the
corporation. An interested stockholder is defined to include any person, firm or
entity that is directly or indirectly the beneficial owner of 25% or more of the
outstanding voting stock of the corporation, other than by reason of a revocable
proxy given in response to a proxy solicitation conducted in accordance with the
Exchange Act which is not then reportable on a Schedule 13D under the Exchange
Act. The interested stockholder's stock acquisition date is defined to be the
date that any person, firm or entity first becomes an interested stockholder of
that corporation.
Motor Club. Subject to exceptions, the NJBCA provides that a corporation
organized under the laws of New Jersey having principal executive offices or
significant operations located in New Jersey may not engage in any business
combination with any interested stockholder (generally, a 10% or greater
stockholder) of the corporation for a period of five years following the
interested stockholder's stock acquisition, unless (a) before the stock
acquisition, the business combination is approved by the Board of Directors of
the corporation, (b) before or after the stock acquisition, the business
combination is approved by the holders of two-thirds of the corporation's voting
stock (not including the interested stockholder's shares), or (c) the
consideration given to stockholders other than the interested stockholder meets
certain standards under the NJBCA.
Dissolution
North East. Under the MBCA, if the Board of Directors of a corporation
adopts a resolution recommending that the corporation be dissolved, or
stockholders owning at least 20% of all the outstanding shares of the
corporation entitled to vote on a proposed dissolution of the corporation call
upon the board of directors to submit their proposal to a vote of the
stockholders, and two-thirds of the outstanding shares of the corporation
entitled to vote thereon vote in favor of the proposed dissolution the
corporation be dissolved, unless the Articles require a greater vote or a class
of shares is entitled to vote as a class, in which event the resolution shall
require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of each class entitled to vote thereon as a class and of the
total shares entitled to vote thereon. A Maine corporation is dissolved upon the
filing of Articles of Dissolution following the filing of a Statement of Intent
to Dissolve.
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A corporation may also be dissolved by the written consent of all
stockholders or upon suit by the Attorney General when it is established that
the corporation has procured its articles of incorporation through fraud or
concealment of a material fact or in any material way failed to comply with the
requirements of the MBCA, has exceeded or abused the authority conferred upon it
by law, has willfully made false statements as to material matters on its Annual
Report or has continued to engage in business after being suspended by the
Secretary of State. Maine corporations may also be dissolved by order of the
Superior Court following the filing of an action by a stockholder in which it is
established that the directors of the corporation are so divided with respect to
the management of the corporation's business and affairs that the votes required
for action by the board of directors cannot be obtained and the stockholders are
unable to terminate the division with the consequence that the corporation is
suffering or will suffer irreparable injury or the business and affairs of the
corporation can no longer be conducted to the advantage of the stockholders
generally; that stockholders are so divided that they have failed for a period
which includes at least two consecutive annual meeting dates to elect successors
to directors whose terms have expired or would have expired upon the
qualification of their successors; that stockholders are so divided with respect
to the management of the affairs and business of the corporation that the
corporation is suffering or will suffer irreparable injury or the business and
affairs of the corporation can no longer be conducted to the advantage of the
stockholders generally; the acts of the directors and those in control of the
corporation are illegal or fraudulent; the corporate assets are being misapplied
or wasted; the petitioning stockholder has a right, under provision of the
articles of incorporation to dissolution of the corporation at will or upon the
occurrence of any specified event or contingency and has made demand upon the
President and other officers of the corporation as provided in the MBCA and the
officers have failed to proceed with dissolution as required; or the corporation
is abandoning its business and has failed, within a reasonable time, to take
steps to dissolve or liquidate its affairs and distribute its assets. The
dissolution of a Maine corporation shall not take away or impair any remedy
available to or against such corporation, its directors, officers of
stockholders for any right or claim existing, or any liability incurred, prior
to such dissolution if action or other proceeding thereon is commenced within
two years after the date of such dissolution.
Motor Club. The NJBCA provides that a corporation's board of directors may
propose dissolution for submission to the stockholders and that such proposal
shall be approved upon receiving the affirmative vote of two-thirds of the votes
cast by holders of shares of the corporation entitled to vote thereon if the
corporation was incorporated prior to 1969 and if, like Motor Club, it has not
elected to change its certificate of incorporation to adopt the majority voting
requirement which applies to corporations formed after 1969.
Neither the certificate nor bylaws of Motor Club contain any specific
provision regarding dissolution.
Regulation of Insurance Holding Companies.
North East. Maine's Insurance Code contains provisions specifically
addressing the examination and regulation of insurance holding company systems.
These provisions require approval by the Maine Superintendent of Insurance of
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acquisitions, mergers and other changes in control of insurers and insurance
holding companies and allow the Superintendent to determine whether an insurer's
surplus is reasonable in relation to its outstanding liabilities and adequate to
its financial needs .
The terms of any transaction between an insurer and its affiliate,
including any charges or fees for services performed, must be fair and
reasonable. In addition, Maine's holding company rules require thirty days'
notice to the Superintendent before an insurer and its affiliate engage in:
[BULLET] Sales, purchases, exchanges, loans or extensions of credit,
guarantees or investments that are equal to or exceed the lesser
of 3% of the insurer's admitted assets or 25% of surplus;
[BULLET] Loans or extensions of credit to non-affiliates if the proceeds
are to be used to make a loan to, purchase assets of or make an
investment in an affiliate of the insurer and the amount equals
or exceeds the lesser of 3% of the insurer's admitted assets or
25% of surplus;
[BULLET] Reinsurance agreements where the premium equals or exceeds 5% of
the insurer's surplus including agreements that require the
transfer of assets from an insurer to a nonaffiliate if an
understanding exists that any portion of the assets will be
transferred to one or more affiliates of the insurer;
[BULLET] Management agreements, cost-sharing agreements and service
contracts; and
[BULLET] Other material contracts specified by rules adopted by the
Superintendent.
The holding company regulations also govern the making and amount of
dividends by an insurer.
Motor Club. The New Jersey Insurance Holding Company Systems Act (IHCSA)
regulates three principal types of activities affecting New Jersey insurers and
their affiliates, i.e. companies and individuals that control, are controlled
by, or are under common control of any New Jersey insurer.
First, under IHCSA no individual or entity may agree to merge with, or to
acquire 10% or more of the voting securities of, a New Jersey insurer or
insurance holding company without the approval of the New Jersey Commissioner of
Banking and Insurance.
Second, IHCSA requires thirty days' notice to the Commissioner before the
following transactions may be entered into among New Jersey insurers and their
affiliates:
[BULLET] Sales, purchases, exchanges, loans, guarantees, investments, and
the like, if the proposed transaction equals or exceeds the
lesser of 3% of the insurer's admitted assets or 25% of surplus;
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[BULLET] Loans to non-affiliates, if the proceeds are to be used to make
an investment in an affiliate of the insurer and the amount
equals or exceeds the lesser of 3% of the insurer's admitted
assets or 25% of surplus;
[BULLET] Reinsurance agreements or modifications where the premium equals
or exceeds 5% of the insurer's admitted assets, and whereby
assets transferred to a non-affiliate would be retransferred to
an affiliate;
[BULLET] Management agreements, service contracts, and cost-sharing
agreements; and
[BULLET] Other agreements as may be designated by regulation.
(In each of the above cases, the transaction is permitted unless the
Commissioner's office disapproves within the thirty-day notice period.)
Third, IHCSA makes certain mergers, acquisitions of voting securities,
asset acquisitions and bulk reinsurance transactions by New Jersey insurers and
their affiliates subject to antitrust notice requirements, which empower the
Commissioner to enjoin transactions that fail to meet competitiveness standards.
STOCKHOLDERS' PROPOSALS
Stockholder proposals for inclusion in proxy materials for Motor Club's
2000 Annual Meeting of Stockholders should be addressed to the Corporate
Secretary at Motor Club's principal executive offices, Motor Club of America, 95
Route 17 South, Paramus, NJ 07653-0931, and must be received by Motor Club on or
before March 7, 2000.
If the merger is not consummated, North East will schedule a 1999 Annual
Meeting of Stockholders and will announce a date by which stockholder proposals
should be submitted. If the merger is not consummated, stockholder proposals for
inclusion in proxy materials for North East's 2000 Annual Meeting of
Stockholders must be received by North East at North East Insurance Company,
P.O. Box 141, Scarborough, ME 04070-1418, on or before the date which is 120
calendar days before the date North East's proxy statement is released to
shareholders for the company's 1999 Annual Meeting of Stockholders. In the event
that North East holds a 1999 Annual Meeting of Stockholders, that proxy
statement will state the deadline for submission of stockholder proposals for
the 2000 annual meeting.
PROXY SOLICITATION
Proxies are being solicited from Motor Club and North East stockholders by
and on behalf of the respective Boards of Directors of each of Motor Club and
North East. Each of Motor Club and North East will bear their own expenses for
the solicitations. The costs of preparing and mailing this proxy
statement/prospectus will be paid equally by Motor Club and North East. In
addition to solicitation by mail, proxies may be solicited from Motor Club and
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North East stockholders by directors, officers and regular employees of Motor
Club and North East, in person, by telecopy or by telephone. Such directors,
officers and employees will not receive any additional compensation for such
services but may be reimbursed for reasonable expenses incurred by them in
forwarding the proxy soliciting materials to the beneficial owners of Motor Club
stock and North East stock. Although there is no formal agreement to do so,
Motor Club and North East, respectively, will reimburse banks, brokerage firms
and other custodians, nominees and fiduciaries for the forwarding of proxy
solicitation materials to beneficial owners of Motor Club stock and North East
stock held of record by such persons. Either Motor Club or North East may also
retain the services of a proxy solicitor to assist in the solicitation of
proxies, in which case the party employing the proxy solicitor would be solely
responsible for such expenses.
LEGAL MATTERS
The validity of the Motor Club stock issuable in the merger will be passed
upon by Sills Cummis Radin Tischman Epstein & Gross, P.A., Newark, New Jersey.
EXPERTS
The consolidated financial statements of Motor Club as of December 31, 1998
and 1997, and for each of the years in the three year period ended December 31,
1998, incorporated by reference in this proxy statement/prospectus, have been
incorporated herein in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of North East incorporated in this
proxy statement/prospectus by reference to the Annual Report on Form 10-KSB of
North East for the year ended December 31, 1998, have been incorporated herein
in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing.
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ANNEX A
MERGER AGREEMENT
______________________________________________________________________________
AGREEMENT AND PLAN OF MERGER
Dated as of March 16, 1999
Between
MOTOR CLUB OF AMERICA
And
NORTH EAST INSURANCE COMPANY
______________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
Article and Section Page
ARTICLE I The Merger....................................................-7-
1.01 The Merger....................................................-7-
1.02 Closing.......................................................-7-
1.03 Effective Time of the Merger..................................-7-
1.04 Effects of the Merger.........................................-7-
1.05 Articles of Incorporation; By-Laws............................-7-
1.06 Directors.....................................................-7-
1.07 Officers......................................................-8-
ARTICLE II Effect of the Merger on the Capital Stock of the
Constituent Corporations......................................-8-
2.01 Effect on Capital Stock.......................................-8-
(a) Common Stock of Sub......................................-8-
(b) Cancellation of Treasury Stock and Parent-Owned
Company Common Stock.....................................-8-
(c) Conversion of Company Common Stock.......................-8-
(d) Cancellation and Retirement of Company Common Stock......-9-
(e) Election Procedures......................................-9-
(f) Pro Rata Selection Process..............................-11-
(g) Dissenting Shares.......................................-11-
2.02 Effect on Stock Plans and Company Stock Options..............-12-
2.03 Exchange of Certificates; Settlement of Company
Stock Options................................................-13-
2.04 Fractional Shares............................................-15-
ARTICLE III Representations and Warranties...............................-15-
3.01 Representations and Warranties of the Company................-15-
(a) Organization, Standing and Corporate Power..............-15-
(b) Subsidiaries............................................-15-
(c) Authority to Conduct Insurance Business.................-15-
(d) Capital Structure.......................................-16-
(e) Duly Authorized; No Violation...........................-16-
(f) Consents and Approvals..................................-17-
(g) SEC Filings.............................................-17-
(h) Other Regulatory Filings; Deficiencies..................-18-
(i) SEC Financial Statements................................-18-
(j) Other Financial Statements..............................-19-
(k) Information Supplied....................................-20-
(l) Litigation; Labor Matters...............................-20-
(m) Absence of Changes in Employee Benefit Plans............-21-
(n) ERISA Plans.............................................-21-
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(o) Certain Employee Payments...............................-22-
(p) Tax Returns and Tax Payments............................-23-
(q) Section 611-A of the MBCA Not Applicable................-23-
(r) Contracts...............................................-24-
(s) Compliance with Other Instruments and Laws..............-25-
(t) Absence of Certain Changes..............................-25-
(u) Insurance Policies......................................-26-
(v) Bank Accounts...........................................-26-
(w) Employees...............................................-26-
(x) Surplus Relief..........................................-26-
(y) Insurance Issued by Company and Subsidiaries............-26-
(z) Computer Equipment and Programs.........................-27-
(aa) Books and Records.......................................-28-
(bb) No Investment Company...................................-28-
(cc) Investment Portfolio....................................-28-
(dd) Discussions with Regulators.............................-28-
(ee) Brokers.................................................-28-
(ff) Opinion of Financial Advisor............................-28-
(gg) Board Recommendation....................................-28-
(hh) Required Company Vote...................................-29-
(ii) Properties..............................................-29-
(jj) Trademarks and Related Contracts........................-29-
(kk) Transactions with Affiliates............................-29-
3.02 Representations and Warranties of Parent and Sub..............-30-
(a) Organization, Standing and Corporate Power;
Authority to Conduct Insurance Business.................-30-
(b) Subsidiaries............................................-30-
(c) Capital Structure.......................................-30-
(d) Duly Authorized; No Violation...........................-31-
(e) Consents and Approvals..................................-31-
(f) SEC Filings.............................................-32-
(g) Other Regulatory Filings; Deficiencies..................-32-
(h) SEC Financial Statements; Undisclosed Liabilities.......-32-
(i) Other Financial Statements..............................-33-
(j) Information Supplied....................................-34-
(k) Absence of Certain Changes or Events....................-34-
(l) Brokers.................................................-35-
(m) Opinion of Financial Advisor............................-35-
(n) Required Parent Stockholder Vote........................-35-
(o) Interim Operations of Sub...............................-35-
(p) Board Recommendation....................................-35-
(q) Tax Returns and Tax Payments............................-35-
(r) Litigation, Compliance With Law.........................-35-
(s) Material Contract Defaults..............................-36-
(t) Assets..................................................-36-
(u) Trademarks and Related Contracts........................-36-
(v) Financial Capacity......................................-36-
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<PAGE>
3.03 Continuing Disclosure.........................................-36-
ARTICLE IV Covenants Relating to Conduct of Business Prior to Merger.....-36-
4.01 As to the Company.............................................-36-
(a) Conduct of Business by the Company......................-36-
(b) Changes in Employment Arrangements......................-39-
(c) Severance...............................................-39-
(d) Transition..............................................-39-
4.02 Conduct of Business of Parent.................................-39-
ARTICLE V Additional Agreements.........................................-40-
5.01 Preparation of Form S-4 and the Joint Proxy Statement;
Stockholder Meetings..........................................-40-
5.02 Letter of the Company's Accountants...........................-41-
5.03 Letter of Parent's Accountants................................-41-
5.04 Access to Information, Confidentiality........................-42-
5.05 Reasonable Best Efforts.......................................-42-
5.06 Fees and Expenses; Certain Payments Upon Termination..........-43-
5.07 Public Announcements..........................................-44-
5.08 Insider Trading...............................................-44-
5.09 Stock Exchange Listing........................................-44-
5.10 Certain Provisions............................................-44-
5.11 No Solicitation...............................................-45-
5.12 Maintenance of Benefit Plans..................................-46-
ARTICLE VI Conditions Precedent..........................................-46-
6.01 Conditions to Each Party's Obligation To Effect the Merger....-46-
(a) Company Stockholder Approval............................-46-
(b) Parent Stockholder Approval.............................-46-
(c) NASDAQ Listing..........................................-46-
(d) No Injunctions or Restraints............................-46-
(e) Form S-4................................................-46-
(f) Due Organization of Sub; Approval of Merger.............-46-
6.02 Conditions to Obligations of Parent and Sub...................-46-
(a) Representations and Warranties..........................-47-
(b) Performance of Obligations of the Company...............-47-
(c) Authorization...........................................-47-
(d) Approval and Consents...................................-47-
(e) No Litigation...........................................-47-
(f) Legal Opinion...........................................-48-
(g) No Adverse Change.......................................-48-
(h) Clerk's Certificates....................................-48-
6.03 Conditions to Obligation of the Company..........................-48-
(a) Representations and Warranties..........................-48-
(b) Performance of Obligations of Parent and Sub............-49-
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(c) No Litigation...........................................-49-
(d) Approvals and Consents..................................-49-
(e) Legal Opinion...........................................-49-
(f) Authorization...........................................-49-
(g) Deposit with Exchange Agent.............................-49-
(h) Secretary's Certificates................................-49-
(i) No Adverse Change.......................................-50-
ARTICLE VII Termination, Amendment and Waiver.............................-50-
7.01 Termination...................................................-50-
7.02 Effect of Termination.........................................-52-
7.03 Amendment.....................................................-52-
7.04 Extension: Waiver.............................................-52-
7.05 Procedure for Termination. Amendment, Extension or Waiver....-52-
ARTICLE VIII General Provisions............................................-53-
8.01 Nonsurvival of Representations and Warranties.................-53-
8.02 Notices.......................................................-53-
8.03 Definitions...................................................-54-
8.04 Interpretation................................................-54-
8.05 Counterparts..................................................-54-
8.06 Entire Agreement, No Third-Party Beneficiaries................-54-
8.07 Governing Law.................................................-55-
8.08 Assignment....................................................-55-
8.09 Enforcement: Jurisdiction.....................................-55-
8.10 Severability..................................................-55-
EXHIBITS
Exhibit A Plan of Merger
Exhibit B Resolutions of the Company's Board of Directors
re: Directors' Stock Options
5
<PAGE>
AGREEMENT AND PLAN OF MERGER made as of March 16, 1999 among MOTOR CLUB OF
AMERICA, a New Jersey corporation ("Parent"), and NORTH EAST INSURANCE COMPANY,
a Maine corporation (the "Company").
WITNESSETH:
WHEREAS, the respective Boards of Directors of Parent and the Company
have determined that the merger of a wholly owned subsidiary of Parent, to be
incorporated under the laws of the State Maine ("Sub") (or, at the election of
Parent as set forth in Section 1.01 hereof, a wholly owned subsidiary of Parent
other than Sub) with and into the Company (the "Merger"), upon the terms and
subject to the conditions set forth in this Agreement, would be fair to and in
the best interests of their respective stockholders, and such Boards of
Directors have approved such Merger, pursuant to which: (a) each share of common
stock, par value $1.00 per share, of the Company issued and outstanding
immediately prior to the Effective Time of the Merger (as defined in Section
1.03 hereof) (other than shares of such common stock owned, directly or
indirectly, by the Company or any wholly owned subsidiary of the Company, or
held by the Company as treasury shares, or owned by Parent, Sub or any other
subsidiary of Parent) (the "Company Common Stock") will, at the individual
election of each holder of shares of such Company Common Stock (each, a "Company
Shareholder"), be converted into the right to receive, in exchange for the
shares of Company Common Stock then held by the Company Shareholder: (i) $3.30
in cash per share of Company Common Stock, or (ii) .19048 of a share of the
common stock, par value $.50 per share, of Parent (the "Parent Common Stock"),
or (iii) a combination of (i) and (ii) above, subject to proration pursuant to
Section 2.01(f) hereof in the event the Company Shareholders elect to receive
more than 290,389 shares of Parent Common Stock; and (b) except as otherwise
provided herein, each option to purchase shares of Company Common Stock (each, a
"Company Stock Option" and collectively the "Company Stock Options") outstanding
but unexercised immediately prior to the Effective Time of the Merger will be
converted into the right to receive from Parent payment of the excess, if any,
of the Per Share Cash Consideration (as defined in Section 2.01(c) hereof) over
the per share exercise price for each Company Option; and
WHEREAS, the affirmative vote of at least three-fourths of the
outstanding shares of the Company Common Stock is required for the approval of
the Merger and this Agreement (the "Company Stockholder Approval"); and
WHEREAS, the affirmative vote of at least a majority of the
outstanding shares present of Parent Common Stock shall be required for the
approval of the Merger and this Agreement (the "Parent Stockholder
Approval");and
WHEREAS, Parent, Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the premises and of the
representations, warranties, covenants and agreements contained in this
Agreement, the parties agree as follows:
6
<PAGE>
ARTICLE I
The Merger
SECTION 1.01 The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the Maine Business
Corporation Act (the "MBCA"), Sub shall be merged with and into the Company at
the Effective Time of the Merger. Upon the Effective Time of the Merger, the
separate existence of Sub shall cease, and the Company shall continue as the
surviving corporation (the "Surviving Corporation"). Subject to any applicable
requirements of the MBCA: (i) at the election of Parent, any wholly owned
subsidiary of Parent other than Sub may be substituted for Sub as a constituent
corporation in the Merger; and (ii) in the event that Parent notifies the
Company that it desires to substitute such a subsidiary, the parties agree to
amend this Agreement so that such substituted subsidiary shall become a
signatory hereto as "Sub."
SECTION 1.02 Closing. Unless this Agreement shall have been terminated
and the transactions herein contemplated shall have been abandoned pursuant to
Section 7.01 hereof, and subject to the satisfaction or waiver of the conditions
set forth in Article VI, the closing of the Merger (the "Closing") will take
place at 10:00 am on a date to be specified by the parties (the "Closing Date"),
which date shall be no later than the fifth business day after satisfaction of
the conditions set forth in Article VI, at the offices of Sills Cummis Radin
Tischman Epstein & Gross, P.A., One Riverfront Plaza, Newark, New Jersey
07102-5400, unless another date, time or place is agreed to in writing by the
parties hereto.
SECTION 1.03 Effective Time of the Merger. Upon the Closing, the
parties shall file articles of merger (the "Articles of Merger") with the
Secretary of State of the State of Maine and shall make all other filings or
recordings required under the MBCA. The Articles of Merger shall contain a Plan
of Merger substantially in the form annexed as Exhibit A hereto, setting forth
terms consistent with those in Articles I and II of this Agreement. The Merger
shall become effective at such time as the Articles of Merger shall have been
duly filed with the Secretary of State of the State of Maine, or at such later
time as is agreed by Parent and the Company and specified in the Articles of
Merger (the time the Merger becomes effective being referred to as the
"Effective Time of the Merger").
SECTION 1.04 Effects of the Merger. The Merger shall have the effects
set forth in Section 905 of the MBCA (or any successor provision thereto).
SECTION 1.05 Articles of Incorporation; By-Laws. (a) The articles of
incorporation of the Company, as in effect immediately prior to the Effective
Time of the Merger, shall be the articles of incorporation of the Surviving
Corporation.
(b) The By-laws of Sub as in effect at the Effective Time of the Merger
shall be the By-laws of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
SECTION 1.06 Directors. The Directors of Sub at the Effective Time of
the Merger (the "Existing Directors") shall be members of the Board of Directors
of the Surviving Corporation, and upon the effectiveness of the Merger, Parent
and such Existing Directors shall take such action as shall be necessary to
elect Ronald A. Libby as a Director of the Surviving Corporation, such Existing
7
<PAGE>
Directors and Ronald A. Libby to constitute the whole Board of Directors of the
Surviving Corporation and to serve in such capacity until the annual meeting of
the Shareholder of the Surviving Corporation next following the Effective Time
of the Merger and thereafter until their successors are duly elected and
qualified.
SECTION 1.07 Officers. The officers of Sub at the Effective Time of
the Merger (the "Existing Officers") shall be officers of the Surviving
Corporation, holding the same offices therein as they held in Sub immediately
preceding the Effective Time of the Merger, and upon the effectiveness of the
Merger the Directors of the Surviving Corporation shall appoint Ronald A. Libby
as the President and Chief Operating Officer of the Surviving Corporation, such
Existing Officers and Ronald A. Libby to serve in such capacities for the terms
set forth in the By-Laws and thereafter until their successors have been duly
appointed and qualified.
ARTICLE II
Effect of the Merger on the Capital Stock of the
Constituent Corporations
SECTION 2.01 Effect on Capital Stock. As of the Effective Time of the
Merger, by virtue of the Merger and without any action on the part of any holder
of any shares of Company Common Stock or any shares of the capital stock of Sub:
(a) Common Stock of Sub. Each share of common stock, par value $.01 per
share, of Sub issued and outstanding immediately prior to the Effective Time of
the Merger shall be converted into one (1) share of the common stock of the
Surviving Corporation and shall constitute the only issued and outstanding
capital stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Company Common Stock.
Each share of Company Common Stock that is owned directly or indirectly by the
Company or any wholly owned subsidiary of the Company, or held by the Company as
treasury shares, and each share of Company Common Stock that is directly or
indirectly owned by Parent, Sub or any other wholly owned subsidiary of Parent,
shall automatically be canceled and retired and shall cease to exist, and no
Parent Common Stock or other consideration shall be delivered or deliverable in
exchange therefor.
(c) Conversion of Company Common Stock. Except as otherwise provided
herein, each issued and outstanding share of Company Common Stock (other than
any Dissenting Shares (as defined in Section 2.01 (g)(i) below)), shall cease to
be outstanding and, subject to proration pursuant to Section 2.01(f) hereof,
shall be converted into the right to receive from Parent, at the individual
election of the Company Shareholder as provided in Section 2.01(e) hereof:
(i) .19048 (the Exchange Ratio) of a fully paid and
non-assessable share of Parent Common Stock(the Per Share
Stock Consideration), or
(ii) $3.30 in cash (the "Per Share Cash Consideration"), or
8
<PAGE>
(iii) a combination of Per Share Stock Consideration and Per Share
Cash Consideration,
provided, however, that the aggregate number of shares of Parent Common Stock
that shall be issued in the Merger shall not exceed 290,389 shares (the "Stock
Amount"), and provided further, that if between the date of this Agreement and
the Effective Time of the Merger the number of outstanding shares of Parent
Common Stock shall have been changed into a different number of shares of common
stock or into a different class of stock, by reason of any stock dividend,
subdivision, reclassification, recapitalization, split, combination or exchange
of shares, the Exchange Ratio (and the Stock Amount) shall be correspondingly
adjusted to reflect such stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares.
(d) Cancellation and Retirement of Company Common Stock. From and after the
Effective Time of the Merger, all shares of Company Common Stock issued and
outstanding immediately prior to the Effective Time of the Merger, other than
Dissenting Shares, shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a certificate
which immediately prior to the Effective Time of the Merger represented shares
of Company Common Stock (a "Company Share Certificate") shall cease to have any
rights with respect thereto, except the right to receive: (i) Per Share Stock
Consideration and/or Per Share Cash Consideration pursuant to Section 2.01(c)
(the "Merger Consideration"), subject to proration pursuant to Section 2.01(f);
(ii) any cash in lieu of fractional shares of Parent Common Stock to be paid in
consideration therefor upon surrender of such Company Share Certificate in
accordance with Section 2.04, and (iii) any dividends payable pursuant to
Section 2.03(f).
(e) Election Procedures. (i) Election forms (the "Election Forms"), letters
of transmittal, instructions and other appropriate and customary transmittal
materials (collectively, the "Election Materials"), which shall specify that
delivery shall be effected, and risk of loss and title to the Company Share
Certificates shall pass, only upon proper delivery of such Certificates to the
Exchange Agent appointed by Parent pursuant to Section 2.03(a) hereof, in such
form as Parent and Company shall mutually agree upon, shall be mailed 30 days
prior to the anticipated Effective Time of the Merger or on such other earlier
date as Parent and Company shall mutually agree upon (the "Mailing Date") to
each Company Shareholder who is a record holder of Company Common Stock as of
five (5) business days prior to the Mailing Date (the "Election Form Record
Date").
(ii) Each Election Form shall permit the Company Shareholder (or the
beneficial owner through appropriate and customary documentation and
instructions) either: (A) to elect to receive only Per Share Stock Consideration
with respect to such Company Shareholder's Company Common Stock ("Stock Election
Shares"); (B) to elect to receive only Per Share Cash Consideration with respect
to such Company Shareholder's Company Common Stock ("Cash Election Shares"); (C)
to elect to receive a combination of Per Share Stock Consideration and Per Share
Cash Consideration with respect to such Company Shareholder's Company Common
Stock ("Mixed Election Shares" and in each case of Mixed Election Shares, the
shares of Company Common Stock elected to be converted into the right to receive
Per Share Stock Consideration being hereinafter referred to as "Mixed Stock
Shares" and the shares of Company Common Stock elected to be converted into the
right to receive Per Share Cash Consideration being hereinafter referred to as
"Mixed Cash Shares"); or (D) to indicate that such Company Shareholder makes no
election ("No Election Shares"). Dissenting Shares (as defined below) shall be
treated as Cash Election Shares for purposes of this Section but shall not be
converted into the right to receive the Per Share Cash Consideration except as
provided in Section 2.01(g).
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(iii)Any Company Common Stock with respect to which the Company
Shareholder (or the beneficial owner, as the case may be) shall not have
submitted to the Exchange Agent an effective, properly completed Election Form
on or before 5:00 p.m. on the 25th day following the Mailing Date (or such other
time and date as Parent and the Company may mutually agree) (the "Election
Deadline") shall also be deemed to be "No Election Shares."
(iv) The Exchange Agent shall make available up to two (2) separate
sets of Election Materials, or such additional sets of Election Materials as the
Exchange Agent in its sole discretion may permit, to all persons who become
holders (or beneficial owners) of Company Common Stock between the Election Form
Record Date and close of business on the business day prior to the Election
Deadline, and the Company shall provide to the Exchange Agent all information
reasonably necessary for it to perform as specified herein.
(v) Any such election shall have been properly made only if the
Exchange Agent shall have actually received a properly completed Election Form
by the Election Deadline. An Election Form shall be deemed properly completed
only if accompanied by one or more Company Share Certificates (or customary
affidavits and indemnification regarding the loss or destruction of such Company
Share Certificates or the guaranteed delivery of such Company Share
Certificates) representing all shares of Company Common Stock covered by such
Election Form, together with duly executed transmittal materials included in the
Election Materials. Any Election Form may be revoked or changed by the person
submitting such Election Form at or prior to the Election Deadline. In the event
an Election Form is revoked prior to the Election Deadline, the shares of
Company Common Stock represented by such Election Form shall become No Election
Shares and Parent shall cause the Company Share Certificates to be promptly
returned without charge to the person submitting the Election Form upon written
request to that effect from the person who submitted the Election Form. Subject
to the terms of this Agreement and of the Election Form, the Exchange Agent
shall have reasonable discretion to determine whether any election, revocation
or change has been properly or timely made and to disregard immaterial defects
in the Election Forms, and any good faith decisions of the Exchange Agent
regarding such matters shall be binding and conclusive. Neither Parent nor the
Exchange Agent shall be under any obligation to notify any person of any defect
in an Election Form.
(vi) Within five (5) business days after the Election Deadline, unless
the Effective Time of the Merger has not yet occurred, in which case as soon
thereafter as practicable, Parent shall cause the Exchange Agent to effect the
allocation among the Company Shareholders of rights to receive Per Share Stock
Consideration or Per Share Cash Consideration in the Merger, in accordance with
the Election Forms, as follows:
(A) Stock Election Shares Plus Mixed Stock Shares Not More
Than Stock Amount. If the number of shares of Parent Common Stock that
would be issued in the Merger upon conversion of the Stock Election
Shares and the Mixed Stock Shares into the right to receive Per Share
Stock Consideration is less than or equal to the Stock Amount, then:
(1) the Mixed Stock Shares and the Stock Election Shares
shall be converted into the right to receive the Per Share Stock
Consideration, and
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(2) the Cash Election Shares, the No Election Shares and the
Mixed Cash Shares shall be converted into the right to receive the Per
Share Cash Consideration.
(B) Stock Election Shares Plus Mixed Stock Shares More Than
Stock Amount. If the number of shares of Parent Common Stock that
would be issued in the Merger upon the conversion of the Stock
Election Shares and Mixed Stock Shares into the right to receive Per
Share Stock Consideration is greater than the Stock Amount, then:
(1) the Mixed Cash Shares, Cash Election Shares and No
Election Shares shall be converted into the right to receive the Per
Share Cash Consideration,
(2) the Exchange Agent shall then select from among the
Stock Election Shares and the Mixed Stock Shares, by a pro rata
selection process (as described below) a sufficient number of shares
(the "Cash Designated Shares") such that the number of shares of
Parent Common Stock that will be issued in the Merger equals as
closely as practicable the Stock Amount, and all Cash Designated
Shares shall be converted into the right to receive the Per Share Cash
Consideration, and
(3) the Stock Election Shares and Mixed Stock Shares which
are not Cash Designated Shares shall be converted into the right to
receive the Per Share Stock Consideration.
(f) Pro Rata Selection Process. In the event the Exchange
Agent is required to select Cash Designated Shares pursuant to
subparagraph (B) (2) above, the Exchange Agent shall:
(A) as to each Company Shareholder who has made an election
for Stock Election Shares under subparagraph (c) (i) above or for
Mixed Stock Shares under subparagraph (c) (iii) above (each, a
"Prorated Company Shareholder"), the Exchange Agent shall calculate
the percentage of the aggregate of all Stock Election Shares and Mixed
Stock Shares that is represented by such Prorated Company
Shareholder's Stock Election Shares or Mixed Stock Shares, as the case
may be (in each case, the "Cash Designated Shares Percentage"); and
(B) calculate the number of shares (the "Excess Election
Shares") by which the aggregate of all Stock Election Shares and Mixed
Stock Shares exceeds the Stock Amount; and
(C) select from each Prorated Company Shareholder, and
designate as Cash Designated Shares, that number of shares of Parent
Common Stock otherwise issuable to such Shareholder in the Merger as
shall be equal (to the nearest whole share) to the product of the
applicable Cash Designated Shares Percentage, multiplied by the number
of Excess Election Shares.
(g) Dissenting Shares.(i) As used in this Agreement, the term "Dissenting
Shares" means any shares of Company Common Stock the holder of which elects to
exercise his or her right to dissent from the Merger and who satisfies the
requirements of subsections 2 and 3 of Section 909 of the MBCA. Holders of
Dissenting Shares shall be entitled to payment for such shares only to the
extent permitted by and in accordance with the MBCA; provided, however, that if,
in accordance with the MBCA, any holder of Dissenting Shares shall forfeit such
right to payment of the fair value thereof, such shares
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shall thereupon be deemed to have been converted into the right to receive and
to have become exchangeable for the Per Share Cash Consideration as of the
Effective Time of the Merger.
(ii) The Company shall give Parent (A) prompt written notice
(including copies) of any written objections to the Merger, any written demands
for payment of the fair value of any shares of Company Common Stock, and any
other instruments served pursuant to the MBCA received by the Company (which
notice shall include the name of each Company Shareholder and the number of
shares of Company Common Stock to which such notice pertains); and (B) the
opportunity to direct all negotiations and proceedings with respect to such
demands under the MBCA. The Company shall not voluntarily make any payment with
respect to any demand for the payment of fair value or settle or offer to settle
any such demand, without Parent's prior written consent.
SECTION 2.02 Effect on Stock Plans and Company Stock Options. (a) As
soon as practicable following the date of this Agreement, but in any event prior
to the consummation of the Company Stockholder Approval, the Board of Directors
of the Company (or, if appropriate, any committee administering any stock option
plan, stock purchase plan or other plan, program or arrangement providing for
the issuance or grant of any interest in respect of the capital stock of the
Company or any Subsidiary (the "Stock Plans")), shall adopt such resolutions or
take such other actions as may be required to effect the following (it being
understood that if the following is not permitted pursuant to the terms of the
Stock Plans, the Company shall use its reasonable best efforts to obtain any
consents or take any other action necessary in order to effect the following):
(i) The terms and provisions of all outstanding Company Stock Options
granted under any Stock Plan, whether or not then exercisable, shall be amended
or otherwise adjusted to provide that, at the Effective Time of the Merger, each
unexercised Company Stock Option outstanding immediately prior to the Effective
Time of the Merger and having a per share exercise price equal to or exceeding
the Per Share Cash Consideration (as defined below) shall be canceled, and each
Company Stock Option not so canceled: (A) that was granted by the Company as an
incentive stock option in accordance with the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "IRC") (and each Company Stock
Option so granted being hereinafter referred to as a "Company ISO"), shall, at
the election of the grantee thereof, as to all or any portion of such Company
ISOs, (1) be converted into the right to receive from Parent a cash payment in
an amount equal to the excess, if any, of the Per Share Cash Consideration over
the per share exercise price for each such Company ISO, or (2) subject to the
limitation set forth in the last sentence of this clause (i), be converted into
the right to receive, from Parent, options granted by Parent as incentive stock
options in accordance with the requirements of IRC [SECTION]422 (each, a "Parent
ISO"), to purchase that number of shares of Parent Common Stock as shall be
equal to the number of shares of Company Common Stock issuable upon exercise of
such Company ISOs multiplied by the Exchange Ratio; and (B) that is not a
Company ISO, shall be converted into the right to receive from Parent a cash
payment in an amount equal to the excess, if any, of the Per Share Cash
Consideration over the per share exercise price for each Company Stock Option
("Payment in Settlement of Company Stock Options"). To the extent that any
Parent ISOs to be granted pursuant to sub-clause (A) above (and any
corresponding Company ISOs), would if so granted (in the case of such Parent
ISOs) and will (in the case of such corresponding Company ISOs) fail to qualify
as incentive stock options under IRC [SECTION]422 by reason of exceeding the
limitation of IRC [SECTION]422(d), then (in the case of such Company ISOs) the
Company and the holder of the Company ISO shall amend the terms of such option
to delay the exercise thereof until January 1, 2000, and such Company ISOs shall
be converted into the right to receive, from Parent, Parent ISOs which first
become exercisable on, January 1, 2000.
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(ii) The terms and provisions of the Stock Plans shall be amended or
otherwise adjusted so as to provide that the Stock Plans shall terminate as of
the Effective Time of the Merger; and
(iii) During the period commencing on the date of this Agreement and ending
on the Effective Time of the Merger, the Company will not: (i) except for the
periodic grant of compensatory stock options to independent Directors of the
Company in accordance with the resolutions of the Company's Board of Directors
annexed hereto as Exhibit B (which are and at the Effective Time of the Merger
will be the only binding agreement of the Company to grant or issue to any
person any options or other rights to acquire, or securities exercisable for or
convertible into, any equity securities of the Company), grant any further
options or other rights to acquire, or issue any securities exercisable for or
convertible into, any equity securities of the Company; or (ii) except in the
case of the proper exercise of Company Stock Options, issue any equity
securities of the Company.
(b) Following the Effective Time of the Merger, no holder of a Company
Stock Option nor any participant in any Stock Plan shall have any right
thereunder to acquire equity securities of the Company or the Surviving
Corporation, and, except as provided above with respect to Company ISOs, shall
have only the right to receive from Parent Payment in Settlement of Company
Stock Options pursuant to the procedures set forth in Section 2.03 hereof.
SECTION 2.03 Exchange of Certificates; Settlement of Company Stock
Options. (a) Prior to the Mailing Date (as defined in Section 2.01 (e)(i)
above), Parent shall appoint an agent (the "Exchange Agent") for the purposes of
exchanging Company Share Certificates for the Merger Consideration, Exchanging
Company ISOs for Parent ISOs, making Payments in Settlement of Company Stock
Options and making payments in lieu of fractional shares pursuant to Section
2.04 hereof. At or before the Effective Time of the Merger, Parent shall deposit
with the Exchange Agent, for the benefit of the holders of Company Share
Certificates, certificates representing the Parent Common Stock issuable
pursuant to Section 2.01 in exchange for Company Share Certificates, Parent
instruments granting the Parent ISOs ("Parent ISO Agreements"), and cash in an
amount equal to the aggregate total amount of cash to be paid pursuant to
Sections 2.01, 2.02 and 2.04 hereof. Upon the Mailing Date, Parent will send, or
will cause the Exchange Agent to send, to each Company Shareholder and each
grantee of Company Stock Options at the Election Form Record Date, for use in
such exchange and/or settlement, the Election Materials, which shall, in
addition to the information set forth in Section 2.01(e) hereof, specify that
delivery of Payments in Settlement of Company Stock Options and of Parent ISO
Agreements shall be effected, and risk of loss and title to the instruments
granting such Company Stock Options, inclusive of Company ISOs (the "Option
Agreements") shall pass, only upon proper delivery of the Option Agreements to
the Exchange Agent. For purposes of Payments in Settlement of Company Stock
Options and delivery of Parent ISO Agreements, proper delivery of Option
Agreements to the Exchange Agent shall be determined in accordance with the
provisions of Section 2.01(e)(v), except that reference therein to "Company
Share Certificates" shall be deemed to refer to Option Agreements.
(b) (i) Each holder of Company Share Certificates that have been converted
into a right to receive the Merger Consideration, upon surrender to the Exchange
Agent of such Company Share Certificates together with a properly completed
letter of transmittal and Election Form covering such Company Share
Certificates, will be entitled to receive the Merger Consideration issuable in
respect of such Company Share Certificates, any cash payable in lieu of
fractional shares pursuant to Section 2.04 hereof, and any dividends payable
pursuant to Section 2.03(f); and (ii) each grantee of a Company Stock Option,
inclusive of Company ISOs, upon surrender to the Exchange Agent of the Option
Agreement together with a properly completed letter of transmittal and Election
Form covering such grantee's Company Stock Options, will be entitled to receive,
for each share of Company Common Stock issuable upon exercise of Company Stock
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Options other than Company ISOs, cash Payment in Settlement of Company Stock
Options, and for each Company ISO, a Parent ISO calculated and determined in
accordance with Section 2.02(i) above together with a Parent ISO Agreement
granting the same. Until so surrendered, each such Company Share Certificate and
Option Agreement shall, after the Effective Time of the Merger, represent for
all purposes only the right to receive (x) the Merger Consideration, any cash
payable in lieu of fractional shares, and any dividends payable pursuant to
Section 2.03(f), (y) cash Payment in Settlement of Company Stock Options or (z)
Parent ISOs, as the case may be, respectively.
(c) If any portion of the Merger Consideration is to be issued to a person
other than the registered holder of a Company Share Certificate, it shall be a
condition to such payment that such Company Share Certificate so surrendered
shall be properly endorsed or otherwise be in proper form for transfer and that
the person requesting such issuance shall pay to the Exchange Agent any transfer
or other taxes required by reason of the issuance of shares of Parent Common
Stock in exchange for the Company Share Certificate so surrendered or establish
to the satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.
(d) After the Effective Time of the Merger, there shall be no further
registration of transfers of shares of Company Common Stock. If, after the
Effective Time of the Merger, Company Share Certificates are presented to the
Surviving Corporation, they shall be canceled and exchanged for the applicable
Merger Consideration provided for, and in accordance with the procedures set
forth, in this Article II.
(e) Any portion of the Merger Consideration and the cash made available to
the Exchange Agent pursuant to Section 2.03(a) that remains unclaimed by the
holders of Company Share Certificates or Option Agreements (inclusive of Option
Agreements granting Company ISOs), as the case may be, six (6) months after the
Effective Time of the Merger shall be returned to Parent, upon demand, and any
such holder who has not exchanged his Company Share Certificates or such Option
Agreements, as the case may be, for the Merger Consideration or (in the case of
such Option Agreements) Payment in Settlement of Company Stock Options (or
Parent ISOs, as the case may be), prior to that time shall thereafter look only
to Parent for payment of the Merger Consideration, any Payment in Settlement of
Company Stock Options, (or Parent ISOs, as the case may be), and/or cash payable
cash payable in lieu of fractional shares pursuant to Section 2.04, and any
dividends payable pursuant to Section 2.03(f) in respect of his shares.
Notwithstanding the foregoing, Parent shall not be liable to any holder of
Company Share Certificates or Option Agreements (inclusive of Option Agreements
granting Company ISOs), for any amount paid to a public official pursuant to
applicable abandoned property laws. Any amounts or items remaining unclaimed by
holders of Company Share Certificates or Option Agreements (inclusive of Option
Agreements granting Company ISOs) seven (7) years after the Effective Time of
the Merger (or such earlier date immediately prior to such time as such amounts
would otherwise escheat to or become property of any governmental entity) shall,
to the extent permitted by applicable law, become the property of Parent free
and clear of any claims or interest of any person previously entitled thereto.
(f) No dividends or other distributions with respect to Parent Common Stock
issued in the Merger shall be paid to the holder of any unsurrendered Company
Share Certificates until such certificates are surrendered as provided in this
Section 2.03. Subject to the effect of applicable laws, following the surrender
of such certificates, there shall be paid, without interest, to the record
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holder of the Parent Common Stock issued in exchange therefor at the time of
such surrender, the amount of dividends or other distributions with a record
date after the Effective Time of the Merger payable prior to or on the date of
such surrender with respect to such whole shares of Parent Common Stock and not
previously paid, less the amount of any withholding taxes which may be required
thereon.
SECTION 2.04 Fractional Shares. No fractional shares of Parent Common
Stock shall be issued in the Merger, but in lieu thereof each holder of Company
Share Certificates otherwise entitled to a fractional share of Parent Common
Stock will be entitled to receive, from the Exchange Agent, a cash payment in
lieu of such fractional shares of Parent Common Stock at the rate of $3.30 per
share.
ARTICLE III
Representations and Warranties
SECTION 3.01 Representations and Warranties of the Company. The
Company represents and warrants to Parent and Sub as follows:
(a) Organization, Standing and Corporate Power. Each of the Company and its
Subsidiaries (as defined in Section 3.01(b)) is duly organized, validly existing
and in good standing under the laws of the jurisdiction in which it is
incorporated and has all requisite corporate power and authority to carry on its
business as now being conducted. Each of the Company and its Subsidiaries is
duly qualified as a foreign corporation to do business, and is in good standing
as a foreign corporation, in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, other than in such jurisdictions where the failure to be so qualified
(individually or in the aggregate) could not be reasonably expected to have a
Material Adverse Effect (as defined in Section 8.03) with respect to the Company
and its Subsidiaries. The Company Disclosure Schedule contains complete, true
and correct copies of the Articles of Incorporation and By-laws of the Company
and each of its Subsidiaries, in each case as amended to the date of this
Agreement, as well as correct, true and complete copies of all minutes of
meetings of the Boards of Directors and committees thereof of the Company and
each of its Subsidiaries since December 31, 1996.
(b) Subsidiaries. The only direct or indirect subsidiaries of the Company
are those listed in the Company Disclosure Schedule (each a "Subsidiary" and
collectively, the "Subsidiaries"). Except as set forth in the Company Disclosure
Schedule, all the outstanding shares of capital stock of each such Subsidiary
have been validly issued and are fully paid and nonassessable and are owned (of
record and beneficially) by the Company, free and clear of all pledges, claims,
liens, charges, encumbrances and security interests of any kind or nature
whatsoever (collectively, "Liens"). Except for the ownership interests set forth
in the Company Disclosure Schedule, and securities held as Investment Assets (as
defined in Section 3.01(dd) hereof), the Company does not own, directly or
indirectly, any capital stock or other ownership interest, and does not have any
option or similar light to acquire any assets or equity or other ownership
interest, in any corporation, partnership, business association, joint venture
or other entity.
(c) Authority to Conduct Insurance Business. Each of the Company and its
Subsidiaries is duly licensed and in good standing, and has full power and
authority, to write the lines of insurance and otherwise conduct the business of
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insurance in each state and other jurisdiction in which it is engaged in such
activities. None of the Company or any of its Subsidiaries is transacting or
conducting any insurance, re-insurance or other business in any state or
jurisdiction requiring a regulatory license therefor in which it is not so
licensed. The Company Disclosure Schedule sets forth a complete, true and
correct list, by Company and each Subsidiary, of: (i) the lines of insurance
written by it; (ii) any other insurance business conducted by it; (iii) the
states and other jurisdictions in which each of the activities listed pursuant
to clauses (i) and (ii), above, is being conducted; (iii)all licenses, permits,
approvals and other authorizations required in respect of each such activity by
each such state and other jurisdiction (the "Company Regulatory Licenses"); (iv)
the date upon which each Company Regulatory License was first issued or granted;
(v) the term of each Company Regulatory License; and (vi) the date (if any) upon
which each Company Regulatory License was most recently renewed, re-filed or
other action to maintain the same in full force and effect was taken. The
Company has delivered to Parent complete, true and correct copies of each
Company Regulatory License issued to it and to each of its Subsidiaries,
certified by the Secretary of the Company, all of which are in full force and
effect.
(d) Capital Structure. As of the date of this Agreement the authorized
capital stock of the Company consists of 12,000,000 shares of common stock, par
value $1.00 per share, of which 3,049,089 are issued and outstanding. As of the
date of this Agreement there are 395,000 Company Stock Options outstanding. The
Company Disclosure Schedule sets forth the name of each grantee of outstanding
Company Stock Options, the number of Company Stock Options held by each grantee,
and the exercise prices of each of such options. Except as set forth above, no
shares of the capital stock or other equity securities of the Company are
issued, reserved for issuance or outstanding. All outstanding shares of capital
stock of the Company are, and all shares will be, when issued, duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights. Except as set forth above, there are no: (i) shares of Company Common
Stock issuable pursuant to the Stock Plans; (ii) outstanding bonds, debentures,
notes or other indebtedness or shares of the Capital Stock or other securities
of the Company having the right to vote (or convertible into, or exchangeable or
exercisable for, securities having the right to vote) on any matters on which
stockholders of the Company may vote; and (iii) outstanding securities, options,
warrants, calls, rights, commitments, agreements, arrangements or undertakings
of any kind to which the Company or any of its Subsidiaries is a party or by
which any of them is bound obligating the Company or any of its Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other equity or voting securities of the Company or
of any of its Subsidiaries or obligating the Company or any of its Subsidiaries
to issue, grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking. The only outstanding
indebtedness for borrowed money of the Company and its Subsidiaries is set forth
on the Company Disclosure Schedule. Except as set forth in the Company
Disclosure Schedule, and except for the Company Stock Options listed therein:
(x) there are no outstanding contractual obligations, commitments,
understandings or arrangements of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire or make any payment in respect of any
shares of capital stock of the Company or any of its Subsidiaries, and (y) to
the knowledge of the Company, there are no irrevocable proxies with respect to
shares of capital stock of the Company or any Subsidiary of the Company. Except
as set forth in the Company Disclosure Schedule and Exhibit B hereto, there are
no agreements or arrangements pursuant to which the Company is or could be
required to register shares of Company Common Stock or other securities under
the Securities Act of 1933, as amended (the "Securities Act"), or other
agreements or arrangements with or (to the Company's knowledge) among any
security holders of the Company with respect to securities of the Company.
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(e) Duly Authorized; No Violation. The Company has the requisite corporate
and other power and authority to enter into this Agreement and, subject to the
Company Stockholder Approval, to consummate the transactions (including the
Merger) contemplated hereby. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the Merger and the other
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject, in the case of the Merger,
to the Company Stockholder Approval. This Agreement has been duly executed and
delivered by the Company and constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms. Except as
disclosed in the Company Disclosure Schedule, the execution and delivery of this
Agreement do not, and the consummation of the Merger and the other transactions
contemplated hereby and thereby and compliance with the provisions hereof will
not, conflict with, or result in any breach or violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of, or give rise to any "put" right
with respect to, any obligation, or the loss of a material benefit under, or
result in the creation of any Lien upon any of the properties or assets of the
Company or any of its Subsidiaries under: (i) the Articles of Incorporation or
By-laws of the Company or any of any of its Subsidiaries; (ii) any loan or
credit agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license (including without
limitation any Company Regulatory License) applicable to the Company or any of
its Subsidiaries or their respective properties or assets; or (iii) subject to
the governmental filings and other matters referred to in the following
sentence, any judgment, order, decree, statute, law, ordinance, rule, regulation
or arbitration award applicable to the Company or any of its Subsidiaries or
their respective properties or assets.
(f) Consents and Approvals. No consent, approval, order or authorization
of, or registration, declaration or filing with, or notice to, any Federal,
state or local government or any court, administrative agency or commission or
other governmental authority or agency, domestic or foreign (a "Governmental
Entity"), is required by or with respect to the Company or any of its
Subsidiaries in connection with the execution and delivery of this Agreement by
the Company or the consummation by the Company of the transactions contemplated
hereby or thereby, except: (i) the filing of a premerger notification and report
form by the Company under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"); (ii) the filing with the SEC of (y) a proxy
statement relating to the Company Stockholder Approval (such proxy statement as
amended or supplemented from time to time, together with the proxy statement for
the Parent Stockholder Approval (the "Joint Proxy Statement"), and (z) such
reports under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as may be required in connection with this Agreement and the transactions
contemplated by this Agreement, (iii) the consents, approvals and other
authorizations of governmental entities having jurisdiction over the insurance
businesses of the Company and its Subsidiaries (the "Company Insurance
Regulatory Agencies") set forth in the Company Disclosure Schedule; (iv) filing
of the Articles of Merger with the Secretary of State of the State of Maine and
the filing of appropriate documents with the relevant authorities of other
states in which the Company and its Subsidiaries are qualified to do business
and (v) such other consents, approvals, orders, authorizations, registrations,
declarations, filings or notices as are set forth in the Company Disclosure
Schedule.
(g) SEC Filings. The Company has filed all required reports, schedules,
forms, statements and other documents with the SEC since December 31, 1996, and
has delivered or made available to Parent all such reports, schedules, forms,
statements and other documents (collectively, and in each case including all
exhibits and schedules thereto and documents incorporated by reference therein,
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the "Company SEC Documents"). As of their respective dates, and except as
otherwise amended or superseded by subsequently filed Company SEC Documents, the
Company SEC Documents complied in all material respects with the requirements of
the Securities Act, or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Company SEC
Documents, and none of the Company SEC Documents (including any and all
financial statements included therein) as of such dates contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(h) Other Regulatory Filings; Deficiencies. The Company and each of its
Subsidiaries has duly filed and otherwise provided all reports, data, other
information and applications required to be filed with or otherwise provided to
the Insurance Departments of the states of Maine and New York, and (other than
the SEC) all other Governmental Entities (including without limitation insurance
departments and commissions) having jurisdiction over the Company or any of its
Subsidiaries, and all required regulatory approvals in respect of such reports,
data, other information and applications are in full force and effect at the
date hereof. The Company has furnished to Parent complete, true and correct
copies of: (i) all reports of examination of the Company and each of its
Subsidiaries issued by any Company Insurance Regulatory Agency (the "Examination
Reports"); (ii) all insurance holding company registrations and annual reports
filed with respect to the Company and each of its Subsidiaries; (iii) all other
regulatory filings by or in respect of the Company and each of its Subsidiaries;
and (iv) all complaints filed with or by, or issued by, any Company Insurance
Regulatory Agency, and all other regulatory proceedings, of any nature,
initiated or pending with respect to the Company or any of its Subsidiaries
("Complaints"), all within the five (5) year period immediately preceding the
date of this Agreement. Except as set forth on the Company Disclosure Schedule,
during such five (5) year period, no deficiency material to the financial
condition, operations, business or business prospects of the Company or any of
its Subsidiaries has been filed or asserted by any Company Insurance Regulatory
Agency in connection with respect to any report or filing made by, or other with
respect to, the Company or any of its Subsidiaries (each, a "Deficiency Report"
and collectively, the "Deficiency Reports"). The Company has provided to Parent
complete, true and correct copies of all written responses to: (x) all
Deficiency Reports; (y) all Examination Reports and Complaints; and (z) the
National Association of Insurance Commissioners regarding each Insurance
Regulatory Information System (IRIS) financial ratio results as to, and all Risk
Based Capital Reports as to, each of the Company and its Subsidiaries. On the
Closing Date, the Company and each of its Subsidiaries will have prepared
substantially complete drafts of all reports, data and other information and
applications that they will, respectively, be required to file with any
Governmental Entity (including without limitation any Company Insurance
Regulatory Agency) within sixty (60) days of the Closing Date, and such drafts
shall be in form and substance sufficient to enable the Surviving Corporation
and each Subsidiary to complete and make such filings, timely after the Closing
Date, without substantial modification.
(i) SEC Financial Statements. The consolidated financial statements of the
Company included in the Company SEC Documents (the "SEC Financial Statements")
comply in all material respects with the published rules and regulations of the
SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles ("GAAP") (except, in the case of unaudited
consolidated quarterly statements, as permitted on Form 10-QSB of the SEC)
applied on a consistent basis during the periods involved and in accordance with
past practice (except as may be otherwise indicated in the notes thereto) and
fairly present the consolidated financial position of the Company and its
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Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited quarterly statements, to material year-end audit adjustments). Except
as set forth in the Company Disclosure Schedule, at the date of the most recent
audited financial statements of the Company included in the Company SEC
Documents, neither the Company nor any of its Subsidiaries had, and since such
date neither the Company nor any of such Subsidiaries has incurred, any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) which, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect except (i) as and to the extent
reflected or reserved against on the financial statements contained in the
Company's Form 10-QSB for the period ended September 30, 1998, (ii) liabilities
of a nature substantially similar to those reflected on those financial
statements and incurred by the Company and its Subsidiaries solely in the
ordinary course of business consistent with past practice, and (iii) liabilities
incurred and/or reserved against in connection with claims under insurance
policies and annuities written and issued by the Company and/or any of its
Subsidiaries.
(j) Other Financial Statements. (i) The Company has delivered to Parent
complete, true and correct copies of all audited and unaudited quarterly, annual
and other financial statements of the Company and each of its Subsidiaries filed
with any Company Insurance Regulatory Agency during the five (5) year period
immediately preceding the date of this Agreement, together with all exhibits and
schedules thereto (the "Regulatory Financial Statements"). Each of the
Regulatory Financial Statements has been prepared in all material respects in
accordance with Statutory Accounting Principles ("SAP") applied on a consistent
basis during the periods involved, and fairly present the financial position,
assets and liabilities of the Company and its Subsidiaries, respectively, as of
the respective dates thereof and the results of their respective operations,
changes in capital and surplus and cash flows for the respective periods then
ended. Except as set forth on the Company Disclosure Schedule, at the respective
dates of the most recent of the Company's and each Subsidiary's Regulatory
Financial Statements, neither the Company nor any of its Subsidiaries had, and
since such respective dates neither the Company nor any of its Subsidiaries has
incurred, any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) which (in the case of each of the Company and
its Subsidiaries, individually, and in the case of the Company and its
Subsidiaries on a consolidated basis) individually or in the aggregate could
reasonably be expected to have a Material Adverse Effect except:(x) as and to
the extent reflected or reserved against on the most recent of their respective
Regulatory Financial Statements; (y) liabilities of a nature substantially
similar to those reflected on those financial statements and incurred by the
Company and its Subsidiaries, as the case may be, solely in the ordinary course
of business consistent with past practice; and (z) liabilities incurred and/or
reserved against in connection with claims under insurance policies and
annuities written and/or issued by the Company and/or any of its Subsidiaries,
respectively.
(ii) Since December 31, 1998 (which is the date of the most recent
Regulatory Financial Statements), there has been no Material Adverse Change in
the composition, nature or risk characteristics (credit quality or otherwise) of
any of the Company's or its Subsidiaries' investment portfolios. Except as
disclosed in the Company Disclosure Schedule, or in the financial statements and
reports delivered pursuant to this Section, neither the Company nor any of its
Subsidiaries have any debts, obligations or liabilities, contingent or
otherwise, whether individually or on a consolidated basis, that could
reasonably be expected to have a Material Adverse Effect.
(iii) All reserves, due and uncollected premiums and other related
items with respect to insurance contracts as established or reflected in the
Company Regulatory Financial Statements: (u) make reasonable provision for all
unpaid loss and loss adjustment expense obligations of the Company and its
Subsidiaries under the terms of their outstanding policies and agreements of
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insurance; (v) were determined in accordance with accepted loss reserving
standards and principles consistently applied; (w) were fairly stated in
accordance with sound actuarial principles; (x) were based on actuarial
assumptions which produce reserves as great as those called for in any contract
provisions and the related reinsurance, coinsurance, and other similar
contracts; (y) 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 (z)
were computed on the basis of assumptions consistent with those used in
computing the corresponding items in the Regulatory Financial Statements for the
immediately preceding comparable period. Each of the Company and its
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) Information Supplied. None of the information supplied or to be
supplied by or on behalf of the Company for inclusion or incorporation by
reference in:(i) the registration statement on Form S-4 to be filed with the SEC
by Parent in connection with the issuance of Parent Common Stock in the Merger
(the "Form S-4") will, at the time the Form S-4 is filed with the SEC, and at
any time it is amended or supplemented or at the time it becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading; and (ii) the Joint Proxy Statement will, at
the date it is first mailed to the Company's stockholders or at the time of the
Company Stockholder Meeting (as defined in Section 5.01(b)), contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Joint Proxy
Statement will comply as to form in all material respects with the requirements
of the Exchange Act and the rules and regulations promulgated thereunder, except
that no representation is made by the Company with respect to statements made or
incorporated by reference therein based on information supplied by or on behalf
of Parent or Sub for inclusion or incorporation by reference in the Joint Proxy
Statement.
(l) Litigation; Labor Matters. (i) The Company Disclosure Schedule sets
forth, as of the date of this Agreement, all suits, actions, counterclaims,
proceedings or governmental or internal investigations ("Actions") pending or,
to the knowledge of the Company, threatened in writing against or affecting the
Company or any of its Subsidiaries (other than American Colonial Insurance
Company ("ACIC")) other than: (A) those Actions (other than Actions described in
clause B, below) which individually could not reasonably be expected to result
in liability to the Company in excess of $40,000, net of insurance proceeds; and
(B) those Actions relating to any liability or alleged liability of the Company
or any Subsidiary of the Company (other than ACIC) as an insurer where,
individually, the reasonably expected loss does not exceed the amount reserved
therefor by the Company or Subsidiary, as the case may be, or if in excess, such
excess is not individually greater than $40,000, net of re-insurance proceeds.
The Company Disclosure Schedule lists all Actions pending, or to the knowledge
of the Company, threatened in writing against or affecting ACIC. Except as set
forth in the Company Disclosure Schedule, none of such Actions (and no other
Actions), individually or in the aggregate, could reasonably be expected to have
a Material Adverse Effect, or prevent or materially delay the ability of the
Company to consummate the transactions contemplated by this Agreement. In
addition, there is not any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding, pending or to the Company's
knowledge threatened against the Company or any of its Subsidiaries which could
reasonably be expected to have any such effect.
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(ii) Neither the Company nor any of its Subsidiaries is a party to, or
bound by, any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor is it or any of its
Subsidiaries the subject of any proceeding asserting that it or any Subsidiary
has committed an unfair labor practice or seeking to compel it or any Subsidiary
to bargain with any labor organization as to wages or conditions of employment,
nor is there any strike, work stoppage or other labor dispute involving it or
any of its Subsidiaries pending or, to its knowledge, threatened, any of which
could reasonably be expected to have a Material Adverse Effect.
(m) Absence of Changes in Employee Benefit Plans. Except as set forth on
the Company Disclosure Schedule, since September 30, 1998, there has not been
any adoption or amendment by the Company or any of its Subsidiaries of any
bonus, pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, medical or
other plan, arrangement or understanding (whether formal or informal, oral or
written) under which the Company or any of its Subsidiaries currently has an
obligation to provide benefits to any current or former employee, officer or
director of the Company or any of its Subsidiaries (collectively, "Employee
Benefit Plans"). Except as disclosed in the Company Disclosure Schedule, there
exists no written or oral employment, consulting, severance, change in control,
termination or indemnification agreement, with respect to any employee of either
the Company of any of its Subsidiaries who in 1998 earned in excess of $100,000
in total compensation, between the Company or any of its Subsidiaries and any
current or former employee, officer or director of the Company or any of its
Subsidiaries ("Employment Arrangements").
(n) ERISA Plans. (i) The Company Disclosure Schedule contains a list of all
"employee pension benefit plans" (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) (sometimes
referred to herein as "Pension Plans"), "employee welfare benefit plans" (as
defined in Section 3(l) of ERISA, hereinafter a "Welfare Plan"), stock option,
stock purchase, deferred compensation plans or arrangements, and other material
employee fringe benefit plans or arrangements with respect to which the Company
and its Subsidiaries or any other person or entity that, together with the
Company, is treated as a single employer under Section 414(b), (c), (m) or (o)
of the Code (each, including the Company, a "Commonly Controlled Entity") have
any liability on account of any present or former officers, employees, directors
or independent contractors of the Company (all the foregoing, including without
limitation all Employee Benefit Plans defined in Section 3.01(m), being herein
collectively called "Benefit Plans"). The Company has made available to Parent
true, complete and correct copies of (A) each Benefit Plan (or, in the case of
any unwritten Benefit Plans, descriptions thereof), (B) the two most recent
annual reports on Form 5500 and attached schedules filed with the Internal
Revenue Service with respect to each Benefit Plan (if any such report was
required by applicable law), (C) the most recent summary plan description for
each Benefit Plan for which such a summary plan description is required by
applicable law, (D) each trust agreement and material insurance or annuity
contract relating to any Benefit Plan, (E) the most recent determination letter,
if applicable, for any Benefit Plan and (F) each written Employment Arrangement.
(ii) Except as disclosed in the Company Disclosure Schedule, each
Benefit Plan has been established and administered in all material respects in
accordance with its terms. All the Benefit Plans are in compliance in all
material respects with the applicable provisions of ERISA, the Code and other
applicable laws, rules and regulations. Except as disclosed in the Company
Disclosure Schedule, all reports, returns and similar documents with respect to
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the Benefit Plans required to be filed with any governmental agency or
distributed to any Benefit Plan participant have been duly and timely filed or
distributed. Except as disclosed in the Company Disclosure Schedule, the Company
has not received notice of any investigations by any governmental agency,
termination proceedings or other claims (except claims for benefits payable in
the normal operation of the Benefit Plans), suits or proceedings against or
involving any Benefit Plan or asserting any rights or claims to benefits under
any Benefit Plan that could give rise to any material liability, and, to the
best of the Company's knowledge, there are not any facts that could give rise to
any material liability in the event of any such investigation, claim, suit or
proceeding. With respect to the Benefit Plans, no event has occurred and no
condition exists that could reasonably be expected to subject any Commonly
Controlled Entity to any material tax, fine or penalty imposed by ERISA, the
Code or other applicable laws, rules and regulations.
(iii) Except as disclosed in the Company Disclosure Schedule, all
contributions to, and payments from, the Benefit Plans that may have been
required to be made in accordance with the terms of the Benefit Plans, any
applicable collective bargaining agreement and, when applicable, Section 302 of
ERISA or Section 412 of the Code, have been timely made.
(iv) Except as disclosed in the Company Disclosure Schedule, each
Benefit Plan intended to qualify under Section 401(a) of the Code has been the
subject of a determination letter from the Internal Revenue Service to the
effect that such Benefit Plan is qualified and exempt from Federal income taxes
under Sections 401(a) and 501(a), respectively, of the Code or application
therefor has been timely made; no such determination letter has been revoked,
and, to the knowledge of the Company, revocation has not been threatened nor is
it expected.
(v) The Company Disclosure Schedule discloses whether: (A) any
"prohibited transaction" (as defined in Section 4975 of the Code or Section 406
of ERISA) has occurred during the past three years that involves the assets of
any Benefit Plan that could subject the Company, any of its employees or a
Company indemnified fiduciary under any Benefit Plan to a material tax or
penalty on prohibited transactions imposed by Section 4975 of ERISA or the
sanctions imposed under Title I of ERISA; or (B) any of the Benefit Plans has
been terminated.
(vi) No Commonly Controlled Entity sponsors, maintains, contributes to
or has any liability in respect of any "employee benefit plan" which is subject
to Title IV of ERISA, including any multiemployer plan, multiple employer plan
or single-employer plan.
(vii) No Commonly Controlled Entity has incurred any material
liability that remains unsatisfied to a Pension Plan (other than for
contributions not yet due) or to the Pension Benefit Guaranty Corporation (other
than for the payment of premiums not yet due).
(viii) Except as disclosed in the Company Disclosure Schedule, no
Commonly Controlled Entity has incurred any "withdrawal liability" (as defined
in Section 4201 of ERISA), which liability has not been fully paid as of the
date hereof, or has announced an intention to withdraw, but has not yet
completely withdrawn, from a "multiemployer plan"; and, to the best of the
Company's knowledge, no action has been taken, and no circumstances exist, that
alone or with the passage of time could result in either a partial or complete
withdrawal from such a Multiemployer Plan by any Commonly Controlled Entity.
(o) Certain Employee Payments. Except as disclosed in the Company
Disclosure Schedule, or as may be necessary to give effect to Section 2.02, no
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Benefit Plan or Employment Arrangement provides for the payment to any current
or former director or employee of the Company or any Commonly Controlled Entity
of any money, other property or rights, or accelerates other rights or benefits
to any such employee or director as a result of the transactions contemplated by
this Agreement, whether or not: (i) such payment, acceleration or provision
would constitute a "parachute payment" (within the meaning of Section 280G of
the Code); or (ii) some other subsequent action or event would be required to
cause such payment acceleration or provision to be triggered. Except as
disclosed in the Company Disclosure Schedule, no payment, acceleration or
provision referred to in the preceding sentence would constitute or give rise to
a "parachute payment" within the meaning of Section 280G of the Code.
(p) Tax Returns and Tax Payments. The Company and each of its Subsidiaries,
and any consolidated, combined, unitary or aggregate group for Tax purposes of
which the Company or any of its Subsidiaries is or has been a member (a
"Consolidated Group") has timely filed all Tax Returns required to be filed by
it and has paid all Taxes shown thereon to be due. The Company and its
Subsidiaries have made or prior to the Closing will make adequate provision (to
the extent required by, and in accordance with GAAP) for all Taxes payable for
any periods that end before the Effective Time of the Merger for which no Tax
Returns have yet been filed and for any periods that begin before the Effective
Time of the Merger and end after the Effective Time of the Merger to the extent
such Taxes are attributable to the portion of any such period ending at the
Effective Time of the Merger, and the charges, accruals and reserves for Taxes
reflected in the financial statements of the Company and its Subsidiaries are
adequate under GAAP to cover the Tax liability accruing or payable by the
Company and its Subsidiaries in respect of periods prior to the date hereof.
Except as set forth in the Company Disclosure Schedule: (i) no material claim
for unpaid Taxes has become a lien against the property of the Company or any of
its Subsidiaries or is being asserted against the Company or any of its
Subsidiaries, (ii) no audit or other proceeding with respect to any Taxes due
from the Company or any of its Subsidiaries or any Tax Return of the Company or
any of its Subsidiaries is pending, threatened, to the best of the Company's
knowledge, or being conducted by a Tax Authority, and (iii) no extension of the
statute of limitations on the assessment of any Taxes has been granted by the
Company nor any of its Subsidiaries and is currently in effect, (iv) neither the
Company nor any of its Subsidiaries (A) has been a member of a Consolidated
Group filing a consolidated federal income Tax Return (other than a group the
common parent of which was the Company) or (B) has any liability for the Taxes
of any person (other than the Company and its Subsidiaries), including liability
arising from the application of Treasury Regulation section 1.1502-6 or any
analogous provision of state, local or foreign law, or as a transferee or
successor, by contract, or otherwise, (v) no consent under Section 341(f) of the
Code has been filed with respect to the Company or any of its Subsidiaries and
(vi) all Taxes required to be withheld, collected or deposited by or with
respect to the Company and each of its Subsidiaries have been timely withheld,
collected or deposited, as the case may be, and, to the extent required, have
been paid to the relevant taxing authority. As used herein, "Taxes" shall mean
all taxes of any kind, including those on or measured by or referred to as
income, gross receipts, sales, use, ad valorem franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
value added, property or windfall profits taxes, customs, duties or similar
fees, assessments or charges of any kind whatsoever, together with any interest
and any penalties, additions to tax or additional amounts imposed by any
governments[ authority, domestic or foreign. As used herein, "Tax Return" shall
mean any return, report or statement required to be filed with any governmental
authority with respect to Taxes.
(q) Section 611-A of the MBCA Not Applicable. The Board of Directors of the
Company has, prior to the execution of this Agreement: (i) approved the
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execution and delivery by the Company of this Agreement, and the consummation of
the Merger and the other transactions contemplated by this Agreement, and such
approval is sufficient to render Section 611-A (i) of the MBCA inapplicable to
this Agreement, the Merger, and the other transactions expressly contemplated
hereby. Other than Section 611-A of the MBCA and Sections 222 and 3474 of Title
24-A of the Maine Revised Statutes Annotated: (y) no state takeover statute or
similar statute or regulation of the State of Maine (and, to the knowledge of
the Company after due inquiry, of any other state or jurisdiction) applies or
purports to apply to this Agreement, the Merger, or any of the other
transactions contemplated hereby and (z) no provision of the Articles of
Incorporation, By-laws or other governing instruments of the Company or any of
its Subsidiaries, or the terms of any rights plan, rights offering or of any
security of the Company, would, directly or indirectly restrict or impair the
ability of Parent to vote, or otherwise to exercise the rights of a stockholder
with respect to, the Company Common Stock to be acquired or controlled by Parent
upon the consummation of the Merger.
(r) Contracts. Set forth in the Company Disclosure Schedule 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 Company
and its Subsidiaries of $40,000 or more (the "Contracts"), to which any of the
Company and its Subsidiaries is bound or otherwise affected as of the date
hereof (other than insurance contracts sold by the company and its 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 agreements
and other agreements and instruments relating to the borrowing of money or
evidence of credit where the Company or any of its Subsidiaries is debtor; (ii)
agreements or other arrangements with insurance agents and agencies and third
party administrators the terms and provisions of which are different from the
terms and provisions of the form of agreement annexed to the Company Disclosure
Schedule and pursuant to which the Company or any of its Subsidiaries has paid
$40,000 or more in commissions or other consideration during the calendar years
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 the
Company or any of its Subsidiaries or regarding the management of any portion of
its or their business or regarding the sale by it or any of them of its or their
products through any other company or the sale by any other company of its
products through the Company or any of its Subsidiaries, which have been entered
into on or after September 30, 1998; (viii) contracts with any entity that is an
Affiliate of the Company or any of its Subsidiaries or with any officer or
director of the Company or any of its Subsidiaries or any officer or director of
any other entity that is an Affiliate of the Company or any of its Subsidiaries,
or to the knowledge of the Company, any corporation controlled by such officer
or director; (ix) agreements and instruments representing loans or commitments
to loan to officers, directors, employees or agents (other than insurance
agents) of the Company or any of its Subsidiaries, or of any entity that is an
Affiliate of the Company or any of its Subsidiaries; (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. The Company has delivered to Parent complete, true
and correct copies of all written Contracts together with all amendments thereto
and waivers and consents with respect thereto. In addition, the Company has made
available to Parent (y) all insurance policy forms used for products currently
marketed by it and by each of its Subsidiaries in its respective business and
that are currently in force, and (z) all forms of agreements or other
arrangements with insurance agents and agencies used by it and each of its
Subsidiaries in its respective business. All of such Contracts are in full force
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and effect and, to the Company's knowledge, 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 the Company or any of its Subsidiaries is a party, or by which any of them
or any of their respective properties is bound, limits either the Company or any
of its Subsidiaries' freedom to compete in any line of business or with any
person or entity. None of the Company or any Subsidiary of the Company has
outstanding any power of attorney other than as is customary in the insurance
industry to permit agents to execute binders. All contracts, arrangements or
treaties to which the Company or any Subsidiary of the Company is a party
regarding reinsurance, excess insurance, ceding of insurance, assumption of
insurance or indemnification with respect to insurance are listed on the Company
Disclosure Schedule.
(s) Compliance with Other Instruments and Laws. Neither the Company nor any
of its Subsidiaries is in violation or breach of any term of its respective
articles of incorporation or bylaws, or, in any material respect, to the
Company's knowledge, any mortgage, indenture, promissory note, pledge, security
agreement or other instrument or agreement relating to indebtedness for borrowed
money, any regulatory filing or undertaking of or affecting it, any judgment,
decree or order of any court or other tribunal having jurisdiction in which the
Company or any such Subsidiary is named, to which it is a party or by which it
or any of its assets is bound, any other instrument, contract or agreement, or
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 assets. All insurance licenses
referred to in the Company Disclosure Schedule and all permits, concessions,
grants, franchises, other licenses and other governmental authorizations and
approvals necessary for the conduct of the business of the Company and its
Subsidiaries have been duly obtained and are in full force and effect and there
are no proceedings pending or, to the knowledge of the Company, threatened, that
may result in the revocation, cancellation, or suspension, or any adverse
modification, of any thereof. Subject to the receipt of the Governmental
Approvals, neither the execution, delivery and performance of this Agreement,
nor the consummation of the transactions contemplated thereby by the Company
will result in the loss, revocation, cancellation, suspension or modification of
any insurance license listed in the Company Disclosure Schedule, or any other
license or material contractual right held by the Company or any of its
Subsidiaries.
(t) Absence of Certain Changes. Except as set forth in the Company
Disclosure Schedule or otherwise provided in this Section 3.01, since September
30, 1998, neither the Company nor any Subsidiary of the Company has: (i) issued,
sold or delivery or agreed to issue, sell or deliver any additional shares of
its capital stock or any options, warrants or other rights to acquire any such
capital stock; or any securities convertible into or exchangeable for such
capital stock; (ii) incurred any material obligations or liabilities, whether
absolute, accrued, contingent or otherwise (including, without limitation,
liabilities as a guarantor or otherwise with respect to obligations of others),
other than obligations and liabilities relating to the issuance of insurance
policies and annuities in the ordinary course of the Company's and each of its
Subsidiaries' respective businesses, or incurred in the ordinary course of its
or any of their businesses, or obligations and liabilities otherwise reflected
on the financial statements contained in the Company SEC documents and on the
Regulatory Financial Statements; (iii) mortgaged, pledged, or subjected to any
lien, lease, security interest or other charge or encumbrance, any of its
respective material assets, tangible or intangible; (iv) acquired or disposed of
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any material assets or properties, or entered into any agreement or other
arrangement 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 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 any such capital stock; (vi) paid or become obligated to pay any
service fees or other sums to, or otherwise entered into any transactions with
or become obligated (financially or otherwise) to, any of its Affiliates; (vii)
forgiven or canceled any material debts or claims or waived any statutory,
contractual or common law rights of material value; (viii) entered into any
material 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) entered into any agreement (other than in the
ordinary course of business) 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 Material Adverse Change; (xii) suffered any material damage,
destruction or loss, whether or not covered by insurance or reinsurance; (xiii)
suffered any strike, picketing, boycott or other labor trouble materially
adversely affecting their respective businesses, financial condition or
operations; (xiv) suffered the occurrence of any event which, if it had taken
place following the execution and delivery of this Agreement, would not have
been permitted by Section 4.01 hereof without the prior written consent of
Parent; or (xv) suffered the happenings of any condition, event or occurrence
which could reasonably be expected to prevent or materially delay the ability of
the Company to consummate the transactions contemplated by this Agreement.
(u) Insurance Policies. Set forth on the Company Disclosure Schedule is a
complete, true and correct list of all insurance policies maintained for the
benefit of any of the Company and its Subsidiaries (or any of their respective
officers and directors), in each case also setting forth the name of the
insurance carrier, the nature and extent of coverage (including all monetary
limits of coverage), and the term of each such policy.
(v) Bank Accounts. The Company Disclosure Schedule contains a complete,
true and correct list of: (i) each bank, trust company, other financial
institution, mutual fund and stock brokerage firm in which each of the Company
and its Subsidiaries has an account or safe deposit box; and (ii) each custodial
account maintained by each of the Company and its Subsidiaries, together with,
in each case, the names and account numbers of each such account, and the names
of all persons authorized to draw thereon or otherwise have access thereto.
(w) Employees. The Company Disclosure Schedule set forth a complete, true
and correct list of all employees, agents, (other than insurance agents),
consultants and other persons retained by each of the Company and its
Subsidiaries, together with the present rate of compensation, bonuses, and a
description of any written or oral agreement of employment or engagement to
which any of them is a party.
(x) Surplus Relief. At the date of this Agreement, neither the Company nor
any of its Subsidiaries was, currently is, and on the Closing Date will be,
subject to any obligations or reinsurance contracts or arrangements involving
surplus relief.
(y) Insurance Issued by Company and Subsidiaries.
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(i) Except as set forth in the Company Disclosure Schedule, no claim
or allegation has been made that the Company or any of its Subsidiaries has in
bad faith denied or limited any insurance coverage of or the payment of any
insurance proceeds to an insured (a "Bad Faith Claim") which has resulted in an
order, decree or other requirement of a Company Insurance Regulatory Agency or a
court of competent jurisdiction in the past 6 years that the Company or any
Subsidiary of the Company institute or take any corrective action or cease any
practice or conduct.
(ii) All insurance contracts offered, issued, reinsured or
underwritten by the Company and any such Subsidiaries have been duly approved
under all applicable insurance laws and regulations and have been fully reserved
for as prescribed under such laws and regulations.
(iii) Except as disclosed in the Company Disclosure Schedule with
respect to the Company's AutoMatic product, the respective underwriting
standards utilized and ratings applied by the Company and each of its
Subsidiaries, at the time so utilized and/or applied, conformed in all material
respects to industry - accepted practices and have not been disputed or found
unacceptable by any Company Insurance Regulatory Agency, the Company's
independent accountants or the Company's actuaries.
(iv) The Company Disclosure Schedule sets forth each reinsurer and
other like entity with which the Company or any of its Subsidiaries has entered
into a reinsurance, coinsurance, assumption fronting or other similar contract
or contracts: (A) which is or has been insolvent or otherwise unable to pay its
obligations when due; (B) as to which the Company or any of its Subsidiaries has
commuted or intends to commute the proceeds receivable therefrom under such
contract or contracts; and (c) as to which the Company or any of its
Subsidiaries is disputing or has disputed the amounts receivable therefrom under
such contract or contracts.
(v) To the Company's knowledge, each insurance agent or general agent,
at the time such agent offered, wrote, sold or produced business for the Company
or any Subsidiary of the Company, 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,
and except as set forth on the Company Disclosure Schedule, no insurance agent,
general agent or any group of affiliated agents has written 5% or more of the
Company's or any such Subsidiary's total in-force insurance business.
(vi) To the Company's knowledge, no present insurance agent of it or
any Subsidiary has materially violated any term or provision of any law or any
writ, judgment, decree, injunction or similar order applicable to or engaged in
any misrepresentation with respect to, the writing, sale or production of
business for it or any such Subsidiary.
(z) Computer Equipment and Programs. The Company Disclosure Schedule sets
forth a complete and correct list and summary description of all material
computer hardware, software, programs and similar systems owned by or licensed
to each of the Company and its Subsidiaries or being utilized in connection with
the business, operations or affairs of any of the Company and its Subsidiaries.
The computer hardware, software, programs and similar systems set forth on the
Company Disclosure Schedule are all of the computer hardware, software, programs
and similar systems necessary to enable each of the Company and its Subsidiaries
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to conduct their respective business as presently conducted. Except as disclosed
in the Company Disclosure Schedule, each of the Company and its Subsidiaries
has, and after the Closing will have, the right to use, free and clear of any
royalty or other payment obligations all computer hardware, software, programs
and similar systems disclosed in the Company Disclosure Schedules. Neither the
Company nor any of its Subsidiaries is in conflict with or in violation or
infringement of, nor has any of them 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 the
Company Disclosure Schedule. In all material respects, to the Company's
knowledge, all such computer hardware, software, programs and similar systems do
presently and will accurately handle, process, display and format (whether in
electronic, CRT or printed media) date information before, during and after
January 1, 2000 (including single century formulas, multi-century formulas and
leap years) in a manner that will: (i) not abnormally end or provide invalid
results; (ii) not adversely affect or impair the performance of such computer
hardware, software, programs and/or similar systems; and (iii) properly
interface and otherwise operate with other such items of computer hardware,
software, programs and similar systems including, without limitations, those of
Parent and the Other Parent Subsidiaries.
(aa) Books and Records. Except as set forth in the Company Disclosure
Schedule, to the Company's knowledge, the minute books and other similar records
of each of the Company and its Subsidiaries 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 them, respectively and of each committee thereof since
January 1, 1994. The books and records of each of the Companies and its
Subsidiaries, accurately reflect in all material respects the business or
condition of each of them, respectively, and have been maintained in all
material respects in accordance with good business and bookkeeping practices.
(bb) No Investment Company. Neither the Company nor any Subsidiary of the
Company is, and none of them has registered as, an investment company within the
meaning of the Investment Company Act of 1940, as amended.
(cc) Investment Portfolio. The Company has provided Parent with a complete
and correct list as of January 31, 1999, of all stocks, notes, debentures,
bonds, mortgage loans, policy loans and other securities and investments owned
of record or beneficially by the Company or any Subsidiary of the Company, which
as of such date constitute the entire investment portfolio of the Company and
each such Subsidiary (which portfolios with additions and deletions thereto in
the ordinary course of business as permitted by this Agreement are hereafter
collectively referred to as the "Investment Assets"). The Company and each of
its Subsidiaries has good and indefeasible title to all of 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
Company's and its Subsidiaries' investment portfolios shall consist of the
Investment Assets and they shall own and have good and indefeasible title to all
of the Investment Assets.
(dd) Discussions with Regulators. Except as set forth in the Company
Disclosure Schedule, neither the Company, any Subsidiary of the Company, nor any
officer, director, agent or representative of the Company or any such
Subsidiary, has received from any Company Insurance Regulatory Agency any
written notice or written inquiry regarding an adverse change in the Company's
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or any such Subsidiary's condition (financial or otherwise) or regarding a
material breach of market conduct requirements by it or any of them that has
occurred or is alleged to have occurred after December 31, 1994.
(ee) Brokers. No broker, investment banker, financial advisor or other
person other than Sandler O'Neill & Partners, L.P., is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company.
(ff) Opinion of Financial Advisor. The Company has received the opinion of
Sandler O'Neill & Partners, L.P., dated the date of this Agreement, to the
effect that, as of the date thereof, the Merger Consideration is fair, from a
financial point of view, to the holders of the Company Common Stock.
(gg) Board Recommendation. The Board of Directors of the Company, at a
meeting duly called and held, has: (i) determined that this Agreement and the
transactions contemplated hereby, inclusive of the Merger, taken together, are
fair to and in the best interests of the stockholders of the Company; and (ii)
resolved to recommend that the holders of the shares of Company Common Stock
approve this Agreement and the transactions contemplated herein, inclusive of
the Merger.
(hh) Required Company Vote. The Company Stockholder Approval, being the
affirmative vote of at least 75% of the outstanding shares of Company Common
Stock, is the only vote of the holders of any class or series of the Company's
securities necessary to approve this Agreement, the Merger and the other
transactions expressly contemplated hereby.
(ii) Properties. Except as disclosed in the Company Disclosure Schedule,
each of the Company and its Subsidiaries: (i) has good and marketable title to
all the properties and assets reflected in the latest audited balance sheet
included in the Company SEC Documents as being owned by the Company or any of
its Subsidiaries or acquired after the date thereof which are, individually or
in the aggregate, material to the Company's and such Subsidiaries' business on a
consolidated basis (except properties sold or otherwise disposed of since the
date thereof in the ordinary course of business), free and clear of (A) all
material Liens except (1) statutory liens securing payments not yet due and (2)
such imperfections or irregularities of title, or other Liens (other than real
property mortgages or deeds of trust) as do not materially affect the use of the
properties or assets subject thereto or affected thereby or otherwise materially
impair business operations at such properties, and (B) all real property
mortgages and deeds of trust; and (ii) is the lessee of all real property
leasehold estates listed in the Company Disclosure Schedule, which are all of
the real property leasehold estates that are material to its and their
respective business on a consolidated basis and is in possession of the
properties purported to be leased thereunder, and each such lease is in full
force and effect and is valid without material default (and the lessee has not
received any notice of default, whether or not material) thereunder by the
lessee or, to the Company's knowledge, the lessor.
(jj) Trademarks and Related Contracts. The Company and each of its
Subsidiaries has the right to do business in Maine or New York, as the case may
be, under its corporate name, and each has the right to use (in each case, free
and clear of any material Liens) all patents, trademarks, trade names,
copyrights, technology, know-how and processes used in or necessary for the
conduct of its business as currently conducted. To the best knowledge of the
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Company: (i) the use of such patents, trademarks, trade names, service marks,
copyrights, technology, know-how and processes by the Company and its
Subsidiaries and authorized users does not infringe on the rights of any person;
and (ii) no person is infringing on any right of the Company or any of its
Subsidiaries, with respect to any such patents, trademarks, trade names, service
marks, copyrights, technology, know-how or processes. The Company and its
Subsidiaries are not in breach or violation in any material respect of any
agreement relating to the use of any of the intellectual property identified in
this provision, and they have not received any notification written or oral from
any third party that there is any such violation, breach or inability to perform
under any such agreement. Except as contained in the Company Disclosure
Schedule, there are no agreements, written or oral, which in any material
respect limit or otherwise relate to any rights by the Company, its
shareholders, or an of its Subsidiaries to use any such intellectual property.
(kk) Transactions with Affiliates. Except as set forth in the Company
Disclosure Schedule and except for permitted dividends to the Company by ACIC,
and for the payment in the ordinary course of business of compensation to the
employees and directors of the Company and of ACIC, since September 30, 1998,
neither the Company nor any of its Subsidiaries has engaged in any transaction
with, or become obligated (financially or otherwise) to, any Affiliate of it.
SECTION 3.02 Representations and Warranties of Parent and Sub. Parent
represents and warrants to the Company as follows:
(a) Organization, Standing and Corporate Power; Authority to Conduct
Insurance Business. Each of Parent and the Other Parent Subsidiaries (as defined
in Section 3.02(b)) is, and Sub will be, duly organized, validly existing and in
good standing under the laws of the jurisdiction in which it is incorporated and
has (or will have) all requisite corporate power and authority to carry on its
business as now being (and in the case of Sub, will be) conducted. Each of
Parent and the Other Parent Subsidiaries is, and Sub will be, duly qualified as
a foreign corporation to do business, and is, and Sub will be, in good standing
as a foreign corporation, in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, other than in such jurisdictions where the failure to be so qualified
(individually or in the aggregate) would not have a Material Adverse Effect with
respect to Parent, Sub and the Other Parent Subsidiaries. The Parent Disclosure
Schedule contains (and in the case of Sub, will contain) complete, true and
correct copies of Parent's Certificate of Incorporation and By-laws and the
certificate of incorporation and by-laws of Sub and the Other Parent
Subsidiaries, in each case as amended to the date of this Agreement. Each of the
Other Parent Subsidiaries are duly licensed as an insurer in, and otherwise
possesses all permits, consents and other governmental authorizations required
for each of them to conduct the type of insurance business presently conducted
by each of them, respectively, in each jurisdiction in which each of them is,
respectively, conducting a business of insurance, except that Sub will be duly
incorporated (but not otherwise licensed) as an insurer pursuant to the laws of
the State of Maine. The Parent Disclosure Schedule contains a complete, true and
correct list of all such licenses, permits, consents and other governmental
authorizations, each of which is in full force and effect, and none of which are
subject to any investigation or proceeding by any regulatory or other
governmental agency, or before any court or administrative body having
jurisdiction, that threatens or seeks to limit, suspend or revoke, or that may
reasonably result in the limitation, suspension or revocation of any such
license, permit, consent or other governmental authorization.
(b) Subsidiaries. The only direct or indirect subsidiaries of Parent (other
than Sub) are listed in the Parent Disclosure Schedule (collectively, the "Other
Parent Subsidiaries"). When issued, all the outstanding shares of the capital
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stock of Sub will be, and all the outstanding shares of the capital stock of
each Other Parent Subsidiary have been, validly issued and are (or will be)
fully paid and nonassessable and are (or will be) owned (of record and
beneficially) by Parent, free and clear of all Liens. Except for the ownership
interests set forth in the Parent Disclosure Schedule, Parent does not own (and
with respect to Sub will not own), directly or indirectly, any capital stock or
other ownership interest, and does not have any option or other right to acquire
any assets or equity or other ownership interest in any corporation,
partnership, business association, joint venture or other entity.
(c) Capital Structure. The authorized capital stock of Parent consists of
10,000,000 shares of common stock, par value $.50 per share, of which, 2,116,429
shares are issued and outstanding at the date of this Agreement. Except as set
forth in the Parent Disclosure Schedule, no shares of capital stock or other
equity securities of Parent are issued, reserved for issuance or outstanding.
All outstanding shares of capital stock of Parent are, and all shares which may
be issued pursuant to this Agreement will be, when issued, duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights. There are no outstanding bonds, debentures, notes or other indebtedness
or other securities of Parent having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
the stockholders of Parent may vote. Except as set forth in the Parent
Disclosure Schedule, there are no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any kind
to which Parent is a party or by which it is bound obligating Parent to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other equity or voting securities of Parent or obligating
Parent to issue, grant, extend or enter into any such security, option, warrant,
call, right, commitment, agreement, arrangement or undertaking. The authorized
capital stock of Sub will consist of 100 shares of common stock, par value $0.01
per share, all of which will have been validly issued, will be fully paid and
nonassessable and will be owned by Parent, free and clear of any Lien.
(d) Duly Authorized; No Violation. Parent has all requisite corporate and
other power and authority to enter into, execute and deliver this Agreement and,
subject to the Parent Stockholder Approval with respect to the Merger, Parent
has and Sub will have all requisite corporate and other power and authority to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Parent and Sub and the consummation by Parent of the Merger
and the other transactions contemplated hereby have been, and in the case of Sub
will be, duly authorized by all necessary corporate action on the part of Parent
and Sub, subject to the Parent Stockholder Approval. This Agreement has been
duly executed and delivered by Parent and constitutes a valid and binding
obligation of Parent, enforceable against in accordance with its terms. The
execution and delivery of this Agreement do not, and in the case of Sub will be,
and the consummation of the Merger and other transactions contemplated hereby
and thereby, and compliance with the provisions of this Agreement will not,
conflict with, or result in any breach or violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of, or any "put" right with respect
to, any obligation, or the loss of a material benefit under, or result in the
creation of any Lien upon any of the properties or assets of Parent, Sub or any
of the other Parent Subsidiaries under: (i) the certificate of incorporation or
by-laws of Parent or Sub or any Other Parent Subsidiary; (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to Parent, Sub
or any Other Parent Subsidiary or their respective properties or assets or;
(iii) subject to the governmental filings and other matters referred to in the
following sub-section, any judgment, order, decree, statute, law, ordinance,
rule, regulation or arbitration award applicable to Parent, Sub or any Other
Parent Subsidiary or their respective properties or assets.
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(e) Consents and Approvals. No consent, approval, order or authorization
of, or registration, declaration or filing with, or notice to, any Governmental
Entity is (and in the case of Sub will be) required by or with respect to
Parent, Sub or any Other Parent Subsidiary in connection with the execution and
delivery of this Agreement by Parent or the consummation by Parent and/or Sub,
of any of the transactions contemplated hereby, except: (i) the filing of a
pre-merger notification and report form by Parent under the HSR Act; (ii) the
filing with the SEC of (x) the Joint Proxy Statement relating to the Parent
Stockholder Approval and a registration statement on Form S-4, and (y) such
reports under the Exchange Act as may be required in connection with this
Agreement and the transactions contemplated by this Agreement; (iii) the
consents, approvals and other authorizations of Governmental Entities having
jurisdiction over the insurance business of Parent, Sub and the Other Parent
Subsidiaries (the "Parent Insurance Regulatory Agencies") set forth in the
Parent Disclosure Schedule; (iv) the filing of the Articles of Merger with the
Secretary of State of the State of Maine, and the filing of appropriate
documents with the relevant authorities of other states in which Parent is
qualified to do business; and (v) such other consents, approvals, orders,
authorizations, registrations, declarations, filings or notices as may be set
forth in the Parent Disclosure Schedule.
(f) SEC Filings. Parent has filed all material required reports, schedules,
forms, statements and other documents with the SEC since December 31, 1996, and
Parent has delivered or made available to the Company all reports, schedules,
forms, statements and other documents filed with the SEC since such date
(collectively, and in each case including all exhibits and schedules thereto and
documents incorporated by reference therein, the "Parent SEC Documents"). As of
their respective dates, and except as otherwise amended or superseded by
subsequently filed Parent SEC Documents, the Parent SEC Documents complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Parent SEC Documents, and none of the
Parent SEC Documents (including any and all consolidated financial statements
included therein) as of such date contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Except to the extent set forth in
the Parent Disclosure Schedule, and except to the extent amended or superseded
by a subsequent filing with the SEC (a copy of which has been provided to the
Company prior to the date of this Agreement), none of the Parent SEC Documents
filed by Parent contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(g) Other Regulatory Filings; Deficiencies. Each of Parent and the Other
Parent Subsidiaries has duly filed and otherwise provided all reports, data,
other information and applications required to be filed with or otherwise
provided (and in the case of Sub, to the extent required by applicable law, will
duly file with and otherwise provide) to the Insurance Department of the State
of New Jersey and (other than the SEC) all other governmental entities
(including without limitation insurance departments and commissions) having
jurisdiction over Parent, Sub or any Other Parent Subsidiary, and all required
regulatory approvals in respect of such reports, data, other information and
application are in full force and effect at the date hereof. Parent has
furnished to the Company complete, true and correct copies of: (i) all reports
of examination of Parent and each of the Other Parent Subsidiaries issued by any
Parent Insurance Regulatory Agency (the "Parent Examination Reports"); (ii) all
insurance holding company registration and annual reports filed with respect to
Parent, Sub and each of the Other Parent Subsidiaries; (iii) all other
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regulatory filings by or in respect of Parent, Sub and each of the other Parent
Subsidiaries; and (iv) all complaints filed with or by, or issued by, any Parent
Insurance Regulatory Agency, and all other regulatory proceedings, of any nature
initiated or pending with respect to Parent, Sub or any Other Parent
Subsidiaries ("Parent Complaints"), all within the five (5) year period
immediately preceding the date of this Agreement. Except as set forth on the
Parent Disclosure Schedule, during such five (5) year period, no deficiency
material to the financial condition, operations, business or business prospects
of Parent or any of the Other Parent Subsidiaries has been filed or asserted by
any Parent Insurance Regulatory Agency in connection with any report or filing
made by or otherwise with respect to, Parent or any of the Other Parent
Subsidiaries. (each, a "Parent Deficiency Report" and collectively , the "Parent
Deficiency Reports"). Parent has provided to the Company complete, true and
correct copies of all written responses to: (x) all Parent Deficiency Reports;
(y) all Parent Examination Reports and Parent Complaints; and (z) the National
Association of Insurance Commissioners regarding each Insurance Regulatory
Information System (IRIS) financial ratio results as to, and all Risk Based
Capital Reports as to, of each of Parent and the Other Parent Subsidiaries.
(h) SEC Financial Statements; Undisclosed Liabilities. The consolidated
financial statements of Parent included in the Parent SEC Documents comply with
all applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with GAAP
(except, in the case of unaudited consolidated quarterly statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of Parent and the Other Parent
Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited quarterly statements, to normal year-end audit adjustments). Except as
set forth in the Parent Disclosure Schedule, at the date of the most recent
audited financial statements of Parent included in the Parent SEC Documents,
neither Parent, nor any Other Parent Subsidiary had, and since such date neither
Parent, Sub nor any Other Parent Subsidiary has, incurred any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
which, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect with respect to Parent, Sub and/or the Other Parent
Subsidiaries except:(i) as and to the extent reflected or reserved against on
the financial statements contained in Parent's report on Form 10-Q for the
three-month period ended September 30,1998; (ii) liabilities of a nature
substantially similar to those reflected on those financial statements and
incurred by Parent and the Parent Subsidiaries solely in the ordinary course of
business consistent with past practice; and (iii) liabilities incurred and/or
reserved against in connection with claims under insurance policies and
annuities written and issued by Parent and/or the Other Parent Subsidiaries.
(i) Other Financial Statements. (i) Parent has delivered to the Company
complete, true and correct copies of all audited and unaudited quarterly, annual
and other financial statements of Parent and each of the Other Parent
Subsidiaries filed with any Parent Insurance Regulatory Agency during the five
(5) year period immediately preceding the date of this Agreement, together with
all exhibits and schedules thereto (the "Parent Regulatory Financial
Statements"). Each of the Parent Regulatory Financial Statements has been
prepared in accordance with SAP applied on a consistent basis during the periods
involved, and fairly present the financial position, assets and liabilities of
the Parent and the Other Parent Subsidiaries, respectively, as of the respective
dates thereof and the results of their respective operations, changes in capital
and surplus and cash flows for the respective periods then ended. Except as set
forth on the Parent Disclosure Schedule, at the respective dates of the most
recent of the Parent's and the Parent Subsidiaries' Regulatory Financial
Statements, neither Parent nor any of the Other Parent Subsidiaries had, and
since such respective dates neither the Company nor any of the Other Parent
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Subsidiaries has incurred, any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) which (in the case of each of the
Parent and the Other Parent Subsidiaries, individually, and in the case of the
Parent and the Other Parent Subsidiaries on a consolidated basis) individually
or in the aggregate could reasonably be expected to have a Material Adverse
Effect with respect to the financial condition, operations, business or business
prospects of the Other Parent or any Parent Subsidiary except: (x) as and to the
extent reflected or reserved against on the most recent of their respective
Parent Regulatory Financial Statements, (y) liabilities of a nature
substantially similar to those reflected on those financial statements and
incurred by the Parent and the Other Parent Subsidiaries, as the case may be,
solely in the ordinary course of business consistent with past practice; and (z)
liabilities incurred and/or reserved against in connection with claims under
insurance policies and annuities written and/or issued by the Parent and/or any
of the Other Parent Subsidiaries, respectively.
(ii) Since the respective dates of the most recent Parent Regulatory
Financial Statements, there has been no material adverse change in the
composition, nature or risk characteristics (credit quality of otherwise) of any
of the Parent's or any Other Parent Subsidiaries' investment portfolios. Except
as disclosed in the Parent Disclosure Schedule, the financial statements and
reports delivered pursuant to this Section, or as otherwise referred to in this
Agreement, neither the Parent nor any of the Other Parent Subsidiaries have any
debts, obligations or liabilities, contingent or otherwise, that could
materially adversely affect its or their financial condition, whether
individually or on a consolidated basis.
(iii) All reserves, due and uncollected premiums and other related
items with respect to insurance contracts as established or reflected in the
Parent Regulatory Financial Statements: (v) were determined in accordance with
commonly accepted actuarial standards consistently applied, (w) were fairly
stated in accordance with sound actuarial principles; (x) were based on
actuarial assumptions which produce reserves as great as those called for in any
contract provisions and the related reinsurance, coinsurance, and other similar
contracts; (y) 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 (z)
were computed on the basis of assumptions consistent with those used in
computing the corresponding items in the Parent Regulatory Financial Statements
for the immediately preceding comparable period. Each of the Parent and the
Other Parent Subsidiaries owns assets that quality 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.
(j) Information Supplied. None of the information supplied or to be
supplied by or on behalf of Parent, Sub or any Other Parent Subsidiary for
inclusion or incorporation by reference in: (i) the Form S-4 will, at the time
the Form S-4 is filed with the SEC, and at any time it is amended or
supplemented or at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading; and (ii) the Joint Proxy Statement will, at the date it is first
mailed to Parent's stockholders or at the time of the Parent Stockholder Meeting
(as defined in Section 5.01(c)), contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Form S-4 and the Joint Proxy Statement will
comply as to form in all material respects with the requirements of the
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Securities Act and the rules and regulations promulgated thereunder, except that
no representation or warranty is made by Parent, Sub or any Other Parent
Subsidiary with respect to statements made or incorporated by reference therein
based on information supplied by or on behalf of the Company for inclusion or
incorporation by reference in the Form S-4 or the Joint Proxy Statement.
(k) Absence of Certain Changes or Events. Except as disclosed in the Parent
Disclosure Schedule, since the date of the most recent audited financial
statements included in the Parent SEC Documents, Parent, and the Other Parent
Subsidiaries have (and Sub will have) conducted their business only in the
ordinary course consistent with past practice, and there is not and has not
been: (i) any Material Adverse Change with respect to their financial condition,
operations, businesses or business prospects; (ii) any condition, event or other
occurrence or circumstance which individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on or give rise to a
material adverse change with respect to Parent, Sub, or the Other Parent
Subsidiaries or their respective financial condition, operations, businesses or
business prospects; (iii) any condition, event or other occurrence or
circumstance which could reasonably be expected to prevent or materially delay
the ability of Parent and Sub to consummate the transactions contemplated by
this Agreement; or (iv) any event which, if it had occurred following the
execution and delivery of this Agreement, would not have been permitted by
Section 4.02 hereof without the Company's prior written consent.
(l) Brokers. No broker, investment banker, financial advisor or other
person other than Cochran, Caronia & Co. is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent.
(m) Opinion of Financial Advisor. Parent has received the opinion of
Cochran Caronia & Co., dated the date of this Agreement, to the effect that the
Merger and the issuance of up to the Stock Amount of the Parent Common Stock in
connection with the Merger, taken as a whole, are fair, from a financial point
of view, to Parent and the holders of the Parent Common Stock.
(n) Required Parent Stockholder Vote. The execution and delivery of this
Agreement and the consummation of the Merger and the other transactions
expressly contemplated hereby requires the affirmative vote of the holders of at
least a majority of the shares of Parent Common Stock present in person or
represented by proxy and entitled to vote at the Parent Stockholder Meeting. The
stockholder action specified above is collectively referred to as the "Parent
Stockholder Approval." Messrs. McWhorter, Lobeck and Swanner (who, presently in
the aggregate, beneficially own more than 42% of the outstanding Parent Common
Stock) have agreed to vote their shares in favor of this Agreement, the Merger,
and each of the other transactions expressly contemplated hereby.
(o) Interim Operations of Sub. Sub will be formed solely for the purpose of
engaging in the transactions contemplated hereby and, in all material respects,
will engage in no other business activities and will conduct its operations only
as contemplated hereby.
(p) Board Recommendation. The Board of Directors of Parent, at a meeting
duly called and held, has:(i) determined that this Agreement and the
transactions contemplated hereby, including the Exchange Ratio and the issuance
of shares of Parent Common Stock in the Merger, are fair to and in the best
interests of the stockholders of Parent; and (ii) resolved to recommend that the
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holders of the shares of Parent Common Stock approve this Agreement, the Merger,
the issuance of shares of Parent Common Stock in connection with the Merger.
(q) Tax Returns and Tax Payments. Parent and the Other Parent Subsidiaries,
and any consolidated, combined, unitary or aggregate group for Tax purposes of
which Parent or any of its subsidiaries is or has been a member, has timely
filed all (and Sub will timely file) Tax Returns required to be filed by it and
has paid (and with the case of Sub will pay) all Taxes shown thereon to be due,
except to the extent that any such failure to file or pay could not reasonably
be expected to have a Material Adverse Effect on Parent.
(r) Litigation, Compliance With Law. (i) There are no suits, actions,
counterclaims, proceedings or investigations pending or, to the knowledge of
Parent, threatened in writing against Parent, Sub or the Other Parent
Subsidiaries other than those which, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect with respect to Parent.
(ii) The conduct of the business of each of Parent and the Other
Parent Subsidiaries complies with (and in the case of Sub will comply with) all
statutes, laws, regulations, ordinances, rules, permits, concessions, grants,
franchises, licenses, other governmental authorizations and approvals,
judgments, orders, decrees or arbitration awards applicable thereto, except for
violations or failures so to comply, if any, that, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect
with respect to Parent.
(s) Material Contract Defaults. Neither Parent, Sub nor any of the Other
Parent Subsidiaries is, or has received any notice or has any knowledge that any
other party is, in violation, default or unable to perform in any respect under
any contract, agreement, or arrangement (whether oral or written) to which
Parent, Sub or any of the Other Parent Subsidiaries is a party or by which it,
they are any of its or their assets is bound, which is material to the business
of Parent, Sub or any Other Parent Subsidiary, except for those violations,
defaults or inabilities to perform which could not reasonably be expected,
either individually or in the aggregate, to have a Material Adverse Effect with
respect to Parent.
(t) Assets. The assets, properties, rights and contracts, including (as
applicable), title or leaseholds thereto, of Parent, Sub and the Other Parent
Subsidiaries, taken as a whole, are sufficient to permit Parent, Sub and the
Other Parent Subsidiaries to conduct their business as currently being conducted
with only such exceptions as could not be reasonably expected to have a material
adverse effect on Parent.
(u) Trademarks and Related Contracts. Parent and each of the Other Parent
Subsidiaries owns and/or is licensed to use, and Sub will own and/or be licensed
to use, (in each case, free and clear of any Liens), all patents, trademarks,
trade names, copyrights, technology, know-how and processes used in or necessary
for the conduct of its business as currently conducted which are material to the
condition (financial and other), business, or operations of the Company, except
to the extent any such failure could not reasonably be expected to have a
Material Adverse Effect on Parent.
(v) Financial Capacity. Parent has, and at all times prior to the Effective
Time of the Merger will maintain, sufficient financial capacity to enable it to
perform its obligations under this Agreement, including without limitation the
obligation to pay the Merger Consideration.
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SECTION 3.03 Continuing Disclosure. During the period commencing as of
the date of this Agreement and ending at the Effective Time of the Merger, each
of the Company and Parent shall, upon the happening of any event, occurrence or
circumstance which if occurring or known to the Company or Parent (as the case
may be) as of the date of this Agreement would have been required to be
disclosed in its respective Disclosure Schedule in order to make the disclosures
therein not misleading (or as to which a failure to disclose would be
misleading), promptly amend its Disclosure Schedule by inclusion of such event,
occurrence or circumstance and forward such amendment to the other party. Each
of the Company and Parent shall have the right to amend its Disclosure Schedule
in order to provide up-dated information or to correct prior, inadvertent errors
therein.
ARTICLE IV
Covenants Relating to Conduct of Business Prior to Merger
SECTION 4.01 As to the Company.
(a) Conduct of Business by the Company. During the period from the date of
this Agreement to the Effective Time of the Merger (except as otherwise
specifically required by the terms of this Agreement), the Company shall, and
shall cause its Subsidiaries to, act and carry on its and their respective
businesses only in the usual, regular and ordinary course of business consistent
with past practice and, to the extent consistent therewith, use its and their
reasonable best efforts to preserve intact its and their current business
organizations, keep available the services of its and their current officers and
employees and preserve its and~their relationships with brokers, agents,
suppliers, advertisers and others having business dealings with it and them to
the end that its and their goodwill and ongoing businesses shall be materially
unimpaired at the Effective Time of the Merger. Without limiting the generality
of the foregoing, during the period from the date of this Agreement to the
Effective Time of the Merger, the Company shall not and shall not permit any of
its Subsidiaries to, without the prior written consent of Parent, which consent
will not be withheld without Parent stating its reason therefor:
(i) (x) directly or indirectly declare, set aside or pay any dividends
on, or make any other distributions in respect of, any of its capital stock
(other than permitted dividends by ACIC); (y) split, combine or reclassify any
of its capital stock or issue or authorize the issuance of any other securities
in respect of, in lieu of or in substitution for shares of any of its capital
stock; or (z) except pursuant to Company Stock Options or as otherwise may be
necessary to effectuate the provisions of Section 2.02 hereof, purchase, redeem
or otherwise acquire any shares of any of its capital stock or any other
securities thereof or any rights, warrants or options to acquire any such shares
or other securities;
(ii) authorize for issuance, issue, deliver, sell, transfer, pledge or
otherwise encumber any shares of any of its capital stock or the capital stock
of any of its subsidiaries, any other voting securities or any securities
convertible into or exercisable or exchangeable for, or any rights (including
without limitation any Company Stock Options other than those issued to Company
Directors in accordance with past compensation practices pursuant to the
resolutions of the Company's Board of Directors set forth as Exhibit B hereto),
warrants, calls, commitments or options to acquire, any such shares, voting
securities or convertible securities or any other securities or equity
equivalents (including without limitation stock appreciation rights);
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(iii) amend its articles of incorporation or by-laws;
(iv) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the stock or assets of, or by any other
manner, any business or any corporation, partnership, joint venture, association
or other business organization or division thereof;
(v) sell, lease, license, mortgage or otherwise encumber or subject to
any material Lien or otherwise dispose of any of, close, discontinue or shut
down its lines of business or insurance products, or any of its material
properties or material assets;
(vi) (x) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or any of
its Subsidiaries, guarantee any debt securities of another person, enter into
any "keep well" or other agreement to maintain any financial statement condition
of another person or enter into any arrangement having the economic effect of
any of the foregoing; (y) amend the terms of any outstanding security in a
manner that would increase its obligations thereunder; or (z) make any loans,
advances or capital contributions to, or investments in, the Company, any
Subsidiary of the Company or any other person;
(vii) acquire or agree to acquire any capital assets other than
replacements in ordinary course of having an aggregate value not in excess of $
50,000 or make or agree to make any capital expenditures other than in respect
of the foregoing;
(viii) other than as set forth in Section 4.01(a)(xii), below, pay,
discharge or satisfy any claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), except for the payment,
discharge or satisfaction of: (w) claims in respect of its insurance policies;
(x) other liabilities or obligations in the ordinary course of business
consistent with past practice; (y) liabilities reflected or reserved against in
the most recent consolidated financial statements (or the notes thereto) of the
Company included in the SEC Documents; or (z) other claims, liabilities or
obligations in an amount, individually, not in excess of $40,000, or waive,
release, grant, or transfer any rights of material value or modify or change any
existing material license, lease, contract or other document in any manner that
would be material to the Company or any of its Subsidiaries or enter into any
new contract, lease or license other than renewals in the ordinary course of
business;
(ix) adopt a plan of complete or partial liquidation, merger,
consolidation, restructuring, recapitalization or reorganization, or resolutions
providing for or authorizing any of the foregoing;
(x) enter into any collective bargaining agreement, whether in the
first instance or as a renewal of or successor to any prior collective
bargaining agreement;
(xi) change any accounting principle used by it, except for such
changes as may be required to be implemented following the date of this
Agreement pursuant to GAAP, SAP or rules and regulations of the SEC or any
Company Regulatory Agency promulgated following the date hereof;
(xii) settle or compromise any Action (whether or not commenced prior
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to the date of this Agreement), other than any settlement or compromise not in
excess of amounts reserved therefor as of January 31, 1999, (provided that such
settlement or compromise does not involve any material non-monetary obligations
on the part of the Company), or if in excess of such reserved amounts, such
excess is not greater than $40,000;
(xiii) close, shut down or otherwise eliminate any of its facilities;
(xiv) enter into (or commit to enter into) any new lease or amend or
renew any existing lease or purchase or acquire or enter into any agreement to
purchase or acquire any real estate or terminate any existing lease, other than
leases for equipment (including without limitation any computer hardware or
software) requiring an aggregate annual commitment not in excess of $40,000;
(xv) change any Tax election, change any annual Tax accounting period,
change any method of Tax accounting, file any amended Tax return, enter into any
closing agreement relating to any material Tax, settle any material Tax claim or
assessment surrender any right to claim a Tax refund or consent to any extension
or waiver of the limitations period applicable to any Tax claim or assessment,
if such acts, either separately or in the aggregate, would have the effect of
materially increasing the Tax liability of or materially reducing the Tax assets
of the Company or any of its Subsidiaries or of Parent or any of its
subsidiaries;
(xvi) change the composition, fill any vacancies in or increase the
size of the Company's Board of Directors; or
(xvii) authorize any of, or commit or agree to take any of, the
foregoing actions or, to the extent not enumerated in the foregoing, any action
described in Section 3.01(u) hereof.
(b) Changes in Employment Arrangements. Without the written consent of
Parent, neither the Company nor any of its Subsidiaries shall (except as may be
required in order to give effect to the requirements of Section 2.02) adopt or
amend (except as may be required by law) any bonus, profit sharing,
compensation, stock option (including by accelerating or altering the vesting
thereof other than as required by the terms of the applicable plan or agreement)
pension, retirement, deferred compensation, severance, change-in-control, fringe
benefits, employment or other employee benefit plan, agreement, trust, fund or
other arrangement (including any Benefit Plan or Employment Arrangement) for the
benefit or welfare of any employee, director or former director or employee,
increase the compensation, bonus or fringe benefits of any director, employee or
former director or employee or pay any benefit not required by any existing
plan, arrangement or agreement, except that the Company will be permitted to
grant merit increases in salaries of employees (other than officers) at
regularly scheduled times in customary amounts consistent with past practices.
(c) Severance. Neither the Company nor any of its Subsidiaries shall grant
any new or modified severance or termination arrangement or increase or
accelerate any benefits payable under its severance or termination pay policies
in effect on the date hereof, other than so as to provide, in the event of
termination upon the request or direction of Parent during the twelve (12)-month
period beginning at the Effective Time of the Merger: (i) in the case of such
termination of Graham Payne, Rebecca Cerny or David Drake, a lump sum severance
payment in a amount equal to one-half of such individual's annual Company salary
at the date of termination net of applicable payroll withholding taxes and
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similar charges; and (ii) in the case of any other salaried Company employee
other than Robert G. Schatz and Ronald A. Libby, a lump sum severance payment in
an amount equal to one-twelfth of such individual's annual Company salary at the
date of termination net of applicable payroll withholding taxes and similar
charges.
(d) Transition. In order to facilitate the completion and occurrence of the
Conditions Precedent set forth in Article VI hereof, and to facilitate an
orderly transition of the business of the Company to a wholly owned subsidiary
of Parent and to permit the coordination of their related perations on a timely
basis, the Company shall (and shall cause its officers, directors and executive
employees to) consult with and assist Parent on such strategic, operational and
other matters as Parent may reasonably request, from time to time. Company shall
make available to Parent at the Company's facilities office space in order to
assist it in observing all operations and reviewing all matters concerning the
Company's affairs. Without in any way limiting the provisions of Section 5.04,
Parent, its subsidiaries, officers, employees, counsel, financial advisors and
other representatives shall, upon reasonable notice to the Company, be entitled
to review the operations and visit the facilities of the Company and its
subsidiaries at all times as may be deemed reasonably necessary by Parent in
order to accomplish the foregoing arrangement.
SECTION 4.02 Conduct of Business of Parent. (a) During the period from
the date of this Agreement to the Effective Time of the Merger (except as
otherwise specifically required by the terms of this Agreement), Parent shall,
to the extent consistent with Parent's reasonable commercial judgment and to the
extent material, use its reasonable best efforts to preserve intact its and its
subsidiaries' current business organizations, keep available the services of
their current officers and employees and preserve their relationships with
brokers, agents, suppliers, advertisers and others having business dealings with
them to the end that their goodwill and ongoing businesses shall be unimpaired
at the Effective Time of the Merger.
(b) Without limiting the generality of the foregoing, during the period
from the date of this Agreement to the Effective Time of the Merger, Parent
shall not, directly or indirectly, without the prior written consent of the
Company (which consent will not be unreasonably withheld or delayed): (i) adopt
a plan of complete or partial liquidation or resolutions providing for or
authorizing such a liquidation or a dissolution, consolidation, restructuring,
recapitalization or reorganization; (ii) dispose of any material portion of its
assets except in the ordinary course of business; (iii) declare or pay any cash
dividend that would reasonably be expected to materially depress the market
price of the Parent Common Stock or materially reduce Parent's stockholders'
equity from such stockholders' equity as set forth on the most recent Parent SEC
Financial Statements; or (iv) suffer any Material Adverse Change.
ARTICLE V
Additional Agreements
SECTION 5.01 Preparation of Form S-4 and the Joint Proxy Statement;
Stockholder Meetings. (a) Promptly following the execution of this Agreement,
the Company and Parent shall prepare and file with the SEC the Joint Proxy
Statement, and Parent shall prepare and file with the SEC the Form S-4, in which
the Joint Proxy Statement will be included as a prospectus. Each of the Company
and Parent shall use its reasonable best efforts to have the Form S-4 declared
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effective under the Securities Act as promptly as practicable after such filing.
The Company will use its reasonable best efforts to cause the Joint Proxy
Statement to be mailed to the Company's stockholders, and Parent will use its
reasonable best efforts to cause the Joint Proxy Statement to be mailed to
Parent's stockholders, in each case as promptly as practicable after the Form
S-4 is declared effective under the Securities Act. The information provided and
to be provided by Parent, Sub and the Company, respectively, for use in the Form
S-4 shall, at the time the Form S-4 becomes effective and on the dates of each
of the Company Stockholder Meeting and the Parent Stockholder Meeting, be true
and correct in all material respects and shall not omit to state any material
fact required to be stated therein or necessary in order to make such
information not misleading, and the Company, Parent and Sub each agree to
correct immediately upon the discovery thereof any information provided by it
for use in the Form S-4 which shall have become false or misleading.
(b) The Company shall cause a meeting of its stockholders (the "Company
Stockholder Meeting") to be duly called and held within 45 days after the Form
S-4 becomes effective, for the purpose of voting on the approval and adoption of
this Agreement and the Merger. The Board of Directors of the Company shall
recommend approval and adoption of this Agreement and the Merger by the
Company's stockholders. The Board of Directors of the Company shall not be
permitted to withdraw, amend or modify in a manner adverse to Parent such
recommendation (or announce publicly its intention to do so), except that prior
to the date of the Company Stockholder Meeting, the Board of Directors shall be
permitted to withdraw, amend or modify its recommendation (or publicly announce
its intention to do so) but only if: (i) the Company has complied with Section
5.11; (ii) an Alternative Transaction (as defined in Section 7.01) shall have
been proposed by any person other than Parent or its Affiliates; (iii) the
Company shall have notified Parent of such Alternative Transaction at least five
(5) business days in advance of such withdrawal, amendment or modification; and
(iv) the Board of Directors of the Company (or an independent committee thereof)
shall have determined in its good faith judgment that such Alternative
Transaction is more favorable to the Company's stockholders than this Agreement
and the Merger and, as a result, the Board of Directors of the Company shall
have determined in good faith, consistent with the written opinion of Verrill &
Dana LLP, or another law firm of recognized reputation and standing retained by
the Company ("Company Counsel"), that it is obligated by its fiduciary duties
under applicable law to modify, amend or withdraw such recommendation; provided
that no such withdrawal, amendment or modification shall be made unless the
Company shall have delivered to Parent in accordance with Section 5.11(b) a
written notice advising Parent that the Board of Directors of the Company has
received a proposal for an Alternative Transaction, describing the material
terms thereof, and identifying the person making such proposal.
(c) Unless the Board of Directors of the Company shall take any action
permitted by the third sentence of paragraph (b) above, Parent shall cause a
meeting of its stockholders (the "Parent Stockholder Meeting") to be duly called
and held within 45 days after the Form S-4 becomes effective, for the purpose of
voting on the Merger and on the issuance of shares of Parent Common Stock in
connection with the transactions contemplated hereby. At such meeting, the Board
of Directors of Parent shall recommend approval by Parent's stockholders of the
Merger and such issuance of shares of Parent Common Stock. Nothing contained in
this Section 5.01(c) shall prohibit Parent from making any disclosure to
Parent's stockholders if, in the good faith judgment of the Board of Directors
of Parent, upon the advice of counsel, failure to make such disclosure would be
inconsistent with applicable laws.
(d) The recommendations of the Boards of Directors of Parent and the
Company referred to in paragraphs (b) and (c) above, together with copies of the
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opinions referred to in Sections 3.01(gg) and 3.02(m), shall be included in the
Joint Proxy Statement. Parent and the Company will use reasonable efforts to
hold the Company Stockholder Meeting and the Parent Stockholder meeting on the
same day.
(e) The Company will cause its transfer agent to make the stock transfer
records relating to the Company available to the extent reasonably necessary to
effectuate the intent of this Agreement.
SECTION 5.02 Letter of the Company's Accountants. The Company shall
use its reasonable best efforts to cause to be delivered to Parent a letter of
the Company's independent public accountants, dated a date within two (2)
business days before the date on which the Form S-4 shall become effective and
addressed to Parent, in form and substance reasonably satisfactory to Parent and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the Form S-4.
In connection with the Company's efforts to obtain such letter, if requested by
Pricewaterhouse Coopers, LLP, Parent shall provide a representation letter to
Pricewaterhouse Coopers, LLP, complying with SAS 72, if then required.
SECTION 5.03 Letter of Parent's Accountants. Parent shall use its
reasonable best efforts to cause to be delivered to the Company a letter of
Parent's independent public accountants, dated a date within two (2) business
days before the date on which the Form S-4 shall become effective and addressed
to the Company, in form and substance reasonably satisfactory to the Company and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the Form S-4.
In connection with the Parent's efforts to obtain such letter, if requested by
Pricewaterhouse Coopers, LLP, the Company shall provide a representation letter
to Pricewaterhouse Coopers, LLP, complying with SAS 72, if then required.
SECTION 5.04 Access to Information, Confidentiality. (a) The Company
shall, and shall cause its Subsidiaries and its and their respective officers,
employees, counsel, financial advisors and other representatives, to afford to
Parent and its representatives reasonable access during normal business hours
during the period prior to the Effective Time of the Merger to its properties,
books, contracts, commitments, personnel and records and, during such period,
the Company shall, and shall cause its Subsidiaries and its and their respective
officers, employees and representatives to, furnish promptly to Parent: (i) a
copy of each report, schedule, registration statement and other document filed
by it or any of them during such period with any Company Insurance Regulatory
Agency, the SEC, any state securities agency or commission, or any other
Governmental Entity; and (ii) all other information concerning its business,
properties, financial condition, operations and personnel as such other party
may from time to time reasonably request.
(b) During the period prior to the Effective Time of the Merger, Parent
shall provide the Company and its representatives with reasonable access during
normal business hours to its properties, books, contracts, commitments,
personnel and records as may be necessary to enable the Company to confirm the
accuracy of the representations and warranties of Parent set forth herein and
compliance by Parent and Sub of their obligations hereunder, and, during such
period, Parent shall, and shall cause its subsidiaries, officers, employees and
representatives to, furnish promptly to the Company:(i) a copy of each report,
schedule, registration statement and other document filed by it during such
period with any Parent Insurance Regulatory Agency, the SEC, any state
securities agency or commission, or any other Governmental Entity; and (ii) all
other information concerning its business, properties, financial condition,
operations and personnel as such other party may from time to time reasonably
request.
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(c) The foregoing shall not require Parent or the Company to share any
information with respect to legal proceedings that could reasonably be expected
to give rise to a waiver of attorney-client privilege.
(d) Parent will hold, and will cause its directors, officers, employees,
accountants, counsel, financial advisors and other representatives to hold, any
nonpublic information of the Company in confidence to the extent required by,
and in accordance with, the provisions of the letter-agreement dated December
31, 1998, between Parent and the Company (the "Confidentiality Agreement"). The
Company will hold, and will cause its directors, officers, employees,
accountants, counsel, financial advisors and other representatives to hold, any
nonpublic information of Parent in confidence to the extent required by, and in
accordance with, the provisions of the letter-agreement dated January 29, 1999,
between Parent and the Company.
(e) No investigation pursuant to this Section 5.04 shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
SECTION 5.05 Reasonable Best Efforts. Upon the terms and subject to
the conditions set forth in this Agreement, each of the parties agrees to use
its reasonable best efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Merger and the other
transactions contemplated by this Agreement, including, without limitation: (i)
promptly determining whether any filings are required to be made or consents,
approvals, waivers, permits or authorizations are required to be obtained (or,
which if not obtained, would result in an event of default, termination or
acceleration of any agreement or any put right under any agreement) under any
applicable law or regulation or from any governmental authorities or third
parties, including, without limitation, parties to loan agreements or other debt
instruments, in connection with the transactions contemplated by this Agreement,
including the Merger, and (ii) in promptly making any such filings, in
furnishing information required in connection therewith and timely seeking to
obtain any such consents, approvals, permits or authorizations. Parent and the
Company shall mutually cooperate in order to facilitate the achievement of the
benefits reasonably anticipated from the Merger. In connection with any tax
opinion described in the Joint Proxy Statement, Parent, Sub and the Company
agree to deliver the letters of representation referred to therein, reasonable
under the circumstances as to their present intention and present knowledge.
SECTION 5.06 Fees and Expenses; Certain Payments Upon Termination.
(a) Except as set forth in Schedule 5.06(a), all fees and expenses incurred
in connection with this Agreement, the Merger and the transactions contemplated
hereby and thereby shall be paid by the party incurring such expenses, whether
or not the Merger is consummated; provided, however, that other than the
registration fee for the Form S-4, investment banking fees and expenses, and
mailing and other distribution costs of the Joint Proxy Statement, Parent and
the Company shall share equally all fees and expenses, other than accountants'
and attorneys' fees, incurred in connection with the printing and filing of the
Joint Proxy Statement (including any preliminary materials related thereto) and
the Form S-4 (including financial statements and exhibits) and any amendments or
supplements thereto. Parent shall pay the filing fee for any filing under the
HSR Act.
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(b) (i) In the event Parent terminates this Agreement other than: (A)
pursuant to any of Sections 7.01(a), 7.01(b), 7.01(c), 7.01(d), 7.01 (i) or
7.01(j); or (B) upon the happening of the events described in Section 5.06(c),
then Parent shall promptly pay the sum of $200,000 to the Company.
(ii) In the event the Company terminates this Agreement other than:
(A) pursuant to any of Sections 7.01(a), 7.01(b), 7.01(c), 7.01(e) or 7.01(h);
or (B) upon the happening of the events described in Section 5.07(c), then the
Company shall promptly pay the sum of $200,000 to Parent.
(c) Upon the happening of all of the following events:
(i) an Alternative Transaction (as defined in Section 7.01) is
commenced, disclosed, proposed or otherwise communicated to the Company at any
time on or after the date of this Agreement; and
(ii) the Board of Directors of the Company, in accordance with Section
5.01(b) hereof or otherwise, withdraws or modifies it approval and/or
recommendation of this Agreement or of the Merger, approves or recommends such
Alternative Transaction, or enters into an agreement with respect to such
Alternative Transaction; and
(iii) this Agreement is terminated pursuant to Section 7.01(f) or
7.01(g), then the Company shall promptly pay to Parent the sum of $300,000.
(d) All transfer, documentary, sales, use, registration, stock transfer
Taxes and other such Taxes (including all applicable real estate transfer or
gains Taxes) and related fees (including any penalties, interest and additions
to Tax) incurred prior to the Closing in connection with this Agreement and the
transactions contemplated hereby, shall be paid by the Company and the Company
shall timely make all filings, returns, reports and forms as may be required
prior to the Closing to comply with the provisions of such Tax laws.
SECTION 5.07 Public Announcements. Parent and, Sub, on the one hand,
and the Company, on the other hand, will consult with each other before holding
any press conferences or analyst calls and before issuing any press releases.
The parties will provide each other the opportunity to review and comment upon,
any press release with respect to the transactions contemplated by this
Agreement, including the Merger, and shall not issue any such press release
prior to such consultation, except as may be required by applicable law,
judicial or binding administrative order, or by obligations imposed by NASDAQ.
SECTION 5.08. Insider Trading. The Company and its Subsidiaries shall
comply with and shall use their best efforts to cause their respective officers,
directors, agents, representatives, advisors and employees to comply with, the
provisions regarding the trading of Parent securities set forth in the fourth
paragraph of the letter-agreement between Parent and the Company dated December
31, 1998. The Company has no direct or indirect beneficial ownership of any
Parent Common Stock and (except with the consent of Parent, which may be
withheld for any reason or no reason) shall not acquire beneficial ownership of
any Parent Common Stock. Parent has no direct or indirect beneficial ownership
of any Company Common Stock and (except with the consent of the Company, which
may be withheld for any reason or no reason) shall not acquire beneficial
ownership of any Company Common Stock except pursuant to the Merger.
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SECTION 5.09. Stock Exchange Listing. Parent shall use its reasonable
best efforts to cause the shares of Parent Common Stock to be issued in the
Merger to be approved for listing on the NASDAQ stock market, subject to
official notice of issuance, prior to the Closing Date.
SECTION 5.10. Certain Provisions. The Company shall not take, and
shall not permit any of its affiliates to take, any action which would require
or permit, or could reasonably be expected to require or permit, the Company or
any other person or entity to treat Parent or Sub, in acting pursuant to and as
permitted by this Agreement, as an "interested stockholder" with whom the
Company is prevented for any period pursuant to Section 611-A of the MBCA from
engaging in any "business combinations (as defined in Section 611-A of the MBCA)
or take any action (including any charter or by-law amendment) that has the
effect of rendering Section 611-A of the MBCA applicable to Parent or any of its
subsidiaries. The Company shall not, and shall not permit any of its affiliates
to, announce or disclose the Company's or such affiliate's intention to take any
such action or to treat Parent or Sub as such an "interested stockholder". In
the event that there shall be instituted or pending any action or proceeding
before any Governmental Entity to which the Company is a party claiming or
seeking a determination, directly or indirectly, that the Company is prevented
for any period pursuant to Section 611-A of the MBCA from engaging in any
"business combination" with Parent or Sub, the Company shall take the position
that the Company is not so prevented. The Company shall, upon the request of
Parent, take all reasonable steps to assist in any challenge by Parent or Sub to
the validity or applicability to the transactions contemplated by this
Agreement, including the Merger, or the transactions contemplated by any of the
foregoing, of any state law.
SECTION 5.11. No Solicitation.
(a) From and after the date of this Agreement, the Company shall not,
directly or indirectly, through any officer, director or employee of, or any
investment banker, attorney or other advisor to, or other representative or
agent of the Company or any of its Subsidiaries or otherwise: (i) solicit,
initiate or encourage any inquiry, offer or proposal, or any indication of
interest from, any Third Party (as defined below), regarding any direct or
indirect merger, or any acquisition or purchase of substantial assets, 10% or
more of the voting securities of the Company (including by way of a tender
offer) or similar transaction involving the Company or any Subsidiary of the
Company other than the Merger (any of the foregoing inquiries or proposals being
referred to herein as an "Acquisition Proposal") or (ii) participate in
negotiations or discussions concerning, or provide to any Third Party any
information relating to, or take any action to, facilitate or encourage any
inquiry, proposal or other effort by, on the part of or on behalf of, any Third
Party that constitutes or may reasonably be expected to lead to, any Acquisition
Proposal; provided, however, that prior to the Effective Time of the Merger, the
Company may participate in negotiations or discussions with, and provide
information to, any Third Party concerning an Acquisition Proposal submitted in
writing by such person to the Board of Directors of the Company after the date
of this Agreement if: (A) such Acquisition Proposal was not solicited, initiated
or encouraged in violation of this Agreement; (B) the Board of Directors of the
Company (or an independent committee thereof), in good faith, and after taking
into account all legal, financial, regulatory and other aspects of such
Acquisition Proposal and of such Third Party, determines that such Acquisition
Proposal is: (1) reasonably capable of resulting in, and reasonably likely to
result in, a completed Alternative Transaction; and (2) is (from a financial
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point of view) more favorable to the Company's Stockholders than the Merger; and
(C) the Board of Directors of the Company (or an independent committee thereof)
determines in good faith, after consultation with and consistent with the
written opinion of Company Counsel, that it is necessary to do so in order not
to violate its fiduciary duties to the Company's stockholders under applicable
law. Nothing contained in this Section 5.11 shall prohibit the Board of
Directors of the Company from complying with Rule 14e-2 promulgated under the
Exchange Act with regard to a tender or exchange offer; provided that the Board
shall not recommend that the stockholders of the Company tender or exchange any
shares of Company Common Stock in connection with such tender or exchange offer
unless failing to take such action would constitute a breach of the Board's
fiduciary duties under applicable law.
(b) The Company shall notify Parent as promptly as practicable if any
Acquisition Proposal is made and shall in such notice indicate in reasonable
detail the identity of the person making such Acquisition Proposal and the terms
and conditions of such Acquisition Proposal and shall keep Parent promptly
advised of all developments which could reasonably be expected to culminate in
the Board of Directors withdrawing, modifying or amending its recommendation of
the Merger and the other transactions contemplated by this Agreement. A copy of
the aforementioned opinion of Company Counsel (or a draft thereof, with a signed
copy to follow promptly after delivery to the Board of Directors of the Company)
shall be delivered to Parent not later than the day before such Board (or
Independent Committee thereof) meets to take action on any Acquisition Proposal;
provided, however, that such opinion or draft as delivered to Parent may exclude
any portion which Company Counsel determines to be a privileged attorney-client
communication.
(c) If, pursuant to the proviso to Section 5.11(a)(ii), the Company
provides nonpublic information to a person who makes an Acquisition Proposal,
the Company shall require such person to enter into a confidentiality agreement
substantially similar to the Confidentiality Agreement as a condition to and
before providing any such information.
(d) The Company shall immediately cease and cause to be terminated any
existing discussions or negotiations with any persons (other than Parent and
Sub) conducted heretofore with respect to any Acquisition Proposal. The Company
agrees not to release (by waiver or otherwise) any third party from the
provisions of any confidentiality or standstill agreement to which the Company
is a party.
(e) The Company shall ensure that the officers, directors and relevant
employees of the Company and its Subsidiaries and any investment banker or other
advisor or representative retained by the Company are aware of the restrictions
described in this Section 5.11.
SECTION 5.12 Maintenance of Benefit Plans. The Company Benefit Plans
set forth in Schedule 5.12 shall either be maintained for a period of not less
than twelve (12) months beginning at the Effective Time of the Merger or, if not
so maintained, shall be replaced by benefit plans no less favorable to the
eligible participants therein than the Benefit Plans listed in Schedule 5.12.
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ARTICLE VI
Conditions Precedent
SECTION 6.01 Conditions to Each Party's Obligation To Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Company Stockholder Approval. The Company Stockholder Approval shall
have been obtained.
(b) Parent Stockholder Approval. The Parent Stockholder Approval shall have
been obtained.
(c) NASDAQ Listing. The shares of Parent Common Stock issuable to the
Company's stockholders pursuant to this Agreement (including shares issuable
upon the exercise of options) shall have been approved for listing on the NASDAQ
stock market, subject to official notice of issuance.
(d) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition enjoining or
preventing the consummation of the Merger shall be in effect.
(e) Form S-4. The Form S-4 shall have become effective under the Securities
Act and no stop order suspending the effectiveness thereof shall be in effect
and no procedures for such purpose shall be pending before or threatened by the
SEC.
(f) Due Organization of Sub; Approval of Merger. Sub shall have been duly
incorporated and organized as a Maine insurance corporation, and the Directors
and Shareholders of Sub shall have duly approved the Merger.
SECTION 6.02 Conditions to Obligations of Parent and Sub. The
obligations of Parent and Sub to effect the Merger are further subject to the
satisfaction (or waiver by Parent) of the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Company set forth in this Agreement shall be true and correct in all
material respects, in each case as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date, except for those
representations and warranties which address matters only as of a particular
date (which shall have been true and correct as of such date). Parent shall have
received a certificate signed on behalf of the Company by the chief executive
officer and the chief financial officer of the Company to the effect set forth
in this paragraph.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects the obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Parent shall have
received a certificate signed on behalf of the Company by the chief executive
officer and the chief financial officer of the Company to such effect.
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(c) Authorization. All corporate action necessary to authorize the
execution, delivery and performance by the Company of this Agreement, and the
consummation of the transactions contemplated hereby, shall have been duly and
validly taken by the Company and the stockholders of the Company, respectively,
and the Company shall have furnished Parent with copies of all applicable
resolutions adopted by the Board of Directors and stockholders of the Company,
certified by the Secretary of the Company.
(d) Approval and Consents. The waiting period, if any, pursuant to the HSR
Act shall have expired or shall have been terminated without objection, and all
necessary approvals of the insurance departments of the States of Maine, New
York, and New Jersey and the insurance departments of all other states and
jurisdictions having jurisdiction over Parent, Sub, the Company and their
respective subsidiaries, and all other consents of any person listed on Schedule
6.02(d) required to permit the consummation of the transactions contemplated by
this Agreement without any violation by Parent, Sub, the Company or their
respective 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, Sub, the Company or any
of their respective subsidiaries.
(e) No Litigation. There shall not be pending or threatened any material
suit, action or proceeding: (i) challenging or seeking to restrain or prohibit
the consummation of the Merger or any of the other transactions contemplated by
this Agreement or, on the basis of or as a result of the Merger or any of the
other transactions contemplated by this Agreement (and except as to the rights
of Dissenting Shares), seeking to obtain from Parent or any of its subsidiaries
any damages that are material in relation to Parent and its subsidiaries taken
as a whole; (ii) on the basis of or as a result of the Merger or any of the
other transactions contemplated by this Agreement seeking to prohibit or limit
the ownership or operation by the Company, Parent or any of their respective
subsidiaries of any material portion of the business or assets of the Company,
Parent or any of their respective subsidiaries, or to dispose of or hold
separate any material portion of the business or assets of the Company, Parent
or any of their respective subsidiaries; (iii) seeking to impose limitations on
the ability of Parent or Sub to acquire or hold, or exercise full rights of
ownership of, any shares of Company Common Stock or Common Stock of the
Surviving Corporation, including the right to vote the Company Common Stock or
Common Stock of the Surviving Corporation on all matters properly presented to
the stockholders of the Company or the Surviving Corporation, respectively; or
(iv) seeking to prohibit Parent or any of its subsidiaries from effectively
controlling in any material respect the business or operations of the Company or
its subsidiaries.
(f) Legal Opinion. Parent shall have received the opinion of Verrill & Dana
LLP, as to such matters as may be reasonably requested by Parent.
(g) No Adverse Change. Since September 30, 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 not covered by insurance or
reinsurance) that individually or in the aggregate has or can reasonably be
expected to have a Material Adverse Effect on the Company and its Subsidiaries,
taken as a whole. For purposes of this Agreement: (i) a reduction in the
Company's direct premiums inforce shall not be deemed to have a Material Adverse
Effect if the amount thereof, as so reduced, is equal to or exceeds ninety (90%)
percent of the Company's direct premiums inforce at December 31, 1998, as set
forth in the Company Regulatory Financial Statement for the period ended
December 31, 1998; (ii) the termination of any insurance agent relationship with
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the Company at any time on or after January 1, 1999, shall not be deemed to have
a Material Adverse Effect if all such former agents, taken as a group, accounted
for less than ten (10%) percent of the Company's direct premiums inforce at
December 31, 1998, as set forth in the Company Regulatory Financial Statement
for the period ended December 31, 1998; (iii) a reduction in the value of the
Investment Assets shall not be deemed to have a Material Adverse Effect if such
reduction would not have the effect of reducing by more than ten (10%) percent
the Company's (and its Subsidiaries') surplus as regards its policyholders if
those investments were sold; (iv) a reduction in the operating results of the
Company shall not be deemed to have a Material Adverse Effect if such reduction
would not result in the reduction of the Company's surplus as regards its
policyholders of more than ten (10%) percent from such surplus at December 31,
1998, as set forth in the Company Regulatory Financial Statements for the period
ended December 31, 1998; and (v) changes in Company reinsurance policies shall
not be deemed to have a Material Adverse Effect if the new or amended policies
will terminate upon the consummation of the Merger or are terminable by the
Company on not more than ninety (90) days' prior written notice, effective upon
the expiration of such notice period.
(h) Clerk's Certificates. Parent shall have received from the Company: (i)
a certificate dated the Closing Date from the Company's Clerk attaching (A) a
copy of the Company's Articles of Incorporation certified by the Secretary of
State of the State of Maine, which certification shall be dated not more than
ten (10) days prior to the Closing Date, (B) a copy of the Company's Bylaws, and
(C) a Good Standing Certificate for the Company from the Secretary of State of
the State of Maine, which Certificate shall be dated no more than ten (10) days
prior to the Closing Date; and (ii) a certificate dated the Closing Date from
the Secretary of each Subsidiary of the Company attaching (A) a copy of such
Subsidiary's Articles of Incorporation, certified by the Secretary of State of
the state of its incorporation, which certification shall be dated not more than
ten (10) days prior to the Closing Date, (B) a copy of such Subsidiary's Bylaws,
(C) a Good Standing Certificate for such Subsidiary from the Secretary of the
State of the state of its incorporation, which Certificate shall be dated no
more than ten (10) days prior to the Closing Date; and (iii) Certificates of
Status and Authority for the Company and each Subsidiary of the Company from the
Department of Insurance of each state in which it or they is or are conducting
an insurance business.
SECTION 6.03 Conditions to Obligation of the Company. The obligation
of the Company to effect the Merger is further subject to the satisfaction (or
waiver by the Company) of the following conditions:
(a) Representations and Warranties. The representations and warranties of
Parent and set forth in this Agreement shall be true and correct in all material
respects, in each case as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date, except for those
representations and warranties which address matters only as of a particular
date (which shall have been true and correct as of such date). The Company shall
have received a certificate signed on behalf of Parent by the chief executive
officer and the chief financial officer of Parent to the effect set forth in
this paragraph.
(b) Performance of Obligations of Parent and Sub. Parent and Sub shall have
performed in all material respects the obligations required to be performed by
them under this Agreement at or prior to the Closing Date, and the Company shall
have received a certificate signed on behalf of Parent by the chief executive
officer and the chief financial officer of Parent to such effect.
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(c) No Litigation. There shall not be pending or threatened any suit,
action or proceeding: (i) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions contemplated by this
Agreement; or (ii) seeking to prohibit or limit the ownership or operation by
the Company, Parent or any of their respective subsidiaries of any material
portion of the business or assets of the Company, Parent or any of their
respective subsidiaries, or to dispose of or hold separate any material portion
of the business or assets of the Company, Parent or any of their respective
subsidiaries, on the basis of or as a result of the Merger or any of the other
transactions contemplated by this Agreement.
(d) Approvals and Consents. The waiting period, if any, pursuant to the HSR
Act shall have expired or shall have been terminated without objection, and all
necessary approvals of the insurance departments of the States of Maine, New
York and New Jersey, and the insurance departments of all other states or
jurisdictions having jurisdiction over Parent, Sub, the Company and their
respective subsidiaries, and all other consents of any other person listed on
Schedule 6.03(d) required to permit the consummation of the transactions
contemplated by this Agreement without any violation by Parent, Sub, the Company
or their respective subsidiaries of any law or obligation, shall have been
obtained.
(e) Legal Opinion. The Company shall have received the opinion of Sills
Cummis Radin Tischman Epstein & Gross, P.C. as to such matters as the Company
shall reasonably request.
(f) Authorization. All corporate action necessary to authorize the
execution, delivery and performance by Parent and Sub of this Agreement, and the
consummation of the transactions contemplated hereby, shall have been duly and
validly taken by Parent, Sub and the stockholders of Parent and Sub,
respectively, and Parent and Sub shall have furnished the Company with copies of
all applicable resolutions adopted by their respective Boards of Directors and
their respective stockholders, certified in each case by the Secretary of Parent
and Sub, respectively.
(g) Deposit with Exchange Agent. There shall have been deposited with the
Exchange Agent the Merger Consideration in accordance with Section 2.03.
(h) Secretary's Certificates. The Company shall have received from Parent:
(i) a certificate dated the Closing Date from the Parent's Secretary attaching a
Good Standing Certificate from the Department of Treasury of the State of New
Jersey and a Good Standing Certificate for Sub from the Secretary of State of
the State of Maine, which certificates shall be dated no more than ten (10) days
prior to the Closing Date; and (ii) a certificate dated the Closing Date from
the Secretary of Sub attaching a copy of Sub's By-laws; and (iii) Certificates
of Status and Authority for Sub from the Department of Insurance of each state
in which it or they is or are conducting an insurance business.
(i) No Adverse Change. 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 not covered by insurance or
reinsurance) that individually or in the aggregate has or can reasonably be
expected to have a Material Adverse Effect on the Parent and the Other Parent
Subsidiaries, taken as a whole. For purposes of this Agreement: (i) a reduction
in Parent's direct premiums inforce shall not be deemed to have a Material
Adverse Effect if the amount thereof, as so reduced, is equal to or exceeds
ninety (90%) percent of Parent's direct premiums inforce at December 31, 1998,
as set forth in the Parent Regulatory Financial Statement for the period ended
December 31, 1998; (ii) the termination of any insurance agent relationship with
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Parent at any time on or after January 1, 1999, shall not be deemed to have a
Material Adverse Effect if all such former agents, taken as a group, accounted
for less than ten (10%) percent of the Parent's direct premiums inforce at
December 31, 1998, as set forth in the Parent Regulatory Financial Statement for
the period ended December 31, 1998; (iii) a reduction in the value of the Parent
investment assets shall not be deemed to have a Material Adverse Effect if such
reduction would not have the effect of reducing by more than ten (10%) percent
Parent's (and its Subsidiaries') surplus as regards its policyholders if those
investments were sold; (iv) a reduction in the operating results of the Parent
shall not be deemed to have a Material Adverse Effect if such reduction would
not result in the reduction of Parent's surplus as regards its policyholders of
more than ten (10%) percent from such surplus at December 31, 1998, as set forth
in the Parent Regulatory Financial Statements for the period ended December 31,
1998; and (v) changes in Parent reinsurance policies shall not be deemed to have
a Material Adverse Effect if the new or amended policies will terminate upon the
consummation of the Merger or are terminable by Parent on not more than ninety
(90) days' prior written notice, effective upon the expiration of such notice
period.
ARTICLE VII
Termination, Amendment and Waiver
SECTION 7.01 Termination. This Agreement may be terminated and
abandoned at any time prior to the Effective Time of the Merger, and, except as
otherwise provided below, whether before or after approval of matters presented
in connection with the Merger by the stockholders of the Company or Parent:
(a) by mutual written consent of Parent and the Company; or
(b) by either Parent or the Company if any Governmental Entity (including
without limitation any Insurance Department of any state having jurisdiction
over Parent, Sub, the Company or any of their respective subsidiaries) within
the United States or any country or other jurisdiction in which either the
Company or Parent, directly or indirectly, has material assets or operations
shall have: (i) issued a determination, order, decree or ruling or taken any
other action permanently enjoining, restraining or otherwise prohibiting the
Merger, or (ii) (in the case of any approval of or consent to the Merger by any
Governmental Entity which is required as a condition to the Closing hereunder)
issued a decision or determination not to give such approval or consent, and
such decision, determination, order, decree. ruling or other action shall have
become final and nonappealable; or
(c) by either Parent or the Company if the Merger shall not have been
consummated on or before July 15, 1999, (other than due to the failure of the
party seeking to terminate this Agreement to perform its obligations under this
Agreement required to be performed at or prior to the Effective Time of the
Merger); or
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(d) by Parent, if any required approval of the stockholders of the Company
shall not have been obtained by reason of the failure to obtain the required
vote upon a vote held at a duly held meeting of stockholders or at any
adjournment thereof, or
(e) by the Company, if any required approval of the stockholders of Parent
shall not have been obtained by reason of the failure to obtain the required
vote upon a vote held at a duly held meeting of stockholders or at any
adjournment thereof; or
(f) by Parent, if prior to the Company Stockholder Meeting, the Board of
Directors of the Company shall have: (i) withdrawn, modified or amended in any
respect adverse to Parent or Sub its approval or recommendation of this
Agreement, the Merger or any of the other transactions contemplated herein or
resolved to do so; or (ii) recommended an Alternative Transaction from a person
other than Parent or any of its affiliates or resolved to do so; or
(g) by the Company, prior to the Effective Time of the Merger, if any
person (other than Parent or any of its affiliates) shall have proposed an
Alternative Transaction (A) that the Board of Directors of the Company
determines in its good faith judgment is more favorable to the Company's
stockholders than this Agreement and the Merger and (B) as a result of which the
Board of Directors of the Company determines in good faith, based upon the
advice of Company Counsel, that it is obligated by its fiduciary obligations
under applicable law to terminate this Agreement, provided that such termination
under this Section 7.01(g) shall not be effective until the Company has made the
payment required by Section 5.06; or
(h) by the Company, if, prior to the Effective Time of the Merger, there
shall have been a material breach of any covenant or agreement on the part of
Parent or Sub contained in this Agreement which materially adversely affects
Parent's or Sub's ability to consummate the Merger or any of the other
transactions contemplated herein and which shall not have been cured prior to
the date 10 business days following notice of such breach; or
(i) by Parent, if, prior to the Effective Time of the Merger, there shall
have been a breach of any covenant or agreement on the part of the Company
contained in this Agreement which is reasonably likely to have a Material
Adverse Effect with respect to the Company or which materially adversely affects
(or materially delays) the consummation of the Merger or any of the other
transactions contemplated herein and which shall not have been cured prior to
the date 10 business days following notice of such breach; or
(j) by Parent, if, at any time at or after the date of this Agreement,
Parent directly or indirectly discovers, has disclosed to it or otherwise learns
or becomes aware of any circumstance, occurrence, fact or event which (either
alone or in conjunction with any other extant circumstance, occurrence, fact or
event): (i) causes or can reasonably be expected to cause the consummation of
the Merger to have a Material Adverse Effect on Parent, Sub, any Other Parent
Subsidiary or the Surviving Corporation; (ii) is materially inconsistent in an
adverse manner from any of the warranties and representations of the Company
contained herein; (iii) would cause any of such representations and warranties
to be materially misleading, incomplete or otherwise inaccurate; or (iv) deviate
materially and adversely from the Company's latest audited financial statements
(or any subsequent audited financial statements prepared prior to the Effective
Time of the Merger).
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As used herein, "Alternative Transaction" means any of: (i) a transaction
or series of transactions pursuant to which any person (or group of persons)
other than Parent and/or its affiliates (a "Third Party") acquires or would
acquire more than 10% of the then outstanding shares of Company Common Stock,
whether from the Company or pursuant to a tender offer or exchange offer or
otherwise; (ii) any direct or indirect acquisition or proposed acquisition of
the Company or any of its significant subsidiaries by means of a merger or other
business combination transaction (including any so-called "merger of equals" and
whether or not the Company or any of its significant subsidiaries is the entity
surviving any such merger or business combination transaction); or (iii) any
other transaction pursuant to which any Third Party acquires or would acquire
control of assets (including for this purpose the outstanding equity securities
of subsidiaries of the Company and any entity surviving any merger or business
combination including any of them) of the Company or any of its subsidiaries
having a fair market value equal to more than 10% of the fair market value of
all the assets of the Company and its subsidiaries, taken as a whole,
immediately prior to such transaction.
SECTION 7.02 Effect of Termination. In the event of termination of
this Agreement by either the Company or Parent as provided in Section 7.01, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Parent, Sub or the Company, except as otherwise
provided herein. Nothing contained in this Section shall relieve any party for
any breach of the representations, warranties, covenants or agreements set forth
in this Agreement.
SECTION 7.03 Amendment. Any provision of this Agreement may be amended
or waived prior to the Effective Time of the Merger (whether before or after
approval of matters presented in connection with the Merger by the stockholders
of the Company or Parent) if, and only if, such amendment or waiver is in
writing and signed, in the case of an amendment, by the Company and Parent or,
in the case of a waiver, by the party against whom the waiver is to be
effective; provided that after the adoption of this Agreement by the
stockholders of: (i) the Company, there shall be made no amendment that by law
requires further approval by the stockholders of the Company without the further
approval of such stockholders; and (ii) Parent, there shall be made no amendment
that by law requires further approval by the stockholders of Parent without the
further approval of such stockholders.
SECTION 7.04 Extension: Waiver. At any time prior to the Effective
Time of the Merger, the parties may: (i) extend the time for the performance of
any of the obligations or other acts of the other parties; (ii) waive any
inaccuracies in the representations and warranties contained in this Agreement
or in any document delivered pursuant to this Agreement; or (iii) subject to the
proviso of Section 7.03, waive compliance with any of the agreements or
conditions contained in this Agreement. Any agreement on the part of a party to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights.
SECTION 7.05 Procedure for Termination. Amendment, Extension or
Waiver. A termination of this Agreement pursuant to Section 7.01, an amendment
of this Agreement pursuant to Section 7.03 or an extension or waiver pursuant to
Section 7.04 shall, in order to be effective, comply with Section 5.11 and
require, in the case of Parent, Sub or the Company, action by its Board of
Directors or the duly authorized designee of its Board of Directors.
53
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ARTICLE VIII
General Provisions
SECTION 8.01 Nonsurvival of Representations and Warranties. None of
the representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time of the
Merger. This Section 8.01 shall not limit any covenant or agreement of the
parties which by its terms contemplates performance after the Effective Time of
the Merger.
SECTION 8.02 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to Parent or Sub, to
Motor Club of America
95 Route 17 South
Paramus, New Jersey 07653-0931
Attention: Stephen A. Gilbert
with a copy to:
Sills Cummis Radin Tischman
Epstein & Gross, P.C.
One Riverfront Plaza
Newark, New Jersey 07102-5400
Attention: Stanley U. North, III, Esq.
(b) if to the Company, to
North East Insurance Company
482 Payne Road
Scarborough, Maine 04070 - 1478
Attention: Robert G. Schatz
54
<PAGE>
with copies to:
Verrill & Dana, LLP
One Portland Square
Portland, Maine 04112-0586
Attention: Gregory Fryer, Esq.
SECTION 8.03 Definitions. For purposes of this Agreement:
(a) an "Affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person;
(b) "Material Adverse Change" or "Material Adverse Effect" means, when used
in connection with the Company or Parent, any change or effect that either
individually or in the aggregate with all other such changes or effects is
materially adverse to the business, assets, properties, condition (financial or
otherwise) or results of operations of such party and its subsidiaries taken as
a whole (after giving effect in the case of Parent to the consummation of the
Merger);
(c) "Person" means an individual, corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity; and
(d) a "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
person.
SECTION 8.04 Interpretation. When a reference is made in this
Agreement to a Section, Exhibit or Schedule, such reference shall be to a
Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation".
SECTION 8.05 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties.
SECTION 8.06 Entire Agreement, No Third-Party Beneficiaries. This
Agreement and the other agreements referred to herein constitute the entire
agreement, and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter of this
Agreement. This Agreement, other than Section 5.12, is not intended to confer
upon any person other than the parties any rights or remedies.
55
<PAGE>
SECTION 8.07 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the state of New Jersey, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 8.08 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties, except that Sub may assign, in its sole
discretion, any of or all its rights, interests and obligations under this
Agreement to Parent or to any direct wholly owned subsidiary of Parent pursuant
to Section 1.01, but no such assignment shall relieve Sub of any of its
obligations under this Agreement. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
SECTION 8.09 Enforcement: Jurisdiction. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any Federal
court located in the State of New Jersey or any New Jersey state court, this
being in addition to any other remedy to which they are entitled at law or in
equity. Any suit, action or proceeding seeking to enforce any provision of, or
based on any matter arising out of or in connection with, this Agreement or the
transactions contemplated by this Agreement may be brought against any of the
parties in any Federal court located in the State of New Jersey or any New
Jersey state court, and each of the parties hereto hereby consents to the
exclusive jurisdiction of such courts (and of the appropriate appellate courts
therefrom) in any such suit, action or proceeding and waives any objection to
venue laid therein. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the State of New
Jersey. Without limiting the generality of the foregoing, each party hereto
agrees that service of process upon such party at the address referred to in
Section 8.02, together with written notice of such service to such party, shall
be deemed effective service of process upon such party.
SECTION 8.10. Severability. Whenever possible, each provision or
portion of any provision of this Agreement will be interpreted in such manner as
to be effective and valid under applicable law but if any provision or portion
of any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or portion of any provision in such jurisdiction, and this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision or portion of any provision had
never been contained herein.
56
<PAGE>
IN WITNESS WHEREOF, Parent and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
MOTOR CLUB OF AMERICA
By:________________________________
Name:
Title:
NORTH EAST INSURANCE COMPANY
By:________________________________
Name:
Title:
57
<PAGE>
ANNEX C
March 16, 1999
Board of Directors
North East Insurance Company
482 Payne Road
Scarborough, Maine 04074
Ladies and Gentlemen:
North East Insurance Company ("NEIC") and Motor Club of America ("MCOA")
have entered into an Agreement and Plan of Merger, dated as of March 12, 1999
(the "Agreement"), pursuant to which NEIC will be acquired by MCOA through the
merger of NEIC with a wholly- owned subsidiary of MCOA (the "Merger"). Upon
consummation of the Merger, each share of NEIC common stock, par value $1.00 per
share, issued and outstanding immediately prior to the Merger (the "NEIC
Shares"), other than certain shares specified in the Agreement, will be
converted into the right to receive, at the election of the holder thereof,
either (a) 0.19048 of a share of MCOA common stock, par value $0.50 per share,
or (b) $3.30 in cash, subject to the election and proration procedures set forth
in the Agreement which provide generally, among other things, that the number of
shares of MCOA common stock to be issued in the Merger shall not exceed 290,389
shares (the "Merger Consideration"). The terms and conditions of the Merger are
more fully set forth in the Agreement. You have requested our opinion as to the
fairness, from a financial point of view, of the Merger Consideration to the
holders of NEIC Shares.
Sandler O'Neill & Partners, L.P., as part of its investment banking
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with mergers and acquisitions and other corporate
transactions. In connection with this opinion, we have reviewed, among other
things: (i) the Agreement and exhibits thereto; (ii) certain publicly available
financial statements of NEIC and other historical financial information provided
by NEIC that we deemed relevant; (iii) certain publicly available financial
statements of MCOA and other historical financial information provided by MCOA
that we deemed relevant; (iv) certain internal financial analyses and forecasts
of NEIC prepared by and reviewed with management of NEIC and the views of senior
management of NEIC, based on limited discussions with certain members of senior
management, regarding NEIC's past and current business, financial condition,
<PAGE>
results of operations and future prospects; (v) certain internal financial
analyses and forecasts of MCOA prepared by and reviewed with management of MCOA
and the views of senior management of MCOA, based on limited discussions with
certain members of senior management, regarding MCOA's past and current
business, financial condition, results of operations and future prospects; (vi)
the pro forma impact of the Merger; (vii) the publicly reported historical price
and trading activity for NEIC's and MCOA's common stock, including a comparison
of certain financial and stock market information for NEIC and MCOA with similar
publicly available information for certain other companies the securities of
which are publicly traded; (viii) the financial terms of recent business
combinations for property and casualty insurance companies, to the extent
publicly available; (ix) the current market environment generally and the
environment in the insurance industry in particular; and (x) such other
information, financial studies, analyses and investigations and financial,
economic and market criteria as we considered relevant. In connection with our
engagement, we were not asked to, and did not, solicit from any other parties
indications of interest in acquiring all or part of NEIC or in engaging in a
business combination or any other strategic transaction with NEIC.
In performing our review, we have assumed and relied upon the accuracy and
completeness of all the financial information, analyses and other information
that was publicly available or otherwise furnished to, reviewed by or discussed
with us, and we do not assume any responsibility or liability for independently
verifying the accuracy or completeness thereof. We did not make an independent
evaluation or appraisal of the specific assets, the collateral securing assets
or the liabilities (contingent or otherwise) of NEIC or MCOA or any of their
subsidiaries, or the collectibility of any such assets, nor have we been
furnished with any such evaluations or appraisals. We are not actuaries and our
services did not include actuarial determinations or evaluations by us or an
attempt to evaluate actuarial assumptions. In addition, we did not make an
independent evaluation of the adequacy of the reserves for, or collectibility
of, reinsurance related to the unpaid loss and loss adjustment expenses of NEIC
or MCOA nor have we reviewed any individual insurance claims files or contracts
relating to NEIC and MCOA and, with your permission, we have assumed that the
respective reserves for unpaid losses and loss adjustment expenses for both NEIC
and MCOA are adequate to cover such losses and will be adequate on a pro forma
basis for the combined entity. With respect to the financial projections
reviewed with management, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the respective managements of the respective future financial
performances of NEIC and MCOA and that such performances will be achieved, and
we express no opinion as to such financial projections or the assumptions on
which they are based. We have also assumed that there has been no material
change in NEIC's or MCOA's assets, financial condition, results of operations,
business or prospects since the date of the most recent financial statements
made available to us. We have assumed in all respects material to our analysis
that NEIC and MCOA will remain as going concerns for all periods relevant to our
analyses, that all of the representations and warranties contained in the
Agreement and all related agreements are true and correct, that each party to
<PAGE>
such agreements will perform all of the covenants required to be performed by
such party under such agreements, and that the conditions precedent in the
Agreement are not waived.
Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Events occurring after the date hereof could materially affect this
opinion. We have not undertaken to update, revise or reaffirm this opinion or
otherwise comment upon events occurring after the date hereof. We are expressing
no opinion herein as to what the value of MCOA common stock will be when issued
to NEIC's shareholders pursuant to the Agreement or the prices at which NEIC's
or MCOA's common stock will trade at any time.
We have acted as NEIC's financial advisor in connection with the Merger and
will receive a fee for our services, a significant portion of which is
contingent upon consummation of the Merger. We will also receive a fee for
rendering this opinion.
In the ordinary course of our business as a broker-dealer, we may purchase
securities from and sell securities to NEIC and MCOA. We may also actively trade
the equity securities of NEIC and MCOA for our own account and for the accounts
of our customers and, accordingly, may at any time hold a long or short position
in such securities.
Our opinion is directed to the Board of Directors of NEIC in connection
with its consideration of the Merger and does not constitute a recommendation to
any stockholder of NEIC as to how such stockholder should vote at any meeting of
stockholders called to consider and vote upon the Merger. Our opinion is not to
be quoted or referred to, in whole or in part, in a registration statement,
prospectus, proxy statement or in any other document, nor shall this opinion be
used for any other purposes, without Sandler O'Neill's prior written consent;
provided, however, that we hereby consent to the inclusion of this opinion as an
appendix to NEIC's and MCOA's Joint Proxy Statement/Prospectus dated the date
hereof and to the references to this opinion therein.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the Merger Consideration is fair, from a financial point of view,
to the holders of NEIC Shares.
Very truly yours,
Sandler O'Neill & Partners, L.P.
<PAGE>
ANNEX D
DISSENTERS' RIGHTS
[SECTION]908. Right of shareholders to dissent
1. Except as provided in subsections 3 and 4, any shareholders of a
domestic corporation, by complying with section 909, shall have the right to
dissent from any of the following corporate actions:
A. Any plan of merger or consolidation in which the corporation is
participating; or
B. Any sale or other disposition, excluding a mortgage or other security
interest, of all or substantially all of the property and assets of the
corporation not made in the usual and regular course of its business, including
a sale in liquidation, but not including a sale pursuant to an order of a court
having jurisdiction in the premises or a sale for cash on terms requiring that
all or substantially all of the net proceeds of sale be distributed to the
shareholders in accordance with their respective interests within one year after
the date of sale; or
C. Any other action as to which a right to dissent is expressly given by this
Act.
2. A shareholder may dissent as to less than all of the shares registered
in his name. In that event, his rights shall be determined as if the shares as
to which he has dissented and his other shares were registered in the names of
different shareholders.
3. There shall be no right of dissent in the case of shareholders of the
surviving corporation in a merger.
A. If such corporation is, on the date of filing of the articles of merger, the
owner of all the outstanding shares of the other corporations, domestic or
foreign, which are parties to the merger, or
B. If a vote of the shareholders of such surviving corporation was not necessary
to authorize such merger.
4. There shall be no right of dissent in the case of holders of any class
or series of shares in any of the participating corporations in a merger or
consolidation, which shares were, at the record date fixed to determine the
shareholders entitled to receive notice of and to vote at the meeting of
shareholders at which the plan of merger or consolidation was to be voted on,
either:
A. Registered or traded on a national securities exchange; or
B. Registered with the Securities and Exchange Commission pursuant to [SECTION]
12(g) of the Act of Congress known as the Securities Exchange Act of 1934, as
the same has been or may hereafter be amended, being Title 15 of the United
States Code Annotated, [SECTION] 781(g) unless the articles of incorporation of
that corporation provide that there shall be a right of dissent.
D-1
5. The exceptions from the right of dissent provided for in subsection 3,
paragraph B and in subsection 4 shall not be applicable to the holders of a
class or series of shares of a participating corporation if, under the plan of
merger or consolidation, such holders are required to accept for their shares
anything, except:
A. Shares of the surviving or new corporation resulting from the merger or
consolidation, or such shares plus cash in lieu of fractional shares; or
B. Shares, or shares plus cash in lieu of fractional shares, of any other
corporation, which shares were, at the record date fixed to determine the
shareholders entitled to receive notice of and to vote at the meeting of
shareholders at which the plan of merger or consolidation was acted upon,
either:
(1) Registered or traded on a national securities exchange; or
(2) Held of record by not less than 2,000 shareholders; or
C. A combination of shares, or shares plus cash in lieu of fractional shares, as
set forth in paragraphs A and B.
[SECTION]909. Right of dissenting shareholders to payment for shares
1. A shareholder having a right under any provision of this Act to dissent
to proposed corporate action shall, by complying with the procedure in this
section, be paid the fair value of his shares, if the corporate action to which
he dissented is effected. The fair value of shares shall be determined as of the
day prior to the date on which the vote of the shareholders, or of the directors
in case a vote of the shareholders was not necessary, was taken approving the
proposed corporate action, excluding any appreciation or depreciation of shares
in anticipation of such corporate action.
2. The shareholder, whether or not entitled to vote, shall file with the
corporation, prior to or at the meeting of shareholders at which such proposed
corporate action is submitted to a vote, a written objection to the proposed
corporate action. No such objection shall be required from any shareholder to
whom the corporation failed to send notice of such meeting in accordance with
this Act.
3. If the proposed corporate action is approved by the required vote and
the dissenting shareholder did not vote in favor thereof, the dissenting
shareholder shall file a written demand for payment of the fair value of his
shares. Such demand
A. Shall be filed with the corporation or, in the case of a merger or
consolidation, with the surviving or new corporation; and
D-2
<PAGE>
B. Shall be filed by personally delivering it, or by mailing it via certified or
registered mail, to such corporation at its registered office within this State
or to its principal place of business or to the address given to the Secretary
of State pursuant to section 906, subsection 4, paragraph B; it shall be so
delivered or mailed within 15 days after the date on which the vote of
shareholders was taken, or the date on which notice of a plan of merger of a
subsidiary into a parent corporation without vote of shareholders was mailed to
shareholders of the subsidiary; and
C. Shall specify the shareholder's current address; and
D. May not be withdrawn without the corporation's consent.
4. Any shareholder failing either to object as required by subsection 2 or
to make demand in the time and manner provided in subsection 3 shall be bound by
the terms of the proposed corporate action. Any shareholder making such
objection and demand shall thereafter be entitled only to payment as in this
section provided and shall not be entitled to vote or to exercise any other
rights of a shareholder.
5. The right of a shareholder otherwise entitled to be paid for the fair
value of his shares shall cease, and his status as a shareholder shall be
restored, without prejudice to any corporate proceedings which may have been
taken during the interim,
A. If his demand shall be withdrawn upon consent, or
B. If the proposed corporate action shall be abandoned or rescinded, or the
shareholders shall revoke the authority to effect such action, or
C. If, in the case of a merger, on the date of the filing of the articles of
merger the surviving corporation is the owner of all the outstanding shares of
the other corporations, domestic and foreign, that are parties to the merger, or
D. If no action for the determination of fair value by a court shall have been
filed within the time provided in this section, or
E. If a court of competent jurisdiction shall determine that such shareholder is
not entitled to the relief provided by this section.
6. At the time of filing his demand for payment for his
shares, or within 20 days thereafter, each shareholder demanding payment shall
submit the certificate or certificates representing his shares to the
corporation or its transfer agent for notation thereon that such demand has been
made; such certificates shall promptly be returned after entry thereon of such
notation. A shareholder's failure to do so shall, at the option of the
corporation, terminate his rights under this section, unless a court of
competent jurisdiction, for good and sufficient cause shown, shall otherwise
direct. If shares represented by a certificate on which notation has been so
made shall be transferred, each new certificate issued therefor shall bear a
similar notation, together with the name of the original dissenting holder of
such shares, and a transferee of such shares shall acquire by such transfer no
D-3
<PAGE>
rights in the corporation other than those which the original dissenting
shareholder had after making demand for payment of the fair value thereof.
7. Within the time prescribed by this subsection, the corporation, or, in
the case of a merger or consolidation, the surviving or new corporation,
domestic or foreign, shall give written notice to each dissenting shareholder
who has made objection and demand as herein provided that the corporate action
dissented to has been effected, and shall make a written offer to each such
dissenting shareholder to pay for such shares at a specified price deemed by
such corporation to be the fair value thereof. Such offer shall be made at the
same price per share to all dissenting shareholders of the same class. The
notice and offer shall be accompanied by a balance sheet of the corporation the
shares of which the dissenting shareholder holds, as of the latest available
date and not more than 12 months prior to the making of such offer, and a profit
and loss statement of such corporation for the 12 months' period ended on the
date of such balance sheet. The offer shall be made within the later of 10 days
after the expiration of the period provided in subsection 3, paragraph B, for
making demand, or 10 days after the corporate action is effected; corporate
action shall be deemed effected on a sale of assets when the sale is
consummated, and in a merger or consolidation when the articles of merger or
consolidation are filed or upon which later effective date as is specified in
the articles of merger or consolidation as permitted by this Act.
8. If within 20 days after the date by which the corporation is required,
by the terms of subsection 7, to make a written offer to each dissenting
shareholder to pay for his shares, the fair value of such shares is agreed upon
between any dissenting shareholder and the corporation, payment therefor shall
be made within 90 days after the date on which such corporate action was
effected, upon surrender of the certificate or certificates representing such
shares. Upon payment of the agreed value the dissenting shareholder shall cease
to have any interest in such shares.
9. If within the additional 20-day period prescribed by subsection 8, one
or more dissenting shareholders and the corporation have failed to agree as to
the fair value of the shares:
A. Then the corporation may, or shall, if it receives a demand as provided in
subparagraph (1), bring an action in the Superior Court in the county in this
State where the registered office of the corporation is located praying that the
fair value of such shares be found and determined. If, in the case of a merger
or consolidation, the surviving or new corporation is a foreign corporation
without a registered office in this State, such action shall be brought in the
county where the registered office of the participating domestic corporation was
last located. Such action:
(1) Shall be brought by the corporation, if it receives a written demand for
suit from any dissenting shareholder, which demand is made within 60 days after
the date on which the corporate action was effected; and if it receives such
demand for suit, the corporation shall bring the action within 30 days after
receipt of the written demand; or,
(2) In the absence of a demand for suit, may at the corporation's election be
brought by the corporation at any time from the expiration of the additional
20-day period prescribed by subsection 8 until the expiration of 60 days after
the date on which the corporate action was effected;
D-4
<PAGE>
B. If the corporation fails to institute the action within the period specified
in paragraph A, any dissenting shareholder may thereafter bring such an action
in the name of the corporation;
C. No such action may be brought, either by the corporation or by a dissenting
shareholder, more than 6 months after the date on which the corporate action was
effected;
D. In any such action, whether initiated by the corporation or by a dissenting
shareholder, all dissenting shareholders, wherever residing, except those who
have agreed with the corporation upon the price to be paid for their shares,
shall be made parties to the proceeding as an action against their shares quasi
in rem. A copy of the complaint shall be served on each dissenting shareholder
who is a resident of this State as in other civil actions, and shall be served
by registered or certified mail, or by personal service without the State, on
each dissenting shareholder who is a nonresident. The jurisdiction of the court
shall be plenary and exclusive;
E. The court shall determine whether each dissenting shareholder, as to whom the
corporation requests the court to make such determination, has satisfied the
requirements of this section and is entitled to receive payment for his shares;
as to any dissenting shareholder with respect to whom the corporation makes such
a request, the burden is on the shareholder to prove that he is entitled to
receive payment. The court shall then proceed to fix the fair value of the
shares. The court may, if it so elects, appoint one or more persons as
appraisers to receive evidence and recommend a decision on the question of fair
value. The appraisers shall have such power and authority as shall be specified
in the order of their appointment or an amendment thereof;
F. All shareholders who are parties to the proceeding shall be entitled to
judgment against the corporation for the amount of the fair value of their
shares, except for any shareholder whom the court shall have determined not to
be entitled to receive payment for his shares. The judgment shall be payable
only upon and concurrently with the surrender to the corporation of the
certificate or certificates representing such shares. Upon payment of the
judgment, the dissenting shareholder shall cease to have any interest in such
shares;
G. The judgment shall include an allowance for interest at such rate as the
court may find to be fair and equitable in all the circumstances, from the date
on which the vote was taken on the proposed corporate action to the date of
payment. If the court finds that the refusal of any shareholder to accept the
corporate offer of payment for his or her shares was arbitrary, vexatious or not
in good faith, it may in its discretion refuse to allow interest to him;
H. The costs and expenses of any such proceeding shall be determined by the
court and shall be assessed against the corporation, but all or any part of such
costs and expenses may be apportioned and assessed as the court may deem
equitable against any or all of the dissenting shareholders who are parties to
the proceeding to whom the corporation shall have made an offer to pay for the
shares, if the court shall find that the action of such shareholders in failing
to accept such offer was arbitrary or vexatious or not in good faith. Such
expenses shall include reasonable compensation for and reasonable expenses of
the appraisers, but shall exclude the fees and expenses of counsel for any party
and shall exclude the fees and expenses of experts employed by any party, unless
the court otherwise orders for good cause. If the fair value of the shares as
D-5
<PAGE>
determined materially exceeds the amount which the corporation offered to pay
therefor, or if no offer was made, the court in its discretion may award to any
shareholder who is a party to the proceeding such sum as the court may determine
to be reasonable compensation to any expert or experts employed by the
shareholder in the proceeding, and may, in its discretion, award to any
shareholder all or part of his attorney's fees and expenses; and
I. At all times during the pendency of any such proceeding, the court may make
any and all orders which may be necessary to protect the corporation or the
dissenting shareholders, or which are otherwise just and equitable. Such orders
may include, without limitation, orders:
(1) Requiring the corporation to pay into court, or post security for, the
amount of the judgment or its estimated amount, either before final judgment or
pending appeal;
(2) Requiring the deposit with the court of certificates representing shares
held by the dissenting shareholders;
(3) Imposing a lien on the property of the corporation to secure the payment of
the judgment, which lien may be given priority over liens and incumbrances
contracted after the vote authorizing the corporate action from which the
shareholders dissent;
(4) Staying the action pending the determination of any similar action pending
in another court having jurisdiction.
10. Shares acquired by a corporation pursuant to payment of the agreed
value therefor or to payment of the judgment entered therefor, as in this
section provided, may be held and disposed of by such corporation as in the case
of other treasury shares, except that, in the case of a merger or consolidation,
they may be held and disposed of as the plan of merger or consolidation may
otherwise provide.
11. The objection required by subsection 2 and the demand required by
subsection 3 may, in the case of a shareholder who is a minor or otherwise
legally incapacitated, be made either by such shareholder, notwithstanding his
legal incapacity, or by his guardian, or by any person acting for him as next
friend. Such shareholder shall be bound by the time limitations set forth in
this section, notwithstanding his legal incapacity.
12. Appeals shall lie from judgments in actions brought under this section
as in other civil actions in which equitable relief is sought.
13. No action by a shareholder in the right of the corporation shall abate
or be barred by the fact that the shareholder has filed a demand for payment of
the fair value of his shares pursuant to this section.
D-6
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Motor Club's Certificate of Incorporation and Bylaws provide that Motor
Club shall, to the fullest extent permitted by the New Jersey Business
Corporation Act, as it is now or hereafter may be in effect, indemnify a
director, officer or other agent of Motor Club against his or her liabilities in
connection with any proceeding by or in the right of the Company to procure a
judgment in its favor which involves such person by reason of his or her being
or having been such officer, director or other agent; provided, however, that no
indemnification shall be made to or on behalf of Motor Club) if a judgment or
other final adjudication adverse to such person establishes that his or her acts
or admissions (a) were in breach of his or her duty of loyalty to Motor Club or
its stockholders, (b) were not in good faith or involved a knowing violation of
law, or (c) resulted in receipt by such person of an improper personal benefit.
Motor Club currently maintains policies of insurance under which the
directors and officers of Motor Club are insured, within the limits and subject
to the limitations of the policies, against certain expenses in connection with
the defensive actions, suits or proceedings, and certain liabilities which might
be imposed as a result of such actions, suits or proceedings, to which they are
parties by reason of being or having been such directors and/or officers.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Motor Club
pursuant to the foregoing provisions, Motor Club has been informed that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and therefore
unenforceable.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
The following is a list of exhibits filed as part of this Registration
Statement.
2.1 Agreement and Plan of Merger dated as of March 16, 1999 between Motor
Club of America and North East Insurance Company (Included as Annex A to the
proxy statement/prospectus).
3.1 Articles of Incorporation of Motor Club (incorporated by reference to
__________)
3.2 Bylaws of Motor Club (incorporated by reference to __________)
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5.1 Opinion of Sills Cummis Radin Tischman Epstein & Gross, P.A.,
regarding validity of the shares of Motor Club stock being registered.*
10.1 Undertaking and Agreement dated _______, 1999 among North East, Ronald
A. Libby and Motor Club.*
21.1 Subsidiaries of Motor Club*
23.1 Consent of PricewaterhouseCoopers LLP*
23.2 Consent of PricewaterhouseCoopers LLP*
23.3 Consent of Sills Cummis Radin Tischman Epstein & Gross, P.A. (Included
in the opinion filed as Exhibit 5.1 to this Registration Statement and
incorporated herein by reference)
24.1 Powers of Attorney (included on signature page to this Registration
Statement)
99.1 Form of Proxy of Motor Club*
99.2 Form of Proxy of North East*
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* to be filed by amendment
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Securities Act and is used in connection with an offering of
securities subject to rule 415, will be filed as a part of an amendment to the
Registration Statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
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(3) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(4) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of this Form, within one business
day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to
the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject
of and included in the registration statement when it became
effective.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Paramus, New Jersey on
____________, 1999.
MOTOR CLUB OF AMERICA
By: _____________________________
Stephen A. Gilbert
President and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned Officers and Directors of Motor Club of America, hereby
authorize and direct Stephen A. Gilbert and Patrick J. Haveron, or either of
them acting singly, as attorney-in-fact, to execute in the name of and behalf of
each of the undersigned persons, and in the respective capacities indicated
below, any amendment or amendments to this Registration Statement of Motor Club
of America under the Securities Act of 1933, as amended, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
________________________ President, Chief Executive May __, 1999
Stephen A. Gilbert Officer and Director
________________________ Executive Vice President, Chief May __, 1999
Patrick J. Haveron Financial Officer and Chief
Accounting Officer and Director
________________________ Chairman of the Board and Director May __, 1999
Archer McWhorter
________________________ Director May __, 1999
William E. Lobeck, Jr.
________________________ Director May __, 1999
Archer McWhorter, Jr.
________________________ Director May __, 1999
Alvin E. Swanner
________________________ Director May __, 1999
Malcolm Galatin
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